The company continues to report a solid financial performance while positioning itself for future growth with several large scale strategic energy infrastructure projects under construction.
Net profits dropped by 13% in the 12 months to December 2012, reflecting a series of one-off items and a challenging price environment in North America.
In Power & Water, TAQA delivered a strong operational performance with very high availability and low forced outage rates, firmly placing it among the top performers globally. Its organic expansion plans are also progressing apace, with Jorf Lasfar Units 5 & 6 now 80% complete and on budget. Similarly, the expansion project at Takoradi, Ghana, is now under way with all approvals secured and construction in progress.
TAQA also entered in to two new markets during the year, having signed a Memorandum of Understanding with EÜAŞ, the Turkish national power company, in respect of a major project in Southern Turkey, and investing in a 1,000 MW power plant in Sulaymaniyah in the Kurdistan region of Iraq.
In the UK North Sea, despite some operational challenges, including unplanned shutdowns which impacted performance, TAQA benefited from the buoyant Brent oil price and a number of acquisitions during the year. The most significant being the agreement to acquire from BP a range of assets in the Central North Sea, together with associated subsea infrastructure.
To help address the on-going weak market conditions for natural gas in North America, non-core North American acreage was sold, new acreage was acquired in TAQA's core production region and uneconomic production shut-in. In the last quarter of 2012, natural gas prices recovered somewhat and have maintained an upward trend since.
Reflecting TAQA's broader focus on the MENA region, it acquired a majority stake in the Atrush exploration block in the Kurdistan region of Iraq - its first operated oil and gas asset in MENA.
During the course of 2012, TAQA completed several landmark financing transactions, including its maiden Sukuk issuance, and the largest non-sovereign US$-denominated issuance from MENA in 2012.
Carl Sheldon, Chief Executive Officer of TAQA, said, "This was a resilient set of results, supported by the exceptional performance of our power business, where we have not only delivered a strong operational performance, but have also made significant progress with key organic growth projects in Morocco and Ghana. We have also expanded our footprint into two new markets: Turkey and Iraq, and are now firmly established as the regional development partner of choice."
"While we have continued to endure a tough pricing environment in North America, there is reason for some optimism, as prices have recovered from their low point and more positive pricing momentum has been sustained through the last quarter of 2012 and first quarter of 2013. Nonetheless, we have taken decisive action to restructure our North American business, shutting in uneconomic production, selling non-core acreage, and refocusing investment capital. Similarly, in the UK, our pending acquisition of assets from BP will not only give us attractive production, but will also diversify our production footprint into a new region of the North Sea. These steps position us well for the future," Carl added.
Stephen Kersley, Chief Financial Officer, said, "One of TAQA's key achievements during the year was to secure long term financing at very attractive prices - both on a corporate level, as well as at our key projects, such as Jorf Lasfar and Takoradi. We are committed to proactively managing our financing needs to ensure that we have the most appropriate capital structure to underpin our future profitability."
Financial summary: 2012 versus 2011
Revenues and costsTotal revenues for 2012 were Dhs27.8bn, 15% higher year-on-year, compared with total revenues of Dhs24.2bn in 2011. Cost of sales, excluding construction expenses, were Dhs16.3bn in 2012, an increase of 5%.
Power & WaterPower & Water revenues, excluding supplemental fuel and construction revenues, grew by 9% to Dhs8.5bn from Dhs7.4bn in 2011. The increase in revenues was driven by greater available capacity from the Shuweihat 2 plant, which commenced phased operations in July 2011, combined with continued high levels of technical availability across the entire fleet. Construction revenues from the Jorf Lasfar 5 & 6 and Takoradi projects of Dhs3.6bn were offset by construction costs of Dhs3.5bn, leaving a profit margin of Dhs76m.
Supplemental fuel income decreased 24% year-on-year to Dhs3.6bn, due to significantly lower use of alternative fuel supplies at TAQA's domestic power plants.
Operating expenses for Power & Water (which excludes fuel costs and construction costs) were flat year on year at D 2.0bn. Depreciation, Depletion and Amortisation ("DD&A") expenses for Power & Water were Dhs1.8bn in 2012 compared with Dhs1.6bn in 2011, principally due to Shuweihat 2.
Oil & GasTotal Oil & Gas revenues (including gas storage and other income) were stable at Dhs12.0bn for 2012. This was driven by lower production across all our producing regions and continued weak North American gas prices, offset by higher sales at Bergermeer, which saw other operating revenue grow by Dhs357m.
Oil & Gas expenses rose from Dhs3.6bn in 2011 to Dhs5.0bn in 2012, principally due to stock movements (Dhs829m), and higher repair and maintenance costs in the UK, mainly due to the Otter acquisition. Oil & Gas DD&A expense was flat at Dhs3.7bn in 2012.
Finance costs increased from Dhs4.6bn in 2011 to Dhs5.0bn in 2012, an increase of 10%. The increase was due to interest on the Malaysian Sukuk issued in March 2012 and the USD bonds issued in end of 2011. The new fixed term debt replaced short term bank loans that carried significantly lower interest rates.
ProfitabilityProfit Before Tax was Dhs3.5bn in 2012, 14% lower year-on-year than Dhs4.1bn in 2011, due to lower revenues from Oil & Gas, principally due to lower North American gas prices and higher finance costs as outlined above.
During 2012, TAQA rationalised its portfolio to focus on its core operations and footprint. In April, TAQA's holding in Tesla Motors was sold for a total consideration of Dhs956m, recognising a gain of Dhs415m. In North America, and in line with its stated strategy, TAQA disposed of various non-core assets for Dhs1.8bn, recognising a gain on disposal of Dhs380m.
Income from Associates and Joint Ventures fell by 48% to Dhs151m. The decline was principally driven by the performance of Sohar Aluminium Company which was impacted by falling aluminium prices.
Income tax expense was Dhs2.2bn for 2012 compared to Dhs2.5bn in the prior year. The effective tax rate remained unchanged at 62%, and reflects the higher tax rate environment, in particular within the UK North Sea.
Profit for the period (after minority interests) was Dhs649m, a decrease of Dhs95m compared to Dhs744m in 2011. The decline was principally driven by lower operating profit, offset in part by the gains recognised on assets disposal conducted during the period.
Basic and diluted earnings per share attributable to equity holders of TAQA of 11 fils.
FinancingTotal debt of Dhs79.5bn in 2012 increased from Dhs73.9bn in 2011, following new bond issuances during 2012 in anticipation of bond maturities in 2013.
In line with its funding strategy, TAQA completed several landmark financing transactions during 2012. At the start of the year, it successfully completed a MYR 650 million Sukuk issuance as part of MYR 3.5 billion Sukuk programme established in 2011. The programme also provides TAQA with an important source of long term, diversified funding.
In December, TAQA completed a landmark $2.0bn dual tranche bond, the largest non-sovereign US Dollar denominated issue for the MENA region in 2012. It also secured the lowest coupon ever achieved by TAQA for five and ten year funding of 2.5% and 3.625% respectively.
Finally, in December, a new $2.5bn dual tranche multi-currency revolving credit facility was signed.
Consolidated cash on hand as at 31 December 2012 was flat year on year at Dhs3.8bn. TAQA had unused credit lines of Dhs20.3bn at the end of 2012, compared to Dhs14.2bn at the end of 2011, and total available liquidity of Dhs24.1bn, compared to Dhs18.0bn for 2011.