Q2 22 revenues increased 4.4% yoy (+43.4% qoq) to SAR19.40bn. The yoy growth is due to higher electricity sales and an increase in the number of subscribers, while the significant qoq growth is due to seasonal cyclicity.
Electricity sales grew 4.2% yoy to SAR17.37bn due to higher demand from the commercial, government and industrial segments.
Power generation capacity increased 1% yoy to 54.6GW and thermal efficiency improved by 20bps yoy to 37.0% by the end of Q2 22.
Transmission network grew by 2.9% yoy to reach 92.4k C.KM by the end of Q2 22.
The number of subscribers were up 4.0% yoy, taking the overall subscribers base to 10.7mn by the end of Q2 22.
The distribution network increased 5.4% yoy reaching 758.2k C.KM.
Fibre optic lines rose by 4.7% yoy to 83.3k KM while Dawiyat activated 28k FTTH connections during the period.
Electricity power volume was up 2.3% yoy reaching 137.9 Twh in H1 22 (134.8 TWh in H1 21) of which Residential contributed 47%, followed by Industrial (19%), Commercial (16%), Government (13%) and Other segments (6%).
In terms of electricity sales value, the Residential segment contributed 42%, followed by the Commercial and Government segments at 19% each and , Industrial at 16% and Others at 3% of the total H1 22 electricity sales of SAR28.62bn.
In terms of volumes of electricity sold the Residential, Commercial, Industrial, Government and Others segments increased by 0.2% yoy, 7.3% yoy, 1.9% yoy, 3.0% yoy and 6.5% yoy respectively in H1 22.
Q2 22 financial performance
Cost of sales increased 6.1% yoy (+18.0% qoq) to SAR12.86bn driven by higher fuel costs, purchased power expenses and operations and maintenance costs.
Gross profit increased 1.3% yoy (+148% qoq) to SAR6.54bn.
G&A expenses increased by 26.9% yoy to SAR256mn mainly related to the absence of recovery of training services from HRDF amounting to SAR120mn.
Operating profit declined 4.4% yoy (+165% qoq) to SAR5.86bn with a margin of 30.2%, vs 33.0% and 16.3% in Q2 21 and Q1 22, respectively.
EBITDA declined 3.4% yoy (+57% qoq) to SAR10.89bn with a margin of 56.1%, vs 60.7% and 50.4% in Q2 21 and Q1 22, respectively.
Net income before deducting the Mudaraba instrument’s share was SAR5.50bn, down 5.6% yoy (+263% qoq). The yoy decline in net income was due to 1) higher receivable provisions booked in Q2 22 due to increased average ageing, 2) higher operating costs and G&A expenses.
Net income after deducting the Mudaraba instrument’s share was SAR3.59bn vs profits of SAR3.92bn in Q2 21 and a loss of SAR372mn in Q1 22. Net income margin stood at 18.5% in Q2 22 vs 21.1% in Q2 21.
SPPF carve out:
In June 22, SEC signed the Sale and Purchase agreement for the transfer of the ownership of SEC’s entire equity stake in Saudi Power Procurement Company (SPPC) to the government.
By the end of Q2 22, SEC classified fuel inventory of SAR842mn as held for sale, which is expected to be settled by the buyer.
SEC interest in IPPs is currently accounted as joint operations under IFRS. This will be de-consolidated in Q3 22. SEC expects to recognize these investments in IPPs under the equity method.
This transaction is not expected to have a material impact on the financial position of the company.
SEC will sell power to SPPC under the ECA ( Energy Conversion Agreement) and will buy power from SPPC as per the Bulk Supply Agreement (BSA) to sell to end customers.
The management clarified that through ECA and BSA, the performance can be tracked at each contract level.
Balance sheet and cashflows
Cash flow from operating activities increased 4.8% yoy to SAR21.2bn in H1 22 driven mainly by changes in working capital.
Trade receivables increased by 30.0% yoy to reach SAR3.10bn in H1 22, driven by increased receivables provision.
Capex stood at SAR6.2bn in Q2 22, up 5.1% yoy (+29.2% qoq) and taking H1 22 capex to SAR11.0bn.
SEC's asset base increased 1.0% from 2021 to SAR480bn, while total equity grew 0.4% from 2021 to SAR253bn.
Gross cash position declined 54.6% from 2021 to SAR 2.8bn, mainly due to the repayment of current portion of SUKUK.
The financial, regulatory, and structural reforms have been incorporated in SEC’s business enhancing its operations.
The regulatory reforms had a positive financial impact on SEC, increasing its cashflow and improving its credit rating.
SEC will continue to move steadily to achieve its strategic goals of enhancing customer experience and digital transformation.
The management affirmed that completing the smart meter project will help improve account receivables and collections in the future.
The provisions on aging receivables as recorded in Q2 22 (SAR400mn) is in-line with the principles of ECL modelling and IFRS 9. SEC will stop recording this in the future as it’s a function of SPPC which is in the process of being sold to the government.
The management clarified that purchased power cost is a pass-through cost as per the regulatory model.
All renewable projects are currently being awarded to the private sector. All of SEC’s generation capacity is oil and gas based.
The refinancing plan for Sukuk maturing early next year will be similar to that executed by the management for the Sukuks that matured this year.