Aamal Company Q.P.S.C. (AHCS) Earnings Call Transcript & Summary

Okay. We're going to start now.

Yes, Mira, let's get started.

Okay. Hello, everyone. This is Mira Al Ahmed from the Corporate Communications team of Aamal Company. I hope everyone is staying safe. I want to welcome you to Aamal Company's First Quarter 2020 Financial Results Conference Call. On this call, we have Mr. Imran Chughtai, the Chief Financial Officer of Aamal Company; and we also have Mr. Zaid Shelleh , the Risk and Compliance Manager at Aamal Company. We will conduct this call with first the management presenting the company's results, followed by a Q&A session. Mr. Imran, please go ahead.

Thank you, Mira. Good afternoon, everyone, and welcome to this presentation of Aamal Company's results for the first quarter ended March 31, 2020. My name is Imran Chughtai, and I am the -- Aamal's Chief Financial Officer. I would like to begin by saying on behalf of Aamal that we hope you and your families are healthy and staying safe during these unprecedented and challenging times. Accompanying this call is a short presentation, which can be viewed and downloaded from the Aamal website. I will begin with our Q1 highlights on Slide 2 of the presentation. Slide 2 please?

Yes. Sorry, 1 minute. Someone is joining. Okay.

Let me start with a few words on COVID-19 pandemic, which is having such a profound impact, not just on global markets, but on every aspect of our daily lives. Aamal has taken swift and effective action in response to the crisis. As you would expect, our main priority is the health and well-being of our colleagues and customers. And to that end, we have implemented social distancing measures across the businesses, including a transition to remote working for the majority of Aamal employees in accordance with government directives. At this point, I would like to take the opportunity, on behalf of Aamal's management team, to extend our heartfelt thanks to all of Aamal's employees. They are working tirelessly and have demonstrated admirable commitment and agility in responding to the new ways of working, while continuing to support our customers at all times. The effects of COVID-19 have been felt across the group, City Center Doha, and Souk Al Harraj, both key parts of Aamal's Property segment are currently closed, as are the majority of our operations in our Managed Services segment. However, we are pleased to record a strong quarterly performance in our Trading and Distribution segment. This was primarily due to Ebn Sina Medical, Ebn Sina Healthcare Pharmacy Solutions and Aamal Medical, which have all responded quickly to support Qatari communities during this time of crisis. I will talk more on the initiatives that these businesses have launched during the segmental review. Overall, I'm pleased to report that despite the negative impact of the COVID-19 pandemic during the first quarter, the resilience of our diversified business model has enabled Aamal to deliver robust year-on-year revenue growth of 16.3%. However, the challenges arising from the COVID-19 situation, coupled with intense market competition, which impacted sales margins, resulted in a 15.6% decline in net profit compared to the first quarter of 2019. While it is currently difficult to estimate the extent to which our 2020 performance will be impacted, our efforts to navigate the very challenging environment are supported by a very robust financial position. We have a strong balance sheet. Gearing remains low at just 1.4% and we have significant liquidity. As the numbers on Slide 4 demonstrate, COVID-19 clearly had a significant impact on our financial performance in the first quarter of 2020. Projects in the Industrial Manufacturing segment have been postponed. Many areas of the business remain closed, and we continue to feel the effects of ongoing market competition, impacting pricing and margins. It is also worth noting that the zakat payment of QAR 4 million was paid in the first quarter of this year, while last year's zakat payment was processed in the second quarter. As a result of this timing difference, our head office costs in Q1 2020 appear much higher year-on-year. We expect this effect to be reversed in the second quarter. In addition to the points I've already made, earnings per share declined 14.5% year-on-year to 1.3 dirhams per share from 1.5 dirhams last year. In line with previous years, Aamal's Board of Directors will take a decision about dividend for 2020, once the results for the full year are known. Turning now to each of our segments. Slide 6 shows that revenue in the Industrial Manufacturing segment increased by an impressive 21.3% year-on-year to QAR 53.4 million, thanks to the award of new contracts in the quarter, although the benefit of this was partly offset by the impact of COVID-19 towards the end of the quarter as projects were postponed and anticipated contract offtakes declined. Net profit declined by 32.4% year-on-year to QAR 11.6 million due to a combination of factors. Firstly, the COVID-19 pandemic has resulted in postponed projects, which has impacted sales and led us to focus on more cost-effective and lower-margin products. This has impacted Senyar and Aamal Cement Industries in particular, which have seen many projects postponed as a result. Second, there was intense price competition in tendering for contracts won and service during the quarter, especially at Aamal Readymix, which has continued to place downward pressure on profit margins. And finally, additional costs incurred in reinstating manufacturing capacity in line with contracted volumes in the first quarter further impacted segment's profitability. We are currently implementing measures to support both cash flow and profitability, including taking action to reduce operational expenditure and capital expenditure. On Slide 7, we focus on the Trading and Distribution segment. Demonstrating the resilience and benefit provided by our diverse business model, the Trading and Distribution segment performed well. Revenue grew 31.8% year-on-year to QAR 245.8 million, driven mainly by Ebn Sina Medical and Aamal Medical, which generated year-on-year revenue growth of 35% and 9%, respectively. Net profit was up 10% to QAR 31.7 million. Profit margins were marginally down by 2.6 percentage points as market competition continued to impact pricing. A number of our businesses in Trading and Distribution took swift action in response to the current crisis, launching innovative new services to support Qatari communities in these challenging times. Ebn Sina Healthcare Pharmacy Solutions launched a new mobile application called Rimads to facilitate the home delivery of medicine and also received approval from the Ministry of Health to use its warehouse delivery vans as mobile pharmacies to help deliver medicines to the home. We are also very pleased to report that Ebn Sina Medical and Aamal Medical overcame challenges in receiving shipments from countries in lockdown, and now have successfully secured local stocks of medicines and essentially life-saving medical equipment as well as baby milk and personal protective equipment, such as face masks and hand sanitizers. We are proud of the efforts of these businesses in supporting Qatar and its communities during these difficult times. Moving to Slide 8. The effects of COVID-19 were felt across the Property segment, resulting in revenue and net profit falling by 4% and 9.7%, respectively. City Center Doha has complied with all guidance issued by the Supreme Committee for crisis management in response to the COVID-19 pandemic, and is closed to the public with the exception of access to the supermarket and pharmacy. We currently expect City Center Doha to reopen late in the second quarter of 2020, depending on the wider situation in the country. Upon its reopening, social distancing measures will be implemented in line with guidance from the Qatari authorities. Revenue and profit at Aamal Real Estate was up by 5.4% and 2.1%, respectively, with the mix of both commercial and residential properties in the unit's portfolio providing greater resilience to COVID-19. Finally, turning to Slide 9, our fourth segment, Managed Services. The effects of COVID-19 were felt significantly in this segment, with many of the businesses closed, including Fun City, Winter Wonderland and Aamal Travel. As a result, revenue declined 37.4% year-on-year to QAR 15.5 million, while net profit fell more than 100% to a loss of QAR 200,000. It is worth noting that the segment's results were impacted by the deconsolidation of ECCO Gulf in the fourth quarter of 2019. In practice, this means none of ECCO Gulf's revenue is recorded in the P&L compared to 100% of revenue last year. And instead, 51% of ECCO Gulf's profit is included in Aamal Company's P&L. Ultimately, this equated to a decline of QAR 9.1 million in revenue and QAR 500,000 in net profit year-on-year. While many businesses within this segment remain closed, Aamal Services has launched a disinfectant business, while Al Farazdaq has introduced a new product made from PVC that can be used by industrial companies to protect their staff. On Slide 11 is our summary and outlook. Looking ahead, the global nature of COVID-19 and the uncertainty around its progression, severity and duration, mean we expect to feel its impact throughout the second quarter and beyond. Q2, we'll see a strict focus on cost control and cash management across all our segments of the business and capital expenditure has been halted in all but the central areas. Aamal is in a fortunate position. We benefit from a strong operational and financial position to deal with COVID-19 challenges, and have already proved our ability to adapt effectively and with agility to external chain. Aamal's strong balance sheet remains a key asset with low gearing and significant liquidity. Together with the operational resilience and diversity provided by our business across the group, we are well positioned to navigate through the crisis to emerge with strength, and to return to growth post COVID-19. The Board and management team of Aamal remain confident in Aamal Company's long-term strategy. This concludes our presentation. I now welcome any questions that you may have.

[Operator Instructions] We'll take our first question from Zohaib Pervez.

For the Property segment, could you let me know if you've provided any benefit or any postponement or waivers on rent to your clients? Or if not, do you plan on doing so? Or -- because usually, we've seen that many real estate companies have done that. Are you planning on doing any such thing?

Mr. Imran?

Thank you, Zohaib, for the question. Let me repeat again. City Center is taking a very pragmatic view of this COVID-19 pandemic. And therefore, we are taking a very step-by-step, phase-by-phase and stage-by-stage review of this. So currently, as the shops have remained closed, we have decided that we haven't been collecting rent from tenants while the stores are closed. We will continue to update and review this situation on a month-to-month basis, depending on the status of the COVID pandemic. So rather than come out and say that we have given tenants 3 months relief, we are doing this on a stage-by-stage basis.

And just for my understanding, so you are not collecting as in cash collection, but you are charging them to the P&L. Is my understanding correct?

Actually, we are not collecting and we are not charging to the P&L currently.

[Operator Instructions] Anastasios?

Can I ask is there any government program at the moment applicable to us to assist Aamal in this difficult times or that you can take advantage of, either directly from government assistance or indirectly through programs that the government has announced in terms of low-cost funding or refinancing or deferrals, et cetera?

Thank you, Anastasios, for the question. Let me explain what we're doing here at Aamal. Aamal has put together at the corporate office, a detailed list of government support and funding that is available. And we continue to update this detailed list every week, and we have sent it down to all of our subsidiaries, who have been requested that they ensure that they can be the beneficiary of any support that is available. So we are actively working on any type of support, whether that's from the banks, or whether that's from Nanotech or any other organization. And we are closely consulting with government authorities in terms of support that hasn't been explicitly stated yet. So this is an ongoing process, and we're working with the Qatari authorities to maximize whatever support can be made available to Aamal.

[Operator Instructions] Mr. Zohaib has a question.

Can I ask the question?

Yes, go ahead.

On the Trading and Distribution, you mentioned that the Medical segment had done really well. Would my understanding -- I mean just for more clarification, is -- how much did COVID-19 contribute towards the improvement in the medical business? Is it more of like a onetime COVID-19 issue? Or is it more of a recurring business that came the way of the medical?

Actually, that question -- it's a very good question, Zohaib. Clearly, there has been a positive impact from COVID-19. We can see that across our businesses. Part of the orders that have been placed have also been accelerated. So it's difficult to say how much this will impact for the full year. But clearly, there is a material impact that benefited in the first quarter, and we consider this to be also positively impacting in the second quarter, to the extent that it will be an overall benefit for the whole year. That remains to be seen, because part of the orders were accelerated.

[Operator Instructions] Okay, so there are no more questions. Thank you for listening and for attending this call. This concludes today's conference call. You may now disconnect, and I will end the meeting. Thank you.