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

Mr. Imran, should we wait for a few more minutes to give a chance for participants to join or would you like to call the meeting?

I think we'll start the meeting. Mira, please go ahead and introduce and then we'll get started.

Okay. Hello, everyone. This is Mira Al Ahmad from the Corporate Communications team of Aamal company. I hope everyone is staying safe. I want to welcome you to Aamal Company's half year financial results conference call. On this call, we have Mr. Imran Chughtai, the Chief Financial Officer of Aamal Company; and 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 half year ended 30th June, 2020. As Mira said, my name is Imran Chughtai, and I am 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 Aamal's website. I will begin with our H1 highlights on Slide 2 of the presentation. The COVID-19 pandemic has continued to have a profound impact throughout the second quarter, not just on global markets, but on every aspect of our daily lives. Despite the negative impact of the COVID-19 pandemic during the first half of the year, Aamal delivered broadly stable year-on-year revenues at QAR 634 million. However, total company net profit after fair value losses on investment properties of QAR 74 million and Aamal's profit share in associates and joint ventures of QAR 28.5 million was down 89% and QAR 19.7 million. The net profit results reflects the effect of COVID-19, which were felt across all segments of the group, included enforced temporary business closures in the Property and Managed Services segment and the exacerbation of intense competition and major project postponements across the Industrial Manufacturing segment. We were pleased to record a stronger performance in our trading and distribution and segments. As companies in the segment, even Sina Medical and Aamal Medical acted swiftly and effectively to support Qatar's communities during the pandemic, including launching services aimed at ensuring the effective home delivery of medications. In light of the current situation, we are maintaining a strict focus on cost control and cash management across all segments of the business. And in industrial manufacturing, we have instigated a wide-ranging review of our operations and practices to ensure they are in the best shape to perform, as efficiently and as competitively as possible in the current environment and beyond. As Aamal has taken swift and effective action in response to the crisis, as you would expect, our main priority continues to be the health and wellbeing of our colleagues and customers. And to that end, we have implemented social distancing measures across the business in accordance with government directors. At this point, I'd like to take the opportunity on behalf of Aamal's Board and management team to extend our heartfelt thanks to all of Aamal's employees. They have continued to work tirelessly throughout this crisis and demonstrating admirable commitment and agility in responding to the new ways of working while continuing to support our customers at all times. While it is difficult to estimate the extent to which our full year performance will be impacted, our efforts to navigate this very challenging environment are supported by a robust financial position. We have a strong balance sheet, gearing remains low at just 3.4%. 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 half of 2020. In addition to the points I've already made, there is a fair value adjustment on investment properties, amounting to a loss of QAR 74.4 million, which further impacted Aamal's net profits. Earnings per share declined by 89% year-on-year to 0.3 dirhams from 2.9 dirhams last year. In line with previous years, Aamal's Board of Directors will take a decision about dividends for 2020 once the results for the full year are known. Turning now to each of our segments. On Slide 6, industrial manufacturing. It's been a challenging first half of the year for the Industrial Manufacturing segment. While revenue increased 20.8% year-on-year to QAR 96.6 million, net profit declined 66.1% year-on-year to QAR 13.4 million. New contract wins at Aamal Readymix generated significant top line growth with revenue up 40% year-on-year. However, intense price competition has negatively impacted margins. And as a result, measures are being implemented to reduce costs, and to improve pricing and mix. Similarly, the COVID-19 pandemic resulted in project postponements and reduced demand for a Aamal cement as increased price competition in tendering for contract further squeezed its margins. As economic activity slowed in the period, demand for shipping fell, leading to a decline in shipping rates at Aamal Maritime, which, together with the dry docking of Um El Hanaya for upgrades negatively impacted revenues and profits. Measures are currently being implemented to improve pricing and mix, together with cost reductions to improve profitability. Amongst the measures currently underway is a detailed business review of Aamal Readymix to drive pricing and process efficiency enhancement. In the second half of this year and beyond, while pricing remains uncertain, demand and volumes are expected to rise as Qatar gradually resumes normal business activity post COVID-19. And as the government seeks to conclude major infrastructure projects well in advance of the 2022 FIFA World Cup. Moving to Slide 7, Trading and Distribution. We are pleased to report that the Trading and Distribution segment delivered a resilient performance in the first half of 2020 despite the negative impact of COVID-19 with revenue and net profit up 22.3% and 19.5%, respectively, year-on-year. The positive result is mainly attributable to the performance of Ebn Sina Medical which delivered year-on-year revenue growth of 38.9%, primarily as a result of pharmaceutical companies moving away from the direct billing of customers and increased orders of medical supplies needed to support the medical services during the COVID-19 pandemic. As highlighted last quarter, Ebn Sina Medical and Aamal Medical have continued to work hard to support Qatar's local communities during the pandemic, including facilitating the home delivery of medicines and the repurposing of warehouse delivery vans as mobile pharmacies for local distribution. It has been a more challenging first half for Aamal Medical as revenue and net profits were impacted by the pandemic, specifically as competitive pressures impacted pricing. And in line with guidance from the Qatar authorities all foot care center branches and the Ebn Sina pharmacy located at Musherieb Railway Station were closed throughout the second quarter. Aamal trading was also impacted by COVID-19 as demand fell for tires and lubricants. Moving to Slide 8, covering the Property segment. Revenue and net profit in the Property segment were down 48.7% and 122.1% year-on-year, respectively, resulting in a net loss of QAR 26 million for the period. This result reflects the impact of COVID-19, which, in addition to a negative impact on the fair value of investment properties totaling QAR 74.4 million. So the majority of retail properties closed from mid-March 2020 through to the end of the period. Underlying underlining Aamal's commitment to supporting its tenants during these difficult times, all rental income payable between mid-March and the end of June 2020 has been waived, leading to a 58% year-on-year decline in rental income for City Center Doha. From June 15, 2020 onwards, retail outlets at City Center gradually reopen, albeit with low footfall levels. And all retail units were opened by 15th of July. Aamal expects to see a steady improvement in footfall over the course of the second half of 2020 as business returns to pre-COVID levels. And in preparation for that, I'm pleased to report that we took the opportunity to complete Phase 2 of the major renovation works at City Center Doha during the lockdown, adding an additional 7.1% of leaseable space. Phase 3 of the renovation is expected to be completed with the opening of the mall's new dedicated jewelry retail area, the Gold Souq, by the start of the fourth quarter of this year. Meanwhile, Aamal real estate recorded a 27% decline versus the previous year, largely due to the closure of Souq Haraj and Al Saad in mid-March, while the portfolio mix of residential properties provided some resilience to the pandemic. On Slide 9, Managed Services. H1 2020 was a challenging period for the Managed Services segment, with revenue down 49.4% year-on-year to QAR 25.1 million. And net profit down 149.9% year-on-year, resulting in a loss of QAR 1.6 million. These results are largely attributable to the deconsolidation of ECCO Gulf, which impacted revenue and net profit by QAR 18 million and QAR 1.2 million, respectively, and to the COVID-19 pandemic. In line with the COVID-related guidance issued by the Qatari authorities, Aamal Travel, Winter Wonderland, Fun City, and Al Farazdaq remain closed throughout the second quarter but are expected to gradually reopen from September 2020 based on the most recent government guidance, positively impacting the performance of this segment towards the end of the second half of this year. The impact of the COVID-19 lockdown on demand was felt strongly at Aamal Services, which recorded a 78% year-on-year decline in net profit as client, retail units, offices and other facilities either fully or partially closed. However, Aamal Services responded swiftly by launching innovative new services in the period, including disinfection and sanitization services, health checks and deep cleaning of accommodation areas to help clients meet their obligations to ensure the safety of employees and customers as Qatar reopened. Finally, turning to Slide 11. 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 remainder of the year. However, while uncertainty will undoubtedly prevail, business conditions are expected to improve in the second half as Qatar gradually resumes normal business activity post COVID-19 and as the Qatari government seeks to conclude major infrastructure projects well in advance of the 2022 FIFA World Cup. The Board and management team remain confident in the group's long-term strategy, and we are well positioned both operationally and financially, to navigate through the crisis and to return to growth post-COVID-19. The diversity of our operations both offers resilience during these challenging times and provides a robust platform for future growth. As demonstrated by our response to the crisis, Aamal has proven its ability to adapt effectively and with agility to external change. This is underpinned by our strict focus on cost control and cash management across all segments of the business and by our strong balance sheet, which remains a key asset with low gearing and significant liquidity. This concludes our presentation, and I now welcome any questions you may have.

Thank you, Mr. Imran. [Operator Instructions] Okay. Seems that no one has any questions. Thank you, everyone. This concludes today's conference call. You may now disconnect. Thank you.