Al Fajar Al Alamia Company SAOG (AFAI) Earnings Call Transcript & Summary

Good afternoon. Welcome to Al Fajar Al Alamia Company SAOG Investor/Analyst Meeting to cover the half year unaudited financial review for the period ended 31st of December 2024. In this meeting, we are having Mr. [indiscernible] the Chief Corporate Officer of the company; and Mr. Muruganandam, who is the Head of Finance; and Mohammed Talal, the CEO of the company. We will touch on some of the financial indicators and financial results for the year, and then we will open for the half year. And then we will be opening the platform for any discussion or any inquires. Any feedback, any questions even if it's not within this meeting, it can be posted through the normal communication channel of the company, and we will be very delighted to answer to it. [ Yaqoub ] -- of course, I forget to say at the beginning Ramadan [Foreign Language] and we wish a very peaceful and blissful month everybody.

[Foreign Language]

Now coming to the point and just to summarize the performance of the company for the first half of the year '24-'25, as you are aware, our fiscal year ends in June of every year. So the financial information now or the financial results under review covering the first half from July '24 to December '24. Now in summary, I'm very proud to say that during this interim or during this half year, the company have achieved many of its targets. The operation in Oman exceeded the projections and it was a very good growth, fruiting from the previous or few years previous last 2 years restructuring operational and financially on the company. Now for Oman operation, as what we said, we have achieved very good growth in the revenue and combined with a very good cost reduction and cost management. However, the operation in the UAE was adverse to that. We have seen some technical and structural obstacles started from July, which resulted that the company have limited its billing for the period to the very bare minimal. And the structure -- the challenges that we faced were very severe to the level that is required to do some serious restructuring in that geographical market. And the good news is that we have -- we are resuming our operation in full within this month. The issue that we have faced is related to the sponsorship and the blasting license that we had under TDB. It was halted for some time for the technical issues related to the sponsor. And we managed to overcome this. We worked intensively and we managed to organize an alternative. And currently, the good news is that we have the new blasting license in hand, and we can resume the operation within this month. To be precise, we have our first schedule, the blast, to have it under the new license on 17th of March, so in a few days from now. So this is with the resumption of the work and with a lot of the contracts already signed in hand in the UAE and with aggressive pricing that we are doing, we hope by June of this year, we will be able to gain back a good part of the market share that we have lost. It's very important to highlight that historically, between the 2 geographical markets that we operate in Oman and in the UAE, we have the background where it's really that we have good times in both of the markets. We usually have good times in the UAE and recession in Oman or the other way. Recession in terms of our part of the world. So this year, Oman have to carry the burden on its own, Oman operation. And we hope that within the last quarter of the year, we will be able to make up -- unfortunately, we will not be able to reach the target on a group level for the revenue. But in general, we will be in a good condition to make a very solid and good start on more appropriate [indiscernible]. Going back to the other part of the business that I want to highlight is -- in Oman is the gypsum manufacturing that we have. And we have reached a very good results in Oman, and we reached almost the targeted production quantity that we are aiming or we are reaching. And this is what was reflected in enhancing and bettering of our cash flow for the first half of the year. Going to the -- more into the performance, as what we said, the Oman drilling and the blasting the growth have -- a very good growth in its revenue, and we are still seeing much more room for expansion and for growth in the second half of the year. A lot of the long-awaited infrastructure projects are materializing and happening and there's a lot of interest in the system in general. With our position being a manufacturer and user of explosives, we always enjoy better competitive conditions in terms of pricing or in terms of market penetration. Also, we highlighted our good growth in the -- our Minerals company, the gypsum quarry that we own. and we have increased our capacity to 100 by December of the year. And this month, February, we reached a production of 120,000 tonnes and of course, all sold on spot directly. So we are -- this is enhancing and giving a very good support to our cash flow and to our operation in general. In the UAE, the operation were not on the same situation, in the same condition like what we described earlier, and we hope that it will [indiscernible]. That's on the drilling and the blasting operations. And on the production facility and CG, geodynamics, as what we mentioned in the previous discussion, we halted a little bit the progress of the completion of the project to be able to cater and to meet with the new developments and the new requirements of the [indiscernible] regulators for this business. So we are finalizing with our strategic partners, technical partners MAXAM, the updated layout and the additions and the omissions that we want to do it for the factory. We expect by the month of April or May, we will resume the work on the new structure, and we hope that with the new fiscal year, we will be able to start the production and with full completion and the closure for the facility by September of this year. Going into the numbers, we have reported a total revenue of OMR 4.5 million for the -- on the group level for the first 6 months of the year, which is a growth of -- which is almost only 3% less than the revenues for the same period of the previous fiscal year. But it's very important to highlight that this revenue comes only from Oman operation, whereas what we mentioned at the beginning in the first half of this fiscal year, the UAE operations were very, very small, whereas it has contributed more than 60% -- 40% of the previous year. A very good reduction on the expenses of almost 15% we have applied, and this is a reflection -- like what we mentioned in the previous meetings that this is a reflection of the enhancement and the efficient process that we are doing all gross expenses, direct and indirect expenses. Our operating profit was very much less than what it was in the previous year. We were at a loss of OMR 370,000, mainly from the UAE. If when we look at the Oman operation alone, we'll find that we are -- we were in black, we were in positive. But in all the cases, this is a very good progress compared to an operating loss last year of OMR 1 million. Looking at the parent company level, we will see that we have reached almost OMR 0.5 million of operating profit from the operation in the manufacturing -- or in the explosives manufacturing at the parent company level. Adjusting for the finance cost, which is the most heavy part on our business, and this is the inherited structure of the capital, and we are doing very positive and very good efforts to reduce our financial cost and to enhance our leverage ratios. One of it is the divestment of our gypsum quarry, which is, yes, it contributes to our cash flow and cash flow stability, but we are targeting to partially or fully exit the quarry within this fiscal year or early next year, and that will definitely impact our financial cost by reducing it, because a lot of the proceeds of this quarry will be used to pay off or reduce the outstanding debt. We recorded this for the first 6 months of the year, a net loss of OMR 1.5 million compared to a net loss of OMR 1.9 million for the previous year. We hope that with the closure of this year, we will be able to reduce the losses and close. Of course, we can't target to be at positive for this year, but we know that [Foreign Language] we will be much less than the loss reported in the first half, and we are targeting to be black -- to be back into full profitability at all operational and net profit levels by the next year. The next 2 slides talk about the details of the operation in general. It's very important to highlight that the Oman operation have made around 42% growth, which is primarily the main contributor for our stabilization of the results. And this is, of course, related to the good expansion of the infrastructure projects, which we are still seeing a very good room for more projects to be put. And for that, we are doing intensive efforts to enhance and to increase our capacity to service this increasing demand. The UAE, of course, as what we mentioned and keep repeating that the heavy impact on the performance. It didn't have that operation, and we hope that with the return, it will be going back to normality within the last quarter of the year. Also the gypsum is a main contributor. We mentioned we touched this point -- we touched about this point. The gross profit and the net profit justification as what we have mentioned, it's all related to the overall performance, and we are working to enhance it. The major impact of the finance load or the finance service load on the business will continue for the next year or 2, but we are targeting to restructure and to reach a better numbers. The slide on the screen now shows the quarter-on-quarter for the last 5 quarter results. And we just want to highlight that our -- although we are still in loss in many of the operating and cash generation, but we believe that we are in the right move, and we hope that from the first quarter of this year that we are seeing the results already very positive. And the second quarter, we believe that we will be back on track on most of the indicators and most of the results. And what's very important for us at this stage knowing that the finance -- dealing with the finance or the other expenses will take time, is to make sure that we are on the operational level. We are on positive. And this quarter -- the last quarter of the year, we were the first time -- for the first time and in good positive on group level. And we are seeing that in the first quarter of -- the third quarter of the year, which we are in now. And last quarter, we will be even better and that reduced to -- reduce our losses, and we are targeting to be in full profitability on all indicators by the next fiscal year. As a future outlook, we remain very positive on the sector, on the industry for several reasons. Now on Oman front, we know that mega projects in the infrastructure are all materializing, only half of it that we started work, and we know that there's much more in the pipeline. We estimate a very good growth in the demand for the drilling and the blasting and explosive services in Oman, also in the mining. And we know that we are geared enough to be the core or one of the major servant for this sector and for the infrastructure projects. Over the last 2 years, there's a lot of screening for the competition in the market. Of course, for the manufacturing is still only 2 manufacturers, we are one of them. And we are anticipating some more players, but they will never reach to the access or the resources that we have. On the drilling and blasting, a lot of screening happening and small companies are going out from the market, and it's proving that for this kind of service, you need to have the full -- the explosives and the drilling and blasting activity to be able to compete and to sustain. And this is one of the major strengths that we have in the group. We are even enhancing our production capacity by acquiring more machinery, drill rigs and other machinery. We are expanding our presence in terms of production and the storage of explosives all across the country. Also in the mining, we recovered from the burden that we had on the gabbro -- 2 gabbro quarries that were on our portfolio and now focusing on gypsum -- the gypsum quarry that we have. It's giving a very good contribution to the monthly cash flow for the company. But also, as what I mentioned earlier, we are targeting to offload part of this to make sure that we will reduce our financial exposure. That's the main reason for our -- any divestment decision that we may take in the near future for that. The UAE, I want to just touch the last point on it. On the drilling and blasting, we know that for the last quarter of the year, we will be back to normality and it will become again a major contributor to the top line of the company. The production of explosives, we are assuming that it will be at the beginning of the next year until then we are supplying our needs in the UAE through exporting the product from Oman. So this is about all what we can summarize and this is a brief about the performance of the company over this -- the past -- the last 6 months of 2024, which is the first half of our fiscal year. I'll open the floor now for any queries or any discussion. We will be very delighted to hear. And you can ask in Arabic or in English, we can accommodate any requests.

Thank you very much. Thank you for all the support from the investor and for the trust on the company. The floor is open for those who are having any questions. And anyway, we can receive any question, and we can answer any question even after this meeting. [Foreign Language] Is there any questions?

No questions. Can we close?

There is no questions. We can conclude now [Foreign Language]. In English, we can answer any questions after this meeting. Thank you very much for everyone. Thank you for the trust on this company. Thank you very much.

Thank you all, and we look forward [Foreign Language] for further meetings in the future, which -- with much better results. And the management team is doing every possible effort to bring the company back to the track or back to where it deserves to be. And we are seeing the good results or the positives are coming very soon. Thank you for all the support. And as what Mr. [ Yaqoub ] mentioned, we are there to answer any questions in the future. Thank you.

[Foreign Language] Thank you all.