Al Hassan Ghazi Ibrahim Shaker Company (1214) Q4 FY2025 Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Fourth Quarter 2025 Earnings Call of Shaker Group. Today, we have with us the senior management of the company led by Mr. Mazen, the CFO; and Mr. Firas, the VP, Strategy and Shared Services. The meeting will comprise of 60 minutes, starting with a quick presentation followed by the Q&A. [Operator Instructions]. Without any further delay, I would hand over the mic to Mr. Firas for his initial comments. Over to Mr. Firas.

Thank you, [ Mohammed ]. Good afternoon, everyone, and welcome to Shaker Group's Full Year 2025 Earnings Call. Thank you for joining us today as we will review the fourth quarter and full year performance results for the group. I'm Firas Al Sayegh, Vice President of Strategy, joined by Mazen Elghafeer, our [ CEO, ] for this call. Earlier this month, we announced our full year 2025 results on Tadawul along with a detailed earnings release outlining our financial performance and operational milestones. If you have not received the presentation, please contact our IR partners, IP [ Excellera ], and all the materials will be also available on our corporate website after the call. Please refer to our disclaimer, which applies to all disclosures made by -- in today's presentation. All figures discussed during the call are in Saudi riyal's unless otherwise stated. We will start by the strategic highlights followed by financial performance and the outlook, while we finish and conclude by opening the floor for the questions. In terms of the highlights, Shaker closed 2025 with stable profitability and improved margin performance. Revenue moderated slightly during the year, mainly driven by lower activity in certain -- in B2C HVAC channel, while the HVAC [ projected ] channel remained resilient and strong for the year. At the same time, home appliances delivered double-digit growth, providing stability and diversification across the business. Operating income increased and margins expanded as we maintained cost discipline and managed our product and channel mix carefully. During the year, we expanded cooperation agreements with leading residential and mixed-use developers across the Kingdom, increasing our exposure to housing and commercial developments. We continued as well advancing our local manufacturing platform. Today, 99% of the HVAC sales in Saudi Arabia are being produced by -- in our joint venture with LG in Riyadh. LG Shaker received zero waste fill to landfill validation from [UL solutions ], further commitment from our side to ESG initiatives and environmental sustainability. We also marked 30 years of partnership with LG and Ariston, maintaining long-standing industry relationships that support technology transfer and in-kingdom production capabilities. In the retail front, we continued scaling our capital-efficient shop-in-shop format within the ABYAT showrooms, increasing the contribution to direct channels and improving execution at the store level. I will now hand it over to Mazen to walk you through the financial performance.

Thank you, Firas, and good afternoon, everyone. Ramadan Mubarak to you all, and thank you for joining us today. For the fiscal year of 2025, revenue reached SAR 1.39 billion, representing a moderate decline of 1.5% year-on-year. This was driven by lower HVAC revenue of SAR 69 million, partially offset by double-digit growth in the home appliances for the value of SAR 40 million and contributions from services and 3PL activities. Gross profit landed at SAR 347.1 million, broadly in line with prior year. On the other hand, gross margin improved from 24.5% to 24.9%, supported by sales mix. EBITDA reached SAR 131.8 million with the margin strengthening to 9.4% compared to 9.1% in prior year. Operating income increased by 7.5% from SAR 82.2 million to reach SAR 88.4 million, with operating margin expanding to 6.3% from 5.8%. This was mainly driven by tighter management of G&A expenses and optimizing our selling and distribution costs. Net profit margin was broadly in line with the prior year as it reached 5.9% versus 5.8%, representing a net profit value of SAR 81.4 million, mainly driven by lower financing costs and partially offset with lower share of profit from associates. Now we can take a look at Q4. Revenue declined by 6% to reach SAR 280.9 million versus SAR 298.9 million. This was mainly driven by a decline in the HVAC, offset by material growth in the [ HA ] segment due to the increase of product offering versus prior year. Gross profit landed at SAR 68.1 million versus SAR 76.7 million prior year, representing a gross margin of 24.2% compared to 25.7% prior year, with sales mix being the major driver. Operating income increased by 32.9% year-on-year to reach SAR 22.2 million versus SAR 16.7 million, reflecting a tighter cost control and improved operating efficiency. Finally, net profit rose by 10.9% to reach 6% versus 5.1%, representing a value of SAR 16.8 million versus SAR 15.2 million prior year. Let's go over our balance sheet and leverage position at the year-end. During 2025, short-term borrowing increased compared to last year, leading a rise in our net debt. This was primarily linked to the higher net working capital requirement during the year. As a result, net debt to EBITDA increased by -- increased to 3.19x at year-end versus 1.92x. At the same time, interest coverage improved to 4.34x versus 3.6x due to the impact of higher operating income. From a capital structure perspective, total liability to assets and total liabilities to equity remain within our controlled levels. Overall, with leverage increased during the year due to the impact of the working capital, we believe this increase will be addressed by managing our working capital needs in the future. In 2026, the focus will be on improving working capital efficiency and supporting gradual normalization of the operating cash flow. Finally, I will take you over the cash flow. We started 2025 with a cash of SAR 22.8 million and closed at SAR 57.3 million. Cash from operating activities recorded a net outflow of SAR 124.3 million. This was mainly driven by the working capital movement during the year, which observed about SAR 222.2 million, primarily driven by operating cash flow outflow. Cash from investing activities remained limited to SAR 9.2 million. Cash from financing activities generated SAR 168.1 million, reflecting higher utilization of facilities to support the working capital deployment needs. Overall, cash movement during the year reflects working capital expansion funded through short-term financing, while underlining our earnings performance remained stable. Finally, thank you. I will now hand it back to Firas to take you over the outlook for 2026.

As we enter 2026, our focus remains on disciplined growth and balanced execution across both HVAC and the home appliances segments, in line with the priorities under Elevate 2027. The first quarter typically benefits from seasonal demand, particularly around the Ramadan period, which supports stronger retail activity and consumer spending as we approach the peak season. Across the HVAC segment, activity continues to be supported by the residential and mixed-use development in the Kingdom, providing steady project visibility for the year. In home appliances, we will continue building on our brand partnerships and expanding category presence while strengthening execution across retail and e-commerce channels. We are also continuing to grow our services and 3PL activities, which are becoming an increasingly important component to our revenue mix. At the same time, we are closely monitoring the performance of our retail and shop-in-shop new formats with Abyat and subject to performance and market conditions, intend to continue expanding this model in a measured manner. Our priorities for 2026 are clear. We will protect profitability, improve capital efficiency and continue executing on our strategy Elevate 2027 with consistency. Thank you. And with that, I will hand it back to the [indiscernible] team for Q&A.

[Operator Instructions] We have our first question from the line of Mr. [ Abdul Rehman ].

Yes, I just had a question regarding the B2C HVAC segment. I want to understand what are the dynamics that happened in 2025 leading up to lower year-over-year sales. Is it mainly lower volumes? Or is it pricing from the vendor side? And if, let's say, there were discounts that we see on the vendor side, who bears those discounts? Is it the vendor or is it Shaker group.

For your question. Just to answer the performance of the HVAC in the B2C had 3 main reasons. The first reason was, first of all, the market in general, the B2C market for the AC residential ACs, usually typically in previous years, it was growing at high single-digit or double-digit growth. While in 2025, the growth numbers for the B2C segment in the residential ACs, particularly was in the range of 2% in value, 1% in units, somewhere in that range, 1% to 2%. So the market demand didn't really help, plus there was a competition in the market. And we had -- we were in a phase of launching a transformation in the -- or a restructuring in the B2C HVAC sales. So this led to lower sales basically. Yet in 2026, the approach is different. We had new model lineups. We have a new pricing strategy, new support in terms of pricing to be more competitive, and we are expecting inshallah a rebound in the performance compared to 2025.

And just regarding the discount question. When, let's say, I go to a vendor and I see an LG unit on discount, who's bearing that discount exactly? Is it the vendor or you guys?

So it's usually a combined mix between the principal, the distributor and the vendor depending on the promotion nature, right? So mainly the principal is using 50% of the support, while us as distributors supporting 50%. This is the terms.

That's very clear, thank you.

Of course, there are exceptions to this case is sometimes the vendor or the principal is supporting at higher rates or lower rates depending on the season and so on. So it's a dynamic model.

Very clear, Abdul Rehman you on mute right now. I hope your question has been answered.

Yes, it's been clarified. I appreciate it.

We have a few questions in the Q&A chat. Let me read them out. Do you maintain or confirm your 2027 guidance?

So I think this question is relating to the Elevate 2027 strategy, which is doubling the net profit versus 2023 baseline and increasing the revenue to almost SAR 2 billion -- by 2027. So despite the 2025 performance, we remain focused on achieving the profitability number set in the Elevate strategy, which is doubling the net profit versus 2023 baseline or, let's call it, SAR 130 million in net profit. In terms of the revenue, the revenue part, we are very focused on growing the business on all fronts. If you see the growth that is coming from the adjacent business, it is good growth. If you see the growth from the home appliances in 2025, we achieved double-digit growth. The only challenging part was the B2C HVAC segment, which we expect a rebound in the performance in 2026, along with the projects business going in a steady direction. So to answer the question, we remain focused or we remain confident about the guidance we have so far. If the first half things -- in the first half of 2026, things weren't as expected, we will, of course, come back to the market with new guidance figures on the revenue part. However, in terms of the net profit part, we remain -- we will hold this net profit figure we will keep the guidance on this.

Yes. Thank you. I just want to add one thing here. For us, it is about the sustainable and the profitable growth. So we're being very focused on ensuring that our growth is, is a profitable growth and sustainable and strategic for us. So we're not chasing volume. We're chasing sustainable and profitable return for us and our shareholders as well, making sure that this fits in our long-term strategy. Just to be clear on the high-level numbers.

There's a question. Gross margins expanded by 40 basis points despite lower revenue. How sustainable do you think this is?

Regarding gross margins, we continue to manage our mix and we continue to manage our go-to-market strategy and the promotion very closely, and this is the result of that. We work every day to improve our margins. I cannot tell you what it can be tomorrow after tomorrow, but rest assured that our focus is improving our margins quarter-over-quarter.

There's a question from the line of [ Saud ].

This is [ Saud Syed ]. I just want to ask a question regarding the B2B HVAC sector. So have you seen any slowdown in that sector? And are you targeting any specific projects with the new stadiums coming online? Is it within your plan to supply these kind of projects? Can you just give us more insight on that?

In terms of the project side, and I'm talking about 2025 in specific. The -- from a product point of view, we've seen a steady performance. The major growth in the projects -- the HVAC project segment came from the services and aftersales solutions, which we already had it in our strategy. We mentioned that we're going to focus more on the solutions and the services that comes after the projects such as the installation, such as the annual maintenance contracts. And we've seen exponential growth in these services in 2025 compared to 2024. Yet still the revenue...

I'm not quite sure if it's only on my side, but I can't hear him.

Yes. Mr. Firas you are not audible. I believe the management is having some difficulty. If Mr. Mazen can take this question. Yes, Mr. Firas.

Sorry, I got disconnected.

No, no. If you can please just start from the beginning of the question.

Yes. So apologies for that. What I was saying is that in 2025, the projects in terms of finished goods and finished goods products, it was steady and strong, but the growth in the HVAC B2B projects came from the services, which are as part of the strategy in Elevate 2027, which is focusing on the installation and after -- I think it's all right now after sales services and annual maintenance contracts, which we experienced an exponential growth in these services. Now when it comes to the new projects that we are in, especially on the stadiums part, -- on the stadiums part, the solution itself is a chiller district cooling solution. We are applying for these projects, yet the pricing points are not really into our favor. On the other hand, we think that we have a better opportunity approaching the data centers business, which we have the perfect product for the data centers. It's energy efficient. It tailors to the data center needs and the upcoming demands. And this is where we are focusing right now. We are approaching a lot of projects related to AI data centers. And it's not only about product sales or the chiller sales itself, but it's also about the OpEx or the O&M that comes after it. So we are more focusing on those opportunities rather than the stadiums when it comes to district cooling and chillers. Of course, when it comes to the other infrastructure development related to Expo or the World Cup, which is the hotels, the commercial buildings and so on, we are on the forefront of these opportunities, and we are targeting them.

Yes. Very clear answer. I just want to follow up on the aftersales services. So what's the contract nature of it? So is it 3 years, 4 years? So -- and what -- how much of your HVAC revenue is attributed to this recurring revenue?

Okay. So in terms of the contract value, it depends customer by customer. So today, we have customers that have 5 years agreements such as the Saudi Electricity Company. Some of them are 3 years. It depends customer by customer type. And in terms of the percentage from the total revenue, today, it's in the total range of these services in the -- it is about SAR 100 million.

Very clear. And regarding the data centers, when do you expect the bids to rationalize -- is it in 2026 -- for the data centers products, when do you expect it to rationalize? Is it in 2026, 2027?

Well today, to talk facts on the ground, today, we have opportunities in the pipeline. Some of them are near the closed area by which the client has to decide between different proposals. Our target is that to come in quarter 1 earnings call in 2026 and at least reveal that one project has been secured irrespective of the size of the project.

Very clear. Last question from my side is regarding the window AC. Any update regarding that?

You mean the [indiscernible] program, correct?

Yes, I think that's what...

So we have delivered or we have delivered and sold the quantities in that program and the program for 2026 is not renewed so far. So there is no more -- quantities allocated as of today. We don't know whether in maybe the quarter 2 or second half, the program will be allocated quantities. We will definitely announce it when such an event happens.

We have a question from the line of [indiscernible].

So my question was basically more towards on the shop-in-shop model, which we have been doing. So just wanted to understand how this has so far worked for us and on the maybe revenue side and margin side. And my second question to the follow-up to that is around are we planning for adding more such in the future going ahead maybe in the short term or medium term, something like that?

Excuse me, the second portion of the question, you mean adding more retail shops?

Yes. Do we plan to add more shop-in-shops going ahead basically? That's what I was trying to ask.

Okay. So for those who are not really familiar with the Abyat as a retailer, Abyat is a home improvement and furniture store. It's one of the biggest in Saudi Arabia. They have multiple locations, and they are expanding in different regions. The concept of the shop-in-shop with them was to establish a retail showroom within their shop. The whole idea behind this was to capture the people who are already going and buying furniture for their houses, buying home improvement such as kitchen cabinets, such as carpets and so on. For their houses, they also have the home appliances section and the HVAC section next to them. These shops we operate within Abyat are on pure rental basis. So we rent the floor from them and then the sales happen through Abyat portal. However, it's direct revenue to Shaker. This is like operationally, how does it work, right? Now for -- as we speak today, we have 3 shops that are already a shop-in-shop model. One is in Abyat in Riyadh, one is in Jeddah and one is in Dammam. In terms of the expansion in our retail, today, we sit at 15 retail stores, including the shop-in-shop. For 2026, we decided not to go aggressive on external shops or stand-alone shops. We will go with the shop-in-shop model. We see its benefit so far and traction because the conversion rates are showing us good numbers so far. We need to benefit from the momentum and the footfall that Abyat is generating. Abyat has around 6,000 to 7,000 visitors per month. This creates footfall for our showrooms, for our brands for our brand awareness and so on. So in 2026, we might open one stand-alone store, and we will continue with the shop-in-shop concept. The 2 targeted locations will be one in Qassim and one in Medina inshallah.

Yes, understood. That was a very brief understanding explanation. So also, I wanted to understand, you just mentioned we are doing it through Abyat. So how much if you can bifurcate revenue, that will be great and the margins compared to other models.

So today, the concept is fairly new. So we started in Abyat, Riyadh and Dammam soft launching it during Q4. The real test is in Q1. Now we are seeing good in Q2 or the first half. We are seeing good penetration in terms of like the revenue and how the revenue is picking up quickly, especially after the soft opening and making the showroom steady. Now in terms of the margins, they follow the margins which we have in the retail or the direct-to-consumer channels, such as the retail and the e-commerce, which are fairly higher than going to the wholesale channel.

Sorry, guys, my Internet broke down for a couple of minutes. So if there is any question that was addressed to me, I didn't hear it. I apologize about that.

I believe all the questions that were addressed Firas have answered them.

Chat -- I believe one question in the chat is related to the net debt. So I'm not sure whether Mazen answered this.

No, we have not read that question until now. Let me go through those chat questions. So there's a question that net debt surged 70% to SAR 420 million. What are the specific working capital drivers? And what's your deleveraging timeline?

So as we all know that our net debt has surged due to the fact that we have a higher working capital needs, mainly driven by inventory and of course, AR. We have a plan internally to, of course, sell the inventory, and we have been working on our AR collection activity in a very focused manner. We all know there is a slowdown in terms of cash availability in the market. It is -- we see it. But rest assured that we've been very proactive on that since the last 6 months, I assume, and we've been acting aggressively on that side.

Thank you. There's another question beyond Q1 seasonality, what concrete signals support a consumer channel recovery for HVAC.

Sorry, I did not hear the question. Can you please repeat it?

Let me repeat it. Beyond first quarter seasonality, what concrete signals support a consumer channel recovery for HVAC?

The question is what support HVAC recovery? Is that the question?

The question is beyond first quarter seasonality impact, what are the factors is likely to drive consumer channel recovery for HVAC.

We all know that the country is in an expansion mode. There's lots of projects coming in line. We have made the decision not to participate in the price war, and we decided to have a sustainable growth, as I said mentioned before, and profitable growth. So we see some factors are helping us and some factors are putting the competition in more price war situation. This is the situation of the market right now.

Also to add to what Mazen mentioned, like if we talk internally about our HVAC segment, we have a new lineup, new pricing, so new strategy for the consumer segment and for the project segment in certain categories. Also in terms of the market conditions apart from the projects and the related infrastructure development happening in the hospitality, commercial offices and so on. Let's not forget that also there is a good opportunity or a golden opportunity that is related on the -- from the white land taxes, which will increase the development of the land, and it will come in later 2026, maybe 2027 earlier, which will lay the foundation more for the consumer residential ACs and home appliances demand. There will be more supply in the market and more demand as a result for this.

[Operator Instructions] Abdul Rehman I believe you have follow-up question.

Apologies I just forgot to lower the hand.

At the moment, we don't have any questions. We have a question from the line of Mr. Abdul Rehman Al [indiscernible].

Congratulations for the results. One question from my side regarding the HVAC. You have mentioned before that the lower revenue in the HVAC came from the fact that the market is low and there was a price war in that segment. And you have mentioned that one of your levers is that to increase the prices. So how can I think about the volume when you increase the prices amid a price war sort of environment? That's my question.

I think Firas said we are adjusting our pricing strategy. That does not mean we're taking any price increase or decrease. I think what we're doing is revisiting our whole pricing and whole product offering. And again, as Firas mentioned, we will have new product, new launching, new lineup coming in, in 2026. So the market dynamics and the market factors are changing a little.

I believe you have answered this question. If you have a follow-up question, please just raise your hand. We don't have any further questions at the moment. We can wait for a minute or 30 seconds as per the management [indiscernible]. I believe we don't have any questions at the moment. And I would just request the management for any concluding remarks.

Thank you, Mohammed. Thank you for all who attended today. We remain confident about Elevated 2027 strategy and the way we are progressing through it, inshallah in quarter 1 and the first half, the market and our performance will progress more on the strategy. We are available for any question any time from all the respected participants and investors. And thank you, Mohammed and [indiscernible] for hosting this call for us.

Thank you all and Eid Mubarak in advance and looking forward.

Thank you, management. Thank you, attendees. The meeting should now come to an end. Good afternoon.