Al Hassan Ghazi Ibrahim Shaker Company ($1214)

[Foreign Language] Good afternoon, everyone. This is [indiscernible] from Al Rajhi Capital, and I will be hosting Q1 2026 earnings call for Shaker Group. Thank you all for joining. And without any further delay, I will pass the mic to Mr. Mohammad Abunayyan to begin the earnings call.

Thank you very much, [Foreign Language] everyone. Good afternoon. This is Mohammad Abunayyan, the CEO of Shaker Group. I'm just here to introduce a new member upgrade in the organization. So our previous CFO, Mr. Mazen Elghafeer, have left the organization 2 months ago and now Mr. Mohammad [indiscernible] who will lead the finance department from the past 2 months till today. Mr. Mohammad [indiscernible] have a very great track record. He has been with the organization more than 3.5 years. He knows the operations. He knows the finance department. He came all the way long, to be a leader of this department. So I would like you to welcome Mr. Mohammad [indiscernible]. I do thank you very much and I appreciate. Thank you.

Thank you. Ghadah, please can start the presentation, please.

Good afternoon, everyone, and welcome to Shaker Group's Q1 2026 Earnings Call. Thank you for joining us today as we review our first quarter performance and discuss the group's operational and financial progress during the period. We also thank Al Rajhi Capital for hosting today's session. I'm Ghadah Alathel, Strategy Manager at Shaker Group. Joining me today are our Chief Executive Officer, Mohammad Abunayyan; our Vice President of Strategy and Shared Services, Firas Al Sayegh; and our acting Vice President of Finance, [indiscernible]. Earlier this month, we announced our Q1 2026 results on Tadawul along with the detailed earnings release outlining our financial and operational performance for the quarter. If you have not received the presentation, please contact our Investor Relations advisers at [indiscernible]. All materials will also be available on our corporate website after the call. Please refer to our disclaimer, which applies to all disclosures made in today's presentation. Kindly note that all figures discussed during today's call are in Saudi Riyals unless otherwise stated. We will begin with a review of our operational and strategic highlights for the quarter, followed by Mohammad will walk you through the financial results in more detail. Firas will then provide an update on the group's strategic priorities and outlook before opening the floor for questions.

Thank you all for joining us today. Shaker entered 2026 with a stable performance, supported by strong execution across the business and progress against our operational and strategic priorities. Despite the geopolitical escalation and its subsequent impact on the shipping arrivals and supply chain costs, Shaker's revenue for the quarter remained broadly stable year-on-year basis at SAR 402 million, with continued growth in the home appliance segment in specific and overall B2C segment, helping offset softer activity within the project segment of the HVAC. Home appliances performance during the quarter benefited from stronger seasonal demand during Ramadan, promotional campaigns, continued traction across key brands and product categories as well as contribution from newer brand introduction, reflecting the continued strength of our consumer offering. It is worth noting that the retail segment overall in the market has declined by 5.3% year-on-year basis. During the quarter, we continued expanding cooperation agreements with leading real estate developers across the Kingdom, further strengthening our position across the housing ecosystem and supporting long-term project pipeline visibility. On the consumer side, we continued enhancing our direct-to-consumer proposition and expanding our reach across retail and consumer channels in response to evolving customer demand and purchasing behavior. From a product and solution perspective, we maintained focus on advanced and energy-efficient HVAC solutions tailored to large-scale development, supporting intelligent energy management, operational efficiency and increasingly sustainable business building requirements. Overall, the quarter demonstrated the resilience of our operating model and the strength of our continued focus on execution, operational efficiency and long-term value creation across the business. As you can see, revenue is stable. Gross profit declined by 5.3% due to channel and product mix. EBITDA at SAR 37 million and net profit declined by 11%. I will now hand it over to Mohammad to walk you through the financial performance.

Thank you, Firas. Good afternoon, everyone, and thank you all for joining us today. It is my pleasure to take you through the group's financial performance for the first quarter of 2026. Revenue for Q1 2026 reached SAR 402 million, representing a marginal increase of 0.4% year-on-year. Performance during the quarter was supported by continued growth in the Home Appliances segment, which increased by 8.2% to reach SAR 147 million. This was driven by stronger seasonal demand during Ramadan promotional campaigns, continued traction across key brands and product categories as well as contributions for newer brand introductions. This was partially offset by lower activity within the project segment, which impacted HVAC revenue during the quarter. Gross profit totaled SAR 95 million with a gross margin of 23.7% compared to 25.1% in the prior period. The movement in margin was mainly driven by changes in revenue mix with relatively higher contribution from consumer-driven sales during the quarter. EBITDA remained broadly stable at SAR 37.4 million, with a margin holding at 9.3%, reflecting continued focus on operational efficiency and disciplined cost management. Net profit attributable to the shareholders reached SAR 24.3 million compared to SAR 27.2 million in last quarter. Performance during the quarter was impacted by lower operating income alongside higher finance-related costs. Let me now turn to our balance sheet and leverage position at the end of first quarter. During the quarter, short-term borrowing increased compared to Q1 2025, leading to a rise in debt. This was primarily linked to working capital requirements and funding needs across the business. As a result, net debt-to-EBITDA increased to 9.87x at the end of Q1 2026. Interest coverage stood at 5.26x, while the group continued to maintain disciplined management of liquidity and funding requirements during the period. From a capital structure perspective, total liabilities to assets and also total liabilities to equity remained within the manageable levels. Overall, while leverage levels increased during the quarter, the group continues to actively monitor its balance sheet position while maintaining focus on working capital optimization, liquidity management and operational efficiency. Building on the balance sheet discussion, let me now walk you through the cash flow bridge for the quarter. We started the quarter with a cash level of SAR 57.3 million and closed at SAR 90.5 million, supported by positive operating cash generation during the quarter. If we look at the operating activities generated, it reached to SAR 45 million, supported by profit generation and noncash adjustment, partially offset by working capital movement during the period. Investing activities had an inflow of SAR 11.2 million and financing activities had an outflow of SAR 23.4 million, reflecting repayments of bank facilities and supplier-related obligations. Overall, the group maintained focus on liquidity management, working capital optimization while supporting ongoing operational requirements across the business. Thank you. I will now hand it back to Firas to take you through the group's strategic priorities and outlook.

As we progress through 2026, our focus remains on disciplined execution, operational efficiency and maintaining balanced growth across the business despite of the uncertainties that we -- that the market and the business faced in Q1. Across HVAC, we continue leveraging residential and mixed-use development across the Kingdom to strengthen our project pipeline visibility and support long-term demand. Within home appliances and consumer channels, we remain focused on enhancing retail and e-commerce execution while continuing to the measured expansion of our shop-in-shop model based on performance and market demand. We also continue expanding our services and third-party logistics capabilities, which support diversification and provide complementary recurring revenue streams across the business. From an operational perspective, margin resilience, working capital optimization and disciplined capital allocation remain central to our approach as we navigate evolving market conditions. At the same time, we continue evaluating opportunities that support localized production and reinforce the group's long-term Made in Saudi strategy in alignment with the broader national development priorities. Overall, our priorities remain centered around execution, operational efficiency and maintaining the flexibility required to adapt to a dynamic market environment while continuing to strengthen our position across the segments we operate in. Thank you once again for taking the time to join us today and for your continued interest in Shaker Group. We appreciate your participation and look forward to engaging with you throughout the year as we continue executing on our priorities across the business. With that, we would be happy to take any questions, and I will now hand it over back to [indiscernible] for the Q&A session.

Thank you, management for the comprehensive presentation. [Operator Instructions] Our first question from line [indiscernible].

This is [indiscernible] Capital. I just want to understand more about the HVAC performance in the first quarter. And what's your outlook for the segment for the rest of the year? What are the drivers? I mean, that drove the performance for the HVAC in the first quarter? And how do you see these drivers to shape the segment's performance for the rest of the year?

Just to mention or to explain a little bit about the HVAC performance on the B2C side, we had a strong momentum in the B2C. We had about double-digit growth in the first quarter. And we mentioned before that we are restructuring the go-to-market strategy and the pricing of the residential ACs. And this growth came at strong levels despite that the overall market for the ACs for the first quarter, and this is retail market data, that came across, there was a decline of about 14%. Shaker managed to do the growth in the B2C segment in the AC. However, on the HVAC side, we saw -- in the HVAC project side, we saw some softening in the activity, especially during March, and this was driven by the -- primarily by the geopolitical escalations that happened. However, if we look after that and when the situation stabilized, we saw an uptick in the tendering activity, and we expect that for the rest of the year to have a recovery plan in place. Now in terms of the HVAC services, when it comes to the maintenance agreements and the installation work and retrofitting business, the businesses stay -- remains solid, and it's on the right track.

Our next question from Abhishek.

So are we still on the 2027 target regarding revenue and net profitability? Or is there any changes on that front?

Thank you for the question. We believe that it is still premature to reassess the full road map given the current evolvement in the market and the market volatility and the supply chain cost disruptions. A more comprehensive assessment we are doing after the first half of 2026 so we have the full visibility on pricing normalization on the freight costs, on the consumer demand trends and the broader picture. On the other hand, from a company point of view, we remain focused on protecting the profitability and improving the operational efficiency and strengthening the strategic recurring revenue streams that we launched and started. So after the first half, we will come back with the full assessment and guidance on the Elevate 2027 targets.

Our next question from the chat box. Mr. [indiscernible] had some issue with the mic. He is asking, is the decline in the HVAC segment mainly driven by B2B side or the B2C side?

So as I mentioned before, the B2C side of the HVAC business, the consumer side or the wholesale side and the trade side, it was growing at the double-digit number. The decline was driven by the projects revenue side. And again, as mentioned, we've seen a recovery in the tendering activity in April. And we believe that we can still recover the HVAC numbers for the year.

Our next question from Mr. [indiscernible].

One more question, if you allow me, regarding the MOU that you have signed the expiration of it with the Ministry of Investment. I just wanted to know more about if there is any, let's say, another discussion with the Ministry of Investment to rebuild the memorandum of understanding and establish the business again under their subsidies. If you can just maybe elaborate more on this would be very helpful.

So in terms of the incentive structure and the feasibility discussion, again, it was taking longer than expected and the decision collaboratively to not to renew was taken in its current form, while we continue the discussion toward more concrete structure for the incentives. The project remains strategically relevant and important to Shaker. And as management, we will continue to engage constructively with all stakeholders to make this project live and ongoing. Of course, if any development happen, we will go and announce it accordingly to the market.

Our next question from the chat box [indiscernible] asking, are you facing any issue in securing enough finished products and raw materials since the conflict starts?

Sorry, but the voice was not clear. Can you repeat?

Sure. Are you facing any issue...

We don't have access in the chat box?

Yes, it's only me seeing the question.

Okay. So can you repeat the question, please?

Sure. Are you facing any issue in securing enough inventories of both finished products and raw materials since the war started?

Okay. So this has 2 answers. The first answer is when the escalation started in late February, there were containers at sea, which had some supply chain disruptions and cost impact, especially on the home appliances side. But as you can see, we have managed to close the quarter at positive growth in the home appliances segment. Now since the escalation started, we rerouted our shipments to Jeddah port instead of Dammam. This has created some increased time lines in the arrivals. So I'll give you an example. So basically, prior to the normal course of business would be China and Dammam port. It used to take 15 to 25 days in transit. Now we're talking about lead times of 45 to 60 days. I mean this has not per se had a direct impact in the first quarter. And in the second quarter, we have normalized the -- it's coming -- the flow of goods is coming into normal course. However, the challenges are the supply chain container price increases that are higher than the normal. And this is not only for Shaker, it's across the -- all industries and also the oil price increase, which will put pressure on the material costs going forward. However, as management, we will -- we have the plans in place to be able to manage the margins and the sales accordingly.

So we have a question from the chat box -- the first question, what is the current HVAC backlog pipeline and it is margin quality? The second question, how should we assess group gross margin in 2026? Are you expecting to recover above 25%?

Thank you for your question. Regarding margin level, we are monitoring our margin levels during second quarter. Yes, there was a drop in the first quarter. This was due to lower projects. However, in the second and third quarter, we are monitoring that, and we are trying to diversify our sales mix to offset it partially.

So to add what Mohammad mentioned and on the projects side, we don't give specific numbers on the backlog, but we've seen an uptick in -- as we entered the quarter 2 with the resumed activity in the project tendering. In terms of the margins, at this stage, we are in the plan to -- the margins so far are not getting impacted. However, again, after the first half, we will have a full assessment on the overall picture of the margins and the sales.

Our next question from line [indiscernible].

I want to ask if you have any update on the data center biddings. Also, I need to understand what kind of services you can provide to data centers.

Thank you for the question. So regarding the data centers, we are in the bidding process. Of course, this is not the only window where we participate in the data center for the selling of the equipment. Our aim is to participate in the OpEx side of the business, which is the servicing and the annual maintenance contracts. This is our ultimate aim. So as we speak today, we don't have a confirmed one project in the data center. However, the capabilities of the company in terms of the service agreement and servicing larger-scale products, whether it is data center or other is at the level by which we are increasing the business, and this is part of the strategy of the company and when it comes to the project servicing.

Since there is no more question, I will hand over the mic to management for closing remarks.

Thank you. Again, thank you, everyone, for joining us today and for your interest in Shaker Group. Given the circumstances and the quarter 1 was in terms of performance for the company, it was in the right direction, especially on executing on the strategic priorities. Internally, the management is focused and disciplined with the variables that in control, especially when it comes to the operational efficiency to realize those strategic priorities. We are also available to meet if you have further questions, please let us know. Thank you very much, and have a good day.

Thank you, management. Thank you to all participants. Have a great day.