Galfar Engineering & Contracting SAOG (GECS) Earnings Call Transcript & Summary

Okay. I think we should start, just by introducing myself. I'm Hamoud Al Tobi, I'm the CEO of the Galfar Engineering & Construction. And joining me here in the meeting, Mohamed Yahyaei, Chief Financial Officer; and Fazlin Anam, the Company Secretary. I have shared the presentation slides, I hope you all can see. Would you please just confirm if you can see the presentation slides?

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So [Foreign Language] good afternoon, again, everyone. On behalf of Galfar, I warmly welcome you to this engagement session, which is part of our ongoing commitment to open dialogue and engagement with all of our stakeholders. I thank you for taking your time to join us in today's session, and I hope you will find it informative and useful. The purpose of this session will come in basically in 3 folds. One is to provide a clear overview of the company's recent performance; and secondly, to share our strategic priorities and the future outlook; and finally, to listen to your perspectives and answer any questions because your trust and confidence is essential in our company's journey. As mentioned, we will cover strategic review, financial highlights and future insights, and we can allocate some time for an open dialogue at the end of the presentation. As a feedback about the company, as you all know, Galfar has been a cornerstone of Oman construction industry since 1972 and has been delivering projects in various sectors for over 5 decades. We proud ourselves as Galfar that we have delivered more than 1,000 projects across diverse sectors, hence contributing significantly to the nation development. And today, Galfar is the largest listed construction company in the stock exchange and one of the biggest full-fledged multidiscipline EPC contractors in the region. Over the years, we've built a strong portfolio across oil and gas, civil infrastructure, utilities and industrial projects. And we continue also to leverage our subsidiaries and joint ventures. And you see here in the slide, the subsidiaries and JVs of Galfar, either to complement our core business in project deliveries and also to enable our growth and venture into new types of projects. Our main subsidiaries remains Aspire Readymix, specialized in providing readymix concrete products not only to Galfar in-house projects, but also to the open market. And this subsidiary is doing very well. I would say, 70% of the subsidiary business is from the open market and not relying on Galfar projects as in parent company. Our subsidiary is Aspire Projects and Services, which is also 100% subsidiary. This is our arm in specialized project services, and we are developing and growing this subsidiary as an MEP specialized company also to pursue growth and service provision in the MEP sector, facility management and related specialized product services. And recently, of course, we have announced JV with partners from the UAE for our prestigious railway project. Our strategy as Galfar is captured, which we have revisited the strategy by conducting a joint Board and executive management workshop earlier in the year. And we are capturing our strategy with the [ piping ] beyond transformation and shifting the focus from growth to profitability. So that's itself [ scaled well ] in the Board and the management focus moving forward to improve the profitability margins in the company, having achieved good growth in the past few years. In our turnaround strategy beyond transformation growth to profitability, we are focusing on 5 strategic priorities: the first one is people and culture. People are Galfar's most important assets. And here, we are focusing on developing talent, promoting the safety and well-being of our workforce. Financial discipline is a cornerstone in our transformation and turnaround strategy, where we are aiming to improve -- continuously improve the cash flow, and in particular, more attention is given to improving the profitability margin, either gross profit or net profit margin. The third strategic priority area is -- which is very core to what we do as Galfar in project management and project delivery where we strive to improve operations and projects effectiveness, improve project selections, especially with the good opportunities that are available in the market. This is different times from the times we have witnessed during the COVID or the pandemic era. Now we see that the market is offering various opportunities, which allows contractors like Galfar to be selective in some arenas and to target projects of specific interest. And we are also working under this strategic priority to strengthen and improve the accuracy of our tender estimation. Technology and innovation. We are all witnessing what is happening in -- as part of the Fourth Industrial Revolution. And we believe construction practices have been traditional for many, many years, and there is opportunity for construction practices to benefit from technology and innovation, from artificial intelligence and new technologies. And in this, as Galfar, we set ourselves 2 strategic objectives under this strategic priority. The first one is to drive digitization and innovation across the company. And I am proudly able to say that we have moved from a heavily paperwork company to almost fully digitized, which is adding a lot of efficiency gains to the company operations. And the second one is, of course, Galfar being the leader and the flagship of Oman construction industry, we also want to be the leader in introducing latest technology and AI and advanced construction techniques in our projects. Importantly, our strategy is fully aligned with the Oman Vision 2040 in the way that we are focusing on developing national talent and improving the employments of Omanis within the construction sector. We are focusing on delivering critical infrastructure to diversify the economy and also, of course, promoting sustainability and governance, which we have a dedicated slide on ESG initiatives that have been taken by the company. Let me now turn to our financial performance for the first half of '25. And as you can see in this slide, we continue to maintain a healthy order book of almost OMR 858 million and this healthy and strong order book gives visibility to our future revenues. And you can see that this order book is concentrated in areas which Galfar is strong in, such as infrastructure which we have OMR 494 million worth of projects pipeline under infrastructure and OMR 283 million worth of projects under energy, mainly in oil and gas. Even in the civil and environmental portfolio, we had reviewed our strengths and weaknesses in this portfolio, and we are tailoring our future strategies to grow our civil portfolio, but with very careful and cautious approach. Our revenues that you see here in the chart on the right-hand side of the slide, have been growing since the year 2022, where there was a year-on-year decline. In 2022, we managed to reverse that decline in revenues and achieve growth -- double-digit growth in revenues in 2023, double-digit growth in revenue in 2024 has been achieved. And in 2025, we are looking to maintain a similar level of revenues. Moving forward, our target in the next 3 years is to maintain the company revenues at around OMR 300 million plus and minus. While our revenue stood at -- for the first half of the year, our revenues, you see here in a bit more detail in this slide, at almost similar level as the similar period in '24, but our gross profit has improved to OMR 5.9 million versus OMR 4.7 million same period last year, hence lifting our gross margin to 4.7%, which is still below what we are aspiring and working to drive as part of Galfar operational efficiency. Our EBITDA has also grown to OMR 8 million, reflecting the improved cost discipline and efficiency. And comparing to '23-'24, you see that our EBITDA margin for the first half of 2025 has improved to 6.5% compared to 5.6% in the similar period last year and 3.7% and 4.2% in previous years in '23 and '24. We are very optimistic with this improvement in our EBITDA margin. And we will continue, of course, to focus on the strategic priorities to drive the performance upwards [Foreign Language]. Our net profit margin remains modest with net profit reported for the first half of '25 at OMR 0.2 million. This is -- there have been some cost pressures in some of closing the projects and also this year, of course, the company is incurring the exceptional legal costs toward the international arbitration cases, which we are handling. And we are -- in one of those arbitration cases, we are -- with Petrofac, we are expecting the award or the judgment to be issued before the end of this year [Foreign Language] Our -- considering our margin performance, our equity remains steady at around OMR 25 million for the parent company and our asset base is exceeding OMR 300 million, as you can see on this slide. Importantly, as mentioned, our order book close to OMR 1 billion, and we see good prospects to maintain the order book at the same level as we have more than OMR 800 million worth of projects under evaluation, project that have been submitted and currently under evaluation, awaiting the project owners award decision. We are optimistic that Galfar would be able to secure reasonable projects from the ones that are under evaluation. Our commitment as management is to continue focus on strengthening the balance sheet, debt optimization and also to implement prudent cash flow management in the company. There's one thing here to highlight with regards to our -- to the company net debt. And you could see that there is a significant improvement, reduction in the debt from OMR 81 million to OMR 59 million. OMR 81 million at the end of '24 to OMR 59 million at the end of the first half of '25. Touching base on opportunities and market outlook. Looking positive with both government and the private sector driving the opportunities in areas which Galfar is very familiar with. We have the [ highest ] opportunities worth OMR 700 million in Galfar addressable market within our energy and industry portfolio, OMR 705 million within our infrastructure portfolio, OMR 335 million within our civil and environment portfolio. So we have a total addressable market to the tune of OMR 1.7 billion and assuming a success rate or an acquisition -- a modest acquisition rate, we would be able to replenish our order book, hopefully, and maintain it at around OMR 1 billion, which is a strategic target for Galfar to maintain the order book at this level to strengthen and maintain strong revenue visibility in the future. We have also worked in various diversification initiatives. One of them is Galfar is doing -- as we have -- as you know, is involved in the railway project, which is under construction. We are also diversifying our product portfolio in high-voltage electricity projects and we are seriously looking at projects such as solid waste management, waste to energy and turnaround maintenance and oil and gas [ frame ] agreements for EPC type of projects. And we are leveraging, of course, Galfar's track record technical strength as well as our ability to secure value-add partnership with the renowned and international JV partners, for example, in Al Khuwair down town project, we've submitted an excellent proposal with our JV partner [indiscernible]. And we are also working with other JV partners to enable us enter into the high-voltage grid station and transmission overhead line projects. From the market outlook, moving to sustainability, and we are pleased that earlier this year, Galfar published its first fully detailed and comprehensive ESG report. And here, I would like to highlight that we are making steady progress to reduce the environmental impact of our operations. We have commissioned a 1.2-megawatt solar plant in our [indiscernible] integrated facility, which is now achieving 100% of the facility electricity requirement. This alone has allowed us to reduce 673 tonnes of CO2 emissions. We are also working on various asphalt recycling solutions to reduce environmental impact and in one project such as in our [indiscernible], we've managed to recycle 15.8 metric tonne of asphalt leading to less environmental impact. We are working also in improving water consumptions and using our in-house electricity consumptions. So there are multiple initiatives that we are proud of that Galfar as a construction and a main construction contractor has already taken a lead in implementing. Likewise, social excellence is a very important priority within our ESG focus. And Galfar is the largest employers of Omanis in the private sector. I thought there are only 2 companies that come ahead of Galfar which is Petroleum Development Oman and a safety security services company. But in the true private sector, Galfar is #1 and maintains its leading position as #1 employer of Omanis, having more than 4,400 Omanis in our workforce. We invest a lot on the training and development of our workforce, but also recently, we are extending our initiatives to also conduct training for development programs to train the job seekers and make them more equipped to acquire jobs, not necessarily within Galfar, but within the open market as well. Governance, leadership. We continue to follow and implement best governance practices to promote working culture that have 0 tolerance to nonethical behaviors and practices. As a flagship of Oman construction industry, we are very, very proud of our in-country value commitments and the contribution, and we measure our in-country value of local content not only in terms of the large number of Omanis that we employ, but also today as the largest publicly listed construction company in Muscat Stock Exchange, Galfar, we have more than 3,700 shareholders. Majority of our shareholding are Omanis. We talked about our leading position in employments. And we are also very proud that 98% of our procurement orders are sourced locally to various local supply chain players, including SMEs and local community contractors. And of the purchase order that we have in place as Galfar, which 98% local partners, we are proud to say that 45% of the goods that we have sourced are locally manufactured material and have the Made in Oman stamp. We remain very active in corporate social responsibility, and we are supporting various social responsibility projects within youth sports charitable causes and community services in line with our annual approved social responsibility budget. We talked about our leading position in talent development and employment of Omanis.

[Foreign Language]

The slide is shared, and we have checked at the beginning of the presentation, we had received confirmation. Let me just check with other attendees, if you are able to see the slides?

[Foreign Language]

Okay. But now we have moved to Slide #11.

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We apologize for that. We've already moved to Slide #6. So Slide #11, are you able to see now?

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What I'll do, I will stop sharing and re-share again.

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So I hope now you are able to see the Slide #11 in front of you.

[Foreign Language]

Good. So this is where we talked about Galfar in our local content and in-country value commitment and contribution. And in Slide 12 now, where we are featuring our -- what we have described, our leading position also in creating sustainable employment and development for Omanis. So we work not only to train for employment, but we are also training for development and for equipping job seekers with necessary knowledge and skills that will support them also to get jobs not necessarily within Galfar but within other players in the market. I would like to close with this presentation, which is Galfar commitment to responsible operations and strengthen the governance controls. And recently, we are launching a sequence of awareness campaigns within our workforce, one of them is stay aware, which is emphasizing on the importance of work ethics and commitment, safety, welfare of all our workforce and employees. Last slide on our investor propositions. We believe that Galfar remains still on a very strong foundation of strength, solid order both strategy and alignment with Oman 2040 Vision. Our strong and visible order book provides clear visibility on our future revenues. Our clear strategic goals to maintain the order book at the same level enforces that future revenues forecast or visibility, our diversified project portfolio is another important area that improves Galfar's investor proposition. Our diversity in project is not only in the sectors we operate in, but also in the types of projects that we execute as Galfar. We do conventional construction projects. We do EPC engineered procurement and construction. We do operate and maintain type of projects, so our unique position in diversification in the type of project and the sectors we are working we believe presents an important investor proposition aspect. Our transformation efforts underway is showing some good results in terms of cost discipline and cost control. And we are very proud that as Galfar, we are keeping our corporate costs, our general and administrative costs within less than 3% of our total revenue, which we believe is best-in-class and something that would not have been able to achieve without disciplined cost control measures and our focus on the cost control is to improve our gross profit margin to improve operating expenditure and improving financial discipline. We have strategic alignment with the country's 2040 Vision and the aspiration is to continue creating our shareholder value. In this slide, we wanted to summarize why we think Galfar continues to provide solid investment proposition. And with that, I would like to close the presentation slide and open for a dialogue Q&A, unless Mohamed, you or Fazlin you want to add something? Okay. So if any questions and answers?

The dialogue is open now for questions and open discussions, comments. [Foreign Language]

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