National Aluminium Products Company SAOG (NAPI) Earnings Call Transcript & Summary

I think we should start. We had a technical issue. We have managed to resolve. Sorry for the delay. Good afternoon, everybody. Thank you for your patience. We observed a small technical issue. I welcome you to the NAPCO presentations for the first half of the year. And during these presentations, we will briefly give you an introduction about the company. We'll take you as well throughout the financial results and we'll talk about the future outlook. We'll leave with some conclusion. And definitely, at the end, we will have some time for the question and answers. So National Aluminium Products Company, NAPCO. The company established in 1984 as the first and the only extrusion company in Oman. And it is still the only one in Sultanate of Oman. The company is the only extrusion as a company in the Gulf region as a public-listed company. We in December this year, will be completing 40 years since the inception. And we have around 80% of our product being exported, serving different countries across the whole world. And our product actually is being consumed and used in major projects, in construction project even industrial project. If you look at the photo on this slide, it will show you to your right-hand side is that the 2 process we have in the inception 1984. And in the left-hand side, the other half, that's the expansion which we had in 2016, 2017. So what products not to deliver to the market, actually, we do the mill finish. We do it at different -- many different sizes, serving as I have mentioned, different sectors. And we produce as well added value products with different powder coating. We have the powder-coated products with different colors. We have the wood finish technology as well in NAPCO. We have anodizing and we have a [indiscernible] department in the organization. So let me give you some history and some highlights about the company. As I have indicated, soon during this year, we'll be celebrating 40 years since the inception. The company employed around 300 people, 38% of them Omanization. We have many customers. We have many here in Oman and we have actually more outside Oman. We export around 80%. We reach to different areas. We have a presence in Australia. We have a presence in U.S. We have a stronger presence in the Gulf region, especially UAE. We do sell to Saudi Arabia, we sell to Kuwait as well. And in Europe, we have a good presence and we still supply some material. Again, I would repeat, we are the only public listed company, not an extrusion in the Gulf region because we've been here for long, 40 years. We have a big portfolio of the designs of the profiles. So we have more than 14,000 dies in the company and shale. And we do support being over here in Oman our local vendors and suppliers as well. So we spend around 20% to 25% of our purchase locally here in Oman. So I'll take you immediately now to the current challenges. You have seen and we'll take you through our financials soon in the coming few slides. But looking at our previous performance, at the history, especially in the last few years, the challenges still remain the same. We have a progress really in addressing some of them. But when it comes to the major one, which is the working capital, still being the major challenge we are facing. Another challenge is the interest rate. We have -- we do -- nowadays interest rate has increased. And because of the financial challenges we are facing, we are as well facing more committal increase in the current interest rate. We'll see even the impact, we prepared some slides to show you how that's impacting our business. Another challenge we have is the lack of additional support from the bank. What we meant over here, we talk about the working capital. We have it in the past, we reduced. But in order to get back and to recover, we need a further support, further enhancements of the working capital and the facility from the bank. All of that actually with having these difficulties imposing us to the regulatory structures. Our share capital, you've seen it yourself, [indiscernible] There is certain regulations we need to comply with. Even the additional funding if we need it, it will mean a lot of the challenges whoever will be supporting and providing this fund. So that's a bit -- I mean, a quick overview about the challenges and I really meant to highlight the main one. And we'll now talk about the key highlights of 2024. How does it differ between it and the last year. We continue to [indiscernible] payment with the government, so that's really advancing our cash flow. We have supported around OMR 100,000 as EBITDA. And as EBIT, it's improved by 35%. If we look at an improvement as well our G&A has improved by 26% and our selling marketing expenses reduced to 44%. All of this actually contributed in the above highlighted results. Inventory and receivable. There is a good as well improvement where we have really improved 3% to 5% respectively in the inventory and receivable. So that's a good highlight, obviously, the positive highlights for this year. But the areas of concern for this year, the negative equity is reached by OMR 3.7 million. Our financial charges have indicated, I talked about it a few minutes back, it's touching and even exceeding the 6%. Definitely, the working capital shortages is the challenge, say, an area where we need to improve, but it's contributing a lot in the bottom line as it reduced and it limits our capacity -- our purchasing power capacity which -- and by lower utilization and operating the factory at much lesser than it's breakeven capacity. Having no working capital coming either from the bank as additional funds or either being injected by the shareholders as an equity is not yet really supporting the current position. And the last, maybe a bit the first 6 months of this year, the losses reached about OMR 1 million. Let's talk about the financials. I'll give you a highlight over here and I will touch base on the tables we have. So the revenue have decreased around 38%. And the main reason for the revenue reduction is the capability of sourcing the raw material and the limitation as we just operate mainly in our receivables and we don't have any additional fund or support neither from, as I have mentioned, as equity injected or even by the bank. So we've been running solely in our own, but we managed really to achieve the results that we have just shared, including the cost optimization initiatives we have taken in the organization, which [indiscernible] the cost of sale have been reduced by 37%. The loss before tax have been reduced by 12%. EBIT improved by 35%. EBITDA improved by -- improved and reached up to OMR 107,000. And the capacity utilization is only at 35% with those highlights. So if you look at it, here we can compare between the last year with the 2023 and 2024. So when we talk about the revenue, you can see the clear reduction from OMR 14 million up to OMR 8 million for this year. But at the same time, if you look at the profit and loss for the same period last year, it was around OMR 1.15 million, whereas this year actually we managed to reduce by almost OMR 1.2 million. And there down there, we look at the EBITDA compared to last year, the first 6 months, we made around OMR 10,000. This year, we have achieved OMR 107,000. So if you look at the other indicators, the other KPIs over here, we can look at this focus, for example, in the equity and the liabilities. Actually, if you look at the total equity, if you look at the last year, it was OMR 2.7 million. And this year, actually, it's become more OMR 3.7 million. And as I have said, I indicated the reasons. The highlight I really would like to share as well, if you look at the signal, we concentrate in the metal margin and the contribution margin. If you look at the last 5 years, all the way down to 2017, and if you look at the metal margin and the contribution margin, you will notice from 2018, actually, it goes from $191 to $178, $185 even down to $150 and the last year was around $152. This year, actually, we brought it back to $203 equivalent to what we have seen in the past in 2017, and that's a good indication. At the same time, if you look at the capacity utilization, yes, we managed to get the metal margin up to $203, but with only 35% capacity utilization. In 2017, it was with 70% capacity utilization. So our chance is even to be much more -- much higher improvement in the financials. If we would have the 70%, we would be really enjoying much better results when it comes to the contribution margin. The other thing I would like to take your attention to, if you look, for example, in 2017 and you look at the greenfield, which is the interest cost, at that time [indiscernible] it was costing me around to $32. This year, the interest actually contribution up to $112 -- sorry, this is in Omani rial, OMR 112. So it's clearly indicating how is it really impacting our financials. If you look and have a future hour. So we have really started and we tried to find the best way for the organization to come back on track and to start really making profit and eager to grow. So what we really require, I just keep saying it and I will repeat it, we need a working capital. We need money to run the organization. We need to purchase the raw materials. And we have a plan where we are planning to get an injection from the shareholder with OMR 1.5 billion. And we need as well to tap on to advance it or to complementing it by OMR 7.7 million funding coming from the commercial bank or either from some of the government entities. So we have worked out those figures and we have identified exactly what the organization required. And if you look at it, we operate the organization at around 80% capacity. We will be able in year 1 bringing the losses down to almost breakeven. And from year 2, we'll start really to get some profit. But because of the high, let's say, lending, the organization, it will take us a really good time to improve the financial ratios. The plan, the one we're working on it, and we show you just it's not shut from the business in which we have used an approved business model. We are confident on it. And we believe once we did what we have highlighted to you as a working capital and equity injection, we believe we will be able to really recover and start to compete in the financial end market and even grow. Having said that, other things making us strong and making us really, really for such a plan that we do have the market not [indiscernible] even though now we're facing great challenges in the market and we have very limited volume, which can be distributed, but we still have customers seeking our product. We still have customers chasing us for more volume, and unfortunately, because of the challenges we are limiting ourselves. When it comes to the technical skills, NAPCO has the skills and the knowledge which has been gone in the workforce, the capacities we do have for prices and it can go up to 3,000 ton production per month where we can even reach 30,000 ton I believe. And what not required is, again and again, the working capital. And we believe the NAPCO [indiscernible] is really viable and having the funds and having the injection from the shareholders will make us back on the track. In conclusion, there is many factors that contributed to where we are. The good news is, all those factors being recognized. There have been a lot of, let's say, operational improvements within the tax rate and cost optimization has taken place, allowing us to work in recovery now, while we are operating our existing plant and ensuring sustainability. And we have -- we continued our outreach. We're still around 75% to 80% to outside Oman. We still have good presence, even though small volume in the Gulf region in the UAE market, Saudi Arabia market, Kuwait and some in Bahrain. We have an outreach as well and we're still having our customer in U.S. We do have customers as well in Australia, India and the different part of the world. NAPCO can make a big difference and can grow quickly as well if we manage the working capital quickly and we find the raw material which we need in order to save the market and satisfy the customers. And the working capital for the future is not the only demand for NAPCO because we need really to work on our financials, we need to ensure we have an equity injection from the shareholder as well coupled with additional fund, which we are seeking from the commercial bank or our lenders and the government, but will remain the high interest rate as a challenge going forward. So this is a brief about the current position of the company, our financial result, the challenges and what we see in the future. Raees, before we open the floor for the audience, would you like to add anything?

Yes. Thanks, Ali, and thank you for the complete presentation and giving a complete sort of a picture of the company itself. Rashid have highlighted, give the -- I mean, listeners of this press conference that although the challenges was there, the improvement that company has made within this 1.5 years under your leadership, it's basically a different, but can be reflected in the presentation slides also. The big thing that we have done in this year, within the 6 months as compared to the last year, when we had sources of raw material at that time and the credit sources if we have just communicated this back to our listeners last year also, we had a 65% utilization at that time and this time we have only 35% utilization. But this improvement that we have done that, although there is a decline of 38% in the revenue, on the other side, the cost of sale is declined by 37%. So there is no major impact. Normally what happens is, there is a fixed cost factors are there, the other cost factors, which remains constant, that gives a sort of increase in the cost side. So we managed to decrease that part also. Along with this, there is a substantial decrease in the selling and admin expenses, which is reflected over there. So having this 35% utilization of capacity and making the difference in the loss of before tax as compared to last year itself is an explanatory to the listeners that company has made a way and made a certain improvement. There's lots of way is there to go ahead with that. But again, the challenge that we are facing currently is liquidity basically, the working capital, which the company is pursuing and forcing the bankers along with the government and with the shareholders. So we are working on that part and we will try to tap that part as soon as possible. And we certainly look at the company, which established almost 40 years before, existing 40 years, completing 40 years and last for another 40 years also by making contribution to the economies, to the people of Oman also and we'll certainly look for that also. Just we'll try to open the session of question and answer to anyone who would like to ask any second question to that.

[Foreign Language]

[Foreign Language] And the floor is open for the others to ask any questions. I can see a few more names over there. So please feel free if you have any questions, if you seek any clarities. Myself, the CEO of NAPCO and the CFO of NAPCO and we have as well our corporate department attending the meeting, we'll be more than happy to answer your questions. It's quiet. If it's so, I think, Jasmine, there is no other questions. And by so, I will close the meeting for today by really appreciating and thanking all of the audience to be part of it and we will continue in the recovery plan for this organization. We have shown today the financials which shows a very challenging and struggling road, but we have proven that such industry can remain and can sustain highlighted challenges and as long we recognize it and we know that and we'll make it and we recover the business. [Foreign Language] All the best. Have a good day. Thank you.

Thanks to all. Thank you.