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

Really sorry for inconvenience. So it just 'started recording. Yes, [Foreign Language]. I would like to introduce you to the discussion session, the first discussion session of 2025. And, yes, so shall we begin, CEO, can you please change the slide. So we're going to introduce the discussion of audited financial year 2024. And then we'll go to the introduction and also aluminium extrusion market insights, then financial results, future outlook and conclusion and QA in the end. And in the end of the session, we'll give the chance for the questions. So as an introduction, the NAPCO is established -- was established in 1984 as the first and the only extrusion company in Oman. Also, the company is the first aluminum extrusion listed company in the GCC. The company during its more than 40 years of production has participated in the infrastructure of Oman and hired more than 100 Omanis in difference as the company maintains Omanization, the maximum, I mean, available or sorry Omanization in its capacity, 80% of the company's production is exported, which is -- which brings foreign exchange to the country. The company products are used in so many prestigious projects and continuing. Can you -- yes, thank you. So I'm -- first we will start with the CEO.

Abdullah, thank you for the introduction. My name is Ali Shamsi. I'm the CEO of National Aluminium Products Company. And as Abdul has mentioned in the previous slide, we have recently celebrated the 40 years since inception of the company. And this is -- I'll continue the introduction. The company, as Abdul has mentioned, is the only extrusion company in Oman, and the first company being publically listed. Last year, we had another company from Saudi Arabia, Taiseer, the one who actually been listed. So we have a total of 2. Our product here at National Aluminium Products Company, it's mill finished. It's the direct conversion of our raw material to profiles, and we do have added value product that comes along with that. So a big percentage goes with the mill finished, but we do as well enhance it further with added value. We do have the powder coating in products. We have anodizing product as well. We can supply wood finish and we started as well doing thermal crimp. I'll take you, I was going through that revenue extrusion market insight. So the overall business, it looks like and this slide on the left corner, top of left corner, you can see the forecast. Actually, there is some results in 2024 and the forecast until 2034, and clearly indicates the increase in the market and the growth in the market. Just right next to it on the right-hand side, you will see that the growth rate is expected to go to 6.8%. And if you look at the revenue extrusion market share by the region, we can notice clearly that Asia Pacific is the one with higher consumptions through all the world, including the Middle East, where we can see the application in the Middle East. It is mainly concentrated in the automotive -- sorry, in the building and construction side. It comes along with that actually the electrical energy sector, other sectors as well, huge. But the automotive and transportation taking a good part of it. It might not represented the expected share for the time being. But for the future, we expect that to grow as well. So yes, we will continue having more demand in building and construction, but that will come along with the automotive and transportation section. If you look at the aluminum market, we are linked. If you look at our sales and revenue, it's linked directly to the LME with the raw materials and primary metal price. What we are showing over here, if you look at the slide to the left-hand side, this shows the last year, how was the raw material, which is the major contribution of our cost, which have more than 70% of our cost. How it's been fluctuating in the last year. It started in the first few months of the year, the first quarter at around $2,200. And from there, it just peaked to $2,600 state for awhile and then drop down to $2,350. And from last October all the way till last month, it's being fluctuating between $2,600 and $2,700. So how -- as I told you, this is impacting us in sourcing our raw materials, and it really plays a big percentage of our cost. So higher it goes, limiting our capacity as well in the purchasing power, and this fluctuation given instabilities. Well, if we look at APRA result, which is not presented over here, and APRA result, you might notice and anticipate something you will have indefinitely. If you bear in mind recent announcement from U.S., we're talking about 20% tariff introduced by U.S. for aluminum product and steel. Some of you might be wondering, what about the Oman-U.S. free trade agreement, that might protect us. But actually, this tariff being introduced from U.S. for all aluminum and steel product without any exemption or exception. So unfortunately, it touch us. So we -- our customers from U.S., even though we don't have a big market share from U.S., it was a developing market for us with a nice premium. They started really to be unstable. Currently, our customers in the U.S. sort of holding their orders, and we don't see any even more from them. But it's only 2% to 3% from our current sales. But what did it do? Because this is not just in Oman and impacting NAPCO, this is a global issue. And what we have noticed recently, since the last few days, actually, since this been announced, there is a problem in the aluminum price, it's getting it back to what you see in the beginning of the 2024. Yesterday, price was around $2,380 or $2,350, so we dropped it from where we were in the past, hanging around no more than $2,600 to something around $2,350. So there is a sudden drop of $200, which we expect an impact in our revenue for the next quarter if continued. We believe what has -- it's really introduce stabilities and that might take a few months to really stabilize and we can see how would be the impact. So what was the present? So we talk about our key challenges in a few minutes, and I'll ask our CFO to take you through our financials for the last year. But how we're doing and what are the key challenges? Why are we still in the financial challenges? We touch base a bit where we were in the past, what happened last year, how it consider and where we're going, [Foreign Language], forward. So in the coming few slides, we will give you a bit more detail. So the company is still suffering from a negative equity around OMR 4 million. Challenges, yes, it continues of the increase interest rate. We've seen, especially we were facing some financial difficulties and as you're aware about it, as investors and as businessmen, with the stress company situation, your financial rates, especially with the banks will definitely hit the roof. It would be even last year exposed to something around 12% as interest rate, averaging currently the 7%. That's the situation, it's having a huge impact on our financials. Lack of equity funding. You've been aware about our -- and our attempt and even our shareholders attempt of the right issues in 2023 and an opportunity was a success, the current plan as well. We are putting in place to improve in order to fix the equity, but unfortunately, the challenge is still there. I will give you a bit more about the current plan within a minute. A lack of efficient [ effort ] from the bank, this is definite, unless we really managed to change the current situation, having an additional fund from the commercial bank will be a great challenge. Raw material and price increases. I have just shown you how it's been increased to last year and how we face it this year. Actually, it was almost $2,700, but all of a sudden within the last few days, it's just a drop. So those high fluctuation doesn't do good for the business. So the financial highlights, a review, revenue last year have been decreased by 20%. And this is clearly because of the lack of the working capital we have. We manage this organization mainly from the receivable and we have a lot of effort. We are working along with our Board of Directors and the government as well to see our way to really enable us to have the liquidity so we can manage the production and increase our capacity. If you look at the last point in this slide, you will notice, we've been operating last year only at 55% capacity. This factory can be utilized up to 95%, and we've proven that in the past. But unfortunately, due to the liquidity constraints, we manage with 35% last year, but we managed it very wisely and effectively as well. Yes, our revenue has dropped by 20%. But if you look at our cost of sales, it's reduced by 23%. And what's really have a great backlog is our reduction in the losses. We managed to reduce it by 61% despite the fact our production or our total production for the last year was lower than the year before. So if you think about it logically, if you reduce this and you continue with your cost, definitely, it will go high. But we have really implemented one of the best practices in the world when we talk about [indiscernible] lean manufacturing and the Lean Six Sigma. We started the journey in 2023, and we are still in this journey, and we started to see some of the efforts coming in 2024. We managed really to optimize and we'll control our processes, control the variables, look at consumable, remove and eliminate the waste and a lot of other initiatives, which is already folding up, and we'll continue to focus on it. So that's a great news really to share with you. We manage to [Foreign Language], successfully to reduce the losses. We were around OMR 3.7 million losses in 2023. We went down to OMR 1.4 million in 2024. And if you look at our EBIT, it's improved by 96% where we managed to get our EBITDA improvement up to [ 783 ]. So a lot of financial details. Raees will take over from this slide, and will take you through it. Raees, please, will you, just continue the presentation?

[Foreign Language] Thank you, Ali, for the comprehensive overview to the audience related to our financials, and I'll just add up to the -- what Ali said, [Foreign Language]. The company was having -- suffering with the losses for a couple of years, I would say, for almost 4 to 5 years. And you have seen it, after corona, a number of companies just collapsed also, but [Foreign Language] this company survived. Now since 2023, Ali joined the company, and we have a total different strategy towards our complete comprehensive, I would say that towards the production, toward the sales. So everything got changed. So the results which we are showing you, it's basically our company a [ dividend ], effort that has done by the management under the leadership of Ali. So the reflections are there. In the financials, we could see Ali has just told you that we have a drop of 20%. So in the group level, there was a OMR 25 million, OMR 25.933 million was revenue last year. It dropped to OMR 20.851 million, which is 20% drop because of the production, similarly the dispatches. It's a -- I would say the quantity which is affecting [ well ]. Similarly, the cost of sales is dropped by 23%. Here, the difference is there. The revenue dropped by 20%, but the cost dropped by 23%, and you have seen that in the LME side, the LME has gone up. So this is what Ali said that LEAN has accounted here because recovery towards the scrap recovery improvement, everything towards the cost, variable cost just controlled, fixed cost just controlled. So everything got reflected in the cost side and that has substantially reduced to the level of 23%. So you could see that the gross profit, which was OMR 345,000 in 2023, increase up to OMR 1.106 million in 2024. So this is basically a huge enhancement that has been done in the current years. Other income basically is similar to that. It's related to our internal dice basically, which is the crucial part of the company itself, the manufacturing process. So it's related to that, it remains almost similar and same. There is a substantial reduction in the general administrative expense, a substantial reduction in the selling price. It's basically -- sorry, selling expenses from 868 to 487, allows us product credit losses after the corona, we have had huge losses incurred. The total provision that we have taken up to OMR 2.7 million. So no further provisioning because the strategy got changed towards the customers. Now we have been very specific towards the customers' assessments, their credit health and all that. So that has accounted over the last 2 years. So no further provisioning we have done. Similarly, there is a reduction of OMR 10,000 in the property of a land. So that is being reflected over here. And rightly mentioned by Ali that the financial charge, it is basically sort of -- I would say that main cause that the company is suffering with, with a high interest rate, it was OMR 1.329 million, which increased to OMR 1.392 million because of the increase interest rate. So you could see that there is a drop of 61%. The loss that we have reported last year, it was OMR 3.714 million which reduced to OMR 1.463 million. It's basically a 61% drop. Whatever just we have mentioned above, that has been reflected down. If you just come down towards the EBIT side, you will see that it was negative OMR 1.9 million, and we are almost breakeven towards EBIT and towards the EBITDA, it was negative OMR 1 million. So it's a complete, I would say, that 180-degree turnaround the company has made. It has positive by 783. So you could see the percentage itself, 3.9% negative EBITDA last year despite having a good production and good dispatches. Now, we have converted having a less dispatches, but [Foreign Language], we have managed to have a positive EBITDA by 3.76%. So this is basically the financial that we have reflected. Towards the balance sheet, if you'll move, so the reduction is there. Property, I would say, the property plant equipment, mainly the reduction is due to the depreciation. So no further enhancement in the fixed asset, it's only 254,000 additions, but mainly the reduction is due to the depreciation, intangible assets, the same amortization, right of use of facilities is basically related to IFRS 16 as far as the practices as per the standard related things. Investment property, I've just mentioned that there is a valuation we have done, so 10,000 drop over there also. Deferred tax, we did not take further. Deferred tax asset carry forward because of the losses itself and as per the law, we cannot -- in such a situation, we cannot carry forward further. So it's remained almost the same. If you'll see that there is a drop of inventory, yes, that's the difficulty that we are facing. Last year, we had a good, I would say, that agreement with one of the credit supplier, which we don't have that sort of agreement this year. So that is basically caused -- and lack of working capital also that has caused a reduction in the inventory side. You could see there is a substantial decrease in the receivables. That has happened because not only that the sales is down, it's because there are certain customers, which we have recovered this year between 200,000 and 300,000 recovery that we have made in the current year itself. So that is basically one of the factor that has reduced the receivables. And the efforts are going on that [Foreign Language] we'll be recovering further of it also. If we just go down, the equity is negative because of the loss itself. And if you see the change in the noncurrent part of the liabilities, it's basically a restructuring that has happened. It was only done by one bank, OMR 2.6 million. And now the 4 banks, which are main banks, they have done the restructuring of 50% of their tax in the year 2024. So that's basically a reflection that the loan got increased. It's not something that we have not taken any further loan. This is basically a sort of a reclassification, I would say. Moving towards the accounts payable, that got increased as we are trying to -- I would say that stretch the payment cycle just to move our working capital smoothly. Secondly, we build supplier -- the credit biller suppliers. We have halted the payment in the year 2024 due to the issue of, I would say, the working capital, the LME got up and so, so many circumstances. So we negotiated with that supplier as well. So we have halted some payments. And we have negotiated with some other suppliers, and we have just delayed their payments also. So you could see that there's a little bit increase in the accounts payable and on the people side. Bank borrowing, I just explained, it's just a sort of a reclassification from short term to long term. Ali, to the next slide. Yes, the future outlook. So where we'll be going? What we are expecting and where we are -- I mean, looking ahead? After this, I would say that the sort of turn around that we have initiated, the requirement, we are currently working with that equity injections of 800 is required as per our new -- I would say, the updated 10-years plan. Last year, we presented the 10-years plan. It was with a different assumption of the credit supplier. But this year, it is not there. So this year, what we have done that we have changed and updated our 10-years plan with the equity injection of OMR 800,000. And OMR 2 million borrowing from one of the main leading banks in Oman, and it's almost finalized with that bank. So [Foreign Language] we'll be getting this OMR 2 million facility. And what we have presented to our current banks, the commercial banks, the 4 main banks that with this OMR 800,000 and with this OMR 2 million, we will certainly enhance our capacity utilization from 35% to 45%, and we'll certainly reduce our losses. And if we are able to manage or prove this, that we will reduce the losses further in this year itself, then we have got a commitment from them that they will certainly support us with a OMR 5 million injection of further funding in terms of loan and we will certainly try to get the equity funding -- either equity of OMR 5 million or either loan. So we are optimistic that we [Foreign Language] get this support from the banks and the investors also. So the major highlight, I would say the assumption of the plan that we have that sale quantity, 50% capacity utilization increased to 82% in 2 years itself. I mean in the first year, it will be somewhere between 45% to 50%. And then second year, when we'll get this OMR 5 million, then it will reach to 82%. The inflation impact we have considered in the, I would say that in our projections of 1.5%, rate of interest, we have [ kept ] at 5%. Although Ali has mentioned that we are doing 7% currently, but what the plan that we have presented to the, I would say that the bank itself that we be requiring such sort of a discount towards the interest side, which we are optimistic to get it from the banks, that kind of support. The billet purchase from the major billet supplier at the cash, it's basically a practice of the extrusion industry, so we'll continue with that. Additional working capital facility of OMR 5 million that I mentioned that from the second year onwards, which is 2026, and we are monitoring of the interest principal we have requested from the banks. And we are almost near to finalize with the bank itself that there will not certainly be any major installment payment to the banks and there will not be a sort of interest repayment. And this will certainly help us to get further working capital to enhance our capacity utilization. So old bank term loan will be settled within 10 years starting from 2027. So all those major assumptions that we have kept and the result will be this that we are expecting that we'll be doing this OMR 1.1 million loss in 2025, which is very, I would say, that on the higher side, we are keeping it. Conservatively, we are keeping it [Foreign Language] will -- what we have done in 2024, you will certainly see the results in 2025 will be much, much better than that. And then in 2026, 2027, there will be certainly addition of OMR 5 million injection of either equity or bank's loan, we'll be doing a profitability of OMR 826,000 and then OMR 1 million and will be reaching to OMR 1.4 million. So this will -- this is basically the feature that we are looking for this extrusion company. So the conclusion, I would say -- yes, Ali.

Thank you. Thank you, Raees. So, in conclusion, if you look at what will enable us really to recover the company. When we say recover, actually, we are already in the route. So we know what we need to be done with our Board of Directors as well has really worked very hard to align all our stakeholders so that we can achieve and have a clear plan to recover the business, as Raees has indicated to you, and you've seen in the recovery plan, the 10-years recovery plan, there is a fundamental assumption that has to happen. And one of them is the working capital funding, which, as Raees has indicated, we're expecting OMR 2 million from government and supporting fund and OMR 800,000 from our key shareholders to be really injected. The raw material prices is something we need to monitor very closely, having the liquidity available, giving us an advantage in managing this very well and turning it in our advantage. And the interest rate is another challenge, but something as well manageable, which we believe it can really be driven forward. So I have been saying that we conclude our discussion for today, and thank you, Abdullah. Abdullah Al Abri is our Board Secretary; and Raees, our CFO. And we are happy to be -- to see as well Mr. [ Rashdi ]. Mr. [ Rashdi ] is our Board of Director, actually presented during the discussion session, and the time is for you, if you have any questions, please feel free to ask.

So if we have any questions. Yes, please, Mr. Shaoor.

Yes, hello. Am I audible, sir?

Yes, go ahead, please.

I just had a couple of questions. I'd like to start with -- you mentioned that the prices for aluminum has now gone back to the start of 2024 levels that we have seen that. How would that impact your margins? Because in 2024, even your gross margins were only 5% of the total revenue. So if the prices are now close to $2,300 per ton, how will that impact your margins?

So yes, Shaoor, I'll just try to reply to that part of it. See, Shaoor, it was rightly mentioned that it will be going back to the prices of $2,400, again, it's sort of a fluctuation. In our industry, it's basically back-to-back prices. What we do that we charge to the customer, LME plus conversions. So the prices, if it is $2,400 or $2,600, or $2,800, it's basically pricing plus conversion. The major impact is that has happened. It's not because of the LME. You have seen that LME has got up in 2024, and it reached a level itself. It does not pay us in that level. Actually, the conversion and the efforts of reduction in the cost, the Trump, which Ali has mentioned, the lean management. What we have done that we have reduced our cost towards a number of operational aspects, especially the recovery. Our recovery got increased from 20%, it used to be. Now it's decreased to 17%, 3% drop is there. So the LME prices will not impact. Yes. The LME prices has a major impact. I would say that in the revenue trend but it won't impact much on the margin side. What we are expecting with the level of this $2,400, even $2,300, we'll be maintaining a good margin.

Right. Makes sense. And when you say good, how good is your expectation? What is the management's expectation?

Shaoor, what we presented to you that the -- our expectation is, again, a loss of OMR 1.1 million, but it is quite conservative. At the higher side that we have mentioned to you. What we are expecting and [Foreign Language] within 4 to 5 days, you will certainly see a result of a quarter itself. And from there, you will understand that what we are talking about. That the figure, OMR 1.1 million, very higher side we have mentioned [Foreign Language] it will be very less to that part. See, from OMR 3.7 million, it reached to OMR 1.4 million. It's a 60%. So similarly, the practice and the efforts are continue to drop it to the very, very low level itself. Even what we have internally targeted to have a breakeven, breakeven towards the EBITDA side. So you will certainly see [Foreign Language] the results for the first quarter and even set to evaluate what we are trying to say and what we are trying to communicate to you.

Thank you, Mr. Raees. Thank you, Mr. Shaoor. Do we have any other questions? Okay. So I believe that's it -- thank you, everybody, for attending the discussion session for 2025. See you may -- we close this after your permission.

Yes, sure. Thank you. Thank you for everybody who have attended, for our shareholders and everybody is following this [Foreign Language] promising in news. We have announced today as well, an initiative of really securing an equity injection through different initiatives, our shareholders as well as some of the government firms to support NAPCO. So all of this [Foreign Language] have in collaboration with all the different stakeholders. So thank you for attending this [Foreign Language] I wish NAPCO all the best in the coming few months.

Ali, may I add something? Just one thing?

Yes.

For all participants. And of course, for the record, please note that the presentation and discussions that contain the statement, I mean, related to financial conditions and results of operations that NAPCO has seen. These are all from published information. Now the purpose of this meeting is to exchange information only and all recipients of this presentation must not communicate, reproduce, distribute or disclose to any media or refer to them publicly or privately. You see this is very important because results can change. So all these publications are done according to this, but this is the disclaimer that the company would like to announce as well, please.

Thank you. Thank you all.

Thank you.

Thank you. Have a good day. Bye-bye.