National Gas Company SAOG (NGCI) Earnings Call Transcript & Summary

[Foreign Language] Ramadan Mubarak to everybody. We will switch to English for this session, and after -- we can take the question in any language afterwards. We will switch to the presentation. Manoj, please. We will have some slides as a support as a full page. Do you see my screen [indiscernible]?

Yes, sir. It's clear.

This [indiscernible] session, as we are doing each quarter, this one will be more concentrated on the full year. We are closing -- we have closed our number last week, and they have been published in the Muscat Stock platform. You have access. And if you have any questions, we are also here ready to answer. We will present quickly our small introduction, the market challenge we are facing still and some business overview. And I think, the main session is the questions and answers from your side, and we are here to answer any requests. From our vision, I think today, we are -- since 2 years now, we have started also the transformation of the company. The transformation is going properly. But our vision is always the same: to be the leader in GCC, mainly Oman as [ a host ], as the key head office of the group. Saudi, where we are entering and we will try to enter, we will come back to it later. UAE also, we are reconsidering in a certain way. And mainly in Asia, we are reinforcing our position in Malaysia, and we are also looking and opening some doors in Indonesia mainly with some new change in the country. Our [ commitment ] is always also to fulfill our shareholders, our customers, our employees. And I think we are trying our best. And even this year, we have done a little bit of move. We are publishing our first ESG report this year before AGM. The teams are working on it, and we hope that it will be published on 22 or 23 this March. This will be the first ESG report for our company. For the challenge, I think the challenge, no big change from the previous year. One -- perhaps one big change is that the new regulation has been announced and enforced on 1st of December '24 by the Ministry of Commerce that the branding officially has started on the paper, on the ground, no one is moving. We have sent a letter on 28th of August, Nasser, if I'm -- because I was in the Ministry this morning for the same purpose. We sent a letter on 20 of August '24, requesting clarification of implementation. This letter was signed by 10 companies, not only NGC. Until today, 11th of March, [ we received ] any answer from the Ministry of Commerce. This morning, myself and Nasser were there to request officially an answer. They told us [ Inshallah ]. [indiscernible] practice is still ongoing, I think. And also, as you have seen, Mr. -- the Civil Defense has published last week in the news, enforcement of the cylinder to the end user, be careful, don't use cylinder expired, et cetera. There is a big article. I think it's good. We have seen also on the ground some enforcement last month. Civil Defense is really doing its job, inspection of godown, of tracks, and so on. I think it's good. We like it, and we were hoping for it since years. Now, it's facts, and I think it's a positive signal from the Ministry also. Reducing our operating margin, it's always the fact that due to many suppliers and mainly in bulk. Price increase, we are asking for it, but still declined, waiting also some clarification, as I told you, and we are engaging also some new challenge. We have also spoken with the Ministry to open a new business. We are working with MOCI about why not to explore auto gas. We have done a workshop with them last month to bring them interest. And so, I hope they will take care of it, and we are here working with them to develop this new activity, which can open for us some doors in Oman. [ Driven ] performance, I think '24 was a good year compared to '23. Profit is really driven by a mix because we have a good mix now between cylinder refill, between bulk and between D cylinder and a small activity of lubricants. And we are trying to keep and to clean the customer, having a good customer by paying first and good margin. The second part is efficiency cost. For you to understand, in the last 2 years, we have reduced our manpower cost by 20%, means we have done a big effort of reduction of people, reduction of numbers, streamlined. Today, we are a very lean organization and less managers but more workforce. And I think it was -- it's why our results today become more positive than the previous year. Transport cost is still a challenge for one purpose due to OQ. Transport cost today -- if I bring product from Sohar instead of bringing from MAF, I'm driving 500 kilometers for the same quantity instead of 30, which is a big -- huge cost for me. But still, MAF has a problem. OQ also has problem. I think our raw material, our source is challenging for us. And also, we raised the point this morning about the quota. Optimize manpower, as I told you, I think today, everybody is high efficiency with -- followed by KPIs. Each department has KPIs. Each individual has his KPI. And I think the organization is really today at the maximum. We have no contingency or no replacement or nothing in [ indiscernible]. I think now, we need to think about hiring in '25 when it's only needed and it's urgent. Like today, we have an [ open ] position of someone who left for procurement. Expanding a little bit, I will come back to it also quickly before I would like to go to the numbers. I'll come back to Saudi after. Our financial results, which have been published last week, are the following. In Oman, we have done OMR 9 million compared to OMR 10 million last year, mainly due to non-volume availability in H1 from OQ. We didn't get our quota. We didn't get our volume we requested, and it hit us really on the top line. Nevertheless, the gross profit, we have improved. Even the volumes are not here. We are at OMR 1 million gross profit today. Operating profit is still in loss. Yes, we are at minus OMR 36 million, but we have really improved compared to last year, minus OMR 180 million in Oman. And our income has helped us. This is some income from shares and so. Finance costs, we have reduced also by 13%. And the dividends we received from our subsidiary in Malaysia are at the same level, [ OMR 222,000 ]. And our profit before tax, I think it's OMR 143,000 positive compared to OMR 64 million. And we finished the year in a good number, positive profit of OMR 220,000. At the group level, it's a little bit different story. We grew. Now we are close to OMR 84 million, OMR 85 million as a revenue total, plus 8%, thanks to Malaysia, who has grown by 5% of volume, winning market share. The operating profit, it's much better. We are close to OMR 1 million compared to [ OMR 300,000 ] last year. And if you see also about our profit before tax, we are really multiplied by 3.5. We are close to OMR 440,000 today. And the total profit, it's OMR 232,000. At the group level, we are positive compared to last year. It was negative, minus [ OMR 113,000 ]. And we have tripled our profit. In parents in Oman, we are positive OMR 220,000. In the group level, we are positive at OMR 232,000. If you see, the gap is low. It's mainly due to some losses we [ accrued ] in Saudi, and we will come back to it. Otherwise, we will be much better. As I told you, Oman, the decrease, I will not come back to it. I will -- I have -- just telling to you that the main thing is we have increased our gross profit by selecting our customer from 7.1% to 13%. Operating profit, we have reduced really by [ 80% ] and by [ 187 ] at a group level; margin and cost control in Malaysia also. We have also removed some people. We have streamlined the performances and the organization. And the profit of the year, I think we have increased, as I told you, by OMR 150,000 in Oman and by OMR 345,000 at a group level. Saudi, we are always challenging, Saudi top line impact due to delay. We have not done our targets. We are below our targets because the orders are not coming. The decision-maker is more slow. And in Saudi, still we have a cash issue due -- a lot of customers are not paying on time. But nevertheless, we have streamlined the organization. Saudi, we have also reduced our loss compared to last year, but still we are at loss in Saudi. Malaysia, quickly, as I told you, we have -- volume increased by 6% and revenue by 11%, and the profit has improved drastically by 41%, helping us also, thanks to the fact that we are starting diversification in Malaysia. We have started solar power. Now we get the G7 license. And I think we are ready to do a project at a bigger scale. And we have also ventured with a pipeline. We are doing a pipeline for Gas Malaysia. We got an award of 20-kilometer pipeline last quarter, and we are now in execution phase, which helped us last year also. Some projects to give you because it's always good to see some figures. And so, we have finished last year [ ICFC, which is fishery ] in the left side. In the right side, you have [ A'Saffa ], well known in Oman, has started -- commissioned also last quarter. It's full installation, design, commissioning from our side, even the civil work. We have also [indiscernible] in January '24, beginning of quarter 1, and a great oil tank testing also and repair. It's in the middle of a diesel and oil and gas business. We have -- I would like to share with you this project. I think it's a major change in Saudi for us. In Saudi, LPG business is really at loss, worse than Oman, because we are only an engineering company over there. We are not a gas company. We cannot sell gas until now. We have signed this big project with [ ECHEM ], Egyptian company, to install the biggest PRMS system for Aramco to connect 40-plus industries in [ Dammam Industrial 3 ]. And here, you see the skid has been designed, fabricated, commissioned, installed by our team on site under the supervision of the Ministry of Energy in Saudi. It's 100,000 cubic meter per hour capacity. It's OMR 4.4 million size project. Number is not big, but the technicality, the challenge and the requirement with Aramco, I think, was a good reference for us. And Saudi is trying to convert all the big users from diesel to natural gas. This is Almarai. Also we have signed. Now we have all sites of Almarai in Saudi under our supervision. Here, it's Al-Kharj, and we have Al-Kharj, Hail and Jeddah, 3 plants. We are doing installation, and we are also doing the full maintenance of all plants in Saudi Arabia for Almarai. We have also signed Al Rashed Food. It's the competitor, smaller size than Almarai, a small project. But here, also we installed in Riyadh and in Jeddah, where we got the SNG and LPG system; also OMR 1.7 million projects, small size. But I think as a reference, it's a must have, too, in the food and beverage. I would like to come back only to one last slide, if I may. In Saudi, to give you a perspective, we have submitted, as we discussed last time in quarter 2, the commercial bid for the application of 2 licenses: license one, refill and storage like we are doing in Oman and bulk distribution like we are doing in Oman. But in Saudi, it's 2 different licenses. We applied for both. And we got a nice visit of 6 people from the Ministry of Energy of Saudi, who audit us here our process, our plant, our management, our team, and so they spent more than 2 days with us, and we have answered all their questions. And so, as you know, we are -- 8 companies shortlisted until now. Probably 3 of them will get the license, and we hope that we get some good news by end of April. That's all for me. I think we have seen everything. We are here to get your answer -- your question, and we will try to answer as much we can [indiscernible]. Thank you.

I think you can stop sharing perhaps -- or keep it if there is some question. Any question? Yes please.

Yes. Gentlemen, am I audible? Sir, I had a couple of questions. So you had mentioned in your presentation and in your notes as well that the parent revenue this year was impacted due to certain technical issue with the LPG. I just want to know the status of that. And has that been resolved? And should we, after the resolution, see an increase in the parent sales this year?

The question is about resource or -- of resource?

Yes, you maintenance.

Today, what we are facing mainly most of the problem from OQ is -- most of the problems are coming from MAF, from a refinery here in Muscat. It's in shut-down very often. And due to that, they give us the product not from MAF, but they give us the product from Sohar. But it's waiting time, it's kilometer and disruption of the logistic-wise, which increased our transportation costs. We have no visibility. In the last quarter, we got 7 shutdowns in last quarter by OQ. We only get an e-mail. We are in shutdown for 2, 3 days. When they will resume, we don't know. We are following. We are under their pressure, and we have no backup. Since our only backup -- we are lucky, in Muscat in -- we are lucky, in National Gas, we have the biggest storage capacity. We have [ 2,200 ] storage capacity. We can survive for roughly 3 to 5 days, depending on the consumption.

All right. Great. That makes sense. So if the issues are not resolved, we might see a similar drop in sales in this year as well, like a 10-odd percent drop, if the issue is not resolved?

We request for them to give us our quota as a minimum and even more because today, we are lifting double of our official quota. I can give you a number. Last January, we have lifted -- a record in the company since 45 years. We lifted 10,500 tonnes in 1 month in January '25. But I think there is a challenge for OQ. They don't have enough gas today. They have maintenance challenge and quota management. We were this morning with Mr. Nasser to discuss with Undersecretary of MOCI. They have a meeting tomorrow afternoon to solve this problem of quota management. And we hope that by end of April, we will get a formal quota management, which is how to manage better because the 2 big companies, they need more logistic relation and so to fulfill our requirement. We have commitment with the customer. We need to fulfill these requirements.

Okay, sir. Makes sense. Secondly, sir, on the group level, so you mentioned that you have -- hopefully, you will secure the license from Saudi Arabia in LPG. And then, you have also some developments undergoing for some of the small projects that you mentioned. In the light of these projects, could you help us get an idea of how much sales increase are we expecting if all of these projects are completed during the year? So how much sales should us -- in percentage terms, should we be expecting to increase by?

You speak about if we get the license or normal business?

No, sir. If you get the license and all of the expansion plans that the company has, if everything materializes, then -- so what sales increase should we be projecting?

Today, if you take the numbers of today and if we get the license of Saudi Arabia and we get the license what we expect, we are speaking about doubling the size of the revenue at the group level in 3 years from now, not today because you need 2 years to build the plants and 1 year to start operation, getting market share, and so -- which market is already existing because today, Saudi Arabia is a market size of 100 million cylinders distribution, plus 300,000 metric ton of bulk. If we get -- our projection is to get 25% market share in 3 years. We expect to double our size in 5 years of now, maximum by 2030.

Right. And as of now, like the immediate -- on an immediate basis, how much sales increase do you think that there will be if -- right after you get the license?

For year 1, we are expecting to have 10% market share; year 2, around 15% to 20%; year 3, 25%. This is our ramp-up a little bit roughly. It's estimation, again. It's depending on some clarity of the license and the zone. If we have Riyadh, it's a big chunk. If we have Dammam, it's a little bit medium. If we have Jeddah zone, it's also a big one. It's depending on which zone you will get because the license will be by geography, by zone. One zone is Jeddah- Jazan. Another zone is Riyadh- Hail. And Zone 3 is Dammam only, and even not Dammam [ Al-ahsa ], to be precise.

I have another question. If there are no more questions, I would like to ask another one. I don't see anything else here. Okay, so the numbers that you are telling are very promising. And obviously, we have seen that on a group level, the company is doing fairly well. Just the issues that the company faces are on the parent level. And historically, the numbers that we are seeing and the numbers that are in front of me right now, the parent has really struggled. So how do you -- how does the company think -- because if in the best case scenario, let's say, your sales would go up by, I don't know, a certain amount and even then the revenue contribution from parent would -- based on these numbers, what would be the best case scenario and what is the management actually trying to do to improve the contribution from the parent itself?

With the trend we've seen that [indiscernible], so now it is reduced. So how we are going to -- what will be our best scenario?

Before -- the group of size has changed, first of all, you can know, more compared to before as a parent company because you were having Dubai, UAE who has leading the company by a big revenue, and the revenue was very high. Then for us, in our business, to be very honest with you, revenue has no -- it's not a concern for one reason. The revenue is driven by Aramco CP ratio. If Aramco CP ratio is $1,000 due to a war or anything happening in GCC, my revenue will jump automatically, arithmetically without any push from my side. What is most important for us is the contribution of the operating profit. And as you see, the operating profit at a group level, it jumped by 200% from OMR 343,000 to OMR 1 million. This is the most signal positive we can share with you. And we are going in this trend for the next 2 years for 2 main points. Point one, Malaysia, we are targeting to grow -- and to continue to grow to be the second major player. And we are diversifying the business by pipeline, by solar, by EPC. Then it will bring additional profit and additional dividend also for the future, I hope, for our shareholders. Our main challenge was -- until now, is to transform Oman, to sustain Oman, to stop bleeding, to be very transparent with you. And even today, as I told you, we are proud of us because we jumped from minus [ OMR 180,000 ] to minus [ OMR 36,000 ]. But nevertheless, we are still at minus [ OMR 36,000 ] due to the regulation in Oman. Our target as a management was to be at break-even at an operating profit level. I'm not speaking profit after tax, which is the main concern for our organization. I think we will be break-even in '25. We will continue to grow in the others. And we hope that opening in Saudi will bring us also additional revenue and profits and with a new license, but we are also looking after UAE to reopen in more small scale. But UAE, as a trading company, concentrates in Dubai mainly and not in other Emirates. Then the future is in front of us. If you materialize Saudi, if we materialize Dubai and if we continue our growth in Malaysia and if we stop bleeding in Oman, I think the future will be positive.

Perfect, sir. Perfect. Just one last thing, I guess, from my side is, based on the structure of your business and the operations of your business, from what I've understood -- and please correct me if I'm wrong, but from what I have understood, any increase in sales would proportionately increase your costs as well. So what level of operating leverage is there in the company's operations? So for example, to put it differently, my question would be that if you are able to sell [ OMR 1 million ] from pool of gas...

[ OMR 1 million ] bring me 10%. [ OMR 1 million ] today bring me 10% of contribution, [ OMR 1 million ] sales in Oman.

Okay. The 10% contribution is on the net profit level or is it on the operating level?

Operating level. I don't speak about the financial and so on.

Yes. And that is expected to remain the same? Because once the sales increase, your fixed costs remain constant. So, one would expect the contribution margin to go up. Is that the case? Or is the 10% that you told me would remain the same regardless of the sales?

No. Today -- in the last 3 years, our contribution was close to 5%. Now we doubled from 5% to 10%. Any additional volume, our fixed cost is the same. We will not hire. We will not invest. We will not -- we have still capacity to do [ 12 million ] sales in Oman. We are at [ 9 million ] last year due to lack of volume, not due to lack of business or opportunities. We stopped customers in '24. We stopped a lot of customers during 6 months.

Okay. Great. So that makes sense, sir. Just one last thing from my side would be any guidance on your capital expenditures going forward? Any normalized level of CapEx that the company requires to maintain its plant or any expansionary CapEx in addition to the ones that you already mentioned? Because those are very small. But any major capital expenditures?

You speak about CapEx?

Yes, sir, CapEx.

CapEx, we need a lot of CapEx to open Saudi. It's a big investment. We cannot disclose today because we are still officially under tender process. It's forbidden by Ministry of Energy of Saudi. As soon as it will be declared and announced in the license by end of April, we can share with you in the next Q2 discussion and so on. But it's a big amount. We cannot do it alone, and we have a partner and we have already found a partner. We are under NDA also with the partner. We cannot disclose his name today. As soon as we have everything green light, we will disclose.

Great. And that's the expansionary CapEx. What about the maintenance CapEx, every year, the normal number that you guys have to obviously -- to keep your equipment in line?

We are very conservative. The only CapEx we are usually doing is injecting cylinders in the system. We are injecting in the system roughly 10,000 cylinders new, which is a minimum requirement. We are -- sometimes we have changed our fleet this year. I think we have spent some money. But always, our concern as management, we don't spend $1 if we don't need it. $1 is very important for us. We are very, very conservative because our margin is very low. Then my team is really -- we have an investment committee. We don't go -- so even the Board really, they are supporting us. They give us a credit line, but we never use it. It's only for us as a comfort to have it, but we are managing with the asset we have. CapEx will remain very low. Anyone else who has some questions? [ Mr. Jones ]? No question? If there is no more questions, I would like to thank all of you, of your assistance, your presence. I would like to thank also my team who prepared, and our Board Director, Mr. Hisham Al Alawi, who are supporting us. And we will see you on the next one, will be in April. Next discussion will be end of April after the disclosure of the [indiscernible]. [Foreign Language].

Thank you.

Thank you. Thank you very much.