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

Good morning, everybody, and good afternoon for some of you. I think we have -- we are on time, 1101. We have good people. I think we can start if some people will join after. I'm very happy to open this session for H1 '26 with all of you. I will go through a short presentation. And afterwards, I will take your question with my team to answer to all your question in full details as much we can. First of all, as introduction and to give you an update about the market in Oman. The next slide, please. what's happened and what's going on? And perhaps also you have heard next also will come back to this one after where we are today and what's happened on the market? Perhaps you have also heard some noises, and we will take your remark on it. Our price revision request have been done again only in July, beginning of July, to a new Secretary of Commerce because we have a new minister, a new secretary in 6 months now. we are restarting the discussion, connection, update, challenge and so on the ground and we met them with 2 members of our Board member to convey them the message that's really today a price revision in Oman in such condition and also in this war condition, even we are not directly impacted, as you know, because we are subsidized, but indirectly impacted. Our price remained the same since 1994, OMR 1.9 per cylinder, 22 kg standard. For branding, we are also waiting clarification now since 2 years from Ministry of Commerce, because branding has an impact in our cost. It will probably clean the market, but it has a cost. We have evaluated the cost as a management, and we have submitted request to MOCI to support all companies, all players and to see how we can support this branding, which is mainly one phase is to change the color. Each player, each company will have his color. Our color will be yellow. Our brand will be Mira as in Malaysia and normally, we need also to be more safe to change the valve to go to the international standard, which is self-closed environment. All this has a cost. This cost has evaluated, but we are still waiting the feedback from MOCI, what to do, what to implement and who will pay for it? Is it the final customer or is this indirect subsidy from the government for a transition period? Margin remain under pressure in the current environment, mainly in bulk, we can say, because we have too much player for a very small volume in Oman. And again, I think since 1994, which is really long time now, we cannot count anymore and our purchase price has increased, as you know, by 50%, a lot of taxes. Now a new law came for 1% for sick leave, et cetera, et cetera. Many participants, full market, as I told you, for the price. It's mainly the -- it's mainly the challenge for -- but we have taken some rules and some action on the bulk, we'll come back to it. And project execution has been slower than planned because a lot of material delivery are coming from a broad and the transport cost has increased and even not only the transport but the timing. The good news, I think it's important, and we have started this journey 3 years ago to transform the company. Despite the above challenge, the discontinuation of discounting, which is mainly removing the discount we have done for the trader, for our distributor for 20 years. We removed it because we can no more afford and cost control has helped achieving a very positive operating profit, which is the good step for this H1. And probably we will continue in the same trend for H2 if no major change from the government side. Next, please. From cylinder and bulk, as we say, in H1 for Oman '26, the sales volume jumped by 5% and price realization, which is margin, 5% also versus last year H1. At bulk volume we reduced it because I think a lot of customers was taking a lot of volume at very low margin, erosion our margin, increasing our cost, we have decided to stop them because the profit was close to 0, and we were very selective to protect our margin. On the other side, for lubricant and product lubricants, we are impacted nevertheless directly from UAE because our products are coming through UAE and due to the war, the base oil is no more available and price has increased. But due to the stock we got and some new supplier, we have achieved some compensation. But nevertheless, we are still challenging for '26, lubricant will be a little bit challenged for us. Project revenue is higher, slightly by OMR 45,000, but even some delays in material. Overall, price realization, we have improved by OMR 2.38 -- by OMR 2.8 per metric ton versus last year, which has helped a lot to achieve these good results. Next. in efficiency and in operational optimization, the LPG volume managed, we have selected volume and tried to protect margin, which have the GP, the gross profit has improved by roughly OMR 100,000, which is for us significant even the amount is small. Administrative and selling expense held we control to the level of last year, '25. Even we have increased in the payroll, many of the people who are working very hard in the company to transform this company and also mandatory, you know the 3% from [ MOL ] even all these apply, we have exactly at the same level of last year. We have not absorbed any increase -- we have absorbed all the increase. Profit before tax turned positive against a loss on H1 last '25. Next, please. In the finance part, working capital, our DSO has been improved. If we compare only December to June, it will be 1 day. But I think our target is to go to 70 by end of the year. We were trying to achieve it. Even today, the atmosphere on the market, the payment is more and more challenging for the SMEs in Oman. Working capital has been really improved by 10 days, which today we are at 41 days. It's a shorter cycle. And recovery of due, I think we have negotiated and managed a recovery of OMR 224 million, which was since dragging since more than 18 months with [ SBMP ] company. Finally, we settled the due and it helped us by June '26. And then we have reduced our ECL by OMR 85,000 in H2. OMR 264,000 or 26%, we got appreciation of our investment share held by NGC. It's the share we are held in at [indiscernible] since a long time. I think it helps also with this appreciation for this H1. Next, please. I think the trend, this is a little bit to give you. As you remember, '22, '23, '24 was we are going from minus OMR 0.5 million to OMR [indiscernible] to breakeven in '24, '25, we was positive. I'm speaking about years here. The last block 32, it's only 6 months. I think we will be close to '25 or probably much better if everything stays smooth for the second half, even we get some challenge. We are in a good trend. The transformation now is seen in the numbers. Now we need to be transparent also. We are fragile also because the numbers are slightly OMR 100,000 profit, small change in the environment or [indiscernible] tomorrow can make some challenge. But positively, we are in a good trend today. Next, please. I finish for Oman. I want to open a little bit also to share with you the good news about our Saudi. As you know, we are in expansion in Saudi, mainly and UAE, but let's talk about Saudi, which is tangible today. We won against 11 to 15 companies, the bidder for Saudi. We are now officially awarded 2 license secured. License 2 for LPG refill and storage for Jeddah and Jazan. License 3 is LPG distribution across the entire Kingdom. This is what we are doing today in Oman. And the first one is what we are doing in 6 plants today, but the scale up is 10x bigger, and we are more close to our business, what we are doing in Malaysia than in Oman size-wise. New entity being established with our JV term now being finalized with our partner. We have a very strong local Saudi partner, the Zamil Group, who has 46 company, and he has decided to join us with this adventure in a secure business for him because it's a necessity for the country. The size of the volume in Saudi is OMR 1.3 million with 1 player only today, which is GASCO. And GASCO over the last 2 years has restructured the company in a very different company. Next, please. The different -- GASCO has structured himself like this one in 4 companies: License 1, license 2, license 3, license 4. GASCO now has 4 companies: Jal, Tazweed, Khazeen and Hulul. Then license 1, it's only a logistic company, supply from Aramco to old refill plant in the Kingdom. License 2, you have -- you are allowed to have storage, which is safety, security, big investment and to fill cylinder and to sell bulk to anybody who has license 3. License 3 is mainly distribution. You cannot have storage. You have mainly truck, you are a distribution company of bulk company to SMEs, to industrial and also to commercial customers. License 4, which is today not practically existing but in building. It's what we call distributor, but it's mainly a wholesaler of cylinder. It's someone who has the capacity to have 100,000, 200,000 cylinder to be a stockist to store and so. And then after him, there will be small distributor locally by region. For us, we got license 2 and license 3. License 3 is national, license 2 is regional. Jeddah 1, Riyadh 1 and the Dammam 1, mainly today, tomorrow, in 2 years from now, license 2 needs roughly 2 years to build the plan to execute. License 1 we can be shorter in 1 year maximum execution. And we will be, at that time, 3 player. GASCO, Unigas from Lebanon, plus NGC with his partner, Zamil. Next, please. This is the 3 license, as I told you. We have bid for this license in May '23. Today, we are August '26. It has taken time. I think mainly time has been taken to give GASCO the capacity to restructure and to clean and to start the competition in a fair and cleaner way. License 1 also now has been opened for bidding officially by MOE in Saudi, and they called us to participate. And license 4, they called us also for an official RFP floated by MOE also. And we are evaluating shall we participate or no. As you know, all these license, it's a long strategy. It's a license for 25 years and the investment, it's a huge amount. It's not a small amount. Then I think we will see with the Board if we shall or not go for license 1 and license 4. Today, we are starting to execute and to be ready for license 2 and license 3. This is a little bit to inform you what's happened for Saudi. Probably by -- we have met the ministry. We are now starting officially 1st of September '26, the process to get the license and to build the plant and to penetrate the market to set up the company, to hire the people, et cetera, and financing also, we are also working on how to finance these 2 big projects. Next, please. This is a quick map for the zone we got. The zone got from Yanbu on the north, Jordan border to Yemen, Jazan, and the 2 yellow new plant. This is the 2 new plants we are building. 2 new plant will be built also in Riyadh and [indiscernible] And 1 will be in Al-Ahsa. Then the government is asking the new investor, the 2 new investors to build 5 new filling big plant to support the country for its growth. Next, to finish with the numbers, the financial results we have published. I think some of you have screened them. The revenue for the parent company, we are slightly below at OMR 5.3 million, minus OMR 3.6 million, mainly is coming from the fact that we have reduced bulk customer, which was not affordable. The good sign is that our margin, gross profit has improved even we have reduced the revenue. And the main point for us, we want to share with you the operating profit, which is the capacity of the company generating profit. It's positive today after this transformation plan, we are at OMR 32,000 positive versus last year, minus OMR 63,000. Bottom line because we have this ECL, we have these shares and so on. We are at profit before tax, PBT, OMR 114,000 versus a loss of OMR 30,000 last year and net-net OMR 100,000 positive in Oman, which gives us a good hope to continue the same trend. At a group level, revenue, as you know, it's also impacted by the CP. CP is not under our control, is Aramco controlled. CP was slightly high in June because due to the war and so it explains this 8.8 but also we have growth by volume. CP explained partially, but volume explained also. And at the group level also, last year, our operating profit was negative, minus OMR 127,000. Today, we converted at OMR 750,000. We got also -- we are maintaining our core business in Malaysia. We have reduced the loss of Saudi, the engineering company we still have over there. And PBT, it's now OMR 471,000 versus OMR 300,000 last year loss. And at bottom line profit for us, it's really OMR 300,000 positive compared to OMR 350,000 negative last year. It's a good H1. I think both at the group size now everything is under control. Everything is also well managed, and we hope that we can maintain our stability regarding the margin in the 2 main activity in Malaysia and Oman. Next, only to share with you some projects we have before closing my presentation. We have converted because a lot of customers are coming to us in Oman switching from natural gas to LPG because it's still subsidized for industry and it's cheaper. It's Oman Chlorine. It has been completed and running fully designed, purchase, execute and commission and AMC with us and the customer is very happy. Next. The second one is Global Integrated Engineering, Duqm Salt. It's a small project compared to the previous one, but we have also finished probably and Duqm Salt is growing as per their commitments. Next. This is for me. This is for all. Thank you for your time. Thank you for your attention. And we are ready to -- I will stop here. We're ready to take any questions. Please raise your hand and we will try to -- Mr. Shahoor.

Congratulations on a good set of numbers. I have a couple of questions. And to begin with, obviously, we have seen very good improvement in the company's financials this year. As you mentioned, this is partly because of the transformation that you were having this year. My question is how sustainable is this profit going forward? So obviously, we have seen your operating profit to turn positive. But even if it were not for the other income, the finance costs would still have caused a red line on the profit after tax level. So how sustainable and how much more improvement do you see in these numbers going forward?

So first of all, the financing cost has increased in Oman slightly a little bit due to our acquisition last year of -- in Dhofar of Samahram Gas, which is -- has been planned and it's absorbed by the benefit and the dividend we get also from this company, number 1. Number 2, for us, the operating profit is the main thing. It has been negative for a long time. Now we have sustained it by 3 aspects. Number 1, by the fill-in price. Now we have discontinued the discounted price because before it was common practice in the market by all players to give a discount to the distributor to retain and so on. Now we have stopped this one and say we are applying only the price as per the law, OMR 1.9 and this is fixed, and we have started in January '26 for some area and 1st of September '26 will be started for Muscat, which is the main one. This is the first sustainability for us for -- which will help us for the next 2 to 3 years to sustain our core business. For the bulk aspect, there is a challenge on the table, has been raised by OQ and the Ministry. Shall we continue or not subsidy the bulk, this is a question not coming from us, but coming from the government. As you know, the subsidy burden the last H1 has published last year by Oman. It is huge due to the crisis and so. But this question was before Iran war, to be honest with you. And then this is the question mark for us. what will be the price for the industry tomorrow for bulk, which industry will be impacted and who can absorb the international price? International price means what? You are today selling at OMR 75 per metric ton in Oman subsidy to industry. Tomorrow, you will sell at OMR 300, means multiply by 4 to 5 sometimes. Who can absorb? We have some guys who can absorb, but some others, government need to think about how to compensate them and how to support them. This is the question for us to answer your sustainability, which is not in our hand, which is the government because, as you know, we are in a business which is not under control fully. On the top, we have OQ. And on the down, we have the ministry who are regulated the price, and we are in the middle. And since 1994, we are absorbing all the cost has been engaged by the country and by the environment. But we are confident for the next 3 years, if anything change, everything stays stable like '26, we can perform a roughly positive result at the bottom line. At a group level, Malaysia is doing well, is growing, but still -- but to be very honest with you, in Malaysia, the government is supporting in this period because they are exposed to international pricing and so on. The government is helping all the player to sustain, and we are still getting market share. We are still #2 in Malaysia. And we are also starting from '27 a new strategy how to grow beyond Malaysia in Asia, mainly we are looking deeply in Thailand, Vietnam and Indonesia, which is neighbor country for us and same aspect, same rules and same condition also weather-wise and so on, and we can apply the same rules what we have learned in the last 15 years in Malaysia.

Just for my understanding, how different are the dynamics here in Oman if you are catering to the retail segment versus the bulk for supply of LPG and cylinders?

But today, in bulk, the government is opening a new rules probably to give license to a certain player who have the capacity to store to supply and so, which today, we don't have this distinction between retail and bulk. Probably it will come in '27, and it will also probably will be an opportunity for us because we have a lot of small players. They have no storage, they have no HSE, they have no liability, they have no AMC are doing bulk in this country today, which we are -- they are competing against us. This can be also an opportunity for us in '27, and we are working on this direction by the support of the ministry. He want also to see how we can improve the market and that dynamic.

Okay. So the bulk market segment is competitive? Or is it also fixed by the government at what price you can sell?

No, no. It's also subsidized by the government today.

Right. So that is subsidized. So it's a fixed pricing, you cannot increase?

No, no. It's only subsidized by the purchase cost. The purchase cost at the sale price is open, okay? But who will pay OMR 300 if I sell it at international price?

Okay. So that's competitive. I mean you and the other players, they compete for the bulk segment. Is that correct?

Yes, yes, exactly.