Oman Cables Industry SAOG (OCAI) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome back to our analyst meeting. This meeting will be dedicated to present our first half 2024 unaudited financial results. In this call, we have from Oman Cables side, our Chief Executive Officer, Erkan Aydogdu, our Chief Financial Officer Marcelo De Paola, and myself handling the investor relations, Jad Atallah. I welcome, everyone, once again. And for this meeting, practically, we will be presenting the agenda with main 3 points: an overview of Oman Cables Group, our journey on sustainability beyond the sustainable growth and then a presentation to our unaudited financial results for the first half 2024. I will leave the floor now for our Chief Executive Officer, Erkan Aydogdu to lead the floor and present -- and start the presentation. Erkan, the floor is yours.

Yes. Can you hear me?

Yes.

[Foreign Language] Good afternoon. I would like to start a little bit giving brief information about our company. Oman Cables, we are headquartered in the Sultanate of Oman with the presence in GCC countries, with a wide network of partners, agents and distributors in the region. We continue to explore new markets, adhering to a strategy of sustainable growth, which we'll come in a minute. We are very proud that we are celebrating our 40 years. We are having business with 40-plus countries in the region and in the world, and we are 850-plus employees as Oman Cables family. We are inspired with the Connect to Lead, enabling the energy transition in the region. We are really committed towards a low carbon society, and we are not just a cable producer. We try to be a service provider. We are capitalizing our leading position as a technological enabler of the energy transition. Our, at the end, target to anticipate the needs of our customers. We try to strengthen more and more our engagement with our suppliers, focusing on a very important topic, innovation, leveraging on technological and industrial leadership to amplify the positive impact that it can generate for the community. Okay. So, when we talk about the beyond sustainable growth, what we are exactly mentioning is the direct link of the region to a sustainable future. We really want to play a significant leading role in this front. We want to ensure innovative energy and telecommunication solutions through a responsible production, by pursuing economic, environmental and social sustainability for all the stakeholders and, of course, for the planet. Sustainability is our main driver of our strategy and division. This is now an integral part of our corporate culture and our business across all levels of the region. When we look to the -- our business strategy with the focus we have, of course ESG. Our OCI Group's ESG plan is on the short, medium and long-term strategy with the goals with an ESG road map all the way to 2050. Why 2050? Because we have a strong commitment to Oman Vision 2040 and 2050 net 0 carbon plan. As cable maker and the solution provider with all our stakeholders, I would like to give you a little bit color on what we are doing on this front, which is becoming more and more crucial for our region and for our economies all around on the geographies. We have a Global Sustainably Academy, which we are very proud of in Muscat. We are investing in the human capital training, talents and well-being. This is an academy that offers a lot of learning in this journey, and it's very important and critical that it stays in Muscat, that gives us a good recognition of our presence throughout the wider geographies. Of course, our sustainability governance. We are dedicated organization. It is very important. Regional [ sustainability ] committees we are having. We are having sustainability ambassadors, working groups, issue targets, projects and investments. Our investing in our social responsibilities on our communities is a must for us. We try to improve and leverage our strength in the communities in many different and interesting, exciting, inspiring projects. We invest in research and development assets, new technologies and also the knowledge. Investing to support developing reliable and capable grid infrastructure is also very important for the power transmission and also distribution towards a decarbonized future energy system. Transition towards renewable energy is an area that we are following very much in focus. In Oman Cables, we have the renewable excellence center that we have created, and we are able to offer widely solutions and innovative products for our all stakeholders. Approach to technology and innovation, and maybe we can summarize in 4 segments of activities. The first, as I was mentioning, boosting grid hardening within Oman and also the GCC region. The second one is strengthening the network through Servitization & Smartization. Third element is supporting growth in data and digitalization through new products and services. Of course, finally, being the Renewable Excellence Center in Oman to supply innovative cable applications for solar, wind and also hydrogen business in our footprint. Obviously, actively, we are fostering educational partnerships through innovative programs, as I was mentioning. Just to give you a couple of examples, SHE STEMS and Kids in STEM is the clear proof. So, nurturing a cultural inclusivity, diversity and empowerment. When we come to important elements to come to the final words from my side, I would like to highlight importance of the integration with Prysmian as the main shareholder. So, Prysmian is the worldwide leader, and of course, a huge legacy of Oman Cables in our footprint. We are trying to get and also advancing our synergies with Prysmian in servitization, quality, sustainability, excellent networks. So a lot of dimension is helping us to sustain and develop our business footprint. When we come to the H1 results, before I leave the word to Marcelo, just I would like to share and to engage good results for the H1 in 2024 with EUR 14 million adjusted EBITDA, and we have OMR 11 million of net result. And of course, as it is now integral part of our journey, very, very strong ESG focus, I have to say. We continue to deliver strong results, generating value for our all stakeholders, and with now tremendous efforts in sustainability. Thank you very much, and I would like to give the floor to Marcelo for the financial results.

Thank you, Aydogdu. Good afternoon, everyone. Well, the idea here is to show what happened in the first semester. You can see here the sales basically is stable when compared for the previous year. But it changed a lot in the mix. We grew a lot for the export market and balanced some delay in the local market. Please Jad, We see the turnover by business. You can see here the good improvement for [ renewable oil ], absolutely in line with the strategy for the company to diversify the business into this company. Please Jad. For the profitability, here, you can see the very good profitability. We increased around 9% of performance this year and a discipline in controlling the price and the cost created us this opportunity to improve the profitability. It's important to say, we had a very important volatility for the metals and the company decided not to make any speculation and had 100% or what do you have for this position for the metals. Jad, please. Well, we make a summary for the revenue. It's more or less stable compared for the previous year. If you can see 2022 have some mix change between copper and aluminum. This is bringing us this reduction for the turnover. But if you go to the EBITDA, EBITDA grow year-by-year, product mix improvement, this control for the cost, control for the price and continued improvement to the diversification for the product help us to bring this very good result. Not only EBITDA, but net income, net income. Net income improved too, thanks for the finance result. We improved the cash flow and at the same time, best result for the finance results. I think is it from my side. For the other slide, I have the network capital, good trend, maintain a very strong control and the net finance position, you can see here we achieved OMR 60 million for the cash availability. This help us in the result I told you before and create a very strong position for the company. Thanks for it. Jad.

Thank you, Marcelo. I believe now we could open the floor for questions from the participants. Please, if you have any questions, raise your hand. I can see, Amrith. Amrith, please go ahead.

Yes. Just wanted to understand the revenue, this fluctuation is because your price is linked to the underlying commodity prices, the price that you charge to your customers.

No, the point -- first of all, the one is -- [ probably ] the real is more stable. Normally this don't had a devaluation. 2002 compared to 2003, I had a change in mix because we had more aluminium than the copper when compared for 2002.

Okay. So, has there been any improvement in terms of your competitive strength and what kind of pressures, competitive pressures are you facing? And any light on that?

Well, from the market point of view, you can see the export will grow a lot, have more internationalization for the company. This puts our positions a good point in the region for the local markets depending for the demand. Demand [indiscernible] this what happen in maintaining this as stable for the sale. I don't know, Erkan, would you like to add something?

No, it's exactly...

Is there any market share number which you could -- rough number, which you could mention maybe within Oman and in one of your major export markets, what kind of market share would you be having?

We are having a very diverse presence in our geographies, also in our local and it really changes very much with the business segments that we operate. So it's not so easy to make a number certain, but we can say that in Oman, of course, we are present, and we are very actively engaging in everything. As Marcelo was saying, we are going more and more in the GCC area to also scout more opportunities with the product diversification, innovation and try to enlarge our presence.

Thank you, Amrith. I can see Sameer. Sameer, if you have any questions.

Thank you, gentlemen, for the presentation. That's very helpful, and congratulations for a great set of numbers. Yes, a couple of questions from my side. First on the competition side, yes, you've done pretty great and great numbers. But I just want to understand, how do you see the competition scenario? Are you expecting, because most of the other regions construction activity has been declined a lot. So are you expecting the competition from the imports to have or into this region to increase? If you could get some guidance, how you're seeing over the next 6 months or maybe over the short to medium term.

Thank you very much for this question. I think this is a very good one. And what I can say is as Oman Cables, we have to continue to be leading our presence in many business segments and product categories. So, we have to be very strong in our competitiveness, and we have to be able to encourage more and more our ability to develop businesses, relying on our strengths rather than on the competition scenarios. Of course, we are following very closely competition. As we were saying, the activity is going ahead actively. But also, we are investing a lot in our capabilities, extending our diversification efforts into many categories. And we see that -- when we are able to do that in a good way, we are able to compete in the industry. And also, final words from my side, as I was saying, we are not just cable maker, we are a service provider, so it's just not about only the price, which is very important element, but we don't believe that it is the only element in the industry we can create and we are creating a lot of value and we are optimistic that in the medium term, with the energy transition that I was touching with the renewable energy also replacing the traditional ones more and more. And our presence is interesting for the industry, also integrated and taking the advantage from the Prysmian Group capabilities and the knowledge, we create a bit of unique position here, and we work hard for improving our presence in the geography.

Okay. And just a follow-up on that, when you mentioned that you have transitioned to more of a service provider. So just wondering, do you have a separate revenue line on the product? Or are you earning a new revenue as a service provider? Just want to understand from my side.

Yes, thank you. Yes, this is a developing line that we are putting solutions, bundling with the cable supply. So, we are developing solutions, and we are now making some prototype of these solutions to also share experience with our stakeholders. And we are putting an effort on that front to complement our offering into the market. It will take time to realize these solutions are also creating a lot of value for our stakeholders. So it's putting a lot of effort in the short term. The results are not immediately in the short term, but we believe that as our responsibility is driving, enabling this change, we are creating a good solution pool and value for the market.

That's clear. So, also, one last question from my side. On your cash position which now stands at almost $150 million. Just want to understand, do you have any CapEx plan? If not, what's your plan with this cash?

I leave it to Marcelo, but just one comment from my side is, of course, we are looking into the possibilities, opportunities, what we can do. Also linked now very much with the sustainability, I have to say. So, we are looking into the sustainability chapter with all the efforts, and we try to link our CapEx also with sustainability as much as we can. That is what I can say. And then, I leave it to Marcelo, the rest of the question.

No, thank you, Aydogdu. Thanks for the question. In reality, this cash is putting Oman Cables in a good, strong position in the country to obviously [ finalize ] the portfolios we have. We -- like discussed that the ideas to invest for specific actions for the CapEx more related for ESG. But obviously, the company is continue to analyze and identify an opportunity in the market.

So you're saying like you are looking for any potential acquisition targets or what, M&A?

I don't say this. I say the company has a good position to analyze if appear any opportunity, obviously the company is offering to analyze.

Thank you, Sameer. Bishan?

Congratulations on a great set of numbers and for answering our queries. Just a quick one on the cash position you mentioned and you answered Sameer's questions. Would there potentially be any scope for sort of any strategic decision to do a buyback given the huge sort of cash pile that you're sitting on?

Sorry, but your audio is not good. Sorry can you repeat, again, please?

Sure, sure. I asked, given the considerable cash pile that you're sitting on, would there be some -- or has there been some discussion around a potential buyback?

Well, [indiscernible] I don't see this potential payback, I confess to you, in this moment. But obviously, you need to pay attention on.

Okay, fine. Right. All right. Just wanted to check on that. I'll just go back in the queue. Thank you.

Thank you, Bishan. I can see Sundar and Joyce. Sundar?

Thank you for the call. I have a couple of questions. One is on the copper price volatility. You always say you have a 100% hedging policy. Just wanted to see through because lately the copper prices have come down. Do you see any impact on that or you're fully hedged so that you will not have any impact. That's my first question on the volatility in the copper and aluminium prices. And the second one is on the outlook for your subsidiaries OAPL and India. How is it? Because the performance of subsidiary has been considerably showing stronger strength. Do you see this as kind of -- any specific reason for it? Or -- because we just want to understand the OAPL performance on a stand-alone, how should you see for the current year?

Thank you very much for these questions. If I can, the -- first of all, first question, yes, we are hedging fully our position. So, we are in industry, making cable, so we don't give any space for any speculation. So, as management, we try our best. So we don't expect impacts in the copper or aluminum values going down. We just concentrate, focus on our business, how we can create value out of this metal. That is our main core area. The second question is, yes, subsidiaries, we are, of course, looking into the performances and activities quite a lot and very focused in their specific area of the engagements. OAPL is one of the key players, we believe, in Oman to offer solutions, looking on the aluminum part of the equation, and the business is going well and the India entity is relatively smaller in scale and we are also looking into some specific product segments from that entity, which is more instrumentation control, oil and gas part of the equation.

Yes, got it. One last thing from my end. In terms of the expansion program, do you have any -- anything in the pipeline? What is your current utilization level? Are you fully utilized? How do you see that in the coming period? Because like everybody's question is your cash position and do you have any guidance on the CapEx, any big CapEx is coming in because you've been talking about this renewable energy? Do you have specific CapEx [Foreign Language]?

On the CapEx side, if there is, of course, a significant one-off, we will share with the markets. Today, we are looking -- focusing our business and trying to excel our performance at every front that we operate. And of course, if we have something significant, we will share with the market.

Thank you, Sundar. I can see Joyce. Joyce, you have any questions?

Congratulations on the good set of numbers. My question is primarily on your domestic sales, which used to be around 40%, 45% during the last several years. And this year, we are seeing only 29%. What's the reason? And could you please give some color on that as well as what's your outlook on demand panning out from the domestic market for the next 6 to 12 months?

Sure. As we were saying, the volatility of the metal has been a decision-making process impact at the market space. So our market is very dynamic. So this kind of volatility in the change of the business is happening from time to time. So, Oman Cables has good way of diversification in the product offerings. So in this case, by geography, diversification by the business segmentation, we are able to come over these volatilities. And it is not a clear trend for the future that the domestic will go much further down. We see that we are keen on domestic markets, of course, and we are following very closely. So, we remain optimistic for the next period.

So, do you see any reduction in volumes? Or is it just one commodity getting replaced with another? What's the real trend that's happening there?

The trend is, with the decision-making process is taking some time to ensure that the volatility is not there anymore. So that is impacting domestic volumes also as a volume, I will say, but not necessarily a huge trend. So in our industry, this can happen. We are following very closely and we try to ensure, of course, that we are able to compensate any impact that can happen. Today, domestic market is a bit softening, tomorrow can be someone else. But in totality, for us it's key to hold the line.

Okay. Okay, interesting. And which are the export markets that you see more momentum coming in?

Okay. It changes by business. But as I was saying in the opening, we are very much focused on the GCC. But I would -- I am, let's say, not a significant country to mention because it changes by the business, but more export activities in the GCC area.

Okay. So, you mean to say that there is no specific markets. It's overall coming from across the GCC in a similar manner?

Yes. It changes by business segmentation. So in some businesses, it's more one country; on the other business, it becomes another one. So we are following every geographies, every businesses.

Also Mr. Erkan, now you have increased your intercompany sales. The business contribution from Prysmian is reaching 20% this time. So, what kind of trend that we see? Are we likely to see a significant contribution and an increasing contribution from Prysmian Group. This definitely being a strength that you are holding. But just wanted to gauge how much of Prysmian business can contribute to Oman Cables?

Yes, Prysmian, as you are rightly saying, is an opportunity because Prysmian is present in more than 50 countries with more than 100 plants, and many diverse segmentation offering solutions. So in this way, Oman Cable is getting some advantage to work together in many fronts, product innovation. I said already. That is one thing. On the other side, we are improving our capabilities as Oman Cables that opens up opportunities that we can serve. Obviously, every channel is getting its own attention. So, as I was saying, we are looking into every opportunity with a great focus.

Okay. And another question that I have is on the EBITDA margin. During -- we have seen a significant momentum in margin improvement over the last 3 years. And -- but at the same time, we are seeing it getting stabilized at probably around 10%, 10.5% in this quarter and the previous quarter. So, what's the scope for further margin improvement? Do you see any scope for further margin improvement or is this a maximum that we can do for the near future?

Yes. It's difficult to answer, then I leave it to Marcelo. So, it is a result of many activities, depending on many dynamic trigger. But we are happy that we are keeping our results also the -- as Marcelo was saying, is not just the price, but also we are very careful in the cost management side and trying to make a lot of effort on the efficiencies. Again, on this part, we are able to benchmark, compare us very quickly, very easily with the rest of the world. In this case, we become improving every day. Marcelo, would you like to give more color?

No, thank you again. Well, in reality, obviously, the company would like to try to improve the profitability. But I think the company working in the correct way, the way to take the control, what you have and try to innovate, invest in innovation, try to work to make it more efficient. And in this way, obviously can bring us some good profitability. But I need to balance. I need to, [indiscernible] the site, I need to attain from the market for the site, I need to improve our cost. In this way, I think that the companies create a good control to maintain a good level for the profitability.

Okay, The next question is on the segments, the different segments that we are offering and particularly with the trade and retail segment, which we are seeing. So during last quarter, the copper prices has been higher. So -- and probably the product prices also might have been varying. So what's the outlook that you have? Do you see any pressure in sales on the T&I segment? Because I see on a quarter-on-quarter basis, there is 10% or 15% decline in the sales in the second quarter. So is it just because of the price or is it because of something else?

Yes, this is -- like I was saying, the decision-making process has been a little bit slower than it used to be. We don't need to be necessarily look for further continuous decline because we are looking into the market. In the medium term, we think it should stabilize, kind of. But of course, in the short term, some volatility is happening.

Okay. So, is it the same across the power distribution as well? Because power distribution is on a consistently declining trend during the last 1 year.

Yes. Power distribution is also a bit of project business, and then it is the -- it can cross similar trends. But let's see the rest of the year. So, this has been the experience in the Q2. We were able to compensate with the specialties, industrial development, which is, again good -- thanks for the diversification. So we'll see in the next quarters accordingly.

Likewise, we are seeing in renewables significant growth happening there. So, which are the geographies that we are seeing in the renewables growth. And how long do you think we will be able to sustain this momentum?

Renewable in the long run is a positive trend because of the energy transition. In the short term, we are looking project by project. So, basically, we are looking into the local markets. On the export markets, of course, I can say that Saudi is growing and one part of that growth comes from the renewable that we can see. But again, looking to the project by project, country by country and following accordingly on the renewable front.

And you have the highest margin coming from renewables, at more than 20%. So how long this will be a sustainable margin? Or what will be the sustainable margin that one should be looking at?

Yes. I don't want to give really straight numbers here. It's very project driven. And when we say renewables, there are different segments, solar, wind and hydrogen, a lot of different -- hydro and other things. So we, of course, these cables or products are a little bit more [ special ] in this way, maybe a little bit better than the commodities is expected. But again, very difficult to dedicate a specific number.

Okay. Okay. And the Sohar factory. Sohar factory sales has been stable, but what we are seeing is an expansion, margin expansion, significant margin expansion that we are seeing. And for converter business -- conductor road business, you're just converting the product, the raw material. So what's the sustainable level of margins that we should be looking at for the Sohar factory?

Yes. In this plant, of course, from the outside, is it just a simple conversion. Maybe someone can think like this, but it is a lot of activity also over there and they're trying to do it in the best way, in the most sustainable way. So the mix and the product diversification here is also playing a role in the margin enrichment. We would like to continue on this trend, and we'll see in the next quarters, if we will be able to or not. But we are putting a lot of efforts to enrich also the product diversification and the mix improvement.

So, do you think this 15% can be sustained/defended for the near or foreseeable future?

Difficult to say. I see that you are kind of for the future, marginality, but it's very difficult for us to comment. We are very operative. We look at the business opportunities in front of us. We do our best cost control, diversification, improvement, and then we see -- so far, we have been able to sustain a good position and our target is to continue doing that.

Okay. And you had an expansion project, which is currently ongoing. So, when should we -- when are we expected to complete this expansion project in Sohar? And what's the kind of additional capacity that we are seeing? How many tons are we planning to increase the capacity?

You are talking about the investment in Sohar?

Yes, OAPIL expansion.

Yes, yes. Basically, we are investing on our [ conductorization ] on OAPIL front. And our expectation is indeed 2025 early, this will be up and running. And for the future, we are thinking to not make a investments. We will see, but we'll try to do our best in mix improvement, product diversification on OAPIL as well.

So how much capacity addition are we talking about once this project is completed?

Difficult to mention. We have to look and calculate. And I can say that we are adding a good way of capacity to serve better. That will be not changing significantly, not to create over expectation for the future, but it will enhance our capabilities.

Okay. Okay. And then, we have discussed about your expansion plans, the sustainable expansions and everything. But what I'm seeing is in your books, your plant and machinery has depreciated significantly. And the new investments that you have made on the plant and machinery over the last 5, 10 years has been very minimal. So right now, the Rusayl plant, we are talking about only OMR 14 million worth of PPE in your books. And significant -- given that the significant investments are not happening for quite a long period of time, do you expect any significant investments in your Sohar -- not in Sohar, in Rusayl plant in the near future, let's say maybe 1 year or 2 years down the line? Or are we okay that there is no obsolete technology or anything that is present there?

Yes. First of all, I have to say that we are taking care of our assets very well. With our expertise, we have a quite good team, very much integrated with the rest of the world, Prysmian shareholding is a great support. So, digitalization -- so we are taking care of our assets very well. So when it gets older, it doesn't mean that it becomes obsolete. Of course, we try to upgrade very carefully everything. On the bigger scale of the investments, if there will be anything relevant, of course, we will share with the market.

Thank you, Joyce. Okay, I can see there's no more question. Any more -- no more hands are raised. So I'll take the opportunity to thank everyone for joining us in this call. Looking forward to meeting you in the next analyst meeting to present our annual financial results. So thank you, everyone, and have a good day.

Thank you.

Thank you, everyone.