Oman Cement Company SAOG (OCOI) Earnings Call Transcript & Summary

Good morning, everyone. I think the time is 10:00 right now, and we may start this discussion. Mr. Fatick?

Yes. [Foreign Language] Nader and gentlemen, can you hear me, the audience as well because I'm dialing remotely from another location.

Okay. I think everybody is there. And I think we are good to start the discussion, Mr. Fatick and you can start the briefing.

Thank you Nader. Allow me to project the presentation please.

One more thing for the sake of reference, we are recording this session. That has to be good for everybody. Please Mr. Fatick, you can start.

Thank you. Nader and gentlemen, can you see the screen, my presentation, the slides? Anyone can confirm that you see the slides?

I'm not showing Mr. Fatick for myself -- yes, now it's okay. You can carry on.

Thank you. So thanks for all of you to attend the market meet and the discussion on our financial performance for the year 2024 and the comparative for the prior period. With that, the regular disclaimer. We provide this presentation for the whole audience to have information and purpose and the decision should be quite taking on their kind of stand of the consents and the investment advice according to their own kind of analysis and interpretations. And overall, we will highlight the OCC continuous pact, and we'll come to the financials, highlights and the performance and then Q&A session and then the contact itself. So Oman Cement continues to be the leader in the cement industry within the concrete values that we still uphold to the heart and to the practice, and we never fail on that. Once it comes to consistently continue the brand quality and maintaining our kind of licensing to operate by the international standards, the ISOs, the API, the American Petroleum Institute as well also being a very sustainable environment-friendly, packing our kind of environment compliance and being quite producing green project. Further, on the stakeholders, we are very much focused on that we don't live in the environment alone. We are all collectively delivering together, helping the community, the shareholders, the customers, the employees and the overall interacting stakeholders. And we continue to build the community by capitalizing on our strength to contribute towards the Vision 2040 of the Sultanate on the development pillar, fostering the construction industries by all means once it comes to the support from the upstream to the midstream to the downstream and even unilateral business associated with the construction industry. And we are trying to tap on the nonconventional stage of support on the alternative fuel that we will just discuss it if anyone will be interested subsequently. On overall, our performance for the year and comparatives once it comes to the quantitative statistics, the clinker production were lower than last year to a level of 3% of 2,872,000 tonnes, while the cement production were marginally above by 1,000 on overall for the volume per metric ton. And if you compare it to the cement sales, it's overall, it has been just marginally reduced by 4,000 due to the market and the competition still existing in place. And overall, if you look to the total revenue comparatives period moving from one year to another, 2023 was one of those good years. 2024 came to be quite marginally lower, as we highlighted by minus 3% to the change from OMR 72.6 million to OMR 70.4 million money. And this is mainly total revenues per se. We'll come to the net revenues in another slide. However, aggressively, the company, the shareholders, the Board and the committees and the management, they have been quite aggressive on making this kind of cost optimization initiatives and tightening the belt due to this kind of market unfavorable forces as well also the strategy to proposition the maximum value to the shareholders by improving the overall profitability. So the total expenses have been significantly decreased by almost 12.6% in 2024 in comparison to the previous year, which by itself in 2023 has increased comparable to the year before. That has helped the company to achieve a total profit before tax, delivering it at OMR 13.1 million, much improved than the previous year of 2023, which was OMR 7 million itself. And going to the bottom line, we will find, first of all, that the net profit came to be OMR 11 million for the 2024 versus OMR 6 million in 2023. And you see -- you can see track both EBITDA and the net profit performance over the years that we still maintain our kind of positive upward movement. And overall, this has been reflected on the take of the market deal and also expressed interest of buying Oman Cement position shares, specifically after the declaration of the dividends, and we continue to maintain our position to be positive to the overall shareholders and all the other stakeholders. With that, we'll open the floor for Q&A. And Nader, please moderate if any question comes, and then we move on that.

Thank you, Mr. Fatick. Now we will open the Q&A session.

I think [ Joyce ], you may come in, please. [ Joyce ], if you are speaking [indiscernible].

Thank you very much for the presentation. A quick question on your capacity side. See, we have noticed your nameplate capacity for clinker is around 2.6 million tonnes but at the same time, we are seeing a higher production. So could you please tell us what's your current clinker capacity and the milling capacity?

Yes. Thank you, [ Joyce ]. I think Yaping is there, Ganesh. So at least he can elaborate our CEO and the team while I can attend this. Yaping?

Zhu is not in the meeting.

Okay. So the overall capacity -- nameplate capacity is 2.5 million plus, so bump it up to 2.6 million. However, we have done some specific tweaking over the period, and we can push it to almost 2.8 million to 3 million with the further tweak that we are having now. Correct me if I'm wrong, Manish and Ganesh and the team that we have the shutdown happening in May for this specific uplifting on the clinker cooler to add another 1,000 tonnes, give or take on the production itself.

So 1,000 tonnes means around 300,000 tonnes per annum?

Yes. That is all around considering outage and planned shutdowns and that would help into delivering this specific delta. But the nameplate capacity could be stretched higher. We have a stretch of above nameplate capacity to go to 110, 115, and that's why you find some times above the nameplate capacity we produce.

Okay. And will there be any change in the cement capacity after the debottlenecking?

Yes, we are working on specific projects. And hopefully, the shareholders will approve additional capacity per se if required. But we don't foresee that the demand will surpass whatever total capacities of the producers and the manufacturers of the cements in the country. Collectively, we are in a deep discussion with all the peers. We are not fighting against each other, but we are trying to complement each other to deliver the total demand and try to stabilize the market. The unfavorable forces comes from whatsoever cross-border or cross- ocean, what you call it, competition that impact not Oman Cement, but overall the player in the market. Over to you, Nader, and the audience, please.

Yes. Anybody else?

I cannot see any hand raising. So gentlemen, young ladies, anyone? [ Joyce ] again?

So earlier, you've been talking about tilting your sales mix to high-margin cement products in an effort to increase your realization levels. So could you talk about the progress on those products and what are the contributions to revenue from those products right now?

See, on this, we are growing aggressively to tap with the market, but also it's not easy to penetrate markets which already been quite ring-fenced by the each country's players. We continue to supply to areas and we are trying to tap on areas in Kuwait and other African oil rigs companies, but that is still in progressive status. Overall, this compose almost between 3% to 5% of the total revenues. But given that being quite niche, the margin is quite right to support the P&L and the drive of the performance of the company. Any other question?

Okay. And what's your thoughts on the realization levels? For the last 2 years, realization has been very, very stable. So how do you see realizations panning out going forward?

Maybe you refer to the previous period, which we've highlighted. Progressively, we've been quite what you call, competed with on the price, wherever it's a kind of a buyer market, given that the oversupply and there is no kind of border quality conformity charge being quite reinstated or put in place or any protectionism happens to the local players. So if you recall, [ Joyce ] and the audience, since 2015, we've been almost losing the net sales realization to the market or to the buyer due to this specific agnostic forces. However, in last 2023, we adjusted the prices marginally, which has helped into 7% increase. in overall net sales realization and that has helped the 2023 to be quite a good year as well. However, the 2024, we have balanced the mix because rather than we end up having market get fragmented or we have agitated market or customers who might be approached by the cross-border or across sea suppliers and offering them very, very, very steep, sharp discounts on different accounts, I will not be quite speaking about the bits and pieces about the competitors. We have maintained our position on the net sales realization of 2023. On marginally, marginally, we lowered it to almost like 70 basis less. But still, our performance maintained the position as we said. Clear [ Joyce ]?

Yes. I've seen that the realization has been very stable. So how do you see going forward? Do you see the potentially increased demand from the projects that are being announced in the country and especially in the northern side? Do you see any potential for higher demand as well as higher price realizations? Or do you see competition crushing this down?

No. Competition, I think, need to be quite looked at from a balancing factor if there is a delta, which I think the authorities and the government is looking rightly and balanced on this side, if need be. However, now capacity is available. I'm thankful that Almighty [Foreign Language] Raysut is back in a good support in capacities. So collectively, we can bridge the shortfall in demand if need be. However, if I go back to your question on the start on those announced projects, we are very hopeful and very optimistic that all those announcements to come to be realized or see the lights because this would help definitely not just the cement and construction companies to flourish, but as well all the overall economy itself and the ecosystem players in that side. So we see that there's a potential in 2025. Adjustment to the NSR might be done marginally on a specific product differentiation because us and other players like the peers are trying to introduce more green products that can contribute positively to the NSR and the total net weight average. However, overall, to address your question, yes, NSR need to be quite locked into improved. And this kind of actualization of projects to come according to the announcement the milestones, that will help us overall to deliver totally the best results. And we see that 2025 is one of the years that we will also maintain our positive stance positive slope trend upwards Inshallah.

Okay. Fatick, one more thing that I wanted to know is, could you please provide an update on the decarbonization initiatives? Because you said last year, there has been 2 initiatives. One is the debottlenecking and then the alternative fuel sources using. So the projects were expected to start sometime during this year or early this year. So could you provide an update and potential investment that will be required for this one? And how are you planning to fund it given that your all cash reserves will be used for dividend distribution?

Yes. Clear, just to give you an actual update of the prior period highlights, the alternative fuel per se is still ongoing as a kind of a project ideas and also going aggressively with the other shareholders. Some of that information, I might not be able to declare or disclose in full details as some still work in progress. But we are working with a JV of specific shareholders to bring this project up. And Oman Cement would take one phase of this project to come and service this specific requirement. So this alternative fuel is now planned to go into 2026 as testing and commissioning. And the work in progress we have our assignment of technical advisers and verifier and due diligence people has already been in place with the partners. And hopefully, by end of the year, we will have a more clear view on the whole delivery schedule, but it's expected 2026, [ Joyce ]. And overall, the size of the investment previously once we spoken last period, it was in the circular of $80 million to $100 million. But with this kind of specific JVs consideration, maybe the size of the investment, given you have asked me about since our balance sheet on the cash gone a bit low, Oman Cement balance sheet is still with 0 leverage. We have no what we call it loan obtained. And given this kind of JVs consideration, Oman Cement will need to fund mostly 1/3 to maybe between 20% to 35% of the project requirement. So if we see on that level, we'll come to somewhere around $20 million to $30 million, $35 million maximum Oman Cement need to put in. However, the corporate structure on the support, this will still be deliberated with the respective authorities, means the governing committees and the Board on the debt-to-equity structure. But all the banks are honestly, every other week, they are knocking on the door, need business and partnership to support on both ALM, the asset and liability management side. So we've seen bankers are always positive about Oman Cement. We've seen them they are very keen to support if required. As well also, we have Huaxin as the major shareholder, we can tap on whatsoever competitive arrangement from the overall international arena if required, specifically even the Asian and the Chinese support bankers or the ECAs and the insurance reinsurance market itself.

Very clear Fatick. If we look at it, probably we will start this by 2026. This is the 2026 project. Is that right?

Honestly, it's 2025. If the fresh time line because there's a different, I would call it, a simulation of the time line. If the consultant clears things up front, maybe it comes towards Q4. If not, then it will push 2026. Abbas, please...

A couple of questions. One is on the CapEx side. What sort of guidance are you looking at for 2025? And what is the nature of the CapEx that you expect to incur this year? That's my first question.

See, we have an ongoing regular CapEx maintenance CapEx ranging between OMR 3 million to OMR 6 million. These is the regular ones. There are a few projects that might need to be quite to the service in the range of OMR 10 million to OMR 20 million. But the good thing from the group, the major shareholder, Huaxin, and the other governing committee once it comes to scrutinizing on the right investment, which gives a very small payback period, we are scrutinizing even whatever conceptually approved or priorly approved once it comes to the go live on the final investment decision. So from this perspective, a few of those projects also considered for 2025 will need to be quite reviewed. But the main thing which we are delivering now is from the previous period is the clinker cooler around something like $2 million, and that will give the enhancement. Then small other projects for enhancements in overall. So it will be in the circular of OMR 5 million to OMR 6 million overall as of now.

For this year? This is for this year. Because last 2 years, the average has been OMR 3 million CapEx.

That's how we move on that side. But hopefully, if we see market movement, if there is an uptick, if there is, I would not call it control, but a quality check and control on the imported cement and the demand comes to be quite right, then we can immediately pull for an investment decision on no time and take that appropriate few months of establishment of additional capacity for the cement in order to sell to the market if required because that doesn't take long age.

So you're talking specifically only about grinding capacity, not about production capacity, right, clinker? I mean, if the market improves, you're talking that adding cement grinding capacity is easy. The clinker is the one that takes time, correct?

You are right. But the only thing that we need to make sure that the market is sustainable rather than using the shareholders' money, which you are advising and analyzing, and then I don't get the return sustainable. So that's how. We could have invested even on those projects earlier, but with the shareholders now and steer, they understand whatever the market and whatever the conditions and whatever the sustainability demand of the demand. If that prevails consistently, then we are all good to go.

Correct. Yes, because I was just reflecting on your sales quantity, you've been selling 3.3 million tonnes per year for the last couple of years. I was just trying to reflect that from your perspective, are you seeing an opportunity to sort of increase given what you know of the market or you're very happy with these sorts of numbers still you feel like the quality checks that you spoke of come into play. So I was just trying to reflect on that actually from your perspective.

Let me take it from the top down and bottom up. So once it comes, even if the employees are not satisfied, they always would like to stretch the delivery and the targets. So at least we are year-on-year positively trending on all parameters and metrics. Similarly to the management, executive management, and shareholders, the Board, and the committees. So we are not, I would say, content with whatever we deliver. We always stretch our kind of self to deliver better than the previous period. But the unfavorable forces, which is coming across sea and across the border is still there. And however, we see there's a specific momentum happening with the authorities to scrutinize and look into this. And if it comes right, then we are ready to supply the demand increase. Oman Cement is ready to push the trigger or pull the trigger on the process to push it above the 3.3 to 3.5 to 3.7 to even stretch it to the 4 once this cooler comes in and we deliver those millions to the annual requirement if demand is there.

Very clear. The second question is, when is the final FID expected on the Duqm project because it is under consideration as you wrote in the company report? But one way or the other, when do you decide?

See now this is still on our radar and shareholders would need to revisit this around the H1 end. And we'll come up with an update once we are clear about that. Because still, as we said, we don't want to put money and trap our nice precious green box on the engines. And then later on, we don't get a reward. None of you guys will spare us, you have and you should impair it. It's not delivering whatever you are expecting. We are not going to meritless decision, but rather than rational, sensible, sustainable decision to produce once the demand is there. Yes, the market could be there for a kind of export, but that's also there is the data for the local demand in that specific feasibility study for the project. We can deliberate once it comes to the see final decision from the company, and we can give you some further highlights on this.

Okay. So I guess once we touch base after the first half, we can talk about this further. It's just a comment here because I've been speaking to you for a couple of years. Now it's very interesting that every time you mention your company, you don't forget to mention shareholders. Effectively, what you're saying is you're looking to maximize shareholder value. I really wish more CFOs and CEOs took this of tone in the call, right? Because eventually, every company exists to maximize shareholder value. And you've always taken this view, the stone, and I'm sure the market really appreciates it. Just a comment from my side.

Abbas, we are all there wholeheartedly around the clock to add value to our partners, among which the shareholders.

And the third thing is, of course, none of us give under the rock. And you've been seeing there is a lot of volatility in Oman Cement's share price, especially when it comes to dividends. So while the market knows your cash flows in terms of the OMR 20 million CFO that you manage to make, you have this OMR 3 million to OMR 5 million CapEx, and there is a fair degree of visibility on that. But there's always confusion or confusion is probably the wrong word, but there's always debate of your dividend-paying capacity. Now a lot of guys, I bring this up to, they say dividend the Board decision, but the Board does not work in a vacuum. They always take management guidance because management knows what sort of cash flows they need, what sort of investment needs they have. So how do you see this with Oman Cement? So what you've done is the excess cash you've tried and distribute to shareholders over 2 years now. And going forward, and at the same time, you are debt-free. So if there is a growth opportunity, you can finance that to get your very healthy EBITDA that will allow you to reasonably load up on debt. But just to create some sort of visibility and less volatility on expected dividends, what would you tell shareholders right now?

I say smart analysts and market drivers or market makers on whatever the team is available here. I invite you to dissect my balance sheet and understand also on the return earnings and the positive stance of this accumulation as well as whatever net profit would be coming, if there is no major CapEx requirement, which needs to be supported from the corporate structure side for those projects on equity, then finally, we will result on the debt side, given that we are a clean balance sheet. And then definitely, I would love to maintain my position with the shareholders once it comes to giving them a positive view on their kind of dividend expectation. Yes, those once-off big escalated dividends in 2023 and 2024 might not be up to that scale, but we might come to somewhere closer, how close we can deliberate maybe towards the end of the year in Q4 once we have more visibility or subsequently, once we have a more market uptick on the profitability because profitability is one line, and I appreciate Joyce's question on the NSR, the net sales realization per metric ton and the volume. The untapped volume due to the capacity availability and market competition by the cross-border competitors, while our peers are available, we have additional capacity that can give additional profitability sizable, and it can also satisfy the market positively. So on that, we stand positive. We stand to continue the momentum to comfort that Oman Cement is a dividend payer as we go. We have never failed to lose this faith or have the confidence in our kind of expected support to the investors being quite seen differently. We will try to maintain this position. How significant to the last 2 years, that's another question that we can attend it, we can attend it as we progress towards the year. Most feasible time would be maybe Q4 or Q1 2026, once we give you the initial results. And you can circle this link to the net profit announced in the initial results as well also to the return earning. And you are smart analysts, gentlemen and you are testing the market right, and you can give your call and recommendation on Oman Cement.

I just have a philosophical question for you. The way you look at the business, assume you don't have any more CapEx other than the maintenance CapEx.

I'm not a PhD holder. So you need to take me from a business and finance side.

No, no. You actually -- you don't need to be a PhD holder. I generally believe you don't have to be a PhD holder to deliver value for shareholders, and you've done that. So honestly, you're doing the hard work.

Philosophy side, I meant, but please comment.

No, no, I'll tell you why maybe -- okay, fair enough. No. So here's my question, okay? You've circled -- you've sort of indicated or given -- you've sort of pointed me towards your retained earnings, right, in this last answer that you given, and I appreciate that. Now here is the question for you. You have -- as of '24 end, you have OMR 32 million cash flow, you have retained earnings of OMR 57 million. And let's say, you generate cash flows in 2025 of close to OMR 17 million to OMR 18 million, depending on where the market is, realization. There are a lot of lifts and buts there, but let's say, OMR 17 million. And you are debt-free. Now philosophically, someone who's aware of shareholder value maximization, assuming you don't have any CapEx needs, do you see a scenario where you take on debt and that's -- and get cash to give out to shareholders and clean out the retained earnings? Or you feel that might be too aggressive strategy?

I will not be in a position to answer this question now. There are some intentional deliberation would happen during the year on the projects because first and far most important line is to look for projects. There are some strategy update would happen around H1 end in the H2 starts we discuss with the Board on how we move on the subsequent period. And if these projects come to be quite approved, then definitely, there is some injections on the equity that we need to bring it to comfort the partners, the bankers, the fund providers on their debt support to those kind of major projects. If this moves, so later on, we will be able in a position to give you more clarity on this combination of ROE return earning plus the profit expectation. But you are smart enough to dissect and interpret this positively. And I think there was a gentleman called [ Shur ] if I'm not mistaken or a person.

Congrats on great set of results. Now my only question is regarding -- I want to understand on the operational side of the business. So if I'm understanding you correctly, on the raw material side, you would need limestone to produce clinker and then with that clinker, you produce cement, right?

Yes.

Okay. Perfect. So my question is on this year's cost of sales as the company has successfully managed to improve their cost of sales significantly, which has already obviously shot up your gross margins. Now if I'm dissecting the notes, I'm seeing a significant decline while the fuel and gas and electricity is the same, there has been a significant decline in the raw material. Now the raw material is something that's naturally available, right, which is limestone. So could you please help me understand where this decline is coming from and how sustainable is this?

Yes. See now it comes to the raw material, yes, we do have captive -- can you see the picture wherever the Investor Relations contacts? Can you see this?

Yes, sir.

Yes. This is the very small tail, wherever you see the small tail of the mountains. If I go this side here, these are very, very long hundreds of years of reserve of limestones available here. This is one, which is the captive and under Oman Cement control. Also, we have other nearby, what you call it, iron and QPH wise as well also, we have our gypsum available in a very distance close, almost 300 to 400 area. But what we did -- there are some other material on the raw material side required for the blending and the manufacturing, wherever we have opened the chapter of further competitiveness and negotiation and discussion aggressively with those suppliers, given the market is also having alternative consideration, and we managed to reduce the cost per metric ton for those material. Among which also the good thing about the new shareholders, they are also testing whatsoever available of alternative material that has been proven good and tested over the previous years of experience that they have. And we moved from specific material just like earlier, the gypsum was quite high in the consideration of the cost, so contract revised and came to be lower. being quite predominantly relying on a material called Kaolin, the cost was quite sizable. Then we brought a replacement or a substitute, we call it material, and that has helped us in lowering the cost of the raw material. Along with that, we are also having the innovation sales. The R&D is not hashing. We have quality control and the innovation team working around the clock as well also if we would like to test a new kind of substitution immediately, we involve the group support from wherever it is in the globe, either being in China, either being Central Asia, either being in Africa and even currently now in Brazil. So all the support can really bring that kind of added value on the replacement of raw material once it comes to high-cost element or high-cost item to a lower cost element or a nice substitute that can help us to deliver the overall better results. Clear Gentlemen?

Yes, sir. So finally, is this the number that -- or is this the per tone production per tone cost of raw material that we should be taking on as our future estimates? Would that be correct if we take this year's number?

You need to take all the overall total cost, the overall total cost, not just dissect one element and leave it because once we review our kind of P&L performance, we take it comprehensively from top down, starting even from the revenue side. Maybe some of those even sales for noncore business that we have, we contribute to that overall profitability. If you are looking from cost, you need to look from the total cost loaded to that specific metric ton. But you just came on the material, so I gave you that flavor. If you want further detail on this, you can just pay us a visit. We give you a bit of run through you and the other investors and the [indiscernible]. Any other question, Nader, from the floor, from the audience?

I could not see so far, anybody, it's as if everybody is happy with your briefing.

So with that, I think we may conclude if there is no further question.

Gentlemen, last question, anybody before we close. Okay. Mr. Fatick, you can conclude, please.

Yes. Thank you, Nader. Gentlemen and whoever attending this remotely, we wish you a nice 2025, and we have to hold our kind of faith in the market, the forward movement of the economy. And also, we are -- as usually and always we say, no one will scratch your back better than you do yourself. And that's how Oman Cement altogether with their support from the shareholders, the committees, Boards and the executive management to the lower level of the shop floor worker and employees. We are here to add value to whatsoever investment decision that you bring to yourself, to your portfolios and the investor directly through your advice and research. We remain available for any discussion highlights and call. Our contacts up here. And if there is anything that we can help you, please don't shy from not just reaching us. Thank you. Great day and all the best.

Thank you. Thank you, Mr. Fatick. By this, we came to the end. Thanks for everybody for participating in this session and hope to see you or to hear you in the AGM. Thank you very much.