Raysut Cement Company SAOG (RCCI) Earnings Call Transcript & Summary

Welcome everyone to the investor and analyst call for H1 2026. By way of introduction, we've got Salim Abdul Kader, our Group CEO. I'm Raashid Ali, the Group CFO. We've got Salman Malik, who is our Financial Controller and our two analysts, Kashan and Manu. Welcome to this call. This is your platform to ask any questions that you have related to our H1 performance. I will give a small introduction and then leave the floor open to anyone who has any questions. Essentially, the H1 of 2026 has been something of an inflection point where Raysut Cement is concerned. I'm sure you all have read our Chairman's statement and the Board of Directors' report, which essentially talks around the fact that our trajectory in Q4 of '25 was not just hit and miss, we have put a sense firmly back on track and had three consecutive quarters of operational profit and positive performance. Salim has done some structural realignments, brought in some cost discipline coupled with our dynamic pricing in the market and intelligence, all these factors together have led to a turnaround, which is fairly extraordinary to say the least. As we start in H1, we are -- we can probably tell you that the turnaround versus a H1 of 2025 is that of OMR 5.5 million. Notwithstanding the fact that we have headwinds related to the macroeconomic condition that exists in the region and across the world, logistic bottlenecks, supply chain interruptions, escalation and raw material pricing specifically in the UAE, shortage of coal, et cetera, all have contributed as challenges. But I'm happy to tell you that we as a team and everyone is as good as the team that they have, have met these challenges with the rigor that they actually require and overcome these to the extent possible absorbing a lot of these escalations and meeting all our customer commitments. I won't take any much of your any further time explaining, and I'll leave the floor to you to ask whichever questions you may have. This is your platform. It's your call, so with that, I will leave the floor open to questions. Just put your hand up and we will admit you and take your question and answer it to the best of our ability.

I have a question from Sandy regarding what was our current glance utilization for each one, I'll assume and how has the cement demand trended in H1 '26, was there any decline in imports. And would you share some insight into Raysut Cement's market share in the Oman market? So I'll take each question one by one. The plant utilization has been -- if I look at it on an overall basis, close to 80% to 82%, wearing between the geographies that we operate, the cement demand, both locally and in the markets that we operate, where the export has been fairly decent, which is what led to our plant capacity is being utilized above the 80% level. Cement demand remains strong various infrastructure and other projects being undertaken between the UAE and Oman. When you talk of -- was there any decline in imports, yes, there was a small decline in imports because not much cement was coming in from the UAE after the regional disturbances started on the 28th of February. And similarly, because of the closure of the Strait of Hormuz, almost a lot cement which was coming into the market from Iran has reduced. Having said that, we see that activity coming back. And Salim can probably give you a little more insight into that.

Yes. Let's just talk about Oman separately from UAE. On the Oman side, cement demand is very newly consistently checking year-on-year. So we don't see any buoyancy either way in instrument demand in Oman. It's fairly consistent and has been on a very consistent trend. What has changed in terms of demand is the deployment of that demand within different areas of the Oman geography. So while the overall demand has remained pretty much consistent, the deployment of demand within different regions has changed. And we certainly base in Solana and the base in Northern Muscat market, we've stood to benefit from the reallocation of the demand inside a man itself. When we talk about UAE, it's a bit of a double-edged sword. We had a slowdown in a lot of infrastructure projects with the geopolitical crisis that had happened in Q1. And as we got into Q2 with the settling down of the impact of the crisis in UAE, we saw a catch-up of the backlog from Q1. So as UAE hasn't experienced an over ramp in buoyancy demand, it is -- there is a catch-up on Q1 that has come into Q2 from backlog perspective, which has led the market into a positive upturn. So on both sides of the fence, UAE and on Oman side, we've certainly been in a position to benefit from this improvement in demand, whether it is organic or for circumstantially related.

Okay. Let's see if there's another question. There's an anonymous user who's asked the question, have the prices been raised and Oman post increase in cost of raw material. If so, what would -- if so, would we see the impact during H2 or the impact already there in H1. So our pricing policy is dynamic. We took a conscious decision as executive management, not to pass on the incremental increase that we absorbed onto to our customers. We have increased pricing in different geographies without going into specifics. And a lot of the benefits associated with the dynamic pricing have already been captured in H1. And as you know, we can't give forward-looking information. We expect it to continue through H2. So that is where it is. And that's what the pricing has done. If there is rationalization of costs in the UAE, that will work to our advantage.

So basically, the change that happened didn't happen in Q1 -- so this is from Arnab, what was your first -- Q4 2025 was your first operationally profitable quarter in 6 years, and you have built on it every quarter since -- thank you, we have. What changed in that quarter that unlock the momentum? What were the key actions management took in the past 6 months to return to profitability and what will guarantee the sustainability of these actions going forward? Thank you, Arnab. Certainly, we take your commendations into noting. What changed in the last quarter that unlocked the momentum, I think Raashid touched on it in his opening address. There were certain structural changes as well as certain management actions that we put into place to basically achieve three things: one, to try to get a head start on our cost leadership. We understood that historically, we were carrying a lot of inflationary input pricing into our model, which would require to be offset by increased efficiency and better consumption. So we certainly took some very drastic actions in quarter 1 to return the cost structure to what we believe would put us at a level to be able to deliver better profitability. And that involved a whole range of initiatives from being able to look at our variable cost per ton to our input pricing costs, et cetera, et cetera. So the second thing we did was, and Raashid touched on this. is commercial optimization. We knew exactly which markets we want to play in. We had to beef up our market intelligence model to understand which was the most profitable sectors, the most profitable clients, and honestly, since the transport-related business, the most profitable distance in which we could sell it. So it meant reorganizing ourselves commercially in the market to be able to defend those regions that fell within our profitability radius and then to have a lower cost structure to extend our outreach into areas where we wanted to capture new demand, so that's the commercial side. In terms of the key actions or what will guarantee the sustainability of these actions going forward, now that's an easy and a difficult question at the same time. I think if we just keep on doing what we did in H1, which is going back to basics, there's really no rocket science in establishing your cement profitability strategy ahead of any other plans. We believe if we maintain that going forward, we'll be in good stead. Sustainability is always dependent on the team. Raashid actually touched on it right at the beginning. This is the total output of the team that went into action in order to be able to rebuild this business from where it was to where we would like to go. So sustainability in this industry where your markets are more or less the same, your technology is more or less the same. Your close says are more or less the same. The only competitive advantage really lies in the ability of your people to be able to deliver new and improved performance month-on-month, year-on-year. And there's no other way that I can explain it other than that. They sound soft skills related, but it's certainly the only experience I've had in this industry that led me to put my faith in the team. The team's ability to carry the sustainability of the business forward.

From Mr. Tahir, we have a question, can you shed some light on any potential regulatory support from the government, for example, in the ceramic sector, the government imposed an anti-dumping duty, also what was the imported cement market share on? Also, is there any escalation in gas price on an annualized basis. So I'll take them one by one. At the moment, the cement industry does not have to support that just -- stay there. At the moment, the cement industry hasn't received the support which the ceramic industry has received with the imposition of antidumping duties. We continue to lobby with the government and see what best could be achieved in order to protect local industry. And because this industry actually technically supports over 100,000 families in the country. And although we are absolutely open to competition, yes, but there should be a little bit of protection as well. What is the imported market cement in Oman, I don't know that answer exactly. We continue to build our market intelligence, but meaning as I say, our best guesstimate probably is close to 800 to 1 million metric tons of cement coming in between the UAE and the Iran and others. Also, is there an escalation in gas price on an angled basis, we continue to engage with our partner, which is the integrated gas company and see whatever best is possible, although there is an inbuilt escalation of 5% year-on-year on the gas price. So that is all I can tell you about the gas price. Sorry, not 5% every year.

Yes, gross margins, I take that Yes. Thank you, Rao Aamir Ali. The first part is gross margins declined in Q2 when compared to Q1, what was the main reason for this decline? I think in Q2, if you look at the impact of the input cost increases that we had on our cash cost of the business, they increased substantially. As Raashid indicated, we were unable to pass the full extent of that input cost down the line to the client. It was the business decision not to do that. And therefore, your margins declined as a result of that. It's just purely a fact of not being able to pass down the full absorptive benefit into the pricing.

So what are the local and imported cement prices? The cement prices are dynamic. We don't control it. We do our own pricing based on our cost structure, and we stick to that. In general, the pricing differs from region to region. As Salim touched upon transport plays a big role in what you delivered prices and so on and so forth, how much on demand. How much man demand is fulfilled by the imported cement? Now I think I answered that best guesstimate is 800,000 to 1 million ton. And what was the situation before the work -- it was slightly higher. A lot of cement from UAE was moving to Shanda and a lot of Iranian cement was coming through the port. So that is all we know. We guided around an estimate on the landed price at the port, but I would not want to discuss that because I don't have a 100% market intel on that.

The question is from Abbas. Additionally, the question is as follows. Additionally, when it comes to pioneers event as sourcing pool become easier, we peak was the capacity utilization at Pioneer plant. The cash cost of producing cement per ton and current realization per ton was about linker availability and affordable a long question affordability. The Salalah plant is the plant still profitable. Finally on the Salalah plant Salalah and the Southern Oman region alone can't seem to absorb the capacity of this plant. Further, it becomes unprofitable to transport cement and compete with Northern Oman players, what export markets can absorb the capacity in the current situation and has the realization where you make a profit.

So we'll answer it step-by-step sourcing of coal has become relatively easier for We had no coal during the months of May and June. And the earlier answer Salim gave is along those lines that we had to buy clinker from different plants and not produce our own clinker because we did not have coal, and hence, our GP margins in Q2 versus Q1 are slightly lower. So that's answer number one. Capacity utilization at the Pioneer plant is in the 90s. If that answers your question, the cash cost of producing cement per ton and realization, I can't give you the cash cost of producing cement per ton but the realization per ton in the UAE is above per ton. I won't give you the exact number, but I'm giving you a roundabout number, what about clinker availability and affordability for the Sohar grinding unit. So why is the rating unit, and we continue to source clinker from four different sources. Sohar is profitable. As Salim touched upon, all our operating plans are profitable. And that is reflected in the financials, which are in the public domain, which we are privy to. And I'll let Salim take the question on Salalah and Southern Oman.

Salalah is by virtue of its positioning and exports plant. Mainly, let's put that into context. If we try and do anything locally in the Dova region, it's as a result of supply/demand dynamics. The projects that are in those regions as I'm not consistently do not consistently promote high demand local. So we basically ringfenced 85% to 90% of Salalah production for exports. You are absolutely right. Cement doesn't travel very well profitably with a kilometer of 250-kilometer from its source. And if you look at how far the Northern Oman from Salalah, it certainly doesn't make sense to take cement further than Cape, which is the furthest reach of the profitability zone. So we turn our attention on exports with two types of exports market, one that's based on historic and relationships. And we have -- we tried ourselves in our export partners and in the relationships we've built with them so far primarily being in Somalia and Yemen. These are our natural export zones. Beyond that, we explore exports into Zanzibar, the Indian Ocean Islands because we do have a facility in Maldives, but that's quite small. So we believe that export markets are buoyant at this stage, specifically given our acquisition in Salalah to be able to open up new markets to move cement into. So over and above the natural zones of exports, we will look into Indian Ocean Islands, Madagascar and East Africa. But with exports, everything is about timing and transfer. These are the two critical factors. If you have enough of the right vessels at the right time, then your export strategy will make sense. And given what's happening on the Strait of Hormuz and given what's happening in terms of congestion at the ports -- all the ports has come into Oman from the Strait of Hormuz, which makes the exit and the port exit loading and offloading extremely difficult. So our issue is not finding profitable export markets. Our issue is logistically to unblock the challenges that we are having at our ports in order to reach those markets. Secondly, transportation costs on the back of what's happening in the fuel market have increased year-on-year, which compounds the transportation issue. Certainly, it remains on our radar, and I think in H2, my only comment is watch the space.