Regency Petroleum Company Limited (RPL) Earnings Call Transcript & Summary

Welcome to the Q3 2024 Earnings Call for Regency Petroleum Company Limited listed on the Jamaica Stock Exchange as RPL. It is our pleasure here at Learn Grow Invest to be hosting -- to be moderating this call. I am Renate McDonald, the CEO and the Investor Relations Lead for Learn Grow Invest. Please join me in welcoming Andrew Williams, the CEO of RPL, who will be taking you through this call.

Hello, everyone. Thank you, Renate, and thanks to the Learn Grow Invest team again for facilitating this process and allowing us to communicate with our shareholders and the general audience, the general public. All right. Let's start off with a word of prayer. Let us pray. Heavenly Father, once more, we are here, another earnings call, oh, Father, and we thank You for all that You have done for this company and for each and every one of us. We ask now that You continue to keep Your blessings and mercy upon us, oh, Father. Continue to guide and protect this company and protect us all. Lead us into Your path, oh Father, as we give You full control over us, over our company and our lives. In Jesus' name we pray. Amen. So welcome once more, everyone, to another earnings call, Q3 2024. And as we have expected, there is an increase as we expected over quarter-over-quarter. However, we have a few disappointments, which I have to mention over the quarter. But overall, we -- our performance was well, and we are pleased with our performance thus far and the -- as the company continues to grow. Now upon going into the highlights, we saw a $395.49 million revenue, our sales over the quarter, which is up 42% over Q3, the comparative quarter last year. So as I keep saying, we expect to see these increases as we grow, and we are quite pleased with what we are seeing. I think it's going good for the company, and the company is showing a significant growth over period -- over quarter-over-quarter as we expect to continue to see as we grow. The operating profit, $22.62 million, up 7% over the previous quarter -- comparative quarter, 2023 Q3. Gross profit, $66.86 million, up 74% over the previous quarter -- comparative quarter. And net profit seen, $21.64 million for Q3 2024. So I know a lot of persons are, well, answer -- or asking about Kingston, which we -- that's where have some disappointments earlier. We -- for Kingston, we have seen some delays, constant delays. So we have been working through some challenges -- primarily some challenges that we are not -- don't have any control over, primarily, our power connection and some other stuff that we don't have control over, which we'll go into further into the call. But we had over steady increase in revenues with our -- what we are operating currently. We have a revenue increase of 98%, up to $1.2 billion from year-to-date. Our total expenses rose by 159%, which we'll go further into that later on, landing at $111.1 million. As we grew, we see additional expenses, which we try to curb and control our overheads. So we have seen $111.1 million cost in expenses, an increase of 159%. Earnings per share increased from $0.037 to $0.057. And with regards to our Sunday closure, I can gladly say that our company has been performing exceptional considering this action that we have taken in terms of deciding to close on Sundays. And I can tell you, we have not gotten -- we have some persons who were -- some controversial remarks, like how we're going to close on Sundays. But the fact of the matter is that we have not gotten one complaint. We have gotten a lot of credits from customers in terms of a lot of respect gained for the company overall for us taking this stance. And I can tell you, there is a good signal coming out of the Sunday closure for the entire country because it is respected by the general public. That's the general remarks that we're getting are comments from individuals, customers, just the general public. The company has gained respect for this action that we have taken -- we have implemented. And we have seen where our company has been doing better with regards to our staffing, our employees, and just the general operations of the company has improved. And we have to give credit because as I always say, we -- the company is coming from -- it's growing significantly over the period. It's coming from a small market share -- from a very small market share in this industry, and it has been growing and gaining market share over the periods. And it is primarily, I would say, due to our having our -- having God included -- or inclusion of having God in the company and having him take control in assisting us in our decision-making and just including Him in our operations in all that we do. And this Sunday closure has proven quite beneficial for the company. And I'm sure based on faith also that it will just continue to grow as we have been seeing. The evidence is there. And there are so many testimonies from the Sunday closure that I cannot go into all, but there are so many things that are coming on the table. And I know that it's based on our stance that we have taken and where we are positioned the Almighty into the company. And we have no doubt that this company will be a success and will continue to be a success. So with regards to the Sunday closure, I said our financials will show an increase in revenues, increase in profits and -- as we steadily grow. So I am quite confident and we are, as usual, putting everything in God's hands. We now move on to our financial highlights, and I put you over to my CFO, Mr. Jerry Grant.

I would like to say thanks to Renate and the team. I would like to also present our third quarter results for the period July to September 2024. The company generates $395 million in sales over the quarter. This is a direct result of 3 service stations being fully operational currently. Even though we have encountered higher cost of sales, we were able to generate a 74% increase our gross profit. Profit before tax -- no, sorry, profit before finance costs increased 7%, and we are showing a $22.6 million profit before finance cost. And profit before taxation, $21.6 million for the quarter, which arrived at a net profit similar to the profit before tax as we are still within that period where we are not paying any tax and profit due to being listed, and it's still coming out at $21.6 million. At the close of the quarter, it's a 10% increase in net profit over the prior period. Earnings per share also saw a increase over the quarter. And in 2023, it was showing at $0.013. Currently showing $0.015, a 15% increase. Okay. This is a graphical representation of what we have just looked at for those who prefer a graphical insight of that representation. Our operating revenue for the 9 months ending September 2024 for the first time is showing at $1.2 billion. For the first time, the company has reached $1 billion mark, and this is 100% increase over the prior period. And this is a tremendous achievement for the company. We have basically budgeted to reach this figure by the end of the year, and we have achieved it within the third quarter, and that's really a significant achievement. Gross profit has increased 101% year-to-date compared to the prior year-to-date, increased for the profit before finance costs. Profit before tax, 53%. And finally, net profit, 54% year-to-date compared to the prior period 2023. Earnings per share, that moved from $0.037 for the period 2023 to $0.057. That's a 54% increase. Really, a tremendous increase in our earnings per share, and I know all the shareholders will be happy to see that achievement. Also this is another graphical representation of what I've just highlight. We now look at some highlights from our balance sheet. Our cash resources is still healthy, showing at $18 million for the quarter. Profit -- property, plant and equipment, we had significant increase also, $445 million compared to the $372 million that was in 2023. Our accounts receivable, a significant increase also. And I know a person will have a question on that in the question and answer section. Those, we can dive down into more details. Our longterm burn, well, is $215 million. As our shareholders would have known from previous earnings call, we would have reflected the second tranche of the bond in our third quarter figure we are looking at right now. And our payables of $42 million increased, and that is expected due to the increase in business, increase in the number of service station being operated and increase in the volumes of fuel and other product that we would have purchased. Another graphical representation for those who prefer that format. Okay. Our cash flow from operation outflow of $14 million for the quarter ending September. Quarter ending September '23 last year, it was $58 million. We are getting close to the outflow in terms of increase in our profit. So we have basically seen a reversal of the outflow due to the increase in profit. Cash used by investing activity, $34 million outflow compared to $124 million in the previous quarter, and that would be the direct result of the gas station in those quarters, which have been -- would have been fully under development. We are coming to a close now, so less cash is being needed for those finishing touch that we have doing on those service stations. Cash used in financing activity, $363,000, 2024 outflow and at $92 million, which in 2023, and that would have been a direct result of the bond also. I will now turn over to our CEO to finish his presentation.

Thank you, Jerry, for that explanation. Right. So with regards to our company's outlook, we recently launched our campaign for franchising and which we have been seeing a lot -- are getting a lot of inquiries into that. So there are many different avenues. You can continue to email us regarding that. What is franchising really entails is for -- it includes both segments, which is the LPG and for the automotive fuels. Now there are various different modules or avenues we can explore when it comes down to franchising. So anyone who is interested in the industry and becoming a franchise or a partner with Regency, we encourage you to come on board and inquire on how you can be a part of the company via franchising for LPG or automotive fuels. And what I can tell you with regards to reinvestment in retail business for the LPG is that we have been steadily -- as we always mentioned, we have been steadily growing our LPG market organically, meaning from our profits earned from LPG, I'm talking specifically now to the household cylinders, we're getting a lot of questions and inquiries from all over the island regarding when are we -- when will be -- will we be entering our areas like Kingston, Portland, the North Coast because we're mostly concentrated in the Western region of Jamaica, Western Hanover. So we have been investing in our cylinders, and we are seeing returns on these. So we have been investing heavily -- well, heavily from our profits in cylinders, household cylinders, and we are seeing the benefits of this. We have been seeing the benefits of this over the past quarter -- previous quarter completed, close to the middle to the end of the quarter. We have received some containers, and we are distributing across the Western regions still because what we want to do, we want to concentrate on the Western area and try to master this area with our market share, gain additional market share for the 25-pound and for the 100-pound cylinders. And it has been proven successful so far and encouraging. So we will continue to do so until we gradually grow across the island. So that's it for our outlook at this time. We -- with regards now to -- well, let's take some question and answers, and we can go into Kingston after.

All right. Thank you so much for that, Andrew and Jerry. As always, it's a pleasure to hear what is happening from your perspective as a management team from RPL. One thing that we did not hear today that we usually hear about is your giving back, right? Your -- what have you been doing? We know that you give back to schools and churches as a continuous and ongoing thing. Is there anything else that you would like your shareholders to know?

What we introduced recently, which is not -- well, our giving back remains the same in terms of obligations. We stand by our obligations with schools and churches donations what we constantly do. But this is more on the marketing side. What we have been doing now is having raffles and giveaways for customers that have been loyal to the company. We are also expanding on our membership program. So we are trying to include our Jamaican public to be a part of the company and, therefore, ban club membership and, therefore, gain benefits from the company that's on a marketing point of view. But in regards to the CSR or corporate responsibility, we stand by our churches. We provide whatever services we can to our church that we are obligated to looking just for the outreach. We provide -- we were aligned to certain organizations within the community for youth in assistance with school books and therefore -- so we have this constant obligation that we have to live by. And we continue to live by it.

All right. Thank you so much for that. I'm happy to hear all that. So we have a few questions from our investment community, and we're going to jump into those now. So the first one is, what do you look for in a franchisee?

Well, that's a broad question. For our franchisees, and I said it's 2 segments, it's LPG and it's automotive fuel. So it will be specific, the requirements will be specific towards the segment that you are interested in. Now whichever segment you are interested in, primarily, there needs to be some capital. So yes, the individual will have to have some equity to put into the investment. So that's the primary thing that we are looking for, equity from the individual to add to the investment, and we will assist also with that. So the equity can be different ranges of equity. Let me give you an example just to see if I can answer your question. If you are seeking a gas station, for argument's sake, and you have property that you own, property suitable for a service station, and that's the only thing you have to offer. We can meet and discuss. Okay. Fine. You have a property and it's a suitable location. We will be able to assist you with approvals for a service station. We will be able to assist you with the construction of the service station to a certain level. And then we would have to take a stake into that company, but you would also be included in terms of operations. So it's a lot to put into. But that's just one example for the automotive. Now for the LPG, you would have to be investing in cylinders with us. So this requires some form of investment in cylinders and also infrastructure to -- for this -- to store these cylinders. And therefore, we work together and we give you customers. We assign the customers and help you to grow your business directly. We go into an agreement where we help each other to grow together, so it will be beneficial for both parties.

Okay. And that, of course, is what everybody's looking for in an investment, right?

Yes.

So we -- I do understand from the perspective of wanting the other party to also have some skin in the game, as we call it, and that was that -- that was pretty clear from [indiscernible]. So the next question from our investment community is, how do you expect to close out the year in terms of profitability?

Well, I'm happy for that question. So far, I'm a bit disappointed, just a bit of disappointed because I expected -- I know many other individuals and shareholders expected the Kingston location to be open already. We have high expectations from this particular location based on our due diligence done in the area. And we're a little bit disappointed that it's not opened as yet. We have obstacles, challenges along the way. Some things that are out of our control were currently out of our control. So we have to just wait until we can get the necessary stuff in place, so we can actually open, which I said is out of our control. But we are still pressing on it. So a little bit disappointed there, but confident that we have it opened in this quarter coming, and that should -- we should see -- based on our expectations and budgets and forecast so far, we should see an increase -- further increase in our revenues. I hope we carry it close to the $2 billion mark. That's our target. We're hoping to carry it closely to $2 billion mark or close to it. Based on what we are going so far, it seems like we're on our way. So if we have the Kingston location open, we should be close to that to the revenue. And therefore, our profit should reflect in relation to the revenue. So yes, we are -- our profitability will be for sure more than what we experienced last year, and it will be an increase. So I'll just leave it at that for the time being until we meet for the next earnings call.

All right. Sounds good. It sounds like there's a lot to look forward to. That's right. So Jerry, this one is for you. Are your increases in expenses one off now that the gas station is about to open?

Well, expenses has been a tough bucket for us. It's a constant fight, and we are discovering new, and the new expenses has been hitting us from time to time, especially with each opening of our gas station. And I would not say it's a one-off. It's going to be a constant thing that we're going to battle with, and our job is really to keep it intact. And we have been at the table discussing, finding ways how to do that. It's a part of the business with new -- with a growth business, new administrative costs, staff costs, security costs, all of these cost in electricity, it's a part of doing business and especially when the business is expanding. So it means we have to minimize the effect on our bottom line, that's the main thing, minimize the effect on our bottom line, and we should be okay.

All right.

Can I add something to that? What I can add to that is that, yes, as Jerry said, expenses are expected to increase with opening up of our new gas station. What I can assure our shareholders is that we -- this is something that we keep a keen eye on, I would say, almost daily. We have management meetings every other day. We meet with our management team to oversee and to evaluate and assess operations at each location, so that we can identify if there is some aspect that we can improve on or we can cut our overheads without affecting our staff or just affecting the general operation of the company. So this expense is very critical. This is what -- can allow the company to follow. And in profits, our increase is profits. So we put it as priority to constantly evaluate our expenses and overheads, so we have it in control. And we also employ technology as it comes by. So we try to keep abreast of technology and keep abreast of it, meaning that we employ the prudent ones and to ensure that we can cut our costs and be efficient and productive and profitable and increase profitability from this. So expense for us is one of our top priorities to control and keep abreast up. We don't want to get up at any point in time, especially for a growing company. We want to be on top of the expenses on our overheads. I think that management -- from a management point of view, it is very critical.

Thank you for that. The next question from our investment community is, do we need to raise any additional funds in the short term?

Well, as the opportunity arises and it's feasible opportunity that will be profitable and will benefit the company, yes, we -- currently, we have things on the table, everything premature, and preliminary discussion has been made. So -- and this opportunity to mention again that all that has been coming on the table. I personally attribute that as a testimony of what God has been doing to the company since especially we are recognizing so much, and we are being recognized even for that. And I see where, from a first-hand point of view, we have a number of growth opportunities coming on our table. So we, again, include God in this decision-making process. So I know we have a very bright future ahead for the company based on what I see currently, which I cannot speak of as yet. But in the near future, we'll see. Short to medium term, we should see some significant increases in the company's operations, and I'm hoping for that. I can see we are heading that way.

All right. We will watch out for that. The next question, I believe, you would have already answered. What are your expectations for revenue from this additional location [indiscernible]. And based on your [indiscernible] your expectations [indiscernible] is asking if there will be any dividends this year.

Well, Jerry probably can answer, but we are eagerly anticipating paying up dividends, obviously. However -- again, I'm a bit disappointed because I was hoping to have this Kingston station in operation for the third quarter. We could see those profits and revenues, and we could probably announce a revenue -- sorry, a dividend payment for this year. Let us see what happens in this fourth quarter because I -- we have our forecast on for this quarter -- for this service station in Kingston, and we are hoping that it meets or exceeds it. And we can see what happens from there.

Jerry, anything to add to that?

Okay. What I would say is in conjunction with what Mr. Williams, we need to see the effect on our bottom line from the operation of the Spanish Town road service station. We expect increased volume -- increased traffic and increased volume but, at the same time, we know also that maybe, the unit price for gas would have been lower. So we really need to see the figures before we make deliberation. I know the Board will need to look at that to make their deliberation also. So yes, we want to pay a dividend. The company is in growth stage, too. We have to be careful, but everything we do is, at the end of the day, will go to the long-term future and betterment of the investors that we have. So sometimes, we just need to exercise a little bit more patience to earn greater reward. So it's really a timing situation. Let's see what our figures turn out to be and then we can take it from there.

Great. Sounds encouraging. Shareholders, keep that in mind. You're being asked for a little more patience, but you do see where -- we can see where the company is doing everything in its power to grow the revenue, to grow the profits, and so ultimately be in a position to give dividends at some point. There are 2 other questions from our LGI investment community. So we're going to jump over to [indiscernible] [Operator Instructions]. So current question, are there any considerations to putting products -- your own products on the market, like your own oil, et cetera?

Yes. All right. This is something that we have considered and we have actually looked at over the last year, really. What we have to be doing, yes, we can come out with our own products, but we have to look at the bottom line. Putting out our own products, the appearance will seem attractive. But when you do further depth analysis of this, you will see that based on the capital expenditure outlay and the revenue income from this, it doesn't quite add up as yet. Reason being we only have 3 service stations right now. We need to have a network of service stations. And then it will see more feasible for us. But definitely, because personally, I am from a lubricants background, and I've been in lubricants for years, born into lubricants, so for sure, we will definitely include that. But the timing currently is, as I said, we have to be balancing out and meeting and assessing and evaluating on a daily basis to make sure that we maintain what we have and we increase from where we are.

Okay. Thank you. The next question I'm seeing and so far, this is the last question, unless we have any others that drop in the comment section, are you still focused on growing the LPG business considering the revenues from the gas station?

Most definitely, the LPG business is a business that we have a passion for. So the LPG business is a business that has longevity. The LPG business is a business that will always -- has a long life ahead of it, and it will -- and is a profitable business. However, LPG business is also capital intensive, and we have to be -- and risky. So we have to be careful how we expand on the LPG, which is why I always say, let us grow it organically for the time being. Now we have a lot on the table when it comes down to LPG. We have been doing our assessments and evaluations. And as I said, we have been growing it organically. We have been buying our cylinders. We have been gaining market share over the last quarter. Say, last 2 to 3 months, we have seen a significant change, an increase in our revenues from our household cylinders primarily. And we will continue to grow it organically until we are able to gain that amount of reserves where we can go ahead and invest heavily in the LPG market, which would be in the short to medium term for us to do a heavy investment in LPG, particularly household cylinders. So yes, LPG is definitely a primary focus of us in terms of expansion.

Good to know. So I think that brings us to the close of the Q&A section. I am just -- will be checking if we had any other questions, and I'm not seeing any. So again, we say thank you to our audience and to the shareholders and potential shareholders and the general audience for listening in. I will hand back over to Andrew for any closing remarks you'd like to make to the audience before we close out. Thank you.

Thank you, Renate. Well, something to note, we have -- and something very significant to note is that we have exceeded our $1 billion mark in revenue, which is a huge achievement for the company. And we have exceeded this $1 billion mark in the third quarter -- upon completion of third quarter of this year. Now the company is on a growth path, and we are growing steadily. We are a little bit disappointed that we didn't have the service station in Kingston opened for the third quarter, as promised. However, we have some challenges and obstacles that we are pressing on, and we are hoping to overcome them very soon. So we should have the gas station open in this fourth quarter. And I'm eagerly -- really eagerly anticipating what our revenues -- additional revenues from this service station in Kingston. I know all our shareholders also anticipate this. Our customers, the general public are -- they are getting constant phone calls, "When you are going to open," because they are anticipating, they want to experience the Regency brand in Kingston. So I can tell you how we're really anticipating the opening of this Kingston service station. And we are hoping to have a grand opening in -- prior to the festive season, prior to Christmas. So we are hoping to have completed, operated and have a grand opening where the general public can come in and enjoy whatever festivities we may have for the Christmas at that particular location. Now moving forward, as I stated earlier, we have a number of opportunities that is on the table, that's very premature, and preliminary discussions are being made. But generally speaking, the company is definitely on a growth path, and the company definitely has a bright future ahead, what I'm seeing on the table and what the opportunities I'm seeing coming across the table for us now. Remember, we are a listed company for 2 years. And the growth that we have experienced over these 2 years by being a listed company, by being recognized and by the different actions that we have taken and what we have pioneered so far, it has shown that the company is on its way to be quite successful. And as I always say, we want to be a multinational, but we have to master our own country first. We want our Jamaican people to benefit from all our products, which is why we have our franchising that we came out recently. We want to open up the landscape. It's a global economy, but we want to include our Jamaican companies or entrepreneurs to be a part of regions, a growing company, a listed company on the stock exchange, a company that has hopes to be multinational, a company that is led by God. So we have our franchise, we want to include everybody, and we are on a steady growth path so far. We're looking forward to Kingston in the fourth quarter. We're looking forward to reaching close to the $2 billion mark for the end of the year, close to the $2 billion mark. It will be great if we could exceed the $2 billion mark, but that's a little bit too much -- and probably, I'm not sure. Well, let us see what happens, but I know if we -- we have been so far broken record for the company, and I'm sure that we'll continue to break records as we grow. And we want to include our general public, our Jamaican people in the company. We are looking forward to opening Kingston. We are looking forward to be in the corporate era. Kingston is awaiting us. The customers, they are eagerly anticipating the opening of Kingston. So we want to see that's our primary focus currently. So in the very short term, right now, our daily activities, our primary focus is having that Kingston location open, whilst we have other things on the table, opportunities that come across, and negotiations are being taking place for the continuous growth and expansion of the company. And thank you, once more, our shareholders, for having confidence in us. And I'm sure that we will make you all proud to make our Jamaica, our country proud by being a Jamaican-owned company and a household name in Jamaica. Thanks, everyone.