Riyadh Cables Group Company (4142) Earnings Call Transcript & Summary

Good evening, everyone. Thanks for joining. I'm Anil Mulani from Al Rajhi Capital, and we welcome you all for Riyadh Cables First Quarter '25 Earnings Call. From the management, we have CEO, Mr. Borjan Sehovac; CFO, Mr. Bahaa Eissa; and CSO, Mr. Mouaaz Al-Younes. We will be having a short presentation followed by a Q&A session at the end. Without any further delay, I will hand over mic to the management to start the proceedings. Mr. Borjan, over to you.

Thank you, Anil. Ladies and gentlemen, thank you for attending Riyadh Cables Q1 '25 Earnings Call. Today, we will provide a quick overview of the company, and then we will talk about the company's performance during the first quarter of 2025. Then we will review the financials for the same period. Afterwards, we will provide a recap on the company's strategy and an update on the market. Lastly, we will discuss the management's outlook and the way forward. I will now leave it to Mr. Borjan Sehovac, CEO.

Thank you, Mouaaz. Good afternoon, ladies and gentlemen, and welcome to Riyadh Cable First Quarter Earnings Call. As usual, I would like just to start as a company overview. For your background, as you know, Riyadh Cable Group is the largest regional player in the wires and cable industry since 41 years now. We manufacture and supply all type of cables used in generation, transmission, which means overhead lines, high-voltage cables and extra high-voltage cables; distribution, medium voltage and low-voltage cables; and end users, which means low voltage and wires. We manufacture also fiber optical cables used in data transmission, and we are able to produce any type of cable needed in the market using our center of excellence plants located in Riyadh, located as well in Sharjah, UAE and in Baghdad, Iraq. Moving to the financial performance highlights. We can see once again that all the KPIs are showing solid results in this -- also in this first quarter 2025. Achieved revenues are almost SAR 2.5 billion, record sales volume increased above 8% when compared to the quarter 1 '24, and we are keeping an excellent utilization rate at 95%. Profitability metrics are showing significant improvement with a 35.6% increase in gross profit per ton, 38% increase in EBITDA and an excellent 52% increase in net profit, which stands at SAR 256 million. Free cash flow is at SAR 55 million positive, again, a good working capital management. The debt -- the company still holds a record low net debt-to-equity ratio, which went down to 0.12 multiple. Moving to the backlog. We are holding record high 139,000 tons of confirmed orders. And more importantly, the value of this backlog is at the level of SAR 5.2 billion, as we will see in the dedicated slides later on. Showing the key performance drivers, we can see that the sales volume has increased backed by an increase in transmission, good export and renewable products, mainly solar. In the next point, we can see solid demand-driven revenue, which increased by 23%. In fact, the performance also of domestic market together with export is pretty good. Gross profit per ton increased by an excellent 36% as a result of excellent mix, cost efficiency and also -- which is also a fact of the high utilization at 95%. Net profit increased by 52%, backed by stronger operating income and firm control on overall cost. And free cash flow of SAR 55 million, as I said before, we are still at the beginning of the year, this should improve in the next quarters. Moving to the Slide #10. Q-on-Q, we can see the revenue is at the same level of previous quarter, even if we have had a volume increase of 11%, and this is because the mix of aluminum is higher compared to quarter 4 2024. Year-on-year basis, the volume is higher by 8%, while the revenues increased by 23%. As mentioned, the market remains solid, both domestic and export, to highlight also a modest recovery of utilities if compared to the last quarters, but still in line with the quarter 1 2024, so nothing exceptional. The confirmed orders backlog of SAR 5.2 billion is excellent level, represents 139,000 tons to be consumed within the next, let's say, 12 to 18 months. With regards to the split between copper and aluminum, we can see that aluminum share increased compared to previous quarter, and the split is exactly the same as quarter 1 previous year. Moving to Slide 11. As mentioned, we are holding a very strong backlog at SAR 5.2 billion, a record high 139,000 tons. I want to remind you that these are confirmed orders in our SAP system with advanced payment received, letter of credit in place and, of course, fully hedged metals. This strong demand keeps our utilization rate at a quite high level of 95%, which level also brings very good operational efficiencies. Now I hand it over to you, Bahaa for more financial highlights.

Thank you, Borjan, and good afternoon, everybody. Riyadh Cables Group continued its excellent performance and quarter 1 of this year has been no exception, with gross profits increasing by about 51% to SAR 427 million compared to the same period of last year. This came on the back of higher sales figures up by 23% on a quarter-to-quarter basis, order selection process, product mix and continued efficiencies. Compared to quarter 4 of last year, gross profit has increased by 29% as a result of the product mix and selection process. As a result of this, our EBITDA has increased by 38% to SAR 311 million when compared to the same period of last year. And when we compare it to the previous quarter, there has been a modest increase of 2% to -- as we said earlier, to SAR 311 million. Now looking at the cash flow. Cash flow for this period was SAR 55 million in spite the increase in our receivable and CapEx. Again, this number of [ figure ] is in line with the quarter 1 figure of 2024. And again, this was achieved through strong profits and variations of provisions. These results support our declaration that the company will always be able and its aim to fund its operation, including CapEx and dividends from its own cash flow. As for the dividends of the company, the company has paid out a total of SAR 524 million in dividends for the full year of 2024, which equates to SAR 3.5 per share. That's compared to SAR 2.5 per share in 2023, an increase of 40%. Our dividends for '24 were made in 2 payments, one in October of 2024 and the second payment was in May of this year. And again, this puts our ratio to -- ratio of dividends paid to net income at about 64%. Now looking at the hedging and the pricing mechanism. As previously stating, our hedging and pricing strategy doesn't neutralize the commodity price fluctuation. You can see that our gross profits per ton for quarter 1 of 2025 has improved further compared to '24 by about 14% to SAR 6,330 per ton, even also when compared to 2023, that's a continuous growth throughout the period. Again, this was achieved through continuously improving -- improved pricing policy as well as better product mix, mainly transmission cables, operational efficiencies due to higher utilization, production lines improvements and vertical integration. The bottom chart shows that regardless of fluctuations in the metal prices, our profitability is not impacted by its movement. And it is -- as we stated previously, it is always calculated as an absolute number per ton. Just to note here that during the year 2024, copper prices have ranged and fluctuated between $8,000 and $10,800 per ton. That's a movement of about 35%, yet as you can see, our profitability was not impacted at all by this. With that, I now pass it on to Mouaaz.

Thank you, Bahaa. In this slide, we see an overview look of the markets in which RCG currently operates in, and they constitute about 95% of our revenues. The markets continue to exhibit decent demand growth during this period with Saudi Arabia being the major contributor to our volumes during this period, followed by UAE and then Iraq. In Saudi Arabia, during this period, volumes momentum was attributed to the performance of main demand drivers such as mega and giga projects, renewable energy projects, transmission projects, as mentioned by Bahaa and Borjan, housing and real estate development and the oil and gas industry, which continued to perform strongly, coupled with a modest recovery of the utility orders in select sectors. We expect to see continued momentum in high-profile giga projects as they're going up full speed and renewable energy projects. As far as export markets for GCC, Iraq and Africa, they all demonstrated steady performances. Now indicators from the company market intelligence, as you see on this slide, along with third-party market research studies and current backlog continue to suggest that between 2024 and 2028, we expect Saudi Arabia's market size to grow at a rate of 4.8% CAGR, GCC to be at 3.4% and Iraq is expected to be at 9.1%. The company continues to execute its growth-driven strategy. We maintain the largest production capacity and most extensive product portfolio in the region. Our strategic initiatives to significantly enhance capability and expand capacity are well underway, aligned with our long-term growth objectives and forecasted market growth expectations. We continue to expand our presence in export markets through high value-added products, diversifying our client base and ensuring a steady revenue stream from these premium offerings. The company is broadening its services offering by introducing cable accessories and taking on more turnkey projects. This is positioning ourselves as a comprehensive solutions provider rather than a mere product supplier. Having said that, we will soon finalize third-party testing of our medium-voltage cable accessories and roll them out to the market this year. Riyadh Cables continued to leverage its expertise and advanced technologies to drive cost optimization and operational efficiency. Continued development of comprehensive digitalization road map is underway, and it's slated for completion this year. We continue to execute our strategy relative to ESG, especially in reducing carbon emissions, and these details will be published in our 2024 ESG report due to be released during the first half of this year. Given what was discussed in this slide, the company continues to have a market share of 38% in its primary markets. Back to you, Borjan.

Thank you. Thank you, Mouaaz. So with this last slide, we are confirming the upper range of our guidance that we have given in the previous earnings call, increasing the net profit of 12%, which takes us to the minimum level, let's say, of SAR 900 million, SAR 915 million. We also confirm the increase of the CapEx by 50%, CapEx, which is allocated for both capacity expansion and the efficiencies, replacement of old machines as well in order to keep our competitiveness at the best level. In conclusion, ladies and gentlemen, I mean, we still hold a very good backlog, which is increasing. This is an excellent news. We have a good mix and good pricing in the same backlog. So in the Kingdom in the region, the macro trends are still very strong. Let's just see how the next quarters we develop, but rest assured that we are committed to overachieve the guidance, assuming, of course, the same geopolitical situation and let me say, no major market disruptions. This is the end of our presentation. I believe we can now start the Q&A session. Thank you very much.

Thank you, management, for the insights. We now open the floor for Q&A. [Operator Instructions] The first question is from the line of Ameya. Ameya, can you listen us? It seems like some issue with Ameya. We will move on to next participant, Mr. Fawaz Aldosari.

Congratulations on the results. Mr. Bahaa, I have one question. We saw a little bit of pressure on the OpEx during the first quarter. Can you please just shed some light upon that? And I have another question on the sustainability of the product mix. And this is where I'm asking from your expertise. Do you see that the transmissions in the high-voltage projects will continue for, let's say, the next 5 years or it's a bit of an exaggeration for 5 years just from an outlook perspective?

Thank you, Fawaz. This is Borjan speaking. I will start with your second question about transmission products, which means overhead lines, high voltage and extra high-voltage cables. The trend is good. Let me just say, the trend for the whole region, but for the global trend as well, where the market -- cable markets are increasing is especially in this segment of the transmission because of interconnections, because of energy transition, because of renewables. Renewable always needs to transmit the huge gigawatt from -- generated by renewables. Here in Saudi, we have 70%, 80% solar. This needs to be transmitted by power lines, high voltage, extra high voltage, because this kind of transmission reduces the losses over the long distances. So our backlog is quite good in this segment, both for overhead lines and high-voltage cables. And we don't know what will happen, let's say, in the next 5 years or so. But we know the trend, the trend of interconnections and the trend of renewables. These are very strong trends which will be happening in the country and in the region, and we hope that it will stay for long. For how long, we don't know because possibly sooner or later as well, the renewables will finish. But when it finish, 2030, 2040, it is hard to say. But speaking it with -- from the backlog point of view, let's say, we have -- we are maintaining a good share of these products in our backlog. So at least for the next 12 months or so, we should be seeing revenues coming from this segment. For the first question, I will pass it to Bahaa. Please, Bahaa.

Yes, Fawaz. Regarding your questions about the OpEx and the level of profitability, I mean, what you see here is an impact of the ECL, which is a calculation that is usually done to calculate the risk related to receivable. And if you take that -- if you reverse that and you take into consideration, you'll notice that the EBITDA of the operating profits would improve significantly and be in line with the growth that we had in the gross profit and in sales. Mind you, this SAR 50 million -- we had about SAR 59 million in ECL provision. And this fluctuates from quarter-to-quarter from month to month. So possibly the next quarter, we could see probably a reversal of this and so on. So new provisions come in and new provisions get out. All in all, there is no concern here. Again, we still have a healthy -- even with that SAR 59 million, we still have quite a healthy operating profit level.

Thank you. We now move on to next question, which is from the chat box. This is from [ Seki Mutukwa ]. So the question is, any update on the GP per ton outlook for the rest of the year versus 1Q '25? And the second question is what drove the receivables write-offs during first quarter '25?

Okay. So as far as the gross profits per ton outlook for rest of the year, we expect the levels of a single-digit increase over last year's levels. And this is -- we expect it to be on the upper side as far as a single-digit increase for gross profits per ton. As far as the provisions or the write-offs, I believe Bahaa already answered this question.

As I mentioned, I mean, the growth that we have saw in the receivables is related to projects that we have done in [indiscernible]. These are government receivable. We have no concerns about them. But as we said, when an ECL calculation is done, it takes so many factors into the equation, and it has a very conservative approach to it. But these receivables are expected to be collected. In the past, we have collected. We never had any default with regard to the Iraqi government receivables. I hope that answers your question.

[Operator Instructions] I can see one question in the chat box related to the revenues. So this is from Divya Shah. So question is the revenue declined marginally Q-o-Q due to the product mix changes. Can you share the expectation for sales volumes and the ASP in the coming quarters, especially across the core segments like power and specialty cables.

So thank you, Divya Shah. Revenue declined marginally quarter-on-quarter. Yes, declined because it follows the mix of between aluminum and copper and follows as well the LME prices, which are changing on a daily basis, monthly basis, et cetera. But what is important is -- as we are hedging any variation or fluctuation of the metals, it is important that the tons, the volumes that we are selling, which are increasing, as promised, 6%, 8% increase in tons where we are investing in order to keep a good market share. So the volume is increasing. And -- so basically, this is the answer of the first part of the question. About, for the future next quarters, how we are seeing this volume. The first quarter generally is a quite strong one. We have seen this as well in the previous year, but followed by the very much similar quarters as well or plus/minus. I don't get me now on the exact number. Generally, if market scenario is not changing from the global, let's say, perspective, we are forecasting similar quarters within small variations also for the -- at least next quarter or so. Average selling price, for the time being, the pricings are at very much stable level. We don't forecast any big, let's say, variation up or down. So we can expect similar pricing, very much competitive scenario. Don't get me wrong. More and more cable companies are as well in the Saudi and in the region. But we are investing as well all our resources for the export in order then to keep good volumes, good sales and to, of course, keep as much as we can, a good pricing level.

Thank you. Okay. The next question in the chat box, we have from [ Amir Badran]. So basically, the question is related to the guidance of the gross profit per ton. He is saying that the gross profit per ton guidance tends to be conservative and sometimes you exceed it by the wide margin. Any rationale behind this cautious approach?

Gross profit per ton depends on many factors. It's not only the pricing, but it is also efficiencies. Efficiencies means as well good utilization, good volumes and good machineries and good investment that we are doing in our plants in order exactly to increase this kind of efficiencies. So we are doing all possible actions to maintain it. That's why as well we are -- as mentioned in my last slide, we are investing as well for our operational efficiencies. And the good volume -- if the volume is continuing to be good and our level of saturation utilization continues to be at the same level, we are expecting very much similar gross profit per ton because we have already seen this in our backlog pricing. We know what to expect. Now the game is to continue to be efficient in our factories because everything starts from the plant, from the shop floor where our major focus is. Thank you.

[Operator Instructions] Okay. I cannot see any more hands being raised. In that case, I will hand over to the management for the closing remarks.

Anil, I see other questions in the chat box, if you want to go over these.

Okay. A few are repetitive in nature, so such as volumes and things like that. That's why we skipped that.

We see a question...

Yes, I can see now one on the CapEx. What led your decision to increase the CapEx SAR 300 million? Is this due to the increase [ to support machineries ]?

Yes. CapEx increase is both to maintain our capacity expansion increase as well, where we are maintaining our 6% to 8% volume-wise capacity increase, but as well including efficiencies, including replacement of old machines. Now this is as well something important in order to be more efficient, bottlenecks, et cetera. So this is the mix of our CapEx that we are doing across the whole group. So this is the answer to the CapEx increase to approximately SAR 300 million.

Okay. And one related to the backlog. So Mr. [ Hamza Jabbar Choudhary ] wants to -- can the management give the breakdown of the backlog? How is UHV, HV and LV with respect to the consumer?

Currently, our backlog doesn't have much as far as the consumer products -- the consumer-related products. However, if we classify it, for transmission, we're about 60%, which under that, you would have high and extra high overhead. For the distribution business, it's about 20% in the backlog and then about 20% is renewable energy-related projects.

Okay. And the next question is from [ Mohamed Hamza ]. What is the payout ratio expected for the year?

Well, this is -- I mean, typically, as we have mentioned over and over, we do not have a specific policy setting a ratio of payout. However, we try to pay as we have done on a historical basis, between 60% to 80% depending on the year, the current spending as far as CapEx and how we want to grow the company first and then dividends would be after that.

Okay. I can see now a hand being raised by Akash Tomar.

Congratulations on a great set of results. Just one question from my end. Given the volumes of 68,000 tons and a 95% utilization rate, is it fair to assume that you -- for like 2025, at least, your capacity is now close to 270,000 tons for the entire year?

Look, I mean, considering the product mix, you have to always consider the product mix when you do your calculations as far as tonnage. It might be safe to say that we are on the verge of [ 255 ] plus and minus for the current product mix. The more aluminum we have in the mix, the less the tonnage is going to be.

Okay. I don't see any other questions being remain unanswered.

Well, we thank everybody for attending this call. If you have any questions, please don't hesitate to e-mail us at [email protected]. Thank you.

Thank you, Anil. Thank you, Al Rajhi Capital. Thank you all.

Thank you. See you on the next earnings call.

Thank you. Thank you, everybody. Have a good day. Bye.