Salalah Port Services Company SAOG ($SPSI)

[Foreign Language] Good morning, and welcome to this session on the financial statement for Port of Salalah for 2025. I'm Mohammed Al Mashani, I'm the Chief Corporate Affairs Officer; and also I have Bart Van Graaf, our CFO; and as well as Laith; and Iman from the Corporate and Legal departments. The session will be divided into 2 main sections. The first one will have a presentation about the Board as well as the financial statement. The second part we'll take your questions, Q&A. With that, we will start. Iman, if you can go to the next. This is a profile about Port of Salalah. We are the largest port in Oman. We have started our operations in 1998. We are mainly divided in 2 terminals: the container terminal; as well as the general cargo terminal. We are the largest employer in Dhofar with more than 2,500 staff. We are a public listed company, and that's why we are having this session. If we look into our shareholders' profile, we have the largest one is APM Terminals. APM Terminals is one of the largest port operators in the world. They operate more than 60 ports around the world with more -- in more than 33 countries. Second one is Asyad. Asyad is the logistic arm of the government or OIA, It owns 20%. And the rest, as you can see in the PowerPoint, 10%, 20% local vessels as well as institutional investors, 19%. Next, Iman. Our vision, as you can see, we are more than a port. We are advancing supply chains in Oman and beyond, and that is our vision. And we have seen that during the crisis as well. We are now becoming a hub for the -- almost the GCC and the Upper Gulf as well. Our mission is to enhance efficiency. As all you know, we are -- we have been second most efficient port in the world for 3 years in a row. We have a very good connectivity, connecting all the -- connecting Oman to Europe, Africa and Asia as well. And we give value to our customers, and we have a sustainability for all, and we are producing our ESG report now for the second year. We are going to release our ESG report this year in the next week, hopefully. If we look into our strategy, we are more concentrating on the growth through the adoption of technology and digitalization. We have the latest technology, and we are adopting it. We are also customer focused and where they are the most important ones, as well as grow our business in the supply chain and looking into the ecosystem of Dhofar, where we have the free zone, the airport and Al Mazunah. So we are creating Salalah -- what we call Salalah ecosystem. Definitely, the other one is people and skills to become a center of excellence in Oman, especially in the logistics sector, as well as the last one is the cost discipline as any other company. We are looking into managing the cost as well. Next, Iman. So now I will hand over to Bart for the financial performance.

Thank you, Mohammed, and good morning to everyone. 2025 seems far behind us. But yes, let's have a quick look to our financial performance. Revenue went up by almost OMR 20 million, plus 28%, and that was due to the volume increase that we saw on the General Cargo side, where we saw 17% pure growth and on the Container side, where volumes came up with 31%. And that was due to the finalization of our terminal capacity upgrade, which went live in Q1 2025. As a result, our operating costs also increased by OMR 12 million, so almost 20%, and this is pure volume driven. So either variable costs relate to volumes or the depreciations related to the upgrade and the new equipment, which came live. If we look at the net profit, last year with OMR 2.3 million, and now it was OMR 7.3 million, OMR 5 million up. Again, three reasons: It was volume driven, good cost control, and then having a protection mechanism in place against the lower volumes due to the Red Sea crisis. And as a result, again, all our margins improved versus last year. In our management report, we have an EBITDA margin of around 31%. So all in all, definitely healthy margins. So yes, this was a quick update on our financials. Back to you, Mohammed.

Thank you, Bart. And now we will open for Q&A.

If you have any questions, please just raise your hand and then we'll take it from there. Okay, [ Alsiyabi, Motasim ].

So my question is with regards to the temporary suspension that was announced by the company on the 13th of March, has there been any update since then, i.e., is the suspension still going on? Or is it has stopped?

We are in operation, back in operation. Yes, [ Shahoor. ]

I just had a couple of questions, starting with a follow-up to my friend's question earlier. Due to this recent geopolitical conflict, what sort of loss in terms of operations or in terms of revenue, should we be expecting this year or up to this point, if you could quantify that for us, a ballpark number maybe?

Bart, can you take it?

Yes. I think it's hard to predict the current situation, right? Our first 2 months of the year were very, very good, right? And then the crisis started and our operations were disrupted. We're back fully operational. On the General Cargo side, I think that's a healthy business that will continue growing and is not too much disrupted by the ongoing crisis. On the Container side, we're looking at a very fluid situation, right? It's very hard to predict. So how the containers will flow to the GCC countries, right? It's not yet decided. If the Red Sea remains closed or open. So it's very hard to predict. So March, yes, it will be a weaker month due to the crisis. And then in April onwards, we cannot foresee it, right? It could be a volume increase, it could also be a volume decrease because the volumes get stagnated into the port. So I'm sorry, we cannot answer that.

Great. Could you please give me a segregation of the revenue from General Cargo versus the Container business in percentage of revenue.

Yes. General Cargo will be around 40%.

Okay. Great. My next question is on your payout policy. Now we have seen that, obviously, the company has done very well this year and before that. My question is, assuming that the recent geopolitical conflict did not happen, should we assume that the revenue numbers for 2025 after the upgrade of the terminal, as you mentioned in the presentation, should continue, the revenue in the range of close to OMR 90 million. Is this the new norm now?

I think if the Middle East crisis would not have happened, right, we would have seen more volumes come in on the Container side, and we would also see a healthy growth on the General Cargo, right? General Cargo keeps growing by 10%. The Container, right, we have a lot of excess capacity to be filled up, right? Once the Red Sea opens up, once the Middle East crisis gets resolved, right? This will be a full terminal. So the financial performance can only go one way in the long term.

Great. Great. And hopefully, it will. Could you give us...

Last question, please, [ Shahoor ]. because we have others waiting.

Yes, sure, sure. I'll be happy then to get back in line. Could you give us a number of your current capacity? I mean, current, as in 2025, what was your capacity utilization?

So on the Container side, right, we -- our capacity is around 6 million to 6.5 million TEU, and we did 4.3 million. So once things get resolved, we think we're going to very quickly reach our capacity. So that's a big increase. On the General Cargo, we are currently investing in equipment. We currently get 2 new mobile harbor cranes, so to support the volume growth as well. I hope this answers your question.

[ Al Motasim ], again.

Yes. I have just also with regard to the cash position of the company. So I think your cash -- your balance statement shows around OMR 48 million of cash. And I know a lot of the expenditure has been sort of spent in 2025 to expand your capacity and your utilization. So is it like sort of further plans to utilize that cash? Does the company have also sort of plans for growth? Or would there be potentially like a plan or a policy for higher dividend distribution in the future?

Yes. So 4 years ago, we decided to upgrade the terminal, right, to do civil investments and to invest in new equipment, new capabilities. However, the concession currently ends in '28, so we couldn't buy it. So therefore, we entered into a lease agreement, which then limits our ability to pay out dividends, right, because the lease will be like a loan. Once we get an answer on our concession extension, we're currently discussing this with the government. We will potentially buy the equipment, and we will start to invest in further upgrades of the terminal. So therefore, this cash, we keep it because the outlook is still there, right? We believe in the concession extension, and we believe in creating more capacity.

[ Abdulaziz? ]

[Foreign Language] I have a couple of questions from my end. First question is on the tariff structure. Can you just explain, I'm very new to the company. So I just want to understand the tariff structure for gateway volumes, transshipment volumes, et cetera. And has there been any change to the tariff structure recently?

So we have public tariffs for the gateway cargo, right? And then for transshipment we have individual contracts with the customers. So we talk about the Container side. For General Cargo side, everything is public, right? Yes, we did have a new agreement with Maersk in place in '25, where we elevated the tariffs. So this was also seen in the revenue, increased revenue from the container side. That's a good question.

And also we are -- we update our tariffs like almost every 2 years or 3 years. So we look into our tariffs. And then if there is anything, we update it. I think the last update was 2 years and especially for the General Cargo.

Clear. And so for the 2025 results, the bulk of the improvement in the profitability was coming from the tariffs, if I'm not mistaken, right?

Tariffs and also more volumes, right, volume increase due to the upgrade, yes. On the Container side, yes. Correct.

What's the increase in the container throughput '25 versus '24?

I think around 26%.

31%.

31%.

31%.

It's almost 1 million TEUs. Any other questions? More raised hands. Okay. Again, [ Abdulaziz ].

Apologies, my mistake.

Okay. Again, [ Shahoor. ]

Yes. I just had a couple of more questions, starting with the expected capital expenditure that you mentioned once the situation is handled with the authorities. What sort of CapEx are we looking at once this thing is there?

Yes. So we're looking on the container side in increased capabilities, not necessarily increase the capacity, but increased capability. So newer cranes will come in, right, to handle the biggest vessels, just like our last 10 cranes, which we leased, right? We will look also into the purchasing the equipment, which is on lease. On the General Cargo side, it will be equipment related, right? Either more and more mobile harbor cranes. We're looking into conveyor belts, right, to drive efficiency on the General Cargo side.

And would you be able to comment on the quantum of this expenditure?

The expenditure is to -- so on the container side, it will not be more capacity. It will be more capabilities, right? So small cranes will be replaced by bigger cranes, right? So we will remain at around 6.5 million TEU capacity on the CT side, on the Container side. On the General Cargo side, we will handle the volumes, right, the market demand. We believe it's 10% each year almost, right? And that means that we will phase in more equipment. And we're looking at different ways. Currently, we do ship cranes and mobile harbor cranes and potentially in the future, right, we're looking into conveyor belts.

Right. And the expenditure in real terms, would you be able to comment on how much would the company need, the cash would be needed for this?

No, I couldn't comment on that now. No.

Now [ Mohammed al-Thunayan. ]

[Foreign Language] Just a question, maybe you can better explain more the concession versus the lease agreement that you have currently? And how is that impacting your P&L and balance sheet, if we may know.

Sorry, how is the current lease impacting my P&L?

I mean the current lease versus the expected concession.

So currently, we have equipment leased, right, up till the end of the concession in '28 and then the lease expires. If we have an extension, then we could opt to extend the lease or maybe purchase the equipment, right? And we're talking about equipment at a value of close to USD 200 million, which we now have on lease. I think depending on the market dynamics, right, there might be a small gain or loss depending on if you take a lease or the buy.

Okay. And when it comes to the concession extension, usually, how much being extended for 5 years, 10 years, 15 years? How does that work exactly?

Yes. Yes. I mean, if I talk about industry terms, right, you always talk about the life cycle of, for example, your main equipment, which is normally around 25 years, right? So normally, you always talk about 20 to 30 years at least. Those are normal industry concession extensions because we will reinvest in our main equipment on the Container side, right? And the lifetime is at least 25 years.

And is there some form of royalty that is being paid to the government on the current concession? Or how does -- I mean, the cost work for the concession.

Sorry, could you repeat the question again?

I mean under the current concession, is there some form of royalty that is being paid to the government throughput basis? Or is it fixed variable?

Yes. It is fixed on the Container side and a variable on the General Cargo side, but there's a fixed and variable fee actually. Correct.

And should we expect an increase? I mean, once the concession gets extended?

Yes. Logically, there will be an increase, yes.

And do you have any plans to offset that increase in cost? I mean?

We have plans to offset it in commercial agreements, yes, definitely on the container side, we're discussing with the customers, right? So it's an ongoing discussion with the government, but also with our main customers, which is Gemini, which is Maersk, which is Hapag. So it will be offset in volumes. And on the Container side, we also definitely look at the commercial agreements.

[ Motasim, ] again.

Yes, probably just the last question for myself. So just obviously looking at the trend between 2024, '25, explosive growth of 223% in revenues. stock-wise as well, I think it's also increased by over 100%, I think, over 4 or 5 months ago. What is your projection for between 2025 to 2026 in terms of growth and potentially stock price as well?

I don't think we will give indications on the stock price, right? If we look at '26, right, our initial estimate in the first 2 months of the year was that we were looking again at a very strong year, outperforming 2025, right? Now this Middle East crisis, right, is that made the situation very volatile, and I would say a little bit right. So we really have to see it week by week now. And so it's tough to estimate how long the crisis will last and what the impact will be, right, during the crisis because will we see more volumes during the crisis. And when the crisis ends, right, then I'm sure that more volumes will come to us. But during the crisis, we just don't know how it will impact our volumes on the Container side.

Okay. Is there any other questions? Or we say thank you guys for -- okay. [ Atheer? ]

I have two questions. First, even though the operating cost went up by 20% of the net profit margin, more than doubled from 3.2% to 8.2%. What does this tell you about how the company is managing its growth? This is my first question. My second question is the SG&A expenses only rose by 6%, while revenue rose by 28%. Why is this a positive sign for the Board's management?

Yes. So on the first side, right, when we invested in the upgrade, right, we knew that our costs will go up, right, simply because our -- we invest and therefore, more depreciation, right? Our lease cost is also there. So therefore, the operating costs will go up as a fixed cost. But then also, there's a variable component, right, if you do more volumes. So I think the operating costs going up by 20% is well understood and in line with our expectations, right? And then, of course, revenue went up by 28%. So there was good cost control, and we will know the cost increase on the depreciation side. SG&A, I think it's a sign of cost control, right? So it's our back office. It is still the way we operate, right? So I would never foresee an increase in my SG&A following the revenue, right? So yes, a slight increase because we needed a bit more staff and of course, you have inflation, right? So 6% only on SG&A, I think that's a sign of good cost control.

Okay, [ Atheer ], thanks. [ Mohammed, again. ]

Yes. Just a couple of questions on the comment that you mentioned that the year started on a very good note, the first 2 months, then March was a weaker month. At least as outsiders, we thought that Port of Salalah is currently benefiting from diverted vessels. And also from what we hear that Saudi and the UAE are also trying to use Salalah as a gateway. So I mean, how come that March is a weaker month given all of what's happening, if you can explain that?

Yes. So in general, structural, right? So March, we did have some issues, right, in -- we had to stop our operations, right? So because of -- we had to stop operations for a couple of days, then for sure, the volumes were impacted, right? But on a structural level, we are transshipment port. And so volumes come into the port and then it goes to East Africa, goes to the Red Sea, it goes to the Middle East, right? It goes to India, right? Now if it cannot go anymore to the GCC countries being Abu Dhabi being, right, Dubai, then the volume gets stuck in our port, right? And we cannot get it out. And then it becomes a bottleneck, right? Your yards gets full and you cannot handle the volume anymore. So until this cargo can flow through Port of Salalah to the end destination, right, then potentially, we see volumes going up, right? But now part of our transshipment, which will go into the Gulf of Hormuz, that cannot happen anymore, right? Now the Red Sea was opening up and now also it's -- the volume doesn't go to the Red Sea anymore. So those are the main variables here. If the Red Sea opens up, our volume will go up because as a transshipment that works for us. If the volumes can flow through Port of Salalah to the Gulf of Hormuz again, then, of course, that will also have a positive impact for us. And if it's gated out on trucks or feeder into the Gulf, that is up to -- has still to be decided.

In addition to what Bart mentioned, it's not easy because it takes time to divert all this. So we are expecting to see more results in the coming weeks because as you mentioned, so now the shipping lines, they are looking into other options like by road or feeders to the Upper Gulf and also to Jeddah or Saudi Arabia. And that takes time, and we might see that from next week onwards.

And it takes time to reset the network. It takes time to create this capacity.

So it seems that you're transitioning from a transshipment hub more into a gateway one. So when it comes to the stored containers, do you charge on those containers? And when it comes to the gateway fees versus the transshipment fees, how does that differ, if I may ask.

I think most of the cargo will still be transshipment, but transshipped on different vessels, right, which then might go to [ Sohar ] might go to [indiscernible] right, on feeder, smaller vessels. There will also be some gate cargo, but that depends on the capacity you can create by the gate, right, because that means trucks, that means trucking all the way up to Dubai or right? So I think that will be for now limited and that will really take time to create this capacity, right? So I don't foresee -- I foresee more gate cargo for sure, but it will not be able to handle all the volumes that normally flow through Port of Salalah to the Gulf of Hormuz.

Okay. Any other questions or no more questions. I think we are very clear on this. Then okay, I would like to thank you guys for coming -- for attending this session, and we hope to see you in the next session [Foreign Language]. Thank you, guys.

Thanks very much. Thanks very much for the questions.