Salik Company P.J.S.C. (SALIK) Earnings Call Transcript & Summary

Good day, everyone, and thank you for joining us today. My name is Sashank Lanka. I cover the Emerging EMEA Energy and Chemicals sector at Bank of America and Dubai. We're delighted to host Salik's management today for their full year 2024 earnings call. With that, I will pass it over to Wassim, the Head of Investor Relations. Thank you.

Good afternoon, and welcome to Salik's earnings call for the full year 2024 period. My name is Wassim El Hayek, head of Investor Relations at Salik, and thank you for joining us for today's call. Our thanks for Bank of America team and Sashank for hosting today's call. Our speakers today are Mr. Maged Ibrahim, the CFO; and Mr. Tariq Ismail, our CTO. We are also joined by Mr. Tariq Al Mutawa, Salik's Support Service Director; and Mr. Hariharan Gopal, the Director of Strategy and Growth, who will be answering any relevant questions that you may have. We will begin our presentation with some key strategic highlights followed by detailed operational overview with a focus on our expanding ancillary revenue streams and then followed by the financial review before closing with our financial guidance for the year end 2025 and then concluding remarks. We will then open the floor for the Q&A. Before we kick off the presentation, I would like to remind you for our disclaimer on Slide #2, which is relevant to our status as a publicly listed company and which we encourage you to read. Please note that this call is recorded, and transcript -- and by attending this meeting, you consent to the transcription. Also, a reminder that a copy of this presentation is available on our website at salik.ae. Now that's all from my end. I will now hand over to our CFO, Mr. Maged Ibrahim.

Thank you, Wassim. Good morning or afternoon, everyone, everywhere and Ramadan Kareem. We began our operations in 2007 over 18 years ago, and since then, we have come a long way as a business, growing exponentially alongside the Emirate of Dubai. While Salik has grown, our unique underlying strengths have remained the same. We have 100% exclusivity in Dubai as the only tollgate operator in the Emirate, with an attractive concession framework extending far into the future ending at 2071, and a unique asset-light approach, where we are responsible only for the maintenance of our gates. This means that our core tolling business is by design positioned for sustained and stable growth long term. What has changed since 2007 and something which we have become laser focused on in the years following our successful IPO in 2022 is the importance of ancillary revenue streams. We now see this as not just complementing our core business, but as the second pillar of our revenue model. With the rise of technology, there is incredible future potential in the revenue from ancillary streams. While we may have grown significantly over the years, our ambition has remained the same, to become a leader in providing sustainable and smart mobility solutions. As I mentioned, our business is growing exponentially alongside Dubai whose macroeconomic outlook is extremely positive. 2024 saw Dubai International Airport achieving world's busiest airport status for the 10th consecutive year, while private school enrollments increased by around 6%, underscoring the Emirates is not just a place to visit, but also to reside. This reflects a population growth target of 57% by 2040. National plans also support this growth, whether it is a AED 32 trillion economic plan to double size the Dubai economy or more directly related to Salik, the Dubai 2040 Urban Master Plan to transform the Emirates' interconnectedness. Around 46% of the annual budget is directed to infrastructure enhancement of which roads are central. Looking at just a few of the positive indicators, we can see here why Dubai's GDP grew 3.1% year-on-year in the first 9 months of 2024 as per the latest release, contributing to a macroeconomic environment, which supports Salik's growth. Next. We have been ramping up our strategic progress in the recent years, having made significant progress since our IPO in 2022. This has spanned both our core tolling business and ancillary revenue streams. In core tolling, while we initially focused on ease of access to obtaining and topping up Salik accounts and integration with the government portals outside of Dubai, for those visiting the Emirate, our focus more recently has been on long-term value creation. This includes the introduction of the two new gates and variable pricing. Both new tollgates will not only improve traffic flow across the city, but will also have a positive long-term impact on Salik's core tolling business. We recently announced several exciting collaborations across parking and insurance solutions, which we will expand on in more detail. Leveraging our customer database within strictly parameters -- strict privacy parameters, we are able to take advantage of our superior technology to further drive ancillary revenue growth long term. Turning now into our key highlights for the year, where we saw strong growth across all key metrics. Revenue generating trips reached 498.1 million trip, increasing 8% year-on-year, at the top end of the guided range, with Q4 generating trips growing 15.8% year-on-year. Growth in total revenue exceeded guidance, rising 8.7% year-on-year to reach AED 2.3 billion as Q4 revenue increased by 15.6% year-on-year. We also saw very strong profitability in the period as our EBITDA margin reached 68.9%, expanded by over 300 basis points year-on-year. Salik generated net profit after tax of AED 1.2 billion, an increase of 6.1% compared with the previous year, after accounting for the introduction of the new corporate tax of 9%. In view of the concessions, very attractive framework and Salik's robust business model, I am pleased to tell you that our profit margins are among the highest in the global toll operation industry. Operationally, as well as we will go into more detail later, we introduced a variable pricing model, which is expected to generate additional revenue between AED 60 million and AED 110 million on annual basis; increased our toll gates from 8 to 10 with the 2 new gates having a combined valuation of AED 2.7 billion to be paid on a semiannual basis interest-free over a period of 6 years; grew our ancillary revenue with parking payment solutions and insurance partnerships. Also, we obtained a strong investment-grade credit rating from both credit rating agencies, Moody's and Fitch. I will now hand over to Tariq Ismail, our CTO, who will take you through the mobility highlights for the period as well as an update on our strategic progress.

Thank you, Maged. Good afternoon, everyone. Now let's take a look at Salik's key operational highlights in the full year of 2024. As the population of Dubai grows, so do numbers of number of trips through our gates. The total number of trips, including discounted trips, made through Salik's tollgates grew 7.6% year-on-year in 2024, driven by Dubai's continued attraction of tourists and growth in commercial activities. Our primary performance indicator, which is revenue-generating trips, increased by 8% year-on-year to 498.1 million, which is at the top end of the guided range, with fourth quarter generating trips growing 15.8% year-on-year. In line with the government of Dubai's continued success in expanding economic growth and pursuing initiatives to attract tourists and residents, we saw a material increase in the registration of vehicles in Salik accounts. Active registered accounts reached 2.6 million by the end of the fourth quarter, which is an increase on the previous quarter of 2.5% and 7.4% year-on-year. Now taking a closer look at the mobility patterns for each tollgate on a quarterly basis. In line with the increase in total revenue generating trips, growth continued across most of our gates, both year-on-year and compared with the previous quarter by 15.8% and 21.7%, respectively. Our only gate to see a slight drop is Al Safa North which is due to the opening of Al Safa South gate as traffic floor is redistributed between both gates. Overall, we have seen a net increase across both Al Safa gates. If we move from quarterly revenue generating trips through our gates to annual trips, we can see stable year-on-year increase, both in total and across each of our gates. Annual total trips and annual revenue generating trips have increased by 7.6% and 8%, respectively, while all of our gates have seen a year-on-year increase each year since 2021. So as instructed by RTA, we introduced variable pricing in January 31, 2025. Variable pricing aim to enhance traffic flow across Dubai's road network and improve transportation efficiency across the city based on studies conducted by RTA that have indicated a need for implementing a variable tariff system that adjusts by peak hours at specific times of the day and allowing for tariff exemptions during certain periods. Based on initial projection, the new pricing model is expected to generate additional revenue of AED 60 million to AED 110 million on an annual basis. As I told earlier in the presentation, this year marked an important milestone in expanding our ancillary revenue streams with the successful launch of two parking payment solutions. In the third quarter, we successfully launched Salik's barrier-free parking payment solution at Dubai Mall. This technology-driven initiative enhances the parking experience of visitors in a strategic partnership with Emaar Malls to improve convenience at the world's famous shopping and leisure destination. The performance of the parking solution has been strong with a revenue contribution of AED 5.8 million since launching in July. The solution has been received extremely well having processed 100% seamless transaction since launch, in line with our strategy to provide a seamless parking solution and to enhance the guest experience for the residents and visitors of Dubai. In the fourth quarter, we announced our partnership with Parkonic, the UAE's largest private sector parking operator. This partnership is based on a 5-year contract during which Parkonic will integrate with Salik's wallet into the 107 location it operates and any future location it may operate in the UAE. So this agreement also marks the first time Salik has expanded its services offering outside the Emirate of Dubai. These partnerships expand and enhances our ancillary revenue streams, which is a key strategic pillar and area of focus for sustainable growth over the medium to long term. So in addition to growing our ancillary revenue streams through parking partnerships, we also entered a strategic partnership with LIVA Group, which is a prominent regional insurance provider, to offer a one-of-a-kind bespoke insurance solution to drivers in UAE, streamlining the renewal process for a greater convenience and efficiency. We will leverage our comprehensive driver and vehicle data base to provide value-added services to customers by sending timely renewal reminders. It is just another example of how we are exploring new opportunities to leverage our unique technology and data capabilities to improve the travel experience of road users in the UAE. I will now pass over again to Maged, our CFO, to take you through Salik's full year financial performance.

Thank you, Tariq. I will briefly take you through our key highlights before looking at our financials in more detail. Total revenue growth for the full year period exceeded our guidance, increasing almost 9% year-on-year to reach AED 2.3 billion, as Q4 revenue increased by 15.6% year-on-year. Aligned to this, our revenue-generating trips also increased, reaching 498.1 million trips, growing 8% year-on-year, at the top end of the guided range, with Q4 generating trips increasing 15.8% year-on-year. We also saw a very strong profitability in the period as EBITDA margin expanded by over 300 basis points year-on-year and increased significantly by 13.6% year-on-year to AED 1.6 billion, with Q4 seeing an increase of 26.7%. We generated a net profit after tax of AED 1.2 billion, an increase of 6.1% compared with the prior year. Overall, it's another strong year with impressive financial records where all key indicators report significant positive increases. Now looking at our revenue and cost base to profitability, the toll usage fees, fines and penalties and other revenue amounted to AED 2.3 billion. And when accounting for the concession fees, operation and maintenance related costs and other costs such as commissions and employee benefits, resulted in EBITDA of AED 1.6 billion. Accounting for depreciation and amortization and net finance cost, so profit before tax come in at AED 1.28 billion, an increase of 16.6% year-on-year. Once we account for the new corporate tax in the UAE, which Salik is subject to pay from January 2024, profit for the period totaled AED 1.16 billion, representing a strong 6.1% increase year-on-year with a strong net profit margin of 50.8% in 2024. We delivered a very strong performance in the year. We had strong growth in revenues-generating trips, has driven total revenue to increase by 8.7% year-on-year to AED 2.3 billion, mainly due to an 8% year-on-year increase in revenue from toll usage fee, supported by the inflow of tourists and growth and the movement of individuals across Dubai, in addition to the impact from the introduction of the 2 new gates, also a 9.3% year-on-year increase of revenue from fines and a 7% year-on-year increase of revenue from tag activations. Now let's turn to the next slide, where we have seen a consistent growth in our revenue from toll usage over the years, with fourth quarter toll usage revenues increasing 15.8% year-on-year to AED 570.2 million with Q4 being a seasonally stronger period and also supported by the introduction of the two new gates. Looking at revenue from toll usage over the 12-month period, it increased by 8% year-on-year to AED 2 billion. The strong growth was supported by the growing inflow of tourists and increased movement of individuals across Dubai. Looking at profitability, Salik has a clear history of consistent EBITDA growth and strong margins. We generated EBITDA of AED 1.6 billion in the full year period, growing 13.6% year-on-year, driven by strong EBITDA growth in the fourth quarter, growing 26.7% year-on-year to AED 464.1 million, Salik's highest quarterly EBITDA performance since inception. Our EBITDA margin reached 68.9% in the full year of 2024, representing approximately 300 basis points year-on-year expansion. Margins expanded significantly in the fourth quarter to 71.3%, a 630 basis point improvement year-on-year. As a reminder, Salik's cost structure includes a number of elements consisting of further concession fee of 22.5% of toll usage revenue. As on April 1, 2024, RTA approved the reduction of the concession fees from 25% to 22.5% of toll usage revenues, wherein the concession fees were adjusted after the annual inflation rate for the Emirates of Dubai was announced by the Dubai Statistics Center amounting to 3.33% for the year of 2023. Also, we have the amortization of the AED 4 billion upfront concession fee, which is capitalized and amortized over 49 years in addition to the amortization of the upfront fees for the 2 new gates valued at AED 2.7 billion, capitalized and amortized starting 24th of November 2024. And finally, we have also our finance costs relating to our AED 4 billion term facility in addition to the implied interest costs related to the RTA liabilities for the 2 new gates. Next. Subsequent to our strong EBITDA generation and margin performance, our full year net profit before tax grew significantly, increasing 16.6% year-on-year, reaching AED 1.28 billion and fourth quarter profit before tax increasing 27.5% year-on-year. Net profit after tax accounting for the new corporate tax, which Salik is subject to pay from January 2024, totaled AED 1.16 billion, representing a strong 6.1% increase year-on-year. In the fourth quarter, profit after tax reached AED 342.5 million, growing 16% compared to the prior year. It's worth noting that on a comparative basis, the impact of the new corporate tax will only be felt in our 2024 financials. Now let's look at the cash flow dynamics. Yes, we generated free cash flow of AED 1.5 billion in the 12-month period, growing 0.5% year-on-year with a free cash flow margin of 63.6%. Free cash flow reached AED 402.6 million in the fourth quarter, a slight drop by 1.5% year-on-year, but increased 8.7% compared to the previous quarter with a free cash flow margin of 61.8%. The free cash flow margin dropped by approximately 510 basis points in 12 months period, mainly relating to the payment of the concessionary rights to RTA pertaining to the 2 new tollgates. Salik's balance sheet remains solid, with a strong cash and cash equivalent balance of AED 963.7 million. Net debt at the end of the 12-month period totaled AED 5.2 billion from AED 3.2 billion at the end of the 9-month period, mainly due to the liability from the concessionary right of RTA pertaining to the 2 new gates. This translates to a trailing 12 months 3.29x net debt-to-EBITDA, significantly below our covenant of 5x. We also achieved strong investment-grade credit rating by both Moody's and Fitch. This milestone affirms Salik's robust financial position, operational strengths and proactive approach to enhance transparency while optimizing access to the capital market in the future. We would like here to remind you all that Salik remains committed to delivering value to its shareholders. In light of the strong year performance, the Board of Directors proposed a dividend of AED 619.8 million to be paid during the first half 2025. This brings total dividends for full year of 2024 to almost AED 1.2 billion, representing 100% of full year 2024 net profit. Now let's look -- here looking at the guidance for 2025. Turning to our business outlook, we are pleased to revise our guidance for 2025 upwards, projecting a revenue increase of 28% to 29% comparing to our full year 2024. The higher revenue growth is due to multiple factors, including revenue from the two new gates, the implementation of the variable pricing, the continued closure of the floating bridge and growing contribution from ancillary revenue streams. We expect our EBITDA margin will remain robust in 2025, within the 68% to 69% range, in line with 2024, while the net profit margin before tax -- before and after tax are expected to be in the range of 54% to 55% and 49% to 50%, respectively, as you can see. In summary, we are very pleased to report strong full year performance and to revise our guidance upwards with the expectation of strong momentum continuing through 2025. We are also pleased to have reported such a strong year in financial and operational performance across both our core tolling and ancillary business. Salik continues to thrive, and we remain focused on diversifying our portfolio. With that, we will now be more than happy to answer all your questions. So we can open the Q&A session.

[Operator Instructions] Our first question comes from Mohammed Al-Thunayan from Jadwa.

Congratulations on great set of results. So based on our earlier communication, which is also, I believe, reflected in the valuation differences between the two new gates. The Business Bay Gate was expected to generate around 90 million trips. This aligns with Q4 figures as the gate was operational for one month. However, what is somewhat surprising is the contribution of Al Safa South Gate, which recorded a similar number of trips to the Business Bay Gate, and above the previous guidance of around 25 million to 30 million trips. I mean even after accounting for the cannibalization effect from Al Safa North Gate, the numbers remain very impressive. So my question is, do you believe that the number of trips generated by Al Safa new gate is sustainable and will continue to be strong for the remainder of 2025? Or was there an unusual surge in traffic toward the gate during the last month of the year?

Thank you, Mohammed. I can answer this by simply saying you need to understand the mechanism of how the gates are working. So usually, we capture the vehicles and we capture the tariff on the first gate you are passing through. So if you are coming from the direction from Abu Dhabi towards Sharjah, you will be captured on the new Safa Gate first, and this is where it will be recorded to Safa pass, where we will see as of now, even though it's too early to assess whether this will be sustainable or not, but it's very important to stress on the point that it's all about redistributing the traffic between the two gates whenever you will pass, which gate that you will pass first then will be the tariffs captured and attached to these gates. That's why you may see a significant increase in the Safa South while actually, it took somehow from Safa North if it's only Safa North was existing.

Yes, that's clear. Do you think that the numbers recorded I mean, during the last month of the year are a bit surprising when it comes to the Safa South and Safa North combined figures, I would say, because vehicle traffic is 5.2 million, which is quite significant...

Yes, which is true. But we cannot specifically isolate exactly the trips coming specifically from this new gates and -- because it's all about the distribution of when you are capturing the tolls. So on contrary and on the other direction if you go, let's say, from Sharjah towards Abu Dhabi, the old Safa gate, the existing -- the old Safa gate will capture the tariff, and you will see an increase in it comparing to the new Safa gate. Yes, it's not that straightforward that you can split the traffic happening for the gates.

That's clear. My last question is should we expect a change in the dividend policy, given the boost of the AED 355 million from the difference between the face value and the present value of the RTA loan, which now that you have returned earnings, I believe, during the fourth quarter?

Yes, absolutely. And I don't want to say that there will be an additional dividend or not because we are now studying all the options and we will make sure that it will be in favor of our shareholders. And we'll present it to our Board and the Board of Directors will take the decision. But I want to assure you that we will study all the possible options available for dealing with this one.

The next question comes from Ankur Agarwal from HSBC.

So my question is around the ancillary revenue. Can you quantify the medium-term potential of the two streams, especially Parkonic plus Dubai Mall and the tie-up with LIVA, the insurance company? So what's the quantum of revenue we are looking at, let's say, if not immediately next year, in the next 2, 3 years in terms of ancillary revenue, right?

Yes, Ankur, Gopal here. So in terms of Dubai Mall, I think we've published the numbers. We've done pretty well, almost 5.7 million in the last -- the second half of last year, and it's continuing to perform well also. In terms of the Parkonic and LIVA, I think Parkonic, we've just started going live with one location. So both are quite at an early stage, right? So I would request we want to wait and watch how this business grows before we can give any firm commitments on the numbers.

Can we extrapolate the Dubai Mall performance based on the number of parkings with Parkonic? I mean, obviously, we have an idea of the parking fees or the minimum of the....

Yes. No, I don't -- maybe not because if you look at the -- there are -- Parkonic, there are about over 107 locations. Each location is different. There is off-street parking, on-street parking. The business rules are quite different at each location. So extrapolating from the Dubai Mall performance may not -- I don't think that might give you an accurate estimation.

All right. My second question is regarding, again, the impact of dynamic pricing, right? So I mean I know a third party consultant estimated it, but what is the implied utilization impact which led to this sort of -- the number that you came up with, right, in terms of the impact of dynamic pricing, that seems a bit conservative, right? So what is the impact on utilization of an increase in toll charges that has gone into the calculation?

Gopal, can you elaborate a little bit on the traffic study that has been done for this?

Yes. So we had a traffic consultant who did a detailed study on the impact of dynamic pricing. And based on that, the expected change in the behavior is primarily only in the peak toll traffic, which is expected to decrease slightly, right? And hence, based on that, we believe that the additional revenue that could be generated based on the new tariff will be somewhere between AED 60 million to AED 110 million only.

So again, Ankur, it's similar to the new -- when you introduce new gates, there's a behavior change that we see for a while between 3 to 6 months based on my previous experience while I was in RTA, and until the behavior of the drivers settle on some routes that even though it's installed, but it will continue using it. So that's why we -- the study incorporated this change in behavior and the anticipated change in behavior. And hopefully, we will see where it will land.

The next question comes from Waleed Jimma from Goldman Sachs.

I have a couple. We've seen the RTA has been very proactive in trying to manage traffic in Dubai. Do you expect that there could be room to add more gates in the near term versus historically every 4 to 5 years? Second, on the cost side, there seems to be a reversal in impairment on receivables booked in the fourth quarter. Could you share the drivers behind that? And how should we think about impairments on receivables as a percentage of revenue for the full year '25? And actually, just a third one, if you don't mind, how should we think about the contribution from ancillary revenues to your top line? And maybe if you could just add some color on the focus areas for growing that revenue line item going forward?

Okay. I will take the first two questions and I will leave Gopal to answer the third one. When it comes to the new gates, and as we always say, it is a traffic management tool and it is RTA is the one who decide where and when we need a gate because there's a number of solutions, like they can expand the road to solve the congestion or a traffic issue. Or if it is like Business Bay Crossing, it's a bridge over the water, so there's no way that they can expand it. So the gate was the right solution for it. And again, it is a management traffic -- it's a traffic management tool, and we are not sure when or where RTA will be able to introduce new gates. Talking about the ECL. It's -- as I mentioned in the previous earnings calls, in the Q3, if you remember, that we were studying our provision, the mechanism and methodology as we can see a higher ECL comparing -- we are very conservative to be honest, and we are taking higher provision, then it really reflects the actual recovery rates of the fine payments. And we came up with new methodologies and we discussed it with our external auditors, PwC, and they are aligned with it, and it's really resulted in significant reduction on the -- in the P&L expense, charges to the P&L but make sure that this is only a one-off for this year to correct the situation and correct the new methodology. Going forward, it will be as a consistent charges based on the recovery rates. And I believe, Gopal, if you can take the question about the ancillaries.

Yes, yes. Thank you, Maged. So as we said, the growth of ancillary revenue, it is a key focus area for us and a vital component of our strategy to deliver our long-term ambitions. And as we said -- we've said multiple times in the past, we expect the contribution of the ancillary revenues to represent about 5% to 15% of the consolidated revenue by 2028 plus, so in the long term. We've already made, as I said, we made significant progress on that front with the partnership with Dubai Mall, where we've made very good revenues in the last -- second half of last year, and we are continuing to grow that. And along with the partnership with Parkonic and the insurance initiative, I believe we should be able to grow in the coming years. We are also exploring other opportunities to build a portfolio centered -- portfolio vehicle centered mobility services, which can enhance the services for the customers through the Salik e-wallet account that we have. So we are currently studying multiple opportunities related to that. And once we have more concrete information, I think we will announce that to the market.

The next question comes from Anna Antonova from JPMorgan.

A quick question from our side. So in light of the introduction of variable pricing and historically, Salik's toll tariff has been fixed for quite some time, how should we think about the inflation adjustment mechanism that is currently outlined in your concession agreement with RTA? I remember you had slides outlining the formula, how this has historically worked in the past. But in the past, the toll fee was fixed. Now we understand like every month, every quarter, the average toll tariff, realized tariff will be different, depending on the traffic and other variables. So how should we think about this inflation adjustment mechanism going forward? And on the connected note, the -- regarding the inflation adjustment for last year, what is the current progress? Have you applied to the Executive Council for the inflation adjustment for 2024? And should we expect kind of the outcome similar to what we saw in March, April last year?

Thank you, Anna. Maybe the question -- the second question is answer for the first one because now we had a new tariff structure where we have AED 4 and AED 6, the formula that has been introduced before is not valid anymore, and we are now in the final stages of discussion and agreement with RTA on the updated formula for the concession fee adjustment and the tariff adjustment due to inflation. Because mainly now we have to look at the blended rate at the end of the year, which is the average rate, we need to look at the blended rate and compare it to the inflation percentage. And in brief, we already, yes, we applied for the tariff increase to RTA when the inflation has been announced by Dubai Statistics Center this year by -- it was around 3.3% or 3.28%, if I can recall it well, we already applied for that.

3.28%, yes.

Yes, 3.28%. And we're already in the discussion right now to define a new formula that is -- will not deviate much from the original one because we need to stick to the same principles, same concept, but to reflect the new tariff structure in order to give a more realistic outcome when it comes to comparators and inflation increase and where the tariff should go. And we will announce this once we reach this -- once we finalize it with RTA which we expect this will be happening soon. It will not take that much long time.

Our next question comes from Shadab Ashfaq from Al Ramz.

I have two questions. First, like given the peak traffic account for 40% of the total traffic in 2024, but impact on the revenue that is guided by you is only 3% to 6%. What are the key factors driving this discrepancy? So can you highlight what are the traffic patterns going forward? And my second question is would RTA consider revising the concession fee structure given that a portion of traffic is now paying higher toll? Like we're trying to understand the potential impact of the variable traffic on the concession agreement terms.

I can answer the second question because it's -- as per the acquisition agreement, RTA is entitled to get the percentage for the concession, whether it's 22.5% as of now or whatever it will be, from the toll usage. So regardless of this toll usage coming from the AED 4 or from AED 6, which means the total toll usage revenue is coming at the end of the year, the RTA will be entitled to the concession percentage. And I believe -- I will try to answer the first question and I leave my -- our CTO to elaborate more about this composition of the traffic. The composition of the traffic that was before introducing the variable pricing, where it was -- we saw approximately the peak between 39% to 40%, while the offpeak was 52% and what's called right now as zero time or the free time is around 8%. And it's very difficult to assess how introducing the variable pricing or the new pricing will impact this segment, how the offpeak will become, maybe it will turn 40 or remain 40, will be reduced, it's too early to assess this right now. And I'm not sure whether this answered your question or not. Otherwise, our CTO can give you...

I agree with you. So it's a bit early maybe to assess the impact of the variable pricing on the behavior of people and traffic. We saw a slight increase in the free time, right, but not necessarily with the same average of other peak and off-peak timings. So it's a bit early to assess the impact. I think once people adjust and it impacts them financially and they explore other route alternatives, then with time, we will assess -- we will have better clarity and visibility on the impact of this variable tolling.

This is Sashank from Bank of America. Maybe I can just follow up on the concession fee arrangement with the new dynamic pricing in place. So is our understanding correct that the concession fees remains 22.5%? That doesn't change. It's going to be based on the blended revenues that you make of AED 4 and AED 6. What would change is how the AED 4 changes for the inflation-linked mechanism. Is that understanding correct? Or is there going to be a change in concession fee formula as well based on what you said in terms of discussions with RTA?

No, the only change is related to the inflation protection mechanism where we will introduce a request or would request a tariff increase to protect against the inflation. But as you truly said, your understanding is correct, the concession fee, which is 22.5% as of now, it's percentage of the total usage of revenues, regardless is coming from the AED 4 or from the AED 6.

We have a question from Nitin Garg from SICO.

This is Nitin. So we read that UAE has contracted Etihad Rail. So what should -- how should we think about the impact of this? So because one phase of Etihad Rail, I think, 1D or something, it is -- it connects Dubai and Sharjah.

Gopal, can you take this?

Yes. So I mean the -- I mean first of all, I think it's too early to comment on that. But what I can say is that historically, what we have seen is when other public transportation modes were getting added to the transportation network in Dubai, it did not have any impact on the Salik toll traffic, it continued to grow. Because the profile of users who use the Salik gates and the private cars are quite different from the people who use the public transportation modes. So because of that, I mean, we also have one of the highest penetrations of private cars in the world. And hence, due to all these reasons, we've not seen any sort of negative impact in the past due to the addition of any public transportation modes.

Mohammed, do you have a question? I see your hand raised.

Yes. Yes. I have a question regarding the implied assumptions of applying the new vehicle pricing. I believe you mentioned that 40% is peak, 52% is offpeak and 8% is free, however, from your guidance for next year and according to the higher end of the variable pricing impact, which is 110, it seems that you're implying that basically that off-peak would go from around 52% to 65%. That's the only way we can get to the blended tariff that you're assuming of around 4.2 or 4.22 or 4.23. So I just want to better understand [indiscernible] that you need to get to the AED 60 million to AED 110 million, I mean for peak and offpeak traffic.

Yes. Actually, the 40% and the 52% and 8%, this is the segments before introducing the variable pricing. We -- when the consultant did his study, he considered some reduction in the traffic due to the behavioral change and due to using alternative ways of -- alternative free routes, and this is the outcome of the study. It's a very complicated study, it's very detailed one, has a number of considerations. It had including also some monitoring tools that has been implemented on the routes to assess this 40% and 50%, whether it's consistent or just fluctuation. So -- but the outcome of the study was AED 60 million to AED 110 million. That's why I think it's still too early now to assess. Maybe if you give it 3 to 6 months, then we'll have a better visibility on these categories and segments, whether it's going to really reduce or increase, let's say, the peak will get significantly reduced or get somehow stable. But it's too early to assess right now. We need some time to -- for the driver to have some kind of adjusting the new tariffs and react based on that.

Yes, that's very clear. And on the new formula that you're finalizing with RTA, can you share some more details on that, please? Previously, it was straight forward samples, the CPI you applied for, for the last year [indiscernible] and that would be adjusted to the tariff or deducted from the concession fee. But now how would that work exactly?

We try to make it the same way, simple, but introducing this, what we call, a blended rate, that we need to look at the blended rate at a point of time and match it with the request for tariff increase, which means that the tariff increase is based on the blended rate too. So if I have right now, the blended rate is 4.3 or 4.4, whatever it is, as the inflation will lead to an increase in tariff cumulatively starting from the base year in 2022 to become like the tariff would be 4.4 or 4.5, then I need to compare it with the blended rate. And here, we will see whether I need to apply a tariff increase or I need to -- if it's going to be really to be a concession fee reduction. So again, we will announce this once we conclude it with RTA, and we don't expect this will take long because currently, we are in the final stages right now.

One last question. Regarding the EBITDA margin, the 68% to 69%, you're not assuming any concession fee adjustments?

No, we don't. No, we are not, we are not.

Our next question is from Luis from Morgan Stanley.

If I can just continue the last question a little bit, firstly, on your EBITDA margin guidance, it's 68% to 69% full year '25 versus 68.9% in FY '24, while in FY '24, you only benefited from the lower concession fee for 9 months of the year. So I'm just wondering what -- is there extra costs that we should expect in full year '25 as to why you can expand your margins further? So what are your assumptions there would be my first question. And then my second, a shorter one is just on your assumptions with the floating bridge. Is there any updates there? Might we expect to see that reopen at some time in the future? Any color on that would be helpful.

For the floating bridge, we assume it will remain closed. So we have no information whether it's going to be reopened again or not. That's why we assume it will remain closed. When it comes to the EBITDA margin, there is no significant increase in the expenses other than the ramping up the employee numbers. So we expect that we will have more hiring in 2025, along with ERB implementation costs and some one-off consulting costs.

If I can just follow up on the EBITDA margin question. Q4 '24, you had 71.3% EBITDA margin. And tying into the last question, again, '25, you're saying 68% to 69%. So I was just wondering why were margins in Q4 so high?

It's a seasonality. We are -- as you know, in Salik, it's not each quarter performed similar like the previous quarter. So we have the highest quarter always in Q4, followed by Q1, Q2, and Q3 usually the weakest performer when it comes to the Salik tolls. It's due to seasonality simply.

Okay. Clear. I think we have a follow-up from Anna from JPMorgan.

A quick follow-up question from our side. Actually, going back to your previous comments on the performance of the 2 new gates in Q4. So our question is, based on the Q4 numbers with all the things that have been happening, do the Q4 numbers, operating stats imply that your guidance for the number of trips for these two gates that you provided last year, I think on a full year basis, it was kind of around 88 million for Business Bay and 23 million for Safa South revenue generating for the full year. Does the Q4 performance imply that this guidance kind of remains intact or you see kind of upside or downside risk to those numbers?

No. The numbers are aligned with our expectations that should come from those gates.

We have a question from -- it doesn't seem like a question is there anymore. Yes, we have a question from Indarpreet from SICO.

So just one question from my side, again on the variable pricing part. So given that this variable pricing has been in place for like over a month now, I just wanted to understand whether what you see that distribution of the traffic that 40%, 52%, 8% split, has it been consistent for the month of -- during the month of Feb or has it been different?

Again, it's too early to assess it, whether it's impacted or not, because usually, as I always say, when you introduce a new gates, you have a change in behavior from the users. So imagine now we are introducing new gates and a variable pricing, both at the same time. So whatever number we are seeing right now, it will not be reliable to assess the impact of the variable price increases. So I prefer to give it some time to adjust for the new rates and the new behavior, and we will come up with what we see and it will be announced soon.

Understood.

It doesn't seem like we have any further questions. So I'll pass it over to management.

Yes. Thank you. Thank you, Sashank. Thanks for Bank of America for organizing today call, and thank you all for attending, especially during Ramadan timing. Please, if you have any follow-up questions, please feel free to reach out to us at [email protected] or to me directly or visit our website at salik.ae. Thank you very much, and have a good day, everyone.

Thank you, everyone.

Thank you.

Thank you, everyone.