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

Hello, everyone. My name is Nathan. I'm one of the Bank of America operators here. Just a few things before the meeting begins. Just to let you know, this particular meeting is being recorded. So just be aware that this meeting is being recorded. Could I also ask anybody that are from the press to please remove themselves. This is a press-free call. [Operator Instructions] Thank you very much, and enjoy the meeting.

Great. Thank you very much, Nathan. Welcome to Salik's Q2 and H1 Earnings Presentation. I'm Jameel Bakhsh, MENA Research Analyst at Bank of America. It gives me great pleasure to introduce the executive management team of Salik. Firstly, I'll talk to you about just the format. We'll have a management presentation followed by a Q&A session. [Operator Instructions] With that, I'll pass it over to Wassim Elhayek, Head of Investor Relations at Salik.

Good afternoon, everyone, and thank you for joining us. This is Wassim Elhayek, Head of Investor Relations at Salik. I would like also to thank the Bank of America team for hosting today's call and Jameel for handling this call as well. We are pleased to have you with us as we discuss Salik's financial and operational performance for the first half of 2026 and provide an update on the business. Presenting today, we have our CEO, Mr. Ibrahim Al Haddad, along with Mr. Maged Ibrahim, our CFO, and Mr. Gopalakrishnan Hariharan, our Director of Strategy and Growth. We will begin with the operational story and key highlights of the first half of 2026, followed by the financial results, and close with our full year outlook, leaving time at the end for your questions. Before we begin, please take a moment to review our disclaimer on this slide, which is relevant to our status as a publicly listed company. Today's session is being recorded, and a transcript and a copy of this presentation is available on our website for your reference. I will now hand over to our CEO, Mr. Ibrahim Al Haddad.

Thank you, Wassim, and good afternoon, everyone. Before we go over the details of Salik's operational and financial results, I want to leave you with the 4 key highlights that have defined our performance during the first half of 2026. First, despite a challenging operating environment, Salik delivered a resilient financial performance, reflecting the strength of our financial and business model. Second, while the first half was impacted by external factors, we saw encouraging signs of recovery in traffic and mobility trends at the later part of the period, supporting our confidence in the underlying fundamentals of the business. Third, we remain firmly focused on executing our long-term strategy. We continued expanding our ancillary service portfolio through a number of important strategic agreements that will support future growth and diversification. And finally, Dubai continued to demonstrate confidence in its long-term economic vision through the announcement of major infrastructure projects during the period. These investments reinforce the city's long-term growth trajectory. With that, let me now walk you through our financial highlights for the 6 months ended June 2026. Our core network handled 278.5 million chargeable trips during the first half, generating revenue of AED 1.4 billion with second quarter revenue of AED 683.1 million. Despite the softer traffic conditions throughout the period, our profitability margins remained strong. EBITDA reached AED 975.6 million at a margin of 69.1%, and net profit was AED 704 million, delivering a margin of 49.9%. We executed against our strategy during the first half, expanding our role across Dubai's mobility ecosystem. Building on partnerships already in place, including Dubai Airports and Valtrans, we announced 2 important additions. In July of this year, we signed an MoU with Shamal to enable seamless parking payments at Dubai Harbour's Harbour West Car Park, which went live in the same month. We also entered into an MoU with DIEZ to deploy access control and parking optimization solutions across more than 21,000 parking spaces at Dubai Airport Freezone, Dubai Silicon Oasis, and Dubai CommerCity. It expands our capabilities beyond our core business and opens a meaningful new growth avenue for Salik. Our outlook continues to be supported by Dubai's strong macroeconomic fundamentals. The population reached 4.6 million in 2025, growing at 7% compound annual rate, while the UAE's economic outlook remains robust, and its sovereign ratings were reaffirmed by Moody's, S&P, and Fitch with stable outlooks. Looking ahead, Dubai's 2040 master plan targets a population of 5.8 million, supported by continued investment in infrastructure and tourism. Together, these structural drivers reinforce our confidence in long-term traffic growth and demand for smart mobility solutions. Government initiatives continue to reinforce Dubai's long-term growth story. Infrastructure investment is accelerating with landmark projects, including the first Al Khail elevated corridor and Metro Blue and Gold Lines. At the same time, new investment support measures and the unified Dubai Investor Register are advancing the D33 agenda, while continued reforms to visas and property residency are supporting tourism and population growth. Every one of these measures fuels the growth that flows straight into demand across our network. With that, I'll hand over to our Director of Strategy and Growth, Mr. Gopal, who will take you through our operational performance in more detail.

Thank you, Ibrahim, and good afternoon, everyone. I will now take you through the key operational highlights for the period. Starting with the traffic volumes. Total trips reached 186.6 million in the second quarter, down 12.6% year-on-year and 5.4% quarter-on-quarter with 132.8 million chargeable trips. For the first half, total trips reached 383.8 million with 278.5 million chargeable trips, reflecting the softer traffic conditions experienced during the period. While traffic volumes softened, the underlying foundation of the business continued to strengthen. Active registered accounts grew 6.6% year-on-year to 2.9 million, while active registered vehicles increased 7.2% to 4.9 million. The continued expansion of our user base reinforces the defensive characteristics of our business and supports long-term traffic growth. Looking at the breakdown by gate, the softer volumes in the quarter were spread broadly across the network rather than concentrated in any one location. Al Barsha and Al Safa South continue to lead trip volumes, and the overall mix across the gates remains consistent with prior quarters. By time of day, off-peak trips continue to account for the largest share of traffic, followed by peak and post-midnight trips, with the overall mix remaining broadly stable. Variable pricing continues to show consistency with regards to distribution, with traffic patterns remaining stable. The mix between peak, off-peak, and post-midnight trips remains broadly unchanged from prior quarters, reflecting consistent commuter behavior. Our Parking Payment Solutions continued to scale during the first half as our E-wallet is now live across 180 Parkonic locations with 2 important additions carrying beyond. The first is our partnership with Shamal, where our solution went live in July at Dubai Harbour's Harbour West Car Park, covering 845 spaces across 9 stories, including rooftop parking, further expanding our presence across one of Dubai's key lifestyle destinations. The second is our MoU with DIEZ. The partnership will deploy access control and parking optimization solutions across more than 21,000 parking spaces at Dubai Airport Freezone, Dubai Silicon Oasis, and Dubai CommerCity. It takes Salik into smart parking management and access control for the first time across 3 of Dubai's economic zones. These initiatives build on a platform that is already operating at a scale with Dubai Airports, Dubai Mall, and Parkonic, continuing to expand the reach of our digital mobility ecosystem. Beyond parking, our ancillary revenue platform continues to expand. Our partnership with Liva continues to gain momentum with Salik's customer base to deliver seamless digital motor insurance renewals. Meanwhile, our proof of concept with Schneider Electric and Vcharge has progressed well with the rollout of more than 1,800 EV charging points expected in Q3 2026. Our ENOC pilot also remains on track for launch during the second half of the year. With that, I will now hand over to Mr. Maged for a review of our financial performance.

Thank you, Gopal, and good afternoon, everyone. Let's go through now the key financial highlights. The first half of 2026 was a more measured period for the business. However, our performance underscores the resilience of our business model and the discipline embedded in our operating approach. Revenue for the first half reached AED 1.4 billion, down 7.5% year-on-year, while the second quarter revenue stood at AED 683 million, down by 11.9%. This mainly reflected lower traffic activity following the regional events that began in late February. From an operational perspective, total chargeable trips for the first half were 278.5 million, down 12.5% year-on-year, with a decline spread across both peak and off-peak periods. Despite the softer revenue, profitability held up well. EBITDA reached AED 975.6 million at a margin of 69.1% with a second quarter margin at 68.6%, while net profit was AED 704 million, delivering a margin of 49.9%, which is almost 50%. Toll usage fees continued to represent our core revenue stream, contributing 85.2% of total revenue in the first half. Fines accounted for 10.2%, while the remaining 4.6% was generated from tag activation fees and our expanding ancillary revenue streams.That includes Parking Payment Solutions and insurance. On the cost side, concession fees remained aligned with the concession agreement, while operating expenses continued to be tightly managed. Net finance costs also declined year-on-year, supported by lower interest rates. These factors delivered an EBITDA margin of 69.1% and a net profit margin of 49.9%, reinforcing the resilience and the efficiency of our operating model. Breaking revenue down by stream, toll usage fees totaled AED 1.2 billion for the first half. The year-on-year decline was concentrated in this line mainly, reflecting the softer traffic activity following the regional events that began late February. The remaining revenue streams continue to perform well. Fines increased 7.5% year-on-year to AED 144.4 million. Other revenue reached AED 65.1 million, reflecting continued momentum across our ancillary businesses in addition to a one-off revenue related to old unused recharge cards. Over time, we expect these streams to become an increasingly meaningful contributor to our business. On a monthly basis, the chart shows softer performance in March and April, followed by a clear improvement, with June returning to year-on-year growth, increasing by 2.3%, supported by other revenue streams and the early signs of recovery in traffic activity, which we expect to continue into the second half. For the first half, also EBITDA reached AED 975.6 million, representing an 8.4% year-on-year decline, while the EBITDA margin remained broadly stable at 69.1%. This underscores the inherent efficiency of our cost structure and the disciplined approach we apply in managing the business. While toll usage revenue was impacted by lower traffic volumes following the regional events, disciplined cost control helped protect the margins and sustain resilient profitability through the softer operating period. Net profit for the first half reached AED 704 million, representing an 8.7% year-on-year decline, while the net profit margin remained strong at 49.9% and the pretax margin stood at 54.8%. Building on EBITDA performance, net profit was further supported by lower finance costs, reflecting the benefit of lower interest rates during this period. Overall, the impact of softer revenue was largely absorbed by our efficient operating cost structure, allowing profitability to remain resilient through the period. Free cash flow for the first half stood at AED 551 million, representing a margin of 39.0% compared with 72.8% in the same period last year. The year-on-year movement was mainly driven by working capital timing, including the settlement of VAT-related liabilities, related concession fee payables, and amounts due to our operation and maintenance subcontractor. EBITDA generation remained strong, and the reduction reflects temporary timing effects rather than any change in the underlying cash-generating capacity of the company. Our balance sheet remains robust. As of 30th of June 2026, net debt stood at AED 5 billion with net debt to trailing 12 months EBITDA at 2.45x, comfortably below our covenant threshold of 5.0x. We also continue to benefit from strong investment-grade credit ratings from Fitch and Moody's, with Fitch reaffirming its A rating in July 2026. Turning to our outlook. We are reaffirming the guidance issued in the first quarter of 2026 with no revisions. We continue to expect revenue growth in the range of negative 3% to flat, supported by a gradual recovery in traffic volumes, which are expected to normalize during the third quarter. We also maintain our expectations for an EBITDA margin of 67.5% to 68.5%, a pretax net profit margin of 54% to 55%, and a post-tax net profit margin of 49.5% to 50.5%. Reflecting our confidence in the company's cash generation and long-term earning profile, we remain committed to distributing 100% of net profit. Subject to Board approval, the distribution is expected to take place before the end of October, in line with our dividend policy. With that, I will hand the call back to our Chief Executive Officer, Mr. Ibrahim Al Haddad, for his concluding remarks.

Thank you, Maged. To conclude, the first half demonstrated exactly what Salik is designed to deliver. Even in a softer operating environment, we maintained industry-leading margins, continued to expand our digital mobility platform, and executed against our long-term strategy. With Dubai's structural growth drivers firmly in place, we remain well positioned to deliver sustainable long-term value for our shareholders. Thank you, and we will now open the floor for questions.

[Operator Instructions] We will begin our first question from Alexander Estefanous.

Just a couple from me if that's okay. So I'll start with the first one. You noted that June congestion and traffic levels were somewhat resembled to what is considered normal. Could you give us some color on this, notwithstanding the season demand slump? And what are you seeing for July and the start of August? And I'll ask the second question after.

Gopal, you would take this question?

Yes. So our expectation for July has been -- I mean, it's similar or it's in line with our expectation. We are unable to disclose the actual numbers because it's still being worked upon. But we do expect the traffic to improve in the coming months.

Okay. Perfect. And then just another question on your margin. So you delivered in the first half of this year, 69.1%, and you're reiterating the guidance of 68.5% at the upper end of the ceiling. So where do you foresee any potential margin pressure to come in? And what would stop you from delivering another sort of 69.1% margin going into the second half?

Again, we need to be realistic when we are giving our guidance. And based on -- this reflects usually the best assessment on the information available today. We definitely will continue to monitor the developments in the region, and we have not seen any evidence yet of a structural change in demand. So based on the current trends, we came up with this guidance, and we still affirm the same guidance as we give.

So next question will be from Roman Reshetnev of Goldman Sachs.

I just wanted to check on the divergence between fines and toll fees growth revenues in the second quarter. So qualitatively, what is driving this divergence? Is this primarily a reflection of a higher rate of sort of insufficient funds violations and kind of like given there was irregular commuting patterns during the quarter? Or does it reflect some structural lag in fine processing and recognition from previous high-traffic quarters? And in general, how should we think about the fines growth for the rest of the year?

Usually, this is coming from the organic traffic growth. And if you notice currently, what we are missing -- the elements that we are missing in our traffic, which is the tourists coming and the trips that the tourists used to do through Salik. So that's why you can see that traffic -- the toll revenue from traffic is reduced because it's mainly depending on the residents of Dubai as of now. And usually, the fines coming from this category because whoever coming as a tourist, he got a rental car, he got a taxi, those are not making -- they are not making the fines or generating fines for Salik. So usually, the fines is generated by the people who are resident in Dubai. And that's why you will see a reducing in toll revenue, while the fines revenue remained almost the same and is increasing now.

Ankur Agarwal, HSBC.

So my question really is that can you talk a bit more about the measures the government is taking to sort of prop up tourism? And related to that, I mean, have you seen some policies yield some results, let's say, in July and early part of August so far?

Speaking about the country measures that we take, it's known for everyone now and all these initiatives that has been done by the government like encouraging -- inviting your friends and your relatives, making these processes more easier. But again, still it's not only in the hands of the country here to enhance this kind of element, which is a tourist. What we see right now that at least the current residents' movement is returning almost the same like before. And this will be affirmed clearly by announcing the results of the quarter 3 once we have.

Okay. And secondly, on the tie-up with Parkonic, right, so are we still considering bidding for the Dubai Airport parking, for example? And I think is that part of the business doing well, I mean, the ancillary revenue? Has that been less impacted by this situation compared to Salik?

Gopal?

Yes. See, I mean, our partnership with Parkonic has been growing consistently. I mean today, we are at almost 180 locations out of the 230 locations that Parkonic is operating, and we will continue to grow with them. Regarding bidding opportunities, I mean, we will take it as it comes, right? I mean it's too early to disclose anything of that sort right now.

[Operator Instructions] We'll go to our next question from Klas Bergelind at Citi.

So I had 2 questions. First, thinking about the second half, even at the lower end of your guide, i.e., sales down 3% for the year, this implies second half growth acceleration to around 4% growth year-over-year. Two questions within this. You did say traffic volumes for June returning to almost near normal levels. So is that down like low to mid-single digit year-over-year then? But then also the conflict reescalated in July. So did you have any impact on July over June? And then looking to September, which is key as the school opens, you must then be assuming normal September then grow from there for the rest of the year. So what kind of leading indicators are you looking at to sort of determine that growth acceleration, just sort of pointing to normal traffic volumes in the third quarter?

The traffic trends improved progressively through April and May with June returning to near normal levels based on what we are seeing actually. This all indicators -- and don't forget also, we have a temporary impacting during the quarter 2 coming from the rain coming, from the weather, work from home, so what we are seeing right now is an indicator that the traffic is recovering to the normal levels when it comes to the in-house traffic. And based on the recovery we observed towards the end of Q2, we still expect the traffic to normalize during Q3. Don't forget also Q3 is a seasonality Q, which usually we don't have much traffic in that. I don't know Gopal, if you have something to add to this.

No, nothing. I mean, as you said, our guidance currently reflects our best assessment based on the information that is available today. And definitely, we've taken those in consideration while providing the future guidance.

My second one is on other revenues, quite solid momentum, better performance than what I thought at least. You've indicated some revenue levels for the out-year period in 2030 for parking, data monetization, other revenue streams. If you annualize the second quarter level, we're already at AED 72 million of revenues. That points to upside to those projections by 2030. Do you still stand by then? Or yes, like it points to...

We will still stand up for it. But if you just exclude the one-off revenue coming from the unused recharge tags, which we have been reflecting in other revenue, this is by itself in the first half, approximately AED 80 million. Rest is showing improvement like parking, Liva insurance and all other revenues are showing a significant improvement.