Taageer Finance Company SAOG (TFCI) Earnings Call Transcript & Summary

[Foreign Language], Kashif Yaqoob.

Thank you very much, Mustafa. I welcome all of you to this investor presentation and this MSX discussion session for the discussion of Taageer Finance's results for the half year 2025. First of all, I would like to thank all the stakeholders, starting from the regulator, Central Bank of Oman, for their support, not only for Taageer, for the entire sector, and our Board of Directors, staff of the company, and especially the customers, without which it is not possible to get this kind of results. This year has been a special year for Taageer Finance because this is our Silver Jubilee year. So we are celebrating 25 years. Although Taageer being the youngest of all the 5 finance companies, but, alhamdulillah, in terms of result, Taageer has shown its continuous progress during the last few years, which is visible in the results which we are announcing. Next, please. First, I think the most important thing is that where the company is going in terms of strategy. The new Board of Taageer, which was elected in March 2024, the first thing the Board did was to form a Strategy Committee. And under that Strategy Committee, we appointed a consultant. And together with the management of the company, the consultant worked for almost 6 months. And in January this year, the Board of Director of Taageer Finance has approved the new 5-year strategy of the company. Why this is a very important milestone? Because this is not a normal strategy. This is primarily the new way Taageer wants to approach the market, which is focusing on the digitalization. And there are a lot of initiatives which will be rolled out under the strategy. Already some of them have been rolled out and some of them over the span of time will be rolled out. The strategy comes up with a new vision, mission and core values. Then we have specific strategic objectives which have been set for next 5 years. Then a new organization chart has been approved. As you all know that right now, keeping in view the new requirements of the ecosystem, a new skill set is also required. So we are working on upskilling the existing team and strengthening and reinforcing it with the new skill set. The main idea behind the strategy is that we want to create more value for shareholders. Because it is not only the dividends that the company is giving, but also the value creation which will increase the interest of shareholders in the company. Next, please. So we'll take you through the performance of the company. The session will be available on YouTube. It has been recorded also. And if you have any questions, you can ask after the presentation. If you see the profit and loss statement of the company, the net finance income of the company has grown by 27.4%, the operating profit has grown by 38.4% and the net profit has grown by 26.3%. This is year-on-year performance. So if you see, as compared to the last year, all the indicators have shown significant growth. One more notable thing is that keeping in view its strategy for the last 5 years continuously, Taageer has been providing more and more, primarily to cover the legacy portfolio that any challenges which we are facing in the past, so gradually, we are trying to cover all these legacy portfolios in order to avoid any kind of impact on the profitability in the future. Next, please. This is the statement of financial position of the company. So if you see that the portfolio on a year-to-year basis has increased by 25.1%, whereby from December to the half year, it grew by 9.5%. In terms of the equity of the company, if you see that a major landmark was achieved last year whereby the company issued perpetual bond to strengthen the capital base of the company. Borrowing of the company has increased by 12%. Now one very important aspect of this year is that -- and we are thankful, especially to our partners, banks, because banks have provided excellent support, not only to Taageer, but to the entire FLC sector. So after a lull of few years whereby banks were a little bit cautious on the sector, this year, most of the banks have significantly enhanced their credit limit, because their confidence in the FLC sector in general and Taageer in specific has increased significantly. So we thank banks for all their support, and we think banks will remain our integral partner in this journey. Now in terms of the key ratios, first is, if you see the portfolio of the company, which shows a CAGR of 18.8%. So as you're well aware of that and you're following the CAGR of the industry also, so Taageer has been able to maintain a significant growth rate together with the quality of the portfolio. In terms of the revenue, the CAGR shows growth of 22%, and the year-on-year growth is approximately 25%. In terms of operating profit, the compounded growth is 30%, whereas the year-on-year growth is 38%. In terms of net profit, the CAGR is around 29%, whereas the year-on-year growth is 26%. As it's visible in the slide that Taageer has been constantly not only focusing on increasing its profitability, it's focusing on increasing the market share also. From 18.7%, it has increased its market share to 24%. So this is the highest gain of market share by any FLCs in the last 5 years. In terms of earnings per share also, if you see that the company has doubled its earnings per share. Cost-to-income ratio, Taageer has shown significant reduction in the cost-to-income ratio, from 45% to 32%. In terms of provision coverage, Taageer provision coverage almost is the same as it was year-on-year -- as it was on December 31. When we compare this with the Q2 2024, there is a reduction primarily because there were write-offs last year in the last quarter, because of which this provision coverage ratio was impacted. Next, please. Now in terms of funding mix, I think this is a very interesting journey. So if you see, in 2021, primarily, 83% of the borrowing was coming from banks, which we have diversified and now the bank funding contributes to 57%, whereas corporate deposit contribution increased from 7% to 27%. So this is a significant shift in the mix of funding. Also, we have come across with bonds also. Currently, there is one bond outstanding, which is payable next year, whereby the perpetual bond is a 5-year instrument, which we issued last year. And that will be payable somewhere in 2029. Then the gearing of the ratio. As you see that this was historically one of the concerns of the banks, and now after the perpetual bond, the gearing ratio has significantly reduced from 3.8x to 2.9x. As you know, the Central Bank of Oman has allowed a gearing ratio up to 5x. So we are well within the limits in terms of gearing ratio. In terms of return on equity, Taageer's return on equity has increased from 5.9% to 10%. Return on assets have increased from 1.4% to 1.8%. Dividend yield has increased from 4.8% to 10.7%. So if you see that in all these indicators, there is a very positive growth. Thank you very much. Now we are open to questions.

Any questions?

Yes, Shaoor, please go ahead.

Congratulations on the remarkable growth. Really appreciate the management's efforts over the last few years because we all can see the tremendous growth in numbers. Now my question relates to your NPAs. So you have mentioned that the increased provisioning is because of the legacy NPAs that Taageer Finance...

Shaoor, your voice is not clear. Can you speak a bit louder? It is not clear.

Yes. Is it better now?

It is better now.

Okay. Perfect. So my question relates to your legacy NPAs. How soon should we expect to see the cleanup of these NPAs and when your NPAs should be normalized, is my question really.

Shaoor, as you know that there is an IFRS 9 policy, and all these NPAs are treated as per the policy. So whatever provisioning is required to be done, so we go by this policy. And this policy has multiple variables, including aging as one of the key variables. So it will go in its due course. So that is something which there is no specific year or deadline whereby all these legacy portfolio will be provided. But what we believe that, our thought process is that going forward, within next 3 to 5 years, what we plan that, we plan to move towards maximum coverage of this legacy portfolio.

If there are any other questions, we are happy to answer any. We are going to stay here for 5 minutes. In case there are no questions, we will end the session after 5 minutes. Thank you. So we have a question from Ms. Ahlam. Finance costs...

Finance costs rose to OMR 7.19 million due to higher borrowings or higher cost of funding in the current rate environment. Then second question, other income increased to OMR 1.74 million. What were the main contributors? Provisions rose significantly to OMR 4.59 million. Which segments are driving higher impairments? And is this trend expected to continue in H2?

Let's go to the first question.

Thank you very much, Ahlam, for your questions. So I'll go one by one. First question is about the interest expense. So Ahlam, when we see the interest expense, this interest expense is the interest expense as compared to the total finance income. So if you see that the interest expense have increased by 7.4%, whereby during the same time, the finance cost -- the finance income has increased by 18%. So this increase in finance expense is primarily because we did much more business than what we did in the same part last year. So overall, in terms of the finance cost, the funding cost of the company has reduced from last September onwards, because we have made conscious effort in negotiating better pricing with all other -- our partners, which are banks as well as depositors. So this is the first part. If you need further clarification, you may write or you may ask, but I'll just go one by one. Second thing is in terms of the other income. Other income, basically, it has several components, while we are providing services to our customers. So what we are doing is that we are trying to introduce multiple channels for our customers to get the service and to facilitate these customers, so there is some incremental cost and the customers are paying that. So we believe I think this is a conscious effort, whereby when you provide more convenience and more avenues of service to the customers, so they are willing to pay you extra for that. So this is a conscious strategy, and we are seeing the results. Third part, as I explained to you that this provisioning primarily pertains to the legacy portfolio, and this is not related to any specific segment. Historically, there was a time whereby most of the finance companies, they took some exposure, which were larger exposures, and some of these clients, they were subsequently restructured or they faced financial difficulties. Now gradually, as I think we have explained in our previous presentation, during last few years, company has made a conscious effort in reducing its ticket size, especially in the corporate segment, whereby we are not booking large business, because of which there is a very high focus on risk diversification. So these were old portfolio whereby gradually, as I mentioned previously, that this is something which will be provided as per the IFRS 9 policy. And it will take its time as per the policy to cover these accounts significantly. But we are at a comfortable level, whereby most of these accounts, we believe that in terms of our provision coverage, we are pretty much secured. The next point, is this trend expected to continue in H2? Now this is what we believe is not a trend. It is something which depends on case to case. But one significant development which has happened is that CBO has come up with a window for restructuring for SME clients. This is a very, very positive initiative by Central Bank of Oman, because of which it gives us an ability to support those customers who became significantly weak in the wake of COVID. So I think this is -- because, obviously, sometimes these customers who were restructured during the COVID time, still they have not reached their revenue capacity what they had pre-COVID. So it will take them more time to gain the same momentum. So the CBO's restructuring window, we are utilizing this to support our clients to come out of these difficult times, so going forward they can stabilize their businesses. So what we believe is that the trend of making provisioning, yes, it will continue. But what is the quantum of this provisioning, it all depends how the portfolio behaves going forward. If you have further follow-up questions, you're most welcome. Thank you very much, Ahlam.

If there are no more questions, we are going to end the session. Thank you very much, everyone, who attended.

Thank you very much.