United Finance Company SAOG (UFCI) Earnings Call Transcript & Summary

[Foreign Language] Good morning. This is Nasser Al Rashdi. I'm the CEO of United Finance Company. I'm pleased to welcome you for this half year discussions based on the approved unaudited financials for H1 2025. Before we proceed with the presentation, please, we'd like to remind that this presentation contains statements related to United Finance business, financial condition and results of operations from published information. Any statements or comments which has meaning of future prospects and is forward-looking are only predictions and are not guarantees of future performance and does not constitute any solicitation to buy or sell any product, services, stock bonds or to engage in any trading strategy and should not be relied upon or considered as advice for making any investment decision. Due caution must be exercised that any such forward-looking statements or comments are and will be subject to both known and unknown risks, uncertainties and factors relating to the operation and business environment of the company that may cause actual results of the company to be materially different from any future results expressed or implied in such forward-looking statements. By accepting the delivery of this presentation, the recipient agrees to accept and be bound by the statements and restrictions and limitation set. So for the purpose of this presentation, we have three areas which we'll talk about. We'll have an introductions, company overview, our core focus areas, the leadership team and the performance -- the financial performance of the company. With this, I give -- I'll leave the floor to my colleague, Abdul Aziz ,our Chief Operating Officer, to proceed with the presentations. And after the presentations, we'll have a Q&A session, and we're pleased to provide responses to any query you might have. Thank you.

[Foreign Language] And good morning, everybody. And thank you all for joining us today at MSX discussion session. We're pleased to walk you through United Finance's unaudited financial performance for the first half of 2025, a year that reflects solid growth, operational resilience and strengthened fundamentals. The results we'll share today highlight not only our financial progress, but also the strategic transformation we've undertaken to position ourselves for sustainable long-term value creation. Overview. United Finance Company has been serving Oman's retail and corporate customers since 1997 with a 9% market share among finance and leasing companies. We have been listed on Muscat Stock Exchange under the ticker UFCI since 2002 and operate from our head office in Muscat with over 160 staff and 90% Omanization. Our core offerings include Retail lending, Corporate and SME finance and Corporate deposits. Our shareholding is diversified, led by Oman Hotels, Global Financial Investment, Al Saud Company, and Mr. Abdullah Al Khayari and others. Formed in 1997, we operate nine branches across Oman from Sohar to Salalah, serving over 10,000 active customers with a team of 160 employees. On a net book basis, we hold 9% market share among FLCs, giving us meaningful reach with disciplined focus. Governance is anchored by our Chairman, Mr. Abdullah Al Khayari; and Deputy Chairman, his excellency, Hassan Ehsan Al-Nasib; supported by directors, Talal Hassan Al Nasib; Hussam Hisham Bostami; Ehab Maqbool; Mohammed Al-Raise; and Faisal Ali Jaffar. Together, they contribute seasoned expertise in central banking, defense, capital markets, corporate finance, industrial operations and mega project deliveries, ensuring rigorous strategic direction and oversight. As for the leadership team, the execution is led by our CEO, Mr. Nasser Al Rashdi; supported by myself, Aziz Aal Abdulsalam; followed by Mr. Fawaz Al-Riyami, our Chief Business Officer; Mr. Mahmood Al Hadi, our AGM, HR and Admin; Mr. Nandakumar, our AGM Risk Management; Ms. Maisa Al Lamki, Head of Compliance; and Mr. Indika Roshan Perera, our Head of Finance. This blend of transformation, business risk compliance and finance capabilities underpins delivery of our plan. Our transformation centers around customer with six key focus areas driving impact. People: aligned leadership team, stronger performance management and focus on talent and engagements. Our processes: streamlined loan origination, automation and better customer solution. Systems: paperless office, seamless digital experience and efficient content management. Financial and customer: portfolio growth, new products, fee income and stronger dealer relationships. Collections: sharper focus on recoveries, team reorganization and daily performance reviews. Our branch network: refreshed branch look and feel, marketing engagements and superior service and connectivity with our customers. These initiatives together enhance service improvements and improves collections and support our way to a growing strategy. At UFC, our people are at the core of our transformation journey. We've prioritized developing internal talent and building future-ready teams, rolled out structured training programs across all levels, implemented robust performance management systems, proudly maintained over 90% Omanization. And at United Finance, the customer remains at the heart of everything we do. Since the beginning of 2025, we were able to achieve a positive customer satisfaction rate based on the continuous feedback from our customers through surveys, follow-up calls, and complaint tracking resolution. We actively capture the voice of customer to enhance service delivery from loan processing time to staff attitude and overall experience. Additionally, we've built strong engagement through our social media platform, growing our reach, gathering feedback and reinforcing our brand as a customer-focused and responsive organization. We've also invested in new technologies and core system upgrades along with tools such as AI to drive greater efficiency and customer convenience. Through enhancing our documentation quality submissions, we've managed to reduce turnaround times, now targeting same-day loan approvals and dealer payments, which has enhanced our overall service speed. And lastly, data analytics is now central to our operations, allowing us to track performance in real time, identify risk early and gain deeper insights into customer behaviors and needs. We've taken strong multilayered actions to improve our NPA performance. First, we strengthened credit underwriting by introducing smarter scoring models and stricter borrowing profile to ensure only high-quality loans are originated. Our collection efforts are more focused with dedicated teams using early interventions and restructuring strategies to recover overdue accounts. We've also diversified our portfolio, reducing our exposures to high-risk sectors and expanding into more stable industries as part of Oman's Vision 2040. Through real-time slippage monitoring, we are now able to flag potential delinquencies early and act fast to prevent loans from turning non-performing. And finally, we've enhanced customer engagement, offering flexible repayment and settlement plans to stressed clients, helping reduce defaults and support recovery. In the first half of 2025, United Finance delivered strong financial results. Total income reached at OMR 6.1 million, up 18% year-on-year and net profit rose by OMR 1.2 million, up 32%, delivering a 20% net profit margin. With improvements in return on equity to 4.9% and return on capital to 6.8%. Our loan book expanded to OMR 113 million and total asset reached OMR 120 million with equity at OMR 48 million. We maintained operating discipline with a cost-to-income ratio of 51%, asset quality strengthened. NPLs improved to 14% and provision coverage increased to 69.5%, while balance sheet prudence was sustained with gearing at 1.3x and leverage at 1.6x. These first half numbers reflect disciplined growth, stronger risk controls and continued focus on delivering value to shareholders and customers alike. Year-to-date through Q2 2025, we continue to build momentum. Interest income came in at OMR 5.2 million, up OMR 650,000. Fees and other income reached at OMR 900,000, an increase of about OMR 319,000. This translated into operating income of OMR 2.1 million, up by OMR 499,000. On credit costs, we booked ECL provisions of OMR 681,000, OMR 149,000 higher than last year as a prudent buildup. Our net loan book expanded to OMR 113 million versus OMR 97 million last year, up by OMR 15 million. Bottom line net profit rose to OMR 1.2 million, an increase of OMR 298,000. That's a 32% increase year-on-year. Profitability improved annualized return on equity stepped up to 4.9% from 3.7% and annualized return on capital to 6.8% from 5.1%. Overall, year-to-date shows healthy top line growth, disciplined provisioning and strengthening returns. Building on the momentum, profitability has strengthened as well. Operating profit progressed from OMR 2.4 million in 2020 to OMR 3.5 million in 2024, reflecting revenue growth and disciplined cost control. Year-to-date, Q2 2025 is at OMR 2.1 million versus OMR 1.6 million in Q2 2024, keeping the trajectory intact. On the net profit side, we've moved from OMR 708,000 in 2020 to OMR 2 million in 2024. Year-to-date, Q2 2025 stands at OMR 1.2 million, up from OMR 900,000 last year, underscoring operating leverage and prudent risk management. Our net finance debtors have trended upward over the last 4 years, rising from OMR 85 million in 2020 to OMR 104 million in 2024. The momentum continues into this year with year-to-date Q2 2025 at OMR 113 million, the highest level in 5 years versus the OMR 97 million Q2 2024. On impairment provisions, we've driven a structural reduction from OMR 1.5 million in 2020 to a low of OMR 700,000 in 2022, following targeted write-offs, provisions eased at [ OMR 1 million ] in 2024 from 1.1 million in 2023. Year-to-date, Q2 2025 stands at OMR 680,000 versus OMR 530,000 in Q2 2024, reflecting prudent provisioning alongside growth. Together, these trends show disciplined expansion with firm risk control. In the first half of 2025, we've delivered broad-based growth versus first half of 2024. Total income was at OMR 4.3 million, up 20%, supported by finance income of OMR 5.2 million and other incomes of OMR 900,000. Net interest income rose to OMR 3.4 million. Costs remained disciplined with staff costs at OMR 1.3 million, operating costs at OMR 860,000 and depreciation at OMR 77,000. This delivered operating profit of OMR 2.1 million. We maintained prudent provisions at that level. As of Q2 2025, total assets were OMR 120 million, 15% year-on-year growth was driven by installment finance debtors, OMR 113 million, investment securities OMR 800,000 and other receivables prepaid OMR 1.1 million. Cash and cash equivalents, OMR 2 million, property and equipment, OMR 2.3 million, assets held-for-sale at OMR 0.5 million, deposits with CBO steady at OMR 250,000. Total assets compared to -- compared with OMR 110 million at 2024 audited financials. As a note, Al Saud investments was reevaluated -- revalued in December 2024. The next revaluation is planned for end of 2025. In the first half of 2025, our net loan book grew to OMR 113 million with retail financing at OMR 73 million and corporate lending at OMR 39 million. The mix is consistent with our first half 2024 numbers when Retail stood at OMR 63 million and the Corporate stood at OMR 34 million, underscoring disciplined growth across both segments while keeping a well-diversified portfolio. Total performing assets rose to OMR 107 million at first half of 2025, up from OMR 98 million at the end of 2024 as Stage 1 loans reached OMR 104 million. Over the same period, the NPL ratio improved to 14% or 14.4% comparing to last year, 15.3%, while provision coverage climbed to 69.5%, giving us greater loss absorption capacity. Total assets reached OMR 120 million at the first half of 2025, up 15% from the first half of 2024, driven mainly by loan book expansion and higher cash reserves. Equity remained solid at OMR 48 million, preserving a comfortable capital buffer. On the liability side, we continue to rebalance funding. Bank borrowings reduced to OMR 31 million. Corporate deposits climbed by OMR 16 million, reflecting deeper institutional relationships. A new OMR 15 million, 3-year 7% unsecured bond inaugural and 71% oversubscribed further diversified our term funding base. These moves lower refinancing risks, while keeping leverage well within the regulatory limits and set us up to fund the next leg of our growth. Our key financial ratios reflect continuous improvement in both operational efficiency and asset quality. Leverage remains a conservative 1.6x and gearing at 1.3x at June 2025. Well inside regulatory headroom. Our cost-to-income ratio improved to 51% as digital initiatives pay off. Asset quality work continues. Gross NPLs fell to 14.4%, while ECL coverage climbed to 69%, the highest in 4 years. These moves support a rising return profile. Return on equity now is at 4.9% and return on capital is at 6.8%, with Omanization reaching at 93.5%, underscoring our local talent commitment. And in closing, our first half of 2025 results affirm the same story that every chart in this deck has told, consistent growth, disciplined risk management and balance sheet that positions us for the next leg of expansion. We will keep leveraging digital capabilities deepening our customer relationships and managing credit quality with the same prudence that has underpinned our progress so far, all with a singular aim of creating long-term value for our shareholders, customers and Oman's wider economy. Thank you very much, and we are ready to receive any questions you may have.

Thank you, Abdul Aziz, for the presentation. Now we open for Q&A. [Operator Instructions]

This is Joice from United Securities. Congratulations on the good set of numbers. See, could you please tell us what are the reasons that has resulted in this good set of numbers during this quarter and for the first half of this year? What I'm seeing is this quarter has been specifically better when compared to previous quarter or any other quarters in the previous years. You have reached your -- interest income has reached almost OMR 2.8 million and net interest income has reached almost OMR 1.8 million, OMR 1.9 million during this quarter, which is the highest in last several quarters. So what are the reasons that is specifically that resulted in this specific performance during this quarter? And how do you see this performance going forward?

Yes. Now I can see that specifically this quarter, we were able to contribute more new business during the first -- second quarter. And as well as we managed to like in other income, fee income also, we managed to increase our performance on that, especially in respect of bad debt recoveries. So we have a good momentum on that one. So -- and increasing of new business plus this other income and control of expenses resulted in specifically during the second quarter performance. And as well as, as you said that we have a good new business achievement during the second quarter, and this will result in the years to come also. So we have a good momentum at the moment. So this has resulted -- this is start. I believe this is start.

How do you see the overall business environment, because this quarter, you have added almost OMR 6 million in loans, which is again one of the highest number in the past several quarters. So how do you see the business momentum going forward in the general market as well as specifically for United Finance? What's your aspirations? Will you be looking at growing above the market rate? Or will you just be within somewhere very close to the market rate? Because I'm seeing some other companies number growing very aggressively and has been growing very aggressively over the past 2 years. And do you see the momentum continuing going forward?

So our growth is primarily related to our retail business. So for the first half, we have seen quite a good demand for Retail and small businesses. There have been a pickup of the market. And we continue to focus in our segment market where we know better, where we can control the quality and where it's in line with our strategy. I think the demand for loans, particularly for this sector will continue to grow, because the Oman population is growing. There's a business growth overall in the environment. So we expect the demand to continue for this year. And as you know, the Oman rating was upgraded by Moody's in last month. So this provides positive sentiment for the future business growth. And particularly, we see growth in oil and gas sector and all other sectors, which are in line with the Vision 2040. So we'll continue to work towards our objectives and within the strategy that we have defined. As mentioned before in previous quarters, our aim is to remain consistent in the performance and do what we know best and enhance shareholders' quality. The other major events that we've seen in the U.S. is for the first time since many years, we have issued a corporate bond for 3 years, OMR 15 million, and that provides us with the funding sources for our future growth of business.

Yes. So that is my another query that I had was on the bond issuances. Because what I'm seeing is your average cost of funds is around 5.8%, 5.4%, you have reduced it this time because you have repaid a lot of borrowings this time using the bond issuance proceeds. But at the same time, still, your average cost of funds is around 5.4% and you're paying 7% for the new bonds. So how do you see the cost of funds going forward? Connected to that, I wanted to pick your brain on how do you see the rates also moving. The rates have been very stable. over the last several quarters, 9.5%, 9.2% is the average asset yield that you were generating. But this quarter, I have specifically seen that 9.7% as the asset yield. And that's almost 60 bps jump over the previous year and another 40 bps jump over previous quarter, first quarter. So if you can touch up on these two aspects, that would be very helpful.

Yes, we raised the bond at 7%, a bit high compared to the current market rate. But at the moment, at the same time, we are enjoying some reduction in bank interest rates. So we hope that it will be nullified. So we have good margins at the moment and -- but we tend to keep our pricing at the same level, because we got hit during last 3, 4 quarters because when the interest rates were going up, but we couldn't increase our lending rate as the cost is going up. But at the moment, we are enjoying like before. We did not even reduce or increase. We keep the same lending rate as it is. But we assume that since we have experienced about a 1% decrease in short-term and long-term rates during second quarter 2025. So we assume that, okay and we hear that again, there may be another extra benefit, so that it will also affect positively. So we will continue to maintain the good margins in the quarters to come.

So if I add -- may add to the, the overall blended cost of funds remain marginally almost the same. But the strategy that we adopted here, we have grown from -- for the last 3 years, and we have aim to further grow. We need to have assets and liability management prudency. That is why we raised the bond for 3 years, and that give us some stability and fund and reduce the reliance on the short-term borrowings. Besides that, we -- it's part of the diversification of source of funding. So we have best borrowings, and you might have seen from the balance sheet, we also focus on raising deposits from the market. So our deposit has also gone up substantially and which put us in good platform for future growth. Regarding the overall interest scenario, until end of Q1 2025, the overall rates did not substantially reduce in the market, although the Fed have brought down the rates a little bit. But we have seen towards the end of the quarter 2, reduction in borrowing rates, either for U.S. or you can see in the government, what Central Bank issues on CD. So we are seeing an improvement in overall rating environment. And we expect in to see further improvement in the second half. As you know, the market expect rate cuts from the Fed. And I think it will give us a much positive impact on the business overall. Regarding the weighted average lending rates, so the segment we are focusing, we see that, that is the -- where we should be playing. The acceptable margin is there and also acceptable credit quality. So you can -- that reflects in the overall provisioning. And we also see from our previous performance. Now our NPA is down to 14.3% from highest about 27%, I believe, in 2020. So we're continuing to improve on the balance sheet, on provisioning, on funding structure and growing the businesses as you see. We expect to see further growth in the second half in line with the budget that we have set for ourselves.

Okay. And when you say that you were behind the curve in increasing the lending rates, now that -- are you indicating that now you are catching up with the peers and probably it will touch the double digits or reach 10% on an average during this year? Or will you be more happy at these levels for the asset yields?

[Foreign Language] We are working towards that. But you see the business, you also have to see the portfolio composition that other company has compared to the risk profile. So our risk appetite is a different risk appetite from other companies. And mostly, we want to sustain the performance of the company. Historically, there have been a lot of up and downs for various reasons, but sustainability is the key for our future.

Okay. Okay. And on the deposits, could you please share with us what are the average rates that you're paying for these deposits? Because from OMR 7 million in end of year -- end of 2024 to OMR 16 million, OMR 17 million, right now is a huge jump. So I was a little curious to know what are the rates that you're paying for the deposits?

We do not specifically tell how much the rate. But overall, if you see the blended rates has been stable. And we actually got a good deposit, even some of them are even below bank lending rates. So that is the way we are looking at. And we also offer alternative to our customers to deposits with FLCs. I'm pleased to see that overall sentiment is positive for companies to place with FLCs and will continue and that will help us to diversify the funding sources and manage our overall borrowing rates.

What are the tenure of -- average tenure of these deposits? They should be minimum 1 year, right? Or are you allowed to take below 1 year?

Minimum deposit is 3 months. Minimum deposit tenure is 3 months, as per the regulation..

So what's the average tenure for our deposits, United Finance deposits?

It is 1 year.

1 year. Okay. Because last year, we have seen you very aggressively increasing your deposits reaching OMR 12 million in March and then reaching -- by the end of the year, there was a lot of withdrawals, which has resulted in it reaching OMR 8 million. So I was just curious if that similar situation will arise going forward.

It doesn't mean that we have offered high interest rate to our customers. So it is not the case. Most of the time we have recurring customers and confidence over the performance of the company has resulted also increase in the rates, increase in the deposit amount.

Sure. Got it. Also, you got your OMR 15 million in bonds during June this year. So how soon will you be able to deploy and take advantage of these additional funds? One thing that I've noticed is you reduced OMR 10 million of your borrowings and there is still additional OMR 6 million, which is available for deployment. And then your leverage also is on the rise. So you are taking a little bit more of a risk in terms of adding the assets. So just wanted to check what's the kind of growth that you will be anticipating for 2025 and probably for 2026 as well?

In terms of leverage, I think, we are the lowest leverage company in the market. So we want to increase the leverage as much as possible, but we are not going to take high risk on, what we call, getting the business as heavy entity is coming. So we are cautious on that one. So as I said, this was a good achievement during the month of June. Yes, we settled about OMR 10 million loans at the moment. But the balance we utilize for lending purposes. There's no ideal cash hanging in our accounts.

Okay. Got it. The last part that I have is on the quality of assets. Yes, congratulations on reducing the NPL ratios. So one thing that I wanted to check with you, is this reduction, where is this coming from? Is it a function of new loans being of better quality? Or are there significant recoveries that we are seeing from the legacy portfolios, which is the more -- the higher contributing factor in your book cleanup efforts?

If you look at this year compared to last year, there are two factors that impact the NPL. One, as you said rightly, is the growth of assets. And second, we are every day, every week, tightly controlling the quality of assets, and repayments. So if you see our composition between Stage 1, Stage 2, Stage 3, that will reflect the quality and overall supervisions that governance that we have on NPL. Besides, we also have a legacy portfolio that we have been focusing on recovery and they are coming to fruits. So in summary, in the quarter to come, we expect to see further improvements. And as you know, where we are is depending on the legal process flow. So we are pushing hard to make sure that numbers comes down and we bring back -- we recover back all this legacy assets. And some of them are getting more than 10 years. So they have to go through the legal cycle until we are able to achieve our overall reductions. But I'm very happy to see the progress that we have had so far. And compared to competition as well, where the leverage is going up. If you do the competition analysis that you will see, we are very much well positioned. And the strategy that we have put together at the beginning in 2022 is paying off. So if you see -- can we go back to the strategy? Yes. So this is what my colleague highlighted before. This is the core focus. In every day, what we are doing is around the customer and the key component is collection and recovery. We have the written on portfolio. We have the daily review. We have target assigned to bottom line growth. And that is paying off good results.

Okay. Sure. Could you please touch upon your coverage ratio aspiration? Where do you see your coverage ratio? It is -- overall coverage ratios reached 70%. Stage 1 is at around 60% right now. So from a modeling perspective, where should we see the coverage ratio reaching maybe in 2025 and 2026? Should we be looking at further significant improvement or maybe somewhere around these levels?

So if you look at historically, when we -- end of 2021, our provision coverage came down to 50% in 2021. And because we had the write-off of the legacy portfolio. And since then, in the 2.5 years, we have increased that to almost 70%. Of course, our provision is driven by the model. And this model was built by an independent party. It was validated by external parties and Central Bank of Oman. So we follow the model provisions. So we are in line. Above model provision, we also have internal management of overlay to ensure that we have buffer in case of any deterioration in portfolio. So we continue to be careful. We want to build provision coverage for the portfolio. And we are in line with our targets. But overall, I can confirm that the provision coverage is as per the model. And we are also more conservative in adding management of overlay over and above the model provision.

Yes, I got it. But my question was primarily on what should we -- from an analyst point of view, what should we be looking at? You are already at 70%. So should we be looking at 75%?

At the moment, the provision coverage is very adequate compared to as per the model and the overall revision we have. But we continue to build provisions. As you know, we are building a new portfolio. We are growing. And at the same time, we're also building up buffers for futures. Any more questions? Yes, Mr. Shaoor.

I had just one quick question, and this is from my own understanding practically. The management recently issued a OMR 15 million bond, as you pointed out on your presentation at a 7% interest. My question is that, why go for a 3-year bond when you have the option of going for a perpetual bond? Because obviously, in 3 years, you have to repay the bond and then maybe you have to roll it over. While perpetual bond offers you a slightly better way to manage your funds. So what was the thought behind this?

Yes. The companies usually issue perpetual bonds because the equity is under pressure. The leverage is high compared to the regulator and also compared to what the lenders are looking at. So they go for perpetual, is much costlier than the normal conventional bond. In our case, as you see, our leverage is only 1.6x compared to industrial leverage of around 3x. So we are well capitalized. We are, I think, the second highest company in terms of capital, OMR 35 million. And we have a solid -- very solid net worth in the company. So the funding for the bond is primarily to fund the loan growth, future loan growth that we see and provide stability in the asset liability management. Any more questions? Okay. Since there's no more questions, I would like to thank all the participants for joining us today and the great questions that have come through, and we hope we provide clarity in terms of our performance. And looking forward to see you in the next quarter and go through our performance. Thank you.