Ali Al Ghanim Sons Automotive K S C Closed : Transcript of the Analysts Conference

Ahmed Moataz

Hello, everyone. This is Ahmed Moataz from EFG Hermes and welcome Ali Alghanim Sons Automotive second quarter of 2022 results conference call. It's our pleasure to have from the company's side Yousef Al Qatami, CEO, Chavijit Bawa, the CFO, and Yousef Mustafa, the Director of Sales and Marketing. The company, as usual, will start with a brief presentation, and then we'll open the floor for Q&A. Gentlemen, please go ahead.

Yousef Al Qatami

Thank you, everyone, for attending our first conference of 2022 for Ali Alghanim Sons. As mentioned, there's myself, Yousef Al Qatami, the CEO, Mr Bawa, our CFO, and Yousef Mustafa, our Sales and Marketing Director. Today, we'd like to take you through our board and executive management team, as there will be slight changes on that coming soon. Also, I'd like to take you through a company overview and a financial overview, and then we'll open the floor for questions.

The Board, as currently constituted, is the same as we shared in the presentations of the IPO. However, we have an OGM coming soon on 25th August, and in that OGM, in order to be in compliance with the rules and regulations of the CMA and Boursa, we will vote for two independent board members to be added to the team of the board. The Executive Management has not changed and is the same as currently stated.

In terms of the company overview, I would like to take you through the first half numbers, and then Q2 in detail versus 2021 later. In terms of revenues, we have reached KD 88.3 million, which reflects to around $287.7 million. which got us to a profit of KD 9 million, around $30 million. In terms of Q2, on a separate note, it was KD 48.5 million, $158 million. And in terms of net profit for Q2 alone, it was KD 4.8 million, which is around $15.6 million.

In terms of the breakdown of the revenue, it is not very far of our stated numbers in the pre-IPO presentation. Passenger cars, however, did increase a little. It was on the verge of 70, it went to around 73% to 75% in Q2, and in the first half, it was around 73%. After sales is stable and the rest of the business is around the same. In terms of what we have done for this first half, our board has already proposed an interim dividend of 23.78 fils.

That is equivalent to 3% dividend, half year dividend, semi-annual, of the IPO share price. When we did the IPO, of course, we promised around 6% dividend for the year, so we're on track to achieve that. The first half, we achieved that already. And so, half of it is done, and then the other half, once we close the year, we're on track inshallah, to do the same.

Also, some of the highlights, there was exceptional growth in the affordable segment, both in our two brands, Geely and Haval. We grew at around 63% in Geely and 86% in Great Wall. For the premium segment, we already have right now more than 2,000 bookings with down payments, significant down payments, so the premium segment is doing well. What is holding us back is basically stock availability, but even with that, we overachieved our targets.

A couple of highlights, we're opening two new facilities in Jahra, which is situated in the northwest of Kuwait. We have a facility for BMW, a 3S facility that will open, inshallah, in Q3. And in Q4, we're expecting our Geely facility, which is right next to it, to also open. We also achieved 100% sales process and retail standards rated by the OEMs. So, we're always on track and we're very proud to achieve that.

We also had a successful launch of the BMW new seven series, as well as the Land Rover Sport. And both have been very significant in terms of getting very significant down payments that contributed to the 2,000 cars that were done. In terms of coming models, we have a couple of very new models for the Geely brand, Manjaro and the Emgrand. And also, we have a sub-brand that is coming for Haval, which is called Tank. That will also, inshallah, boost us in terms of sales for the affordable segment.

We'll now take you through the financial overview. Just to look at it holistically, for the first half of 22, we both had a growth in our revenue in Q2 and in the first half. That translated to a net profit of around 9 million the first half. For Q2, specifically, we made around 4.79, in terms of net profit. For the profit attributable to shareholders, it was around 8.8 for the first half, with 4.7 coming in the second quarter.

And in terms of earnings per share, relative to what we forecasted, which was 52 fils in the pre-IPO figures for the year, we have achieved, for half the year, 31.72. So, we're well on track to beat what we have forecasted. In terms of

the contribution of the segments, obviously, we stated earlier, the passenger cars and the after sales are the most significant, including used cars.

And then if you look at the profit contribution, in terms of gross profit, even the after sales have a higher portion of that, because we have higher margins in after sales, generally speaking, especially on parts. So, it comes in at around 20% and around 70% for the vehicles. In terms of the income statement, our revenues went up by 4%. This is due to increases in the sales of affordable brands, and slightly from the luxury brands. However, in terms of gross profit, we went higher.

And the main reason for that is because of the extra margins we're getting on the luxury brands. We have increased our margins and this has given us a larger gross profit growth. And it is something that we foresee for the future, especially that the availability of cars is still we're short on cars, so we are able to price accordingly. And to add to that, I would like to highlight that our euro has been hedged at around the 0.350 range.

So, it does not reflect that in terms of now, because we usually hedge for the future. And once that hedging is utilised, then we'll even have higher gross margins going forward. In terms of the expenses, if you compare the expenses, there is a slight increase in the expenses. However, we'd like to highlight that in 21, if you want to do the comparison, there was a significant writeback of provisions because of sales that happened. And that decreased the expenses of the first half of 21. That's why you see a 22% growth in that. It's not actually 22%, if you normalise the writeback of provisions.

In terms of net profit, as I said, it was the two main factors. One is the increase of affordable brands in terms of sales, and specifically, the increase in margins of the luxury brands. In terms of our highlights, this is Q2 versus Q2. The first one was the first half, and this is only Q2. It has the same factors that we had in Q1, nothing has changed there.

And we basically came in with 17.04 fils and 31.72 fils for the first half. In terms of our balance sheet, just to take you through this quickly, there was a decrease in the plant property and equipment, mostly related to the sale on retirement of rental vehicles. Because we had a shortage of cars, we had concentrated on the sale of cars, the direct sale of cars, and therefore, we did not replace the rental vehicles, and that's why our assets decreased in terms of that.

And also, we had a lot of replacement capex in terms of cars that are used in our fleet for the demo, for the employee cars. Those were also not replaced because of the shortage in cars. So, that is why it's reflected in terms of that decrease. In terms of the current asset decreases, it was because of the improvement in the receivables. And plus, we repaid our bank debt. So, that also had an effect there.

The reduction in non-current liabilities, because we had a lot of settlement of around KD 19 million of debt, so if you take our total debt net bank borrowing inclusive of cash, we're actually positive now. We have around KD 7 million plus bank borrowing inclusive of cash. So, that reduction happened in the first half of 22. In terms of current liabilities, it increased, which was a good thing, because we had a lot of advances in terms of prepayments. This is related to the 2,000 cars of bookings that we had, and that was a significant increase, but obviously, it's a positive factor.

In terms of the cash flow statement, obviously, the most important line is the first line. And you see a significant improvement in the operating activities. Changes in working capital, we had a plus this time. Obviously, this is also related to time periods when the payments are being made. We had a large shipment of Land Rover coming in at the end of June, and therefore, our payables have increased and that's why you see our working capital is a plus. But it can be a plus or a minus, depending on timing. I think the more important line is the first line.

In terms of capex, it was around the same with a million in replacement. And in terms of the cash flow from investing activities, I think you can see there, a lot of it was utilised for the loans and borrowings, and some of it was also used in the dividend payment. In terms of the key ratios, in terms of the liquidity ratios, I want to highlight that yes, they did decrease, but this is mainly due to the drop in cash, because we closed out loans. Obviously, if we'd kept the cash, then the liquidity ratios would be fine. But we utilised that for the repayment of loans, and hence, why you see the liquidity ratios changing. However, I'd like to stress that we're in a very good position where we actually have plus cash net of bank borrowings. In terms of profitability, we have increased both our gross margin and our net profit margin versus 2021. And also, in terms of ROA and ROE, both saw an improvement.