Al Ansari Financial Services PJSC (ALANSARI) Earnings Call Transcript

Good day, everyone. This is Shabbir Malik from EFG Hermes, and I welcome you to the results call of Al Ansari Financial Services for the first half of 2025. I'm pleased to introduce Mr. Rashed Al Ansari, Group CEO; Mr. Mohammad Bitar, the Deputy Group CEO; and Mr. Faisal Anwar, the Group Chief Financial Officer. Today, the team will provide you with an overview of the group's performance, the growth strategy and the short- and medium-term guidance expectations. We would ask you to reserve your questions until the end, and the Al Ansari team will be happy to address those at the end of the presentation. Now I would like to hand over the call to Mr. Rashed Ansari to walk you through the key highlights. Please go ahead.

Thank you, Shabbir. I appreciate it. All right. So thank you, and good afternoon. I'd like to thank you all for joining us today as we discuss the first half results for 2025. I would like to take this opportunity also to thank EFG team for hosting our earnings call today. We at AAFS are pleased to report another solid results. H1 broke a new record being the highest half yearly result in the history of the organization. This is driven by encouraging trends and reflect positively on the company's overall outlook. We witnessed in the first half of 2025, a 13% year-on-year increase in operating income, supported by growth across most business lines and the consolidation of the BFC results. The EBITDA rose by 11% with an EBITDA margin of 45%, while the net profit after tax increased by 3% to AED 212 million. This is primarily due to the notable rise in operating income, as mentioned earlier, and offset by the increase in financing costs as a result of the shareholders' loan to finance the BFC acquisition deal. I would like to highlight the resilience and diversity of our business model with our other business lines, including bank notes business, the wage protection system and other services, ancillary services that we provide picking up and further contributing to the overall operating income of the business. Another positive update post the acquisition of BFC Group is the UAE concentration as a country has decreased with Bahrain, Kuwait and India helping lower the geographical concentration risk of our business. With such diversification efforts, coupled with our focus continuously enhancing our digital capabilities, we are essentially future-proofing our business. Speaking of digital capabilities, we have soft launched Al Ansari Digital Wallet to a pilot of segment -- to a pilot segment of consumers, and the feedback has been extremely positive. The digital wallet is expected to elevate our digital capabilities and add stickiness with customers in the market. My colleague, Mohammad Bitar, will talk about this point in detail later in the presentation. Furthermore, we have remained very active, and we've been in active discussions with the regulatory bodies here in the UAE, specifically addressing the predatory pricing challenges posed by fintechs in the market. The progression and the discussions have been very much positive with alignment with the regulators. And last month, in July, the new regulation has been announced that clearly states that no financial institution is allowed to provide license activities such as remittances, foreign currency exchange without obtaining a license from the Central Bank themselves. This basically puts a very clear stepping stone towards leveling the playing field for companies like us operating in the market with those newcomers, specifically the fintechs coming from out of the country. So this is great positive news for the company, and we will see the results of that hopefully before the end of the year and at the beginning of next year going forward. With that, we will now hand over to the team to take us through the financial and operational details. Bitar, over to you.

Thank you, Rashed. I would like now to show a slide that highlights the quarter-to-quarter trend witnessed since 2022. As shown, starting from the first quarter of 2023, we witnessed a downward trend in our operating income, mainly driven by the effects of the parallel markets across our major corridors such as Egypt and Pakistan. This downward trend lasted for 3 quarters and starting from the third quarter of 2023, we began to notice an upward moving trend as a result of the steady improvement in the parallel market, coupled with the gradual increase in remittance fees, which we implemented since April 2024 on select corridors. Now comparing this quarter with the previous quarter, we achieved a record-breaking quarter, witnessing a sizable 18% increase driven by the consolidation of BFC results as well as the encouraging performance witnessed across most of our businesses. Next slide, please. From an operational metric point of view, the group processed 28 million transactions, which represents a 10% increase year-on-year, coupled with 12% increase in the value of remittance transactions and a very strong increase of 105% in the value of bank notes transactions. In addition, our other business lines witnessed encouraging momentum, including WPS delivering 25% growth in number of salary disbursals. Our digital transactions witnessed a 30% increase versus last year and now make up 23% of our total number of outward remittance transactions. This is a great testament to the effectiveness of implementing our digital transformation strategy. Finally, thanks to BFC acquisition, our number of branches increased to 439, adding 180 net branches since H1 2024. There were 15 net new branches in our UAE network, now totaling to 274 branches and 165 net branches of BFC across Bahrain, Kuwait and India. Next slide, please. Now let's take a quick look at our revenue mix for the first half of 2025. While maintaining our main source of revenue, which is remittance at 56% contribution, we achieved double-digit revenue growth across all other businesses. Such diversification of revenue streams helps ensure financial stability and sustainable growth. The contribution of bank notes business has witnessed encouraging growth driven by the BFC acquisition and the positive performance of our multicurrency prepaid cards. We're also witnessing encouraging growth in the operating income of WPS and other services as we continue to be diverse and target a more resilient business model. Next slide, please. As mentioned by Mr. Rashed, moving on the revenue contribution by country. As a result of BFC acquisition, the geographic concentration of the business becomes less reliant on the UAE with increasing contributions from other countries such as Bahrain, Kuwait and India. This results in a business model that mitigates geographic concentration risk and a more robust business overall. Again, this is a testament to the success of implementing our regional expansion strategy. Next slide, please. Now we talk about the economy. This slide underscores the notable resilience of the GCC economy among global headwinds, and we focus on our key operational geographies, including UAE, Kuwait and Bahrain. From a UAE standpoint, we see encouraging macro indicators on a GDP level and a population growth level, supported by a strong travel and tourism sector that saw a 2% growth in airport passengers and 6% growth in overnight visitors in the first half of this year as compared to the previous year and an expat heavy population reaching to 88% of overall population. Now moving to Kuwait. We also witnessed a similar story of macro point of view. This is also supported by a healthy travel and tourism sector that saw 13% growth in overnight visitors in 2024, coupled with a significant expat population totaling to 69% of overall population. Finally, for Bahrain, we also see solid micro pointers at GDP growth level and backed by healthy population growth, 7% growth in airport passengers in 2024 and major expat population totaling to 53% of overall population. So to conclude, with the continuous growth in population, expat workforce, inbound and outbound tourists, more establishment, the demand for our services will continue to increase. This supportive climate across GCC provides a strong foundation for our operation. I will now hand it over to my colleague, Faisal, to walk you through our financial position.

Thank you very much, Bitar, and I will take you through first with the income statement. Net gain on currency exchange recorded a year-on-year increase of 20.9%, primarily driven by a 12.1% increase due to the acquisition of BFC Group and remaining 8.8% increase is attributable to increase in remittance margins and bank notes and travel card volumes. The net commission income recorded a year-on-year increase of 5.2%, primarily driven by a 7.8% increase due to the acquisition of BFC Group, offset by 2.5% drop due to decline in the remittance transactions. In terms of the interest income, interest income has declined, primarily attributable to the decrease in the EIBOR rates. For the salaries and benefits, they have recorded a year-on-year increase of 11.3%, primarily driven by a 7.7% increase due to acquisition of the BFC Group and 3.6% increase is mainly due to rise in the number of employees directly related to the opening of 15 new branches since Q2 2024 and the compliance of amortization targets. For the other operating expenses, they have recorded a year-on-year increase of 23.7%, primarily driven by a 21.5% increase due to the acquisition of BFC Group and a nominal increase of 2.2% is mainly due to rise in the number of branches since Q2 2024. The increase in finance cost is mainly attributable to the shareholders' loan, which was availed for the purchase of BFC acquisition. For the EBITDA, EBITDA has increased by 11.3% year-on-year, reaching to AED 287 million with an EBITDA margin of 45.0% due to the notable increase in operating income. As a reminder to all, the industry average EBITDA margin is less than 30%. Next slide. Turning our attention to the balance sheet. The increase in right-of-use assets by 84.3% is mainly attributed to the acquisition of BFC Group, an increase of 59.4% and the remaining increase of 24.9% is due to the addition of new branch locations, renewals and lease term modifications. The increase in intangible and PPE is the result of the acquisition of the BFC Group. For the other assets, increase is primarily driven by the acquisition of BFC Group, an increase of 19.1% and the balance increase of 30.50% is attributable to the bills receivables due to increased volumes and which were settled subsequent to the period end. For the trade and other payables, these have increased by 40.3% driven by the increased volumes of WPS, prepaid cards and the bills payable that remain undisbursed to the beneficiary at the period end. Shareholder loan is availed during the period to finance the acquisition of BFC Group and the increase in borrowings, lease liabilities and other liabilities are primarily attributable to the acquisition of the BFC Group in Q2 2024. Next slide, please. Now looking to our cash positions. Majority of our current assets are composed of cash and cash-like items, a significant portion of which is used to run the operations. During the period end, the group average cash requirements for remittances and bank notes range from 3 to 4 days and 3 to 7 days, respectively. On top of it, management also consider a buffer of 25% given the company's business has significant intra-month seasonality like holidays, weekends, salary payment days. We have a very CapEx-light business model and through which we are able to generate strong growth with limited CapEx requirements, which are expected to be 2% of the operating income. CapEx remained similar versus last year as the group streamlines its branch operations over the period. Debt-to-equity ratio increased from 13% to 58%, mainly due to the shareholders' loan availed during the period to finance the BFC acquisition. Next slide. As a reminder to all, our dividend policy is a minimum dividend of 70% of the net profit after tax paid on a semiannual basis in April and October of each year. The group paid a dividend amount of AED 315 million for the financial year 2024 with AED 157.5 million was paid in October 2024 and the remaining AED 157.5 million was paid in April 2024. This translates the 2024 dividend of 78% of the net profit generated in 2024. On this, the implied dividend yield as of the closing price of AED 0.970 per share on June 30, 2024, comes to 4.3%. With this, I will now hand over back to Bitar to provide an update on our growth strategy pillars. Bitar?

Thank you, Faisal. Our growth strategy focused on 6 key areas, and I'm happy to report the following progress. Our investment in the expansion of our physical presence continues to yield strong results. We have a target to open 480 branches in the midterm, and our total branch network currently stands at 439 branches. As I said before, we have added total 180 net branches to our branch network since H1 last year. Moving on to our second strategic focus, which is geographical expansion within the GCC. And after the successful acquisition of BFC, we expect to close the acquisition of Al Ansari Exchange in Kuwait by the third quarter of this year, which is currently under pending regulatory approvals. And we continue to assess growth opportunities across the GCC region that are accretive and beneficial for our business. In relation to our digital innovation pillar, we continue to focus on expanding our digital offerings and our digital capabilities through increased focus on our prepaid cards offering, continued investment in our app and creating digital marketplace through Al Ansari Digital Wallet. The digital wallet is brought to the UAE market through Al Ansari Digital Pay, which is the Fintech arm of Al Ansari Financial Services. We are proud, like my boss said, to announce the official soft launch of Al Ansari Wallet, which is a cutting-edge digital wallet designed to accelerate financial inclusion and support the UAE's journey towards a cashless society. Al Ansari Wallet offers a comprehensive suite of digital financial services, including salary disbursement, instant remittances, both domestic and international, peer-to-peer transfers, merchants and QR code payments, bill settlements and an innovative bill splitting feature. Users will also benefit from cashback rewards and intuitive financial tracking, making everyday transaction seamless and rewarding. Looking ahead, we plan to roll out additional wallet features such as Send Now, Pay Later and Buy Now, Pay Later, coupled with strategic partnerships and ecosystem integrations that further enhance the value for individuals and communities. Moving to our fourth pillar, which is revenue optimization, which covers the margin increase in our remittance fees, coupled with the diversification of our service offerings and new strategic partnerships to generate value and reinforce our market leadership position. From a margin increase perspective, we have implemented a gradual 15% increase on our remittance fees in select corridors and in a strategic manner to ensure there is no negative impact on our market share. We have witnessed and continued to witness a positive impact on our results. In addition, we have announced a few strategic partnerships this half year to strengthen our bill collection services as well as to strengthen our remittances network. Our fifth pillar focuses on growing corporate cross-border remittance business. And in this, we -- our business continues to grow in this segment as evidenced by the sizable rise in the new corporate clients that are onboarded and also in the number of companies registered under the WPS. Our final pillar centers on expanding our CashTrans operation, which is an end-to-end cash management solution. We continue to invest in maintaining strong infrastructure, which currently includes a state-of-the-art cash processing center, close to 50 armored vehicles and 274 cash hubs. In addition, we're currently exploring the setup of a new cash processing facility in line with the exciting market potentials for this sector. I will now pass it back to my colleague, Faisal, to discuss our short-term and midterm guidance.

Thank you very much, Bitar. We will walk through our guidance for the short to medium term. In the short term, we are guiding for operating income to be low to mid-teens growth and single digit in the midterm. In terms of the number of branches, we are targeting to have a total of 480 branches across the geographies we operate in. And for the remittance business, our guidance is high single-digit growth in the short term, followed by a single-digit growth in the midterm. For the bank notes business, our guidance is mid- to high teens growth in the short term and single digit over the midterm. With a strong growth expected in the WPS and other product businesses, we expect the growth in WPS and other products to be in the high teens, both in the short and the long term. For the EBITDA, our guidance is to be low to mid-teens growth in the short term, followed by a single-digit growth in the midterm. We expect the EBITDA margin to face a low single-digit decline as a result of the acquisitions in the short term and over the midterm to expand in line with the business growth and synergy realizations. Finally, in terms of the CapEx, we expect to remain in the low single digit as a percentage of the operating income. With this, I will now hand it back to Bitar for the closing remarks.

This brings us to the end of the presentation. I hope this has provided you with a clear view of our performance for the first half of this year, the exciting growth story and our commitment to continue to deliver on our strategy. Once again, thank you for your time, and the floor is open for questions.

Thank you very much for these opening remarks. We'll now open the floor for Q&A. [Operator Instructions]As we wait for the questions to come in, maybe I can ask 1 or 2 questions. This is regarding your acquisition. So in terms of your dividend policy, I think in the past, you've mentioned that your dividend policy is roughly about 70% of earnings. Do you expect any changes to that dividend policy because of this acquisition of the BFC Group? And also, if you can give us -- remind us what are the strategic merits of the BFC Group? Can you give us some sense of Bahrain's remittance market?

Bitar, would you like to take that question?

Yes, I can. In terms of the impact on the dividend policy, we remain as per our policy in terms of distributing minimum 70% of the net profit. And the good news is that the cost of the shareholder loan is covered by the profitability of BFC. So no negative impact in the near future, inshallah very soon once we repay the loan, the impact will be positive. You can tell the difference between the growth in EBITDA and net profit. As far as the strategic merit of BFC acquisition, as you know, we are already #1 in our own market, talking about 25% market share, including banks and fintechs. And in order to further grow with our capabilities, the best thing is to go and repeat the success story. The acquisition of BFC comes very aligned with our strategy. In Bahrain itself, BFC is already #1. So not only now we are #1 in our own markets, we're also #1 in Bahrain. And the benefit of us being immediately #1 is the synergy. We can utilize our joint bigger network. We can -- we have a better bargaining power with all the suppliers and the partners to enhance the revenue. So this is from Bahrain point of view. Kuwait is the ninth largest market when it comes to personal outward remittances in the world. We already have a small presence. And now with the acquisition of BFC, we become the third largest player in Kuwait at par more or less with the first 2 players, Al Mulla and Al Muzaini. And we're very confident that we'll be able to also repeat the same success story. This is, by the way, in line with our already announced expansion strategy as we keep an eye on the rest of the GCC markets, mainly Saudi Arabia, Oman and Qatar. Did I answer your question, Shabbir?

Yes. We have a couple of questions in the chat box. How much is the expected addition to revenue and EBITDA on a full year basis before synergies from BFC?

Faisal, would you want to take that question?

Yes, I would like to take this question. Although we do not actually give the specific numbers for our subsidiaries information, but yet, it will going to increase something in around 10% to -- 15% to 20% of our revenues on a full year basis.

Okay. So next question, this is from Hannah. Was there any adverse impact on your business because of the geopolitical uncertainty? Do you expect any synergies from the acquisition of the BFC Group?

I can take that question. So basically, there has been some effect, indirect effect. Let's say, the one that we have seen was with regards to the wholesale business of the foreign currency exchange. As you all know, that Al Ansari Exchange here in the UAE, we have a very specialized license from the Central Bank of the UAE to import and export physical cash. And with that, our customers being basically large financial institutions and banks within the region. And that business, we have seen a little bit of a slowdown for obvious reasons because of the geopolitical uncertainty. So there, we have seen some impact of it. However, the impact was minor and minimal and short-lived. And of course, we do expect a lot of synergies. I think this already has been answered by my colleague, Mohammad Bitar, that, yes, we do expect a lot of synergies there in terms of managing the subsidiary. So we have restructured the company in order to be able to plug in the businesses over there with -- basically plug them into the Al Ansari Financial Services ecosystem. So the mother company will be providing the direction, the leadership to those subsidiaries in different countries. So that's a much more efficient way of looking at it. This in addition to what we are doing in terms of offshoring a lot of the functions. So we have quite a lot of human capital-intensive functions we have offshored it to India where the cost of human capital over there is basically 1/3 of what we have here in the UAE and the GCC in general. So yes, there are quite a lot of synergies and the whole group basically stands to benefit from it.

Got it. [Operator Instructions] Maybe one question from my side. In terms of the valuation multiples for BFC, can you please share what kind of multiple in terms of price to earnings or EV to EBITDA was paid for this acquisition?

Sure. We were transparent with the acquisition during the time that we've made it last year. So I will leave it to our CFO, Faisal, to -- do you remember the details?

Yes. So what we have done is that it is quite economical sort of a deal for us. And if you can see in the financial statements, we have managed to pay the premium of 13% over the price itself, of the total price versus the net assets and the EBITDA multiples were in the range of 7% to 8.5%.

Which is -- if I may add, which is a great deal when you call -- when you look at the comparatives that -- of similar companies that have been actually made in terms of acquisitions in the past. So we definitely got the BFC Group at a great value. This has positively contributed to the result of the group. It also increased the geographical diversification. We -- this is not a secret. I mean everybody knows that there has been some challenges with the fintechs coming and setting up shop here in the UAE and trying to take market share. So of course, we are tackling those. That has put pressure on the revenues of all the players actually in the United Arab Emirates. So this is a fact. So having BFC has basically helped us in order to spread that kind of geographical presence and hence, reducing that concentration risk on the UAE market. We know that what the fintechs are doing are short-lived. They cannot continue to burn cash on every transaction. Every transaction is a loss in order for them to be able to penetrate the market. This is a great compliment to us because that means that we are satisfactorily meeting and exceeding the consumers' expectation when it comes to the financial -- nonbanking financial services that we provide from remittances to foreign currency exchange, from digitization of all these services, even the foreign currency exchange, we have digitized through our multicurrency prepaid card and the travel card. So the newcomers are finding it very difficult and challenging to penetrate the market. And hence, the reason why they basically burn cash and provide a lot of incentives for the customers, making every transaction a loss to them. This is short-lived. However, having BFC Group with the geographic diversification has minimized the impact of that issue. I hope this gives you kind of a holistic picture of the importance of the BFC acquisition.

Maybe one question. You talked about fintechs. I would like to maybe ask you about the banking sector because some of the banks like Emirates NBD and the others have been promoting cross-border remittance as well. I think you've mentioned in the past that their focus areas is more white collar or people who typically earn above a certain salary threshold. Is that still true? Is that they are not encroaching into the business segments that you typically target in the UAE?