Al Ansari Financial Services PJSC (ALANSARI) Earnings Call Transcript

Good afternoon, everyone. Welcome, and thank you for joining us this afternoon. My name is Dana Khalaf. I lead the Corporate Communications and Investor Relations Department at Al Ansari Financial Services. I'm pleased to be here with our leadership team, Mr. Rashed Ali Al Ansari, our Group CEO; Mr. Mohammad Bitar, Deputy Group CEO; and Mr. Faisal Anwar, our Group CFO. Today, we will be providing you with a comprehensive look at our performance in the first quarter of 2025. We will also share exciting progress on our growth strategy, outline our short- and midterm expectations and provide an update on the successful closure of the BFC acquisition. We'll be happy to take any questions at the end of the presentation. Now I would like to introduce Mr. Rashed Al Ansari to walk you through the key highlights. Mr. Rashed?

Thank you, Dana, and thank you all for joining us today as we discuss our first quarter results for 2025. We are pleased to report a solid performance this quarter, driven by encouraging trends that reflect positively on the company's overall outlook. We began the year with a 7% year-on-year increase in operating income. This is supported by growth across all business lines. EBITDA rose by 13%, reaching a margin of 46.8%, while the net profit after tax increased by 10%, resulting in achieving AED 109 million in the first quarter. This is primarily due to the notable rise in operating income. It's important to mention that we are in active discussion with the regulatory bodies in the UAE, specifically the Central Bank of the UAE, the two financial free zones and others as well in order to discuss the predatory pricing challenges posed by the fintech players. The discussions are progressing positively with alignment from all the regulators. Regardless of the past challenges and aggressive price wars, we have managed to protect and in certain cases, even grow our customer base. As you probably heard from Dana, we have successfully closed our acquisition of BFC. This is the largest exchange company in Bahrain. Q1 results, however, excludes the effect of this acquisition. We will consolidate BFC figures into the quarterly report starting from Q2 of 2025. With that, I will hand over the floor to the team to take us through the financial and operational details. Bitar, over to you.

Thank you. Good afternoon, everyone. I would like to start with a slide that highlights the quarter-to-quarter trend witnessed since the first quarter of 2022. As we explained before, in Q1 of 2023, we witnessed a downward trend in our operating income, mainly driven by the effects of the parallel market across our major corridors such as Egypt and Pakistan. While starting, as you can see on the chart 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 that we implemented since April 2024 on select corridors. Now looking at the first quarter of this year, you can see from the chart that the recovery achieved in the previous quarter is sustainable in nature and in line with the seasonality of our business. Next slide, please. Now let's take a closer look at our performance for the first quarter. Like Mr. Rashed said, in terms of financials, the company reported 7% increase in operating income, 13% increase in EBITDA, reaching to AED 238 million, reflecting an EBITDA margin of 46.8% and a 10% increase in net profit after tax amounting to AED 109 million. From an operational metric, the group processed 12.5 million transactions, representing a 1% increase year-on-year and a 6% increase in the value of banknote transactions. In addition, all our other business lines witnessed encouraging momentum, including WPS delivering 27% growth in the number of salary disbursals. Digital transaction now make up 24% of our total number of outward remittance transactions. And finally, our number of branches increased to 270, whereby we added 11 net new branches since the first quarter of last year. I will now hand over to my colleague, Dana, to discuss our revenue contribution and macroeconomic overview.

Thank you, Mr. Bitar. Allow us here to take a quick look at the revenue mix. this quarter. As you can see on the slide, the revenue mix remains very similar compared to last year, where the remittance business is still the major contributor to our top line, followed by the banknotes business. We're witnessing encouraging growth in the operating income of WPS as we continue to be diverse and target a more resilient business model. Next slide. The slide here underscores the remarkable resilience of the UAE economy among global headwinds. We see encouraging macroeconomic growth indicators -- I'm sorry, we see encouraging macroeconomic indicators with a projected overall GDP growth of 4.7% and non-oil GDP growth of 5.1% for 2025, supported by a growing population, a thriving travel and tourism sector that saw significant passenger and overnight visitor numbers in Q1 this year. This supportive climate characterized by a large expat population, increasing digital economy contributions and the adoption of digital payments provide a strong foundation for our operations. Now Mr. Bitar will take you through our Q1 performance in detail. Mr. Bitar, over to you.

Looking now at the performance of our core remittance business. We've seen steady progress. Our remittance operating income for the first quarter grew by 4% year-on-year to AED 171 million. This positive trajectory, as explained before, is largely attributed to the stabilization of the apparel market across our key corridors. Furthermore, our digital transformation continues to gain momentum with a significant 16% surge in the number of digital transactions, which basically now representing 24% of our total outdoor remittance transaction, which is ahead of our plan. Next slide, please. Now moving to our banknote business. In the first quarter of this year, we recorded an operating income of AED 93 million. That's a 7% increase year-on-year, and this is primarily influenced by the phenomenal performance and the robust demand for our multicurrency prepaid card. The overall transaction value saw 6% growth year-over-year, and this is backed by the very high demand from our tourists, whether inbound or outbound. Next slide, please. Now we're also very pleased with the continued strong performance of our WPS and Other Products and Services segment, which saw a significant 26% increase in operating income reaching to AED 30 million. This growth was fueled by a healthy 27% increase in our WPS disbursals. Now I'll hand it over to Faisal to walk you through the financial position.

Thank you very much, Bitar, and good afternoon, everybody. Net gain on currency exchange saw an increase of 12.3% year-on-year, mainly on account of the increase in remittance margins. In terms of net commission income, it saw a nominal increase of 2.5% year-on-year due to increase in prepaid cards and WPS disbursal transactions. For the interest income, there's a decline is primarily attributable to a decrease in EIBOR rates during the period. For the salaries and benefits, these are increased mainly due to rise in number of employees directly related to the opening of 11 new branches since Q1 2024 and compliance of amortization targets. The decline in the finance cost is mainly attributable to efficient utilization of bank overdraft facilities during peak business days only. For the EBITDA, EBITDA increased by 12.5% year-on-year to AED 138 million with an EBITDA margin of 46.8% due to a notable increase in operating income. Please note that the industry average EBITDA margin is less than 30%. Next slide, please. Turning our attention to the balance sheet. The increase in right-of-use assets by 25.4% can be attributed to the addition of new branch locations, renewals and lease term modifications. For the other assets, these are increased by 33.4%, mainly due to yield holidays falling at the period end, which resulted in delay in settlements to be received from third parties and other partners until resumption of banking facilities subsequent to the period end. For the trade and other payables, these have increased by 18.9%, driven mainly by the increase in the volume of WPS, prepaid cards and bill payables that remain undisbursed to the beneficiaries due to the Eid holidays at the period end. For the bank borrowings, bank borrowings are temporarily avail based on the business requirements and liquidity position of the company and were settled subsequent to the period end. For the other liabilities, these have increased by 104% due to the unsettled balances with banks and exchange houses due to the Eid holidays at the period end. Next slide. Now looking to our cash position. Majority of the 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. Management also consider a buffer of 25% given the company's business has a significant intra-month seasonality, which is holidays, weekends, salary payment days and et cetera. We have a very CapEx-light business model, and we are able to generate strong growth with limited CapEx requirements, and these are expected to remain at 2% of the operating income. CapEx decreased by 33% versus Q1 2024 as the group streamlined its branch network expansion. In terms of the cash generation, it has increased in Q1 2025 due to increase in operating income by 7.1% with 96% EBITDA cash conversion rate. For the debt-to-equity ratio, it has decreased from 13% to 9% due to repayment of borrowings and decrease in EIBOR rates during the period. Next slide, please. As a reminder, 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 that was paid in October 2024 and the remaining AED 157.5 million was paid in April 2024. And this dividend translates into 78% of the net profit generated in 2024. With this, the employed dividend yield as of the closing price of AED 0.97 per share on March 31, 2024, is 4.3%. And with this, I hand over back to Bitar to provide an update on our growth strategy pillars. Bitar to you.

Thank you, Faisal. Our growth strategy focused on six key areas. I am happy to report the following progress. Our investment in the expansion of our physical presence continued to yield strong results. We've added 11 net new branches in our UAE network in 2025, bringing our total to 270 branches. This expansion not only enhances customer reach, but also drives profitability with 99% of the branches operating for more than 6 months being profitable. Moving on to our second strategic focus, which is geographical expansion within the GCC. In relation to the BFC acquisition time lines, as you know, we completed the acquisition last month, and we expect to complete the integration process and realize the synergies between the first quarter of 2026 and the third quarter. We expect also Al Ansari Exchange in Kuwait to be acquired by Al Ansari Financial Services by the second quarter of this year and synergy to be realized in the third quarter. Moving on in relation to our digital innovation, which is our third growth pillar and one of our main focus areas, we continue to focus on expanding our digital offering and our digital capabilities. We have witnessed an encouraging 50% increase in newly issued prepaid cards and an 11% increase in the number of active users on the app. Our award-winning mobile app maintains a 4.7 average rating across all platforms. Also, we expect to launch Al Ansari Digital Wallet, which is a full-fledged digital marketplace, Inshallah in the second quarter of this year, subject to obtaining the final regulatory approval. Next slide, please. Our fourth pillar, revenue optimization covers margin increases on our remittance fees, coupled with the diversification of our service offering 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 in our remittance fees in select corridors, as explained before, and in a strategic manner to ensure there is no negative impact on our market share. We've witnessed and continue to witness a positive impact on our results. In addition, we have announced a few strategic partnerships this quarter such as ruya bank and pillars, naming a few to strengthen our bill collection services. Our fifth pillar focuses on growing the corporate cross-border remittance business. We're happy to report significant progress evidenced by a sizable rise in new corporate clients and an 18% increase in the number of companies registered under WPS in the first quarter of this year. Also, our eExchange, which is the web-based portal specifically for corporates to perform their transactions, continue to perform well and increase our presence in the corporate remittance segment. Our final pillar centers on expanding our CashTrans operation, CashTrans business is demonstrating encouraging growth. We continue to invest in maintaining a strong infrastructure, which currently includes a state-of-the-art cash processing facility, almost 40 armored vehicles and 270 cash hubs. In addition, we're currently exploring the setup of a new cash processing facility in line with the exciting market potential for this sector. Next slide, please. Now specific to the acquisition, we would like to touch upon a few significant business updates. As we said, we have completed the acquisition of BFC Group and are in the final stages of completing the acquisition of Al Ansari Exchange in Kuwait. As a reminder of the background of BFC, BFC is one of the leading financial service players in the region with strong brand equity in Bahrain, Kuwait and India markets. It is the leading player in Bahrain and the third largest player in Kuwait by number of branches. In addition, BFC has strong digital capabilities and a large partnership network of correspondent banks and agents, which is complementary to our current services. Our second acquisition of Al Ansari Exchange in Kuwait is also beneficial, whereby it is today the fourth largest player in Kuwait market. Both acquisitions allow us to become the leading foreign exchange and remittance provider in the GCC region by branch network, where we will have a total of 462 branches across four countries. Both acquisitions will also allow us to diversify our geographic footprint and reduce reliance on our existing markets and enhance the stability of our revenue streams. In addition, and given the complementary nature of both businesses, we expect a list of synergies and operational efficiencies, which will be value accretive for our shareholders once the synergies are realized after the integration process. In summary, both acquisitions are well poised to benefit all our stakeholders, including our shareholders, customers, employees and Inshallah, our regional regulators. I will hand it over now to Faisal to discuss the consolidated financial profile and synergy opportunities.

Thank you, very much , Bitar. As mentioned earlier, as a result of both acquisitions, we become the largest remittance and foreign exchange player in the GCC, where our number of branches reaches a total of 462 branches as of the end of 2024, broken down into 267 branches in the UAE, 94 branches in Kuwait, 55 branches in Bahrain and 46 in India. In terms of the consolidation of the financial, we witnessed a 23% increase in operating income, a 16% increase in EBITDA and an 11% increase in net profit after tax and earnings per share, subject to any post-acquisition adjustments. Consolidated EBITDA margin witnessed a minor decline to 42% compared to 44% for the AFS in 2024. We expect the acquisitions to be margin accretive to the EBITDA once the synergies are realized and the integration process is completed, which is expected by Q1 2026 to Q3 2026. Next slide, please. Moving on to the strategic rationale of the acquisition. Most importantly, besides being the #1 player in the UAE market, we will also become the #1 player in Bahrain and the #3 player in Kuwait with a total branch network of 462 branches, which is a 73% increase of AFS branch network as of the end of 2024. We will also witness a sizable 29% increase in our customer base, which will allow us to strengthen our market position and increase our market share. Both acquisitions will allow us to diversify our geographical footprint and reduce reliance on our existing markets and enhance stability of our revenue streams and our overall business model. In addition, we expect a list of synergies and operational efficiencies, which we will discuss in the next slide, and such synergies and efficiencies will be value accretive for the business once they are realized after the integration process. Next slide. Digging a bit deeper into the potential synergy opportunities as a result of acquisitions and will be beneficial for the stakeholders. Starting off with the improved bargaining power with suppliers, which will allow AFS to negotiate better terms and pricing with the suppliers. We expect operational efficiencies as a result of streamlining of operations of both businesses, resulting in economies of scale, coupled with the integration of support function, which will lead to cost savings and a positive impact for the business. In addition, we naturally expect to witness an increase in overall market share as a result of expansion of the market reach across different countries. We will ensure to optimize our branch network in Kuwait through the relocation of branches to avoid cannibalization, which will allow us to widen our branch network coverage to target more customers. And finally, the acquisition will allow us to expand our agent relationship network through leveraging of both companies' relationship networks, reducing our reliance on MTOs and resulting in higher revenue per transaction. Next slide. We will walk you through our guidance for the short to medium term, which takes into account the impact of the acquisitions. In the short term, we are guiding for operating income to 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. For the remittances, our guidance is low to mid-teen growth in the short term, followed by single-digit growth in the midterm. For the Banknotes business, our guidance is low to mid-teens growth in the short term and single-digit growth over the midterm. With the growth expected in the WPS and other product businesses, we expect the growth in WPS and other products to be mid- to high teens in the short term and high teens in the midterm. For the EBITDA, our guidance is to be low to mid-teens growth in the short term, followed by single-digit growth in the midterm. We expect the EBITDA margin to face a low single-digit decline as a result of acquisitions in the short term and our midterm to expect in line with the business growth and synergy realizations. And finally, in terms of the CapEx, we expect to remain in the low single digit as a percentage of the operating income. And with this, I will hand it back to Bitar for the closing remarks.

Thank you. Thank you very much. This brings us to the end of the presentation. I hope this has provided you with a clear view of our performance in the first quarter 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 now open for questions.

[Operator Instructions] [ Shabbir ].

Just wanted to double check something regarding the guidance. So this includes the impact of the acquisitions, the guidance that you've provided for the short term and medium term. So because I think in the earlier slides, you've indicated that in 2024, based on the consolidated picture, the operating income should be up by more than 20%, whereas if I look at your guidance for this year, assuming this includes the impact of the consolidation, the operating income growth is only low to mid-teens. So I just want to understand what's driving this. So that's my first question. Secondly, was there any Ramadan effect in the first quarter, which was different from the one last year that could have would have meant maybe better revenue or lower revenue for the group. So was there any seasonal factors that one should be aware of in the first quarter that may not recur in the second quarter? Yes. So those two questions, please.

Maybe I can quickly answer the second question and the first one, I'll give it to Faisal. Ramadan impact, yes, this year, the whole Ramadan started and ended in the month of March. Last year, the last 10 days of Ramadan were in the month of April. So those 10 days difference in impact.

However, let's not forget that there will be a summer impact during the second quarter as people prepare to travel. So there will be some positive. So the difference is that as we go along, Ramadan and the summer are becoming separate. And that's one of the reasons why we have decided this year to do our Millionaire Campaign in the first quarter as well to give it that extra boost. All right, Faisal?

Yes. Coming back to your first question, the guidance, which has been given on the consolidated profile is for the full year of 2024. In terms of 2025, bear in mind that the effect on the P&L for the BFC acquisitions and the Kuwait acquisition is partly. It is not the full year because we have acquired this thing in April. So as per the IFRS requirement, anything will be consolidated thereafter and Kuwait is still to be consolidated. So that's why there is a difference in the guidance for short term. That was based on the 2024 results full year as an indication, but now it is based on the IFRS requirements to consolidate effective from 1st April.

Thank you, Faisal. We have a question from [ Abdullah ]. Do you plan to close any branches during your integration process? And do you have a threshold in terms of revenue per branch to make a decision on branch closure?

So let me start by giving the overall picture and then Bitar, you can take it regarding the detail. The beauty of this acquisition deal that for me, it is like hand in glove. It really fits us very well because BFC is not present here in the UAE. So we do not compete here in the UAE market. There is not overlap in the business here. And we are not -- we were not present in Bahrain so that we don't also have an overlapping business there. We are also not present in India. The only country that we have overlap is in Kuwait. And with that, the team will explain to you. Bitar will explain to you basically what we're doing in terms of consolidating the business over there and the amount of closure. -- bearing in mind that it is minimum -- and even the affected staff, we're able to absorb them in other countries, giving them an opportunity. So in general, if you look at it, this acquisition has very minimal overlap with the only country with the overlap being Kuwait. Bitar?

Well said, you left nothing for me to add apart from the fact that we already have a clear plan on the ground in Kuwait in specific. We've identified the branches that are very nearby. It doesn't make sense to keep and the business will be shifted to the nearby branches. I don't feel comfortable sharing the numbers at this stage because this is after the end of the reporting period, but the impact will be shared in the next quarter results.

There is one good news is that when we were in the middle of the acquisition, we were, of course, planning for the closure of the branches in Kuwait that are nearby. Now post the -- 6 months after that, post the acquisition, we were positively surprised that the branches have been performing well. So the number of the overlap or the branches that we decided to close in Kuwait is actually less than what we initially started with, which is a positive news. That's a good indication of how improvement we are seeing in the Kuwaiti market in terms of remittances and foreign currency exchange. And I'm sure also that you've seen there was a good impact for the foreign currency exchange in Kuwait because the government over there has decided to shut down the businesses that are not licensed by the Central Bank in Kuwait as they tighten basically their regulation as they're coming under the FATF audit. So that has also positively impacted the exchange sector and us being the third largest project -- the third largest player in the Kuwaiti market, we have really stood well in order to benefit from that. [ Elena ], would you like to ask a question?

Go ahead [indiscernible]