Alkhorayef Water CEO says IPO coverage ratio reflects investor confidence; revenue grows by 23% in 2020

Mr. Rami Moussilli, CEO of AWPT  

The coverage ratio of AlKhorayef Water and Power Technologies Co.’s (AWPT) initial public offering (IPO) reflects investor confidence in the company, CEO Mr. Rami Moussilli told Argaam in an exclusive.

“Our transformation into a listed company develops our strategy for corporate governance and sets solid foundations for the company’s future objectives,” Mr. Moussilli said.

Alkhorayef Water posted a 23% growth in 2020 revenue, compared to 2019 despite the COVID-19 impact. Net income also jumped 24% on an annual basis.

The company has formed various strategic partnerships with global utility providers. It also enjoys an over three-decade long experience in the local water market. “This makes it well-positioned to vie for privatization opportunities”, Mr. Moussilli said, expecting Alkhorayef Water to be a leading utility developer in the future.

Here’s the full interview with Mr. Moussilli:

How did COVID-19 impact the company’s operations and performance?

- Since the COVID-19 outbreak in early 2020, Alkhorayef Water and Power Technologies continued to provide reliable and vital water and sanitation services across the Kingdom as it was keen to adapt to this extraordinary and unprecedented situation by taking the necessary precautionary measures. The company successfully maintained its top priorities, namely: Preserving the health and safety of all employees and citizens, Working diligently to limit the spread of the virus.

Being a leading water services provider, Alkhorayef Water continues to demonstrate steadfast commitment on providing excellent services, in line with customers’ expectations.

The company made all efforts to support its customers and meet their needs through maintaining services undisrupted in this core sector. Moreover, the company started working on the project of full scale operation and maintenance of water, wastewater and treated sewage effluent networks and systems in Taif and wastewater networks and systems in Jeddah at the peak of the COVID-19 lockdown during the first half of 2020.

We demonstrated strong immunity against the pandemic implications and the subsequent restrictions. This is evidenced by a 23% revenue growth and a 24% rise in net income, compared to 2019. The company reported a net profit margin of 22% while preserving great value for shareholders by generating return on invested capital and equity at 31% and 38%, respectively, compared to 2019.

Additionally, the company maintains a good sector diversification. Each sector in the company posted remarkable growth from 2019 to 2020. The water sector recorded 18% growth. The wastewater and integrated water solutions sectors reported an increase of 25% and 16%, respectively.

Alkhorayef Water and Power is committed to the daily delivery of its essential services throughout the Kingdom of Saudi Arabia to meet people’s needs for water, and sanitation. Our company possesses extensive experience, strong organizational skills, and expert teams that allows it to function under intense pressure and fulfill its duties, even in adverse conditions.

Can you share details about Alkhorayef Water’s growth in the last four years, cash flows, and the reasons behind growth sustainability?

- In the last four years, the company combined a 28% growth in revenue with an increase in gross profit margins from 16% in 2017 to 27% in 2020. The water sector’s profit margins hit 29%, 33% for the wastewater sector and 10% for the integrated water solutions.

During that period, EBITDA rose at a compound annual growth rate (CAGR) of 54% to SAR 133 million in 2020. The EBITDA margin expanded by 10% to 25% in 2020 from 15% in 2017.

Meanwhile, net profit recorded a CAGR of 72% in the same period. Profit margins improved by nearly 12% to 22% in 2020.

We were able to strengthen the company’s financial position throughout the growth period. We maintained the gearing ratio at 29% in 2020. Collection rates also improved during the same period, with the accounts receivable turnover declining from 202 days in 2017 to 115 days in 2020.

In addition, the return on invested capital hit 31% in 2020, rising 16 points, compared to 2017. The return on equity (ROE) stood at 38% in 2020, rising 10 points from 2017.

We also maintained a high current ratio at an average rate of 2. For cash generation, the company translated profits into positive cash flows from operations, which hit SAR 67 million in 2020.

This outstanding performance and growth were driven by over 30 years of experience, top caliber leadership and management, along with advanced systems including cost and performance control.

This, in turn, led Alkhorayef Water to hold a leading market share in the operation and maintenance field. In addition, the company has a strong presence in project services throughout the entire supply chain of the water and wastewater sectors. This offers excellent growth opportunities going forward.

What about the company’s backlog, growth and composition?

- Our track-record is also evident by the evolution of our Backlog which is the representation of AWPT’s portfolio of residual revenue stemming from ongoing works. 

Our backlog expanded by around 3x times from the beginning of year 2017 till the end of year 2020. The expansion was driven mainly by the ability of the company to maintain a constant growth in the annual new awards, starting with the addition of SAR 313 million in year 2017, SAR 518 million in year 2018, 630 millions in year 2019 and SAR 800 million in year 2020 despite the COVID-19 situation, with a total awards of SAR 2.26 billion over the past 4 years. 

The backlog at year end 2020 stands at SAR 1.1 billion with 2.7 times growth from the beginning of year 2017 and amounted to 59 projects across all segments that the company operates in. 

Operation and maintenance contracts constitute 72% of our year end 2020 backlog. 

The company is scheduled to recognize, from the backlog, SAR 524 million as revenue in year 2021, SAR 326 million in year 2022 and SAR 172 million in year 2023 based on project execution plans. 

What about the water and wastewater sectors in Saudi Arabia, the government privatization initiatives and their impact on the company’s future operations and plans?

- Water is a vital natural resource to sustain life, and the increase in scarcity of freshwater made it occupy the top priority for all nations around the world including the Kingdom of Saudi Arabia.

This propelled the water sector into a top priority sector for its criticality to development of nations and their wellbeing. It is also the bedrock of several critical sectors of the economy (manufacturing, healthcare, and others).

In Saudi Arabia, growth in the government’s spending on the water sector remains intact despite economic volatility and most notably COVID-19 impact. This is evidenced by the water market’s CAGR of 7% between 2015 and 2020, as well as the exponential of total government expenditure on the water market from 1% in 2015 to 2.3% in 2020

Moreover, the Saudi National Water Strategy 2030 set a clear roadmap that included several strategic programs, namely the privatization of water treatment and distribution, wastewater treatment and reuse of treated sewage effluent.

Alkhorayef Water and Power expertise across the value chain of water and wastewater is evident with several leading positions across the sector, gives the company tremendous growth market potential in the sector driven by the national water strategy and vision 2030 mandates.

Alkhorayef Water and Power with its network of strategic partnerships with global water companies and Alkhorayef’s qualifications to participate in bids with Saudi water company SWPC, have an unmatched potential for growth with the privatization market forecasted to expand CAGR 44.8% in the next 4 years.

Drawing on the company's wealth of expertise, resources, and leadership, we are in prime position to leverage the privatization efforts, and foresee our company to be one of the major developers in utilities in the future·

What are the company’s objectives after listing on the Saudi exchange?

- In line with the company’s growth and extended foothold in the sector, we are continuously working on improving and upgrading our operational framework and control systems.

The decision to convert into a listed company is a normal extension of the company’s strategy that aims to enhance corporate governance and sustainability and set solid foundations for our future objectives.

How do you see the IPO’s institutional book-building and coverage ratio? And what is the relevant impact on the company?

- During the book-building process, we held objective talks with several Saudi, regional and foreign investors. These talks addressed the water sector’s privatization programs, as well as the company’s activities, vision, and future strategic objectives.

The share sale received a strong turnout from investors. The institutional book-building process was 6,320% oversubscribed, while the retail offering was also 1,511% oversubscribed, reflecting investor confidence in the company.