What does the successful public offering of Alkhorayef Water and Power Technologies and mean for the company moving forward?
The successful listing of Alkhorayef Water and Power Technologies in early 2021 is demonstrated by the 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. Shares of AlKhorayef Water and Power Technologies Co. (AWPT) rose by 30% to SAR93.60 (+SAR21.60 vs. the IPO price of SAR72) on its debut on the Saudi Stock Exchange. Our transformation into a listed company develops our strategy for corporate governance and sets solid foundations for the company's future objectives of sustainable growth and extended foothold in the sector.
How will the government's privatization initiatives impact the company's future operations and plans?
Water is a vital natural resource to sustain life, and this has propelled the water sector into a top priority sector for development of nations and their wellbeing. In Saudi Arabia, growth in the government's spending on the water sector remains intact despite economic volatility and, most notably, COVID-19. This is evidenced by the water market's CAGR of 7% between 2015 and 2020, as well as the exponential growth 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's expertise across the value chain of water and wastewater gives the company tremendous growth market potential in a 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 its qualifications to participate in bids with SWPC and other privatization offtakers, have an unmatched potential for growth with the privatization market forecasted to expand CAGR 44.8% in the next four 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 impact did COVID-19 have on the company's operations and performance?
Since the COVID-19 outbreak and to date, Alkhorayef Water and Power Technologies continues to provide reliable and vital water and sanitation services across the Kingdom. It adapted 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 and working diligently to limit the spread of the virus. Being a leading water services provider, Alkhorayef Water continues to demonstrate steadfast commitment to providing excellent services in line with customers' expectations. The company is making all efforts to support its customers and meet their needs through maintaining services undisrupted in this core sector. Moreover, the company expanded its operations by starting several full-scale operation and maintenance projects that includes water, wastewater, treated sewage effluent networks, and systems in various regions of Saudi Arabia at the peak of the COVID-19 lockdown during the first half of 2020 and continues to do so to this day. We demonstrated strong immunity against the pandemic implications and the subsequent restrictions. This is evidenced by our 2020 results showing a 23% revenue growth and a 24% rise in net income compared to 2019. The company reported in 2020 a net profit margin of 22% while preserving great value for shareholders by generating return on invested capital and equity at 31% and 39%, 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 36% and 17%, respectively. Alkhorayef Water and Power is committed to the daily delivery of its essential services throughout 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 28% in 2020. The water sector's profit margins hit 29%, 34% for the wastewater sector, and 10% for the integrated water solutions. During that period, EBITDA rose at CAGR of 54% to SAR134 million in 2020. The EBITDA margin expanded to 26% in 2020 from 15% in 2017. Meanwhile, net profit recorded a CAGR of 72% in the same period. Profit margins more than doubled from 10% in 2017 to 22% in 2020. We were able to strengthen the company's financial position throughout the growth period. We maintained the gearing ratio at 34% in 2020. Collection rates also improved during the same period, with the accounts receivable turnover declining from 202 days in 2017 to 114 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 39% in 2020, rising 10 points from 2017. We also maintained a high current ratio at an average rate of 2.8. For cash generation, the company translated profits into positive cash flows from operations, which hit SAR81 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, expansion, and future plans?
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 three 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. The backlog at year end 2020 stands at SAR1.1 billion, with 2.7 times growth from the beginning of year 2017. We are also eyeing acquisitions in the future that complements our portfolio to spur the expansion in KSA and regionally as well.