Renad Alshehri: [Foreign language], and good afternoon, ladies and gentlemen. This is Renad Alshehri from AlJazira Capital, sell-side research. On behalf of AlJazira Capital, it is my pleasure to welcome you all today to Lumi's earning call for Q3 2026. I am pleased to welcome our panelists on the call today, Mr. Azfar Shakeel, the CEO, and Mr. Sulaiman AlRasheed, CFO. The format of this call will begin with a presentation from the management before opening the floor to participants for the Q&A session. Without further ado, I will hand over the mic to Mr. Azfar. Mr. Azfar, the mic is yours.
Azfar Shakeel: Thank you, Renad. Welcome everybody for our Q3 earning call. Before I start the presentation, I would like to highlight a few things. The first thing is that, as everybody knows, there are geopolitical situations as well as some change in the strategy of the NEOM which has impacted this year for the company financials as an overall in nine months. As you know that we have told that we have four line of businesses, rental, leasing, logistics, and truck rental. All our businesses are having a healthy GP margins across the nine months. We basically got that challenge during the year was the rental where we have reduction in the Northern Region as well as impact of the geopolitical situation at the Airports operations. In terms of the rental side, we have challenges in the month of October also.
Azfar Shakeel: We have saw that domestic travel has reduced substantially due to the suspension of multiple flights from one airport to another airport which has impacted the rental business B2C as well as B2B at the Airports. During the month of October, what we estimated was that there is an everyday loss of revenue in the rental was SAR 303,000 a day. If these things consist, we have a challenge in Q4 also. We think the first month of the quarter is not very encouraging with our anchor airports are not operational during the whole month of October. Just to give you an idea, before the closure of the Riyadh airport, we were having approximately 150 plus rental agreements a day which was when we started on 24 October, it was 4 and yesterday it was hardly 20 plus rental agreements.
Azfar Shakeel: These are the challenges which has impacting Q4. As the management, we have taken multiple steps to cater or mitigate these challenges. First, we have reduced a substantial cost on the Manpower side which will give us a benefit in the next year. We also take some other cost initiatives which have been completed and give us a benefit in 2027 on. As we have explained that this year, revenue went out in the first couple of months but the cost took us time and it is still on the P&L over the period and by end of this year all those legacy costs will be no more on the P&L in 2027. I will also explain the opportunities which are available for us.
Azfar Shakeel: As you have seen that in the third week of October NEOM has published on their website that they are building a data center and AI center in The Line part, which is inside the NEOM city. This is a good sign for us that we have a very strong hold in that territory, which give us a benefit of providing the transport services in that region. The second opportunity, as we were telling you, that the Etimad system, which is a government portal to upload or ask for the vehicles for the government, was slowed down and replaced by the EXPRO. In the first quarter, it was much lesser. Now it is in Q3, they uploaded or required more than 7,000 vehicles in the last two quarters, which is Q2 and Q3. We secured out of that was 3,200 vehicles.
Azfar Shakeel: These indications are very good for our stability of leasing business as well as short-term rental inside the NEOM territory. As you also know, that logistics business is growing due to the challenges as the economic activities are happening, which has given us an opportunity to excel in this area of field. These are the opportunities which I expect to explain to you. We have everything within whatever we can do, we are planning and we are doing that one. I can tell you as of now that all the cost reduction initiatives which we have taken in this year has been completed, and those will give us a substantial benefits in year 2027 and onward. I will start my presentation. As you can see that our revenue as an overall for quarter by quarter went up by 11.5%.
Azfar Shakeel: It was reduced by 6.5% due to the reduction in the rental business. Our EBITDA margin down to 10.5%, but adjusted EBITDA margin, which is our major KPI, is approximately at same level, only 2% down as compared to the same period last year. In this quarter, our purchase price recovery is little down by 4%, but due to the reason that majority of the vehicles which we have sold this quarter was those customers who have a high mileage as well as not good condition cars. That is the reason it has a little lower side of the recovery ratio. On the last KPI on the executive side is the lease per revenue per vehicle went up by 11.5. Last quarter, same period was SAR 28,600, now it is SAR 31,900 per vehicle per annum. Next, please. Now we discuss about the operational performances. Next, please.
Azfar Shakeel: As an overall fleet, our reduction, we have reduced from 34,400 to 32,600, a decrease of 5%. Purchasing of the vehicles also reduced approximately by 9%, from 2,200 to 2,000 vehicles per quarter. Sold vehicles went up. We have sold more than 1,000 vehicles in this quarter comparison. Leasing is dominated by fleet size. 72% of the fleet is approximately leasing and 28% is the rental fleet we have today. Next, please. As you can see that we have 47 branches across the KSA, 18 of them are airport and 29 are city branches. As you can see that the reduction is happening in the revenue side for the rental side is from 50% to 34% in Q3 of the Gulf region, and we estimate that it will go further down as the business in NEOM is in the preservation state.
Azfar Shakeel: But as I mentioned to you, when we saw some good news about the data centers, it will see how it will impact this specific region. Next, please. When it comes to the revenue business, our fleet size reduced by 15% compared to same period last year. It was 11,000 vehicles, now we have 9,000 vehicles as of now. Our rental revenue also went down by SAR 127 to SAR 90 million for this quarter. Utilization is a little bit better than the last quarter due to the reason that we have sold unproductive vehicles or unwanted vehicles, which has increased the utilization. Revenue per vehicle is continuously in down size due to the reason that we are losing the NEOM business or the Gulf region business is going further down.
Azfar Shakeel: 48% of the rental revenue is coming from the corporate and 52% is from the individual business or the B2C side. Next, please. In the leasing side, more or less number of vehicles are the same. Hardly, I think 200 vehicles up. In the lease revenue side, it increased from 168 to 187 million by 11% up. On the revenue per vehicle side, it is SAR 28,600 to SAR 31,900 per vehicle per annum. In the leasing side, corporate has a contribution of 60% of the revenue and 40% is the revenue from the government sector. Next, please. When it comes to the used car sales, we sold 1,000 extra vehicles as compared to the same period last year, and compared to last quarter, we sold 2,000 plus vehicles in this quarter.
Azfar Shakeel: Used car sales revenue went up, mainly due to the increase in the revenue of number of vehicles from 118 million to 185. If you see on the left side quarter, our average purchase price of the vehicle was approximately the same as compared to the last quarter, but it was a little bit on the lower side of the average sales price, as I mentioned to you, due to the reason that in Q3, we sold leased vehicles pertaining to two customers, which has high mileage as well as this one. But it was normal, it was top scenario. In the purchase price income ratio, if you see the red dotted lines, without taking out these two customers, our pre-rev generation is 64% compared to 63% in Q3 of 2026. Next, please.
Azfar Shakeel: Now I will hand over to my colleague, Mr. Sulaiman AlRasheed, to explain to you the financials of the company.
Sulaiman AlRasheed: Thank you, Mr. Azfar. Thank you all for attending our earning call today. I will take you through the financial results of the Q3 and nine months. Before I start, I will just give some highlights of this quarter. We have three actually themes, main themes. One, lease business keeps growing. Rentals remain under pressure, mainly from the Northern Region. As we speak now, we see this pressure expand to other regions due to the Airports closures and flight disruptions. From the balance sheet and cash, our balance sheet continue the strength this quarter, giving us more cash generation ability. On the core business performance, which is the management account, you can see the core revenue, which is the lease and rental, excluding the used car sale, was SAR 277 million, down by 6.5% year-on-year. Leasing business adds 18.5%, but rental fall approximately SAR 38 million.
Sulaiman AlRasheed: Lease revenue grew 11% to SAR 187 million. This is a contracting revenue business that give us a good visibility on the revenue side. From the rental revenue, decrease approximately 30% to SAR 90 million due to the softer demand and the pricing, particularly in the Northern Region. Direct vehicle cost stayed controlled. The total cost of ownership, excluding depreciation, increased only by 4.4%, which is SAR 44.6 million. Contribution margin held at 83.9%, down 1.7 percentage points despite lower revenue. The pressure came from the overhead line, which is operating expenses, rent salaries, and G&A. These three items increased by SAR 15.4 million to SAR 94 million. Operating profit before vehicle depreciation and gain or loss on the sale fell to SAR 138.4 million, giving us a 50% operating margin compared to 59% last year.
Sulaiman AlRasheed: After the 5.1% loss on the disposal of the vehicle, EBIT excluding one-off was SAR 34.3 million, and net income excluding one-off was SAR 10.5 million, compared to the reporting net income that has arrived at SAR 11 million. On the nine-month and three-month income statement, Q3 revenue increased, as I said, 11.5% year-on-year, driven particularly by the higher used car sales revenue, and leasing as well. Nine months revenue total was SAR 1.2 billion, broadly stable despite we still have a softer revenue market. Gross profit decreased by SAR 81.9 million, and the margin was 17.7%. Cost of revenue grew faster than the revenue, mainly due to the NBV of the sold vehicle, due to the higher number of vehicles sold from the quarter. Net profit was SAR 11 million versus SAR 52.7 million last year, almost entirely SAR 50 million lower EBIT.
Sulaiman AlRasheed: The EBIT gaps breaks down as gross profit loss of SAR 31.5 million, G&A SAR 11 million, and receivable impairment of SAR 12.6 million. On the other side, our debt level give us back part of the gap. Finance cost decreased by almost 24%, which is SAR 7.2 million. As an overall results quarter to the last quarter, the net profit was stable at the same level, while adjusted EBITDA margin recovered to 73.5% compared to 68% on Q2. In the 9 months of the year, reported EBITDA was SAR 481.7 million, with a margin of 39.4%. Net profit on the 9 months was SAR 61.9 million with a margin of 5.1%. Adjusted EBITDA was 73.5%, which is back near the last year of 75.8% and up from 61.8% in Q2. Impairment of the provision were SAR 30.1 million on the quarter, much higher compared to the Q3 last year of half a billion.
Sulaiman AlRasheed: We see this provisioning as a prudent exercise reflecting the overall market conditions as well as rising probability of default. Once we see, moving forward, once we see this market condition stabilize and normalize, high potential is possible, and revisions of the provision as needed. Core leasing revenue continued to grow. The total revenue rose by SAR 47.6 million year-on-year to SAR 462 million. The bridge was leased at SAR 80.5 million. Rental decreased by SAR 57.6 million, and used car sale contributed the most of approximately SAR 76 million. We see the leasing business is a growth engine for us. Revenue was up 11% year-on-year and 6.9% quarter to quarter, reaching to SAR 187 million. With a broadly stable fleet size, it is fairly to say that the majority of the growth was led by the government sector.
Sulaiman AlRasheed: The rental decline is mainly concentrated in the Northern Region, which contributed about 90% of the loss of revenue, while the rest of the region were down approximately 7%. Used car sale grew by almost 56%. This is as we sold approximately 2,900 vehicles in the quarter. On the cost profile, cost of revenue increased 26.3%, reaching to SAR 380 million. Of that increase, SAR 79 million increase. The main increase is led by the cost of the vehicle sold, which is SAR 73.9 million. Taking out, this represented the more or less the same level of the direct cost. Other costs, such as vehicle depreciation, insurance, and other costs show the decrease, while salaries increased by SAR 5.6 million, as well as the repair and maintenance, SAR 4.3 million. G&A increased 30% year-on-year to SAR 47.6 million, but was flat quarter to quarter as last quarter, the G&A was SAR 47.9 million.
Sulaiman AlRasheed: The year-on-year increase was mainly salaries, benefits, depreciation, amortization, as well as supporting services. This is our carrying from the last year's investment in digital and commercial capabilities. From the growth structure, as the CEO mentioned, we are realigning our cost base in overall on the company by sizing the rental fleet, reallocating capacity across regions, and continuing assessment of the manpower across all functions and business. By doing this activities, we aim and target to enter the year of 2027 with a lower cost basis. However, we do still have high uncertainty on the geopolitical situation, which is impacting majority B2C business in the airport branches, where we have a high fixed cost rental at that branch. Now returning to the margins and balance sheet and leverage. On the margins, adjusted EBITDA reached SAR 339 million, up 8% year-on-year and 26.4% quarter to quarter.
Sulaiman AlRasheed: This is the Hiace level we achieve on the last five quarters. Adjusted EBITDA, which has added back the net book value of the sold vehicles, reflects our cash generation ability and capacity. Reported EBITDA was SAR 149 million, with a margin of 32.3%, down by almost 25% year-on-year. It was only down 2% from Q2 to Q3. On the return, it is in the down and is in the declining side. However, it is the management high priority to restore the return on the next quarters. From the balance sheet view, the total assets fall 7% to SAR 3.2 billion, mainly because of the fleet book value decrease, as we are downsizing the fleet mainly in the rental sector. The receivables increased by approximately 3%. Total liability, on the other hand, fall by 16.3%, led by reduction on the long-term loans, SAR 324 million.
Sulaiman AlRasheed: The remarkable improvement in the balance sheet is the net debt over the equity improved from 1.24x last year to 0.89x this quarter, which is the lowest position on the recent quarters. On a capital allocation and improved leverage, the total debt fall by 22.3% year-on-year to SAR 1.3 billion and 11% quarter-to-quarter. Net debt fall by 23% and arriving to SAR 1.3 billion. As a result of this debt reduction, all leverage ratio improved. As you can see, net debt over EBITDA fall to 1.97x, as well as net debt over adjusted EBITDA reach to 1.11x. On the debt to assets, we closed the quarter at 0.44x and net debt to the vehicle NBV was 0.51x. Cash generation drove the development. Nine-month operating cash flow increased 22.1% to SAR 747 million.
Sulaiman AlRasheed: The stronger balance sheet overall will give us the flexibility where we can navigate through the coming periods and invest selectively in the lease commercial, which is truck rental as well as logistics. By this, I conclude my presentation and hand it back to you.
Azfar Shakeel: Thank you, Sulaiman. Now we are open for the Q&A.
Renad Alshehri: Thank you, management. Ladies and gentlemen, we will now commence with the Q&A session. You may raise your hand by pressing the hand icon on your screen to speak directly with the management, or alternatively, you may drop your box into the Q&A chat box. However, please note that priority will be given to participants with raised hands. With that being said, please limit yourselves to two questions at a time so we may satisfy as many participants as possible. However, you are more than welcome to join back the queue if you have any further follow-up. Now, without further ado, the Q&A session is now open. We will take our first question today from the line of Nahar. Nahar, please unmute yourself and proceed with your question.
[Analyst 1]: Yes. Thank you, management. Thank you for the opportunity to ask. Just a question with regards to the growth in the leasing revenue. I wanted to know about the leasing demand and the customers that you have been growing with. If you can give me any sense of which industries are you growing with the most?
Azfar Shakeel: Perfect. Let me answer your question in two segments. First is government sector. As we have mentioned to you, the new system of the government entity, which is EXPRO, is active now, and we have seen a very high demand or seen the demand is up in Q2. On Q2 and Q3, in six months, they uploaded 7,000 vehicles, which represent that the government has stabilized the system, and they are back to the normal of asking for the new vehicles. This is resuming. Historically, the demand on that platform, which is the Etimad, was 10,000 vehicles per annum. Now, only two months, it went to 7,000 vehicles. So we have seen that there is a growth coming up from the government sector side. On the corporate side, it has two components, one, sedan cars and the commercial vehicles.
Azfar Shakeel: In the sedan cars, people have started working on the requirements. As we have seen, big customers have asked for contracts. I cannot name them as of now, but we have received substantial requirements from the private sector for replacement of their existing fleets or increments of the new vehicles. When it comes to the commercial side, now those vehicles are being used for the transportation of goods from point A to point B. That demand in Q3 specifically was a little bit down, but we are expecting that once the budget is approved, everything will come back. So it is Q1 onward, the commercial leasing business will be active. What we are forecasting is that it will be an increase in demand in the government sector, as well as in the private sector, will be a little bit higher as compared to this year's demand.
[Analyst 1]: Just to clarify, so there is not a lot of growth coming from the last-mile logistics or food delivery sector.
Azfar Shakeel: Oh, Asad, yes. So we are not very much inclined to provide vehicles to the food last-mile delivery business. Reason being that industry is not an area where margins are very low and challenges are much higher. So, we never entered that industry, and we have no intention to enter that industry unless and until they take the vehicles at our price.
[Analyst 1]: Just one last clarification. With regards to the two customers that had the lower purchase price recovery, this was not from the last mile or the food delivery sector.
Azfar Shakeel: No.
[Analyst 1]: Okay.
Azfar Shakeel: Not at all.
[Analyst 1]: Thank you very much, management. Thank you.
Renad Alshehri: Thank you, management. We will now take a question from the line of Saleh. Saleh, please unmute yourself and proceed with your question.
Saleh Almuhayzi: As-salamu alaykum. This is Saleh Almaeza from Portfolios Investments. I have two quick questions. First, can you increase the prices of your current long-term contracts when cost escalates? My second question is that your revenue per car and your vehicle CapEx per new added car have increased quarter-over-quarter or year-over-year. Is it mainly due to mix or have you seen an increase in prices?
Azfar Shakeel: Well, the first question is that can we increase the prices of our existing vehicles? We cannot do that one. We have already given the vehicle to the customer, and the price is fixed for the next two years of contract period. Any merits or any benefits or challenges is on our side. But whenever we are buying new vehicles and giving to the customer, we are passing the cost of increased interest cost as well as the purchase price of the vehicle. That is when we have a secured new contract, we are passing that cost to the customer. Now, your second question was related to the increase in the purchase price, sorry, average revenue per vehicle. It has three components. We have a composition little bit higher side, as you can see.
Azfar Shakeel: In previous quarters, our ratio of government was between 30% to 35%, which has increased to 40% in Q3. Over there, the vehicle cost was a little higher side. The second reason is that the mixed fleet has increased. Even though if you saw the number of vehicles are more or less same, the revenue went up. It is the move. Whenever the replacement vehicle was done, it was done at a higher pricing as compared to the previous contracts. The third reason is that commercial vehicles are included in this leasing model, which has higher revenue per vehicle per annum on those commercial vehicles, which includes vans or trucks from 4-ton till 20-ton trucks. So these are the three major composition which has increased the revenue per vehicle per annum.
Saleh Almuhayzi: Okay. I think this was clear a little bit, but let us say if we are going to majorly, what was the main reason? Is it any between the three you have mentioned?
Azfar Shakeel: Sorry, can you repeat your question, please? I was a little lost.
Saleh Almuhayzi: You mentioned three reasons for the increase in. You said mix and.
Azfar Shakeel: Yeah
Saleh Almuhayzi: Also, yeah, but majorly, what was the reason?
Azfar Shakeel: Government sector.
Saleh Almuhayzi: Government sector.
Azfar Shakeel: Government sector went up. Over there, usually the type of vehicles here are high-end vehicles.
Saleh Almuhayzi: Okay.
Azfar Shakeel: Usually, we can say that high-end vehicles, Sonata or Camry type of vehicles and other cars, and SUVs and other vehicles. So that is the major reasoning that composition went up.
Saleh Almuhayzi: Okay, so mainly mix. Yes. Okay. Thank you.
Renad Alshehri: Thank you, management. We will have another question from the line of Taher. Mr. Taher, please unmute yourself and proceed with your question.
Taher Safieddine: Yes. Hi, good afternoon, gents. It is Taher from JP Morgan. Maybe two questions from my side, if I may. The first one is, Mr. Asfar, on the short-term rental. There are, I think, two major pain points here. One is the Northern Region, where I think you have highlighted that the NEOM contract you have lost and you have been downsizing and reducing the exposure there. And the other part is definitely the geopolitics. I think the impact it is having on specifically Airports traffic. I just want to understand, where are we on the NEOM contract? Is this fully out of the picture? Have you been able to divert into other regions or de-fleet that exposure? I think that would be the first question.
Taher Safieddine: The second question, given the unfortunate events and the geopolitics going into Q4, should we expect that the pressure on the short-term rental to continue at least until things improve on the geopolitical front? That would be my first question. My second question is really on the used car sales. You have made losses, if I am not mistaken, on the used car sales during the quarter. I just want to understand what is happening in the used car sales market. It has been coming under pressure for quite some time. Is it fair to assume this is more structural in nature, given I think the Chinese vehicles penetration is increasing? Maybe you are seeing pressure on the purchase price recovery. How should we think about your used car sales margins going forward?
Taher Safieddine: Maybe just high level, excluding the geopolitics, how should we think about the used car sales margin and market in general? If you can share some color, it would be super helpful.
Azfar Shakeel: Sure. Thank you, Taher. Basically, it is not two questions, it is multiple questions. Allow me to answer one by one. Let us start with the Northern Region. In the Northern Region, we have two segments. One is contract with the NEOM company inside the NEOM, and all the other service provider or the contractors providing the services to the NEOM company in different projects. That contract still exists as of 31 March 2027, and today we still have between 800 to 1,000 vehicles operational on that contract in that region. They have asked us that they will go for a renewal on 31 March with the same number of vehicles, somewhere between 700 to 1,000 vehicles. They want to keep the vehicles for the next three years on that area. That is the one segment of the Northern Region NEOM.
Azfar Shakeel: The other side, the challenge came that NEOM vehicles also went down and their service provider who are providing the services on multiple projects, which we are providing the transportation, they closed down very quickly. As I mentioned to you that the government has or the NEOM has announced on their website on 21 October that they are building a data center at a Hejaz site. That is also a little bit positive thing for us for our growth and opportunity in that region. We cannot say that Northern Region, specifically the NEOM city, the revenue is vanishing. It is slowed down drastically, but we are expecting that it will maintain certain level of revenue in year 2027 also. But how much it will be compared to 2025 and 2024, it will be, you can say less than hardly that level of 25% of that values.
Azfar Shakeel: So that is on the North region side. When it comes to geopolitical situation, geopolitical situation has impacted us only in the rental also. Reason being, majority of the revenue we are having are B2B and B2C. Airports, which was heavily impacted in the recent months, has slowed down the operations of flights, which as a result we are not able to go. As we mentioned, for example, Jeddah Airport is open since long time, but they are not receiving the flights from other Airports. Like Jeddah is very slow, so they are not receiving the flights, which is strategically 146 flights in a day. That is not happening. Usually what we saw that the percentage of opening the rental equipment went down by 90%. As an overall, today, we are losing approximately SAR 350,000 a day on the Airports only.
Azfar Shakeel: We got little bit up on the city branches, but that gap of loss of revenue cannot be recovered from our city branches in terms of that people are taking the vehicles and moving from one city to other city. We have saw some percentage a little bit increase, but it is not that one that we are able to recover the loss of revenue at the Airports. That is the situation today. We are optimistic that the geopolitical situation will be resolved soon. But we are in the process of making some budget for the next year, and we want to keep a little bit optimistic, sorry, pessimistic approach or a conservative approach in the rental side in the next year.
Azfar Shakeel: On the other side and on the second part of the equation, which is the cost, we have taken substantial steps to reduce the cost of short-term rental business, and that already been implemented in our business. We will expect that the benefit will be arriving from 1 January onwards. We will not be taking any legacy cost of loss of revenue from 1 January 2027 onwards. Now comes to the used car sales value. In the used car sales this quarter, we sold, specifically, if I may say, Toyota Hiace and pickups, with the single-cab and double-cab Toyota Hilux vehicles. As you recall, we have mentioned in our previous presentations and the earning calls that the car industry has four major components or categories of vehicles. Usually, the category A, which is Yaris, Corolla, and Camry type of vehicles comprise 75%+ composition.
Azfar Shakeel: Whereas the pickups, SUVs, and luxury vehicles contribute between 25% to 20% in total. We have also told you that these three categories have been affected by the Chinese vehicles due to the huge difference between the purchase price of the vehicles, of a branded vehicle versus the Chinese vehicles. There's only two brands, which is Toyota Hilux and Suzuki, which has, we saw that before the introduction of the Chinese came in the market, their profitability ratio was 80% after three years even, which has slowed down to mid-60s. That is the reason that we have challenges in this quarter, specifically due to these reasons. The fundamental principle of the used car sales is that whatever the purchase price of the branded vehicle versus the purchase price of the Chinese vehicle, if the delta is between 10% to 15%, it does not impact the resale values.
Azfar Shakeel: But if the delta is high, it impacts the pricing. Now, the last thing is it continue for the coming years or coming quarters? We were expecting the start of this year that, sorry, the geopolitical situation that once the supply will be having an impact, the used car sales should go up. But what we understood now is that, yes, supply has a challenge of the new vehicles, which has lead time risk increase from 30 days to 90 days-plus now. That challenge should have created demand for the used car sales market, but it did not for all the categories. What we understood is that the investors or the B2B buyers of the used car sales market are not holding the inventory for a longer period. Or they are not intend to hold period for the longer period.
Azfar Shakeel: Secondly, the ultimate user, who is the individual buyer of those vehicles, also restraining them for buying the vehicles. So this is the composition of these things has impacted the market of the used car sale. Now, how quickly this geopolitical situation is resolved, market will go back, and if, once things are resolved, we are optimistic that there will be a V-shaped recovery, most likely, that's our perception, in terms of recovery of the economic base in Saudi Arabia, specifically when it comes to the truck market.
Renad Alshehri: Thank you very much, management. We'll now take a question from the line of Hudaifa. Hudaifa, please unmute yourself and proceed with your question. Mr. Hudaifa, please unmute yourself locally and proceed with your question.
[Analyst 2]: Can you hear me?
Azfar Shakeel: Yes, we can hear you, Hudaifa.
[Analyst 2]: First of all, thank you for conducting this call. I have a couple of questions. You explained in a very better way regarding the dynamics of the used car sales segment and the rental segment. Just wanted to understand that we have seen that there was a deflating within the rental. Would it continue in Q4 as well? Can we see a lower UCS volume in Q4? Could you please guide the UCS volume for FY 2027 as well?
Azfar Shakeel: Okay. At least in Q4, we are expecting that the number of vehicles will go down further as compared to number of vehicles you saw as of 9,000 vehicles as of 30 September. You will see reduction by 31 December. Reason being, as of today, which is 29 October, we still substantial branches are not operational. This is one. Second thing is, what will be the used car sales position in 2027? I can give you a mathematical thing, is that we have Can you give me the lease, please? Lease vehicles. We have 23,000, 24,000 vehicles, right? Usually, one-third of these vehicles is to replace every year. 8,000 vehicles plus or minus 1,000. You can say 7,000 vehicles needs to be replaced in next year. As a mathematical side.
Azfar Shakeel: I don't want to give you the quantity, but it's a mathematics thing. The second thing is that we have 9,000 vehicles and we will reduce it. For this number, most likely around 1,000 vehicles, here to there. If we have 800 vehicles, which is recently new ones, there's a possibility that once we prepare the budget and we will see that one, we might have lower vehicles in the next year also. Ultimately, we are preparing more towards the conservative approach, rental P&L rather than optimistic that we have a challenge on our bottom line. You can say that today we have sold approximately 3,000 vehicles this quarter, whereas in total we sold 6,000, 7,000, near to 7,000 vehicles, 6,000 plus. By the end of this year, we'll be selling 7,000 to 8,000.
Azfar Shakeel: So more or less same level of vehicles will be there next year.
[Analyst 2]: Okay. Thank you. Secondly, just wanted to understand, let's say, if we do go for a conservative approach within the rental segment, do you expect that your rental revenue per vehicle within the rental segment would improve going forward?
Azfar Shakeel: Not that much. If you want to keep something on this segment, you need to take a little lower side what you are saying as a fleet, which is 37,700 for the next year. It will be lower than this next year.
[Analyst 2]: Okay. One last question from my side. Going forward, as you mentioned that you are getting volumes from the EXPRO side as well. So would the lease segment grow in line what you have guided us for 2027 earlier?
Azfar Shakeel: Okay. The thing is that we have a SAR 650 million, up and down, few percentage, SAR 650 million revenue for the year. This means we need to keep this revenue. We need to have approximately between SAR 500 million to SAR 600 million worth of contract to secure every year to keep the same level of revenue. It is not only us, every entity either budget or see what our competition. Whatever the revenue is, they need to keep certain level of contract values to maintain that. Just to give you an idea that whatever we were supposed to do this year, we achieved those replacement in the first 9 months. But timing difference is the challenge. If we were supposed to have a replacement in the first quarter, but we achieve it in Q3, it might have an impact.
Azfar Shakeel: We can say that you will not see a major increase of the revenue in the leasing in the next year. It could be an organic growth of revenue of this year compared to the previous year.
[Analyst 2]: Okay. Thank you.
Azfar Shakeel: All these things reason being, considering we are making little conservative approach that due to any reason, geopolitical situation further, reason being it is not impacting the lease business, but it will impact the replacement. Reason being, we need to secure the contracts. We are keeping little bit conservative approach on the growth of the lease business as such.
[Analyst 2]: Okay. Thank you.
Renad Alshehri: Thank you very much, management. We will now take a question from the line of Rahul. Rahul, please unmute yourself and proceed with your question.
[Analyst 3]: Hello. Am I audible?
Azfar Shakeel: Hello, Rahul. You are clear.
[Analyst 3]: Yeah. Thanks for the opportunity. I have a couple of questions. First one is, despite the broader market experiencing kind of an upward pressure on the new vehicle prices, our purchase price recovery rate has kind of declined from around 67% to around 63% this quarter. What exactly is driving this divergence? Is it related to the vehicles mix or softer pricing is prevalent in the secondary market?
Azfar Shakeel: The issue in this quarter, I explained that we have sold this quarter some specific vehicles, which is Hiace, and Hiace vehicles, which are having a lower depreciation and it was with a high mileage and not a very good condition cars. If you see on the right side, the ratio without those two customers could have been 64% compared to 67% in last quarter. The challenges related to this quarter is only this. What we should ask the team is always that we are showing you quarter by quarter, but usually every quarter has its own dynamics of this fleet. If you want to see the performance of the company, you should see as a YTD rather than quarter by quarter. For example, in Q1, we will have quite a different scenario.
Azfar Shakeel: If you see, it is 66%, 65% in Q1, where we have the numbers up. It is multiple things involved in this whole situation. The second part of your question, will it remain the same? We are confident. We will be closing the year of our purchase price recovery ratio between 64% to 65% as a full year scenario. For the next year, we are expecting that it will be the same range of 60% to 65% in between.
[Analyst 3]: Okay. Very clear. Thank you so much.
Azfar Shakeel: You are welcome.
Renad Alshehri: Thank you, management. We will now take a question from the line of Musa. Musa, please unmute yourself and proceed with your question.
[Analyst] (Sabane Investment): Hello, this is Musa from Sabane Investment. Just a question regarding the used car sales. What are you hearing from used car dealers about why they are holding back on purchases even as new vehicle lead times have increased? Is the main concern resale prices, weak demand from end buyers, or something else?
Azfar Shakeel: Okay, Mr. Musa. What we have known from the market is people are holding due to the uncertainty situations. We have seen, even at our showrooms, the individuals or the ultimate buyers have reduced. At the end of the day, either the showroom needs to sell to the ultimate buyers. The ultimate buyers are reluctant to make a change in their investment due to the political or the geopolitical situation. This is the major reason that the ultimate users are abstaining or retaining themselves for buying the used car sales till things goes better.
[Analyst] (Sabane Investment): Thank you.
Renad Alshehri: Thank you, management. Allow me to take a couple of questions from the Q&A chat box. We have Mohammed Sultan asking, could you please elaborate on the increase in the provisions in Q3? What is the reason for the increase, and do you expect provisions to erase in the future?
Sulaiman AlRasheed: Yes. The provisions we have taken this quarter and the YTD is basically a precaution, I would say, to the rising probability of defaults across different sectors. The payment terms from the government, there is no change since the beginning of the year, since within the same collection period. But there is a slow on the corporate payment cycle. This is already we have seen some projects, either they are put on the reserve level or canceled. It might have direct or an indirect impact to Lumi, and that is why we are just protecting the balance sheet from any potential unknown risk. Moving forward, we will assess the situation on a quarterly basis. But we see this level will remain this year as well.
Azfar Shakeel: Just to add one point here, these are the provisions. If the business and the other things goes to the normal, we are just providing to protect the balance sheet. So we can have the opinion if things goes normal, we can revisit this provision.
Renad Alshehri: Thank you very much, management. We will take our final set of questions from the Q&A chat box. The first question is asking for a guide for the used car sales volume for Q4 or for FY 2027. The other question related to the salaries cost, asking that the salary cost has increased significantly this year so far. What is the reason behind it, and should we expect the increase to continue in the upcoming quarters?
Azfar Shakeel: Okay. For the used car sales, we have explained that the guidance for the next year is the mathematical things, 7,000 to 8,000 vehicles of the leasing side and 1,000 to 2,000 vehicles on the rental side. So it could be between 7,000 to 9,000 vehicles to be sold in 2027. Now, selling increase is due to the multiple reasons that as we have told you, we took multiple initiatives and we let people go. When we have let people go, there are some additional costs associated to that, which has increased this selling cost on a quarterly basis. Reason being, as per the law, if somebody has, we need to terminate, we need to pay the person till the end of the contract. So those things have impacted this year or in the last two or three quarters, but those things will not be there in 2027 onward.
Renad Alshehri: Thank you very much, management. Well, that marked our final question for our call today. Ladies and gentlemen, for any remaining question, we will share it with the management. On behalf of AlJazira Capital, we would like to extend our sincere thanks to Lumi's management for their time and presentation, and to our guests for taking the time to join the call. Now I will hand back to Lumi's management for closing remarks.
Azfar Shakeel: Thank you, Renad, and thank you everyone who has joined us today. We are always happy to take the questions. You can reach us on our info@lumirental.com, or reach out to us. We can provide the answers. Rest assured that the challenges which we have in 2026, we have taken all necessary steps that they should not be carried forward next year. So we are very optimistic that Q1 onward, you will see better numbers on our P&L. Inshallah. Thank you very much.
Renad Alshehri: Thank you, everyone. The meeting is now over.
