Riyadh: Simah Rating (Tassnief) has maintained long-term entity rating of “BBB+” (Triple B Plus) and short-term entity rating of “T-3” to Alkhaleej Training & Education. Outlook on the rating is “Stable”.

Rating Rationale: Ratings reflect a large operational scale, growing revenue base, proven 30-year track record, and strong market position within the education, training, and call centers sectors in the Kingdom of Saudi Arabia. However, weak profitability, highly leveraged capital structure, and constrained debt servicing limit the ratings. The business risk profile is positively influenced by projected revenue growth in 2024 and 2025. Additionally, participation across various segments and diverse client base and project portfolio help mitigate sales concentration risk, thereby enhancing revenue granularity.

The ratings are supported by a robust governance framework that includes effective board oversight, board-level committees, an experienced management team, efficient performance tracking, quality certifications, and adequate IT infrastructure. Recent board appointments and changes in committee composition have reinforced the governance framework. Internal controls are regarded as adequate, supported by comprehensive documentation of policies and procedures, alongside an internal audit function that reports directly to board’s audit committee.

The assessment of financial risk profile highlights an upward trend in revenue, with expectation of a favorable bottom line this year and in the future. However, consecutive net losses over the past three years stem from IFRS and prior year adjustments, particularly revisions to the ECL model leading to significant impairment losses on trade debts and rent expenses from a previously leased property. The cash conversion cycle is manageable; however, the aging profile suggests there is potential for improvement. Capitalization has weakened due to a heavily leveraged combination of short-term and long-term debts, which includes substantial lease liabilities. Leverage ratios are expected to be reduced by half following a new equity issuance intended for a school acquisition. Despite currently low coverage ratios caused by high debt levels in relation to cash flows, debt servicing is expected to improve due to the auditor's reclassification of current maturities. However, if these levels remain unchanged, they could have a detrimental impact on the ratings.

Rating Triggers: Ratings will depend on revenue realization, the influence of growth on financial risk, and ability to sustain the business risk profile. Meeting the 2024 revenue target and enhancing profitability, capitalization, leverage, and cash flow coverage of existing debt are essential.

About the Company:

AlKhaleej Training & Education Company, referred to as ‘AlKhaleej TRNG’ operates as a Saudi Joint-Stock Company (SJSC) in the Kingdom of Saudi Arabia under CR No. 1010103367, dated November 1992. Initially a Limited Liability Company, it was restructured into SJSC in 2007. Headquartered in Al Olaya, Riyadh, AlKhaleej TRNG along with its subsidiaries, collectively referred to as 'The Group', offer specialized expertise in call centers, schools, training, universities, and management projects, serving both government and private sectors. Equity shares are listed on Tadawul.

For further information on this rating announcement, please contact Mr. Nabil Kadasa (Ext. 8791) at +966-112502030 or email at RS@Tassnief.com. The rating announcement can also be viewed through the link below.

RELATED CRITERIA AND METHODOLOGY
Rating Methodology for Corporate (v.2. 2019) can be found on the website:
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