Agility Public Warehousing Company K.S.C.P. (MKHZN.KW) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Makhazen Q3 2025 Earnings Call. My name is Ezra, and I will be your coordinator for today. [Operator Instructions] I will now hand over to your host, Aly Adel from Arqaam Capital to begin. Please go ahead.

Thank you. Good morning, good afternoon, ladies and gentlemen, and thank you for joining us today. This is Aly Adel, and on behalf of our Arqaam Capital, I would like to welcome you to Makhazen Q3 2025 Earnings Call. We have today from the management team, Khadija Obla, the CFO; and Youssef Elyas from the IR team. As usual, the management will start with the presentation for the key highlights of the quarter, and it will be followed by a Q&A session. . So without any further delay, I will now hand over the call to the management team. Please go ahead.

Thank you, Aly, and welcome, everyone, to Makhazen's Q3 2025 earnings webcast. Today, we'll be presenting Makhazen's financial and operational performance for the third quarter of 2025. As mentioned earlier, Khadija will be addressing your questions during the Q&A session at the end of today's call. [Operator Instructions] Before I hand it over to Khadija, I'd like to draw your attention to the disclaimer on the second page of the presentation. Please take a moment to review it. With that, I'll now hand it over to Khadija to begin the presentation. Thank you.

Good afternoon, everyone. Thank you, Youssef and Aly, and welcome all to Makhazen earnings for the third quarter of 2025. So let me start first by a quick update about the name. As you noticed, as of this quarter and as part of the company's strategic repositioning, Agility K.S.C.P. has officially rebranded to Makhazen. The new name reflects our focus on Kuwait, and reinforces our long-term role as an investor and as an operator in the country's infrastructure and industrial development. The rebranding also realigns with our strategy to simplify the group structure representing a clearer identity to our stakeholders in Kuwait. And it also supports the broader objective of building a platform that is fully aligned with Kuwait's national development priorities. With that, let me move to walking you through the main financial movements of the quarter. So Q3 marked our first full quarter operating under the Makhazen identity following the deconsolidation of Agility Global. This was a major structural milestone of the company, and we are fully now focused on executing our Kuwait-focused strategy. On the capital deployment front, we've made progress towards our long-term commitment that we've announced earlier this year of investing more than KWD 100 million from now until 2030. And from an accounting standpoint, Agility Global is now classified as an associate since we own 25% or effectively 26.5%. And as a result, we recorded a noncash gain of KWD 124 million this quarter related to the remeasurement of our stake, which basically translates into the difference between our book value and the fair value. This resulted in a realigned balance sheet. The total asset declined from KWD 4.2 billion to KWD 1.1 billion and equity attributable to shareholders decreased from KWD 1 billion to KWD 607 million. These changes again reflect the deconsolidation, further remeasurement of the investment in Agility Global and the income distribution, and they do not translate in a loss of value. Looking at the Q3 results in terms of continuing operations, revenue came in at KWD 38 million and an EBITDA of KWD 146 million with a net profit of KWD 137 million, all of which include the one-off accounting gain mentioned earlier. If we strip out and focus on the underlying performance, we're seeing continued momentum. Our EBITDA reached KWD 21.7 million, it's a 46% increase from last year and adjusted net profit of KWD 12.7 million, which is more than 207% from last year. And finally, it's worth also mentioning because it's a major movement in our books that we have reclassified our investment in Korek Telecom so the investment was moved from an associate to claims receivable to better reflect the nature of the exposure. There is, again, no gain or loss recorded on a net basis. It is just a clean reclassification. Now if we take a look at our income statement for the quarter, revenue stood at KWD 39 million. That's up 4% from the same period last year, and this reflects steady contribution from across the business with no major one-offs. Net revenue remained flat at KWD 32 million. It's a reflection of a more stable base as we continue the transition post the deconsolidation. And in terms of EBITDA, it came in at KWD 22 million. That's a 46% increase year-on-year. This improvement is driven by the underlying business as well as the performance of Agility Global. And in terms of net profits, we stood at KWD 13 million, up more than 200%, mainly due to EBITDA increase as mentioned above as well as lowering financing costs. Again, this is one -- on an adjusted basis, which removes the impact of technical noncash items like the Agility Global reclassification and Korek adjustments that we discussed. So overall, despite a flat top line and net revenue, we're seeing strong performance in the quality of earnings with better margin and better bottom line delivery. Now for the 9 months, if we zoom into them, and we look at the 9-month picture, we're seeing a continuous strength in the underlying business, bearing in mind that the first half included Agility Global that was consolidated. And the last quarter, which is -- I mean, the Q3 quarter, which we are presenting today reflects the post distribution structure, which means it's deconsolidated. So revenue is up 2%, reaching KWD 113 million, driven by stability across our operating assets. The net revenue increased by 4% to KWD 94 million, reflecting solid operational base. The adjusted EBITDA is KWD 54 million, up 19% from last year. And in terms of net profit nearly doubled, up 83%, reaching KWD 31 million due to increased EBITDA, as mentioned above, showing strong flow-through the bottom line. So overall, despite the transition and the technical accounting base, we're still delivering solid operating performance. So we've looked at the earnings performance, and now let's look into the balance sheet. So as expected, Q3 reflects a significant reset driven by the deconsolidation of Agility Global and the reclassification of our stakeholders and associates. We have deconsolidated Agility Global, which means that we need to move the numbers from our balance sheet, whether the assets or the liabilities. In terms of total assets, it dropped by -- from KWD 4.2 billion to KWD 1.1 billion. That's down 74%. So -- and that, as I said, it includes the removal of Agility Global assets, including also the balances previously classified as held for distribution to shareholders. Also the 25% retained stake in Agility Global is now reported in associates. In terms of the liabilities also, they came down 78% from KWD 2.2 billion in 2024 to KWD 475 million as a result of also removing the Agility Global debt and its related liabilities. In terms of equity, it decreased by KWD 409 million compared to December. So we went from KWD 1 billion to KWD 600 million, again, due to the in-kind dividends and the technical adjustments in accounting. Let me just pause here and clarify one thing. This change does not mean a loss in value to shareholders. Shareholders received Agility Global shares through the in-kind distribution. So the overall value is preserved. It's just a shift from Makhazen books directly to the shareholders. Now if you look at the cash flow, it's worth also noting that this is a transition period. The first half of the year includes the Agility Global, which was consolidated, while Q3 numbers represent the new structure post the deconsolidation. So although the numbers are consolidated on a full year basis -- full period, the cash flow in Q3 no longer includes Agility Global, as mentioned. So if we look at the numbers, the operating profit before the changes in working capital stood at KWD 142 million, down from KWD 186 million, primarily reflected the -- again, the impact of the deconsolidation and timing differences. In terms of working capital flow, it increased slightly to KWD 33 million, mostly due to normal business differences. And the net cash flow, although here it shows a KWD 183 million negative cash flow. But in essence, we have a positive cash flow of KWD 48 million if we take off the adjustments of KWD 134 million that we mentioned. If we account for the consolidated adjustments of the KWD 231 million, the result is a free cash flow positive, as I said, KWD 48 million. And this is in line with our investment cycle. We are deploying capital into long-term projects, which we expect to generate return over the next few years. So that was a very brief overview of our books. Now I understand this is a very transitional period because of the deconsolidation, which happened during the second quarter and also reflected in the third quarter. But this is the quarter that where we're going to see a lot of shifts. And by next quarter, I think the numbers will be a lot more meaningful. So that wraps up the main part of today's presentation. We'll walk you through the company's strategic transition, financial impact of consolidation, the ongoing operational performance, all point into a more focused platform for Makhazen, which is very much Kuwait-centric with strong fundamentals. Thank you for your time. And now we're going to take a few minutes to just connect to the Q&A platform, and we'll be happy to answer your questions.

[Operator Instructions].

Okay. We're going to start answering the questions. First question is what caused the decline in UPAC performance in Q3. You can refer to the -- any information on UPAC on Agility Global. I think there is a performance of UPAC is reflected there. It's not under Makhazen. The next question is, what would you estimate the impact of Makhazen top line if PIA takes back all the land? So the company, as you know, I mean, we have a number of assets or sites that are currently under legal dispute. Some are revenue generating. So what we can say is that we continue to operate a base of income-generating assets. We believe that we are taking all measures to protect our shareholders' value. We're actively investing in other strategic assets such as S2, which we expect to scale over time. We have actually, if you read the latest disclosures that we've complied with some of the PIA request to hand over some sites, including the Mina Abdullah craft areas. But we're still also -- all the legal cases are still pending, and we're preserving our rights and this matter is within the court. The next question is, what is the estimated time line for Sabah S2 to start operating? And what do you think the revenue on that? So S2 industrial projects, Sabah Al-Ahmed City is progressing well. As you know, it's a 1.3 million square meter of land. It's positioned for multipurpose commercial logistics and crafting services. As of now, we are broadly in line with the planned schedule. We finished the infrastructure. We're about to finish Phase 1 of the projects. We're going to start handing over some of the buildings midyear next year. Those include warehouses as well as some retail units. And the leasing is progressing very well. I cannot comment exactly on the revenue at this stage, but I can definitely -- it's in line with our targets in terms of financial KPIs and what we are expecting return on a project of this scale and it's progressing very well. And I think very soon, we're going to move into development of the second phase of the project. We think there is the time line. So it's -- all phases basically will take around 10 years. That was the commitment. And we are already within the third year of our development, very close to finishing Phase 1. There is another question again on the PIA land, which I understand is an important topic. Is there any update on the disputed PIA land. When should we see the impact of the disputed land on the P&L and balance sheet. Again, as I mentioned earlier, this is a matter that's currently within the courts. So first of all, we're very limited in what we can comment. However, you can -- there is a filler note in our financial statements where there is a comprehensive detail on the status of each case. In terms of financial impact, as disclosed in the financial statements, the carrying value of these properties remain unchanged, pending the outcome of these legal proceedings. But we have assessed all the cases, and we've done a risk assessment. And I think we're pretty much well positioned to address any liabilities or concerns regarding these sites. And we remain also committed to update the market if the situation materially changes.

[Operator Instructions].