Ezdan Holding Group Q.P.S.C. (ERES) Earnings Call Transcript & Summary

Hello. And welcome to the Ezdan Holding Group conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Phibion from QNB to begin the conference. Phibion, over to you.

Thank you, Gavin. Good afternoon. Thank you all for joining us for the Ezdan Holding Group 4Q and FY 2022 Earnings Conference Call. My name is Phibion from QNB Financial Services. On today's call from Ezdan's management team, we have Tamer Fouad, who is the Group Chief Financial Officer. And we've also got Taha Moursi, who is the Financial Controller and their IR Officer. This is how we are going to handle today's call. The management will go over the performance. And then a Q&A session will follow afterwards that Gavin will help to coordinate. After that, I will close the call. I will now turn over the call to Taha to begin. Over to you to, Taha. Please go ahead.

Good afternoon, everyone. Thanks, Phibion, for your introduction. Before we start, we need to start with a disclaimer that some of the information that will be discussed here might contain projections or other forward-looking statements regarding future events or future financial performance of Ezdan Holding Group. These forward-looking statements include all matters that are not historical facts. Any forward-looking statement speaks only as of when it is made. Ezdan undertakes no obligation to publicly update or publicly revise any forward-looking statements, whether as a result of new information, future events or otherwise. Today, we will discuss the financial performance, and the financial position for Ezdan for the year ended '22. Investor presentation for the conference call is now available at Ezdan website, www.ezdanholding.qa, under Investor Relations section. First, we will start with the financial performance of the group. Ezdan achieved a net profit to its owners with around QAR 87 million compared to QAR 61 million. Profit or loss statement contains the changes in the following factors: rental income and other operating revenue increased by around QAR 511 million; there was a gain on disposal of investments in associates and joint ventures by QAR 576 million during '22; operating expense increased by around QAR 84 million; revaluation loss of QAR 1,059 million compared to QAR 200 million on investment properties; finance costs increased by around QAR 74 million. For '22, main ratios of financial performance was as following: percentage of operating expenses compared to rental income was 20% compared to 22%; operating gross margin was 80% compared to 78%; net profit margin was 3% compared to 4%; earnings per share was QAR 0.003 compared to QAR 0.002. Regarding the components of profit or losses statement, Ezdan recognized a rental income of QAR 1,744 million compared to QAR 1,260 million with an increase of QAR 484 million, representing around 38%. Rental revenue from residential segment representing about 85% from total rental revenue of Ezdan increased by around 36% with QAR 389 million compared to '21, considering the average occupancy rate was around 90% for '22 compared to 86% for '21 with average unit rate of 4,900 compared to 4,400. In addition, the group's total units available for rent increased from 26,000 to around 50,000 units on 31 December '22. Rental revenue from hotel segment, representing around 11% from total rental revenue of Ezdan, increased by around 70% with QAR 82 million compared to '21. Rental revenue from mall segment, representing 4% from total rental revenue of Ezdan, increased by around QAR 13 million, considering that average occupancy rate in malls was 84% compared to 76%. For other operating revenue of '22, Ezdan achieved other operating revenue of QAR 113 million compared to QAR 87 million for '21 with an increase of QAR 26 million, representing around 30%. Other operating revenue from residential segment has increased by around QAR 12 million. Other operating revenue from hotel segment increased by around QAR 18 million. And other operating revenue from mall segment decreased by QAR 3 million. Regarding operating expenses, operating expenses incurred for '22 were QAR 379 million compared to QAR 295 million for '21 with an increase of QAR 84 million, representing around 29%. The main components of operating expenses were: staff benefits of QAR 97 million for '22 compared to QAR 68 million for '21; sewage of QAR 48 million for '22 compared to QAR 30 million for '21; utilities charges was QAR 106 million for '22 compared to QAR 98 million for '21; maintenance expenses was QAR 44 million for '22 compared to QAR 34 million for '21. Operating expenses for residential segment increased by QAR 62 million; for hotels increased by QAR 20 million; and for malls increased by QAR 2 million. Operating profit from main operations was around QAR 1.5 billion for '22 compared to around QAR 1.1 billion for '21 with a gross margin from main operations of 80% for '22 compared to 78% for '21. Operating profit from the residential and the commercial segment was QAR 1.3 billion compared to QAR 0.9 billion with gross margin of 82% compared to 81%. Operating profit from the hotel segment was QAR 163 million compared to QAR 83 million with gross margin of 69% compared to 61%. Operating profit from malls segment was QAR 62 million compared to QAR 55 million with gross margin of 66% compared to 65%. During '22, there was net gain on disposal of equity accounted investees and the joint venture was around QAR 576 million, which was mainly due to derecognition of [indiscernible] of Ezdan equity accounted investees through disposal of seven of its subsidiaries, which own such investments. General and admin expenses have increased by around QAR 36 million, which was mainly due to increase in professional and legal fees by around QAR 22 million; staff benefits by around QAR 12 million; and other categories of general and admin expenses have increased in total by around QAR 2 million. Regarding finance costs, finance cost was QAR 802 million compared to QAR 728 million during '21 with an increase of QAR 74 million. Regarding the revaluation loss on investment properties, revaluation loss on investment properties was QAR 1,059 million compared to QAR 200 million during '21 with an increase of QAR 859 million. Now we will start with the financial position of the group. As at 31 December '22, the group has total assets of around QAR 47 billion with a decrease of around QAR 3 billion compared to December '21. Total liabilities were around QAR 14 billion with a decrease of QAR 4 billion compared to December '21. And total equity, including the noncontrolling interest, was around QAR 33 billion with an increase of QAR 1 billion compared to December '21. Cash and bank balances have decreased by QAR 626 million, representing 57%, resulted mainly from supplemental sukuk during the period. Investment properties have increased from QAR 44.8 billion to QAR 45.7 billion with an increase of QAR 875 million, representing mainly the additions and the capitalized expenditure during the year by QAR 1.9 billion and has been offset by a revaluation loss of QAR 1.1 billion. Equity investments in equity accounted investees and joint ventures have been derecognized. Accordingly, there is no balances for them as at 31 December '22 compared to QAR 2.7 billion at December '21 for equity investments and QAR 1.8 billion for equity investments due to disposal of Ezdan subsidiaries, as mentioned in Disclosure #31 in the financial statement. Due to related parties decreased by QAR 2.2 billion, movement in balances of related parties representing mainly settlement of balances with the main contractor and related party, SAK Holding, as mentioned in Disclosure #31 in the financial statements. Islamic borrowings and sukuk have decreased by QAR 2 billion. The decrease resulted mainly from settlement of sukuk with around QAR 1.8 billion. Retained earnings have increased by QAR 1.9 billion, which represents a net profit for '22 and the recognition of revaluation gain of equity investments, which has been disposed. Revaluation reserve is 0 as a result of realization of balance within retained earnings. The share capital of Ezdan was QAR 26.5 billion as at 31 December '22. Regarding cash flows, net cash flows from operating activities were QAR 1.4 billion compared to QAR 9 billion. Net cash flows from investing activities was QAR 21 million compared to QAR 45 million. Net cash flows used in financing activities for '22 was QAR 2 billion compared to net cash flow used in financing activities of QAR 0.5 billion for '21. Thanks. And operator, we can start the session for questions now.

[Operator Instructions] And your first question comes from the line of [ Mustafa Ammar ] from Al Rayan Investment.

Just had a question on -- obviously, 2022 is a very good year operationally speaking because of higher occupancies. How are you thinking of 2023 with the World Cup now? Or are you seeing a material drop in occupancies across your three segments? That's my first question. And regarding the loss on revaluation of QAR 1 billion, which properties has it stemmed from mainly? Is it residential, commercial, any particular area that you are into?

Okay. Now you have two questions about our view for 2023 and the loss on revaluation. For 2023, we have three segments in Ezdan. And we have residential, which represents around 85% from our rental revenue. Hotels represent 11%. And the remaining will be mall segment. Our forecasting and estimation based on what we see during the last 3 months, rental rates have not dropped too much. It has stabilized now for residential segment and the malls. But for hotels, we see a significant decrease because hotel segment has been affected adversely. But it will not affect materially on Ezdan operations because the rental revenue, as I mentioned before, is around 11%. Regards the revaluation, this has been impacted in the revaluation loss. Because if you return back to the notes for the financial statement, you will find that the significant part of our revaluation loss this year, it is coming from the hotel segment with around QAR 940 million. Because this revaluation is based on the discount cash factor for the estimated cash flow for the future. And the expectation for hotels is decreased. And accordingly, the valuation of hotels has decreased also. So there was a revaluation loss. And hotels was around QAR 940 million and the remaining from the two segments, residential and malls.

And just one follow-up, considering that you disposed of your entire equity book to SAK Holding, will there be any recognition of dividend income coming through anymore for Ezdan for 2023?

No, because the disposal has been incurred during August '22. So accordingly, there will be no dividend income for Ezdan in 2023.

[Operator Instructions] And there are no further questions at this time. So I'd like to hand the call back to Phibion.

Thank you, Gavin. If there are no further questions, it brings us to the end of our call today. Thank you for joining us, and thank you for your questions. And I would also like to thank the management team for responding to investors' questions. Please join us again in Q1 2023. Have a good afternoon. Thank you.

Thank you, everyone.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.