Kuwait Projects Company Holding K.S.C.P. (KPROJ) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to KIPCO's 3Q 2023 Earnings Conference Call. This is Ahmed El-Shazly from EFG Hermes, and it's a pleasure to have with us on the call today from KIPCO's Management; Mr. Moustapha Chami, Deputy Group CFO; and Ms. Eman Al Awadhi, Group Senior Vice President, Corporate Communications and IR. I will now hand the call over to Eman to start with the presentation. Thank you.

Thank you, Ahmed, and good afternoon, everyone. We welcome you to our earnings call for the first 9 months ended September 30, 2023. Please note that today's presentation is available on our website, along with the [indiscernible] of financial statements for the period in review. Moving on to the presentation, please refer to the brief disclaimer on Slide 2. Some of the statements that we will be making today and information available in the presentations can be forward-looking. Such statements are based on KIPCO's current expectations, predictions and estimates and are subject to risks and uncertainties, which may adversely or otherwise affect the future outcome. Those statements are not guarantees of future performance, achievements or results. I will now hand over the call to Moustapha to take you through some of the highlights for the period.

Thank you, Eman, and good afternoon, everyone. As you know, in July, we successfully completed our Sukuk assurance under the KIPCO's USD 2 billion trust certification program. The issuance was KWD 103.1 million, equivalent to $335.8 million and has a 6-year tenor. With this transaction, KIPCO has become the first ever Kuwait incorporated entity to issue a KD denominated Sukuk transaction. The proceeds were primarily used to make a $330 million partial repayment of the $525 million syndicated loan facility signed in February of this year, effectively extending our 3-year facility or our 2 plus 1 facility into a 6-year tenor. KIPCO also fully repaid the remaining portion of its 5-year KD bond amounting to KWD 28.5, equivalent to $92.2 million on its due date. Moving on to Slide 5 for details for the first 9 months of 2023. We are pleased to report that KIPCO posted an up-profit of $37.9 million, representing a net increase of 95% over the same period of 2022. This is primarily due to positive overall performance across our foreign banking operations as well as our businesses in food staff, logistics and oilfield services. KIPCO posted a revenue of $3 billion in 9 months 2023, an increase of 88% from the $1.6 billion achieved for the same period last year. This net increase is mainly attributable to the increased income from banking operations as well as the increase in revenue from the industrial and logistics sector that was consolidated in Q4 2022, following the completion of the merger with QPIC. Total assets of KIPCO at consolidated level stood at $38.5 billion at the end of 9 months 2023, up 4% from the $36.9 billion reported at the end of 2022. Moving on to Slide 6. Interest income from banking operations increased 57% to reach $1.3 billion compared to $830 million for the same period last year. Fee and commission income increased 48% year-on-year to reach $225.1 million. Meanwhile, income from media and digital satellite network witnessed a 4% decrease to $193.6 million compared to $201.3 million during the same period last year, while hospitality and real estate income saw a small drop of 10% year-on-year to $191.9 million. Post the merger with QPIC in November 2022, the energy and industrial and logistics segments were consolidated. Hence, the increase in revenue and expenses in these sectors. With that being said, total expenses increased to $2.7 billion in 9 months 2023 versus $1.45 billion for the same period last year, due to higher interest expenses by $475 million and higher G&A expenses by $85 million, as well as the increase in energy and industrial and logistics expenses by $593 million. Furthermore, the group's consolidated financial statements include the effect of hyperinflation in accordance with IAS 29, financial reporting in hyperinflationary economies stemming from our Turkish operations. As a result, the group recorded a net monetary loss of $77 million during 9 months 2023, due to Burgan Bank operations in Turkey. For further details, please refer to Note 2.4 from the published interim financial statements. Moving on to Slide 8, where we cover key performance highlights of our banking operations. We start with Burgan Bank Group's results for 9 months 2023. I would like to note that Burgan Bank had its earnings call on November 1, and you can refer to the transcript for more details. Operating income during 9 months 2023 came to $629.8 million, up 17% from $537.2 million reported in 9 months 2022, supported by improved fee income, FX income and recoveries. Net income dropped 27% to $97.5 million in 9 months 2023 versus $133.5 million during the same period of last year, driven by higher operating expenses, hyperinflation-related monetary loss along with proactive provisioning. Burgan Bank's, loan book dropped 2% from the end of 2022 to $13.4 billion in 9 months 2023, while deposits increased 13% to $14.3 billion for the same period. The bank reported a strong liquidity coverage ratio of 174% and a the net stable funding ratio of 120% in comparison to 151% and 110%, respectively, reported at the end of 2022. Loan loss provisions charged to income statement significantly increased 165% year-on-year to $114.1 million in 9 months 2023 against $43 million in 9 months 2022, due to provisioning by the bank on certain exposures. Burgan Bank Group posted a net profit amounting to $97.5 million in 9 months 2023 versus $133.5 million during the same period of last year. NPL ratio is significantly declined to 2% as of 9 months 2023 from 2.6% in 9 months 2022, mainly due to [indiscernible] NPL improvement. The bank reported a CET1 ratio of 11.3% and the CAR of 17.6% as of 9 months 2023, while above regulatory requirements of 10.5% and 14%, respectively. We move on to Slide #9 to cover JKB's performance for 9 months 2023. JKB reported a notable improvement in its operating results during the 9-month period. During the 9 months period, JKB's loan book grew by 7% to $2.9 billion versus $2.7 million at the end of 2022. Deposits also increased by 24% to $4.9 billion compared to $3.4 billion at the end of 2022. Total income grew in 9 months 2023 by 88% to reach $272.6 million versus $145.3 million in 9 months 2022. JKB's net profit for 9 months 2023 came to $72.6 million, 354%, up from the $16 million reported during the same period last year. It is also worth highlighting that in October, JKB successfully sold 66.97% of UAE-based BHM Capital Financial Services to a smart international holding for JOD 30.6 million, equivalent to $43.2 million. JKB retained a 10% stake in the company. On Slide 10, we can see the performance of SADAFCO. The foodstuff company reported a 7.4% increase in revenue for H1 2023, 2024, at $379.5 million compared to $353.4 million for the same period the previous year. Operating profit was up by 19.1% for the period, registering $64.9 million compared to $54.5 million for the corresponding period in the previous financial year. SADAFCO posted a 60% increase in net profit to $59.5 million compared to $37.3 million in H1 '22, '23, primarily driven by increased sales and improved gross margin. It is worthy to note that SADAFCO announced the construction of a new depot in Yanbu, replacing the current leased depot. The company's Board of Directors also approved the fiscal year change from March end to December end. As such, SADAFCO will be posting 9 months results at the end of 2023. United Gulf Holding, UGH, is featured on Slide 11. Incurred -- UGH incurred a loss of $36.5 million for 9 months 2023 compared to a net loss of $13.6 million in the 9 months 2022. Total revenue increased 8% to $133.2 million in 9 months 2023 compared to $123.7 million for the same period of last year, despite the 82% increase year-on-year in interest income. This decline is mainly attributed to lower contribution from associates, lower fee and commission income, reduced investment income and rising interest rate environment. On Slide 12, we have the results of United Real Estate Company, URC. The company registered visible improvement across key income streams of the business, reporting a 36.5% year-on-year increase in rental and hospitality income, partially offset by 23% year-on-year decline in the contracting and services revenue, resulting in a 2% revenue for -- resulting in a 2% increase in revenue for 9 months 2023 at $201.1 million compared to 9 months 2022. Operating income increased by 41% to reach $60.9 million versus $43.1 million during the same period last year, mainly due to reversal of provisions for impairment and lower share expenses during 9 months 2023. However, URC's net profit posted a decrease of 42% for 9 months 2023 at $15.3 million versus $26.5 million during the same period last year, primarily due to increased finance costs. Moving on to Slide 13, starting with our logistics and power rental business, Jassim Transport and Stevedoring company JTC. JTC reported a total revenue of $70 million for 9 months 2023, 10% higher than the $63.8 million reported for 9 months 2022. This increase is mainly attributed to a 24.5% year-on-year growth in revenue from port management services. Gross profit for the 9 months increased by 27% year-on-year to reach $22.5 million versus $17.7 million during the same period last year. As such, JTC registered a net profit for 9 months 2023, amounting to $14.3 million, 35% higher than the reported $10.6 million in for the same period last year, and that was due to higher revenue and margins. Moving to National Petroleum Services company NAPESCO, our oil field services provider. NAPESCO's revenue for 9 months 2023 increased 11% to reach $96 million versus $86.4 million during the same period last year. This was supported by the additional service contracts that were secured in the last 12 months on the back of the improved business environment and margins across both oil field and non-oilfield segments. NAPESCO posted a net profit of $20.8 million for 9 months 2023 versus $17.5 million during the same period last year. Moving on to the healthcare sector with advanced technology company ATC. ATC witnessed a 7% decrease in revenue to reach $377.5 million in 9 months 2023 as compared to $404.8 million in months 9 2022. ATC achieved a net profit of $12.5 million in 9 months 2023 compared to $18.8 million for the same period of last year, representing 33% net decrease. Finally, Slide 14 shows the recent business updates on OSN. OSN continues to focus on growing the streaming business through the ultimate use of technology -- through the optimal use of technology, digital marketing and content diversification. Our ultimate goal is to transform OSN into a media tech with AI at its core. It continues to improve the dishless OSN TV box that was launched earlier in the year. This is a plug in box that users with or without additional subscription can plug in to. The new product reflects OSN's strategy towards streaming TV with a linear environment. OSN continues to achieve cost optimization through obtaining long-term content contracts as well as operational day-to-day overheads. OSN reported a 40% increase in engagement from subscribers in the last 12 months measured in hoursview. I will now hand over the call to Ahmed to invite our listeners to raise any questions they may have.

Thank you so much, Moustapha for the presentation. We will now open the floor for your questions. [Operator Instructions] We have our first question from Zafar Nazim.

[indiscernible] for the call and the prepared remarks. I had a couple of questions. One, can you please tell us what was the total amount that you injected into your -- any of your operating subsidiaries during the quarter?

Yes, that's the first question?

So that's the first question. And the second question I had was around is Burgan has disclosed recently that they sold 52% of a stake in the Turkish subsidiary to I think is a KIPCO subsidiary Al Rawabi Holdings. Can you please tell us what amount did Al Rawabi pay for this 52% and whether this amount was self-funded by Al Rawabi or was this an injection from the parent from KIPCO into Al Rawabi for the purposes of buying the stake?

Thank you, Zafar. I'll start from the second question, which is a recent disclosure by Burgan selling 52% of the 99.4% that they own in Burgan Turkey to a wholly owned subsidiary of KIPCO, Al Rawabi Holding. As you may know, Al Rawabi is a shareholding entity, and it has its own Board, its own independent Board and capital structure. The feasibility of that transaction was studied at Board level for Al Rawabi and decision was taken accordingly. From a group perspective, that particular transaction will unlock capital at Burgan Bank, so it will create positive room for growth, and the details of this will be disclosed by Burgan Bank at closing. With regard to the for the first question, we've reported our -- we have -- yes, I will give you a bit of color based on the publicly available information. So we've disclosed our closing balance of cash, which is $329 million by end of September 2023. KWD 102 million and that's the finance that was reported in the financial statements. That number decreased from KWD 125 million reported in June on the basis of some interest payments and also G&A. During the quarter as well, there has been 2 major events. We had the issuance of Sukuk of almost $334 million, and that was mainly used to repay positively this syndicated loan that the $525 syndicated loan issued earlier this year in February 2025, by an amount of $330 million. We have as well received dividends -- interim dividends from [indiscernible] and SADAFCO amounting to $13 million. Those -- the total amount of loans, as already disclosed -- at the parent level is disclosed separately, along with the amount of our Sukuk and the KD bonds and the [ MTNs ] disclosed separately for the parent and the financial statements. So that can give you a little bit of color on the interest payments. G&A is in line with whatever we used to pay, with a slight increase to just compensate for inflation. That being said, we, as a holding company, and it was communicated many times by the group CEO on the company's vision that we will remain dedicated to bring in our current portfolio to the next level of growth and value creation, while also looking for some new opportunities, particularly in sectors like healthcare, logistics and also technology. As a result, we are working closely with our portfolio companies, management and their Board to strengthen their operating performance, and we are also checking closely with them, the areas of risk and opportunities and whatever investment is required for any growth potential, which will lead to long-term value creation and make sure the companies are performed as planned. This is the governance framework that's being enhanced and now there is much more closer monitoring. We will not be able to share specific details of the injections of the recent transaction, but that goes in line with our planned budget and one of there is a certain particular opportunity to say. I have given you a bit of color about the movement and that can derive the numbers.

Okay. I mean I guess if I look at these numbers, the cash has changed, the change in debt and as well as the inflows from dividends. I get to a number around $90 million or so, $90 million, $95 million. Does that seem to be in the ballpark of what could have been the investment, just to be clear? During the quarter.

The investment is much, much lower than this. I'm not be able to give specific numbers other than what we've disclosed, given the recent transactions that we are into, but I have given you all the movement of the major items between G&A and [indiscernible] and the movement of funding. There is also an increase in funding as well, which is also disclosed in our financial statements.

Is there any particular reason why you cannot disclose the overall investment you've made, because it's not that we are asking for specific names where the money has gone into. What we are interested in figuring out is how much of the holdco cash went into interest? How much went into G&A? How much went into investments? You mentioned the dividend inflow of 30 million. But is there any reason why you don't disclose [indiscernible]?

Yes. So as you may know, we have today the GIG transaction, and we were -- the GIG transaction, which is ongoing. And given also the governance framework, we are limiting our disclosures to whatever publicly -- to whatever is publicly disclosed. So we are limiting any particular disclosure within that particular governance framework. But if we do a simple math, that particular removing block is a number between $40 million to $45 million -- $40 million to $50 million. $40 million.

And sorry, and on the other question that I asked about the Burgan Turkey, I wasn't quite sure. So is there -- was there Al Rawabi that's owned 100% by KIPCO, right? The parent. So -- and this stake purchase by Al Rawabi, I understand that Burgan will disclose more details, but was there cash involved in this transaction or not?

I will leave it to Burgan to disclose. I'll refer to what ever Burgan has disclosed. So they will put the whole details once the transaction is concluded. Because today [indiscernible] just received the [indiscernible] approval for the execution of the transaction. The mechanism of payments will be disclosed by Burgan.

[Operator Instructions] So we have another question from Rakesh Tripathi.

I had a couple of questions. Some were covered already. Just to reconfirm, the dividend receipts in the third quarter, you said were 3-0, 30 million or 1-3, 13 million?

The dividend is received?

Yes. In third quarter, yes.

Yes. That's KWD 4 million, roughly $13 million, 1-3.

Okay. Okay. Great. A couple -- so I think you just talked about that your cash decline in the third quarter was predominantly because of higher interest costs at the parent level, I'm saying at the stand-alone level. And can you give us an update on where you are in terms of the GIG sale right now? Should we expect this to be completed this quarter or this is going to roll to the next month -- next quarter, I'm sorry, next year basically.

So GIG, you know that this transaction was conditional to obtaining regulatory approvals. Competition Authority approval was given -- was obtained last week, and there is one more condition precedent, which should be fulfilled within the next 1 or 2 weeks. And the transaction is expected to close before the end of the year.

Okay. Wonderful. And where are you in terms of the LTV by the way rating agencies, Modi is also look at it right now? You have 45%, are you around about the same number right now? A little higher?

So as rightly mentioned, the LTV is a product of 2 components. One of them is driven by capital markets since most of our portfolio is composed of listed shares and the current geopolitical tension in the region has greater pressure to the market prices. And so that has put a bit of pressure on our LTV, which has not been far from 45%. So it's around 48% for this quarter. And we continue to engage with the rating agencies and provide them with the relevant information basis on which they can express their opinion. All of this is anyway is available not in the public domain. Yes.

Yes. My last question is around OSN. So you've touched briefly upon the ongoing strategy as to how OSN is supposed to be managed. I understand you cannot give us specifics, but would it be possible to confirm if there are continued cash injections. I mean, if you've done further cash injections into OSN this year, and if there are any plans next year and whether you are looking at the possibility of onboarding a strategic investor for the business?

So OSN journey, specifically in the past 2 years, once that was with main objectives of focus on streaming as the main business line and trying to reduce cost, and we've done this through negotiating the content of contracts. We have secured an HBO deal in 3 years -- for the next 3 years. We have as well Universal on top of Sony and MGM and also Paramount. We have also -- we have a -- initially we have revamped the linear business by introducing the new dishless box, the OSN TV box, trying to revamp that particular vertical. We are continuously talking to our strategic partners to make sure to find -- to join forces in our journey -- in our streaming journey, trying to create a certain media platform powered by AI. That's the journey we are looking for. That's our objective. And any particular funding will be toward that particular objective and in line with our budget.

Our next question comes from Dimitri.

Yes. So on this GIG transaction, I remember that you mentioned that you expect total prices of around USD 860 million. The first tranche might be like around $240 million to $250 million [indiscernible]. And you also [indiscernible] that you wanted to potentially monetize this like installments. Could you give us maybe an update on the proceeds? I know that you still need to give us a second [ CPs ] before completing the deal, but -- are we talking about the same deal amount and the first tranche also around $240 million to $250 million? That's like my first question. And the second question also, could you maybe kind of any color on the use of proceeds because previously, you mentioned like deleveraging, targeting nearest maturity is like including bonds, syndicated facilities and et cetera. So could you kind of provide any color on the use of proceeds? How do you expect to utilize this cash from the first tranche?

Yes. Thank you, Dimitri. So yes, with regards to the first question, the GIG proceeds, the total deal transaction is $860 million less the dividends received. And that $860 million will be paid in 2 part payments. The first down payment is $200 million less the dividends received, which is around $21 million and 4 payments each one after -- it's the first anniversary of the closing of the closing of the transaction for 4 years. There are some discussion internally, and we will be looking for the best and optimal solution for KIPCO, whether to monetize or not. That will go within our capital structure and the optimal use of those particular proceeds. With regard to the use of the GIG proceeds, while our first objective will be to delever or to decrease the averaging of the parent company to also do those proceeds for deleveraging, we will also be looking at opportunities as well if there is any particular investment opportunity that goes along with our strategy and vision, we would be investing in. However, the main strategy would be to deleverage.

Apologies, I muted myself. On syndicated facility, you mentioned that you kind of prepaid already $330 out of -- just wanted to confirm, what was the remaining amount and other syndicated facility? Because I remember you do not utilize the full amount. So could you confirm, the remainder of this syndicated facility? And just to confirm numbers, like the first tranche, as you mentioned, like 200 minus dividends, which already like, which is approximately USD 21 million. And this first tranche is expected like kind of a few days after the completion or like what's second kind of time line with the first tranche, just for us to understand.

Okay. So the syndicated facility, which is filed in February 2023 was for $525 million and in July 2023, we raised Sukuk of $336 million -- of $334 million of Sukuk, where we have used $330 million to repay that particular syndicated facility. The second question, it wasn't clear. If you may repeat it, please?

Sure. Just about the timing of the first tranche because what's like time line to issue this first tranche from the GIG transaction? Like is it like a few weeks after the completion, the final completion or like any other time line for us to -- just any information would be useful.

So the down payment, which is 200 minus the dividend will be received upon closing, which is expected to be before year-end.

And the second tranche, as you mentioned, will be annual payments like 12 months of the first tranche closing?

Yes, 12 months, correct, 12 months after the closing. So each one is 1 year after the closing date. So the $660 million each one will be divided by 4, so $165 million each payment issued after 1 year.

I think we have no further questions at this point. So I'd like to hand over the call back to management for any closing remarks.

Thank you very much, Ahmed, and thank you very much for joining us, everyone. We look forward to having you again with us in the next quarter. Have a good evening.