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

Good afternoon, everyone. This is Elena Sanchez, and on behalf of EFG Hermes, I would like to welcome you all to KIPCO full year 2024 earnings call. We have with us in the call Mr. Moustapha Chami, Deputy Group CFO; and Ms. Eman Al Awadhi, Group SVP, Corporate Communications and IR. I would like to hand over the call now to Ms. Eman Al Awadhi to kick off the presentation. Thank you.

Thank you, Elena. Good afternoon, everyone. We welcome you to our earnings call for the financial year ended December 31, 2024. Please note that today's presentation is also available on our websites, along with the financial statements for the year. 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 presentation 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. They are not a guarantee of future performance, achievement or results. I will now hand over to Moustapha to take you through some of the highlights for the period.

Thank you, Eman. Good afternoon, everyone. The year 2024 has been a year where KIPCO has continued to strengthen its financial position through the enhanced performance of its portfolio companies and liability management. Early in the year, KIPCO repaid the remaining balance of $195 million of the $525 million syndicated credit facility. The repayment took place nearly 1 year prior to its first maturity. In December, KIPCO fully repaid the remaining portion of its seven-year KD bond due on December 28, 2024, amounting to KWD 66.5 million, which is equivalent to $216 million. The holding company tapped into its own liquidity, including cash reserves built from selective divestment to repay these bonds. This repayment brought KIPCO's total repayments and/or exchange of EMTNs and bonds in the past 2 years to $1.15 billion. Moving on to Slide 4, where we cover KIPCO's consolidated financial performance for the year 2024. KIPCO reported a reduction in net profit from $97.5 million in 2023 to $50.8 million at year-end 2024 due to the one-off gain from the sale of the company's stake in Gulf Insurance Group, which was reflected in the last quarter of the previous year's financial statement. KIPCO posted a total revenue of $4.9 billion in the full year 2024, which represents an increase of 16.4% compared to $4.2 billion reported at year-end 2023. Operating profit increased 13.2% from $508.5 million in 2023 to $575.5 million at year-end 2024. KIPCO's total assets at the consolidated level stood at $42.1 billion at the end of 2024, which is a 5.2% increase from the $40 billion reported at year-end 2023. On to Slide #5. Interest income from banking operations increased by 29.7% to reach $2.42 billion compared to $1.86 billion for the same period last year. Net fee and commission income increased by 29% to reach $395.3 million. Meanwhile, income from media and satellite -- media and digital satellite witnessed a 6.9% decrease to $237.8 million compared to $255.5 million for the year 2023, while hospitality and real estate income saw a slight drop of 0.3% in 2024 to $272.4 million. Income from the energy sector saw a 0.5% drop to $138.1 million, while the industrial and logistics sector registered a 5.4% increase in income to $947.6 million. Total expenses increased to $4.3 billion in the year 2024 versus $3.7 billion for 2023, primarily due to an increase in interest expenses by $488.6 million and in G&A by $115.1 million. Furthermore, the group's interest -- condensed consolidated financial information includes the effect of hyperinflation in accordance with IAS 29, financial reporting and hyperinflationary economies stemming from our Turkish operations. As a result, the group recorded a net monetary loss of $78.2 million during the year 2024 compared to a loss of $104.2 million in 2023 due to Burgan Bank operations in Turkey. For further details, please refer to Note 2.7 of the published annual audited consolidated financial statements. Let us move now to Slide #7, where we cover key performance highlights of our banking operations. We start with Burgan Bank Group's results for the year 2024. I would like to note that Burgan Bank had its earnings call on February 19, and you can refer to the transcript for more details. Net operating income for the year 2024 came to $743.5 million, up 3.3% from the $719 million reported for the year 2023. Net income increased 6.6% to $150.7 million versus $141.4 million for the year 2023. Burgan Ban's loan book went up 5.5% to $14.5 billion, while deposits increased 9.9% to $15.9 billion in 2024 when compared to year-end 2023. The bank reported a strong liquidity coverage ratio of 153% and a net stable funding ratio of 116%, above the regulatory requirement of 100% for both metrics. The NPL ratio dropped to 1.8% for the period compared to 2% for year-end 2023. The bank reported a CET1 ratio of 12.6% and a CAR of 18.6% for year-end 2024, well above regulatory requirements of 10.5% and 14%, respectively. In March 2025, Burgan Bank completed the acquisition of 100% stake in United Gulf Bank from United Gulf Holding. The price of the transaction was agreed at $190 million, roughly one-time UGB's book value. The acquisition is in line with Burgan Bank's new strategy of asset reallocation and building new revenue streams. The transaction will give Burgan access to Kamco Invest's platform to further drive its non-interest income, increase the bank's footprint across the GCC region and has the potential of revenue and synergies through UGB's banking license. The acquisition is expected to have a 60 to 70 basis point impact on the bank's regulatory capital ratio. We move on to Slide 8 to cover JKB's performance for the year 2024. JKB's net profit for 2024 came to $165.5 million, 98% up from the $83.4 million reported for the year-end 2023. Total income grew 42% to reach $555.2 million versus $391.2 million for the year 2023. In 2024, JKB's loan book remained at $2.8 billion, and deposits increased 7% to $5.6 billion from the year-end 2023. On Slide 9, we can see the performance of SADAFCO. The foodstuff company reported a 6.6% increase in revenue for the year 2024 at $789.5 million compared to $740.7 million for the year 2023. Operating profit was up 8.7%, registering $124.8 million compared to $114.8 million for the year 2023. SADAFCO posted a 16.5% increase in net profit to $128.9 million compared to $110.6 million in the year 2023, primarily driven by increased sales and improved gross margin. SADAFCO continues to dominate the market in its 3 main product lines, UHT milk, tomato paste and ice cream. In the year 2024, year-on-year sales in dairy, culinary and ice cream increased 6.23%, 9.36% and 6.03%, respectively. United Gulf Holding Company, UGH, is featured on Slide 10. UGH incurred a loss of $24.8 million in full year 2024 compared to a net loss of $41.9 million in the year 2023. Total revenue increased 10.2% to $140.7 million in full year 2024 compared to $127.7 million last year. AUM grew 13.4% to $16.1 billion in the year 2024 compared to $14.2 billion at the end of 2023. On Slide 11, we have the results of United Real Estate Company, URC. Across its key income streams of the business, the company reported a 4.4% increase in rental and hospitality income, offset by 1.1% decline in the contracting and services revenue, resulting in a 1.5% increase in revenue for the year 2024 at $287.7 million. Operating profit dropped 20.5% to reach $65.2 million versus $82.1 million in the year 2023. URC's net profit posted an increase of 21.3% for full year 2024 at $16.5 million versus $13.6 million in the year 2023. It's worth it to note that in October, URC was awarded the S5-A/C/D commercial investment project at Sabah Al Ahmad residential area in Kuwait. The contract duration is for 22 years, inclusive of 2 years for design and build, and covers an area of 35,464 square meters over 3 land plots. The agreement was signed in January 2025. Moving on to Slide 12. Starting with our logistics and power rental business, JTC, which reported a total revenue of $92.5 million for the year 2024, 1% lower than $93.5 million for the year 2023. The drop is mainly attributed to the poor division with a slight decline in contract logistics and power rental, partially offset by an increase in the warehouse segment and equipment leasing. Net profit for the year 2024 amounted to $21.6 million, 3.8% higher than the reported $20.8 million for the previous year. Onto the National Petroleum Services Company, NAPESCO, our oil field service provider. NAPESCO's revenue for the year 2024 went up 3.8% to reach $133.2 million versus $128.3 million for the year 2023. NAPESCO posted a net profit of $43.6 million for the full year 2024, 56.2% up from $27.9 million for the previous year. The increase in net profit was primarily driven by the operational efficiencies and improved market share as well as the addition of the group's share of results from associates and joint venture in 2024. Moving on to the health sector with Advanced Technology Company, ATC. ATC witnessed a 6.3% increase in revenue to reach $581.7 million compared to $547.3 million in 2023. ATC achieved a net profit of $2.3 million in 2024 compared to $16.3 million in 2023. Finally, Slide 13 shows the recent business updates on OSN. As you know, earlier in the year, OSN successfully closed the merger between Angami and OSN+. The deal involving an injection of $38 million has created a media tech company with AI at its core. The MENA streaming powerhouse now has 120 million users, more than 2.5 million subscribers and $100 million of combined revenue. OSN continues to negotiate its content and studio deals with the aim of optimizing costs. It constantly works to enhance the dishless OSNtv box experience. The plug-in box reflects OSN's strategy towards streaming TV with a linear environment. And a more recent update. Subsequent to the year-end, Warner Bros. Discovery announced a strategic minority investment of 30% in OSN Streaming Ltd., a subsidiary of OSN Group for a value of $57 million. The investment reinforces WBD's commitment to the region's rapidly growing streaming landscape. The transaction will be completed in stages and is subject to customary conditions, including regulatory approvals. This investment builds on OSN's strong growth trajectory and market leadership in MENA's streaming industry, strengthening its competitive position as one of the region's premier entertainment destinations. As part of this partnership, both OSN and Warner Bros. Discovery will invest in high-quality, locally produced content to ensure a richer and more diverse offering for viewers. I will now hand over the call to Elena to invite our listeners to raise any questions they may have.

Thank you very much for the presentation. We will move now to Q&A. [Operator Instructions]. We will take the first question from Rakesh Tripathi.

I had a few questions. Firstly, regarding the Warner Bros. investment in OSN, if you can give us a better sense of what this would mean going forward. The stake purchase that has happened, does that imply any cash coming to the holding company? And what happens with regards to future cash infusions into the OSN business? Will it be joint infusions going forward from KIPCO and OSN? Or how would this arrangement basically work?

Okay. Thank you, Rakesh, for the question. So as mentioned, it was a minority strategic stake investment for 30% in OSN Streaming Ltd., which is the owner of the controlling stake in Angami. We're looking forward for a good partnership with WBD, but WBD is an international name that will bring expertise and also cash flow, which we mentioned. It will be $57 million in OSN Streaming. Answering your question, that $57 million will be cashed to OSN Streaming Ltd. We will have a certain commitment to fund that particular business. As you know, the media segment always requires funding for content acquisition. And also there is a certain commitment to produce a portion of locally produced content to diversify the product mix provided at the streaming level. That particular partnership will bring in diversification of the particular product mix for the viewers.

Understood. So no cash coming directly to KIPCO parent at this stage, but future infusions would be in proportion of the ownership basically. So some portion from KIPCO and some portion from WBD going forward as far as content production or acquisition is concerned. And the $57 million is direct infusion from WBD into OSN, which will be utilized for the general corporate purposes of OSN. Am I correct?

To a large extent, yes. It's a complex deal. If you go to the full disclosure that is done at NASDAQ, you will see that they be -- they will have a certain option exercisable in 2027 -- mid-2027. Up to that time, we are committed for a certain production and funding for the production at the level which has already been committed before when the time -- when we have acquired Angami. So that commitment remains until that time. Post this, there will be for sure -- after that, the 2027, there will be a certain common commitment for future funding if required. Until then, we are -- we remain committed for the Angami investment. And that particular deal, as mentioned, will bring in a certain more diversified product mix. Also if I take a step back, once we did the Angami deal, we had 3 main objectives. So the first objective is to achieve a certain -- acquire a certain platform with AI at score, which has been achieved. The second objective is to have cost efficiency, which has largely been achieved through the cost synergies that we have done so far. And the third is to have a diverse revenue and product mix. And we have seen so far through the introduction of the 4K plan as well as the advertisement deal plan that those objectives has -- by and large has been achieved so far through the expertise of the Angami team. Now along with Warner Bros. as a partner, that will help us achieve and accelerate more the progress of the streaming business, OSN Streaming, as well as the music business. And that should -- with the cost synergies that we have, that will lead to a better performance and more additional value at OSN level.

Right. So that is very clear. But -- so eventually, just from an investor standpoint, I wanted to understand what would be, say, the end game for this investment. Because since the time KIPCO made this investment, this has not turned out to be a very return-accretive investment for the business. It's been one that has taken in a lot of -- required a lot of cash infusion, as one would expect in a media business. So with all that, and now, first the partnership with Angami, and now the subsequent partnership with Warner Bros., this helps to improve the quality of content. But how does it help the parent eventually? What's the eventual output that you expect from OSN? Where do you -- do you expect this to become a cash-positive business, say, 3 years, 4 years down the line, something that starts contributing in terms of dividends or in any other form of cash-upstreaming to KIPCO? How does it help the parent? For now, I understand that up to 2027, there would be more cash infusions required, and KIPCO will be doing that. But at some point, obviously, the objective has to be to get this to be either a cash contributing business or to eventually divest it, making it a more attractive business.

Thank you. As rightly mentioned, the diversion to streaming business that has started mainly in the past 3 years, we had -- the main objective in mind is to turn that business profitable and make it more lucrative for such strategic -- either partnership or strategic exit and make that particular business performing much better. So as mentioned, we have main -- the objectives -- the main objective in mind is to make that business look better -- performance look better. With the Angami acquisition, we had acquired expertise in IT specific and in digital and in the product mix, specifically the advertisement -- the advertising plan and also the introduction of 4K and Dolby Atmos. With the partnership now with WB, we have achieved a strong partner, the first strategic partnership as well as content. We -- also we have secured content for the medium term. And all these achievements in terms of cost synergies, revenue synergies and securing of content will lead to a better performance in order to achieve better revenue and results and, of course, a better shareholder value. As we always say that we are looking at that business for -- we're looking always for strategic -- offering strategic partnerships or certain exits. And we have performed all of these measures in order to reach that particular goal in the medium term or maybe the short term as well.

Understood. Very, very detailed and very clear. Just a couple more questions on -- one on cash. At the whole core level, there's been some more cash decline. I think there was the cash receipt of the first installment from the GIG stake sale as well. That was utilized partly to pay down the debt, and some of the internal cash was used as well. So given where things are, one, what is your outlook on the cash flows and the dividend receipts for 2025? And secondly, where are we right now in terms of the refinancing of the upcoming $1 billion of debt maturities, so basically the mix of the debt that's coming up '26 and '27? Where are we in terms of that refinancing plan? Given that the cash balance on the books has also been declining, how are you looking to refinance that and the cash expectations in '25 all at the parent level?

So the company has been working recently on a 2-pronged strategy. So the first strategy is on the asset side where as a holding company, we are striving to improve and strengthen the overall operating performance of our key subsidiaries. And if you have seen in the presentation when we talk about the banking sector, the food sector, even the energy sector, there has been a trend of improvement in the operating performance of those companies. And those actions, whether it has been driven by their management team or by our also representative on the Board, they have success -- they have been successful in executing their strategies. And that will lead eventually to a better performance and also to a better dividend distribution in the future. So we are expecting a better dividends by those companies, so the number -- the expectation of dividends which will be declared over the next 2 quarters should show a certain progress over the number that we have seen in the year 2024. Unfortunately, on the interest expense side, still, things are uncertain in terms of interest rate cuts. And interest expense has always been a major part of our expenses. Now coming to the liability side, our strategy has been to lengthen the tenor of our liabilities and also to refinance them in a proactive manner well ahead of their maturities. And we have successfully tapped diverse pool and pockets of liquidity in the past, whether it's conventional KD bond market, KD Sukuk market by establishing the international Sukuk program or whether it's a relationship banks within Kuwait and the region. With regards to the '26, '27 maturities, as you know that the first -- the October '26 is almost 18 months away and the February '27 is 20 months away -- 20, 21 months away of today. So as per our track record of proactive liability management, we will intend to refinance those EMTNs ahead of their scheduled maturities. We are currently assessing various funding options, including international and domestic capital markets for both conventional and Islamic funding as well as bank loans market. Once we make progress, the same shall be duly announced as per the applicable regulatory guidelines. And regarding the short-term bank debts that we have, those are typically revolving. And with our relationship banks, we will be able to annually revolve those bank stocks.

[Operator Instructions] We have a question from [ Dimitri ].

Can you hear me?

Yes, we can hear you. Go ahead.

Yes. Thank you for the presentation and the detailed answers to the questions. I have 2 follow-up questions from -- so on the cash balance, I think -- I just wanted to confirm that the cash balance at year-end of around $280 million, so you already received all GIG proceeds. And basically, there are no payments due, and you do not receive any payments after the period and -- on this GIG proceeds. So basically, the number at year-end already includes all GIG proceeds. This -- my first kind of quick clarification on cash balance. And on the second question, again, apologies for kind of asking again same question on refinancing. And you mentioned a few options to address 2026, '27 bonds. Again -- and you already discussed that your interest expenses are elevated. But again, by looking at the current yield of your bonds, it's around 9% yield. If you look at '26 bond, it's one of the widest yields in the GCC space. I'm just curious. So basically, in light of your strategy, just to kind of to do something with your interest expenses and kind of looking at the current yield of your Euro bonds, 9%, so probably it's at least double of what you're paying on the current coupon. Basically, if you come to the market today, you will have to pay double of this coupon. I'm just curious, do you have a kind of plan B for tackling these maturities? You mentioned this refinancing using different sources. Do you have any kind of plan B in terms of the asset sales, support from shareholder just to reduce the debt amount? Because I'm trying to understand how will you manage your interest expenses in light of the current yield of your bonds and basically your coupons that you might achieve on the new refinancing will double if you look at the current yield. So just trying to understand if there is any plan B for you in case the refinancing will be more expensive than you thought. Those actually are the questions from me.

Thank you, Dimitri. So answering your first question, yes, I confirm the ending balance of $283 million, and that includes everything related to the sale of GIG. The last installment was received -- actually, the first installment, because we have already monetized the other 3. So it was received in December, and it was utilized mostly for the repayment of the KD bond of KWD 66 million. That was due in December itself. Answering your second question, as mentioned before, so we are assessing many options, not only the international market, but also domestic and regional capital markets, conventional as well as Islamic and also the domestic market. So -- and we will be assessing various maybe combination that will reach to the most efficient pricing, which will be most efficient, let's say, credit for us. And we will be announcing soon once things progress about any development in this regards.

Okay, okay, That's clear. And for 2025, for this year, you already mentioned that you'll still have more visibility on the dividends in the next quarters. Any other inflows that you're having in your pipeline just to be received as a parent level, maybe in sales proceeds and et cetera? So basically something just to share with us. Or is it only like you, what you mentioned, you expect increasing dividends because of the increase operating performance? Just trying to understand if there are any other inflows you expect in 2025 from the parent level, from other sales initiatives and et cetera.

As a holding company, always, we evaluating various options and we are open for opportunistic acquisitions or disposal, subject to investment criteria. We will be looking, but we will be committed, of course, for any transparent communication. And we will disclose any such event if it's happening. At the moment, we have nothing to comment on.

We appear to have no additional questions. [Operator Instructions]. There are no additional questions in the queue. Hence, we can conclude the call. I would like to thank the management team of KIPCO for the presentation and for their time today. And I'll hand it over to you, Moustapha and Eman, for any closing remarks. Thank you.

Thank you very much to everybody who joined us today, and we'll see you in the next quarter. Good evening.

Thank you.