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

Good afternoon, everyone, and welcome to KIPCO's 2Q '26 Results Call. This is Ahmed El-Shazly from EGF Hermes, and it's a pleasure to have with us on the call today from KIPCO's Management; Mr. Moustapha Chami, Group CFO; Mr. Naveen Kumar Rajanala, Group's SVP, Financial Control; and Ms. Eman Al Awadhi, Group SVP, Corporate Communications & IR. I will now hand the call over to Eman to start with the presentation.

Thank you, Ahmed. Good afternoon, everyone. We welcome you to our earnings call for the first half of 2026. Please note that today's presentation is also available on our website, along with the financial statements for the period. Moving on to the presentation, please refer to a 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. . Moving on to Slide 7, looking at the broader economic environment. Lower economic activity continued inflationary pressures, particularly in Turkey, elevated interest rates have adversely affected our performance during the first half of 2026. As regional conditions recover, however, we expect performance to gradually normalize in the coming periods. Business sentiment softened during the period, delaying spending and investment, while shipping and logistics disruptions placed additional pressure on regional trade flows. Inflation also continued to affect raw material margins, while delays in anticipated interest rate cuts maintained pressure on financing costs -- before rebounding by 14.2% in 2027. Turkey meanwhile is expected to record a growth of 3% this year, and 4.6% in 2027. Inflation remains another factor to watch. It's estimated at 2.2% across the GCC and 2.5% in Kuwait for 2026 while inflation in Turkey remains considerably higher at around [ 30.3%]. Oil prices also elected the volatility in the operating environment. Brent crude averaged approximately $63 per barrel in 2025, rising to $78 in the first quarter of 2026 and $79 in the second quarter. The current full year estimate stands at approximately $83 per barrel. Despite these pressures, strong policy and financial buffers continue to support resilience, regional [indiscernible] have prioritized liquidity and financial stability including measures introduced by the Central Bank of Kuwait to ease liquidity and capital requirements. Kuwait sovereign strength remains well supported with S&P and Moody's reaffirming their ratings with stable outlooks in May and Fitch affirming Kuwait's long-term issuer default rating at AA- with a stable outcome in August. I will now hand over to Moustapha to take you through some of KIPCO's key financial highlights for the period.

Thank you, Eman, and good afternoon, everyone. Turning now to Slide 8, where we review KIPCO's Group financial performance for the first half of 2026. Despite the challenging macroeconomic and geopolitical environment, the group continued to demonstrate resilience across its diversified portfolio. Total revenue for the first half stood at $2.58 billion, an increase of 3.5% compared with the same period of last year despite the challenging environment. Total assets increased to $46.9 million, up 4.6% from year-end 2025, largely driven by growth in the group's banking business. At the parent level, net debt to equity improved to 0.82x, reflecting our continued focus on maintaining a prudent well managed capital and funding structure supported by strong liquidity. Growing the top line and the balance sheet while continuing to reduce leverage in these conditions is the clearest measure of the group's resilience. Let's move to Slide 9. Looking more closely at revenue. Total group revenue reached $2.58 billion in the first half of 2026 compared with $2.5 billion in the corresponding period last year. This is the third consecutive 6-month period of revenue growth starting from H1 2024. The group's top line remains well diversified with growth during the period, largely driven by the increase in banking net interest income. Net fee and commission income stood at $134 million, while Industrial and Logistics income reached $479 million. [indiscernible] while energy income increased slightly to $97 million. Media and Digital satellite income was also broadly stable at approximately $115 million. This exemplifies the diversification benefit of the group 9 sectors over 20 countries and thereby the diversified revenue streams supporting the growth of the group revenue even in this backdrop. Moving to profitability on Slide 10. Operating profit remained broadly stable at $287 million in the first half of 2026 compared with $288.2 million in the corresponding period last year. Profit for the period stood at $91.1 million to $119.6 million in the first half of 2025 while net profit attributable to KIPCO shareholders was $17.3 million compared with $33 million in the same period last year [indiscernible] primarily by the deterioration in the macroeconomic backdrop across the region. On Slide 11, we have the holdings financial position, where you can see that KIPCO maintained a solid balance sheet during the period. Total assets increased to $46.9 billion compared to $44.9 billion at year-end 2025, representing growth of approximately 4.6% year-to-date. As mentioned earlier, this growth was primarily driven by the growth in assets from the [indiscernible] businesses. Equity attributable to KIPCO shareholders increased to $2.13 billion compared to $2.09 billion at year-end, while book value per share slightly to $0.455 from $0.461 at the end of 2025 primarily due to increase in outstanding shares due to distribution of 3% dividend using treasury shares for the year 2025 [indiscernible] parent leverage reduced. All of these indicate a solid balance sheet management. Moving on to the financial performance of the group principal operations we have on Slide 13, the key performance highlights of our banking operations. We start with Burgan Bank Group's results for H1 2026. I would like to note that Burgan held its earnings calls on August 4, and can refer to the transcript for more details. The bank delivered resilient revenue growth in H1 2026, underpinned by prudent, the management and balance sheet resilience, a complex and evolving operating environment. Revenue increased by 9% year-on-year to $446.5 million compared with $408.3 million in the first half of 2025 and $305 million in the same period of 2024. New stream supported by higher net interest income and sales contribution from noninterest income. Net interest margin remained stable at 2.2%. Net profit attributable to shareholders stood at $36.1 million for the period declined compared to the first half of 2025 was mainly driven by operating expenses and higher-than-expected impact from IAS29 from Turkey. Growth across its balance sheet, loans and advances increased to $16.5 billion compared with $15.7 billion at year-end 2025 while customer deposits increased to $18.3 billion from $17.7 billion. Burgan Bank also continues to maintain strong capital and liquidity positions with a capital adequacy ratio of 15.9% and a liquidity coverage ratio of 197%. Moving to Jordan Kuwait Bank, JKB on Slide 14. The bank's overall core performance was strong. JKB's net interest income grew by 16% year-on-year. However, noninterest levels were impacted by regional political tensions through lower commission and foreign exchange income at its side subsidiary Bank of [indiscernible]. As a result, revenue stood at $209 million compared with $247.2 million in the first half of 2025, representing a decline of approximately 15.5%. In Net profit attributable to shareholders stood at $61.7 million compared with $73.8 million in the first half of last year. Loans and advances stood at $2.9 billion compared with $3 billion at the year end 2025 while customer deposits stood at $5 million compared with $5.3 billion. The bank continues to maintain a strong capital position with a capital adequacy ratio of around 24%. Looking ahead, JKB remains focused on its digital transformation and enhancing its banking services while expanding its role in sustainable finance, strengthening regional presence and further diversifying its income streams. I will now hand over to Naveen to take you through the next part of the presentation.

Thank you, Moustapha. Good afternoon, ladies and gentlemen. If we can move to Slide 15, where we look at SADAFCO. The performance during the first half of 2026 was impacted, as mentioned by my colleagues, the macroeconomic and regional developments, which has placed pressure both on revenue and profitability. But despite this, the company maintained its leading market position across its core categories and it continued to demonstrate a strong financial position as we will see on this slide. Now revenue stood at $396 million compared to $406.7 million in the first half of the same period last year representing a marginal decline. Now operating profit also declined to $46.5 million from $65.1 million. Now this is largely reflecting the higher raw material costs, regional maritime disruption related surcharges, inflation and higher fuel prices amidst the current geopolitical conditions. Our net profit stood at $49 million compared to $65 million in the same period last year. One of its key categories with market shares of 51.5% in Ultra-High Temperature milk, 51.1% in Tomato Paste and 31% in the Ice Cream category. The company also maintains a fairly strong financial position. It has of equity, $147 million in cash and short-term investments as of on H1 '26. Now looking ahead, SADAFCO remains focused on protecting its market share, while it's also putting in efforts to accelerate sales volume growth across multiple markets and emerging channels. If we move on to Slide 16, where we'll look at URC, United Real Estate Company. Now URC held it's earnings call earlier this year -- earlier this week, rather on 16th of August. You can refer to the transcript of that call for more details. Now if you look at URC's performance in the first half of 2026, they demonstrated resilience and effectively managing operational challenges while maintaining focus on efficiency and cost discipline. Now revenue growth in H1 '26 came from higher real estate services income and from development and trading income. Again, demonstrating diversified income streams within the company. Now the biggest story here is the asset base. When you look at their asset base, it grew from $2.2 billion to $2.7 billion with the addition of Sharq Waterfront. Now that brings this new project brings a significant development pipeline into the portfolio. The net profit of URC of $10.1 million was lower than last year, primarily due to reduced income from associates. And this sits outside its operating business -- operating business itself improved quite considerably. Now looking ahead, URC remains focused on the successful execution of its newly awarded projects while continuing to build a strong project pipeline across different businesses. With that, let's move on to the next slide, where we look at JTC, which is our logistics and power rental business. So the performance in the first half 2026 reflects the impact of the geopolitical developments on business activity levels, particularly in its logistics operations. Now despite this impact, the revenue stood at $47.2 million compared to $51.3 million in the first half of 2025. Now this marginal decline was mainly driven by lower revenue from ports management, logistics contracts, but this was successfully and partially offset by higher revenue from equipment leasing business, warehousing -- so again, underlines our showcases a well diversified revenue model within the company compared to $12.6 million in the corresponding period last year. Again, reflects that the operating margins were maintained at stable levels through active cost control. Now net profit attributable to shareholders stood at $10.2 million compared to $11.6 million in the same period last year, largely due to the impact of decline in top line. Now if we sort of look ahead, JTC remains focused on expanding its infrastructure, logistics capabilities to support future business growth as we expect the geopolitical environment to sort of start normalizing over the next few periods. Now if you move on to Slide 18, looking at National Petroleum Services company, NAPESCO. NAPESCO delivered yet another solid sort of first half of 2026 and the results of performance was supported by improved operational efficiency and continued focus on cost optimization. The revenue increased marginally to $93 million compared to $92.2 million in the first half of 2025. And this was supported by higher revenue from non-oil field services and it was partially offset by the decline -- marginal decline in revenues from oil fields. Our operating profit increased to $35 million compared to $33.2 million in the corresponding period last year. And this reflects margin expansion due to the improved operational efficiency and cost optimization. The net profit attributable to shareholders increased by 8% to $26.8 million compared to $24.8 million in the first half of 2025. Now moving on to ATC Advanced Technology Company on Slide 19. ATC's performance in the first half of the year was clearly impacted by the regional geopolitical events and the resulting supply chain disruptions. If you look at revenue, revenue for the first half of 2026, declined to $216.7 million compared to $260.5 million in the corresponding period in 2025. This decline reflects delays in contract renewals and deliveries as well as the impact of increased freight charges during the period. ATC recorded an operating loss of $22.4 million compared with an operating profit of $0.6 million in the corresponding period last year. [indiscernible] $11.5 million of net loss in H1 2025. Now the decline in top line essentially reflects delays in contract renewals, increased freight charges, delayed deliveries. Additionally, there were losses from ATC's subsidiary, KMCH, which impacted the company's bottom line. But we expect the revenue run rate to pick up during the second half of the year. Now going forward or looking ahead, ATC remains focused on opportunities within the Kuwait's health care sector alongside with focus on turning around the performance of its subsidiary, KMCH. With that, I will hand it back to Eman to take you through the next couple of slides.

Thank you, Naveen. Moving to OSN Group on Slide 20. Over the past 2 years, OSN has made significant progress in building an integrated streamlining -- streaming platform across video and audio, bringing together OSN+, OSN TV and Anghami. This progress is reflected in stronger subscriber growth. OSN+ subscribers have increased by 57% over the 2-year period, while Anghami subscribers have grown by 44%. . Today, the group has significant reach across its platforms with 3.6 million paid subscribers on OSN+ and Anghami, supported by 45 telecom partnerships across B2B and B2C distribution channels. OSN also serves approximately 100,000 business customers across hotels, multi-dwelling units and bulk subscriptions. Building on this progress, OSN has developed a clear 2-year strategic plan focusing on driving profitability through synergies, AI and greater operational leverage. The first priority is platform consolidation, bringing OSN+, OSN TV and Anghami onto one unified technology stack covering infrastructure, billing and content management. The second is AI enablement across engineering and customer service, which is expected to increase development velocity by approximately 40% and allow the group to build and deliver products more efficiently. Finally, OSN is focused on resource optimization, targeting a 25% reduction in direct costs through the consolidation and renegotiation of content, technology and distribution costs. Together, these initiatives are designed to capitalize on the scale OSN has built over the past 2 years and provide a path towards sustainable profitability. We now move slide 21, where we have our ESG update. We continue to advance our sustainability agenda during the period at the KIPCO level and across our portfolio business. In June, KIPCO published its fifth annual sustainability report, reflecting the progress we've made towards a more integrated approach to sustainability across the group. We also saw a number of important developments across our portfolio. In July, JKB issued its second green bond with the IFC investing up to $100 million to support the financing of green projects with long-term environmental and economic impact. Also during July, alternative energy projects company, announced the capital increase to support the expansion of its solar energy business in Kuwait and across the wider MENA region. The transaction was led by KAMCO Invest in collaboration with [indiscernible] Bank. Alternative Energy also signed a 15-year agreement with URC to install an 8.77 megawatt solar system at Sharq Waterfront project. The project is expected to reduce approximately 189,000 metric tons of CO2 emissions over its lifetime. Beyond these initiatives, several of our portfolio companies, including Burgan Bank, SADAFCO, JKB and KAMCO published sustainability reports. Together, these developments reflect the continued integration of sustainability across the group with an increasing focus on translating our ESG commitments into tangible initiatives and investments. I will now hand back to Moustapha for some final remarks.

[indiscernible] at the challenging operating environment, we continue to make progress during the period across portfolio performance, deleveraging and value creation. [indiscernible] We view this impact as transitory and the underlying fundamentals of our portal companies remaining tough. At the parent level, our capital and liquidity position remains strong, providing us with the flexibility to continue using our plans. As we look ahead, our focus remains on resilience, disciplined execution and creating long-term value across our diversified portfolio. We remain resilient today and positioned for tomorrow. . I will now hand over the call to Ahmed to invite our listeners to raise any questions they may have.

[Operator Instructions] We have our first question from Simrin.