Makhazen (MKHZN) Earnings Call Transcript & Summary

Hello, everyone, thank you for your patience and welcome to the Agility Q1 2022 Earnings Webcast. My name is Daisy and I'll be coordinating today's call. [Operator Instructions] I would now like to hand over to your host, Sidharth Saboo from Arqaam Capital, to begin. So Sidharth, Please go ahead.

Thank you, Daisy. Good afternoon, ladies and gentlemen, and thank you for joining us today. This is Sidharth Saboo, and on behalf of Arqaam Capital, I would like to welcome you to Agility Q1 2022 Earnings Webcast. With me here today, I have Mr Ehab Aziz, Agility's Chief Financial Officer, and Agility's Investor Relations team. Without further delay, I will now turn over the call to Soriana Borjas, Agility's Investor Relations Senior Manager.

Thank you and welcome, everyone, to Agility's Q1 2022 earnings webcast. Mr. Ehab Aziz, our Group CFO, who will be with you after this introduction, will present the company's financial and operational performance during this quarter. Again, if you have any questions, please, type it in the chat box on your screen and we'll address it towards the end of the session. Before we begin, I would like to draw your attention to the disclaimer available on the presentation. Please have a look to read it, and then I'll hand it over to Ehab. Thank you. Ehab, over to you.

Ehab, I think you might be muted.

I'm here. Good afternoon, Good morning, everyone. We'll try to go through the different topics that we have today, mainly 3 topics. We'll give you the company overview. And when I say the company overview, as we discussed the previous quarter, we started our new segment reporting from Q1 this year. So we'll touch based on that, and then we'll go through the performance for the quarter and then we'll conclude with the shareholder return and the dividends that has been announced and reiterating our dividend policy for the next 2 years, and then we'll open it for Q&A. So I would like to start by reiterating what maybe we have discussed before, which is how we are looking at the company going forward and how the company from an operating and financial perspective will be managed. As you can see on the slide, the company now is basically split into 2, what we call controlled business segment, which is segment 1; and minority stakes or investments, non-controlled investments and segment 2. And as you can see on segment 1, these are all mostly the legacy businesses that we have. The top 4 businesses in terms of size are the Agility Industrial Real Estate; Tristar; the Global, which is the customs business; and then NAS, which is, as you might be aware, announced an acquisition with Menzies. So for now, Menzies, as you can see on the right hand side, is classified as segment 2, because we haven't closed yet the acquisition and whatever amount of money we have paid on that investment so far is classified under the Investment segment. Once the acquisition is concluded, which is expected in Q3 of this year, Menzies, will be consolidated with NAS, and we'll shift to Segment 1, under the controlled business. We'll walk you through some of the numbers of each segment, but I think it's important to visualize how the company is currently organized. And so, when you look at the numbers and you look at the performance, I think it's very critical to understand what is coming from segment 1, which is the controlled businesses, and what's coming from the investment segment, which is today after the DSV deal, became extremely significant, as we will talk about later in the presentation. So on the investment side, we have listed investments and you can see the names here that DSV, NREC, GWC, Hyllion, Menzies and SWVL and then you have the unlisted. And probably the key investments in unlisted is the Reem Mall. As you probably know, we -- our investment in Reem Mall is through a convertible debt and it's an unlisted investment, hence it is classified under that. Moving to the Q1 results. What you see here is on the Q1 2021, the previous year is only it's apple to apple without GIL, all the way except for the net profit, which we have shaded the part of GIL. So the numbers that you see on revenues, net revenues and EBITDA are apple to apple. The same businesses that we had last year are the controlled businesses, as well as the Investments are reflected in this. So our revenues of course after selling GIL has shrunk. And now we have third quarter roughly KWD 130 million, KWD 140 million of revenues and quarter-over-quarter -- sorry, year-over-year, we have achieved about 22.3%, and that is a reflection of strong growth in different entities as we will see later on, but also is the recovery from the COVID situation. So you can see the revenue is growing very nicely at 22%, net revenue is at 15% growth and then EBITDA has seen significant growth. I will break down that EBITDA later on, because what the EBITDA that you see here is for both the investments, whatever we value through P&L, plus the operating entities, the controlled entities. So we'll split that in the coming slides, so to give you a flavor of how much the controlled businesses are generating and how much the investments, which is kind of a noise, because it's a reflection of the listed entities and the dividends we receive from whichever entity that we split that as I would show in the --. But overall, the results has seen a significant growth 72% year-over-year for 2022. Net profit, again, the KWD 11.7 million that you see here is from the legacy GIL, that's before deconsolidated GIL. Because if you remember, GIL was deconsolidated in August last year. So Q1, Q2 and part of Q3 will have the GIL numbers. So we take that out and that's the shaded KWD 11.7 million and then the KWD 0.9 million is basically the result of the non-GIL the continued operation last year, and that as you can see has seen a significant growth year-over-year. Now this I think is a very important and critical slide, because it gives you a clearer picture of how much of the earnings and the revenues are generated by the sustainable, the more sustainable, more operating, more controlled businesses, which is what the label here has controlled versus investments. Investments will go up and down and make noise because as per the accounting statement, some of our investments are treated through P&L. So if the stock price of certain investments go up, that will go up in the P&L, so you see significant profit. If it goes down, it's the other way around that you see significant losses. So if you focus on the controlled businesses, this is where you see the 22% in revenues, growth 15% in revenue, which is more or less what we have seen in the previous slide. Now when it comes to EBITDA and EBIT, because of the investments, the group EBITDA and EBIT becomes little bit noisy, but here you can see clearly that the controlled entities have register 31% growth year-over-year in terms of EBITDA, and about 45% EBIT, and that is I think a very strong recovery from COVID and we are seeing all of our entities actually performing very well and almost back to the pre-COVID levels. There is another twist fortunately or unfortunately, but once we close Menzies, Menzies will be consolidated under the controlled entities, and these numbers will yet change again, but that I think is -- I would say, a good problem to deal with. And I think our objective here is to increase the size and the magnitude and the importance of the controlled entities, while we nurture and we invest wisely on the investments that we have. So this slide shows the composition of the assets and the liabilities and the key point that I want to make here is, if you look at the assets today, 60% of the assets are actually non-controlled. That's a significant amount of our assets are in the non-controlled, in the investments sector. Part of that includes the Menzies price that we paid so far, which is [ 19% ], but that's not the significant amount. We have an asset base of KWD 2.8 billion. 60% of that is allocated to in non-controlled and/or the investment and 40% is allocated to the controlled businesses. So I think, and that's why we believe the segment reporting is very critical for shareholders, for investors, for all the stakeholders to understand the value of the company and how the value of the company is driven going forward, because the investments became a significant portion of our assets as a result of the DSV deal and hence we believe it's very critical and important to split what comes from operational split, the assets in that way, so you can have a better understanding and a better view of the underlying operation and the underlying performance of the company, and hence the value of the company going forward. In terms of cash flow, again there is little bit of noise this year. This year is clean, I would say, but it's the noise is coming from the comparative figure in 2021, because what you see here is -- and it's as per the accounting standard, it's the consolidated cash flow statement including GIL. So the numbers that you see here are not necessarily apple to apple, but we have been able to generate positive operating cash flow of KWD 23 million for the quarter, which I think is a positive sign, because if you compare that to EBITDA and EBITDA less leases, it's almost most of our earnings are being converted into operating cash flow, but then that operating cash flow gets invested in CapEx and investments and again, the KWD 60 million investment that you see here is basically due to the money that we have paid for Menzies. Again, this is a big picture view of the 2 segments of the company today, and we are trying to put the historical figures in perspective and the 2019, 2020 and 2021, these are annual figures that Q1 2022 is quarter-to-date. So they are not comparative, but you can more or less annualize liquidity in Q1, and it will give you a sense of the magnitude relative to the historical, and you can see clearly that point #1, we are recovering from COVID. So we are going back very closely to the pre-COVID levels. And then, 2, overall, there is actually growth in that segment of the company relative to the 2019. So we are not only recovering, but we are -- we probably see the 2019 figures for that segment. What you also see here, which is something that is based on management accounting. It's not necessarily audited, is something that we tried, because cash is fungible and even debt is fungible since all the debt is both at the corporate level and then we fund the businesses. So cash is fungible. We try to allocate as much as possible how much net debt belong to the controlled businesses and how much net debt belongs to the investment segment. And you can see here net debt here is about KWD 80 million and about KWD 90 million -- call it KWD 100 million of these obligations. So again, we are trying to peel that onion as much as possible to provide transparency, so you can have a better assessment and a better view about the value of the company. Now we move to investment -- Segment 2, which is the investment. The value as of the end of Q1 2022 is about KWD 1.3 billion on the listed. And on the unlisted, the unquoted, which is predominantly based on, if we have comparable valuation, we use that. But predominantly, it's the cost or the carrying value is about KWD 355 million. So in that segment, we have about KWD 1.6 billion of investments and we allocated internally around KWD 305 million of net debt. So that also gives you an idea of how the company, the numbers per segment, not only the P&L, but also how much as of the end of the quarter the value of the investments segments as well as the allocated net debt. Here you can see the components of the controlled entities. The industrial real estate is 7.6% year-over-year revenue growth, customs business is about 6%; Tristar, significant growth, 29%; NAS, and that's organic growth, that's not -- Menzies is not reflected, about 27%; UPAC, about 37%. So you can see most of our major engines in that segment has been performing very well. I will just touch base very briefly on this. Again this is a reminder of the value creation story throughout the years. And as you can see, an IRR of about 24% and I think the market has been, I would say, very receptive to the DSV deal, which you can see the impact in 2021, about 55% year-over-year -- sorry 2021 over 2020, which is year-over-year growth, and then 19% in 2022 return as of the end of the quarter of -- as of 27 March 2022. So significant value creation, an IRR of 24% and I think we continue to generate significant amount of value of almost KWD 8 billion in value over the past almost 10 or 11 years. So we continue to focus on shareholder value and creating shareholder value. Of course, the path from here is much difficult because the base is bigger. But I think we have proven throughout the years that we can create value and make investments that in the medium and long-term creates wealth. This is just a reminder of the dividends. As you can see, we have declared, the Board declared in 2021, cash dividends of KWD 42 million, which is about 20 fils. Of course, you can see that we are issuing also bonus shares, which makes the amount in absolute KWD, higher in the following year. So I think we have been paying around 2% dividend yield in a low interest rate environment that has been, I think reasonable. Going forward, we are very conscious of the dividend-driven nature shareholder base that we have. However, we would need to balance investments, servicing the debt that we have and as well as rewarding our shareholders in different means. So and again, the payout ratio is quite low in 2021 because of the significant profit that we have realized from DSV. I think that concludes my presentation and I think we'll move to Q&A, if any.

[Operator Instructions]

Okay. It doesn't seem that we have lots of questions. So I think that concludes the presentation.

We've just had a question written from [ Ryan Khan ].

Yes. So it's about the Menzies time line. I think it's a regulatory process now and I think our expectation is that we close the deal in -- if everything goes well, and you get all the approvals required, it should be in Q3. And that's the time line that we are working on. Unfortunately, I don't have a specific time line, because many of the approvals depends on many regulatory agencies, and we don't know -- we don't control the time line with these regulatory agencies. So I think our estimates, our best estimate is probably mid to end of Q3. Okay. I think that's it.

[ Talhau Samhuri ] would like to register a question. I think he's just typing it now.

Okay. So we'll wait maybe a few minutes. So that the -- I think there was supposed to be a question from Talhau. Talhau, you can send us your questions by e-mail and we'll be more than happy to answer that. I'm conscious of the time of the other participants, and we'd be more than happy to take your questions offline, if that makes sense. Thank you.

Thank you, everyone, for joining today's call. You may now disconnect your lines and have a lovely day.