Makhazen (MKHZN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen and thank you for joining us today. This is Sidharth Saboo, I'm on behalf of Arqaam Capital, I would like to welcome you to Agility's Third Quarter 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 Awrad from Agility's Investor Relations team.

Thank you, Sidharth and welcome, everyone, to Agility's Third Quarter 2022 Earnings Webcast. As usual, Mr. Ehab Aziz, our Group CFO, will take you through Agility's third quarter performance and the major developments that happened in the quarter. After the presentation, we will open the floor for Q&A. We will receive all your questions in the chat box, we will address them towards the end of the session. Before we begin, I would like to draw your attention to the disclaimer available on the present page. As this presentation may contain forward-looking statements. Such statements are subject to risks and uncertainties. Please take a moment to read this. And then I'll hand it over to Ehab. Thank you.

Okay. Good afternoon, good morning, everyone. We'll start the presentation with a business update, and then we'll go to the company overview and then we'll walk you through the numbers, and then we'll open the floor for Q&A. So hopefully, it's a short and effective call. We have been extremely busy over the past couple of years to basically refocus the company and reshuffle our portfolio of businesses that we have. As you know, we have sold our logistics business, GIL to DSV in exchange for about 8% -- now it's about 8.5% stake in DSV. And then immediately after that, we acquired Menzies. That transaction, Menzies transaction has been closed last August. So GIL transaction was closed in August '21, and Menzies transaction was also closed in August '22. So we have been extremely busy with that. And I think it has been very, very exciting times, but also very hectic times. But I think -- I hope that all the efforts will basically position the company for the next phase of growth. We're very excited about Menzies and the potential it provides for us. It is a very solid platform in a very fragmented industry. Today, Menzies has about 55,000 employees and operate in 254 airports in 58 countries. So it's a truly global company and provide us with the platform that we can add on bolt-on acquisitions and take Menzies to the next level and be undisputed leader in that space. Also, during that quarter, we closed another transaction on Tristar, where Tristar acquired 51% in HG Storage. HG Storage was a joint venture between HNA and Glencore, and we acquired the HNA stake. So we became the 51% owner partner with Glencore on that asset. The transaction was about $215 million, and it gives us significant capacity in multiple geographies in storage, which strengthen price power position in that. Also, it's worth noting that we financed -- we refinanced our facility as a result of the acquisition of Menzies. And there is a slide later on in this presentation about our financing profile and how it looks today after the transaction. And I think it's an important topic that we need to discuss and address. So that's -- these are the key events during the quarter. As far as Menzies is concerned, since it would be one of our largest entities within our control group. As you know, we have now the company is divided into controls and investment within the control group, Menzies will be the largest contributor will almost contribute about 40% of our revenues going forward and about 35% of our EBITDA. And we have also integrated NAS to Menzies. So now when we say Menzies group, that includes NAS and Menzies, not just John Menzies that we acquired from the U.K. market, but now it's after integration of NAS. So we are rebranding everything under John Menzies. We will operate under Menzies flag globally. And NAS now predominantly became Menzies Middle East and Africa region for the purpose of the integration. What is the value of Menzies for us? So definitely, it provides a very good asset financially and strategically. But more importantly, it gives us the platform to continue to acquire businesses in that space. And that space is quite fragmented, and there is a significant scope to expand and acquire small and medium-sized and even sizable M&A, which should create value in the next 3 to 5 years. So we are very, very optimistic about Menzies. We are very optimistic about the future and very optimistic about the value that this should bring to our shareholders. Moving to the group financials. Again, given the changes that have been happening and today, in 2 years' time, the company that we used to know 2 years ago is totally different today from -- within a very, very short span of time, given the magnitude of the transactions and the changes and the events that have been taking place. And as a result, the numbers are -- keep changing. So if you remember in the last quarter, as we were basically reporting on controlled entities, and that was without GIL without Menzies. And now we bought Menzies, which closed in August. So we have to consolidate August and September in this quarter, and then we'll have the remaining 3 months of the year. And then the following year, the base year will be different. So there are so many changes in the numbers, and that's why we try to split the numbers as much as possible and give you a little bit more visibility on that, but there is noise in the numbers that we cannot avoid. So revenues without John Menzies, so including NAS, is up 34%. That's, again, the continuation of the post-COVID recovery, which is well ongoing. With Menzies, the increase is about 106% in revenues. As far as the net revenue is concerned for the quarter, it's up 11%, excluding Menzies and about 126% with Menzies. EBITDA grew without Menzies at 21% year-over-year and with Menzies it's about 57%. Again, net profit is up 28% and 48% with Menzies. So I would say it was a very good quarter in a very tough environment. And I think we hope we continue to -- the progress and positive momentum that we have. But again, we are facing quite unpredictable and significant changes on the market, on the interest rate environment, on the inflation environment and the geopolitical environment. So we are navigating through very, very tough times, but I think we should be able to navigate through that as much as possible given our strong base and strong performance and the strong entities that we have. As far as the 9 months is concerned, again, very healthy year-over-year across the board, across the different metrics and across all of the different entities. Revenues up 27%, quite significant, with Menzies about 53%, 16% net revenue, 21%, which is more or less similar to year-over-year and then net profit is up 57%. Net-net, I mean the numbers also include a lot of the transaction costs that we have been incurring to do the acquisitions, the disposals. So again, once we stabilize, which we have, hopefully, we will be a lot more stable going forward in the future quarters, you start seeing the true earning power of the company, which we are optimistic about. Again, this is a slide to remind you of how we look at the company and how the market should look at the company because today, you cannot just only look at the earning power of the company and the EPS and -- of the company and make your views on it because we have a very significant part of our company today classified as investments, which we didn't have in the past, and we didn't have -- we did have some but not as significant as it is post the DSV deal. So we try to give you, again, a split between the control business, which influenced the earning power of the company and the investments. And as far as the controlled businesses, which now Menzies is part of, you can see that the 9 months and clarifying point that '19, '20 and '21 are 12 months numbers and the 2022 is only the year-to-date 9 months. And you can see we are almost even with 9 months, we're almost back to the pre-COVID figures, excluding, of course, the GIS because the GIL is no longer reported in these numbers. So you can see that we have been making very good progress. And hopefully, by -- for the 12 months to 2022, we'll exceed the 2019 numbers. And that is not only coming from Menzies. It's coming from all the entities recovering and achieving strong growth year-over-year. And the recovery post-COVID has been going extremely well. Menzies will, by year-end, would have almost 5 months. So again, will not be representative of the full year impact. We'll try to give you some guidance in the year-end once we go through the integration and get our hands around it, integration has been going very well, and the team is working extremely well. But I think we need to get better visibility on the numbers. The combined numbers with NAS and maybe we'll communicate something to you. You might also report Menzies group, including NAS as a separate entity within our segment reporting. So hopefully, by year-end, you will have a better visibility on that. But the key point here is that we have been recovering from COVID, and our numbers by year-end should exceed the 2019 EBITDA and EBIT numbers. Of course, you can see that the net debt has increased for that segment. And the net debt is -- it's something that we do internally. It's not audited, but it's our best estimate of how much debt is allocated to the controlled businesses versus the investments. And you can see that the net debt has gone up, and that's primarily due to the acquisitions that took place, which we talked about previously, the Menzies and the HG Storage within Tristar. On the investment side, the dominant factor in investment side is definitely DSV. And as you might know, the markets have been going down because of higher interest rate and because of inflation and because of the geopolitical situation in Ukraine. And as a result, DSV also gone down with the market. Now we believe that is a temporary decline in DSV. We don't believe that the intrinsic value of DSV is much higher and I think the consensus view from analysts and DSVs were covered by international brand is actually much higher than where it is today. So internally, we have our views that the numbers and the performance so far has been extremely, extremely strong. And we believe once the market digest the interest rate changes and settle and investors start looking at earnings, I think DSV should relatively outperform the market and its peers given the very, very strong performance. So we have no like doubt about the abilities and to perform and deliver. But the market went down and DSV went down with it. And I think it's also -- that's why we also put DSV and the accounting treatment of DSV as a change in equity, which we will see later on because we didn't want the volatility of the stock price to go up and down. But that segment, as you can see, is about -- total is about KWD 1.2 billion of value. That's our best estimate. And there are quoted investment, which is straightforward. The value of unquoted investments, we try to use different ways to come up with the value of that segment, the unquoted segment. The total we expect about KWD 1.2 billion. And then our estimate also that there is about KWD 283 million of debt allocated to that segment, and that gives us a net asset value for that segment of about KWD 879 million. So moving on, again, a continuation on the segment reporting. We try to -- because of the accounting treatment of some of the investments, create some noise on our P&L. We try to split that between the controls. You can see the recurring power of the controlled entities versus the noise and the volatility that gets created by the investment segment. And then the consolidated figures is what we report. And as you can see, the controlled business is actually performing much better than the -- like better than the -- without the investment segment because we had to revalue some of the investment and take a hit on our balance sheet and P&L. Now moving again to the balance sheet. The most notable item is definitely the decline in equity, and you can see a big decline in equity, and that's primarily the effect of the decline in DSV. And DSV decline has been in 2 areas. One is the currency because it is in DKK and the DKK depreciated against dollar and depreciated against KWD. So we have -- part of that is related to the currency, and part of that is the decline in the stock price. The other thing that is worth mentioning is if you look at our assets, now almost 1/3 of the assets is in controlled -- noncontrolled and 2/3 is controlled segment, and that is a function of, again, the reduction in DSV stock price, but also it's due to the equipment with Menzies, which increased our assets in the good hold area. I think it's important to highlight the debt because the debt has increased significantly because of the acquisition. We try to break it down to give you visibility where the money, why the debt has gone up. So you see on the right side, we had a net debt as of Q3 of 2021 of KWD 305 million. You can see that the majority of the increase from KWD 305 million to KWD 795 million is primarily due to the acquisitions. And that's the Menzies, the HG Storage. We also have some CapEx and then some investments in working capital, predominantly in Tristar and then we have KWD 57 million spent in other investments. But you can see that the main driver, the big driver for the increase in net debt was the acquisitions that have been made over the past 12 months because that's compared to Q3 2021. On the left side, as I said, we have refinanced all our debt and I want to clarify that the picture on the left side is what we -- the debt that we have at the corporate level, which is the majority of the debt. There are other debts at the subsidiary levels, which are fenced to the subsidiary and are managed within the subsidiaries and do not have recourse on corporate. Yes, we do consolidate the debt, the total debt, but that is predominantly in the subsidiaries. The key debt that we have is at the corporate level, which is the KWD 710 million, you can see. That debt profile is almost 1/3 is in Europe, which attracts lower interest rates in today's environment and 2/3 in U.S. dollars given also the assets that we have and the earning power that we have that is coming from dollars. So we have 1/3, 2/3 in dollars. And also in terms of maturity, we have refinanced the entire debt. And as you can see, the debt profile is almost 1/3 will be due in 2025, 1/3 in 2027, roughly and 1/3 in 2028. So we are quite comfortable with the debt profile that we have today despite we're not very confident with the level of debt overall, and we are working at to reduce it. But I think we are comfortable with the debt profile and the currency that we have as of today. Again, cash flow is quite noisy because of the acquisitions and because also the deconsolidation last year. And so there has been, as you can see, about KWD 60 million in change in working capital. That was a negative movement. That is due to the recovery from COVID. So the revenue levels have surged and hence, also the net working capital increase, but also in Tristar we had a few projects that required some investment in net working capital, and we believe it is well under control. So that, I think, is what is worth mentioning here. The rest is probably accounting and the numbers are classified differently for accounting reasons. But overall, I think you can look at the chart on the right, and you can see that in the 9 months, the majority of our investment and CapEx has been invested in the controlled business segment. This is an overall slide that shows the different entities within the control businesses, and you can see all the entities have been showing decent year-over-year growth. Tristar is phenomenal growth, 45%. Menzies like year-over-year is -- the pro forma is 29%. So very strong growth. ALP is 6%, but ALP, we don't expect ALP to grow at an open digit number. It's well mature business. It's generating cash flows and significant amount of cash flows and ALP and GCS are quite mature. So we don't expect them to grow at double digits. But other entities -- other main entities are growing at significantly higher rate. I think that's -- and this is just a list of all the quoted and unquoted investments and what we have here. So that's for your info, nothing to report an ESB is a publicly listed company, and you can see all the related. So we don't want to repeat everything here. I think that's about it. I'll take the questions and then maybe we can conclude after that.

[Operator Instructions].

Okay. It doesn't seem to be like we have any questions. So I think we can conclude the call. Thank you very much.