Makhazen (MKHZN) Earnings Call Transcript & Summary

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's First Quarter 2023 Earnings Webcast. With me here today are Mr. Ehab Aziz, Agility's Chief Financial Officer; and Agility's Investor Relations team. Without further delay, I'll now turn over the call to Soriana from Agility's Investor Relations team.

Thank you, Sidharth and welcome, everyone, to Agility's Q1 2023 Earnings Webcast. Mr. Ehab, our Group CFO, will be presenting to you, Agility's financial results and the major developments that happened during this quarter. [Operator Instructions] Now before we begin, I would like to draw your attention to the disclaimer available on the second page of this presentation. 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. Ehab, over to you.

Good afternoon, everyone, and welcome to Agility's earnings call for Q1 2023. We'll start the call by a short presentation to discuss the Q1 results and performance, and then we will get into Q&A as usual. Slide 4 here has owned the key news that went through the Q1. I think most of these deals have been already addressed in the year-end presentation, nothing of a particular significance here. We continue to refinance and optimize our financing structure. We have done the color that we announced, and we discussed during the year-end presentation. On the legal front, as you know, we won an arbitration award against Korek and the shareholders of Korek. The Iraqi shareholders, and we are in the process of reinforcing these judgments in multiple jurisdictions. So overall, nothing material here other than what we have discussed in the year-end results. In terms of the Q1 performance, Slide 6 shows the key parameters of the performance. We had a very strong performance this quarter, organically and inorganically. And as you can see, the orange side of the bar here represents the organic, excluding the acquisitions and then the gray is the impact of the acquisitions on the numbers. So you can see that organically, excluding acquisitions, we grew revenues by about 16% and net revenue by almost 8%. EBITDA, healthy growth year-over-year up by 30% and net profit by about 16%. If you add the acquisitions of Menzies, which was closed sometime in Q3 last year and HG Storage, then you get the significant result of revenue growing by 143%. Net revenue, 179%. 78% increase in EBITDA to KD 60 million and net profit of 20%. You noted that net profit is due to the acquisition is only minor, insignificant, but that also could be a little bit misleading, because the allocation of interest cost, which is becoming quite significant given the higher interest rate, could actually mislead or the allocation of capital to the particular acquisitions and [ the ] acquisition. So I would focus more on the EBITDA as a major of how the contribution of the acquisitions to the numbers. So overall, as I said, very strong performance organically but also inorganically. When we look on the controlled side, which is basically the businesses that we manage versus the investments, and I want to remind you that the investments here is -- do not include the movement in the share price of DSV as that, as we explained in prior calls, gets reclassified through the equity. So you can see that also the control business has witnessed a significant year-over-year performance. Of course, that includes inorganic Menzis and HG Storage. So overall, we are very pleased about the progress that we have been able to make on the controlled business. We have been working really hard to reposition the company over the last 2, 3 years, the deal of selling GIL to DSV was a transformational moment for the company. But that was also followed almost in less than a year by another major acquisition of Menzis. And we saw the control side of business shrink after the GIL sale to DSV but also our geographic and profile and strategic profile has also shrunk at the time to becoming a regional player. And now I think we are back to becoming a global player, operating player as well as we are very pleased with the results that we are seeing and continue to see in the controlled business. We look at the balance sheet, and it's a reflection of the current structure of the company. You can see that the controlled assets in terms of the split of assets, the KD 3.6 billion, almost 53% of it is attributed to the controls business, and 47% is attributed to the investments. And I think the importance of why we are splitting the numbers into investments and controlled entities is you cannot look at the value of the company anymore as it was the case before just by looking at the operating results, because the operating results do not reflect the full value. As you can see here, 47% of the assets are in the investments. And most of the movement in that investment side do not go through the P&L, but rather go through the equity. So we are trying to give as clearer a picture as possible to where the value of the company is driven. And we split the P&L as much as we can. We try to split also the balance sheet. And as we have shown you during the year-end results, we also have a slide that gives our best estimate of what is the net asset value of the investment side. So you can have a clearer picture on the company's value. And you can make your own judgment on the valuation, et cetera. So strong asset base, strong equity, still strong equity. I mean, you can see that the equity -- the change in equity year-over-year is not as significant as it's in the assets and the liabilities. And I think if you remember, during Q1 2022, the Fed started raising interest rates and also the war in Ukraine started. And as a result, the stock markets have gone down significantly. And as a result, DSV also went down with the market. And by the end of Q1 2022, the stock price was low. And that's a big influence on our equity, given the size of the DSV and the impact of it on our equity. So -- and then the stock continued, as you probably know, continued to go down with the market and then recovered towards the Q4 and Q1 this year. So we are almost back to the same levels of Q1 2022 and hence, our equity value is not like -- you don't see a significant change in the value plus the dividends that we have paid last year, et cetera. So -- but again, the significant part in our equity today that has the most -- that creates the most volatility on the equity is the change in the DSV price. Given the current interest rate environment and the significance of the debt on our balance sheet, this is a slide that gives you a flavor of the composition of the debt by currency and by maturity. But also there is a bridge that shows where it increased the KD 436 million increase in the net debt. The group net debt came from Q1 2022 to Q1 2023. So in terms of the currency, you can see we have 60% of our debt is in dollars and almost 33% in -- so almost 2/3 in dollars, 1/3 in euro. And mind you, this is a gross -- corporate gross debt profile, which stands at KD 777 million, which is the majority of the debt actually is at the group level [ than ] the corporate level. And you can see that it's 2/3 dollar-related currencies, including the KD and the 1/3 in euro. We have done some diversification this quarter. Actually, last -- this month, we changed that mix a little bit, which will get reflected in Q2 numbers. Now we have increased our -- we reduced the debt in U.S. dollars, which is a little bit costly. And we have increased our -- basically, we use the proceeds that we got from the color, which was in euro to close the U.S. dollar. So you would see next quarter a different mix that is more balanced between the U.S. dollar and the euro number. As you can see, the maturity, I think we are in a relatively good position with the maturity profile. And we continue to work very collaboratively with our banking group, which have been extremely supportive and to continue to optimize our debt structure and find ways to benefit the company as well as their working banks that work with us. We have established a long relationship with these banks; local quality banks, regional banks as well as international banks. And I think we have a very good group of banks that are extremely supportive to the Group management. On the right side, you can see again the bridge. So where the money has been spent over the last 12 months. And you can see that we had a very strong operating cash flow generated during the last 12 months, but then a significant part of that was consumed plus more of the debt capacity that we had consumed in the acquisitions, namely Menzies and the HG storage. Also CapEx on the part, the dividend about KD 58 million last year paid in dividends. And then there are multiple things on the investment. So predominantly, where the money has been spent. And as a result, the net debt increase is -- was to finance the acquisitions that we have made. So KD 436 million increase, out of which KD 385 million were spent on acquisition. Again, this is a picture of the cash flow. You can see that the operating cash flow for the quarter is strong. It's actually higher than the same quarter last year. And even the net cash flow, the free cash flow for the quarter, slightly positive. And I want to remind you that in 2015, when we started our investment program to transform the company, we started getting into a net debt position from a net cash position. Prior to 2015, we had a net cash position given the significant amount of CapEx. And as you can see, some of it on the right-hand side, the CapEx, the split between investments and controls, you can see the amounts which have been significant over the past several years. We started to see some strong operating cash flow as well as free cash flow. And I think as we continue to progress over the next several years, the amount of free cash flow should start to increase as the CapEx and the investment program started to phase out. I mean we will continue to invest but not necessarily at the same levels that we had in prior years. Again, this is a summary slide of the key segments that we have. And you can see we are growing significantly in the aviation that's driven by the acquisition, plus also the legacy NAS that grew significantly in -- organically. But this 816% growth is mainly driven -- and revenues is driven by the acquisition and the size of it. Fuel logistics, again, TriStar continue to perform extremely well organically, but also the inorganic and the acquisition of HG Storage helped improve their revenue as well as their EBITDA. But also we see the nonorganic side on the right side from the other control businesses have also continued to grow at a double-digit revenue-wise and about 10% EBITDA from the same period last year. I think that's my last slide. We try to address some questions and then conclude. Okay. So I don't see any questions in the queue. And I guess we can then conclude the call for the day. Thank you.