Makhazen (MKHZN) Earnings Call Transcript & Summary

Ladies and gentlemen, hello and welcome to the Agility Q1 2024 Earnings Webcast. My name is Maxine, and I'll be coordinating the call today. [Operator Instructions] I will now hand you over to your Arqaam Capital host, Aly Adel, to begin. Aly, please go ahead when you are ready.

Thank you, Maxine. Good afternoon, everyone, and thank you for joining us today. This is Aly Adel. And on behalf of Arqaam Capital, I would like to welcome you all to the Agility Public Warehousing Q1 2024 earnings call. With us today, Mr. Ehab, Agility's CFO; and Ms. Soriana, the IR Manager. Without any further delay, I will now turn over the call to Soriana. Please go ahead.

Thank you, Aly, and welcome, everyone, to Agility's Q1 2024 Earnings Webcast. As usual, Mr. Ehab Aziz, our Group CFO, will walk you through the presentation that you see on your screen. And we'll be ready to answer all your questions at the end of the session. [Operator Instructions] Before we begin, I would like to draw your attention to the disclaimer available on the second page of this presentation. If you can take a moment to read, and then I will hand it over to Ehab. Thank you. Ehab, you can start.

Thanks. Welcome, everyone, to Agility's Q1 business and financial update. As usual, we will start with the Q1 '24 financial updates, and then we'll end with Q&A. So hopefully, this would be a short and effective call for everyone. First slide, Slide #4, highlights the key events during the quarter. I think the main important event during the quarter was the -- sorry, was the distribution of dividends. And as you might recall, the Board approved, based on the authority given by the general assembly, to an interim dividend of $0.10 per share cash dividends and also a 49% in-kind distribution of Agility Global PLC, which has been successfully listed in ADX and now is trading under the ticker, AGILITY, with a market cap of roughly $3.9 billion. So that, I think, has been a major event during the quarter. I think it has been well received in ADX market. We see good liquidity, daily liquidity on the stock. The share price is trading a little bit at the discount to book value. However, that is not unexpected, as I explained in the previous call that we expect some volatility and some imbalances between supply and demand. And I think that's in play here. And we expect that to phase out -- the selling pressure to phase out in the next few months maybe. And then the real value of the company should be much more clearer going forward in the absence of any imbalance between supply and demand. We are very satisfied with the transaction, and I think it will significantly unlock value for our shareholders. And it gives also some sort of diversification. And as a matter of fact, it gives more options to our shareholders to decide what they want to do and how they want to hold the company's share and where they want to hold that. So we're very pleased with the outcome. The one note here, which is very critical and very important, because the listing took place only in May 2, so the effective accounting treatment took place in May 2. So the financial numbers that you'll see for Q1 do not reflect -- from a P&L perspective, do not reflect the transaction yet. So you have to keep that in mind, which means the minority interest on the P&L is not yet in effect because the date of listing was May 2. And that's the date on which the asset has been distributed to the shareholders. And that date is from which the minority interest will start to be calculated. So what you will see in the later slide is that we have accounted for the dividends in the P&L. So you will see a movement from the equity, from the returned earnings moving to the minority interest, so that you will see that. But the P&L is effectively the full P&L as if the company -- as if this dividend has not taken place because the P&L here is as of March 31, while the dividends took place in May 2. So it was a subsequent event and will get reflected in Q2. On the right side, this is a summary of the legal dispute and mainly 3 topics to highlight. The first one is the legal dispute with -- on the lands that we have in Kuwait. In that, I think there is an extensive note in our financial statements about the progress on that and the different stages and where we stand. So that's one key highlight. The second highlight is about Korek, and we prevailed in the appeal. And as a result, we got a judgment to the tune of $490 million, which we are in the process now of enforcing and collecting. We also got a positively surprising news that the arbitration for one of the subsidiaries called ICS -- and this goes back several years ago. We had an operation in Argentina. We had an arbitration there. And then finally, we got a ruling in our favor to the tune of $160 million. That's also part of the ongoing effort to enforce that decision. So these are like the major events highlights for Q1 2024. Moving to Slide 6. This is a snapshot of the financial performance. In general, we had a very good performance for the quarter. Revenue was up around 5%, but net revenue was much higher at around 19%. And that not reflected into our EBITDA, which grew at 17% and net profit at 22%. So I would say, a very significant performance year-over-year. And it's also a testimony to the strategic moves that we have been working on over the past several years. Moving to Slide 7. This is our balance sheet snapshot. And what I would like to draw your attention to here is the minority interest. You can see it's almost flat, which is basically reflecting the movement in the performance of the entities where minority interest belong. But really, the real focus would be on the equity. As you can see, KWD 870 million decline in equity, and that reflects the dividends, the cash dividends and the in-kind dividends, the interim dividends that was approved by the Board. And the corresponding figure that you can see is actually in the current liability, which, as you can see, went up by KWD 900 million. So our equity attributable to shareholders of the parent went down by KWD 870 million, and our current liability went up by KWD 912 million. The majority of the KWD 912 million is related to the interim dividends, as I explained in the previous slide. We continue to enjoy a very significant balance sheet and a strong balance sheet. Still, the equity post dividend is around KWD 950 million, which is quite a significant equity base. Moving to the debt. I think we explained that several times during our analyst calls. We are very satisfied with the structure that we have today for the debt. As you can see, the debt is predominantly euro based. 78% of our debt that sits at the corporate level, which is around KWD 950 million, is euro denominated. And as we explained previously, this debt was on the back of the funded collar, which was done to hedge our main investment in DSV. And that debt now acts as a hedge for the currency for DSV. But also, it gives us lots of flexibility, as I explained earlier. Also, in terms of maturity, 43% is in '26, 47% is in '27. However, I want to highlight that the euro debt is on the back of the funded collar. And hence, it doesn't have a hard stop because if we either prepay -- we want to prepay the debt and close the funded collar, we can do that. If we want to engage with the banks and restructure the funded collar and extend the maturity of the funded collar, the maturity of the debt will get extended accordingly. So we have also had that kind of flexibility. So what you see here between '26 and '27 is, I would say, more flexible than how it looks there because we don't have a hard stop in '26. We can always go to the banks and, assuming the situation remain the same where it is today, we can probably go and restructure the funded collar. And then accordingly, we can extend the maturity of the debt. Also, if we don't want to extend and we want to prepay, we also have the flexibility. So we can engage with the banks and close the hedge, the funded collar, and use the proceeds also to close the -- get proceeds to close the debt on the back of that, if we decide to sell DSV or use the shares to close the funded collar. So I think the debt structure here, it's very essential to put it in the context of the DSV and the funded collar because the features that come with that in terms of flexibility, in terms of currency hedge, in terms of interest rate hedge because it's fixed interest, become very prominent and important to understand. On the right side of Slide 8, you can see the net debt and how the net debt evolved over the last 12 months. So the net debt last year stood at KWD 808 million. Then cash generated from operating cash flow was KWD 207 million. CapEx and investment was KWD 96 million. We paid dividends of KWD 16 million, and then the interest and the lease payments are KWD 157 million. Now the interest is quite high here because the debt that I explained, the euro debt on the back of the funded collar, we prepaid the interest for the entire period. Of course, we amortize that in terms of accounting for P&L purposes. But from a cash flow perspective, you see a lumpy payment that took place when we did the hedge and when we took the loan on the back of that. So the KWD 157 million interest and lease payment is not an annualized figure, but rather a lumpy payment due to the prepayment of the interest on the funded collar. We get to the cash flow. I think overall, a reasonable view. Operating cash flow went up relative to last year, about 14%. But the -- because of the changes in the working capital, which also got significantly higher, and that's mainly due to the -- to Tristar and Menzies. And both Tristar and Menzies had a higher working capital, and that was driven by higher revenues in the case of Menzies. And about KWD 9.5 million to KWD 10 million of that KWD 35 million is due to Tristar ramping up for one of the new projects. So we don't expect the working capital to stay at this level, and we expect it throughout the year to normalize. And hence, the cash from operating activities should increase. And then ultimately, the free cash flow should also go higher. This is on the right side of Slide 9. You can see the CapEx and investments. And we split this between investments, which is the investment segment that we have and then the control segment. And you can see that most of the investment, 65% is going to the control. The 35% in the investment segment is related to the investment in Reem Mall, and that is funding that is going to fund the Reem Mall, which had a soft opening last year. And we have the official opening actually on end of May, I think, on the May 28. So the mall would be officially opened on May 28, and we are very pleased with the progress so far. And we are very pleased with the development that is happening in the UAE and particularly in Abu Dhabi. And I am definitely much more confident about the viability and the success of that project today than maybe a year or 2 ago. So we feel very positive about that. And I think it is going ultimately to be a good investment. I think that was the last slide. Now I think if you have any questions, I would be more than happy to address them. I think you need to put the questions in the right hand, and then I will try to address as many questions as I can. Okay. It doesn't seem like we have many questions. With that, I will conclude the call. Thank you.