Makhazen ($MKHZN)

Hello, everyone, and welcome to the Makhazen Q1 2026 Earnings Webcast. My name is Nadia, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to your host, Shaden Nomeir from Arqaam Capital, to begin. Please go ahead.

Thank you, Nadia. Good morning and good afternoon, ladies and gentlemen, and thank you for joining us today. This is Shaden Nomeir. And on behalf of Arqaam Capital, I would like to welcome you to Makhazen's Q1 2026 Earnings Call. We have today from the management team, Ms. Khadija Obla, the company's CFO; Mr. Youssef Elyas, the IR Manager, as usual. The management will start with the presentation for the key highlights for the first quarter of 2026, and then it will be followed by a Q&A session. So without further delay, I will now hand over the call to the management team. Please go ahead.

Thank you, Shaden, and welcome, everyone, to Makhazen's Q1 2026 Earnings Webcast. Today, we'll be presenting Makhazen's financial and operational performance for the first quarter of 2026. As mentioned earlier, Khadija will be addressing your questions at the end of the session today. If you have any questions, please make sure to type them in the chat box. And before I hand it over, I'd like to bring your attention to the disclaimer on the second page of the presentation. Please take a moment to review it. With that, I'll now hand it over to Khadija to begin the presentation. Thank you.

Good afternoon, everyone. My name is Khadija Obla, and I am the CFO of Makhazen. Thank you for joining us this afternoon where we will cover Makhazen's Q1 earnings call. Today's agenda is pretty straightforward. I'll start with an executive summary, and then I'll walk you through Q1 financial results, including the income statement, the balance sheet, and the cash flow. And then we will move to the Q&A. So during the first quarter, the underlying business remained operationally resilient. The core continuing operations remained profitable despite a materially different reporting perimeter versus the first quarter of 2025 as we used to consolidate A Agility Global. The business also continued to generate positive operating cash flow and free cash flow during the first quarter. At the same time, the company recognized significant nonrecurring legal-related write-offs and provisions associated with litigated land matters. We will talk about this later during the presentation. What's important here to remember is that these adjustments were noncash in nature. Operationally, Makhazen's priorities remain unchanged. We continue to focus on Kuwait infrastructure, logistics support services and industrial-related projects, including S2, MRC, and GCS. Overall, while the quarter included significant accounting and balance sheet adjustments, the underlying operating platform remains stable and cash generative. Turning to the adjusted operating performance. This slide reflects continuing operations and excludes the nonrecurring legal-related write-offs and provisions as well as the impact of Agility Global deconsolidation, in order to present to you the performance of the underlying business on a comparative basis between first quarter of 2025 and the first quarter of 2026. Revenue from the quarter was at KWD 35.9 million, down approximately 5% year-on-year. The reduction primarily reflects the site handover that we have covered in the last quarter during 2025 and does not reflect the underlying weakening in demand. Despite the lower revenue base, adjusted EBITDA remained stable at KWD 16.3 million, reflecting continued operating discipline and stable profitability across all the core operating platform. The adjusted EBIT for the quarter remains broadly stable year-on-year at around KWD 14.1 million. The adjusted net profit attributable to shareholders stood at KWD 7.3 million during the quarter. From a cash flow perspective, the business continues to generate positive operating cash flow during the first quarter. So overall, the adjustment in results reflects a profitable business across all the segments. However, if you look at our financial results as reported, you will see a significant impact due to the noncash recurring write-offs and provisions associated mainly to the litigated land matters. These adjustments totaled KWD 232.6 million and relate primarily to recent court ruling, specifically related to the lines of Mina Abdullah Amghara TruckPark site as well as a decision to write off all the remaining litigated lands and exposures. They were recognized following the legal development that happened during the first quarter of 2026 and also to comply with the applicable accounting and audit requirements. What is very important to note here is that these assets adjustments are not noncash in nature. As such, the reported results for Q1 2026 should be viewed separately from the performance of underlying continuing operations presented in the previous slide. The accounting impact of these adjustments is reflected in the company's balance sheet and the equity position, which I will cover in the next slide. The total assets for Makhazen for the first quarter stood at KWD 836 million as compared to KWD 1.1 billion at year-end 2025. This reflects the impact of the nonrecurring write-offs recognized during the first quarter this year. The most significant movement during the quarter was the reduction in investment properties following, as I mentioned earlier, the recognition of the litigated land write-offs and provisions. The total equity attributable to shareholders stood at KWD 329 million versus KWD 570 million in December of last year. The accounting impact of the write-off was absorbed through reserves and reflected on the company's post-adjustment equity position. So while the reported equity position declined during the quarter from KWD 570 million to KWD 329 million, the reduction was driven by the nonrecurring accounting adjustments rather than operational losses in the underlying business. On the liability side, the overall capital structure remained broadly stable quarter-on-quarter with no material change in the company's debt profile. The company also maintained a solid liquidity position during the quarter, ending Q1 2026 with a cash balance of around KWD 53.5 million. Now turning to cash flow and before discussing the year-on-year movements, it's important to note that Q1 2025 included Agility Global and the full consolidation, while Q1 2026 does not. This affects direct comparability across certain cash flow metrics. The net cash generated from operating activities during the first quarter this year was at KWD 10.7 million. Despite an investing outflow were at KWD 11 million, significantly lower than KWD 66 million in Q1 last year, again, reflecting the difference due to the Agility Global consolidation. The free cash flow is positive at KWD 4 million. Please note that represents the difference between the operating cash flow adjusted for CapEx. So despite the significant reported accounting loss during the quarter, the underlying business continued to generate positive operating cash flow, reflecting the noncash nature of these write-offs. Overall, the cash flow profile during the quarter remained healthy and consistent with the underlying operational performance of the business. So to conclude, Q1 2026 was a significant quarter from an accounting and balance sheet perspective as the company recognized substantial nonrecurring legal-related adjustments associated with legacy land matters. The company recognized KWD 232.6 million of nonrecurring write-offs and provisions, which drove the reported net loss of the quarter. At the same time, the underlying operating business remained profitable and cash generative with stable EBITDA performance and positive cash flow generation. Thank you, and please give us some time as we connect the dashboard for the Q&A session.

[Operator Instructions]. I will hand over to Khadija to go over any written questions when she's ready.

First question is, can you provide elaboration of the KWD 41.6 million [ ECL ] provision related to PAI and what it pertains to? The KWD 41.6 million is related to certain receivable associated with PAI land . There's another question: about would you continue to recognize revenue for the PAI land? If not, then how much annual revenue and profit contribution would be lost? The revenue recognition follows applicable accounting standards. For the site in the litigation, the treatment is reviewed and updated as and when the final legal process determines that.

[Operator Instructions]

We have another question: Any approximation of provisions for potential claims related to PAI. The adjustment that I mentioned in the presentation relates to the land positions which have been subject to ongoing legal proceedings and they relate to the asset value of these lands. For further details, there is a note with all the pieces and the related details of each plot of land in Note #10. I don't see any additional questions. I think this concludes our presentation. Back to you, Youssef.

Thank you all for joining us today. We'd be happy to answer any follow-up questions offline. Please connect with us through our website, makhazen.com or our email [email protected] in case you have any further questions to be addressed. Thank you for your time today.

Thank you all.

Thank you. This now concludes today's call. Thank you all for joining, and you may now disconnect your lines.