Mezzan Holding Company K.S.C.P. (MEZZAN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. This call is held to discuss Mezzan Holding's Q4 and full year earnings for the year 2022. These earnings were announced yesterday, March 22nd. Today is Thursday, March 23rd, and this call is held live from Kuwait and Dubai, and the recording of this live call will also be available on the same link within about 2 hours or so. My name is Fawaz Al-Sirri. I am the moderator on the call. Allow me to introduce our speakers for today. We have with us Mr. Garry Walsh. He's the company's CEO, and he's joining us from the company's offices in Dubai; and Mr. Nabil Ben Ayed, and he is the company's CFO, and he is joining us from the company's Kuwait offices. I will be handing over the mic to Garry in a few seconds to start the call right after I take you through our usual call format. First, the CEO and CFO will each deliver their statements over the next 10 minutes or so. Then we'll open the floor for Q&A. [Operator Instructions] I would like to mention, today's call is held in 2 locations, it may take us a bit longer to address your questions. Also some of the statements that might be made today may be forward-looking. Such statements are based on the company's current expectations, predictions and estimates. There are no guarantees of future performance or achievements or results. And Mr. Walsh, the mic is yours.

Good afternoon, everyone. Thank you, Fawaz. As Fawaz said, we'll take you through a short presentation reviewing both the tailwinds we enjoyed and the headwinds we faced during the 3-month period ended 31st of December 2022. I will then discuss the financial highlights, after which I will hand over to Nabil who will take you through the details of the financial performance. Lastly, as Fawaz said, we will be happy to receive all your questions and answer as much as possible today. If we are unable to cover all your questions, please feel free to send your questions to our Investor Relations team at [email protected], and we'll get back to you as quickly as humanly possible. So in terms of our tailwinds, obviously, I think it's been well publicized that our team in Qatar and we're involved in the FIFA World Cup. I'm pleased to report the generation of profit on that business, and I'd like to formally thank them, FIFA, Q '22 and the Supreme Committee for all of their help in making it such a success. Internally, we finished our upgrading of the pharmaceutical factory. That started producing successfully in Q4, has had a really positive impact on our results and continues to progress nicely as we enter into Q1. That's been a long journey for us, and I would like to acknowledge the hard work of the team in bringing the factory to the standard it is at now. Our KITCO brand launched and performed -- brand performance in Jordan continues to perform well following its launch there. And finally, I'd like to thank Nabil and his team for the attention they gave to the account receivables and the improvement in our working capital measures over the last quarter. From a headwinds perspective, we continue to see inflation coming through. Yes, the froth has come off. But if you look at the numbers versus 1 year ago, 2 years ago or 3 years ago, we continue to see inflation come through and impact on our gross margins. And also as I think Christine Lagarde referred to this morning, there is a cyclone effect around wages and salaries where obviously employees are having to pay more, which is putting an inflationary impact in -- on salaries as well. And finally, I would say, we probably didn't realize the amount of resources that the World Cup would soak in to make sure that it succeeded. And that really did pressure everybody during the last quarter and certainly a learning for us on a go-forward basis. From a Q4 and FY '22 results highlights, I'm pleased to report that in Q4, our revenue hit KWD 60.6 million, up from KWD 53.9 million in '21, a 12.5% improvement. That left the turnover for the year at KWD 255.2 million versus KWD 245.1 million, a 4.1% improvement. I'm equally pleased to report that our EBITDA in Q4 is KWD 8.5 million, an improvement from the prior year of KWD 2.2 million, up 280%. I would also note that, that is the highest Q4 EBITDA we have delivered in the last 4 years. That left the year at KWD 11.6 million versus a prior year of KWD 21.8 million, reflecting the much publicized provisions that we took in Q3. That left our net income for Q4 at KWD 4.6 million versus 1 year ago of minus KWD 1.2 million, an improvement of 500%, finishing the year at a negative KWD 1.7 million versus the prior year, KWD 9.6 million. And all of those reflect a really strong Q4 versus any dimetric we've had over the last few years. So if we look at our Q4 profit for 2019, it was a loss of minus KWD 3.5 million. 2020 was a profit of KWD 0.7 million. 2021 was a loss of KWD 1.1 million. And in Q4 this year, we finished at KWD 4.6 million, a very strong performance from the team. I'll now hand over to Nabil to take you through the detail.

Thank you, Garry. Thank you, Fawaz, and thank you, everyone, for attending the call. Let me walk you through the financial results as of 31st of December 2022. As for the revenue contribution by business line at Mezzan Group, in the 12-month period ended 31st of December 2022, the Food group accounted for 68.6% of the total group revenue for an increase of 6.4% year-on-year, while the revenue of non-Food group accounted for the balance 31.4% of total group revenue for a slight decline of 0.7% year-on-year. Within the Food group, revenue of Food Manufacturing and Distribution increased by 9.2%, contributing to 51.8% of the group revenue. Revenue of Food Catering decreased by 2.4%, contributing to 11.7% of the group revenue. Revenue of Food Services grew by 1.4%, contributing to 5.1% of the group revenue. In our non-Food group revenue, FMCG & Healthcare declined by 1.7%, contributing to 28.9% of the group revenue. Revenue of Industrials segment grew by 11.9%, contributing to 2.5% of the group revenue. We now move on to discuss operations by geography for the 12-month period of 2022. Our operations in Kuwait contributed to 69.7% of Mezzan's revenue, up by 0.3% year-on-year. Revenue from our operations in United Arab Emirates contributed to 13.7% of Mezzan's revenue for a growth of 10.5% year-on-year. Our revenue in Qatar grew by 14.1% year-on-year and contributes to 9% of Mezzan's revenue. Saudi Arabia accounted for 2.9% of Mezzan's revenue for an increase of 38.6%. In Jordan, sales increased by 26% on the back of the success of KITCO brand. Jordan's revenue contributed to 3.6% of the group's revenue. While our operations in Iraq accounted for only 1.1% of Mezzan's revenue with an increase of 9.7% year-on-year. Moving to the profit and loss. In the 12-month period ended 31st of December 2022, Mezzan Group recorded a revenue of KWD 255.2 million compared to KWD 245.1 million in the comparison period of '21, a growth of 4.1%. Our gross profit reached KWD 51.1 million compared to KWD 52.9 million in the comparison period of 2021 and the gross profit margin reached 20% compared to 21.6% in the previous comparable period. Our EBITDA reached KWD 11.6 million, down from KWD 21.8 million in the previous comparable period of 2021 for a decline of 46.9%. Our SG&A and other expenses increased to KWD 49.6 million compared to KWD 41.8 million in the previous comparable period for an increase of 18.6%. In summary, Mezzan recorded a loss of KWD 1.7 million in the 12-month period of 2022, a decline of 117.6% from the same period in 2021. The group recorded a loss attributable to equity holders of the parent company of KWD 2 million compared to a profit of KWD 8.4 million in the comparison period of 2021 for a decline of 123.3%. From a cash flow perspective, Mezzan recorded an operation cash flow before working capital change of KWD 21.05 million in the 12-month period and the 31st of December 2022 compared to KWD 23.02 million in the comparison period of 2021, lower by KWD 1.97 million. We have recorded an outflow of working capital cash flow of KWD 9.6 million compared to an investment in working capital of KWD 0.42 million last year. Mezzan's cash flow from operating activities reached KWD 11.4 million in the 12-month period of 2022 compared to KWD 22.6 million in the previous comparable period. Our cash flows used in investment activity reached KWD 10.3 million in 12-month period 2022 compared to KWD 10.8 million in the comparing -- in comparison period of 2021. As such, we recorded a positive cash flow before financing activity amounted to KWD 1.30 million in the 12-month period of 2022 compared to operative cash flow before financing activities of KWD 11.8 million in the previous comparable period. Our net debt stood at KWD 64.2 million as of 31st of December 2022, up by KWD 11.2 million from December 2021, mainly due to a KWD 10.3 million increase in capital investment. From a balance sheet perspective, as of 31st of December 2022, Mezzan's balance sheet size reached KWD 272.1 million, total equity of KWD 111.4 million and a net debt of KWD 64.2 million. Our net debt-to-EBITDA has reached 5.5x and is up by 3.1x compared to 31st of December 2021. And now I open the floor to your questions, and thank you.

Thank you, Nabil, and thank you, Garry. We will now be taking on our audience's questions. [Operator Instructions]. So we have a question for Nabil. Nabil, just give me a second here. I'm sending it to you. So the question for Nabil is from Nishit [ Sagotia ]. Nishit is asking, Nabil, can you please share the one-off from FIFA event in the fourth quarter in terms of revenue, gross and net levels, please?

Although we will not disclose in details the bottom line, but I can say that the top line was with the net impact of KWD 2 million to our P&L. That's basically, I will say, the guaranteed commission -- the guaranteed revenue from FIFA to us.

Let's just see what else do we have online. We have a question from [ Yi Chow ]. The question is, commission income and other income increased by KWD 3 million versus last year in 2021. Can you share more details on whether this would be recurring? And that question is for Garry.

As Nabil mentioned, we took a different approach to FIFA given the change in the contract which occurred just prior to the game starting. And as such, the number that he referred to was booked within the other income number that we picked. And so that element of us, we wouldn't expect to be recurring. The rest of it, which is largely included on our medicine business, we would expect to be recurring.

We've answered the questions we've received. We will stay on the line waiting for your questions. Right now, we have no questions on our screen. [Operator Instructions]. Thank you for waiting. We actually have 2 questions coming in. The first is from [ Bijoy Joy ]. And the question is, what is your estimate on the 2023 profitability given the rise in interest cost? And is Q4 a good reflection? And that question is going to be answered by the CEO, Garry.

Firstly, we always give a proper forecast when we're producing our Q1 results. And so that always seems to be a good time to give an outlook on the year. In terms of the rise in interest cost, Nabil and his team have done a very good job in minimizing that and locking in different types of financing, which has put us in a good position. So we don't see that as being a big impact on our business. Q4, after you adjust for the World Cup event is probably, yes, a good indication of where we're currently trading.

The next question is from [ Yi Chow ]. And they're asking, what is your FMCG & Healthcare split? And can you give us an outlook on Healthcare?

We don't normally share that split. Apologies for that, but that is our normal convention. In terms of the Healthcare business, we -- our outlook is very positive within the numbers you're looking at for the year-end. We obviously had the factory in partial shutdown for about 9 months. So whilst our FMCG business performed very credibly and our agency medicine business performed very credibly, our factory business was really restricted in terms of its ability to supply. The team has done a great job to upgrade that facility and it traded very profitably in Q4. And I expect to see a very strong year-on-year performance out of that business this year and into the future. It's an area that we have invested heavily in over the last 4 years. It is our intention to continue to invest heavily in it, and we expect to see significant exponential growth on a go-forward basis.

Thank you, Garry. And with that, we've answered every question that we have received on today's call. And we will be concluding the call for today as we haven't received any new questions. Thank you all for joining us. Thank you, Garry and Nabil again, for taking us through the year and the quarter, and we'll see everyone at the next call. Thank you again, and have a good day, everyone.

Thank you. Ramadan...

Thank you.