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

Good afternoon, ladies and gentlemen. This call is being held to discuss Mezzan's Q3 earnings, which were reported yesterday. Today is November 11, 2024. This call is held live, and a recording of this call will be available on the same link within about 2 hours. My name is Fawaz Al-Sirri. I'm the moderator on the call today, and allow me to introduce our speakers. We have with us Mr. Amr Farghal. He's Mezzan Holdings CEO for Food and FMCG, and he is also the Chairman of the Executive Committee. Also with us is Mr. Omar Samoud. He is Mezzan Holdings CFO. Ladies and gentlemen, I'll be handing over the mic to Amr in a few seconds to start the call right after I take you through our usual call format. First, the CEO and CFO will deliver their respective statements over the next 10 minutes or so. Then we will open the floor for the Q&A. [Operator Instructions] 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. Mr. Farghal, the mic is yours.

Thank you, Fawaz. Good afternoon, and thank you all for joining us today for Mezzan Holdings Q3 earnings call. I am pleased to report another strong quarter for Mezzan, reflecting the continued resilience and the consistent growth trajectories scored by our business in 2024. Today's agenda includes an update review of our financial performance. I'll begin with a high-level overview of our financial highlights, followed by a deep dive from our CFO, Omar Samoud, who will provide more insights into our financials. We value your questions, and we'll address as many as possible during the session. Should we miss any, please contact our Investor Relations team at [email protected]. We will respond promptly. Before diving into our performance details, I want to emphasize that Q3 2024 marks our strongest third quarter and 4 years across all key metrics, underscoring both Mezzan's resilience and effective navigation towards driving continuous profitable growth. Now let's look at the financial highlights for the third quarter of 2024. Revenue grew by 5.2% compared to Q3 last year. Gross profit increased by 14.3%, reaching KD 16.5 million. EBITDA reached KD 6.8 million, reflecting a 13.7% increase. Net profit came in at KD 3 million, up 23.6% from Q3 2023. Net profit to equity holders of parent company rose by 24.7% to KD 2.7 million compared to KD 2.2 million last year. Now turning into the year-to-date performance for the first 9 months. Revenue reached KD 220 million -- KD 220.7 million, a 7.4% increase from KD 205.5 million. Gross profit was KD 51.5 million, a 16.9% rise from KD 44 million in the comparable period. EBITDA totaled KD 23.8 million, up 19.6%, from KD 19.9 million. Net profit increased by 33.5% to KD 12 million compared to KD 9 million year-to-date 2023. And net profit to shareholders of the parent company rose 37.6% to KD 11.2 million for year-to-date 2024 compared to KD 8.1 million for the same period last year. With that, I'll now hand it over to Omar Samoud for more insights over the Q3 2024 year-to-date financial performance. Omar, thank you.

Thank you, Amr, and thank you, everyone, for attending the call. Let's have a closer look into our group financial results as of September 30, 2024. Looking into our top line performance and the revenue contribution by business line, we would like to underline the following. The food segment remains a major pillar in our portfolio and accounted for 65.2% of total group revenue, scoring an increase of 7.1% versus previous year, while the revenue of non-food segment accounted for the balance of 34.8% of total group revenue, witnessing an increase of 7.9%. This clearly prompts a balanced growth equation. Within the food division, revenue of food manufacturing and distribution increased by 8.8%, contributing to 53.6% of group revenue. Revenue of our food catering decreased by 16.8%, contributing to 5.8% of the group revenue. And as previously disclosed in our earlier earnings calls, this correction comes as a result of strategic choices to prioritize margin attractive catering contracts in both Kuwait and Qatar, aligning with our overall objectives for enhancing margins across our business portfolio. Revenue of Food Services increased by 25.1%, mainly led by our venture business in Jordan, contributing to 5.8% of group revenue. Our non-food revenues reported under FMCG and Healthcare increased by 9.2%, contributing to 32.9% of group revenue. And finally, the revenue of industrial segment decreased by 10.3%, contributing to 1.9% of group revenue. We now move on to reviewing the performance by geography for the 9-month period of 2024. Operation in Kuwait contributed to 73.3% of Mezzan revenue, up by 8%. Revenue from our operations in the UAE contributed to 12.7% of Mezzan revenue, an increase of 8.3%. Revenue in Qatar decreased by 19.9%, accounting for 5.3% of Mezzan total revenue. This decline was primarily the result of our strategic decision to streamline the catering portfolio, as I mentioned it earlier. In Jordan, sales increased by 41.3%. Jordan revenue contributed to 6.2% of Mezzan revenue. The revenue increase is attributable to the expansion of joint venture operations and the successful ramp-up of our retail business. Our business in Saudi remains under high focus to unleash more growth potential while currently only accounting for 2.4% of Mezzan revenue and with the single decrease of 1.5%. Moving now to the profit and loss statement. For the first 9 months of 2024, our profit loss performance reflects the steady growth across key metrics. So we achieved KD 220.7 million in revenues, an increase of 7.4% over the KD 205.5 million recorded in the comparable period last year. This growth was driven by solid and balanced performance in both food and non-food business line. Our gross margin rose to KD 51.5 million from KD 44 million in the prior year. The gross profit margin improved by 190 basis points, reaching 23.3% compared to 21.4% last year. This increase underscores our commitments to drive margin-accretive growth across our business portfolio, supported by the implementation of operational efficiencies along our value chain. Our selling and general and administrative expenses, along with other expenses, totaled KD 34.2 million this period compared to KD 30.6 million last year, reflecting an increase of 11.8%. This rise is attributed to investments to fuel growth. For the 9-month period, our net profit reached KD 12 million, an increase from KD 9 million over the same period in 2023. This result demonstrates clearly the effectiveness of our disciplined approach to consistently enhance profitability. Net profit attributable to equity holders of the parent company rose to KD 11.2 million, representing a 37.6% increase from KD 8.1 million in 2023. The strong growth further reflects our success in executing strategies that delivered increased shareholder value. Now looking from a cash flow perspective, Mezzan recorded operating cash flow before working capital changes of KD 25 million compared to KD 20.6 million in comparable -- for comparable periods of 2023, up by KD 4.4 million. We have recorded an outflow in working capital cash flow of KD 12.1 million compared to KD 6.2 million in year-to-date last year. This increase signifies our strategic emphasis on expanding our operations and fostering growth. Therefore, Mezzan cash flow from operating activities resulted in KD 12.9 million compared to KD 14.4 million in the previous comparable period. Cash flow used in investing activities reached KD 8.4 million compared to KD 4.1 million in the previous comparable period. As a result, we recorded a positive cash flow before financing activity amounting to KD 4.4 million compared to KD 10.3 million in the previous comparable period. Our net debt stood at KD 66.8 million as of September 30, 2024, higher by KD 3.2 million from September 2023. From a balance sheet perspective, as of September 30, 2024, Mezzan balance sheet size reached KD 289.3 million, total equity reached KD 125.9 million, and net debt, as stated earlier, KD 66.8 million. Our net debt to EBITDA has reached 2.1x and is down by 0.1x compared to September 2023 and maintained as of the closing level for full year 2023, despite our incremental investment efforts. We'll now open the floor for any questions you may have. Thank you.

Thank you, gentlemen, for walking us through the results of the quarter. We will now be taking in our audience's question. We already have a question submitted. The question is from Nishit Lakhotia, and this question is for the company's CFO, Omar Samoud. This question reads that Nishit is asking, can you give us an update on pharma expansion projects?

Yes. Thank you, Nishit. I know that this topic is of high interest. Clearly, our investment on the ALSHIFA project has been a major milestone in our journey and today is really progressing as per our plan. So the first phase of the production site, which is expected to be technically completed by the end of 2025 is getting, I would say, matched after the current project progression. Regulatory and certification and approval will be processed in line with the production time line, and we hope to have the site ready as per our initial plan. We will be later on seeking further certification, even at the -- towards the European standards to enable us tapping into export opportunity for our new product ranges. Thank you.

Thank you. Let's look at our screen, see if we have more questions coming in. Please give us a second. We have no questions coming in, but we will wait in case someone is typing a question or someone is thinking of asking a question. We are here to answer your questions. So we will stay on the line for another minute or so, so we can answer your questions. Thank you. The questions are coming in. We have a question from Mr. [ Fahad Al Modhar ]. Fahad is asking if you can elaborate on your dividend policy and if there are any expected changes based on the growth investment opportunities. Can they include both cash dividends and share buybacks, repurchases? The question is going to be answered by the CFO, Mr. Omar Samoud.

Yes. Thank you, Fahad. I think we've already, I will say, disclosed our dividend policy during the 2023 dividend distribution, where we aimed to have dividend payouts ranging between 50% to 60% of our, I would say, accumulated net profit. And that, I would say, same policy will be, how I will let say, for the -- this year and following year -- following years until further notice. So we do not see any reason in changing that policy for the dividend payout.

Thank you. We are not receiving any more questions. We'll stay on the line for another minute. The management and the company are very keen on answering all the questions with all our calls, so we will stay on the line in the interest, but there might be some questions coming out way. Thank you. We have a follow-up question from Nishit Lakhotia. She is asking, what is driving sales growth in Jordan? Is this within Jordan? Or is it coming from Iraq indirectly? And that question is going to be answered by the CEO, Mr. Amr Farghal.

Thank you, Fawaz, and thank you, Nishit. Just a straightforward and simple direct answer to the question is it's not coming from Iraq indirectly. It's -- actually, it's very much developing the Jordanian market, spearheaded by our salty snacks launch there. So we have so far a very successful launch. This is the second year for us to expand with our salty snacks business. And we have a very exciting agenda ahead of us in that respect. So it's very much the Jordanian market. It's very much organic, and it's very much building on our own -- the strength of our own brands there, yes. And nothing to do with indirect or reexport ti Iraq.

Thank you very much. Thank you, gentlemen, and thank you, who have joined us today, and thank you as well for those who asked their questions. We will now be wrapping up today's call. We've answered all the questions that we have received. So thank you all for joining us. Thank you, Omar and Amr, for taking us through the quarter, and we'll see everyone at the next call. And thank you, again, and have a good day.

Thank you.