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 earnings for the full year of 2024. Today is Monday, March 10, and this call is held live from Kuwait. A recording of this call will also be available on the same link within about 2 hours. My name is Fawaz Al-Sirri, I'm the moderator of the call and allow me to introduce our speakers. We have with us Mr. Amr Farghal. He's the CEO at Mezzan Holding for Food and FMCG, and he is also the Chairman of the Executive Committee. And joining us as well is Mr. Omar Samoud, and he's the Group CFO. Ladies and gentlemen, I will 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 then the CFO will each deliver their statements over 10 minutes or so, then we will open the floor for Q&A. [Operator Instructions] I would also like to mention the following. First, Mezzan Holding reports its financials in Kuwaiti Dinars. As such, all figures in today's presentation are in Kuwaiti Dinars. Second, 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. Amr, the mic is yours.

Thank you, Fawaz. Thank you very much. And for those who observed Ramadan, Ramadan Mubarak to everybody, and thank you for joining us today for Mezzan Holdings Full Year 2024 Earnings Call. I'm pleased to report another strong year for Mezzan, underscoring the resilience of our business and our ability to navigate dynamic market conditions while maintaining a consistent growth trajectory. Notably, 2024 marked a milestone year for Mezzan as we achieved the highest annual revenue in the company's history. This achievement is especially meaningful as we celebrate our 80th anniversary this year. A testament to the strong foundation led by our founder, the late Jassim Al Wazzan, visionary leader whose entrepreneurial spirit and commitment to excellence continue to inspire Mezzan's journey up until today. 2024 achievements were driven by a combination of strategic initiatives, including operational efficiencies, cost optimizations and disciplined portfolio management. We are focused on enhancing productivity, streamlining our cost base and optimizing our portfolio -- our product portfolio, pruning underperforming segments while reinforcing our core categories. These efforts have strengthened our financial position and set a solid foundation for sustainable growth. Today's agenda includes a review of our financial performance, and I will start with a high-level overview of our key financial highlights, followed by a more in-depth analysis from my colleague, our CFO, Omar Samoud, who will provide further insights into our financial results. We appreciate your participation today and look forward to addressing any questions during the Q&A session. If we were unable to cover any inquiries, please feel free to reach out to our Investor Relations team at [email protected], and we will respond promptly. Now turning to our full year performance for 2024. The results were as follows: I'm pleased to report that our revenue hit KD 286.1 million, up from KD 271.2 million, a 5.5% improvement. And as Fawaz reiterated, all the numbers that we are sharing are in Kuwaiti Dinars. In 2024, Mezzan witnessed a healthy and balanced increase in its revenue streams on both Food Manufacturing and Distribution and FMCG & Healthcare sectors. This achievement reflects the company's strong capabilities in its core business sectors, showing the strength and synergies among its operational structures. EBITDA for 2024 reached KD 31.5 million, reflecting a 12.9% increase from KD 27.9 million in the previous year. This growth was largely driven by an improvement in gross profit, supported by our strategic focus on portfolio expansion and margin optimization. Our commitment to innovation and the continuous development of new products, mainly within our legacy brands portfolio has been a key factor to the success. This resulted in net profit of KD 15.5 million in 2024, compared to KD 12.7 million in the previous year, reflecting a 21.8% increase in our bottom line. The strong performance underscores the effectiveness of our strategic initiatives, operational efficiencies and disciplined financial management, all of which have contributed to our value creation -- add to the value creation to our shareholders. And before I turn to Omar, I'm pleased to announce that the Board of Directors have recommended a cash dividend of KD 0.025 per share, representing a 25% of the shares nominal value. This reflects a 25% year-on-year increase with a dividend payout ratio of 54%, while remaining -- while the remaining 46% of income will be retained to support the Mezzan investment and growth initiatives. This proposal will be presented at the upcoming Annual General Meeting, where shareholders will have the opportunity to review and vote on the distribution. Finally, I would like to extend my gratitude to our entire team across the business, our 8,000-plus employees as well as our valued partners and suppliers whose dedication on brand and hard work were instrumental in driving Mezzan's strong performance in 2024. Their commitment and efforts have been key in delivering this turnaround, and we look forward to building on this momentum together. Now over to you, Omar.

Thank you, Amr, and thank you, everyone, for attending the call. Let's have a closer look into our group financial results as of 31st of December 2024. Turning to our top line performance and revenue contribution by business line. Let me emphasize some key highlights. The food segment remains the cornerstone of our portfolio, contributing 65.4% of total group revenue and recording 5% increase versus last year. Meanwhile, the non-food segment, which accounts for the remaining 34.6% grew by 6.5%. This balance of growth across both segments underscores the strength of our diversified business model and our ability to drive sustainable expansion across multiple categories. Within the food division, revenue from the Food Manufacturing and Distribution grew by 7.7%, contributing 53.9% of total group revenue. This segment experienced strong growth and operational improvement across the board with Kuwait delivering standout performance. In these markets, Mezzan's well-established brands expanded their market presence and strengthened consumer engagement, reinforcing our leadership position and driving sustainable profitable growth. Revenue from the food catering segment declined by 19.7%, contributing 5.9% of total group revenue. This decline follows our strategic decision to optimize the catering business portfolio as part of our broader efforts to enhance profitability. In 2024, we undertook a pruning exercise to phase out non-accretive contracts and refocus on high-margin contracts. This initiative has already contributed to improved profitability within the segment, positioning it for an enhanced performance moving forward. Revenue from the food services segment grew by 14.9%, contributing 5.6% of total group revenue. This growth was primarily driven by the strong performance of our venture business in Jordan, supported by our increased collaboration with the United Nation and the World Food Program. These contracts played a vital role in supporting refugee camps in Jordan and facilitating food supply efforts in the Gaza Strip. Beyond financial performance, such initiatives reflect Mezzan's ongoing commitment to social responsibility, reinforcing our role in supporting underserved communities and contributing to humanitarian efforts. Our non-food group revenues reported under FMCG & Healthcare increased by 7.6%, contributing to 32.5% of group revenue. Our FMCG & Healthcare segment continued to deliver strong performance, supported by the positive momentum of our pharmaceutical manufacturing business, KSPICO. Growth in this segment was fueled by the expansion of KSPICO product portfolio into new markets and distribution channels across the regions and beyond. Thus, fostering our market presence and industrial capabilities. This strategic expansion underscores our commitment to broadening access to high-quality pharmaceutical products while enhancing Mezzan's position in the health care sector. Finally, revenue from the industrial segment declined by 9%, contributing 2.1% of total group revenue. This decrease was primarily driven by a general slowdown of the oil refinery and plastics sector. Let's now turn to review our performance by geography for the full year 2024. Operations in Kuwait contributed 72.6% of Mezzan's total revenue, reflecting 6.2% increase. Kuwait remains a key driver of growth, particularly in the Food Manufacturing and Distribution, where our flagship brands continue to dominate their respective categories. KITCO maintained its market-leading position in salty snacks category, reinforcing its brand -- strong brand equity. Al Wazzan, a legacy brand, remained the leader in canned foods, rice and essential commodities, reflecting continued consumer trust and preference. Khazan strengthened its position in the protein category, driven by its focus on quality and innovation. And Aqua Gulf, our water business continues to expand its market share and presence, further enhanced -- further enhancing our diversified portfolio. Beyond food, our FMCG & Healthcare division also delivered strong results, reinforcing Mezzan market leadership and positioning the group for sustained growth. Revenue from our operation in the UAE contributed to 13.4% of Mezzan's revenue, an increase of 8.7%. The UAE market experienced strong growth in 2024, driven primarily by an increased -- by increased energy drink sales and the solid performance of our agency brands business, particularly in premium bottled water, which saw strong demand throughout the year. Revenue in Qatar decreased by 20.3%, accounting for 5.4% of Mezzan total revenue. This revenue decline in Qatar was primarily driven by the catering segment. As mentioned earlier, this deliberate shift aligns with our broader strategy to optimize profitability within the segment. Partially offsetting this decline was the strong performance and continued growth of our retail business in Qatar, which remains a key contributor to our market presence and reinforces our long-term commitment to this market. In Jordan, sales increased by 32.5%. Jordan revenue contributed to 6.3% of Mezzan revenue, driven by strong distribution performance and increasing demand across key categories. This growth was primarily fueled by the robust expansion of our salty snack brand in KITCO, alongside the rising demand for our premier range of fresh food and vegetables. Further accelerating this momentum was the expansion of new accounts and the strengthened distribution network enabling deeper market penetration. Additionally, and also as highlighted earlier, the food services sector played a significant role in this growth, supported by our long-standing service contract with the United Nations and the World Food Program. In KSA, revenue declined by 10.9%. However, we remain confident in reigniting growth through a newly empowered team and enhanced local manufacturing and distribution capabilities. We are working towards making KSA one of our key strategic markets in the future. Now moving to the P&L. For the 12-month period of 2024, our P&L performance demonstrates a steady growth across key financial metrics. While the revenue growth, which was detailed earlier, witnessed a solid and balanced performance in both food and non-food business lines, our gross margin rose to KD 68.1 million from KD 61.5 million in last year. The gross profit margin improved by 110 basis points, reaching 23.8%. This increase underscores our commitment and abilities in driving margin accretive growth across our business portfolio, supported by the implementation of operational efficiencies along our value chain. Our G&A expenses, along with other expenses, totaled KD 45.7 million this period compared to KD 42.6 million last year. And in terms of 7.2%, this rise is mainly attributed to investments to fuel growth. For the full year, our net profit reached KD 15.5 million, up from KD 12.7 million in 2023. This result demonstrates clearly the winning recipe of our disciplined approach to consistently enhance profitability. Net profit attributable to equity holders of the parent company increased to KD 14.6 million, reflecting a strong 27.1% increase versus 2023. This performance highlights our continued focus on profitability, operational efficiency and value creation for our shareholders. From a cash flow perspective, Mezzan recorded operating cash flow before working capital changes of KD 33.4 million in 2024, up by KD 3.9 million versus 2023. We have recorded an outflow in working capital cash flow of KD 14.9 million compared to KD 6.4 million last year. This increase is a translation of our strategic emphasis on expanding our operation and fostering growth. Therefore, Mezzan cash flow from operating activity resulted in KD 18.5 million compared to KD 23.1 million in the previous year. Cash flow used in investing activity reached KD 10.4 million compared to KD 6.4 million in 2023. As a result, we recorded a positive cash flow before financing activity amounting to KD 8.2 million compared to KD 16.7 million for 2023. Our net debt stood at KD 65.1 million as of 31st of December 2024, higher by KD 6 million from December 2024 -- from December 2023 levels. From a balance sheet perspective, as of 31st of December 2024, Mezzan balance sheet size reached KD 292 million, total equity reached KD 129.2 million and net debt, as stated earlier, KD 65.1 million. Our net debt to EBITDA stood at 2.1x, in line with December 2024 -- in line with December 2023 levels, effectively maintaining that same position despite our continued investment efforts. This reflects our disciplined financial management and ability to balance growth investments while maintaining a stable leverage profile. We now open the floor for any questions you may have. Thank you.

Thank you, gentlemen, for taking us through the quarter. We have several questions coming in -- that were coming in as you were speaking. Allow me a second to go through them. Questions -- we have four questions from Nishit Lakhotia from SICO Bank, and we will take them one by one as they will be answered by different people. The first question by Nishit is, can you please update us on the ALSHIFA expansion project? And that question is going to be answered by CEO.

Thank you, Fawaz, and thank you for the question. Actually, ALSHIFA is very much on schedule. So hopefully, by the end of 2025, the -- we would have completed most of the work. We are aiming to have the factory approved by the European regulators. This obviously will take some time, but this will open the opportunity or provide the opportunity for us to be able to tackle actually Europe as a target market for us in the future. So good news. Actually, frankly speaking, when I passed by the site, and I see the progress made so far, I truly believe that it's impressive in light of the amount of time spent, how much progress we have accomplished so far. So all in all, it's on track. I cannot say ahead of schedule, but it's on schedule. And I'm not foreseeing any surprises. So everything is in order. Again, thank you for the question.

Thank you. The next question from Nishit is going to be answered by the CFO. Nishit is asking, why were margins under pressure year-on-year speaking, during the fourth quarter? Even other revenues looked weak. So what was the overhang?

Yes. Thank you, Nishit. I think the -- if you look at our performance over the past years, that pattern of a weak Q4 has been there because it's part of our, I would say, overall business pattern, okay? So the margins didn't specifically, I would say, drop in the Q4, but they just followed the, I would say, normal seasonality of our business pattern, which, in fact, sees Q4 as the weakest, I would say, quarter along the year. So when it comes to the margins, margins, as you also know, are impacted by a full year -- any full year adjustment on trade spend, which happens for the full year at year-end. So this is also, what can -- in addition to the seasonality pattern, can also impact temporarily or let's say, on a real spot base, the Q4 performance, but it doesn't, I would say, anyhow jeopardize the overall year performance.

Omar, if I may add. I think the fact that 72.6% of our business contribution is coming from Kuwait, and a big part of our sales actually is with the coops, so by default or by design, they slow down their sales significantly in Q4 because of the stock-taking and so on and so forth. So unfortunately, there is an external factor that's coming from the customers. And then you see this being completely reversed in Q1 where you have that spike that is completely unjustifiable. So a big part of it is super officially influenced by the way that we operate in Kuwait where we have, obviously, a greater contribution to our business. I hope between Omar and myself, we addressed the question that Nishit have said.

Very clear answers, very straightforward. Thank you for that. The next question is also from Nishit and this will be answered by the CFO. Nishit is asking, other income was KD 2 million in the fourth quarter. So the question is, what was booked other than the KD 800,000 from Dubai PPE sale?

Okay. The other income do not only book or, let's say, receive the income from asset disposals, okay? Anyhow, there were other asset disposal with less, I would say, magnitude that were realized during 2024 that we have also added into that other income line. But also we have all cross charging, especially for any marketing expenses that are agreed with our, I would say, principle that are also booked us in other revenue as a recharge and this -- most of this is also happening at year-end as yearly adjustment. So the income doesn't only include the proceeds from the disposal of, I will say, the Opus office.

Thank you. Our next question, also from Nishit. Nishit is asking the CFO, why did G&A spike in the fourth quarter? Was there any major provisions?

No, I think the G&A also here includes our marketing expenditures, okay? So it's true that during 2024, and as mentioned in my, I would say, presentation, we needed to kind of fuel the growth and the future behind, I would say, the -- our brand equity. So there has been a major investment in marketing that has been also faced partly in Q4, which explains the SG&A surge.

Thank you. With that, we've answered all the questions that we received on today's call so far, but we'll stay on the line if you have any -- if anyone's thinking of sending over questions. We're going to be here for the next minute or 2 until we receive a new question. We just got a question from [ Mohamad Talib ]. [ Mohamad ] is asking if there is any impact from the USAID or USAID disruptions on this -- on Mezzan's JV in Jordan? And the question is going to be answered by the CEO.

Thank you. Thank you, [ Mohamad ] for the question. And the simple answer is no because, obviously, we are not the JV. All our Jordanian business in general is not at all dependent on any USAID. As a matter of fact, we are primarily partnering with the World Food Program, which is one of the United Nations' programs operating in this part of the world. So we have no impact whatsoever because of the USAID disruptions that we are witnessing.

Thank you. We have a question from Nishit again. Nishit is asking, his words, what went wrong in KSA during the fourth quarter in terms of revenue decline? And how will it be addressed?

Okay. I will take this. Nishit, thank you very much for the level of diligence and questions that have been asked. Actually, KSA is a strategic market for us. And KSA is a market that, for those who are following Mezzan for some time now, they should know better that KSA has been a challenging -- has been representing a challenge for us, for management for quite some time now. And this business is going through a reset. As a matter of fact, even up until this morning, we were having a discussion with some of the Board members about how the reset in Saudi Arabia is going on, and it's going quite well. So it's not going to happen overnight. So disruptions are basically planned and we know exactly what we're doing there. We will start reaping the benefits of all the efforts that we're doing in Saudi Arabia. Probably, we'll not see a major improvement in the second half of this year, but this is going to be in 2026. And again, as far as I know you mentioned the forward-looking, so I'm not making any commitment, but it's basically, we are excited about how Saudi will start contributing to our business in the future.

Excellent. Thank you for that detailed answer. With that, we have answered all the questions we received so far. Thank you, everyone, for joining us. As I said earlier, at the beginning of the call that a live recording of this call is going to be available on the same link to use the access this call in about 2 hours or so. And with that, we will be concluding today's call. We look forward to seeing everyone for the first quarter earnings. Thank you all. Ramadan Mubarak to everyone, and have a good day.