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 Q3 2025 earnings. Today is Thursday, the 13th of November, and this call is held live from Kuwait. And a recording of this call will also be available on the same link within 2 hours. My name is Fawaz Al-Sirri. I'm the moderator on today's call, and allow me to introduce our speakers. We have with us Mr. Amr Farghal. He's the CEO of Food and FMCG and the Chairman of the Executive Committee at Mezzan Holding. Also with us is Mr. Omar Samoud, and he is 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 the next 10 minutes or so. Then we will open the floor to the Q&A. [Operator Instructions] Please also note the following. Mezzan Holding reports all its financial results in Kuwaiti dinars. Therefore, all figures mentioned during the call are expressed in Kuwaiti dinars as well. 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, achievements or results. And Mr. Farghal, the mic is yours.

Thank you, Fawaz, and good afternoon, everyone. Thank you for joining Mezzan Holding's Third Quarter and 9 Months 2025 Earnings Call. I am pleased to share another quarter of solid performance for Mezzan. This performance reflects the strength of our portfolio, the resilience of our brands and the dedication of our teams across all markets. Despite a softer consumer environment across the region, Mezzan continued to grow. Our revenues increased by 3.5% year-on-year to KWD 228.5 million, supported by stronger volume and a healthier portfolio mix. Gross profit rose by 10.5% to KWD 56.8 million, driven by margin improvement and continued cost discipline across the business. At the bottom line, net profit after tax reached KWD 14.4 million, up 19.5% from last year, representing 6.3% of total revenue. This improvement came despite the introduction of the new DMTT corporate tax law, which added approximately KWD 0.8 million in incremental tax during the period. Delivering double-digit profit growth under these conditions says a lot about how far the organization has come in terms of efficiency, agility and focus. Now let me take a moment to talk about our brands, which continue to be at the heart of our growth story. Kitco remains one of Kuwait's most iconic and trusted brands. Built on 6 decades of heritage and innovation, the team continues to expand the range to new flavors and formats such as Stix, Mexita and Bliss, while enhancing our classic Nice potato chips line to keep Kitco at the center of snacking occasions across generations. Crystal Sauce since joining the Mezzan family has been a remarkable success. Our hot sauce and condiment line are performing exceptionally well, not only in Kuwait, but also across regional markets, where we are seeing exciting growth opportunities. We are further enhancing the Crystal brand through continuous innovation, introducing new flavors and expanding the range, including the recent launch of our sriracha hot sauce with more exciting condiments and flavor are still to come. Our Al-Wazzan brand continues to build on its legacy as one of the most trusted household names in the region. From canned food to eat, sugar and salt, Al-Wazzan stands for quality and consistency and remains an essential part of daily life for families across our markets. In catering, we are seeing steady improvement following last year's reset. The division is now focused on quality and margin-accretive contracts, emphasizing operational excellence and profitability over scale. Operationally, our performance in Saudi Arabia continues to recover with sales up 4.4% year-on-year. The appointment of a new country director this month marks another important step in strengthening our foundation and accelerating performance in that market. Our Healthcare division led by Mezzan Medical, KSPICO and Medtronics continue to deliver impressive results and has become one of the central drivers of Mezzan growth and strategic direction. ALSHIFA PHARMA development, which served as an extension of KSPICO is progressing on schedule towards on time and on budget completion. The facility will be a state-of-the-art, high-stability pharmaceutical manufacturing site designed to produce a wide range of products and complying with European certification standards, thus strengthening Mezzan's position in this growing sector. Lastly, on the transformation front, we are making progress with our SAP/4HANA rollout with ALSHIFA implementation go live completed this week and our group-wide rollout planned during 2026. Overall, Mezzan is moving forward with clarity and confidence. We continue to invest in our brands, strengthen our operation and execute our strategy to build a more efficient consumer-focused and resilient business. And before I hand over to our CFO, I would like to extend my sincere thanks to all our teams across the region for their hard work and commitment to our shareholders and partners for their continued trust and support. With that, I'll hand over to Omar Samoud to walk you through the financial details. Omar, to you.

Thank you, Amr, and good afternoon, everyone. Let me walk you through Mezzan Holding financial results for the period ended 30 September 2025. On the revenue by business line, starting with our top line evolution recorded up to end of Q3 2025. Our Food segment remains the backbone of our portfolio, contributing 64% of total group revenue, up 1.7% year-on-year. The nonfood segment contributed for the remaining 36%, growing 6.9%. This balanced portfolio is a good witness to our sustainable growth agenda across multiple categories and demonstrates our resilience in a continuously evolving environment. Breaking this down further, food manufacturing and distribution grew 4.5%, representing 54.1% of group revenue, supported by expanding market share for our flagship brands in Kuwait, a clear reflection of our sustained investment in brand equity and reflecting the early signs of the earlier mentioned initiatives by Amr. Food catering declined 18.2%, contributing 4.6% of group revenue. This, as stated in previous calls, depicts our ongoing strategic direction to streamline and optimize this business for improved profitability. Food Services declined 4.2%, representing 5.3% of revenue, reflecting softer demand within our venture operations. On the nonfood side, FMCG and Healthcare grew 7.4%, representing 34.1% of revenue, driven by continued strength in pharmaceutical and an effective growth agenda in the Home and Personal Care segment. The Industrial division declined 1.9%, contributing 1.8% of revenue due to lower demand in oil refinery and plastics. Looking into the revenue by geography, Kuwait contributed 74.6% of total revenue, up 5.4%, led by food manufacturing and distribution and supported by solid performance in Healthcare and FMCG. UAE accounted for 12.6%, up 2.6%, supported by energy drinks and premium bottled water distribution. We continue to strengthen brand equity and expand the presence of our own brands in these markets. Jordan delivered 5.8% growth, contributing 6.4% of revenue, driven by an expansion in Kitco salty snacks and our premium fresh food and vegetable offering under our Al-Wazzan brand. A demonstration of our ability to tap into new consumption occasions and offerings. Qatar declined 22.9%, contributing 4%, reflecting the ongoing recalibration of our catering portfolio. And as earlier mentioned by Amr, our focus remains on quality and value-adding portfolio over scale in this business. Saudi Arabia grew 4.4%, contributing 2.5%, supported by restructuring initiatives designed to build a sustainable growth platform in the Kingdom. Looking into our P&L. Gross profit rose to KWD 56.8 million from KWD 51.5 million a year ago, with gross margin improving by 160 bps to 24.9%, another evidence for our sustained margin enhancement journey. SG&A, including other expenses, totaled KWD 36.4 million, up 6.2%, reflecting targeted investment to support growth, brand investments and digital transformation initiatives. Net profit before tax reached KWD 15.7 million compared to KWD 12.5 million a year ago. Net profit after tax stood at KWD 14.4 million, up from KWD 12 million, while net profit attributable to shareholders was KWD 13.5 million, representing a 20.6% year-on-year increase. On the cash flow side and moving to the cash generation. Operating cash flow before working capital changes reached KWD 27.5 million, up from KWD 24.9 million last year. Working capital outflow totaled KWD 4.3 million compared to KWD 12.1 million in the prior year. The improvement reflects the normalization of inventory level after expansion related bills in Q3 2024 due to global supply chain disruption. This combined, of course, with more effective account receivable management. Net cash flow from operating activity came in at KWD 23.2 million, up from KWD 12.8 million last year. Investing activity consumed KWD 13 million versus KWD 8.4 million a year ago, primarily driven by spending on Al Shifa Project, capacity expansion in the food segment and infrastructure improvements. As a result, cash flow before financing activity increased to KWD 10.2 million compared with KWD 4.4 million last year. Net debt stood at KWD 68.7 million, up KWD 1.9 million from September 2024, reflecting a good balancing act between our investment and cash generation cycle. From a balance sheet perspective, total assets stood at KWD 306.1 million with total equity at KWD 134.3 million. Net debt-to-EBITDA remained healthy at 2x, providing ample headroom to support ongoing investments and future growth initiatives. That concludes my review of the financial results. With that, I will now open the floor for your questions. Thank you.

Thank you, gentlemen, for walking us through the quarter. We will now be taking in our audience's questions. The first question is from Matthias Riley. I hope I'm pronouncing that correct. That question is for the CEO. Matthias is asking, how do you forecast the consumer spending in Kuwait and the category growth in the different food and beverage categories you are providing?

Thank you, Fawaz. And thank you, Matthias, for the question. Forecasting consumer spending is -- I don't know how to answer that, but let me put it this way. Obviously, consumer sentiments and consumer spending in any given market is up to the circumstances and the conditions of that given market. So it's subjected to going up and down. Kuwait definitely is -- consumer confidence is a bit on the lower side. Having said that -- and I think this is obviously something that has been flagged in different mediums and different occasions. Having said that, I think I'm quite confident with our own forecast, and this is I think what we need to focus on. We have solid runway ahead of us in terms of the opportunities that we've identified in the marketplace. In Kuwait, in particular, I'm going to talk about the other geographies. So in Kuwait, we've identified the opportunities that will help us to continue to drive the sequential improvement that we're looking for and the growth that we are driving across food, beverages and the nonfood categories that we are looking after. Outside Kuwait, as Omar have highlighted, Jordan is on a great trajectory now in terms of growth, the UAE on a good path. Saudi Arabia, all our efforts are -- is starting to pay back. So all in all, we are future-proofing Mezzan's performance and business through a very diversified portfolio within a given market and across all the markets that we're operating in. And this gives us the confidence that we have the plans to keep the momentum going and continue to grow in a sequential way.

Thank you, Amr. The next question is for the CFO, and it is from Ms. Nada Amin. Nada is asking -- first, she says, thank you for the insights today. And she's asking, can you provide some color on the KWD 1.6 million provision reversal booked in the third quarter of 2025. It appears to be booked in the catering segment. That question is for the CFO.

Thank you, Nada, and thank you for this, I will say, very specific question. As mentioned earlier and as you recall, we did have a hit in 2022 in our catering business, and we provisioned the full risk on the nonrecovery of some of our receivables during 2022. We never stopped chasing those, I will say, doubtful debtors. And our efforts for this year have been fruitful, and we've been across several, I would say, doubtful customers being able so far to recover that amount, which, in fact, you pointed here. But again, when we look at our overall performance on a year-to-date basis, we are benefiting from more, I would say, margin enhancement than this one-off impact. And by the way, that more or less same amount has been fully reinvested on our brands in order not to kind of just rely on those one-off events, and we kind of did the right, I will say, use of it. Thank you.