Mezzan Holding Company K.S.C.P. ($MEZZAN)

Good afternoon, ladies and gentlemen. Welcome to Mitzan Holdings' First Quarter Earnings Call for the year 2026. Today is May 12, and we are hosting this call live from Kuwait. A recording will be available on the same link within 2 hours or so. My name is Fawaz Sill. I'll be moderating today's call. And with me here is the Group Chief Executive Officer from Mitzan Holding, Mr. Amin Fera, welcome. And also with me here is the Group Chief Financial Officer from Mezzan Holdings, Mr. Arman Nammud. Welcome. Before handing over to the CEO, let me briefly outline the format of today's call. The CEO will begin with prepared remarks, followed by the CFO, who will take you through the financial performance in further detail. After the prepared statements, we will open the floor for questions. Please note that Mezzan Holdings reports its financial results in Kuwaiti dinars and all figures mentioned during this call are stated in Kuwaiti Dinars unless otherwise specified. Certain statements made today may be forward-looking and are based on current expectations and assumptions. Actual results may differ materially in the future. With that, Ann, the CEO, the floor is yours.

Thank you, Fall. Good afternoon, ladies and gentlemen, and thank you for joining Mezzan Holdings Q1 2026 Earnings Call. Q1 2026 was one of the most operationally demanding quarters we have navigated in recent years. Against the backdrop, I want to begin with what we achieved. Revenue came in at KWD 87.6 million, broadly flat year-on-year, declining just 0.5%. Within that, Saudi Arabia delivered standout growth of 33.8% year-on-year, clear validation of the strategic repositioning we have been executing in that market. These outcomes were not accidented. They reflect the quality of our preparation and the discipline of our teams in these times. We started the year with good momentum in January and February. Disruptions unfortunately emerged in March, driven by heightened regional tensions and freight dislocation that created pressure across logistics, flows and supply routes. This was the dominant factor in the quarter's final outcome. We entered the period in a position of preparedness. Our strategic stock building ahead of Ramadan completed in Q4 last year across essential items, core brands and key commodities provided a meaningful buffer during the most volatile weeks. The preparation proved its value. Where routes were disrupted, we assessed and activated alternatives. where supply was pressured, we moved quickly on sourcing options. Our teams shifted into a daily operational discipline across procurement, logistics and commercial functions to keep the business moving the results. Shelves remained replenished across our core categories, and we avoided material disruption across our main SKUs, -- maintaining that availability, particularly across food, consumer staples, water and health care is fundamental to what Mezzan stands for. I should acknowledge that maintaining continuity came with additional cost freight rates increased sharply at certain points, and we incurred incremental logistics and supply chain expenses to protect our supply lines. We view these as the right trade-offs, protecting customer service and brand trust as a long-term investment, not a short-term cost. The disruption created a clear and observable shift in consumer behavior. During the most acute weeks of March, demand rotated strongly towards essentials and staple categories, bottled water, canned tuna, rice and everyday necessities. This was -- these were positive for volumes in those segments, though it created a mix headwind as demand softened in most discretionary and impulse-led categories, particularly salty snacks. Shopper occasions in those categories reduced noticeably during the period. We also saw fewer corporate and event-driven occasions. We also saw fewer corporate and event-driven occasions, which weighed on our catering business. This was a direct function of the broader operating environment in March and the reduction in activities across those customer channels. In Saudi Arabia, Q1 revenue growth of 33.8% year-on-year reflects the progress we have been making through stronger execution, improved commercial alignment and a more focused market approach. KFA is an important and growing part of the group's footprint and the early evidence in Q1 reinforces our conviction in that market's trajectory. In the UAE, we saw softness in HoReCa channel during the quarter linked to the broader regional context and its effect on the out-of-home activity. This impacted part of our portfolio, including energy drinks. We expect channel activities to recover as operating conditions stabilize. In Qatar, I'm pleased to highlight continued progress on receivable recoveries. As many of you recall, we recorded significant ECL provisions in 2022 related to customer receivables in Qatar. Our legal and in-country teams have been working persistently to recover those balances and Q1 saw further meaningful progress and we will continue to update you on this as collections advances. Healthcare year-on-year movement in health care during Q1 -- the year-on-year movement in health care during Q1 primarily reflects the timing of major Ministry of Health tenders rather than any change in underlying demand. Based on current visibility, we expect this phasing effect to largely normalize through Q2 and Q3 with the pipeline broadly intact. Our long-term health care manufacturing strategy continues to advance on schedule. The development of our new Alshafa Pharmaceutical facility, the development of the new Alshafaharmaceutical facility, the advanced manufacturing arm of KSP remains on track for production to commence in 2027. This is one of the group's most strategically significant projects and a foundational part of our long-term health care platform. Our objective for 2026 is clear to deliver full year revenue ahead of 2025 with disciplines across cost, working capital and margins. We have 3 specific sources of confidence in that target. First is the KSA trajectory in Q1, which gives us real momentum in our most important growth market. Second, the health care tender pipeline, while phased is largely intact, and we expect normalization over the coming 2 quarters. Third, our supply chain posture built on proactive stock management and alternative sourcing routes developed during Q1. These are more resilient during Q1 is more resilient entering the rest of the year than it was entering Q1. We are realistic about our operating environment. Visibility remains limited and the regional context continues to evolve. Our approach is, therefore, focused on what we can control, operational discipline, proactive risk management and protecting the quality of our earnings while continuing to serve our customers with the ability they expect from Mezzan. Before I hand over to Amar, I want to acknowledge our teams across the group. The agility and professionalism they demonstrated through a genuinely difficult period was exceptional. And it is the reason why we were able to protect availability, maintain customer service and keep the business stable. The execution in Q1 gives us confidence as we move through the remainder of 2026. With this, I will now hand over to our CFO, Amar Samoud, who will take you through the financials in details. Omar, over to you.

Thank you, Amar, and good afternoon, everyone. Let me walk you through Lazan Holdings' financial performance for the first quarter ending 31st of March 2026. In the revenue by business line and in light with what Amar earlier mentioned, we reported group revenue for the first quarter of EUR 87.6 million, broadly in line with the same period last year, witnessing a soft drop by 0.5%. The Food segment contributed 63% of total group revenue and grew 2.5% year-on-year. Within Food, our manufacturing and distribution business grew 2.7%, contributing 57.9% of total group revenue. Performance was supported by strong volume, stronger volume in our staple and core commodity categories, offsetting the demand softness in impulse category. Food catering, a segment which was adversely impacted by the geopolitical situation, declined 1.9%, contributing 4.2% of group revenue, reflecting lower event-driven activity during the quarter. Similarly, Food Services witnessed an increase of 10.5% represented only 0.9% of group revenue, reflecting stronger demand across certain venture operations. The nonfood segment accounted for 37% of total revenue, declining 5.1% year-on-year. Within nonfood, the FMCG and Healthcare division contributed 35.6% of total revenue, declining 4.2%. The decline primarily reflects the delay of Ministry of Health tenders within health care still expected to be realized over the remainder of the year with no anticipated impact on full year performance. Pharmaceutical Distribution continued to perform in line with the expectation. The Industrial division contributed 1.4% of revenue, declining 25%, reflecting weaker demand on oil refinery and plastic-related products in addition to export restriction during the crisis. Now turning to revenue by geography. Kuwait remains the group largest market, contributing 76.4% of total revenue. Revenue in Kuwait declined 2.5% year-on-year, reflecting an impact of the regional situation in March across selected categories. The United Arab Emirates accounted for 11.4% of revenue, growing 4%. Within UAE, our HoReCa channel was impacted by the broader regional context during the quarter, which weighed on our energy drinks portfolio in particular. Performance across our other categories in the market remained healthy. Jordan, including Iraq served via our Jordan-based entity, revenue declined by 4.2%, reflecting the softened demand on our venture business, impacted by the supply disruption mentioned earlier. Meanwhile, our retail business still enjoys good momentum -- despite the regional challenges, Jordan contributed 5.1% of group revenue. Qatar contributed 4.1% of total revenue and delivered 16.4% growth, mainly driven by our water bottling segment. Saudi Arabia contributed 2.9% of revenue and grew 33.8% year-on-year. This represents a strong evidence of the success of our turnaround initiatives and supports our growth ambition in the Kingdom. Turning into profitability. Gross profit for the quarter reached $20.9 million compared with $21.7 million in the same period last year. Gross margin stood at 23.85% compared with 24.7% in Q1 2025, a compression of approximately 84 basis points. This reflects the change in mix resulting from the change of consumer shopping behavior during the crisis with higher demand on stab categories in addition to the time shift that occurred in capturing the health care tender opportunities that was explained earlier. SG&A and other expenses totaled $10.6 million compared with $12.6 million in Q1 2025. supported by the reversal of ECL but also fostered by disciplined cost management. Operating profit reached EUR 10.3 million, an increase of 12.6% year-on-year with operating margin expanding by approximately 136 basis points to 11.7%. EBITDA reached EUR 12.5 million, growing 10% year-on-year, with EBITDA margin improving to 14.2% compared with 12.9% in Q1 2025. Financing costs totaled EUR 1.4 million compared with EUR 1.5 million in the prior year, reflecting active management of the group funding profile. Net profit before tax reached 8.9 million, an increase of 17% year-on-year. After accounting of the domestic minimum top-up tax, K-FAS and Board remuneration, net profit reached 8.2 million, up 14.6%. Net profit attributable to shareholders of the parent company reached 8 million, an increase of 15.7%, equivalent to earnings per share of 25.6 compared to 2.2 in the same period last year. Now turning to cash generation. Operating cash flow before working capital changes reached $10.7 million in the quarter. compared with $12.1 million in Q1 2025, with a year-on-year movement reflecting variation in noncash items. Working capital dynamics were a notable positive during the quarter. The net working capital outflow was EUR 2 million compared with EUR 6.9 million in Q1 2025, an improvement of $4.6 million. This translates our continuous focus on effective working capital management, especially in the ongoing volatile business environment with a focus on recovering aged account receivable. As a result, net cash flow from operating activity reached $8.4 million, an increase of approximately 62% compared with $5.2 million in the same period last year. Net cash used in investing activities totaled $4.1 million compared with $3.5 million in Q1 2025. This was driven primarily by capital expenditures of $4.3 million, representing approximately 4.9% of revenue, fueling our strategic investment in building long-term infrastructure, among which Alita project. This translates into free cash flow of $4.3 million for the quarter compared with $1.7 million in Q1 2025. an increase of approximately $2.6 million, more than doubling year-on-year. Net cash used in financing activity was $3.9 million, reflecting active management of the group's debt profile. As a result, the group ended the quarter with cash and cash equivalents of $18.9 million compared with $18.6 million a year earlier. Now turning briefly to the balance sheet. Total equity reached $146.4 million compared with $136.3 million a year earlier, an increase of 7.4% Net debt stood at $72.2 million compared with $65.1 million a year earlier, primarily reflecting our continued investment in strategic growth projects. Net debt-to-EBITDA remained stable at 2.02x despite an increase in net debt of $7.1 million compared with full year 2025, reflecting continued investment in capital expenditure during the period. Despite these investments, the group balance sheet remains in a healthy position, providing the financial flexibility needed to support our ongoing growth initiatives and future opportunities. That concludes my review of the financial results for the quarter. I will now hand the call back to Amar to share our outlook for the remainder of the year. Over to you, Amar.

Thank you, Amar. Before we move to Q&A, let me share how we are looking at the remainder of 2026. These comments should be understood as forward-looking statements based on our current visibility and operating assumptions, not as guaranteed outcomes. Based on that visibility, we expect high single-digit to low double-digit revenue growth for the full year 2026, alongside high single-digit to low double-digit growth in net profit. We expect CapEx to remain within approximately 6% to 7% of revenue, and we will maintain a disciplined and sustainable approach to shareholders' distributions. Two strategic priorities will define the second half of the year. First, continuing to build on the KSA momentum demonstrated in Q1. That market is growing as a share of group revenue, and we intend to accelerate that trajectory. Second, advancing the Alshipaharmaceutical facility towards its 2027 production start. That project is the cornerstone of our long-term health care platform and it remains on schedule. Across the group, our focus is consistent, protect supply continuity, maintain margin disciplines and deliver earnings quality, not just revenue growth. Thank you again for joining us today. I will now hand over -- I will hand the call back to our to begin the Q&A session.

Thank you, gentlemen, for walking us through the quarter and sharing with us your priorities and outlook for the rest of the year. We will now be taking in our audience's questions. So if you think about asking a question, please go ahead and send it. We will wait to receive We have received our first question of the day. The question is from Ahmed. He is asking how comfortable is holding in their outlook for Saudi Arabia. That question is going to be answered by the CEO, Mr.

Thank you for the question, and thank you. Basically, we have been working hard on Saudi Arabia for the last 2 years. There has been a lot of disciplines brought into our day-to-day operation. We have new management now on the ground. We are resetting our commercial agenda, including small details like our price pack architecture, our approach to the trade, our route-to-market disciplines. So there is a lot of detailed work that is going on in Saudi Arabia, and it's slowly paying back. We saw some of this paying dividend in Q1. And we are confident that with the plans in place and with the commitment that management is showing, Saudi will soon become a much more strategic market for us. I don't want to disclose a lot about the investment plans as well, but there is a lot of exciting plans coming our way when it comes to Saudi Arabia. So please stay tuned, and we will continue to share with you the updates as and when we are in a position to do that. Thank you.

Thank you very much. With that, we have answered all the questions that we have received so far. I think with that, we're also going to be concluding the call for today. Thank you. Thank you, Hammad, for your insights and your outlook, and we look forward to speaking with you on our next earnings call, which will be the Q2 and first half of the year. Thank -- thank you, everyone. Stay safe, and we'll see you in the second quarter.

Thank you. Thank you.