Two Point Zero Group P.J.S.C (2POINTZERO) Earnings Call Transcript & Summary

Hello and welcome, everyone, to Multiply Group's 1Q 2025 Results Conference Call hosted by International Securities. My name is Asjad Hussain, Senior Research Analyst at International Securities. And today, I have the distinct pleasure of introducing the Group Business Director of Multiply Group, Mr. Omar Fayed; and the Group Finance Director, Mr. Naveed Khan. Multiply Group team, I thank you all for joining the call today. Following a presentation of Multiply Group's performance by their team, the floor will be open to Q&A. [Operator Instructions] I will now give the floor to Multiply Group's team. Omar, over to you. Please go ahead.

Thank you, Asjad, and good afternoon, everyone. We appreciate your time and your continued interest in Multiply Group. I see some familiar faces, so I'll start with a quick refresher on our strategy and the businesses we operate, then we'll take you through the Q1 update. So as you know, Multiply is an Abu Dhabi-based holding company that deploys capital into cash-generating businesses through 2 distinct arms, Multiply and Multiply+. Multiply is our vertical building platform for long-term strategic investments. We are active across consumer-led sectors, including Mobility, Media & Communications, Wellness & Beauty, Energy & Utilities, and most recently, Apparel & Retail. We typically acquire controlling stakes and anchor companies and scale them both organically, through expanding their services and geographic reach, as well as inorganically via bolt-on acquisitions. Multiply+, on the other hand, is our opportunistic investment arm. It focuses on high-return minority interests, particularly in dividend-yielding or monetizable businesses across public and private markets. I'll walk you through quickly our current businesses, and then we'll take it with the Q1 updates. Within Media & Communications, we are currently the leading out-of-home advertising player in the UAE. We're integrating 3 major platforms. We have Viola, which is the strategic partner for Abu Dhabi government operating on their outdoor assets. We have Media 247, which is a large format leader with premium location across Sheikh Zayed Road. And our latest acquisition in March 2024, BackLite, which is Dubai's premium digital provider with exclusive assets across the most important strip between Trade Centre and Mall of the Emirates, featuring globally recognized landmark and iconic assets. Since we are a regional leader or a local champion, we're now looking for geographical expansion with potential, where our resources and skill sets will give the group the right to become a leading player in new markets. On the Mobility front, we operate the exclusive driving platform in Abu Dhabi and recently expanded into Dubai as well through our acquisition of Excellence Driving Centre. Combined, we serve approximately 150,000 students and operate more than 400 vehicles. Under Wellness & Beauty, today, we are the regional leader in beauty services and products, reinforced by the full acquisition of The Grooming Company towards the middle of last year, which complements our broader Omorfia platform. Under Energy & Utilities, we have 2 separate platforms. We have PAL Cooling, which is the district cooling for Abu Dhabi. We own 100%, and we have approximately 182,000 tons of capacity -- connected capacity. On the other hand, we have a JV in Turkey with Kalyon Energy. We produce approximately 1.8 gigawatt of a mix of solar and wind, including Karapinar, which is one of the largest single solar farms in Europe. Our recent acquisition, and we will discuss it in more detail, Tendam is our entry into a new vertical which is Retail & Apparel. We acquired or we signed the SPA to acquire a 68% stake in that, pending regulatory approval, which is a global apparel retailer operating in more than 80 countries, having more than 12 brands and a robust omnichannel platform. So that's a quick overview of where we operate today. I'll walk you through a little bit on our sector selection criteria and how Tendam or Retail & Apparel fits within that. So we have around 6 to 7 criteria that we usually target when we look at new sectors, more specifically at companies, but more broadly at new sectors. We look at growth and growth potential. And obviously, Retail & Apparel or the global apparel and retail is growing at more than 5% and it's valued at around $1.7 trillion. So that ticks the box of market size and growth. In terms of capital efficiency as well, we looked at an asset-light model within that sector, and Tendam ticks that box as well. From a fundamentals perspective, we always look at the valuation or the fundamental valuation metrics that should be aligned with our fundamental values of the business, not temporarily skewed towards certain multiples or trends. Again, Tendam, I think we have a very good deal, a single-digit multiple entry price which will guarantee a very high return to shareholders. From a leverage perspective as well, we have a very disciplined approach towards leverage. We look at very low leverage businesses. And in that case as well, their leverage is less than 1.5. So also ticks the box perfectly. We love emerging markets. We love the exposure to emerging markets. Although Tendam is -- 75% of the business is within Spain and Portugal, they have a significant exposure to EMs through the Middle East, LatAm, mainly Mexico and Colombia, as well as the Balkans. So also that is part of our -- what we were looking for. As for entry -- barriers to entry, I think the long-standing and the equity, brand equity of the businesses under the Tendam portfolio provide a natural barrier to entry for -- within that sector. They have approximately 11 owned brands, but some names that you would be familiar with is Women'secret, Cortefiel, Springfield and Pedro del Hierro. They target the masstige segment, so not luxury nor lower end, so mid- to lower to the upper middle end of the range. Obviously, we target healthy returns. This is yet to be proven, but we believe in the management case and on the base case. We're targeting returns above 15%. A quick snapshot on the first quarter. Again, Tendam is one of the highlights of the quarter. We also signed a strategic partnership with Al Arabia, one of the largest out-of-home players in the region, specifically in Saudi, to jointly pursue international M&A opportunities, and as well as invest in ad tech platforms to try to monetize the wealth of data that both entities have access to. Moreover, obviously, on the operational front, we are integrating all the acquisitions that we closed last year, BackLite within the Media platform, Excellence within our Mobility platform and The Growing Company under the Omorfia Group. We keep on extracting efficiencies and delivering additional returns to shareholders. Financially, Q1 was also very solid. We grew revenue by 50% year-on-year or quarter-on-quarter. We're reaching AED 585 million. On the back of a mix of organic and inorganic growth, obviously the acquisition as well played a part. From an adjusted EBITDA perspective, we reached AED 571 million, which is a 19% growth quarter-on-quarter. But also from a consolidated EBITDA from operating entities, we grew that by 55% on the back of our recent acquisitions. From a net profit perspective, we closed the quarter at AED 343 million of adjusted net profit. And every time I say adjusted, it's really just excluding fair value changes to our public market portfolio. So despite macro headwinds, we have delivered AED 343 million net profit, slightly taxed on the hyperinflation accounting in Turkey as well as a one-off deferred tax gain in Q1 2024, which led to a minus 13% year-on-year or quarter-on-quarter, vis-a-vis last Q1 2024. From a cash flow perspective, we have a healthy operating cash flow of AED 256 million for Q1, 8% up from the last quarter. Balance sheet-wise, we remain also -- we maintain a healthy leverage ratio of net debt to equity of 0.25, with a cash balance of AED 1.73 billion. From a vertical perspective, I will leave it -- we will go deeper into the verticals and their performance. But again, just to show, most verticals grew significantly from Q1 2024 to Q1 2025, with more than 100% growth in Wellness as well as in Media as a result of organic and inorganic growth. On the Mobility side, similarly, we have a 26% year-on-year growth, 10% coming from organic growth and the rest coming from the acquisition of Excellence. Whereas in Energy, there's a minus 34% quarter-on-quarter, but that's really a result of the accounting, the share of loss increase in Kalyon as a result of a deferred tax -- or the amortization of a deferred tax asset that was recognized last year. From a dividend income perspective, also, we still -- our investment in the public market portfolio is yielding us very healthy returns, and we've generated AED 328 million of dividend income, with our total portfolio now doubling in size approximately since investment of reaching AED 32 billion in size. I will leave it to Naveed to take you through our Q1 financial performance, and then probably we'll open to your questions.

Thank you very much. Good afternoon, everyone. Thank you again for joining us for a review of Multiply Group's Q1 results and operational performance. We'll quickly walk you through group level financial performance. We'll dive deep into the vertical specific results, and we'll highlight balance sheets and our cash flow metrics. As Omar mentioned, we had a strong start for 2025 with our performance underscoring the strength of our diversified portfolio and effectiveness of our vertical building and integration strategy. Our group revenue for Q1 2025 witnessed solid growth across all our 4 core verticals: Mobility, Wellness & Beauty, Media & Comms and Energy & Utilities, driven by both organic and inorganic growth. Mobility revenue grew by 81%, primarily due to acquisition of Excellence Driving Centre in Q4 2024, which -- alongside of organic growth of 13%. Wellness revenue was up by 63%, supported by acquisition of The Grooming Company, TGC, in Q2 2024 and an organic increase of 14%. Media & Communications posted 37% year-on-year growth, with BackLite consolidation in March 2024 and strong growth in Viola Outdoor business. Energy & Utilities delivered 10% year-on-year growth with impact of PCH's new connections and revision in tariffs. With respect to profitability metrics, we posted EBITDA of AED 572 million, which is up 19% compared to the same period last year, which is a result of our robust operational performance across the 4 verticals, strong GP margin ratio of 49% and our dividend income of AED 328 million, largely from Multiply+ public market portfolio. Profitability was partially offset by a share of loss from Kalyon, which amounts to AED 25 million this quarter versus AED 14 million last quarter. The impact is due to hyperinflation and amortization of deferred tax asset, reflecting accounting adjustments under Turkish regulations. On an adjusted profit basis, net profit again was impacted, as we mentioned, losses from Kalyon and one-off deferred tax expense at the holding company level, which is AED 24 million compared to tax gain of AED 44 million in the last quarter. Our net profit after accounting for unrealized fair value changes came in at AED 210 million. Going forward into the cash flow generation. Cash flow remains a strong point for the group. Our operating cash flow remains solid, thanks to continued operational efficiencies and disciplined working capital management, which resulted in OCF margin of 44%, reaffirming the cash-generating capabilities of our underlying operating businesses. As we mentioned earlier, we are recalibrating balance towards vertical building strategy. Vertical EBITDA as a percentage of group EBITDA is up to 45% compared to 36% last year, and vertical assets account for 22% of the group assets, which is further supported by our Multiply+ public equity portfolio, which stands at AED 32 billion as of 31st March, which is almost double the value of invested capital. And we continue to maintain a robust and liquid balance sheet, which underpins our ability to reinvest and scale our vertical strategies. As of March 31, 2025, cash and cash equivalents stood at AED 1.7 billion. Gross debt was AED 9.3 billion, with net debt of AED 7.6 billion. Our net debt-to-equity ratio is just 0.25, indicating a conservative capital structure. Our funding cost is approximately 5.2%, relatively low in current high interest rate environment. And just a reminder, we have successfully deployed AED 21 billion capital until date. We go deeper into our verticals. Our biggest vertical as of today with respect to revenue and EBITDA is Media & Comms, followed by Mobility and Beauty & Wellness and then energy. We'll go deeper into the Media. As Omar mentioned earlier, Media is our biggest vertical as of today, which accounts for 33% of our revenue. The vertical saw 37% year-on-year growth, led by consolidation of BackLite and continued performance of Viola and Media 247. Gross profit margin improved by 200 -- almost 200 basis points, with EBITDA margin reaching to 54.3%, an increase of 17% EBITDA margin. Viola's shift to outdoor advertising improved margin by 200 basis points. Media 247 achieved margin gains through internal efficiency despite flat revenue. Our key development under these particular verticals are that we signed and we're expanding into Saudi and internationally with partnership with Al Arabia and -- to support our investment in AdTech and global acquisitions. BackLite is continuing to enhance its digital sign and expanding its partnership with Mada Media, and Viola expanded its geographical footprint to Dubai with 26 bridge banners. Wellness & Beauty, which accounts for 27% of the group revenue, revenue was up by 63% year-on-year, supported by consolidation of TGC and The Juice Spa & Salon. GP margin increased to 33.4% and EBITDA margin rose to 32.7%, up by 682 bps and 372 bps -- 375 bps, respectively. That's due to strong operational execution and higher technician utilization, which led to margin enhancement at GP and EBITDA margin level. Omorfia as of today operates with 133 salons across UAE and KSA following the acquisition of TGC and opening of Bedashing Beauty Lounge in Jeddah, making our first entry into Saudi. Energy & Utilities, which accounts for 12% of the group revenue, revenue grew by 10% year-on-year, though there was a slight adjustment in margins, as we mentioned earlier, due to results from Kalyon, mainly currency devaluation and hyperinflation adjustments under Turkish financial reporting requirements, and one-off deferred tax charges at holding company level. That being noted, there is increase in installed capacity of 150 megawatts at Kalyon Energy, and we secured additional project of 520 megawatt at Karapinar, which is Europe's largest single solar power plant. In conclusion, the group delivered a resilient and well-diversified performance in Q1, just because of diversified model, focused execution and robust balance sheet, which provides foundation for our continued value creation. We remain committed to scaling our verticals through disciplined M&A and organic growth, enhancing profitability through operational excellence and maintaining strong liquidity to support long-term strategic initiatives.

Thank you, Multiply Group's management team for a comprehensive review of the group's first quarter '25 financial performance and key strategic objectives.