Heavy Engineering Industries and Shipbuilding K S C P : Supplementary Disclosure Regarding Publishing The Analyst conference Transcript Q4 2023

ANALYST CONFERENCE TRANSCRIPT

FOR THE FINANCIAL RESULTS

for 4th Quarter 2023 Sunday 10/03/2024

HEISCO Participations:
Mr. Abdulrazzaq Alothman	Corporate Director - General Affairs
Mr. Joseph Mathew	Corporate Director - Finance
Mr. Waleed Attiya	Corporate Director - Project Controls
Mr. Ahmed Jenada	Investor Affairs Unit Lead
Conference management:	EFG Hermes
Mr. Ahmed Hazem

Ahmed Hazem

Good morning and good afternoon, ladies and gentlemen.

This is Ahmed Hazem from EFG Hermes Research. And I'd like to welcome you all to HEISCO's fourth quarter, 2023 results conference call. With us on the line today is Mr Abdul Razzaq Abdul Qader, Corporate Director of General Affairs, Mr Waleed Attiya, Corporate Director of Project Controls, and Mr Joseph Mathew, Corporate Director of Finance, and Mr Ahmed Mohamed Jinadah, Investor Affairs Unit Lead. Without further delay, I'd like to hand over the call to Mr Waleed Attiya. Mr Waleed, please go ahead.

Waleed Attiya Hello, everybody. Welcome to our meeting. In the beginning of the meeting, I would like to explain the company activities and the profile of HEISCO, then I will hand over the talk to Mr Joseph Mathew, our Corporate Director of Finance. First of all, the fields of HEISCO activities is our shipyard operations, oil and gas construction operations, industrial maintenance operations, fabrication operations, trading operations, quality control and testing services, testing and calibration lab, scaffolding services and galvanisation plant. The subsidiaries of the company are the [inaudible 00:01:37] activities are onshore operations, offshore and marine operations.

And we are also specialised in human resource. Gulf Dredging subsidiary company, also HEISCO for technical specialised manpower supply company is one of our subsidiaries. This year, we have achieved a revenue of KD 146.8 million, with earning profit of KD 7.2 million, at a percent of 4.9%. We are also establishing a private limited company for engineering and design in Chennai, India, to enhance our ability to support the group's expanding business activities and to serve various clients in the region. Also, our strategy is to finalise the site acquisition process to establish cutting-edge manufacturing and service facilities within Ras Al-Khair Industrial City in Saudi Arabia, enabling us to capitalise on the promising opportunities available in Saudi Arabia.

Enlisted the experience of a seasoned consultant to secure Non-GBS Scaffolding Services PQ approval from Aramco as part of our strategy to enhance and broaden our scaffolding business operations in Saudi Arabia. Received approval in the in-plant projects category from Aramco, allowing us to fully engage in direct bidding opportunities in KSA. Nevertheless, we aim to secure additional subcontracts as we continue to acclimate ourselves with the Saudi market. Our subsidiary, GD, has successfully acquired approvals from Aramco, NEOM, RedSea Global and other pertinent authorities, granting it the capability to engage in direct bidding.

GD now, Gulf Dredging now aims to broaden its business operations in KSA through strategic expansion initiatives. We are devising strategies to broaden our business presence in Iraq, particularly in the promising oil sector by engaging directly with clients and establishing partnership with well-respected international contractors. Now I will convey the piece to Mr Joseph [inaudible 00:04:28] who will elaborate on our financial figures.

Joseph Mathew Good morning, good afternoon, all. I'm much privileged and delighted to present you the financial performance of HEISCO for fiscal year 2023. At a glimpse, the revenue has increased 19%, from 123.7 to 146.8 million. EBITDA has increased 24%, from 11.63 to 14.38 million. Net profit, from 5.62 to 7.11, which is a 26% increase. And an increase of 26% in EPS, from

31.22 fils to 39.45 fils. Assets have grown by 4%, from 176.5 to 183.8. Equity, from 70 to 74, that's a 5% increase. The liabilities have gone up by 4%, from 105 to 109.8. Borrowings have come down from 34 million to 25 million. And dividend has increased from 20 fils to 30 fils.

Basically, the revenue has come from newly awarded projects. To name a few, it's KOC construction of flowlines has contributed around 5 million. And KOC Jurassic Gulf Production Facility, with Spetco as a main contractor, have contributed 4.7 million. Rehabilitation of steam turbines and generators at Sabriya, 4.3 million. And Shuaiba Oil Pier rehabilitation, 4 million. KNPC wave deflector seawalls at Shuaiba Oil Pier, 3.2 million, and so on and so forth. This is the main revenue stream which has contributed to an increase of 19%. EBITDA has increased 24%, basically one reason being the increase in revenue.

Plus we have a substantial decrease in expected credit loss, the ECL provisions, which has contributed due to a good collection during the previous year. On the asset side, we have an increase of assets. We have purchased two vessels for KOC support service contracts for around 5.5 million. And KNPC maintenance contract, we had an asset purchase of around 750,000. And our floating dock for the shipyard has gone for a major revamping in Bahrain and it is back now, back in action. And refloating, there was an additional capex of 3.7 million last year. Tools, machines and project- required small items have contributed to KD 1.06 million purchases.

All in all, addition was 13.3 million and depreciation was 4.3 million. Disposal was close to half a million and gain on disposal was 30.9 [Inaudible 00:07:48] million. Equity increased by 5% from 70 million to 74.14, basically contributing factors of the net profit and dividend. Net profit was 7.11 million last year and dividend was 3.6 million. Liabilities have gone up 4%, mainly due to increase in rent by Kuwait Ports Authority and Public Authority for the Industry. And we have received some substantial amount as advance from clients, close to a tune of 16.5 million. Rate payables have reduced by 4.6 and the employee payables increased by 0.6, approvals by around 0.4 million.

Borrowings have come down 27%. Term loan have been repaid by 2.5. Promissory notes repaid

1.28. Overdrafts reduced by 8 million. Reason being, as I said before, on the top, we have received substantial amount of advance from clients. And the dividend, the board has proposed the dividend of 30 fils, which is subject to approval by the general assembly meeting. Coming to slide number ten, which is showing the distribution in business line, we have an increase of 16.4% in industrial oil and gas. And shipyard remains constant, whereas offshore has increased by around 57%. Offshore increase is basically due to increase in new jobs which have been awarded.

This is the breakdown of statement of income here at a snapshot. You see that the revenue has increased from 123 to 146, whereas the cost of sales has proportionately remained the same,

92.19 versus 92.08 comparing to FY 22. All the ratios, if you look at coming down on expense lines, it remains the same. One major change is in expected credit loss on financial assets, which I explained before. Financial cost has gone up because central bank discount rate has been increased substantially during the last year and we are at the peak at the moment. Expected to be reduced during the course of the year.

Coming to the ratios, all the ratios are on the positive side and total debt to total assets have got a major drop. This is basically because of the advanced payment received so that the payables have gone down. All other ratios are within the range and are very much in line with the previous years. When you look at the cash flow, the non-current assets, the percentage of total non-current assets to total assets has increased from 39 to 42. This is basically because of the addition of fixed assets, property plant and equipment. And the trade and other receivables to total assets decreased from 2.11 to 0.77.

This is actually a reclassification of retention from non-current to current. And current assets, trade under the receivables of total assets increased from 22.85 to 18.14% in the FY 23, again, due to the [inaudible 00:11:59] retention from non-current to current. Current liabilities, trade and other payables increased from 27 to 33 in FY [inaudible 00:12:10] due to advances received from clients on new contracts, as we discussed before. And percentage of total current liabilities to total liabilities has increased marginally from 46.57 to 46.95. Looking at the backlog of the jobs, currently as of December 31st, HEISCO have got a consolidated backlog of KD 456 million.

And currently, HEISCO is L1, waiting for approval or award of contracts to the tune of KD 187 million. And we are L2 where we are very highly likely to be awarded the jobs of KD 121 million. Total, we are expected to be awarded KD 308 million worth of jobs in the coming months. Adding that to the current secured backlog of 457 million, we are looking at a total of KD 765 million worth of jobs in hand in coming two to three months' time. The same time, we are bidding for jobs roughly to the tune of KD 700 million, between MEW, KOC, KNPC, Joint Operations and other clients.

Taking at a very conservative outlook of, say, 30% of new tenders being secured or awarded to HEISCO, we are talking about 765 plus 200, roughly 965 of billion KD worth of backlog during the year, plus for the work to be performed this year. This is the overall outlook of the financial performance. And going forward, we expect to be a much better year than 2023 for 2024. And even a bright year as 2025. This is the outlook, what we have currently. With that, I just conclude and ready to take any questions.

Ahmed Hazem Thank you. If anyone has any questions, please use the raise hand

function or send your questions in the Q&A box. Just as a reminder, you can use the raise hand function or send your questions in the Q&A box. There does not seem to be any questions in the Q&A box or raise hand, so back to management for any closing remarks.

Waleed Attiya Thank you, everybody, for our meeting today. As what Mr Joseph explained, hopefully this year, we will have a better position than all the previous years. And thank you for joining.

Ahmed Hazem

Thank you, everyone. You may now disconnect.

FY-2023 I Virtual Summit

Agenda

1. Disclaimer
2. Vision & Mission
3. About HEISCO
4. HEISCO's Strategy
5. Performance Highlights
6. Financial Overview
7. Appendix
8. Q & A

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Disclaimer

FORWARD - LOOKING STATEMENTS

This information set out in this presentation and provided in the discussion subsequent thereto does not constitute an offer or solicitation of an offer to buy or sell securities. It is solely for use as an investor presentation and is provided as information only. This presentation does not contain all the information that is material to an investor.

This presentation has been prepared by, and is the sole responsibility of, Heavy Engineering Industries and Shipbuilding Co. KSCP ("Group"). The information herein may be amended and supplemented and may not as such be relied upon for the purpose of entering into any transaction.

This document is furnished to you solely for your information. You may not reproduce it or redistribute it to any other person.

No person shall have any right of action against the Group or any other person in relation to the accuracy or completeness of the information contained in the presentation. Nothing in this presentation shall form the basis of any contract or commitment whatsoever.

No person is authorized to give any information or to make any representation not contained in and not consistent with this presentation, and if given or made such information or representation must not be relied upon as having been authorized by or on behalf of the Group.

This presentation does not disclose all the risks and other significant issues related to an investment in any securities/ transaction. Past performance indicative of future results. The Group is under no obligation to update or keep current the information contained herein.

This Presentation may contain forward -looking statements that involve assumptions, risks, and uncertainties. These statements may be identified by such word as "may", "plans", "expects", "believes" and similar expressions or by their context. The Group does not assume any obligation to update its views of such risks and uncertainties or to publicly announce the result of any revisions to the forward-looking statements made herein.

ROUNDING ADJUSTMENTS

Certain monetary amounts, percentages and other figures included on this presentation have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentage that precede them.

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HEISCO's Vision

HEISCO will become the customer's first preferred Company for Shipbuilding, Ship Repair, Fabrication, Construction, Industrial Maintenance, Dredging and Offshore services inside Kuwait. HEISCO also aims to expand its business operations in Middle East and North Africa.

HEISCO's Mission

HEISCO aims to expand its business operations, focusing on countries such as Saudi Arabia, Qatar, Oman, Bahrain and Iraq. The company intends to identify potential business opportunities in these regions in the Oil & Gas, Refineries & Power sectors in Civil, Mechanical, Electrical & Instrumentation Construction and Fabrication Services

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