Mezzan K S C P : Transcript of the Analysts Conference

Transcript of Mezzan Holding Earnings Call

For Q4 2021/FY 2021

Date Held

24 March 2022

Transcript of Earnings Call/Webcast for Q4 2021 / FY 2021.

Mezzan Holding Company KSCP.

Date: March 24, 2022

Time: 14.00 Kuwait Time

Speakers from Mezzan Holding Co. Executive Management: Mr. Garrett Walsh - Group CEO

Mr. Nabil Ben Ayed - Group CFO

Moderator:

Fawaz Alsirri - Bensirri Public Relations

Fawaz Alsirri:

Good morning and Good afternoon ladies and gentlemen. This call is held to discuss Mezzan Holding's FY 2021 results, the earnings were filed last Tuesday on March 22, 2022.

Today is, March 24, 2022 and this call is held live from Kuwait and Dubai. A recording of this call will also be available on the same link within two or three hours.

My name is Fawaz Al Sirri. I am the moderator on the call today, and allow me to introduce our speakers for the call. I am with:

• • Mr. Garry Walsh, the company's CEO.

• • Mr. Nabil Ben Ayed, the company's Group CFO.

Ladies and gentlemen, I will be handing over the mic to Garry in a few seconds to start the call right after I take you through the usual call format.

As you know, first, the CEO and the CFO will each deliver their statement for the next 10 minutes or so, then we will open the floor to the Q&A.

To participate in the Q&A session, just type in your question on your screen at any time during the presentation. You can do that starting from now.

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.

Mr. Walsh, the mic is yours.

Garry Walsh:

Thank you Fawaz and Good morning everyone.

We will take you through a short presentation reviewing both the tailwinds we enjoyed and headwinds we faced during FY 2021.

I will then discuss financial highlights, after which I will hand over to Nabil, who will take you through the details of the financial performance for the FY 2021.

Lastly as Fawaz said, we will be happy to receive your questions and answer as much as possible today. If we are unable to cover all your questions, please feel free to send your questions to our Investor Relations team [e-mail] and we will get back to you very quickly.

From a tailwinds perspective:

•  Acquisition of new brands in KSA and UAE markets. We continue to achieve success with the launch of new brands and products.

•  Stable revenue base despite challenging and complex conditions. We are pleased to see that our revenue growth meaningfully accelerated in 2021 for our food manufacturing and distribution sector versus the previous year, and this gives us an added confidence that the investments we've made in our legacy brands are working.

•  Tight working capital management. We witnessed good cash management and an improvement in the working capital cycle which enabled us to reduce our borrowing and financing costs. Our Net Debt in December 2021 was lower by KWD 0.5 million compared to the Net Debt of December 2020.

From headwinds perspective:

•  Rising global inflation is impacting the region as prices of commodities and transportation surge. After decades lurking in the shadows, inflation is back. In 2021, we faced inflationary pressures from jump in costs of imported raw material and consumables.

•  Upsets faced in Qatar's Arab Cup event, such as staff visas delay, low attendance rate versus forecast, and menu prices discounts. The company will deliver a larger-scale catering service to FIFA World Cup 2022 in Qatar. Mezzan will benefit from the lesson learned from the Arab Cup experience and produce better results by improving work processes, operation, and cost effectiveness.

•  Lower profit margin pressured by discounts and promotions. We have increased our marketing spend in 2021 to sustain and increase our market share.

In terms of our financial highlights and headline numbers for FY 2021 ended 31 December 2021:

•  Mezzan's revenue reached KWD 245.1 million down slightly from KWD 246.4 million in the previous comparable period, for a slight decline of 0.5%.

•  Gross Profit reached KWD 53 million compared to KWD 59.3 million in the comparable period, for a decrease of 10.7%. Gross Profit Margin decreased by 250 basis points to reach 21.6%.

•  While EBITDA, reached KWD 21.8 million, down from KWD 25.4 million in the comparable period, for decrease of 14.1%.

•  The group achieved net profit of KD 9.6 compared to KD 12.6 million in 2020, a decrease of 23.7%.

•  Finally, Mezzan's net profit to shareholders of the parent company reached KWD 8.4 million for FY 2021, compared to KWD 10.9 million in the previous year, for a decrease of 22.8%.

At this point I will hand over to Nabil to take you through the financials in more details discussing the performance of the financial year ended 31 December 2021.

Nabil Ben Ayed:

Thank you Garry and Fawaz. And thank you everyone for attending the call. I will walk you through the financial results of the financial year ended 31 December 2021:

As for revenue contribution by business line at Mezzan Group:

•  In FY 2021, the food group accounted for 67% of total group revenue in, for a decline of 0.7% compared to 2020; while the revenue of non-food group accounted for the balance of 33% of total group revenue, for a decline of 0.2%.

•  In FY 2021, Revenue of Food Manufacturing and Distribution increased by 5.2% contributing to 49.3% of Group revenue.

•  Revenue of Food Catering decreased by 8.7% contributing to 12.5% of Group revenue.

•  Revenue of Food Services decreased by 24.5% contributing to 5.3% of Group revenue.

•  Revenue of FMCG and Healthcare decreased by 1.8% contributing to 30.6% of Group revenue.

•  Revenue of Industrial segment increased by 26.4% contributing to 2.3% of Group revenue.

We now move on to discuss operations per geography for FY ended 31 December 2021:

•  Operations in Kuwait contributed to 72.4% of Mezzan's revenue, down by 1.5%.

•  Revenue from our operations in the United Arab Emirates contributed to 12.9% of Mezzan's revenue, increased by 17.3% compared to 2020 due to an improvement in our distribution business.

•  Revenue in Qatar increased by 0.3%, and contributes to 8.2% of Mezzan's revenue.

•  Saudi Arabia accounted for 2.2% of Mezzan's revenue for an increase of 9.5% on the back of introduction of new brands in the Saudi market.

•  In Jordan, sales increased by 14.8% as we continue to improve our distribution coverage and product portfolio. Jordan revenue contributed to 3% of Mezzan's revenue.

•  Revenue from operations in Afghanistan was down 85%, due to the complete departure of U.S. troops from the country and the Afghan political turmoil. Worthy of mention that Mezzan has exited and concluded its business in Afghanistan, and all Mezzan employees were safely evacuated from the country. Afghanistan market accounted for 0.3% of Mezzan revenue.

•  While our operations in Iraq accounted for only 1% of Mezzan's revenue with an increase of 2.1%.

Moving to the Profit and Loss:

In 12M 2021 ended 31 December 2021, Mezzan Group recorded:

•  Revenue of KWD 245.1 million, for a decrease of 0.5% compared 2020.

•  Gross profit reached KWD 53 million, compared to KWD 59.3 million in the previous year, and Gross Profit Margin reached 21.6%, compared to 24.1%. in 2020.

•  EBITDA reached KWD 21.8 million, down from KWD 25.4 million in the previous year, for a decrease of 14.1%.