Heavy Engineering Industries and Shipbuilding K S C P : Supplementary Disclosure Analyst conference Transcript

Ali AfifiGood afternoon, ladies and gentlemen and welcome to HEISCO's 2022 earnings call. This is Ali

Afifi, from EFG Hermes Research. With us on the call we have Mr Samir Hermez, Chief Executive Officer of HEISCO, Mr Joseph Mathew, Group Finance Manager, Mr Abdul Razzaq Al-Othman, General Manager of Group Affairs, Mr Waleed Attiya, Group Projects Control Manager, and Mr Ibrahim Safwat Abdelalim, Investor Affairs Unit Lead. So, without further ado, I'd like to hand over the call to management.

Samir Hermez Good afternoon. Basically, I just want to introduce. It's the first time we have an investor

conference and we'd like to introduce HEISCO. I'm not going to discuss any financials. Later the Group Financial Manager will present the financials for year '22. However, just introducing HEISCO. '22 was a very difficult year, especially in the construction industry. In Kuwait, we had a very hard year after the COVID clearance. '22 was almost a stagnant economy. However, HEISCO is determined to be the leader in our business domains. We are expecting the construction industry in '23 and onwards to recover and move forward.

The pipeline on the projects in '23-'24 are quite promising and we have also decided to expand our operations mainly to Saudi Arabia and Qatar. We have already a registered office and registered our HEISCO in the oil and gas sector. In Saudi Arabia we are almost embarking on a project, hopefully very soon, in the oil and gas industry. So, we have a good two years to come and basically the construction industry in Saudi and Qatar is quite huge. However, we are concentrating in Kuwait, where we expect things will improve and probably we have a good pipeline of projects, especially in the oil and gas and in the power industry. Thank you very much. This is our simple presentation and Mr Joseph will take over for the financial report on '22.

Joseph Mathew Thank you, Mr Samir. Good afternoon, ladies and gentlemen. At the onset, thank you all for attending the first earnings call of HEISCO. Let me forward you an overview about the performance of the Group during '22 and status of its financial position. All figures mentioned are in Kuwaiti dinars unless otherwise stated. The Group declared a total revenue of 123.7 million, out of which HEISCO, the main company, contributed 112.6 million and our subsidiary company, Gulf Dredging, reported 11.1 million. The Group attained a net profit of 5.6 million, compared to

6.3 million in '21, a shortfall of KD 700,000. Reported an EBITDA of 11.63 million. I shall go into the rationale behind the shortfall in revenue, EBITDA and bottom line shortly. The total borrowings stood at 34.8 compared to 31.3 million in '21. Earnings per share was 31.22 fils compared to 35.37 last year. A cash dividend of 20 fils per share has been recommended by the Board, subject to AGM and statutory approvals.

Slide number eight. Moving on to slide number eight. As I mentioned in the previous slide, the total revenue decreased from 128.5 to 123.7. That's a shortfall of 0.9 million or 3.8%, in terms of percentage. The decrease in revenue compared to last year was mainly due to the decrease in the construction business line by 4.1 million and shipyard operations by

3.5 million. Most of the on-time projects for period have been completed or nearing completion and we are awaiting the commencement or award of new projects. However, we are quite comfortable going forward with an annual backlog of 317 million plus a sizeable amount of bids where HEISCO is still waiting for award.

As you may notice, we have a drop in the EBITDA from 11.6 against 15.1 last year, a drop of 3.5 million. Ever since COVID pandemic time our revenue has been significantly reduced due to delay in award of new projects and slow- paced execution of ongoing jobs, and as a result of which, our heavy equipment, machinery and galvanisation plant remained largely unutilised. Since depreciation was charged on a straight-line method, there was a mismatch been cost of depreciation and corresponding revenue. To rectify the same, management decided to adopt unit of production method from Jan '22 for these assets and hence there was a drop in cost of depreciation, which in turn resulted in lower EBITDA. The Group's net profit decreased by 11.7% from 6.3 in '21 compared to 5.6 million in '22, as I said a delta of 700k, largely due to the reduction in shipyard revenue and margin. In this regard, please note that the floating dock of shipyard is under refurbishment in ASRY, Bahrain, since June '22 and is supposed to be back in business in Q2 this year.

Now, moving on to slide number nine where we show the revenue by business line. Industrial, Oil & Gas has a reduction of 6.0 million. The reason was discussed earlier. Shipyard revenue, a drop of 24% is the missing business of the floating dock. At the same time Offshore business grabbed new projects during the year like Shuaiba oil pier, for ultimate client

KNPC through Samsung, for a value of 5.5 million, marine construction and repair of a naval base for Kuwait Navy of 7.5 million, and channel dredging of Kuwait Port for Kuwait Ports Authority for 3.8 million, just to state a few.

Moving on slide number ten which states the consolidated statement of financial position as well as cash flow in a nutshell. You see the Group current assets have gone up by 10.7 million, whereas the components of the trade receivables have gone up by 1.9 million and the contract retention has moved on from non-current to current assets to the tune of KD 8.0 million and cash in hand went up by 700,000. Current liabilities have gone up by 9.4 million, components are borrowing from bank to 6.2 million and trade payables at 2.6. Cash flow from the investing activities has now purchase of fixed assets. We have done a sizeable amount of purchase this year, totalling KD 11.6 million. On cash flows from financing activities, overdraft went up by 6.2 million, Wakala payable by 1.6, promissory notes by 1.3 million and due to the company 700,000.

Coming to the ratio analysis, profitability ratios are all in line with the previous year, with minor negative drift except for EBITDA. The reason for the drop was explained earlier. Total debt-to-assets and debt-to-equity shows a positive trend, while interest coverage ratio is slightly slipping because of increase in finance costs and marginal decline in net profit. Liquidity ratios are at par with last year. Now, slides number 12, 13 and 14 are the Consolidated Statement of Financial Position and Income Statement both [unclear]. With that, I conclude the financial presentation and hand over the podium back to Mr Aziz Afifi, sorry Ali Afifi.

Ali AfifiLet's move to the Q&A session. If you have any questions, please use the Q&A box or use the Raise Hand function for me to unmute you. We'll give it a couple of minutes. We seem to have no further questions in the Q&A box or raised hands. In that case, I'd like to hand over the call to management for closing remarks.

Samir Hermez Since no questions from the attendees, I believe the financial report was covering all financial

overview of the Group. Year '23, we look forward for year '23, for much better revenue and a much better profitable year. Thank you very much.

Ali Afifi

Thank you very much for the good presentation. We will now disconnect.