Egypt Kuwait Holding Co. Releases Q4 2014 Earnings Results
EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Egypt Kuwait Holding Co. Releases Q4 2014 Earnings Results Company reports strong FY results despite fourth quarter challenges; anticipates strong 2015 performance on expansion of natural gas upstream & downstream operations as well as electricity generation and distribution
Key Highlights of Q4 2014 USD 81.2 mn
USD (0.7) mn
-1%
USD (11.1) mn
in Revenues
in Gross Profit
Gross Profit Margin
in Operating Income
-14%
USD 7.5 mn
USD (12.7) mn
USD 2.4 mn
Operating Margin
Attributable EBITDA
in Net Income
in Attributable Net Income
Key Highlights of FY 2014 USD 457.5 mn
USD 160.7 mn
35%
USD 91.4 mn
in Revenues
in Gross Profit
Gross Profit Margin
in Operating Income
20%
USD 96. mn
USD 57.9 mn
USD 51.4 mn
Operating Margin
Attributable EBITDA
in Net Income
in Attributable Net Income
Group Revenue
26 February 2015 | Cairo | Egypt Kuwait Holding Company (EKHO.CA on the Egyptian Exchange and EKHOLDING on the Kuwaiti Exchange), one of the MENA region’s leading investment companies, reported today its consolidated results for the fourth quarter and full year 2014.
(USD Millions)
500.7 457.5 147.2
81.2
Q4 Q4 2013 2014
FY FY 2013 2014
Attributable Net Income (USD Millions)
Q4 Q4 2013 2014
-23.7
The company’s consolidated results include the restatement of 4Q 2013 earnings to reflect impairments related primarily to changes in operation ahead of schedule at the pipeline transporting oil produced by a South Sudanese subsidiary. Meanwhile, results in the fourth quarter of 2014 reflect the impact of lower oil prices that partially offset sharp improvements in operations at subsidiaries including AlexFert, Sprea and Natenergy.
FY FY 2013 2014 42.2
2.4
The company reported Attributable Net Income of US$ 2.4 million in Q4 2014 — a significant improvement over negative US$ 23.7 million in Q4 2013 — on Consolidated Revenues of US$ 81.1 million, a 44.8% drop year-on-year. On a full-year basis, EKH reported a 21.8% increase in Attributable Net Income to US$ 51.4 million on Consolidated Revenues of US$ 457.5 million.
51.4
Comments from the Chairman, Mr. Moataz Al-Alfi The year just ended — and the fourth quarter in particular — offered EK Holding a number of challenges that dampened our results despite significant operational and growth-related achievements throughout the year. That said, I consider our results quite acceptable and look forward to an improved operating environment in 2015, the upside of which we will capture in part thanks to prompt management action across our platform in the final quarter of the year. The sharp decline in oil prices in the final quarter of the year had a particularly unfortunate impact on the Tri-Ocean’s bottom line in Q4, although our FY 2014 results are quite good, bolstered as they are
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
by the strength of oil prices in the first three quarters. Notably, following a low of c. US$ 45/ barrel, oil prices have risen in Q1 2015 to at or above US$ 60 / barrel, a level that would be supportive of improved earnings (compared with Q4 2015) for the company if it should hold through year’s end. That said, we have taken a number of steps to mitigate the impact of the volatility of oil prices on our bottom line going forward. In particular, we are in the late stages of exploring multiple avenues through which to increase our exposure to the gas production value-chain through our Offshore North Sinai connection. Any such agreement would leave us well positioned to explore expansions into value-added industries including petrochemicals, power generation and fertilizers. Natural gas is a good play for EKH, for a number of reasons: We are established in the business; income is predictable as contracts are made on a longterm fixed price-basis; and, not least, demand for natural gas is rising and forecasted to outpace production in Egypt for quite some time. In addition to laying the foundations for growth in 2014, we have also found ourselves leaving behind what had been considered a strong opportunity: The US fertilizer plant, which sought to capitalize on boom in shale gas in the United States and high fertilizer demand in that country. AlexFert was our primary investor in this potential project. Unfortunately, the originally secured non-binding EPC costs came in significantly above the first offers due to high demand for EPC contracts from companies looking to capitalize on the same conditions. We consider it noteworthy that a number of our international peers have chosen to bow out of similar projects in that market due to this same issue. I do not consider this a setback, but rather a freeing up of resources for real opportunity in our home market. With a fast-growing population, a recovering economy, an outstanding export position and a deficit market for energy, there is exceptional room to create new shareholder value in our home market.
Fertilizers & Petrochemicals
53%
EKH has investments in two operational companies in the Fertilizers & Petrochemicals Segment: Alexandria Fertilizers Company (AlexFert) and Sprea Misr for Production of Chemicals & Plastics Company. A third investment, the Egyptian Hydrocarbon Corporation (EHC,) is a mining-grade ammonium nitrate manufacturing startup that began commissioning in early 2015. The company’s Fertilizers & Petrochemicals investments encompass products ranging from urea, ammonium nitrate and melamine to formaldehyde and liquid and powder glue. With more than 10 years of nitrogen fertilizer operational expertise, EKH has targeted investments with access to key export markets including the United States and Europe, diverse products across several industries, and strong cashflow generating businesses.
of Group Revenues in FY 2014
Revenues (USD Millions) 293
71
240
53
Q4 Q4 2013 2014
FY FY 2013 2014
FY 2013 293,089
Gross Profit Margin
40%
EBITDA Margin
37% 17,085
Net Profit Margin
(Tons)
Net Profit attributable to EKH
638,246 488,320
Q4 2013
Q4 2013 70,980
Revenues
Net Profit
Total Fertilizer Sales
178,482
Fertilizers & Petrochemicals in US$ ‘000 unless otherwise indicated
112,540
Q4 2014
FY 2013
FY 2014
Q4 2014 52,819
FY 2014 240,342
46%
26%
32%
43%
-10%
19%
82,819
(8,435)
17,471
24%
28%
-16%
7%
9,072
41,164
(485)
17,547
On a consolidated basis, the Fertilizers & Petrochemicals sector reports Revenues of US$ 52.8 million in Q4 2014, a 25.6% decrease year-on-year, with Gross Profits of US$ 13.7 million, down 51.5% y-oy. Gross Profit Margin slipped 14 percentage points to 26%. Once again, management believes it is key to note that these results come on shortages of gas in the market, which had a particularly heavy impact on AlexFert, a key contributor to this segment’s potential profitability. That said, the Fertilizers companies reported a 60% utilization rate in the quarter — in general a rather low rate, but better than what Management believes were market averages over the period. The result of energy constraints throughout the year was the first loss-making year for AlexFert since inception.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Looking ahead, a number of developments in 2014 lead us to be confident that AlexFert will return to profitability in 2015 on utilization levels at or above 75% thanks to improved energy supplies. Management has also taken steps to ensure 2015 will be characterized by a better product mix, stronger pricing power and more advantageous distribution channels, all of which will be supportive of a return to profitability. Meanwhile, Sprea Misr has had a particularly good 2014, with topline growth and steady profits y-o-y on strong performance of the Formica business. The outlook for Sprea in 2015 is particularly compelling, with organic growth and expansion of its product mix in the works. In particular, the company is working to double its already-successful Formica business through another line. The company’s tax holiday has now expired, but the easing of raw materials prices (methanol prices have dropped by c.US$ 150 / ton since the company’s 2015 budget was first calculated) and product line expansion are expected to partially compensate. Sprea is also looking to expand into the production sulfonated naphthalene formaldehyde, a key additive for ready-mix cement. This additive, which allows ready-mix to dry faster and smoother, is currently not produced in Egypt, while the country’s ready-mix production market is growing significantly; the growth curve is expected to be particularly sharp for the next three to four years on the back of both infrastructure spending and real estate development. As a cost-effective local supplier, Sprea will be ideally positioned to capitalize on this growth.
Energy & Energy-Related
37% of Group Revenues in Q4 2014
Revenues (USD Millions)
178
193
70 30 Q4 2013
Q4 2014
FY 2013
FY 2014
Egypt Kuwait Holding has investments in three companies in the Energy and Energy-Related Segment: NatEnergy, Tri-Ocean Energy (TOE) and the Egyptian Tanker Company (ETC). EKH builds and operates gas distribution networks in Egypt through its 100%-owned subsidiary NatEnergy, which covers a wide spectrum of activities, including the transportation of natural gas to power stations and the independent production of power. The company’s energy investments also cover oil and gas exploration and production through TOE — which enjoys access to a significant reserve potential spread across Egypt and South Sudan — and local and global marine transport of crude oil and petroleum products through ETC. Tri-Ocean recently finalized an acquisition that sees it enter into the upstream gas sector as a developer and operator for the first time. Energy & Energy-Related in US$ ‘000 unless otherwise indicated Revenues
Q4 2013 69,954
FY 2013 177,612
Q4 2014 30,015
FY 2014 192,527
Gross Profit Margin
51%
48%
-16%
38%
EBITDA Margin
62%
47%
-18%
38%
(28,162)
(20,376)
9,830
32,445
Net Profit % Margin Net Profit attributable to EKH
Crude Production
Q4 2013
1,077,804
258,931
429,078
1,028,314
(BOE)
Q4 2014
FY 2013
FY 2014
-40%
-11%
33%
17%
(35,537)
(25,463)
7,087
33,307
The Energy & Energy Related sector reported a Q4 2014 Gross Profit of negative US$ 4.8 million (as compared to US$ 35.9 million in Q4 2013) on a 57.1% y-o-y decline in Revenues in the period to US$ 30.0 million. On a full-year basis, the company reported an 8.4% growth in Revenues to US$ 192.5 million and a 13.6% drop in Gross Profit to US$ 7.9 million in FY 2014. The drop is largely attributable to the fall in oil prices in the quarter. Specifically, the steep decline in crude prices in the quarter saw Tri-Ocean report a four-fold decrease in Revenue year-on-year in Q4 2014. In spite of this, revenues were essentially steady year-on-year as performance in the first three quarters was supported by particularly strong oil prices, offsetting Q4 challenges. The impact of lower prices together with increased COGS saw Gross Profit in Q4 2014 come in at negative US$ 12.0 million, down from US$ 28.7 million, leading to a Gross Profit of US$ 45.4 million in FY 2014.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Operationally, Tri-Ocean had quite a good year and at the company’s recently acquired Offshore North Sinai concession it is ramping up production via the drilling of new wells that should increase daily production from 45 MMSCF to 80 MMSCF by Q3 2015. Meanwhile, NatEnergy, although reporting a 16.2% decline in Revenues in Q4, benefitted from the falling costs of inputs and reported a steady Gross Profit year-on-year. The company reported an excellent 2014, with Revenues of US$ 81.2 million in FY 2014 leading to a Gross Profit of US$ 28.6 million, an increase of 39.7% over FY 2013. The strength of the company’s performance is driven by the connection of 69,427 households in FY 2014 up from 46,058 the previous year, and the connection of 656 industrial and commercial users as compared to 51 in 2013. NatEnergy’s results were also boosted by a strong performance from Kahraba, which also turned in a strong performance in the year. Kahraba, which operates the Borg Al Arab power station with 25 MW capacity, has become profitable for the first time in its history as the June price reforms leveled the playing field. As energy reforms continue, the pricing regime is becoming more favorable to private sector players. Moreover, the strategic shift from subsidized LPG cylinders to natural gas lines branching from the national grid suggests the downstream business offers considerable growth potential. Management notes in this respect both recent announcements by the Government of Egypt concerning the deregulation of the generation and transmission sector. As Kahraba targets an expansion of capacity to 80 MW by year-end 2015, we are also very mindful of new opportunities in large-scale generation, in respect of which Management notes that Kahraba is presently one of two private-sector players with a license to feed directly into the national grid.
Diversified
-2%
Egypt Kuwait Holding’s Diversified segment includes a wide array of strategic investments, from cement production, telecommunications and infrastructure to cooling systems and insurance. In line with the company’s strategy to invest in local businesses with large and defensible market positions, EKH owns c.30% of the Building Materials Industries Company (BMIC) in Egypt, a country home to the largest cement market in Africa with total consumption of c. 50 mtpa. Other group assets in the sector include Delta Insurance, Al-Shorouk for Melamine and Resins, Globe Telecommunications, Gas Chill and Bawabet al Kuwait Holding Company.
of Group Revenues in Q4 2014
Revenues (USD Millions) Q4 Q4 2013 2014
FY FY 2013 2014 30 24.6
The Diversified segment reported Revenues of US$ 24.6 million in FY 2014, a decrease of 18.0%, on disappointing Q4 results.
6.3
-1.6
BMIC, however, reported a significant turnaround in the period and management is committed to the future of the cement sector. We consider that the growth of demand for cement in Egypt and regionally together with our drive to expand production capacity makes it possible that opportunities may arise to grow the segment’s production capacity and seek out new opportunities sufficient to warrant the designation of cement as a separate business unit under EKH.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Recent Corporate Developments Operations Launched at Egyptian Hydrocarbon Corporation The Egyptian Hydrocarbon Corporation (EHC) began commissioning operations in late 2014, and in Q1 2015 utilization rates have reached a very promising +85%. EHC is a mining grade ammonium nitrate (MGAN) manufacturing start-up located in the 9th Industrial Zone of the Ain Sokhna area south of the Suez Canal. MGAN is manufactured by only a handful of companies in the world, mainly in countries relying on mining activities, and EK Holding is quite optimistic about this company’s future potential. Planned Expansion at Kahraba Kahraba’s performance thus far has had a very limited impact on our financial performance, but in the coming year we have obtained regulatory approval to more than triple capacity to 80 MW, and have allocated the funds to make this happen. Kahraba is one of only two private-sector Egyptian players who hold a license to generate electricity as a third party into the national grid and with the license secured, Kahraba is well-positioned to capitalize on growing demand and subsidy reforms. MOUs to Explore Projects Near New Suez Canal EK Holding has signed memorandums of understanding (MOUs) with Egyptian Petrochemicals Holding Company (ECHEM), Abquir Fertilizers Company and Egyptian Phosphate Company, International Petrochemical Investment Company, Bawabet Al-Kuwait Holding Company (which EKH founded an in which it holds a 42% stake), and Boubyan Petrochemical Company (BPC). The MOUs are to explore and invest in projects that have a possibility to be located nearby the new Suez Canal axis, including: a petrochemical complex; a project to produce 70,000 tons of formaldehyde and its derivatives; and a phosphate fertilizers and compounded fertilizers complex. Cash Dividend At its AGM, the Board of Directors of EK Holding approved the distribution of a cash dividend of 10% of par value, targeting US$ 0.025 per share, implying almost 3.6% as a yield on the dollar.
Outlook Management continues efforts to make EK Holding an increasingly nimble and resilient market player whose companies are well-positioned to react to changing economic situations and patterns of market demand. Management focus will be on profitability and growth simultaneously, as demonstrated by the recent MOUs with a number of Egyptian and Kuwaiti companies, as well as the funding of the expansion at Kahraba and the potential designation of our cement operations into their own segment. Looking to 2015, management is hopeful that the recent rebound in oil prices will prove sustainable, and that energy will prove to continue to be available. Management remains optimistic about the long-term prospects of all lines of business given the economic recovery in Egypt spurred by energy market reforms and large-scale infrastructure projects. EKH continues to study potential investment opportunities in Egypt and other emerging markets.
About EK Holding Egypt Kuwait Holding Company (EKHO.CA on the Egyptian Exchange and EKHOLDING on the Kuwaiti Exchange) is one of the MENA region’s leading investment companies with a diversified portfolio of investments that spans the region in sectors that include fertilizers and petrochemicals, energy, cement production, insurance, information technology, transport and infrastructure. Established in 1997 by a consortium of prominent Kuwaiti and Egyptian businessmen including our former Chairman, the late Nasser Al-Kharafi, the company has flourished during the past decade as the countries of the Arab world began to liberalize their economies and open doors for private sector investments in strategic sectors that had once been off limits.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
INVESTOR RELATIONS CONTACT For further information, please contact:
STOCK SYMBOL EKHO.CA
Haitham M. Abdel Moneim Egypt Kuwait Holding, Co. Senior Investor Relations Manager [email protected]
CAPITAL Issued and Paid-In Capital: USD 243.9 mn Number of Shares: 975.6 million shares Par Value: USD 0.25 per share
14 Hassan Mohamed El-Razzaz St. (Previously Nawal St.) Dokki, Giza Tel (Direct) : +20 2 333-633-00
Forward-Looking Statements Statements contained in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Egypt Kuwait Holding Company (EKH). Such statements involve known and unknown risks, uncertainties and other factors; undue reliance should not be placed thereon. Certain information contained herein constitutes “targets” or “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Actual events or results or the actual performance of EKH may differ materially from those reflected or contemplated in such targets or forward-looking statements. The performance of EKH is subject to risks and uncertainties.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Summary Income Statement (in US $)
Q4 2013
FY 2013
Q4 2014
FY 2014
69 953 923
177 612 390
30 015 323
192 527 116
48%
35%
37%
42%
COGS
34 093 341
91 981 551
34 832 604
118 583 029
Gross Profit
35 860 582
85 630 838
(4 817 282)
73 944 087
51%
48%
-16%
38%
70 979 895
293 089 191
52 818 609
240 341 806
48%
59%
65%
53%
COGS
42 730 254
159 508 618
39 122 436
163 453 643
Gross Profit
28 249 641
133 580 573
13 696 173
76 888 163
40%
46%
26%
32%
6 301 837
30 043 070
(1 594 560)
24 632 750
4%
6%
-2%
5%
COGS
2 933 099
13 366 280
7 986 012
14 756 580
Gross Profit
3 368 738
16 676 791
(9 580 572)
9 876 170
53%
56%
601%
40%
Energy & Energy Related Revenues % Contribution
% Margin Fertilizers & Petrochemicals Revenues % Contribution
% Margin Diversified Revenues % Contribution
% Margin Total Revenues1
147 235 655
500 744 651
81 239 372
457 501 672
COGS
79 756 694
264 856 449
81 941 052
296 793 252
Gross Profit
67 478 961
235 888 202
( 701 681)
160 708 420
46%
47%
-1%
35%
% Margin Selling Expenses G&A
2 998 175
11 467 478
2 905 069
11 684 642
13 532 175
58 302 905
14 858 902
64 385 802
-
-
-
2 740 314
(31 270 250)
(27 010 292)
(16 679 494)
-
-
-
(12 720 103)
80 876 579
80 990 439
19 666 742
22 681 621
(32 668 282)
116 397 630
(11 122 102)
91 355 952
-22%
23%
-14%
20%
Gain (Loss) from Financial Assets Net Provisions Negative Goodwill Other Expenses Operating Income % Margin Interest Net
(7 865 330)
(25 482 400)
(2 476 059)
(18 086 897)
FX Gain / Loss
209 762
4 320 568
( 877 873)
(1 754 824)
Capital Gain
191 764
125 880
2 255 303
2 315 147
Other Income
( 9 588)
1 167 568
2 080 986
3 143 567
(40 141 674)
96 529 246
(10 139 745)
76 972 945
4 495 097
29 000 122
1 744 918
16 715 150
( 27 312)
( 200 283)
823 850
2 323 010 57 934 786
Net Income before Tax Income Tax Deferred Tax Net Income from Continued Operations
(44 609 459)
67 729 407
(12 708 512)
Gain (Loss) from Discontinued Operations
784 755
(2 887 387)
-
-
Net Income
(43 824 704)
64 842 020
(12 708 512)
57 934 786
Non-Controlling Interest
(20 162 296)
22 629 414
(15 095 597)
6 531 971
Attributable Net Income
(23 662 408)
42 212 606
2 387 085
51 402 815
Total revenues reported here differ from those in the company’s Consolidated Financial Statements in that they specifically exclude the results of EKH’s low-margin oil-trading business, which artificially skew margins if included. 1
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Summary Balance Sheet FY 2013
FY 2014
Fixed Assets (Net) & Projects under Construction
327 238 033
299 332 036
E&P Assets
466 658 972
461 156 743
Investments in Associates
129 833 495
134 474 361
Investments Available for Sale
162 703 732
140 048 833
Other long-term Assets
147 582 325
129 035 543
(in US$)
Total Long-Term Assets
1 234 016 557
1 164 047 516
Cash
191 146 438
372 675 357
Investments for Trading
315 782 277
204 722 147
Total Receivables & Other Debtors
237 841 517
187 130 178
64 780 612
81 133 078
-
1 700 002
Inventory & Work in Progress Assets held for Sale Due from EGPC Total Current Assets Total Assets
32 354 429
18 965 439
842 175 273
866 326 201
2 076 191 830
2 030 373 717
Bank Overdraft and STL
346 508 999
216 530 511
Due to Suppliers and Sub-Contractors
101 870 549
57 727 936
17 657 020
39 950 261
Due to EGPC Provisions
34 769 614
16 324 698
Debtors and Other Credit Balances
196 388 783
186 760 891
Total Current Liabilities
697 194 965
517 294 297
Long-Term Loans
136 770 747
199 975 146
6 785 452
1 008 832
400 285
8 813 029
Other Long-Term Liabilities Due to EGPC Provisions
4 070 000
4 070 000
33 544 276
35 735 129
Total Long-Term Liabilities
181 570 760
249 602 136
Paid-in Capital
209 823 656
243 914 564
Reserves
111 296 329
188 292 291
(113 822 987)
(143 723 798)
Deferred Tax Liability
Fair Value Reserve Retained Earnings
553 157 475
590 484 370
Translation Adjustments
(36 736 347)
(43 719 971)
Treasury Stocks
-
(7 121 774)
Parent's Shareholders' Equity
723 718 126
828 125 682
Non-Controlling Interest
473 707 979
435 351 602
Total Shareholders' Equity
1 197 426 105
1 263 477 284
Total SHE + Total Liabilities
2 076 191 830
2 030 373 717
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
8
Egypt Kuwait Holding Co. Releases Q4 2014 Earnings Results Company reports strong FY results despite fourth quarter challenges; anticipates strong 2015 performance on expansion of natural gas upstream & downstream operations as well as electricity generation and distribution
Key Highlights of Q4 2014 USD 81.2 mn
USD (0.7) mn
-1%
USD (11.1) mn
in Revenues
in Gross Profit
Gross Profit Margin
in Operating Income
-14%
USD 7.5 mn
USD (12.7) mn
USD 2.4 mn
Operating Margin
Attributable EBITDA
in Net Income
in Attributable Net Income
Key Highlights of FY 2014 USD 457.5 mn
USD 160.7 mn
35%
USD 91.4 mn
in Revenues
in Gross Profit
Gross Profit Margin
in Operating Income
20%
USD 96. mn
USD 57.9 mn
USD 51.4 mn
Operating Margin
Attributable EBITDA
in Net Income
in Attributable Net Income
Group Revenue
26 February 2015 | Cairo | Egypt Kuwait Holding Company (EKHO.CA on the Egyptian Exchange and EKHOLDING on the Kuwaiti Exchange), one of the MENA region’s leading investment companies, reported today its consolidated results for the fourth quarter and full year 2014.
(USD Millions)
500.7 457.5 147.2
81.2
Q4 Q4 2013 2014
FY FY 2013 2014
Attributable Net Income (USD Millions)
Q4 Q4 2013 2014
-23.7
The company’s consolidated results include the restatement of 4Q 2013 earnings to reflect impairments related primarily to changes in operation ahead of schedule at the pipeline transporting oil produced by a South Sudanese subsidiary. Meanwhile, results in the fourth quarter of 2014 reflect the impact of lower oil prices that partially offset sharp improvements in operations at subsidiaries including AlexFert, Sprea and Natenergy.
FY FY 2013 2014 42.2
2.4
The company reported Attributable Net Income of US$ 2.4 million in Q4 2014 — a significant improvement over negative US$ 23.7 million in Q4 2013 — on Consolidated Revenues of US$ 81.1 million, a 44.8% drop year-on-year. On a full-year basis, EKH reported a 21.8% increase in Attributable Net Income to US$ 51.4 million on Consolidated Revenues of US$ 457.5 million.
51.4
Comments from the Chairman, Mr. Moataz Al-Alfi The year just ended — and the fourth quarter in particular — offered EK Holding a number of challenges that dampened our results despite significant operational and growth-related achievements throughout the year. That said, I consider our results quite acceptable and look forward to an improved operating environment in 2015, the upside of which we will capture in part thanks to prompt management action across our platform in the final quarter of the year. The sharp decline in oil prices in the final quarter of the year had a particularly unfortunate impact on the Tri-Ocean’s bottom line in Q4, although our FY 2014 results are quite good, bolstered as they are
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
by the strength of oil prices in the first three quarters. Notably, following a low of c. US$ 45/ barrel, oil prices have risen in Q1 2015 to at or above US$ 60 / barrel, a level that would be supportive of improved earnings (compared with Q4 2015) for the company if it should hold through year’s end. That said, we have taken a number of steps to mitigate the impact of the volatility of oil prices on our bottom line going forward. In particular, we are in the late stages of exploring multiple avenues through which to increase our exposure to the gas production value-chain through our Offshore North Sinai connection. Any such agreement would leave us well positioned to explore expansions into value-added industries including petrochemicals, power generation and fertilizers. Natural gas is a good play for EKH, for a number of reasons: We are established in the business; income is predictable as contracts are made on a longterm fixed price-basis; and, not least, demand for natural gas is rising and forecasted to outpace production in Egypt for quite some time. In addition to laying the foundations for growth in 2014, we have also found ourselves leaving behind what had been considered a strong opportunity: The US fertilizer plant, which sought to capitalize on boom in shale gas in the United States and high fertilizer demand in that country. AlexFert was our primary investor in this potential project. Unfortunately, the originally secured non-binding EPC costs came in significantly above the first offers due to high demand for EPC contracts from companies looking to capitalize on the same conditions. We consider it noteworthy that a number of our international peers have chosen to bow out of similar projects in that market due to this same issue. I do not consider this a setback, but rather a freeing up of resources for real opportunity in our home market. With a fast-growing population, a recovering economy, an outstanding export position and a deficit market for energy, there is exceptional room to create new shareholder value in our home market.
Fertilizers & Petrochemicals
53%
EKH has investments in two operational companies in the Fertilizers & Petrochemicals Segment: Alexandria Fertilizers Company (AlexFert) and Sprea Misr for Production of Chemicals & Plastics Company. A third investment, the Egyptian Hydrocarbon Corporation (EHC,) is a mining-grade ammonium nitrate manufacturing startup that began commissioning in early 2015. The company’s Fertilizers & Petrochemicals investments encompass products ranging from urea, ammonium nitrate and melamine to formaldehyde and liquid and powder glue. With more than 10 years of nitrogen fertilizer operational expertise, EKH has targeted investments with access to key export markets including the United States and Europe, diverse products across several industries, and strong cashflow generating businesses.
of Group Revenues in FY 2014
Revenues (USD Millions) 293
71
240
53
Q4 Q4 2013 2014
FY FY 2013 2014
FY 2013 293,089
Gross Profit Margin
40%
EBITDA Margin
37% 17,085
Net Profit Margin
(Tons)
Net Profit attributable to EKH
638,246 488,320
Q4 2013
Q4 2013 70,980
Revenues
Net Profit
Total Fertilizer Sales
178,482
Fertilizers & Petrochemicals in US$ ‘000 unless otherwise indicated
112,540
Q4 2014
FY 2013
FY 2014
Q4 2014 52,819
FY 2014 240,342
46%
26%
32%
43%
-10%
19%
82,819
(8,435)
17,471
24%
28%
-16%
7%
9,072
41,164
(485)
17,547
On a consolidated basis, the Fertilizers & Petrochemicals sector reports Revenues of US$ 52.8 million in Q4 2014, a 25.6% decrease year-on-year, with Gross Profits of US$ 13.7 million, down 51.5% y-oy. Gross Profit Margin slipped 14 percentage points to 26%. Once again, management believes it is key to note that these results come on shortages of gas in the market, which had a particularly heavy impact on AlexFert, a key contributor to this segment’s potential profitability. That said, the Fertilizers companies reported a 60% utilization rate in the quarter — in general a rather low rate, but better than what Management believes were market averages over the period. The result of energy constraints throughout the year was the first loss-making year for AlexFert since inception.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Looking ahead, a number of developments in 2014 lead us to be confident that AlexFert will return to profitability in 2015 on utilization levels at or above 75% thanks to improved energy supplies. Management has also taken steps to ensure 2015 will be characterized by a better product mix, stronger pricing power and more advantageous distribution channels, all of which will be supportive of a return to profitability. Meanwhile, Sprea Misr has had a particularly good 2014, with topline growth and steady profits y-o-y on strong performance of the Formica business. The outlook for Sprea in 2015 is particularly compelling, with organic growth and expansion of its product mix in the works. In particular, the company is working to double its already-successful Formica business through another line. The company’s tax holiday has now expired, but the easing of raw materials prices (methanol prices have dropped by c.US$ 150 / ton since the company’s 2015 budget was first calculated) and product line expansion are expected to partially compensate. Sprea is also looking to expand into the production sulfonated naphthalene formaldehyde, a key additive for ready-mix cement. This additive, which allows ready-mix to dry faster and smoother, is currently not produced in Egypt, while the country’s ready-mix production market is growing significantly; the growth curve is expected to be particularly sharp for the next three to four years on the back of both infrastructure spending and real estate development. As a cost-effective local supplier, Sprea will be ideally positioned to capitalize on this growth.
Energy & Energy-Related
37% of Group Revenues in Q4 2014
Revenues (USD Millions)
178
193
70 30 Q4 2013
Q4 2014
FY 2013
FY 2014
Egypt Kuwait Holding has investments in three companies in the Energy and Energy-Related Segment: NatEnergy, Tri-Ocean Energy (TOE) and the Egyptian Tanker Company (ETC). EKH builds and operates gas distribution networks in Egypt through its 100%-owned subsidiary NatEnergy, which covers a wide spectrum of activities, including the transportation of natural gas to power stations and the independent production of power. The company’s energy investments also cover oil and gas exploration and production through TOE — which enjoys access to a significant reserve potential spread across Egypt and South Sudan — and local and global marine transport of crude oil and petroleum products through ETC. Tri-Ocean recently finalized an acquisition that sees it enter into the upstream gas sector as a developer and operator for the first time. Energy & Energy-Related in US$ ‘000 unless otherwise indicated Revenues
Q4 2013 69,954
FY 2013 177,612
Q4 2014 30,015
FY 2014 192,527
Gross Profit Margin
51%
48%
-16%
38%
EBITDA Margin
62%
47%
-18%
38%
(28,162)
(20,376)
9,830
32,445
Net Profit % Margin Net Profit attributable to EKH
Crude Production
Q4 2013
1,077,804
258,931
429,078
1,028,314
(BOE)
Q4 2014
FY 2013
FY 2014
-40%
-11%
33%
17%
(35,537)
(25,463)
7,087
33,307
The Energy & Energy Related sector reported a Q4 2014 Gross Profit of negative US$ 4.8 million (as compared to US$ 35.9 million in Q4 2013) on a 57.1% y-o-y decline in Revenues in the period to US$ 30.0 million. On a full-year basis, the company reported an 8.4% growth in Revenues to US$ 192.5 million and a 13.6% drop in Gross Profit to US$ 7.9 million in FY 2014. The drop is largely attributable to the fall in oil prices in the quarter. Specifically, the steep decline in crude prices in the quarter saw Tri-Ocean report a four-fold decrease in Revenue year-on-year in Q4 2014. In spite of this, revenues were essentially steady year-on-year as performance in the first three quarters was supported by particularly strong oil prices, offsetting Q4 challenges. The impact of lower prices together with increased COGS saw Gross Profit in Q4 2014 come in at negative US$ 12.0 million, down from US$ 28.7 million, leading to a Gross Profit of US$ 45.4 million in FY 2014.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Operationally, Tri-Ocean had quite a good year and at the company’s recently acquired Offshore North Sinai concession it is ramping up production via the drilling of new wells that should increase daily production from 45 MMSCF to 80 MMSCF by Q3 2015. Meanwhile, NatEnergy, although reporting a 16.2% decline in Revenues in Q4, benefitted from the falling costs of inputs and reported a steady Gross Profit year-on-year. The company reported an excellent 2014, with Revenues of US$ 81.2 million in FY 2014 leading to a Gross Profit of US$ 28.6 million, an increase of 39.7% over FY 2013. The strength of the company’s performance is driven by the connection of 69,427 households in FY 2014 up from 46,058 the previous year, and the connection of 656 industrial and commercial users as compared to 51 in 2013. NatEnergy’s results were also boosted by a strong performance from Kahraba, which also turned in a strong performance in the year. Kahraba, which operates the Borg Al Arab power station with 25 MW capacity, has become profitable for the first time in its history as the June price reforms leveled the playing field. As energy reforms continue, the pricing regime is becoming more favorable to private sector players. Moreover, the strategic shift from subsidized LPG cylinders to natural gas lines branching from the national grid suggests the downstream business offers considerable growth potential. Management notes in this respect both recent announcements by the Government of Egypt concerning the deregulation of the generation and transmission sector. As Kahraba targets an expansion of capacity to 80 MW by year-end 2015, we are also very mindful of new opportunities in large-scale generation, in respect of which Management notes that Kahraba is presently one of two private-sector players with a license to feed directly into the national grid.
Diversified
-2%
Egypt Kuwait Holding’s Diversified segment includes a wide array of strategic investments, from cement production, telecommunications and infrastructure to cooling systems and insurance. In line with the company’s strategy to invest in local businesses with large and defensible market positions, EKH owns c.30% of the Building Materials Industries Company (BMIC) in Egypt, a country home to the largest cement market in Africa with total consumption of c. 50 mtpa. Other group assets in the sector include Delta Insurance, Al-Shorouk for Melamine and Resins, Globe Telecommunications, Gas Chill and Bawabet al Kuwait Holding Company.
of Group Revenues in Q4 2014
Revenues (USD Millions) Q4 Q4 2013 2014
FY FY 2013 2014 30 24.6
The Diversified segment reported Revenues of US$ 24.6 million in FY 2014, a decrease of 18.0%, on disappointing Q4 results.
6.3
-1.6
BMIC, however, reported a significant turnaround in the period and management is committed to the future of the cement sector. We consider that the growth of demand for cement in Egypt and regionally together with our drive to expand production capacity makes it possible that opportunities may arise to grow the segment’s production capacity and seek out new opportunities sufficient to warrant the designation of cement as a separate business unit under EKH.
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Recent Corporate Developments Operations Launched at Egyptian Hydrocarbon Corporation The Egyptian Hydrocarbon Corporation (EHC) began commissioning operations in late 2014, and in Q1 2015 utilization rates have reached a very promising +85%. EHC is a mining grade ammonium nitrate (MGAN) manufacturing start-up located in the 9th Industrial Zone of the Ain Sokhna area south of the Suez Canal. MGAN is manufactured by only a handful of companies in the world, mainly in countries relying on mining activities, and EK Holding is quite optimistic about this company’s future potential. Planned Expansion at Kahraba Kahraba’s performance thus far has had a very limited impact on our financial performance, but in the coming year we have obtained regulatory approval to more than triple capacity to 80 MW, and have allocated the funds to make this happen. Kahraba is one of only two private-sector Egyptian players who hold a license to generate electricity as a third party into the national grid and with the license secured, Kahraba is well-positioned to capitalize on growing demand and subsidy reforms. MOUs to Explore Projects Near New Suez Canal EK Holding has signed memorandums of understanding (MOUs) with Egyptian Petrochemicals Holding Company (ECHEM), Abquir Fertilizers Company and Egyptian Phosphate Company, International Petrochemical Investment Company, Bawabet Al-Kuwait Holding Company (which EKH founded an in which it holds a 42% stake), and Boubyan Petrochemical Company (BPC). The MOUs are to explore and invest in projects that have a possibility to be located nearby the new Suez Canal axis, including: a petrochemical complex; a project to produce 70,000 tons of formaldehyde and its derivatives; and a phosphate fertilizers and compounded fertilizers complex. Cash Dividend At its AGM, the Board of Directors of EK Holding approved the distribution of a cash dividend of 10% of par value, targeting US$ 0.025 per share, implying almost 3.6% as a yield on the dollar.
Outlook Management continues efforts to make EK Holding an increasingly nimble and resilient market player whose companies are well-positioned to react to changing economic situations and patterns of market demand. Management focus will be on profitability and growth simultaneously, as demonstrated by the recent MOUs with a number of Egyptian and Kuwaiti companies, as well as the funding of the expansion at Kahraba and the potential designation of our cement operations into their own segment. Looking to 2015, management is hopeful that the recent rebound in oil prices will prove sustainable, and that energy will prove to continue to be available. Management remains optimistic about the long-term prospects of all lines of business given the economic recovery in Egypt spurred by energy market reforms and large-scale infrastructure projects. EKH continues to study potential investment opportunities in Egypt and other emerging markets.
About EK Holding Egypt Kuwait Holding Company (EKHO.CA on the Egyptian Exchange and EKHOLDING on the Kuwaiti Exchange) is one of the MENA region’s leading investment companies with a diversified portfolio of investments that spans the region in sectors that include fertilizers and petrochemicals, energy, cement production, insurance, information technology, transport and infrastructure. Established in 1997 by a consortium of prominent Kuwaiti and Egyptian businessmen including our former Chairman, the late Nasser Al-Kharafi, the company has flourished during the past decade as the countries of the Arab world began to liberalize their economies and open doors for private sector investments in strategic sectors that had once been off limits.
EGYPT KUWAIT HOLDING COMPANY - EARNINGS RELEASE Q4 2014
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
INVESTOR RELATIONS CONTACT For further information, please contact:
STOCK SYMBOL EKHO.CA
Haitham M. Abdel Moneim Egypt Kuwait Holding, Co. Senior Investor Relations Manager [email protected]
CAPITAL Issued and Paid-In Capital: USD 243.9 mn Number of Shares: 975.6 million shares Par Value: USD 0.25 per share
14 Hassan Mohamed El-Razzaz St. (Previously Nawal St.) Dokki, Giza Tel (Direct) : +20 2 333-633-00
Forward-Looking Statements Statements contained in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Egypt Kuwait Holding Company (EKH). Such statements involve known and unknown risks, uncertainties and other factors; undue reliance should not be placed thereon. Certain information contained herein constitutes “targets” or “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “seek,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Actual events or results or the actual performance of EKH may differ materially from those reflected or contemplated in such targets or forward-looking statements. The performance of EKH is subject to risks and uncertainties.
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Summary Income Statement (in US $)
Q4 2013
FY 2013
Q4 2014
FY 2014
69 953 923
177 612 390
30 015 323
192 527 116
48%
35%
37%
42%
COGS
34 093 341
91 981 551
34 832 604
118 583 029
Gross Profit
35 860 582
85 630 838
(4 817 282)
73 944 087
51%
48%
-16%
38%
70 979 895
293 089 191
52 818 609
240 341 806
48%
59%
65%
53%
COGS
42 730 254
159 508 618
39 122 436
163 453 643
Gross Profit
28 249 641
133 580 573
13 696 173
76 888 163
40%
46%
26%
32%
6 301 837
30 043 070
(1 594 560)
24 632 750
4%
6%
-2%
5%
COGS
2 933 099
13 366 280
7 986 012
14 756 580
Gross Profit
3 368 738
16 676 791
(9 580 572)
9 876 170
53%
56%
601%
40%
Energy & Energy Related Revenues % Contribution
% Margin Fertilizers & Petrochemicals Revenues % Contribution
% Margin Diversified Revenues % Contribution
% Margin Total Revenues1
147 235 655
500 744 651
81 239 372
457 501 672
COGS
79 756 694
264 856 449
81 941 052
296 793 252
Gross Profit
67 478 961
235 888 202
( 701 681)
160 708 420
46%
47%
-1%
35%
% Margin Selling Expenses G&A
2 998 175
11 467 478
2 905 069
11 684 642
13 532 175
58 302 905
14 858 902
64 385 802
-
-
-
2 740 314
(31 270 250)
(27 010 292)
(16 679 494)
-
-
-
(12 720 103)
80 876 579
80 990 439
19 666 742
22 681 621
(32 668 282)
116 397 630
(11 122 102)
91 355 952
-22%
23%
-14%
20%
Gain (Loss) from Financial Assets Net Provisions Negative Goodwill Other Expenses Operating Income % Margin Interest Net
(7 865 330)
(25 482 400)
(2 476 059)
(18 086 897)
FX Gain / Loss
209 762
4 320 568
( 877 873)
(1 754 824)
Capital Gain
191 764
125 880
2 255 303
2 315 147
Other Income
( 9 588)
1 167 568
2 080 986
3 143 567
(40 141 674)
96 529 246
(10 139 745)
76 972 945
4 495 097
29 000 122
1 744 918
16 715 150
( 27 312)
( 200 283)
823 850
2 323 010 57 934 786
Net Income before Tax Income Tax Deferred Tax Net Income from Continued Operations
(44 609 459)
67 729 407
(12 708 512)
Gain (Loss) from Discontinued Operations
784 755
(2 887 387)
-
-
Net Income
(43 824 704)
64 842 020
(12 708 512)
57 934 786
Non-Controlling Interest
(20 162 296)
22 629 414
(15 095 597)
6 531 971
Attributable Net Income
(23 662 408)
42 212 606
2 387 085
51 402 815
Total revenues reported here differ from those in the company’s Consolidated Financial Statements in that they specifically exclude the results of EKH’s low-margin oil-trading business, which artificially skew margins if included. 1
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EGYPT KUWAIT HOLDING COMPANY EARNINGS RELEASE Q4 2014
Summary Balance Sheet FY 2013
FY 2014
Fixed Assets (Net) & Projects under Construction
327 238 033
299 332 036
E&P Assets
466 658 972
461 156 743
Investments in Associates
129 833 495
134 474 361
Investments Available for Sale
162 703 732
140 048 833
Other long-term Assets
147 582 325
129 035 543
(in US$)
Total Long-Term Assets
1 234 016 557
1 164 047 516
Cash
191 146 438
372 675 357
Investments for Trading
315 782 277
204 722 147
Total Receivables & Other Debtors
237 841 517
187 130 178
64 780 612
81 133 078
-
1 700 002
Inventory & Work in Progress Assets held for Sale Due from EGPC Total Current Assets Total Assets
32 354 429
18 965 439
842 175 273
866 326 201
2 076 191 830
2 030 373 717
Bank Overdraft and STL
346 508 999
216 530 511
Due to Suppliers and Sub-Contractors
101 870 549
57 727 936
17 657 020
39 950 261
Due to EGPC Provisions
34 769 614
16 324 698
Debtors and Other Credit Balances
196 388 783
186 760 891
Total Current Liabilities
697 194 965
517 294 297
Long-Term Loans
136 770 747
199 975 146
6 785 452
1 008 832
400 285
8 813 029
Other Long-Term Liabilities Due to EGPC Provisions
4 070 000
4 070 000
33 544 276
35 735 129
Total Long-Term Liabilities
181 570 760
249 602 136
Paid-in Capital
209 823 656
243 914 564
Reserves
111 296 329
188 292 291
(113 822 987)
(143 723 798)
Deferred Tax Liability
Fair Value Reserve Retained Earnings
553 157 475
590 484 370
Translation Adjustments
(36 736 347)
(43 719 971)
Treasury Stocks
-
(7 121 774)
Parent's Shareholders' Equity
723 718 126
828 125 682
Non-Controlling Interest
473 707 979
435 351 602
Total Shareholders' Equity
1 197 426 105
1 263 477 284
Total SHE + Total Liabilities
2 076 191 830
2 030 373 717
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