Mezzan Holding: Principal Activities and Financial Performance Review

Mezzan Holding: Investment Banking Paper
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Introduction
Established in the 1940s and later reconstituted in 1999 within the existing holding framework, Mezzan Holding currently maintains a registered capital of KWD 31.13 million. Mezzan Holding has established a comprehensive operational presence across the Middle East region. Along with agency brands, notable legacy brands encompassing Al Wazzan, KITCO, Khazan, and KSPICO have garnered considerable brand recognition, fostered patronage, secured extensive market infiltration, and achieved broad market coverage. As a vertically integrated entity, Mezzan Holding engages in multifaceted business activities spanning manufacturing, distribution, retail, wholesale, and contract services. Underpinning its operations are two primary business divisions: the Food Business Line and the Healthcare & Consumer Business Line. Each division contributes to the company's overall revenue and net profit through a network of 30 vertically integrated enterprises.
Principal Activities
Engaging in various pivotal activities, Mezzan owns stakes and shares in Kuwaiti and non-Kuwaiti enterprises. It extends its involvement to encompass holdings in Kuwaiti or non-Kuwaiti limited liability entities, actively contributing to their establishment, management, and financial support. Additionally, Mezzan assumes the role of a guarantor for these entities. The company further extends financial assistance to entities holding shares and provides third-party guarantees when Mezzan's ownership stake exceeds 20% of the borrowing company's capital (Mezzan Holding Co., 2023a). Moreover, Mezzan's endeavors encompass the ownership of industrial assets, including patents, industrial trademarks, royalties, and related rights. These valuable assets are either franchised to other entities or utilized within and beyond Kuwait's borders. In alignment with legal parameters, Mezzan also owns real estate and movable assets to facilitate its operations.
Financial Performance Review
2021, Q3
The Q3 of 2021 witnessed a reduction of 4.8% in revenue, totaling KD 57.2 million; however, there was a commendable growth of 6.9% in net profit for parent company shareholders, amounting to KD 2.3 million. Over the year, revenue aggregated to KD 191.2 million, indicative of a 1.6% contraction. Alongside this, respective declines of 11.1% and 8.4% in operating profit and EBITDA. Noteworthy was the 7.2% decrease in net profit for parent company shareholders, settling at KD 9.5 million over the nine months (Market Screener, 2023). Despite industry-specific challenges, Mezzan Holding exhibited a remarkable capacity for adaptation and an unwavering commitment to enhancing well-recognized brands, yielding promising outcomes. These results, characterized by revenue exceeding 2019, underscore the strategic focus on long-term growth in tandem with addressing dynamic market conditions and elevating consumer experiences across diverse markets and business segments.
2022, Q2
Mezzan Holding, a prominent Gulf-based manufacturer and distributor of food, beverage, FMCG, and pharmaceutical products, has unveiled its H1 2022 financial results. The first half of 2022 saw revenue remain steady at KD 134 million, with operating profit and EBITDA experiencing significant declines of 63.7% and 42.3%, respectively, resulting in a net gain to parent company shareholders decrease of 73.9% (Mezzan Holding Co., 2022a). The company's leadership acknowledged the challenging environment driven by geopolitical and macroeconomic volatility. This led to dropping gross margins due to rising input and operating costs, outpacing sales growth and price increases. The Food Business Line revenue increased by 3.9%, with notable growth in Manufacturing and Distribution, while the Non-Food Business Line's revenue decreased by 6.9%, primarily attributed to FMCG and Healthcare (Mezzan Holding Co., 2022a). Regional business highlights included varied performance across different markets.
2022, Q3
Mezzan Holding released its Q3 2022 financial results, reporting a 1.7% increase in revenue for the nine months ending September 2022, reaching KD 194.5 million. However, the EBITDA faced an 84% decline to KD 3.1 million, and the net profit to parent company shareholders recorded a loss of KD 6.5 million, down 168.4%, attributed to lower profit margins and anticipated credit losses (Mezzan Holding Co., 2022b). The company's Vice Chairman highlighted the ongoing challenges impacting results, while the CEO emphasized the imperative of focusing on business transformation and cost reduction efforts. Business line analysis revealed growth in segments like Manufacturing and Distribution and Industrials despite declines in Catering and Services divisions. The regional performance showcased growth in UAE and KSA, while Kuwait and Qatar faced challenges in certain business lines.
2022, Q4
Mezzan Holding, a major player in the Gulf's food, beverage, FMCG, and pharmaceutical products sector, has disclosed its Q4 and full-year 2022 financial results. The full-year revenue surged by 4.1% to KD 255.2 million, driven by the growth in the Food Manufacturing & Distribution Division. However, operating profit and EBITDA faced significant declines, down 86.3% and 46.9%, respectively, leading to a net loss of KD 1.96 million due to lower gross profit and credit loss provisions (Mezzan Holding Co., 2023b). In contrast, Q4 2022 exhibited promising growth, with revenue up 12.5% to KD 60.6 million, operating profit surging by 383% to KD 5.4 million, EBITDA climbing by 280% to KD 8.5 million, and net profit to parent company shareholders rising by 513.8% compared to Q4 2021 (Mezzan Holding Co., 2023b). The company's resilience and strategies, including successful partnerships such as the FIFA World Cup concessionaire contract, have contributed to these noteworthy improvements amidst economic challenges
2023, Q1
Mezzan Holding, a major Gulf-based manufacturer and distributor of food, beverages, FMCG, and pharmaceutical products, has disclosed its Q1 2023 financial results, showcasing a substantial 8.9% rise in revenue to KD 79 million. This impressive growth extends to key indicators, with operating profit increasing by 57.6% to KD 6.1 million, EBITDA surging by 33.8% to KD 8.3 million, and net profit to parent company shareholders seeing a significant 45.1% increase to KD 4.3 million (Mezzan Holding Co., 2023c). The company's adeptness at navigating market dynamics, seizing growth prospects, and implementing stringent cost controls has contributed to this success. Both Food and Non-Food business lines displayed resilience, and diverse geographic markets such as Kuwait, Qatar, Jordan, and Iraq reported noteworthy revenue growth, underscoring Mezzan's agility in various conditions and commitment to value enhancement for stakeholders
2023, Q2
Mezzan Holding, a prominent Gulf-based manufacturer and distributor of food, beverage, FMCG, and pharmaceutical products, has disclosed its H1 2023 financial results. The company reported Q2 2023 revenue of KD 61.4 million, slightly down by 0.1% from Q2 2022, yet showing a significant recovery in operating profit, EBITDA, and net profit to parent company shareholders. For H1 2023, the company's revenue increased by 4.8% to KD 140.4 million, accompanied by notable improvements in operating profit, EBITDA, and net profit to parent company shareholders, showing increases of 163.6%, 67.7%, and 215%, respectively, compared to H1 2022 (Mezzan Holding Co., 2023d). The Food Business Line reported an increase of 2.2% in total revenue, driven by the Manufacturing, Distribution, and Services divisions. In comparison, the Non-Food Business Line's revenue increased by 9.7%, primarily attributed to FMCG and Healthcare. The company showcased varying regional performance highlights across its markets.
Liquidity, Activity, Debt, and Profitability Ratios Analysis
Mezzan Holding's financial performance across liquidity, activity, debt, and profitability ratios presents a mixed picture. With consistent current and quick ratios above 1, the company appears to maintain a healthy liquidity position, implying its capacity to meet short-term obligations. This liquidity strength is critical for its operational stability and ability to navigate economic uncertainties. However, the assessment of activity ratios, such as inventory and accounts receivable turnover, is limited by the absence of specific data. These ratios are crucial indicators of operational efficiency and cash flow management, making their evaluation pivotal in comprehending the company's overall performance. Regarding debt management, Mezzan has a higher debt-to-equity ratio, reflecting a much reliance on debt financing, indicating an average financial structure. In the context of profitability, Mezzan's gross and net profit margins show fluctuations, highlighting the need for industry benchmarks for better context. Improving profitability, evident in increasing net profit margins, is a positive sign. Finally, Mezzan has a positive operating cash flow, indicating the company's ability to generate enough cash to cover its operational expenses and invest in growth. Further, maintaining a healthy working capital balance is crucial to ensure smooth day-to-day operations and financial stability. While the economic data indicates a positive direction, a thorough analysis that includes industry benchmarks, trend comparisons, and a deeper examination of cash flow and working capital components would provide a more accurate assessment of Mezzan Holding's financial performance.
Cost of Capital and Capital Structure Analysis
Mezzan Holding's capital structure, as reflected in the net debt-to-capitalization ratio, has slightly increased from 37.9% in 2019 to...