Heavy Engineering Industries and Shipbuilding K S C P : Supplementary Disclosure Analyst Conference Transcript for the period Ended on 31/3/2023

ANALYST CONFERENCE TRANSCRIPT

FOR THE FINANCIAL RESULTS

for 1st Quarter 2023 Tuesday 16/05/2023

Heisco participations:

MR. Abdul Razzaq Al-Othman - General Manager Group Affairs Mr. Joseph Mathew - Group Finance Manager

Mr. WALEED ATTIYA - Group Project Controls Manager Mr. IBRAHIM SAFWAT - Investor Affairs Unit Lead

Conference management:

Mr. Ali Afifi - EFG Hermes

Ali Afifi ,Good afternoon, ladies and gentlemen and welcome to HEISCO's Q1 2023 earnings call. With us on the call we have Joseph Mathew, group finance manager, Abdul Razzaq Al-Othman, general manager Group Affairs . Mr Waleed Attiya, group project controls manager, and Mr Ibrahim Safwat Abdelalim, investor affairs unity. I will now hand over the call to Mr Waleed Attiya. Please go ahead.

Waleed AttiyaHello everyone. Welcome to our second investor presentation meeting. I would like to give an introduction to the company as a business, then Mr Joseph Mathew will go through the financial figures. HEISCO as a group has a diverse operations ranging from shipbuilding and repair, dridging and marine construction to industrial construction. Including several mechanical, electrical, and some interests. Fabrication, mobilising, and specialised manpower supply.

HEISCO Corporation has a hierarchical organisational structure. At the top of the company is the board of directors . Responsible for setting the company's overall structure and providing guidance to senior management. Below the board of directors is the executive team which includes the CEO, DCEO, and other top executives responsible for managing the company's day to day operations.

HEISCO Group Business model is based on services in oil and gas refineries, petrochemical, power installation, and desalination. Shipbuilding, ship repair, dredging, and , and manpower supply.

The company is interested in expanding its business externally, as we mentioned earlier, outside Kuwait, in the near future by targeting specific companies, such as Saudi Arabia and Qatar.

The company backlog, we have announced before that the company backlog, as of December 2022, is announced already to KD 356 million as of December 2022. To be excluded in the next 5 years and it will be increased after the awarding process for some projects which we have announced recently.

As the company strategy, we have established already the company branch in Saudi Arabia. Also we have registered the company through different parties inside Saudi Arabia such as Aramco.

Recently we did rehabilitation for our floating dock, which will increase the life of our floating dock that we are using for ship repair for the next 20 years. And now I will leave … My colleague, Mr Joseph Mathew to go through the financial figures of the first quarter.

Joseph MathewHello everyone and welcome. said thank you all for attending the Q1 earnings of HEISCO. Let me provide you with an overview about the performance of the group during this period and status of our financial position. All figures mentioned are in Kuwaiti Dinar, unless otherwise stated.

The group has declared a total revenue of KD 33.22 million, under which HEISCO contributed 30.47 and Gulf Dredging reported KD2.75 million. Reported an EBITDA of KD2.12 million.

And the group will take a net profit KD710 ,000 against KD1.16 million. Our total borrowings to get KD37.2 million and earnings per share is 3.96 Fils compared to 6.43 in the year.

So now coming, regarding the revenue, as I've mentioned. Total revenue increased from 27.93 to 33.22. It's an increase of KD5.29 million, 18.94%. The increase in revenue compared to last year was mainly due to newly awarded contracts. Just to name a few, we have rehabilitation of Kuwait boat berths worth around KD14.5 million. And the construction of flow lines for Kuwait Oil Company worth KD 68.5 million. And Port Oil, is KD 5.5, just to name a few.

And we did have a drop in EBITDA and in net profit. This has been mainly due to in Q1 2022, we had a one time settlement fall on the projects which has a significant sum added to the GP. And the completion of some special projects with high margin in the secured operation, which was absent and near the first quarter 2022.

So going to the next slide, I can see that the industrial, oil and gas revenue had gone up by 4.65 million. Recently new projects has taken up as I have elaborated before.

So the revenue and cost of sales, the decrease in those profits, I have already explained. Now if we go to the other income, there is a direction in other income. Which was prominently a difference in mixed method sale, or disposal of sales proceeds. And we have a buyback agreement for some 15 buses for the transportation of employees, which is included in the profit. So that is an end difference happening there.

General and administration the difference is on staff cost factors to the operations. A minor difference of around KD70 ,000.

Investment income, last year we had KD79 ,000 from our investment as Zain dividend in first quarter. Whereas this year that will be recovered in next quarter, the second quarter. And it is KD85, 000.

And expected credit loss on financial assets. We had some collections on dues which was outstanding more than 180 days, which stood at 11 million in December 22, and which has dropped to 9 million as of 31st March 23.

Finance costs, reason is obviously the increase in interest rates by the central Bank of Kuwait And through the year we had an increase of 250 basis points, that is 2.5%.

Foreign exchange, the difference had been due to the weakening of the Euro and strengthening of the US Dollar.

Profitability ratios has We just push the negative trend. The reason for the drop as explained. Total debt to assets and debt to equity shows a positive trend, which interest coverage ratio is slipping because of increase in finance past and multiple decline in net profit.

Liquidity ratios are more or less at par this last year.

Looking at the consolidated statement of financial position, the current assets, we see an increase in current assets. So current assets actually has been transferred from non-current retention of 6.3 million. And contract assets will increase as time, can be built on milestones.

Current liabilities have an increase. Following some increase due to a purchase of fixed assets. Fixed assets to the tune of KD13.3 million have been purchased over the past 12 months. And proceed to advance payment from various clients, which has extent of KD3.5 million.

Now on the consolidated cash flow, net cash flow from investing activities, increase is due to addition of a new service boat which is worth KD2.6 million. And floating dock repair which has been ongoing all through 22 and which is ending in 23 now. We have lock KD 840, 000 in Q1. And addition 22, we have the floating dock repair of KD1.57 million. Now only increase due to purchase of fixed assets again. And onto the next slide.