A'ayan Leasing and Investment K S C P : Transcript of the Analysts Conference

Analyst Conference - Q1 2024

A'ayan Leasing & Investment Company (K.S.C.P)

Analyst Conference Transcript - Q1 2024

8th May 2024

Edited transcript of A'ayan Leasing & Investment Company (K.S.C.P) earnings conference call that took

place on Wednesday, 8th May 2024 at 14:00 Kuwait time.

Speakers from A'ayan Executive Management:

• Mr Abdullah Mohammed Al-Shatti, Chief Executive Officer
• Mr Seyed Abu Thahir, Assistant CEO - Finance and Financial Planning
• Mr Abdullah Abu Hadedah, Assistant CEO - Investment and Corporate Finance

Chairperson:

• Mr. Ahmed El Shazly, EFG-HERMES

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Analyst Conference - Q1 2024

Ahmed El-Shazly

EFG Hermes

Abdullah Abu Hadedah

A'ayan

Good afternoon everyone and welcome to A'ayan Leasing and Investment's Q1 2024 financial year results conference call. This is Ahmed El-Shazlyfrom EFG Hermes. It's a pleasure to have with us on the call today from A'ayan's management, Mr Abdullah Mohammed Al-Shatti, CEO, Mr Seyed Abu Thahir, Assistant CEO - Finance and Financial Planning, and Mr Abdullah Abu Hadedah, Assistant CEO - Investment and Corporate Finance.

I now hand over the call to Mr Abdullah Abu Hadedah to start with the presentation.

Thank you.

Thank you, Ahmed.

As-salamu alaykum wa rahmatullahi wa barakatuh.

Good afternoon, everyone. Thank you for joining us today to cover A'ayan Leasing and Investment Company's Q1 2024 financial results.

In today's presentation, our CEO Mr. Abdullah Al-Shatti will shed some light on the company's most recent developments and financial highlights. Afterwards, Mr. Seyed Abu Thahir, our Assistant CEO - Finance and Financial Planning will take you through the details of our financial results. This shall be followed by a Q&A session.

Please note that we can only comment on questions and information that has been publicly disclosed. In addition, the presentation will be available on our website.

Please feel free to send any follow-up questions to our Investor Relations email.

Before we start, I would like to bring your attention to the disclaimer on Slide number three. We would like to bring your attention with respect to the forward-looking statements and confidential information.

On the next slides, we present our Board of Directors and our Executive Management team, along with the company's overview.

Now, I would like to hand over the presentation to my colleague, Mr. Abdullah Al-Shatti.

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Analyst Conference - Q1 2024

Abdullah Al-Shatti As-salamu alaykum wa rahmatullahi wa barakatuh.

A'ayan

I would like to welcome you to this conference. It is a pleasure for me to present the recent developments and Q1 2024 summarized financial highlights.

Here, we can see an overview on A'ayan Group's performance for the first quarter ending 31st March 2024 and the financial position as on 31st March 2024, which is further, a clear indication of the successful implementation of the approved strategy of rebuilding our direct investments sector and expanding the operating lease fleet.

You can also notice that our total income has increased by 9% during the 1st quarter 2024 as compared to 1st quarter of 2023, from KD 6.3 million to KD 6.9 million. In addition, the net profit attributable to the equity shareholders of A'ayan for Q1 2024 has reached KD 3.5 million as compared to KD 2.9 million during Q1 2023, with a growth of 18%. Furthermore, earnings per share for Q1 2024 have reached 5.21 Fils per share against 4.43 Fils per share during Q1 2023. There has been a 18% growth in earnings per share.

On the financial position, the total assets of A'ayan Group were KD 152 million as on 31st March 2023, which has increased to KD 158 million as on 31st March 2024 with an increase of around KD 6 million, representing a 4% growth rate.

In terms of total liabilities, KD 51 million was reported as on 31st March 2023 which reached KD 50 million on 31st March 2024, with a decrease of 2%. This is mainly resulted from the repayments of Islamic financing payable.

In terms of the equity attributable to equity holders of A'ayan, KD 89 million was reported as of 31st March 2023, and as of 31st March 2024, it has increased to KD 96 million with an increase of 8%. This increase is mainly due to net profits for the period from April 2023 until March 2024, after netting off cash dividends as approved by the shareholders during Q1 2024.

For the 2nd consecutive year, Aayan's shareholders has approved during Q1 2024, to distribute cash dividends of 7.5 Fils per share (~KD 5 million) for the year 2023. I would like to mention that during Q1-2023, cash dividends of 7.5 Fils per share (~KD 5 million) for the year 2022 was distributed to shareholders.

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Analyst Conference - Q1 2024

	In addition, out of the KD 20 million financing facility that has been granted to our fully
	owned subsidiary, we have drawn 10 million and its 1st instalment of KD 1 million was
	paid during Q1 2024. Still, KD 10 million facility is remaining to be utilized.
	We have been constantly exploring and evaluating various opportunities across
	different industries, targeting to rebuild and further strengthen our business sectors.
	This is briefly A'ayan's performance for the 1st quarter ending 31st March 2024 and its
	financial position as on 31st March 2024.
	Now, Mr. Seyed Abu Thahir will continue the presentation to provide detailed insights
	on the financial results and financial position of A'ayan.
Seyed Abu Thahir	Thank you, Mr. Abdullah Al-Shatti.
A'ayan
	As-salamu alaykum wa rahmatullahi wa barakatuh.
	Good afternoon, everyone.
	First, I would like to welcome you all to the analyst conference on the 1st quarter 2024
	earnings. We would like to present A'ayan's performance highlights, noting that the
	reviewed consolidated financial statements have been uploaded on A'ayan's website
	as well on the Boursa Kuwait portal.
	Now, would like to take you through the snapshot of the results for Q1 2024 in
	comparison to Q1 2023. In terms of the net profit attributable to A'ayan's equity
	shareholders, we have reached KD 3.46 million during Q1 2024 as compared to 2.94
	million during Q1 2023, with a growth of 18%.
	In terms of EPS, we reached 5.21 Fils per share during Q1 2024 against 4.43 Fils per
	share during Q1 2023 with a growth of 18%.
	On the total income analysis by segment, we can notice that the investment sector's
	income is up by 41% during Q1 2024 as compared to Q1 2023. Operating lease rental
	income has been reported with an increase as compared to Q1 2023, while gain on
	disposal of motor vehicles during Q1 2024 has shown a decline due to the reduction
	in trading margin, which resulted in an overall reduction in the leasing segment total
	income of 7% in Q1 2024 as compared to Q1 2023.

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Analyst Conference - Q1 2024

In terms of the overall income contribution by segments, there is an increased share in the joint contribution from both investment and real estate segments from 41% during Q1 2023 to 50% during Q1 2024.

I would like to go through the synopsis of financial position on the next slide.

The total assets were KD 152.0 million on 31st March 2023 which increased to KD

157.8 million as on 31st March 2024 with an increase of around KD 5.8 million with a 4% growth rate.

In terms of total liabilities, KD 51.2 million was reported on 31st March 2023 which decreased to KD 50.1 million on 31st March 2024, which is mainly due to the settlement of Islamic financing payable during 2023 & Q1 2024 offsetting with the increase in other liabilities.

In terms of equity attributable to A'ayan's equity holders, KD 88.8 million was reported as on 31st March 2023 which has increased to KD 96.0 million as on 31st March 2024 at an 8% growth rate, after recording KD 5 million cash dividends as approved during Q1-2024.

In terms of book value per share, 134 Fils as on 31st March 2023 has risen to 145 Fils per share as on 31st March 2024, after distributing 7.5 Fils cash dividends per share during Q1 2024.

We have reached the next slide on the consolidated income statement.

During Q1 2024, total income increased by 9% from Q1 2023. The increase was mainly due to the net income from investments and savings deposits which includes net gain from financial assets at FVTPL and savings profits, apart from the net real estate income, which is mainly out of net rental income from leasehold rights.

I would like to go to the next slide, to the consolidated financial position.

In terms of total assets, KD 152.0 million as on 31st March 2023 has increased to KD

157.8 million as on 31st March 2024, with a 4% increase at an amount of KD 5.8 million.

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Analyst Conference - Q1 2024

The increase in the financial assets at FVTPL is mainly due to changes in fair valuation during Q1 2024. In addition, the increase in property and equipment is mainly due to further expansion in the operating lease fleet.

Net movements in investment in associates mainly include the capital reduction and dividend proceeds received from various associates, net off share of results and acquisition of an associate.

In terms of total liabilities, there has been a net decrease of 2% amounting to KD 1.1 million. As mentioned previously, the reduction is mainly due to the settlement of Islamic financing payable during 2023 & Q1 2024 offsetting with the increase in other liabilities.

As for equity attributable to A'ayan's Equity holders, there has been a rise of 8%. This has resulted from the increase in the net profits for the year after recording the cash dividends approved during Q1-2023.

On the next slide, we have outlined the entire equity movement since 31st December 2022, which covers the entire financial years 2023 and Q1 2024.

The equity as on 31st December 2022 at KD 91.2 million has reached KD 96.0 million as of 31 March 2024, with an overall increase of KD 4.8 million. Profits for the year 2023 & for the period Q1 2024 along with cash dividend distributions of KD 5 million each during Q1 2023 & Q1 2024 are the major movements of Equity.

In terms of the consolidated cash flow statement, the cash used for the expansion in fleet, investment properties & repayments of Islamic financing payable with its finance cost and payments of lease liabilities are the major reasons for the overall net cash outflows during Q1 2024.

On the next slide of "Key Financial Ratios" it is very clear that return on average assets and return on average equity attributable to A'ayan's equity holders have increased as

compared to the comparative periods. The main reason has been the increase in net results as we have seen in detail in previous slides.

The Current ratio & Debt Equity Ratio as on 31st March 2024 remains steady healthy.

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Analyst Conference - Q1 2024

Ahmed El-Shazly

EFG Hermes

Abdullah Al-Shatti

A'ayan

Ahmed El-Shazly

EFG Hermes

Abdullah Al-Shatti

A'ayan

Ahmed El-Shazly

EFG Hermes

Before concluding the presentation, I would like to take you through the quarterly trend synopsis of the key numbers since Q1 of the previous year 2023.

There has been a steadily increasing trend over quarters both in terms of total income and profit attributable to equity holders of Aayan.

Total income for Q1 has shown a growth of 9% and net profit attributable to equity holders of A'ayan has grown by 18%. Total assets have increased by 4% and the equity attributable to equity holders of A'ayan has grown by 8%.

The reasons for increase in above key numbers have already been discussed in the previous slides.

With all the above, I hope I have covered the major financial highlights for Q1 2024.

Now, we will open the floor for a Q&A session. Thank you.

Thank you, gentlemen, for the presentation. We will now open the floor for Q&A. If you'd like to ask a question, you can send it through the Q&A box on your screen at any time. We already received a couple of questions. We'll start with the first one. What was the fleet size, of course, at the end of Q1 2024 compared to Q4 2023? And what was the growth in fleet size compared to Q1 in 2023?

The current fleet size is around 9,000 cars in total. And last quarter, it was around 8,800. And in Q1 2023, it was around 8,200 cars.

It's even with our budget and has been mentioned in the previous conferences that we are looking for growth this year, not necessarily at the same level of number of cars but sustaining good result in terms of total absolute numbers.

Thank you. The next question is, what were the reasons for the year-on-year growth in net income from investments and saving deposits?

This mainly includes approximately KD 800,000 from an investment that we managed to sell during Q1 2024, which is CiNet, and we announced that. The rest is from our remaining fair value portfolio of investments - mainly from change in fair value.

And the next question, why did the share of profit from associates decline on a year- on-year basis?

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Analyst Conference - Q1 2024

Abdullah Al-Shatti

A'ayan

Ahmed El-Shazly

EFG Hermes

Abdullah Al-Shatti

A'ayan

Ahmed El-Shazly

EFG Hermes

Abdullah Al-Shatti

A'ayan

Ahmed El-Shazly

EFG Hermes

Abdullah Al-Shatti

A'ayan

The share of results in Q1 2024 represent the recurring operational result of the associate companies. While the share of results of Q1 2023 include the impact of

reversal of tax provision through our associates' companies. At that time, it was around

655,000 KD coming from that result, which is a non-recurring element.

The following question, there was a loss arising from forex in OCI. Can you please discuss what exactly are these foreign operations?

This is from the consolidation. We are consolidating Mubarrad Holding Company and they have an exposure in Egypt. They have a real estate investment in Egypt. The change in currency of this investment in Egypt is affecting indirectly our books through the OCI.

Were there any exits in Q1 2024 and how should we think about exits in 2024 and 2025?

In Q1, as we mentioned, it was an investment that we managed to sell at KD 800,000. That is the CiNet that we announced. In general, thinking about exits, if we closely consider the nature of our activities, mainly both real estate and investment business, revenue impact of certain investments are seasonal in nature and we have exposure through our associate companies on Saudi and the seasonality. This is, I would say, regarding the seasonality of the revenue. This is one side of the equation.

The second is regarding the exit, we keep consistently monitoring and evaluating the overall performance of each of these assets that we have on hand and keep all our options open, with an objective of timely capitalizing the right opportunity of enhancing both its return and cash flow, either from retaining or exits. You can also notice that we sold certain investment properties during Q3 2023, which resulted in a gain of approximately 1 million last year. In overall, our objective is to sustain a reasonable growth year-on-year at Aayan level, considering nature of our activities and tapping out the right opportunities to maximize both return and cash flow.

Our next question, operating lease rental income grew by 3.4% year-on-year during Q1 2024. How does this compare to the growth in fleet size during the same period? Is there any seasonality in the business?

We mentioned the number of cars in the previous question. But, regarding that second part of the question, there is a reduction in the down payment. Although the business of leasing is growing, in terms of the new leasing contract that we signed during Q1,

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