Net profit reaching EGP 6.5 billion in FY23 on the back of significant progress on debt settlements and restructuring at the holding and portfolio levels

Net profit reaching EGP 6.5 billion in FY23 on the back of significant progress on debt settlements and restructuring at the holding and portfolio levels, including divestments of some investments and assets (with the right to repurchase), and on the back of strong performance of all subsidiaries.

Key Operational Highlights
• Throughout 2023, Qalaa Holdings concluded several agreements and transactions for the settlement and restructuring of the Group’s debts. These transactions have seen Qalaa take a major step in its deleveraging strategy and have greatly reduced the Group’s debt levels. The transactions, together with the sale of assets (with the right to repurchase the sold shares), had a significant impact on the Group’s results for the year, specifically
o The 2023 settlements and restructuring of the Group’s debt included: ASEC Holding’s debt settlement and restructuring, National Service Projects Organization (NSPO) debt settlement, EIIC and Cape Collard debt settlement. Subsequently in 2024, settling the bulk of liabilities at holding and subsidiaries to Financial Holdings Investments Ltd. (FHI), Egyptian banks senior debt settlement, and AIB settlement and restructuring; the remaining components of debt restructuring are at final stages;
o Additionally, in 3Q23, APM Investment Holdings Limited (APM), a wholly owned subsidiary of ASCOM, sold its c.35% stake in Ethiopia’s Kurmuk Gold Project to the Canadian company Allied Gold Corp. The transaction resulted in an EGP 2.6 billion gain on sale of assets in 2023;
• Qalaa recorded a net profit of EGP 6.5 billion in FY23, up significantly from the EGP 1.3 billion achieved in FY22, mainly on the back of a substantial gain on the sale and revaluation of investments, generating EGP 5.0 billion from TAQA Arabia and EGP 2.6 billion from the sale of APM. This is in addition to gains made from the settlement and restructuring of the ASEC Holding debt amounting to EGP 1.3 billion;
• Qalaa’s consolidated revenue grew 17% y-o-y to EGP 97.1 billion in FY23, supported by broad-based growth across all subsidiaries apart from Takamol Cement, which saw its production and sales impacted by the ongoing armed conflict in Sudan. Recurring EBITDA reached EGP 22.7 billion during the year, down from EGP 29.6 billion in FY22 due to lower margins at ERC;
• Excluding ERC, Qalaa’s revenue rose 19% y-o-y, on the back of positive performances across most subsidiaries, reflecting the success of Qalaa’s long-term strategy focused on import substitution and developing export-oriented businesses. Meanwhile, recurring EBITDA excluding ERC rose by 84% y-o-y following solid results across all subsidiaries;
• ERC contributed c.90% to Qalaa’s total revenue in FY23. ERC’s refining margins dropped noticeably in FY23, partially reflecting a normalization of oil prices following the significant spike that occurred in 2022 and largely due to a combination of higher feedstock prices, lower refined product prices, and a decline in the quality of feedstock received. Additionally, in July 2023 ERC underwent a planned 17-day production shutdown for the implementation of an overhaul and debottlenecking, which increased production capacity to the tune of 10%. A study is underway for another debottlenecking in 2029, which should increase the plant’s capacity by another 10%;
• ERC’s receivables from EGPC stood at USD 384.0 million as of 30 April 2024. ERC continues to be fully current on all its scheduled debt payments having made senior debt payments totaling USD 632.0 million in FY23, of which USD 444.0 million were directed towards principal and the remainder towards interest and fees. ERC also remains on track to fully settle its senior debt in 2025, following which ERC will start distributing dividends. ERC’s current net senior debt amounts to USD 600 million as of 30 April 2024;
• The Group’s export proceeds for 4Q23 reached c.USD 27.6 million, while local foreign currency revenue recorded c.USD 818.5 million during the quarter. On a full-year basis, export proceeds reached c.USD 89.7 million in FY23, and local foreign currency revenue stood at c.USD 3.0 billion. Going forward, the Group will continue focusing on growing its exports and leveraging the cost advantage available to local manufacturers;
• Qalaa’s ongoing strategy will continue to focus on the following elements:
o Qalaa will continue driving growth through small incremental investments in its subsidiaries, expanding cashflows, and thereby reducing its debt to cashflow ratios. Management is confident this strategy will continue to deliver the desired results;
o Qalaa is currently studying several new medium-sized, export-oriented, and predominantly green investments with high local value-added components, to be executed through its subsidiaries.

Qalaa Holdings, a leader in energy and infrastructure (CCAP.CA on the Egyptian Exchange), released today its consolidated financial results for the year ending 31 December 2023. The Group recorded a 17% y-o-y increase in revenue to EGP 97.1 billion in FY23, and recurring EBITDA of EGP 22.7 billion during the year, down from EGP 29.6 billion in 4Q22 due to lower margins at ERC. Revenue growth for the three and twelve-month periods was largely driven by ERC’s contribution. The solid performance was supported by broad-based growth across all subsidiaries apart from Takamol Cement, which saw its production and sales impacted by the ongoing armed conflict in Sudan. ERC was the primary driver behind consolidated revenue growth, contributing to c.90% to Qalaa’s total revenue in FY23. ERC’s refining margins dropped noticeably in FY23, partially reflecting a normalization of oil prices following the significant spike that occurred in 2022 and largely due to a combination of higher feedstock prices, lower refined product prices, and a decline in the quality of feedstock received. Additionally, in July 2023 ERC underwent a planned 17-day production shutdown for the implementation of an overhaul and debottlenecking, which increased production capacity to the tune of 10%. A study is underway for another debottlenecking in 2029, which should increase the plant’s capacity by another 10%.
Excluding ERC, Qalaa’s 4Q23 revenue dropped by 4% y-o-y to EGP 2.4 billion. However, FY23 revenue excluding ERC stood at EGP 9.5 billion, a 19% y-o-y increase driven by strong performances across most subsidiaries. TAQA Arabia’s revenue grew 20% y-o-y to EGP 3.7 billion in 4Q23, compared to EGP 3.1 billion in 4Q22. On a full-year basis, revenue recorded EGP 13.5 billion, marking a notable 26% y-o-y increase. Revenue growth for the quarter and full-year period was primarily driven by a strong performance at TAQA Gas, fueled by increased connection revenue and an expansion in CNG volume sold due to additional CNG stations coming online. Positive contributions from foreign currency-linked power generation prices and the implementation of new photovoltaic projects under TAQA Power further bolstered revenue. Revenue growth was further helped by increases in fuel and lube prices, as well as higher volumes at TAQA Petroleum.
National Printing reported a 22% y-o-y increase in revenue during the quarter to EGP 1.3 billion, and a 21% y-o-y revenue expansion to EGP 5.2 billion in FY23. Revenue at ASEC Holding shrank by 36% y-o-y in 4Q23 to EGP 972.2 million, and by 17% y-o-y to EGP 3.8 billion in FY23. Dina Farms Holding Company recorded a 59% y-o-y increase in revenue to EGP 549.9 million in 4Q23, as well as a 51% y-o-y rise to EGP 1.9 billion in FY23.
In 4Q23, ASCOM achieved a 40% y-o-y increase in revenue to EGP 510.0 million, as the EGP devaluation augmented the USD-denominated revenues of ASCOM’s two largest revenue generators: Ascom for Chemicals and Carbonates Manufacturing (ACCM) and GlassRock, an insulation material producer. Finally, CCTO’s transportation and logistics business delivered 32% y-o-y revenue increase to EGP 157.6 million, and the company’s top-line stood at EGP 581.6 million in FY23, a 57% y-o-y expansion. Revenue growth came on the back of improvements across all revenue streams of its Egyptian arm NRPMC.
“I am extremely proud of Qalaa’s solid top-line performance during the past year, which stands as a testament to the Group’s strength and resilience amidst a challenging macroeconomic environment,” said Qalaa Holdings’ Chairman and Founder Ahmed Heikal. “During the year, Qalaa’s revenue expanded by 17% y-o-y, with top-line growth coming largely on the back of the impressive results achieved at the Egyptian Refining Company. However, ERC’s margins witnessed a sharp decline, continuing to drop from the exceptional highs witnessed during 2022 towards more normalized levels. This was further exacerbated by the armed conflict in Sudan and its effect on Al-Takamol Cement’s performance. As we head into 2024, we are looking to continue building on our strong top-line performance over the past year. In parallel, we remain committed to prioritizing the growth of our subsidiaries’ cashflows and deploying them in a prudent manner towards high-yield incremental investments that fall in line with our debt repayment plan.”

“Across the board, our portfolio companies continue to demonstrate their ability to withstand pressure, taking advantage of the new macroeconomic dynamics and reaping the rewards of Qalaa’s carefully executed growth strategy. On that front, all our business segments recorded solid performances throughout the year, successfully capitalizing on the increased focus on local manufacturing and import substitution, as well as a portfolio structure that shields against devaluation pressures. Going forward, we will continue to push ahead with our growth strategies across our various platforms over the next few years, keeping a close eye on identified investment opportunities. With the positive results achieved across our business segments during the year, I remain confident in my positive outlook for the Group. Our portfolio companies’ cash flows are strong, with very low levels of debt and with growth achieved through efficiencies and small incremental investments. We have reached our targets regarding reducing operating companies’ debt.” Heikal added.

“Today, the global economy continues to face a number of difficulties as the world experiences one of the most challenging macroeconomic periods in recent memory. As a consequence of the unprecedented levels of debt, as well as the elevated inflation and interest rates that countries worldwide are currently facing, the expectations of suppressed long-term economic growth, high borrowing costs, and an increased focus on debt reduction remain in place. On top of that, the increasingly evident effects of climate change, coupled with the ongoing geopolitical tensions across various regions, have further exacerbated the levels of stress placed on the global financial system,” Heikal stated.

“These global difficulties, in addition to local structural issues, have created a challenging domestic macroeconomic environment. Inflation rates remain high, and the Central Bank continues to implement a tightening monetary policy to rein in rising price levels, especially in the wake of the latest currency devaluation in March of 2024. That said, Egypt remains an attractive investment destination for regional and international investors, and I am confident that the country’s long-term economic prospects remain positive. This is evidenced by the latest multi-billion-dollar agreement between Egypt and the United Arab Emirates to develop the Egyptian coastal city of Ras El Hekma, a move that has the potential to kickstart a significant round of foreign investments within the country. For our part, Qalaa remains well-positioned to overcome the prevalent challenges thanks to our carefully executed strategies, as well as our resilience, flexibility, and efficiency, which are embedded into the core of our DNA,” continued Heikal.

“On a separate note, I am pleased to announce that we have reached several agreements with a number of Egyptian banks regarding the settlement and restructuring of the Group’s debts. These agreements included moves such as the listing of National Printing on the Egyptian Exchange, and the sale of Qalaa’s majority shareholding in the company to Financial Holdings Investment Ltd. This comes as part of Qalaa’s strategy of deleveraging its balance sheet and divesting some of its businesses and assets to settle the Group’s outstanding debts,” concluded Heikal.

Qalaa’s recurring EBITDA fell significantly to EGP 5.9 billion in 4Q23 from EGP 9.7 billion in 4Q22. Meanwhile on a full-year basis, recurring EBITDA shrank from EGP 29.6 billion in FY22 to EGP 22.7 billion in FY23. This decline in profitability was largely a result of the declining margins at ERC during the quarter and full-year period.

Excluding ERC, Qalaa’s recurring EBITDA surged 364% y-o-y from EGP 99.2 million in 4Q22 to EGP 460.2 million in 4Q23. For FY23, recurring EBITDA expanded by 84% y-o-y to EGP 2.0 billion, rising from EGP 1.1 billion in FY22. Enhanced profitability for the reporting period came on the back of a strong performance across all subsidiaries.

“In Q4 2023, our significant efforts towards reaching settlements and restructuring agreements with the various lenders of Qalaa and its subsidiaries have started bearing fruit. We have recently reached agreements with a number of Egyptian banks, as well as several non-bank creditors, regarding the settlement and/or restructuring of all the Group’s debts due to those parties,” said Hisham El-Khazindar, Qalaa Holdings’ Co-Founder and Managing Director. “These transactions are reflecting very positively on Qalaa’s profitability and will continue to do so over the coming period. The reduction of Qalaa’s risk levels, primarily by deleveraging and expanding the Group’s cashflows, remains at the forefront of our priorities.” added El-Khazindar