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Fri 19 Jun 2015 01:37 AM

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Food for thought: Mezzan CEO Garry Walsh

Mezzan Holding’s stellar debut on the Kuwait Stock Exchange earlier this month put the spotlight on a company that has so far let its brands do the talking. Chief executive Garry Walsh charts the rise and rise of one of Kuwait’s fastest-growing players.

Food for thought: Mezzan CEO Garry Walsh

If you’ve recently munched your way through a McDonald’s burger in the UAE, drank bottled water in Qatar, finished off a packet of crisps in Kuwait, or even if you’re one of the hundreds of thousands regularly tucking into a meal on an Emirates flight, then the chances are that you’re consuming one of Mezzan Holding’s products.

It may not be a household name, but the family-owned giant finally hit the limelight on its own account a couple of weeks back when it became the first private company to list on the Kuwait Stock Exchange for six years.

Mezzan sold 30 percent of its share capital for $218m via a share offering in May, and went on to take the bourse by storm on its first day of trading. Eager investors sent the share price soaring by 32 percent on its debut, while trading volume in the stock represented 40 percent of all activity on the index that day. It also left the firm’s market cap at close to a billion dollars.

“On paper we were double oversubscribed,” says Garry Walsh, the genial Irishman who took over as Mezzan’s chief executive in 2011. “In reality, it could have been much more — we actually told a lot of people not to come in, because we just wouldn’t have been able to give it to them.

“One guy in Saudi offered me a cheque on the day for 20 percent of the company. But that’s not what we wanted to achieve, we’re trying to achieve good liquidity.”

It doesn’t take too long to work out why Mezzan has had such a stellar debut. The 70-year-old company, which has been run by two generations of the Al Wazzan family, is one of the Gulf’s biggest food manufacturers and distributors, as well as being a large fast-moving consumer goods (FMCG) supplier, with additional interests in catering, pharmacies, plastics and industry. The company’s activities are divided up into 29 subsidiaries, with the food side of the business providing roughly three quarters of revenue. 

It operates in seven countries, including Jordan, Afghanistan and Iraq, and distributes more than 350 brands and 25,000 stock keeping units (SKUs) across the region. Mezzan has 10,000 points of sale in the UAE, has around 21 percent share of co-operative supermarket shelves in Kuwait, and serves around 100,000 meals a day through its catering arm.

Put all that together with its recent impressive growth figures, and it’s easy to see why Walsh is looking so happy. In the first quarter, Mezzan Holding announced a profit of KD5.5m ($18.2m), a 25 percent gain on the same period a year before. Profit in 2014 rose by 23 percent over the previous year, while revenues rose by 28 percent to $472m over the same period.

Since Walsh took over as CEO, profit has roughly doubled and the company has also focused heavily on expansion abroad.

“In 2010, 2 percent of our profits came from outside Kuwait — this year it will probably be about 40 percent,” the CEO says. “It was very clear from the beginning that if we were to survive as a business, we needed to be well-diversified.”

Walsh’s brief when he joined was to prepare the company for going public by putting strong governance and a growth strategy in place.

“There was underperformance,” he says. “Two years ago, our turnover was pretty flat and so that’s where we exited parts of the business that didn’t really generate money, or agencies that didn’t really pay back.

“We also changed a lot of the management teams, so the age profile is a lot younger.”

Those divestments included Awal Gulf, an air conditioning manufacturing unit in Bahrain, plus interests in the Pizza Land restaurant franchise in the UAE, as well as others.

Instead, Mezzan has built on the existing operations in Sharjah and Qatar to add new manufacturing plants all over the region, including a kettle chips facility in the UAE, the expansion of a water-bottling production line in Qatar and a recently completed warehouse in Riyadh. Walsh says that the firm is also building another warehouse by Dubai International Airport, and says that revamping existing plants to make them more efficient will be just as important as building new ones.

As well as organic growth, the firm has also been on the acquisition trail. In January last year, it bought UAE-based Unitra Mets Group. It’s well-known as the distributor for brands like Red Bull and Aqua Panna in the country, but for Walsh one of the key aspects was its 10,000 odd points of sale, which gave Mezzan an opportunity to funnel its other brands through those outlets. Last June, it also bought out the 49 percent stake in Kitco Group (a snacks business) that it did not already own from India’s Oberoi family.

It’s also been adding to a stable of brands that already include companies like Sara Lee, Betty Crocker and Cadbury by signing up Starbucks drinks in August last year. And the list of clients for whom it produces food is growing steadily longer, with Shake Shack, iHOP and Emirates Airline all added to the roster.

While the food business may be going great guns, it’s a little slower in the FMCG and industrials side of the firm, where revenue declined marginally in 2014 in comparison to the previous year. Walsh says that is due to the replacement of a used-oil refinery owned by its subsidiary Kuwait Lube Oil. Other parts of the non-food business have also been helped by closer integration with the rest of the firm.

“We’ve benefitted a lot from the vertical integration between the plastics and cartons into the rest of the business, but those two businesses now pretty much stand on their own two feet,” the CEO says. “I think plastics, when I started, about 75 percent of their income came from the group — I would say now it’s probably around 20-25 percent as they’ve used our volume to create a much bigger business outside. It’s the same with cartons.”  

Mezzan’s growth may be breakneck, but it doesn’t look like Walsh will be resting on his laurels. The CEO certainly has plenty of access to cash if he needs it, with around KD90m ($300m) in banking facilities available.

“We throw off about KD30m in free cashflow every year, roughly a third of that will go towards dividends, roughly a third towards capex  — so replacement and enhancement of what we have, as well as new projects — and that leaves KD10m to make new acquisitions,” he says.

Walsh says that Mezzan has “looked at a couple” of acquisitions in Oman — a country where the firm does not yet have a presence, and that “if we found the right opportunity, we would take it”.

“What we’re looking for in Oman… we’d look for a good business with a strong team, whose owners want to get out for whatever reason, and then we’d look to see what we can do,” he adds. “If that came with a manufacturing facility, no problem, if it didn’t, no problem.”

In general, the CEO says that the firm needs to make “two or three acquisitions that are smaller” in the region before it even thinks about nearby markets such as India or North Africa — none of which are on its radar at the moment. Walsh points out that of the potential KD200m the company is likely to pull in in revenues this year, only about KD5-6m will come from Saudi Arabia, the region’s biggest market.

“What we want to do is grow out footprint in the GCC — so that means expanding in Saudi, Oman and Bahrain — while continuing to grow in our current markets,” he says. “Kuwait I expect to grow 8-10 percent every year.”

Similarly, while Walsh says that the firm’s catering arm is strong in Qatar and Kuwait, it’s “nascent” in the UAE. From a physical expansion perspective, Mezzan is also mulling a potential plant in KIZAD, the Abu Dhabi free zone, although the CEO won’t say what it might produce. The firm is also lining itself up to take advantage of changes in consumer tastes, which are likely to come about as populations grow, more people enter the middle class and western trends filter through to the region.

“Only a few years ago, chilled meat didn’t exist in the UAE in a pre-packaged form — it was all behind the deli counter and it was sliced,” Walsh says. “Now you can go and buy your Khazan [another brand owned by Mezzan] chicken off the shelf. As these categories come on stream, we want to be leading them.

“If you look at the share of the shelf that ready meals take in the UK, it’s enormous. If you look at it here, it doesn’t exist. There’s a few little bits here and there, but the market hasn’t evolved to that point. If it does, we want to be leading those types of charges.”

As the first non-family member to run the business, the pressure has certainly been on Walsh to deliver during the most dramatic transition phase of Mezzan’s 70-year history. The rationale behind the firm’s decision to list — which is a rare phenomenon in Kuwait, and an even rarer one for a Gulf family company — was simply to provide a cash exit for the second generation of the Al Wazzan family. In some respects, it has been a model that similar firms may wish to copy as new generations, with more family members, make it ever more complicated to divide up the family wealth.

“I think the five brothers [in the second generation] would probably acknowledge it’s unusual for five brothers to go through their entire working life working together,” Walsh says. “They’ve worked hard at it, but the chances of 54 nieces and nephews going through their working lives all working together is that much smaller. So this sets up the family in a very structured way to move to the next generation.

“Over the four years, the family has transitioned from being very hands-on to being like a board of directors,” he adds. “It’s been a big transition for them as we brought in an external CFO and most of the management team are external, so I couldn’t have had a freer hand.

“Of the next generation, there’s four of them in the business, but they act very much as any manager would. To be honest, they would be the first people to say: ‘My parents may own the business, but I am just an employee — I have to prove that I have the right to be here’, just like the rest of us.”

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