CFA Institute Research Challenge Hosted in Kuwait
Student research Logistics Sector, 3PL Industry Kuwait Stock Exchange (KSE) Agility Public Warehousing Company
Date: 2/1/2018 Current Price: KWD 0.865 Recommendation: Sell Ticker: AGLTY Headquarters: Sulaibiya, Kuwait Target Price: KWD 0.735
This report is published for educational purposes Highlights only by students competing in the CFA Institute Research Challenge We issue a Sell recommendation on Agility with a target price of KWD 0.735 using a 5- only by students competing in the CFA Institute year DCF Valuation. Our sell recommendation was issued due to the following: 5-Year ShareResearch Price Movement Challenge. (Source: • Two of Agility’s three main projects are delayed with no disclosures on either – Reuters) The construction of Riyadh Logistics Park was stated to be around five years. 0.9 KWD However, there are no updates on its progress. Ten Africa Distribution Parks “ADPs” were planned to be completed by 2017, seventy by 2021. Agility have completed 0.8 KWD one ADP thus far. Reem Mall was expected to operate in 2020. However, recent revelations suggest the opening date is unknown. We have assumed it to operate in 0.7 KWD 2021, based on the company's denial to confirm the expected opening date. • Agility’s focus on expanding their Commercial Real-Estate Business would 0.6 KWD reduce the cost-savings achieved by technological advances – Agility managed to digitize and automate their services, achieving significant cost-savings since 2012. 0.5 KWD This isn’t expected to continue as Agility is focusing on expanding their Commercial Real-Estate Business aiming to become a Fourth-Party Logistics provider “4PL”. 0.4 KWD This investment is labor and capital intensive, which would reduce the effect of the technological advances, lowering profitability margins. 0.3 KWD • Increased freight-forwarding rates and oil prices would affect Agility’s Logistics Business – Tightening capacity in the logistics industry would cause Agility’s partnered carriers to increase freight-forwarding rates. The Expected increase in Oil Feb-2014 Feb-2015 Feb-2016 Feb-2017 Feb-2018 Prices would be passed down to Agility through higher fuel surcharges. Higher Prices offered and operational costs would cause the previous 10.5% growth in Market Profile revenues to decrease and reach the industry’s 2.5% CAGR return. Closing Price (2/1/2018) KWD 0.865 Recent News 52-Week High/Low (KWD) 0.984/0.509 • Reem Mall names a new contractor, but the opening date still unknown - Average Volume (3- 19,730,000 11/27/2017: Al Farwaniya Property Development, the developer of Reem Mall, Months) announced a new contractor for the project. However, the developer declined to Shares Outstanding 1,258,197,111 provide the expected opening date, saying "We will communicate that timetable Market Cap (Billion) KWD 1.088 publicly when we believe it is appropriate." (The National) • Agility signs USD 457 Million credit facility for financing the Reem Mall - Bottom-Up Beta 0.89 11/21/2017: Agility announced signing a 7-Years credit facility amounting to USD P/E (TTM) 17.63x 457 Million for financing the project through the consortium of Agility, UPAC, and NREC. DCF Target Price KWD 0.735 • Reem Mall in Abu Dhabi opening delayed until 2020 – 04/1/2017: The developer Discount on market price 15% of Reem Mall announced that they had pushed back the opening of the mall to 2020 partly due to issues in designs and approvals. (Reuters) • Reem Mall's USD 800 Million loan moves nearer with expectations to complete Figure 1: Shareholders' Structure the project in 2018, following concept approval by the Urban Planning and (Source: Bloomberg) Municipalities Council - 03/17/2016: Agility has announced that it is at the final stages of securing USD 800 Million in bank loans to invest in the Reem Mall. Abu Dhabi's Urban Planning Council has granted Reem Mall detailed planning approval in January, with expectations to complete in 2018. (The National)
22.34% Business Description Agility (AGLTY) Agility is a global Third-Party Logistics company (3PL) established in 57.09% 1979 under the name of Public Warehousing Company which was wholly owned by the 20.57% government of Kuwait. In 1984, the company was listed on Kuwait Stock Exchange and later in Dubai Financial Market. In 1997, the government privatized the firm, and the current management took the helm. In 2006, the company unified all its brands under the name Agility. Agility runs operations in 100 countries with around 500 offices, employing more than 22,000 employees. The firm has an estimated 14,000 shareholders comprising of individual, public, and institutional investors. The company's primary National Real-Estate Company shareholders are the National Real-Estate Company “NREC”, and the government-owned Public Institution for Social Security Public Institution for Social Security “PIFSS” (Figure 1). Agility's Revenues recorded a declining trend for the past five years, returning to growth only in the first 9-Months of Free Float 2017. The firm reported growth in Revenues (10.5%) and Operating Income (22.5%),
1 Figure 2: Growth in First 9-Months mainly because of higher freight volumes (Figure 2). Agility originally breaks down its (KWD'000, Source: Agility) business to (1) Global Integrated Logistics “GIL”, and (2) Agility Infrastructure (Appendix A). For clarity and simplicity, we break down the firm's business into (1) 1,200,000 Logistics & Related Services, and (2) Commercial Real-Estate, explained as follows: Logistics & Related Services - Agility's core commercial business, providing air, ocean, 1,000,000 and freight forwarding services, warehousing, distribution, specialized services in project logistics, aviation & ground-handling, and other logistics-related services mainly 800,000 in emerging markets. Commercial Real-Estate - Agility's Commercial Real-Estate business focuses mainly on 600,000 managing warehouses in the Middle East, Africa, and the Indian subcontinent, including readily built and built to suit facilities. Agility is expanding its Commercial Real-Estate business to include Retail Real-Estate through its Reem Mall project. Agility's 400,000 Commercial Real-Estate expansion comprises three significant projects in emerging market countries for the next five years, consisting of Reem Mall, Africa Distribution 200,000 Park, and Riyadh Logistics Park: • Reem Mall - A USD 1.2 Billion luxury mall in Abu Dhabi (Table 1) that is being 0 developed by Al Farwaniya Property Development which is a joint venture of Agility, Revenues Operating Net Income United Projects for Aviation Services Company "UPAC" (a subsidiary of Agility), and Income NREC. In early 2017, the developer announced pushing back the opening of the mall to open in 2020 because of issues in design and delays in approvals. However, after 2016 2017 revealing the new contractor of the mall in November 2017, the developer denied confirming the scheduled opening date (The National). Table 1: Reem Mall Specifications (Source: • Africa Distribution Park “ADP” - A network of logistics hubs that are projected to Reem Mall) provide Africa with logistics infrastructure, including readily built warehouses, built Total Area to suit facilities, logistics solutions, and ancillary services. In 2016 Annual Report, 2.8 SQM (Million) Agility reported the opening of the first park in Tema, Ghana. • Riyadh Logistics Park - A logistics park over an area of 670 Thousand SQM in Leasable Area 2 SQM Riyadh, Saudi Arabia that would mainly be offering three types of warehouses; (1) (Million) Built to fit, (2) Share, and (3) Standalone warehouses. The project's construction Stores 450 period is estimated to take around five years (Agility). Restructuring away from the U.S. Government contracts - The U.S. Federal Court has F&B Outlets 85 issued a rule in favor of the U.S. Government. It accused Agility of Defrauding the U.S. Military in the "U.S. Department of Defense Middle East Food Supply Contracts" (U.S. Estimated Prime Vendor Deal). The contracts amount for approximately USD 8.5 Billion KWD 56,057,000 Revenues (Washington Post). That has led Agility to restructure its business away from the U.S. Government business in the period from 2010 to 2012. In 2017, Agility agreed to pay USD 95 Million in settlement to the U.S. Government. The company would be allowed to Figure 3: EBITDA by 2020 (USD'000 bid for new contracts of the U.S. Government. However, it has agreed on the settlement Source: Agility, Team Estimations) to cut off legal expenses that are incurring every year (Agility). Settlement conditions 900,000 are still subject to approval by the Federal Court. Goal and Strategy - Agility's central goal is reaching USD 800 Million in EBITDA by 2020 800,000 (Figure 3) and accelerating growth in the Commercial Real-Estate business for the next five years. The firm's primary approaches are (1) Injecting USD 1.5 Billion in debt in the 700,000 Commercial Real-Estate segment, (2) Expanding operations in emerging markets, (3) Reducing the operational costs, and (4) Renegotiating better freight-forwarding rates: 600,000 • Accelerating growth in the Commercial Real-Estate segment through moving into a net debt position in the future - Agility intends fueling its future growth in 500,000 the Commercial Real-Estate business through injecting USD 1.5 Billion in debt, financing the three significant projects of the next five years. The company dedicates 400,000 USD 800 Million from the total amount for the Reem Mall project. • Expanding operations in emerging markets through locating 73 target 300,000 locations for the Africa Distribution Park project - Agility has identified several target locations for its ADP project, including 22 primary, 10 secondary, and 41 third 200,000 target locations (Appendix C). The firm has also located the other two planned significant projects to be in the Middle East region for the same purpose. 100,000 • Reducing the operational costs of the firm by investing in technology - Agility is investing in technology for the past five years and is continuing to do so to reduce 0 its operational costs. In the period from 2016 to 2017, Agility has invested in CargoX EBITDA by 2020 and acquired Virtual Care Provider (Crunchbase; Appendix D). • Better freight-forwarding rates by renegotiating ending contracts - A set of Agility's Goal Our Estimations Agility's current freight-forwarding contracts are up for renewal, enabling Agility to renegotiate them for better rates (Agility).
2 Corporate Social Responsibility Agility’s Corporate Social Responsibility “CSR” program focuses mainly on three issues, Table 2: Members of the Board of Directors (1) Environment, (2) Community, and (3) Employees: (Source: Agility) • Environment – They aim for a greener environment, with an increased focus on a greener supply chain by associating with interested partners. They also offer free Henadi Non- Chairwoman Al-Saleh Executive carbon reporting for their customers, which they can access through Agility’s Freight Management System. Tarek Vice-Chairman & • Community – Agility encourages their employees to volunteer in the community, as Al- Executive CEO Sultan they aim to empower their workforce. They have made 1370+ investments worldwide since 2006. Agility has proven to be a reliable figure during natural Adel Al- PIFSS Non- Bader Representative Executive disasters. Since 2006, they have supported 40 humanitarian operations, with the most recent being the Typhoon and Floods that occurred in the Philippines. Faisal NREC Non- Al- • Employees – Agility has maintained a culturally diverse workforce. They employ Representative Executive Sultan over 120 nationalities, and women hold about a third of the management positions. Nasser They also invest regularly in training and education workshops to further develop Non- Al- Independent Executive their workforce. Rashed Sultan Non- Al- Member Management and Governance Executive Sultan Agility's board of directors constitutes of seven members who are appointed by the Ayman Non- General Assembly at its Annual General Meeting. The Board includes one executive Al- Member Executive member who is Mr. Tarek Al-Sultan, the Vice-Chairman & CEO, and one independent Sultan member who is Mr. Nasser Al-Rashed. The remaining five members are all non-executive board members, including the Board's Chairwoman Ms. Henadi Al-Saleh, the Table 3: Members of the Board Nomination and representative of NREC, Mr. Faisal Al-Sultan, and the representative of PIFSS, Mr. Adel Remuneration Committee in 2016 (Source: Al-Bader (Table 2). However, there is no representative for free-float shareholders. In Agility) addition to the Audit, and Risk Committees, Agility has created the Board Nomination and Remuneration Committee “BNRC” that is responsible for setting the Board's Faisal Al- Non- Chairman members remuneration which is then approved by the General Assembly (Table 3). The Sultan Executive BNRC consists of three members, including the Vice-Chairman & CEO, and the NREC representative (the BNRC Chairman) who both are family-related. The current executive Nasser Al- Member Independent management of Agility constitutes of 16 executives, led by Mr. Tarek Al-Sultan who has Rashed been in the position for the past twenty-one years. The firm's annual reports show full corporate governance compliance with the standards of the Capital Markets Authority Tarek Al- Member Executive “CMA”. However, a more thorough look at the track history of the board of directors Sultan raises concerns, including: • An NREC and family-controlled board of directors - Five out of the seven members Board KWD 140,000 of the Board are family-related, including the Chairwoman, Vice-Chairman & CEO, Remuneration and NREC representative (Table 4). In addition to the representative of NREC, MR. Tarek Al-Sultan is also a member of the NREC board of directors. Board Other KWD 350,000 • Four of the current members were involved in the U.S. Prime Vendor Deal, and Benefits the restructuring of the business - Four of the current board members were part Executive of the successive boards from 2003 to 2005 (Table 5). Agility had signed the first of Management KWD 1,611,000 a series of the U.S. Government contracts in 2003 and started a dispute with the U.S. Fixed Remuneration Government in 2005 when Mr. Kamal Al-Sultan filed a “False Claims Act Eexcutive Whistleblower Lawsuit” against Agility, accusing it of defrauding the U.S. Military in Management KWD 1,950,000 the U.S. Prime Vendor Deal (Washington Post). Agility entered a partnership with Variable The Sultan Center “TSC” to provide food for the U.S. Military. Mr. Kamal Al-Sultan Remuneration was part of the company back then. Mr. Kamal Al-Sultan is relative to Agility's Vice- Chairman & CEO. In 2009, the Kuwaiti government intervened through then Deputy Table 4: Family Related Members Prime Minister Mr. Mohammad Al-Sabah, asking then Secretary of State Ms. Hillary Clinton in consideration of the special relations between the two countries to amicably resolve the case (Corporate Crime Reporter). Before the company agrees Henadi Al-Saleh Chairwoman to the settlement in 2017, the U.S. Government has put Agility on its blacklist. Agility's CEO happens to be a current board member of the troubled The Sultan Center. The four members remained part of Agility's board of directors for the past Tarek Al-Sultan Vice-Chairman & CEO thirteen years, participating in the restructuring of the company's business away from the U.S. Government contracts (Agility). • Overestimating plans, falling shortly behind projected outcomes - In March Faisal Al-Sultan NREC Representative 2016, Agility published a document showing its plans to have ten Africa Distribution Parks by 2017, with incremental increases of 10, 15, 15, and 20 in the following Sultan Al-Sultan Non-Executive years, reaching 70 parks by 2021. However, until this day, the company has reported the opening of only one park in Ghana, falling shortly behind its target for 2017 by nine parks (Table 6). Though the company has announced that it was in the final Ayman Al-Sultan Non-Executive stages of securing USD 800 Million in bank loans for financing the Reem Mall in 2016 (The National), Agility has ended up with signing just USD 457 Million credit facility 3 Table 5: U.S. Prime Vendor Deal Involved in late 2017 through the consortium of the three companies (Agility). Later, UPAC Members (Source: Agility) has announced securing KWD 50.1 Million credit facility (UPAC), increasing the total secured amount to approximately USD 623 Million. Both loans are waiting for Tarek Al-Sultan implementation as the companies meet requirements of the banks. The company is still in short of USD 177 Million for completing the financing of the project. That adds Ayman Al-Sultan a potential delay to the previous subsequent delays in capital spending reported by Agility. • Previous ongoing legal conflicts have harmed Agility's reputation and alerts of Adel Al-Bader potential losses - Besides the U.S. Prime Vendor Deal, Agility is having disputes with a few governments and other parties. The company is unable to determine neither Nasser Al-Rashed its investment's fair value in Korek Telecom “Korek” nor the recoverability of its loan to the same firm because of its ongoing conflict with the Iraqi Government Table 6: Africa Distribution Park Schedule (Agility). Agility invested around USD 380 Million in Korek and gave the company a (Source: Agility) loan of KWD 35.6 Million. The company is engaged in a legal dispute with the Kuwaiti Government-Owned Touristic Enterprises Company “TEC” over the 2016 5 ADPs (+5) Discovery Mall through its subsidiary UPAC. TEC accused UPAC of using the property without legal rights. The first-degree court issued a rule in favor of TEC (UPAC). Table 7 shows other ongoing disputes of Agility. 2017 10 ADPs (+5) Industry Overview and Competitive Positioning 2018 20 ADPs (+10) Growth in E-commerce, increasing consumer demands, and the constant innovation of new technologies are creating a more relevant supply chain. E-commerce growth has 2019 35 ADPs (+15) made purchases immediate and deliveries quicker, as retailers now offer overnight shipping. This has caused shippers to look for more efficient supply chains and data collection systems which is provided by the 3PL industry. Shippers are then able to steer 2020 50 ADPs (+15) their focus on core operations increasing efficiency and reducing operational costs. Retailers and manufacturers are taking advantage of the warehousing services a 3PL 2021 70 ADPs (+20) provides to reduce their inventory freeing up their capital and allowing them to be more flexible to meet ever-changing consumer demands. Agility’s three main customers are: (1) Shippers, (2) Manufacturers, and (3) Retailers. Demand Drivers Table 7: Previous and Ongoing Legal Disputes • Increased demand for reducing shipping costs is fueling the Third-Party (Source: Agility) logistics “3PL” industry – Shippers are struggling to manage their fleets since it has become difficult for them to cut transportation costs (Figure 4). 3PL providers can aid them, as they possess advanced technology, better experience, and established relationships in the field. 68% of shippers were reported to have elicited the help of Iraqi Investment in 3PL providers, with that expected to increase to 73% this year (3PL Study 2018). Ongoing Government Korek Shippers have indicated that the two most outsourced services last year were domestic transportation and warehousing (Figure 5). Several companies have also turned towards 3PL providers as managing the supply chain has become progressively complex. Touristic • Growth of e-commerce offers ample opportunity for 3PL providers – The rapid Discovery Enterprises Ongoing Mall growth of e-commerce is expected to increase demand for warehousing with Company advanced IT and software solutions (3PL Study 2018). As online retailers increase the volume of their inventory to match increased demand, they would look for warehousing to match the volume increase. 3PL providers are ideally situated to Brazilian match the rise in inventory volume by providing both warehousing and distribution Competition Ongoing services. It is financially viable for online retailers to outsource their logistics Authority requirements as it is a capital-intensive operation. It is beneficial for retailers to tap Freight- into the advanced technology, and established relationships that a 3PL company Forwarding Investigation provides since many online businesses have geared towards a business model free Italian of inventory (3PL Study 2018). Online retailers also benefit from the transfer of any Competition Closed risk associated with the logistics operation to the 3PL provider. Authority Recent trends • IT development and technological advances would lower operational costs – With the further advances in the cloud computing market, 3PL providers are Kuwait and Gulf Interference positioning themselves to benefit from these developments. This technology Link Transport with KGL and Ongoing enables 3PL providers to manage better the extensive data collected from their Company “KGL” U.S. Contracts operations, allow customer access to their systems, and develop a more efficient business model. Investments in advanced software are increasing as a means General towards enhanced supply chain management. With sophisticated software firms Administration Guarantee would be able to reduce errors and inconsistencies, lower delivery time, improve Ongoing of Customs for Encashment customer satisfaction, and cut operational costs (Figure 6). Kuwait “GAC” • Usage of blockchain technology could create a future competitive advantage – The technology is still in its development stage; further improvements will be made. 4 Each movement is broken down into blocks and records a transaction the moment Figure 4: Top Problems Facing Shippers a shipment changes hands. The transaction is recorded by an independent third (Source: 3PL Study 2018) party creating a record for the parties involved. Access to the blocks is granted to 70% 63% every side, and approval required from all those involved to modify a transaction, increasing security. Blockchain creates one version of the truth. Retailers would be 60% able to carefully monitor their inventory levels, leading to dynamic supply chains. 50% Shippers would be able to enhance data analysis increasing visibility in the supply chain. 3PLs are currently in the beginning stages of either examining or 40% 32% 31% implementing the technology, as it has the potential to create a competitive 30% 20% 20% 22% advantage in the future. 20% Economic Analysis 10% • Africa is an untapped yet risky prospect for 3PL providers – Many 3PL companies, 0% agility included, are aiming for future growth in Africa as it is an unexploited region; however, several complications arise. It is made up of 50 countries with little to no connectivity between them. Development levels and terrains vary significantly between countries, which makes it difficult to construct an infrastructure that connects the region. Although the Eastern and Southern parts of Africa have proper air infrastructure in place, security concerns must be addressed otherwise air freight will not commence. These issues have made it difficult for logistics to be efficient. For example, with an efficient port, containers take 2-3 days to exit the port when unloaded. In Sub-Saharan Africa, the average time for containers is 14 days Top Problems Facing Shippers (PwC). With wages rising in China, Africa’s cheaper labor may prove to be enticing. Competitive Positioning – Agility is a market leader in the Asia Pacific and Middle East region as they are the largest 3PL provider operating in this area. They have two primary Figure 5: Most Outsourced Services by businesses, Logistics & Related Services along with Commercial Real-Estate. Shippers (Source: 3PL Study 2018) • Troubling Liquidity position – There is a significant disparity between Agility’s 90% liquidity position and their competitors. The company can barely cover their current 80% 80% financial obligations, which is a cause for concern. They have maintained a low liquidity position for the past five years, with an average current and quick ratio of 70% 66% 60% 1.08 and 1.04 respectively. Their liquidity position may instigate imminent 60% 48% difficulties if they are to raise capital through debt. With their focus on expanding 50% 45% their Commercial Real-Estate business, any increase in overhead may degrade their 40% liquidity further. 30% • Concentrated market presence in the Middle East and Asia-Pacific – Most of 20% Agility’s presence is in the Middle East and the Asia regions. This has aided them to 10% become the leading 3PL provider in both areas (Figure 7) as Agility’s competitors have a lower presence in these regions. Their focus continues to be on expanding 0% operations as they aim to further control the market share to establish a greater presence. They recently invested USD 7.5 Million in expanding their GCC fleet purchasing 95 new Mercedes-Benz Actros (Arabiansupplychain). These trucks would be used to expand both their domestic and cross-border trucking in the GCC. Agility has recently invested USD 10 Million in expanding a Bahrain logistics hub, creating an improved network for their GCC operations. Agility’s continued expansion of its Commercial Real-Estate business in these regions would further increase their presence in these regions. Most Outsourced Services by Shippers • Focused on digitizing their supply chain management to reduce cost of revenues – Agility has recently deployed MicroTransport which is a Transport Management System (TMS). This system provides precise monitoring and tracking of vehicles, Figure 6: Top Technology Demanded by decreasing downtime and offers transparency and visibility of goods to customers. Shippers (Source: Datex) They also offer a customer portal to trace and track shipments through a mobile app. 72% Freight forwarding services can be booked online along with receiving a quote on 71% the service needed. These, however, have already been implemented by the 70% industry. 69% 68% 67% Investment Summary 66% We issue a Sell recommendation on Agility Public Warehousing Company (AGLTY) with 65% a target price of KWD 0.735 (15% discount on market price) using mainly a Discounted 64% Cash Flow Analysis in deriving Agility's estimated intrinsic value. The results of the 63% Relative Multiples Analysis we have conducted supports our Discounted Cash Flow- based recommendation. The Dividend Discount Model is inappropriate in Agility's case as the company is maintaining its low payout ratio of 13.37% for the next five years (Agility). Several concerns support our valuation, taken into consideration: Future growth constrained by the management's commitment to its plans - Agility's focus on the delayed Reem Mall is negatively affecting other significant projects. The fact
5 Top Technology Demanded by Shippers Figure 7: Non-Current Assets Regional the company is still in short of USD 177 Million for financing the project, possess a Distribution (Source: Agility) potential delay in capital spending for the remaining two projects. Hence, a considerable negative impact is expected on the company's financial performance and share price. Concentrated Cap. Ex. on a delayed project is hindering the company's Free Cash Flow - The intensive Cap. Ex. approach Agility is taking is expected to impede the Free Cash Flow to the firm as the exponential Cap. Ex. is not likely to be offset by desired returns until 2021 when Agility is expected to start operating the Reem Mall. That is expected to impact the firm's price per share negatively. Expected trends in ROC and WACC suggest Agility should be trading at a discount - Agility has historically recorded a low ROC, and the trend is expected to continue. The firm's estimated ROC for the period from 2017 to 2022 recorded a minimum of 6% and a maximum of 7.6%, while the estimated WACC for the same period has recorded a minimum of 8.7% and a maximum of 9.01% (Table 8). Currently, the company is trading Middle-East Asia Europe at a premium relative to its estimated intrinsic value. Therefore, we expect the market Americas Africa to correct its price, dropping to the firm's estimated intrinsic value.
Financial Analysis Ratios 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Profitability ratios Gross Margin 31.2% 34.8% 33.3% 32.7% 33.1% 33.3% 33.5% 33.5% Operating Margin 4.2% 5.4% 6.6% 6.2% 6.3% 6.0% 5.6% 5.3% Net Margin 4.1% 4.8% 4.8% 4.5% 4.6% 4.3% 4.0% 3.9% ROA 3.3% 4.0% 5.2% 5.0% 4.7% 4.5% 4.4% 4.1% ROE 6.0% 6.5% 7.3% 7.1% 7.5% 7.0% 6.7% 6.2% ROC 4.9% 6.0% 7.6% 7.3% 6.7% 6.4% 6.3% 6.0%
Leverage ratios Debt-To-Equity 0.09x 0.16x 0.23x 0.42x 0.45x 0.41x 0.37x 0.32x Interest Coverage Ratio 9.53x 8.47x 8.75x 5.45x 5.74x 5.37x 5.82x 6.18x
Liquidity ratios Current Ratio 1.01x 0.99x 0.98x 0.97x 0.98x 1.01x 1.02x 1.12x Quick Ratio 0.98x 0.95x 0.95x 0.94x 0.95x 0.98x 0.99x 1.08x
Efficiency ratios Days Sales Outstanding 67.1 days 71.3 days 80.8 days 80.8 days 80.8 days 80.8 days 80.8 days 80.8 days Days Payable 159.1 days 180.2 days 167.5 days 166.6 days 167.1 days 167.1 days 167.1 days 167.0 days Outstanding PP&E Turnover 3.09x 2.47x 2.46x 2.46x 2.25x 2.02x 1.85x 1.85x Total Asset Turnover 0.89x 0.80x 0.83x 0.78x 0.79x 0.81x 0.85x 0.85x
Table 8: Estimations of ROC and WACC from The table above depicts Agility’s financial status for the projected years. We agreed 2015 2017 to 2022 to be the starting point to depict a trend of Agility’s financial condition before the forecasted years. It is clear Agility is now focused on its Commercial Real-Estate business. This trend has continued since 2010 where its logistics sector had more assets, ROC WACC however, that has changed in 2016 with the majority of assets invested in Real Estate. • Agility’s Commercial Real-Estate business would drive future performance – Agility’s revenues have seen a supernatural growth the previous year with a 10.5% 2017E 7.6% 9.01% increase from Q1-Q3 (2016) to Q1-Q3 (2017). Air tonnage has grown by 16.1%, and ocean TEUs by 12% since last year (Kuwait Times). Their contracts with partnered carriers are up for renewal soon (Agility) and we believe it would increase their cost 2018E 7.3% 9.02% of revenues due to higher freight forwarding rates and fuel surcharges. The forecasted growth in revenues is based mainly on the performance of Agility’s Commercial Real-Estate business which includes revenues from Reem mall. Net 2019E 6.7% 8.69% income is expected to decrease as growth catalysts are not evident, even the opening of Reem mall in 2021, we believe, would not act as a catalyst for growth due to the 2020E 6.4% 8.82% recently opened Al Mariah Mall. Al Mariah Mall is considered to be Agility’s Reem Mall competitor as it is approximately 3 KM. • Change of strategy would lead to lower margins – Agility’s operating and net 2021E 6.3% 8.87% margins remain near industry average despite their favorable gross margin. Agility’s recent focus on expanding their Commercial Real-Estate business increases operating costs as it is a capital-intensive investment. Net margin is forecasted to 2022E 6.0% 8.92% decrease as interest payments for the financing of Reem Mall would commence. The expected implementation of the VAT (GCC) may further decrease returns. 6 Figure 8: Cost of Revenues to Revenues • Expansion plan focused on Commercial Real-Estate – Tightened capacity and (Source: Team Calculations and higher freight forwarding rates coupled with the strong performance of Agility’s Estimations) Commercial Real-Estate business has encouraged Agility to steer focus away from 76% their logistics services. Investments in Commercial Real-Estate have exponentially increased to capitalize on its current steady performance and future potential. Their 73.9% 74% assets in 2010 were mostly in logistics with 70.1%, and continued to decrease to reach 42% in 2016. Agility’s three main projects are all part of their Commercial 71.9% 72% Real-Estate business. With this expansion plan we have forecasted a decrease in 71.1% PP&E turnover until 2020 as we expect Agility to cut back on their investments when Reem mall operates. 70% 68.8% • Effect of Technological advances decreased by venture towards becoming a 67.8% 4PL company (Appendix G) – Agility have managed to decrease cost of revenues 68% significantly since 2012 (Figure 8). The decrease has been caused by them digitizing and automating their supply chain management. Its recent focus on expanding their 66% 65.2% Commercial Real-Estate business would increase costs since it is a labor and capital- intensive investment. The Digitization and Automation of Agility’s operations would 64% be implemented to their new expansion plan, however, the costs incurred would lower the cost-savings registered by technological investments. We are forecasting 62% a decreasing cost of revenue to revenue ratio, but not comparable to the rapid decline experienced in the previous 5 years. 60% 2012 2013 2014 2015 2016 2017 Valuation Cost of Revenues to Revenues Discounted Cash Flow Analysis - A Discounted Cash Flow Analysis was used in deriving the estimated intrinsic value of Agility due to the predictability of cash flows concerning growth and changing capital structure of the company. The model is forecasted for five Table 9: Estimations of Adjusted WACC from years, mainly to validate the firm's goal of reaching USD 800 Million in EBITDA by 2020 2018 to 2022 and the planned growth in the Commercial Real-Estate business through financing the company's significant projects by injecting USD 1.5 Billion in debt for the next five years. Adjusted As a proxy for the model, we have used the Operating Income after adjusting it by WACC WACC deducting the Non-Operating Income Agility includes every year in the reported amount to fairly reflect the operating performance of the company. The Operating Income for Agility represents the Net Revenues of Freight-Forwarding and Logistics, Rental, and 2018E 10.71% 9.02% Other Services Less the Repairs and Maintenance and other Op. Ex. To forecast the model, we have relied on the company's historical performance, the industry and economy outlook, an assessment of the board of directors and management track 2019E 10.32% 8.69% history, transparency and complexity levels of the company, and the management's guidance on revenues, plans, and significant projects. Our model is most sensitive to the 2020E 10.48% 8.82% following factors: Weighted Average Cost of Capital – We used multiple WACCs in the model to reflect the effect of the changing capital structure for the firm. The Gross Debt Ratio was used 2021E 10.54% 8.87% as a proxy for the capital structure of the company. We adjusted the calculated WACC for an estimated Cost of Complexity for Agility. The minimum adjusted WACC is 10.33%, and the maximum is 10.71% for the forecasted period from 2018 to 2022 (Table 9). The 2022E 10.59% 8.92% adjusted WACC is delicate to the Beta, Cost of Equity, Cost of Debt, and Cost of Complexity explained as follows: • Beta - To reach a Beta for Agility, we calculated a Bottom-Up Beta for the company Table 10: Estimations of Levered Bottom-Up Beta using a benchmark that consists of ten companies "the Bench," including Agility's from 2018 to 2022 Main Competitors (Agility; Appendix H). We used Bloomberg Terminal to get the benchmark's Levered Betas. We took the Median Levered Beta for the Bench, un- Levered Gross Debt Bottom-Up levering it using the Medians of the Gross Debt Ratio (9.2%) and the Effective-Tax Ratio Beta Rate (36.8%) for the same benchmark. We then levered back the Median Un- Levered Bottom-Up Beta of the Bench (0.78) using Agility's changing Gross Debt 2018E 0.95 25.2% Ratio and constant Effective-Tax Rate (11.8%), resulting in a Levered Bottom-Up Beta for the company that reflects the changing capital structure of the firm. The calculated Bottom-Up Beta is expected to range from a minimum of 0.92 and a 2019E 0.96 26.5% maximum of 0.96 for the forecasted period from 2018 to 2022 (Table 10). • Cost of Equity – The Capital Asset Pricing Model was used for the calculation of the Cost of Equity, using Kuwait's 10-Years Bond Rate (3.0%) that is adjusted to the 2020E 0.95 24.7% country's default spread (0.6%) as Risk-Free Rate (2.4%). For the Equity Risk- Premium, we used Agility's last reported revenues break down by region and the company's operating countries to reach a Weighted Average Equity Risk-Premium 2021E 0.94 22.8% for Agility (8.2%). Equity Risk-Premium data was pulled from Professor Aswath Damodaran database as of February 1, 2018 (Appendix I). Using the estimated 2022E 0.92 20.6% Bottom-Up Beta for each forecasted year, we estimated Agility's Cost of
7 Table 11: Estimations of Cost of Equity from 2018 Equity for the period from 2018 to 2022, resulting in a minimum of 9.9% and a to 2022 maximum of 10.3% for the period (Table 11). • Cost of Debt – We calculated the Cost of Debt for (1) USD 457 Million taken through the consortium, (2) KWD 50.1 Million taken through UPAC, and (3) an expected USD Cost of Equity ROE 177 Million in 2019 for completing the financing of the Reem Mall. For loans in USD, we used a U.S. 7-Years Treasury Bond Rate (2.58%) Plus an A3/A- Synthetic Rating Bond Spread of 1.25% that was estimated using the expected Interest Coverage 2018E 10.2% 7.1% Ratio of Agility in 2020 using Synthetic Ratings from Professor Aswath Damodaran database for both loans. We added an anticipated increase in the Federal Funds Rate 2019E 10.3% 7.5% of 130 basis points in 2019 using the median projections of the Fed's Dot Plot (Bloomberg; Appendix J) to the expected loan of USD 177 Million. For the loan in KWD, we used the Central Bank of Kuwait discount rate (2.75%) Plus the same 2020E 10.2% 7.0% A3/A- Synthetic Rating Bond Spread of 1.25%. For the old portion of the debt, we estimated it as a straight line with a constant Pre-Tax Cost of Debt. We then calculated the total Cost of Debt by dividing the total Interest Expense by the average 2021E 10.1% 6.7% Total Debt, reaching a Pre-Tax Cost of Debt for each forecasted year. The Pre-Tax Cost of Debt was adjusted to Agility's constant Effective-Tax Rate as we could not forecast the VAT of the Middle-East due to lack of available information from Agility. 2022E 9.9% 6.2% The minimum After-Tax Cost of Debt is 4.3%, and the maximum is 5.5% for the period from 2018 to 2022 (Table 12). • Cost of Complexity - Agility's transparency is low, and the company's business Table 12: Estimations of After-Tax Cost of Debt structure is complicated. The firm provides no valuable material on its significant from 2018 to 2022 projects or detailed information about its business operations. Agility reports overestimated numbers in the Operating Income and EBITDA by adding accounts After-Tax Cost Pre-Tax Cost that should not be included in the operating level such as the Non-Operating Income. of Debt of Debt For that, the company should have a cost for its complexity. We estimated the Cost of Complexity for Agility to be 18.8%, using it to adjust the company's WACC for the 2018E 5.5% 6.2% complexity of the firm (Appendix K). Revenues Growth – Historically, Agility's revenues were mainly from the Logistics & Related Services business, while the future is expected to depend more on the revenues 2019E 4.3% 4.9% from the Commercial Real-Estate business. To assume a Revenues Growth Rate for Agility, we forecasted Agility's fourth quarter in 2017 using a 4-Quarters Compounded Growth Rate from 2016 Q4 to 2017 Q3 (Figure 9). We then estimated the Compounded 2020E 4.7% 5.3% Annual Growth Rate from 2016 to 2017 (12.3%; Figure 10). • Significant Projects' Anticipated Revenues - The company had fallen short behind its plans for the Africa Distribution Park by nine parks. We could not find any 2021E 4.8% 5.5% valuable material regarding the ADP, i.e., location, time, cost, or other publicly available information about the next park. Riyadh Logistics Park is estimated to take 2022E 5.0% 5.6% around five years in construction. There is an expected delay in capital spending for the two significant projects because of the financing of the delayed Reem Mall. Therefore, we were not able to forecast the anticipated revenues from the Africa Distribution Park and Riyadh Logistics Park projects. However, we forecasted the Figure 9: 4-Quarters Compunded Growth of 4.4% (KWD'000, Source: Team revenues from Reem Mall based on available information on Abu Dhabi retail real- Calculations) estate and other information from comparable malls in the city (Abu Dhabi Real- Estate Market Overview Q3 2017; Table 13). 370,000 • Terminal Growth – The 3PL industry would continue to improve, and freight- forwarding rates would become flat. Agility's transitional face is expected to 360,000 obstruct its growth. Therefore, Agility's revenues growth is expected to slow, 350,000 declining every year until it reaches a terminal growth rate that is equal to the weighted average of 6-Years 3PL industry CAGR from 2010 to 2016 (2.5%). 340,000 Relative Multiples Analysis – Agility has consistently earned lower returns on capital and maintained low payout ratio relative to the benchmarks medians (Figure 11). The 330,000 historical trend of the fundamental determinants of the P/E and EV/EBITDA is expected to continue for Agility. Therefore, deriving a target price for Agility's share through a 320,000 Relative Multiples Valuation would not fairly reflect Agility's expected share price. Instead, we analyzed the P/E and EV/EBITDA multiples (Appendix L). We concluded 310,000 that Agility would continue trading below its benchmark which supports our Discounted Cash Flow-based recommendation, as we noticed the following: 300,000 • Historically, high P/E companies have had strong Payout Ratio that allowed those companies to continue trading at a high Price to Earnings multiple. 290,000 • High EV/EBITDA requires a high ROC. The companies that were continually trading 2016 Q4 2017 Q1 2017 Q2 2017 Q3 above the benchmarks have recorded historically strong ROC, supporting their high Revenues EV/EBITDA multiple. On the other hand, companies with low ROC were mainly trading below the benchmarks.
8 Figure 10: Historical and Forecasted • Agility scored mediocre in all categories of the Relative Multiples Analysis, mainly Revenues (KWD'000, Source: Agility, and leaning towards the lower of the benchmarks. Team Estimations)
2,500,000 Impact and Application Our Sell recommendation is based on the analysis that the market has overpriced Agility's future growth expectations by underestimating the firm's risk and understating 2,000,000 the time-frame of Agility's expansion. Key Assumptions – Our analysis of Agility is based on several assumptions, including (1) Debt injection (Appendix M), (2) Cost reduction (Appendix N), and (3) Adjustments to Income Statement and Balance Sheet (Appendix O and P): 1,500,000 • We injected only Reem Mall's portion of the planned debt injection. Injecting the rest amount would hinder Agility's financial position as we could not forecast the anticipated returns from future projects due to reasons stated in the point of 1,000,000 "Significant Projects' Anticipated Revenues" in the Valuation section of this report. • We expected Agility's investment in technology to continue reducing its costs. Though, we believe it would not reach historical reductions in costs for the following 500,000 reasons: (1) Revenues were declining for the past five years, doubling the reductions in costs, (2) The firm has recorded slight growth in its costs proportionally to revenues in the first 9-Months of 2017 (66.3%) compared to 65.5% for the same period of 2016, and (3) Expansion of its Commercial Real-Estate business is a labor 0 and capital intensive investment.
2012 2013 2014 2015 2016 • We adjusted the reported Operating Income by removing the Non-Operating Income 2017E 2018E 2019E 2020E 2021E 2022E Agility includes in the account. We deducted the Directors' Remuneration from the Historical and Forecasted Revenues Earnings Before Tax, Depreciation, and Amortization (EBITDA). We decomposed the Selling, General, and Administrative Expenses to Repairs and Maintenance, and Other Selling, General, and Administrative Expenses to better reflect the future growth in fixed assets expenses. We broke down Trade and Other Payable into two Table 13: Assumptions Used in Forecasting separate accounts. We used the company's notes in our adjustments to make sure Reem Mall Revenues (Source: Abu Dhabi Real- the reported numbers would not be affected by such modifications. Estate Market Overview, Reem Mall, Yes Mall, SKI Dubai) Principal Risks to Scenario – Our recommendation would shift to buy in the event of (1) Speeding up the construction of Reem Mall and Riyadh Logistics Park, (2) Securing Reem Mall Rentable the rest amount of the debt injection and pumping it into the other two significant 190,000 SQM Area projects, (3) Revealing new positive information about the Africa Distribution Park project, (4) Applying significant changes to Agility's board of directors and transparency Abu Dhabi Average KWD 245.7 policies, and (5) A higher than expected 3PL industry growth rate or unprecedented Retail Rent improvement in technology.
Abu Dhabi Average 2% Mall Vacancy Rate Investment Risks Agility has (1) Regulatory, (2) Financial, (3) Market, (4) Geopolitical, and (5) Legal Risks, Abu Dhabi Average Parking Lot Price per KWD 0.16 explained as follows (Figure 12): Hour • Regulatory Risks Average Daily Visitors Changing Policies (RR1) - Major changes in regulations, policies, technical standards, 54,794 to Yas Mall and trade deals are happening internationally, especially in emerging market regions where Agility is expanding. SKI Dubai Average KWD 13 Economic Reforms (RR2) - Several GCC countries have imposed the Valued Added Tax Ticket Price (VAT) as the first step towards implementing a comprehensive tax program. Remaining Average Daily Visitors countries are imposing it soon after they have signed the GCC VAT Agreement. Several 1,500 to SKI Dubai countries, including Kuwait, UAE, Saudi Arabia, and Egypt have increased gas and energy prices. Further increases and subsidy cuts were announced by some of those countries. Figure 11: Agility's Historical Average of • Financial Risks ROC and Payout Ratio Compared with Average Median of Benchmark and Main Interest Rates Risk (FR1) - Global markets are at an increasing interest rate Competitors (Source: Bloomberg, Wall environment with the Fed's Dot Plot median increase projections for 2019 set at 1.3% Street Journal, and Team Calculations) over the current Federal Funds Rate of 1.5%. In 2016, Agility's floating interest rate loans amounting to KWD 50.7 Million carried a margin ranging from 0.8% to 4.8% over benchmark rates of the respective currency facility. Agility's debt in U.S. Dollars acquired 78.9% from the firm's total debt in 2016, amounting to KWD 110 Million. Agility is Payout Ratio planning to inject USD 1.5 Billion in the next five years. Liquidity Risk (FR2) - The company's estimated Current and Quick Ratios for 2017 are 0.98x and 0.95x respectively. However, the company announced it would move into a net debt position in the next five years. • Market Risks ROC Emerging Market Operations Risk (MR1) - Agility operates mainly in emerging markets. In 2016, 75% of the company's revenues came from emerging markets. Agility plans to expand its presence in Africa. The region is yet untapped and lacks proper connectivity and infrastructure. Africa acquired 8.1% of total revenues in 2016. 0% 10% 20% 30% 40% 9 Main Competitors Benchmark Agility Figure 12: Risk Matrix Exchange Rate Risk (MR2) - Agility operates in 100 countries. That does expose the firm to a high Exchange Rate risk as part of the revenues and costs incurred in foreign Minor Moderate Significant currencies must be exchanged to Kuwaiti Dinars. Commodity Risk (MR3) - Oil prices affect Agility on four fronts. Refer to Appendix Q. • Geopolitical Risk IMPROBAB MR1 Political Risk (GR) - Agility operates in many of the highly corrupt and highest impacted LE GR1 countries by terrorism in the world (Appendix R and S). Several actions that were done by official and other parties of emerging market countries have caused international investors panic, i.e., (1) The mass arrests of businesspeople in Saudi Arabia, and the managerial control takeover of BinLadin Group by the Saudi Government (Reuters), (2) MR3 POSSIBLE RR1 LR1 The GCC crisis, (3) The Egyptian Government asset freezing behavior, and (4) The expansion of Boko Haram terrorist group in Africa. • Legal Risk Potential Loss Risk (LR) - Agility filed an arbitration for its dispute with the Iraqi Government. As a possibility, Agility might lose the arbitration. Therefore, the company RR2 PROBABLE MR2 FR2 FR1 would lose its investment in Korek amounting to USD 380 Million (approximately) and its loan to the firm amounting to KWD 35.6 Million. Agility might pay additional fines because of its other ongoing legal disputes.
10 Appendix A: Agility Core Business Break Down Figure A: Revenues by Segment (1) Global Integrated Logistics “GIL” – GIL is Agility’s core commercial business. (KWD'000, Source: Agility) GIL offers air, ocean and freight forwarding, warehousing, distribution, and specialized services in project logistics, fairs and events, and chemical logistics. GIL acquires 86.3% of Agility’s total revenues (Figure A). The group constitutes 23 of the firm’s 28 subsidiaries. 139 (2) Agility Infrastructure – Agility Infrastructure is the supporting arm for the GIL business, offering logistics-related services. Agility Infrastructure offers real- estate management, e-government customs optimization and consulting, waste management and recycling, aviation and ground-handling services, support to governments and ministries of defense, and remote infrastructure and life support. Agility acquires 13.7% of Agility’s total revenues (Figure A). The group constitutes 5 of the firm’s 28 subsidiaries denoted with (*) on the next table. 882 Name of Company Ownership % as at 31 Country of Incorporation December 2016 PWC Transport Company 100% State of Kuwait W.L.L. Agility DGS Logistics Services 100% State of Kuwait K.S.C.C. Global Integrated Logistics Gulf Catering Company for 100% State of Kuwait Agility Infrastructure General Trading and Contracting W.L.L. * The Metal and Recycling 66.48% State of Kuwait Company K.S.C.P. (“MRC”)* Global Clearing House Systems 60.60% State of Kuwait K.S.C.C.* National Aviation Services 95% State of Kuwait Company W.L.L.* United Projects Company For 92.63% State of Kuwait Aviation Services K.S.C. P* Tristar Transport L.L.C. 80% United Arab Emirates Agility Logistics L.L.C. 100% United Arab Emirates Agility Abu Dhabi P.J.S.C. (Note 49%% United Arab Emirates 3) Agility Logistics Corp. 100% United States of America Agility Project Logistics Inc. 100% United States of America Agility Company L.L.C. 100% Saudi Arabia Agility Logistics Private 100% India Limited Agility Logistics GmbH 100% Germany Agility Logistics Limited 100% Hong Kong Agility Logistics International 100% Netherland B.V Agility International Logistics 100% Singapore Pte Ltd. Agility Logistics Holdings Pte 100% Singapore Ltd. Agility Logistics Limited 100% United Kingdom Agility Do Brazillogistica 100% Brazil Internacional S.A. Agility Project Logistics Pty Ltd. 100% Australia Agility Limited 100% Papua New Guinea Agility Logistics (Shanghai) Ltd. 100% China Agility Logistics AG 100% Switzerland Agility Spain SA 100% Spain Agility AB 100% Sweden Agility Company Ltd 100% Thailand
11 Appendix B: Stock Price & News Flow
Appendix C: Africa Distribution Park Target Locations (Source: Agility)
Appendix D: Africa Distribution Park Target Locations (Source: Agility)
12 Appendix E: Porter’s Five Forces (Figure B) Threat of New Entrants—High Figure B: Porter's Five forces Entry barriers are low since the industry’s customers and suppliers are potential new market entrants for 3pl providers. Threat of new For example, Amazon now has a fleet of cargo planes and is entrants planning on building an airport hub to exert greater control over 5 their shipping and delivering operations. 4 Threat of Substitute products—Low 3 The two main substitutes for 3pl providers are 4pl providers and Bargaining Competition 2 conventional shippers and Freight forwarders. The former is not power of in the yet a developed industry with no real 4pl providers, and the suppliers 1 industry latter is opting to outsource to 3pl providers to cut 0 transportation costs. Bargaining power of buyers—High Due to both low differentiations between the 3pl providers and Bargaining low switching costs, buyers exert greater bargaining power over Threat of power of substitute 3pl providers. Furthermore, shippers can also decide to insource customers parts or all the logistics operation rather than outsource. Buyers can also opt to use the services of conventional shippers rather than 3pl providers, as they are price sensitive and have an array of options to choose from. Bargaining power of suppliers—Low Since there is an abundance of suppliers and switching costs are Figure C: S.W.O.T Analysis low for 3pl providers, they are chosen based on their Total differentiated price. 3pl providers are also educated buyers as Strengths they have experience in the logistics industry, hence can 80 determine which price offers greater value for them. There is 60 always the threat of forward integration by suppliers, however, seeing as 63% of shippers stated that the greatest challenge they 40 face is reducing transportation costs, that risk isn’t a probable 20 Total one. (2016 3pl study). Total Threats 0 Competition in the Industry—High Weaknesses Low differentiation, low barriers to entry, and the presence of large global players like FedEx make the 3pl industry a highly competitive one. This makes it increasingly difficult for firms to increase market share as competition is based on both price and quality of service, which makes it easier for customers to switch Total between 3pl providers. Opportunities
Appendix F: S.W.O.T Analysis (Figure C)
INTERNAL FACTORS
STRENGTHS (+) WEAKNESSES (-)
• Experience in emerging markets • Brand recall not as strong as the leading global 3pl providers. • Concentrated presence in the Middle East, • Weak presence in developed markets. • Infrastructure portfolio consists of subsidiaries operating under own • Poor liquidity position compared to the industry average management and brand name. • Operates as a Non-Vassal Operating Common Carrier (NVOCC), freight • Provides end-to-end logistics services. forwarding rates of partnered carriers is out of its control. • Advantageous gross margin offers Agility flexibility in pricing. • Contract rates with partnered carriers may fluctuate, doesn’t allow Agility to take advantage of economies of scale • Funding of Reem mall may ruin future withdrawal of debt for two other delayed projects (ADPs and Riyadh Logistics Park).
EXTERNAL FACTORS
OPPORTUNITIES (+) THREATS (-) • Planned ADPs can create value for Agility as Africa remains an • Shifting competitive landscape as 3pl customers, such as online untapped region providing future promise for 3pl providers retailers, may aim to manage their own supply chain. • Weak competition in the Middle East for Agility, allowing them to • Implementation of the VAT in the GCC would cut Agility’s net control infrastructure segment in the region. margin • Competitiveness low in the Middle East, may seem as an attractive expansion for 3pl providers. • Weak industry growth (2.8% CAGR 2010-16 Source: 2018 3pl study).
13 Appendix G: Difference Between a Third-Party Logistics “3PL” and Fourth-Party Logistics “4PL” (1) Third-Partly Logistics “3PL” – A 3PL provider offers both logistics and distribution services. They are integrated with partnered 2PL (Carriers) and 1PL (Shippers) firms to provide end-to-end logistics to customers. A 3PL provider differs from conventional freight forwarders by offering advanced data-driven technology to build a highly efficient logistics operation. 3PL providers specialize in: (1) Freight- Forwarding, (2) Customs Clearance, (3) Warehousing, (4) Distribution, (5) Cross-Docking, and (6) Inventory Management. (2) Fourth-Party Logistics “4PL” - A 4PL provider uses the logistics and warehousing services a 3PL provides to offer Supply Chain Management for clients. It manages the entire Supply Chain rather than a sole operation within it. With the help of 3PLs, 4PL providers offer these services to customers: (1) Distribution, (2) Storage, and (3) Procurement
Rank Third-Party Logistics Provider Revenue ($ Appendix H: Methodology Behind Picking the Benchmark Millions) Armstrong & Associates Inc. published this list ranking Global 3PL providers by revenue. Agility has mentioned three providers as competitors highlighted in yellow. We decided to use 10 companies to fairly represent a benchmark on which to compare Agility. We decided to include one Small-Cap firm, one Large-Cap firm, and five mid-cap firms. This, we believed, would give us a fair representation of the 3PL Global Industry. The other two Large-Cap providers, Expeditors & DSV, were included as Agility stated them to be competitors. The ranking of 3PLs table has no Public Small-Cap provider, so we chose a Small-Cap provider from Bloomberg’s list of competitors.
3PL Provider Market Cap (Billions)
Hyundai Glovis 0.49
Forward Air 1.807
Mainfreight 1.923
Hitachi Transport 3.07
Agility 3.15
Panalpina 4
Landstar 4.66
Nippon Express 6.89
Expeditors 11.542
JB Hunt 13.261
DSV 15.71
14 Appendix I: Equity Risk-Premium (Source: Professor Aswath Damodaran Database)
Equity Risk Premium by Operating Region as of February 1, 2018 Asia-Pacific 25.0% Europe 24.5% Americas 16.3% Middle East 26.1% Africa 8.1% Afghanistan - Austria 5.5% Argentina 11.4% United Arab 5.7% Algeria 12.6% Emirates Australia 5.1% Belgium 5.8% Aruba 6.9% Bahrain 10.3% Angola 11.4% Bangladesh 9.2% Bulgaria 7.3% Bolivia 9.2% Iraq 13.7% Egypt 12.6% Cambodia 11.4% Cyprus 9.2% Brazil 8.5% Jordan 10.3% Ghana 12.6% China 5.9% Czech Republic 5.9% Canada 5.1% Kuwait 5.7% Kenya 10.3% Guam - Denmark 5.1% Chile 5.8% Lebanon 12.6% Libya 13.4% Hong Kong 5.7% Finland 5.5% Colombia 7.3% Oman 7.3% Madagascar 11.4% India 7.3% France 5.7% Costa Rica 8.5% Qatar 5.8% Mauritius 6.9% Indonesia 7.6% Germany 5.1% Curacao 6.5% Saudi Arabia 5.9% Morroco 8.0% Japan 5.9% Greece 15.5% Dominican 9.2% Turkey 8.0% Nigeria 11.4% Republic Korea 5.7% Hungary 7.6% Ecuador 12.6% South Africa 7.6% Malaysia 6.5% Ireland 6.1% El Selvador 13.7% Tunisia 10.3% Maldives - Italy 7.3% Guatimala 8.0% Uganda 11.4% Nepal - Kazakhastan 7.6% Honduras 10.3% New Zealand 5.1% Lithuania 6.5% Jamaica 12.6% Northern Mariana - Netherlands 5.1% Mexico 6.5% Islands Pakistan 12.6% Norway 5.1% Nicaragua 11.4% Papua New Guinea 11.4% Poland 6.1% Panama 7.3% Phillipines 7.3% Portugal 8.0% Paraguay 8.0% Singapore 5.1% Romania 7.6% Peru 6.5% Sri Lanka 10.3% Russia 8.0% Trinidad and 8.0% Tobago Taiwan 5.8% Slovakia 6.1% United States 5.1% Thailand 6.9% Spain 7.3% Uruguay 7.3% Vietnam 10.3% Sweden 5.1% Venezuela 16.6% Switzerland 5.1% Turkmeinstan - Ukraine 15.5% United Kingdom 5.7% Region's Average 7.6% 7.0% 8.8% 8.5% 10.8% Region's Weighted 1.9% 1.7% 1.4% 2.2% 0.9% Average Equity Risk Premium Agility's Weighted 8.2% Average Equity Risk Premium
Appendix J: Fed’s Dot Plot (Source: Bloomberg)
15 Appendix K: Cost of Complexity (Based on Professor Aswath Damodaran Cost of Complexity Model)
Cost of Complexity Score Agility's Input Weighting Factor Agility's Score Operating income Multiple Buisnesses Number of Businesses 2 2 4 Multiplied by 2 Overestimation of Reported Amount YES = 5 YES 5 5 Tax Rate Volatility of Effective-Tax Rate Standard Deviation of 2.0% 1 0 Effective-Tax Rate Multiplied by 1 Capital Expenditures Cap. Ex. Volatility VOLATILE = 1 NOT VOLATILE 1 0 Working Capital Unspecified Current Assets and Current Liabilities YES = 4 YES 4 4 Working Capital Volatility VOLATILE = 2 NOT VOLATILE 2 0 Expected Growth Rate Off-Balance Sheet Assets and Liabilities (Operating Leases and R&D) YES = 3 YES 3 3 Return on Capital Volatility YES = 5 YES 5 5 Unsustainably High Return HUGE = 2, LOW = 1 NO 2 0 UNSUSTAIBLY HIGH RETURN
Cost of Capital Multiple Buisnesses Number of Businesses 2 2 4 Multiplied by 2 Emerging Markets Operations Percentage of Revenues 75.5% 5 3.8 from Emerging Markets Multiplied by 5 Marketable Debt NO = 3 NO 3 3 Rating for Agility NO = 3 NO 3 3 Off-Balance Sheet Debt (Operating Leases) YES = 5 YES 5 5 Transparency Availability of Information LOW = 5 LOW 5 5 Complicated Business Structure HIGH = 5 HIGH 5 5
Estimated Highest Complexity Score 53 Estimated Highest Cost of Complexity 20.0% Estimated Agility's Complexity Score 49.8 Estimated Agility's Cost of Complexity 18.8%
Appendix L: Relative Multiples Analysis
P/E Relative Analysis (Figure D; Source: Bloomberg, Wall Street Journal, and Team Calculations) Benchmark 2013 2014 2015 2016 2017 Average Average Payout Ratio 2017 Payout Ratio Expeditors 26.2x 24.7x 19.9x 22.8x 27.2x 24.2x 33.1% 34.2% JB Hunt 27.7x 28.1x 20.5x 25.9x 30.8x 26.6x 20.5% 11.1% Panalpina 299.0x 36.3x 30.5x 55.6x 51.5x 94.6x 211.0% 161.6% Landstar 18.2x 20.9x 17.7x 26.7x 29.4x 22.6x 19.3% 10.2% Hyundai Glovis 18.0x 20.4x 19.2x 11.5x 8.8x 15.6x 15.1% 22.3% Forward Air Corp 24.4x 26.4x 27.4x 38.8x 27.4x 28.9x 28.0% 29.6% Nippon Express 24.5x 15.3x 22.0x 14.7x 17.8x 18.9x 36.0% 30.0% DSV 18.4x 18.4x 23.1x 33.4x 35.9x 25.8x 16.4% 13.6% Hitachi Transport 12.3x 17.7x 22.0x 14.4x 13.7x 16.0x 28.4% 19.1% Mainfreight 17.0x 14.6x 18.7x 18.0x 22.3x 18.1x 37.6% 39.5%
Agility 15.6x 16.0x 10.3x 12.1x 17.6x 14.3x 15.0% 13.4% Benchmark median 21.4x 20.6x 21.2x 24.4x 27.3x 23.0x 26.1% 25.9% Main competitors 26.2x 24.7x 23.1x 33.4x 35.9x 28.7x 33.1% 34.2% median
Benchmark average 48.6x 22.3x 22.1x 26.2x 26.5x 29.1x 44.5% 37.1% Benchmark minimum 12.3x 14.6x 17.7x 11.5x 8.8x 13.0x 10.8% 10.2% Benchmark maximum 299.0x 36.3x 30.5x 55.6x 51.5x 94.6x 211.0% 161.6%
16
EV/EBITDA Relative Analysis (Figure E; Source: Bloomberg, Wall Street Journal, and Team Calculations) Benchmark 2013 2014 2015 2016 2017 Average Average ROC 2017 ROC Expeditors 12.8x 12.2x 10.1x 12.0x 14.6x 12.35x 21.2% 22.9% JB Hunt 11.8x 12.2x 9.1x 11.1x 13.2x 11.45x 20.7% 18.2% Panalpina 31.9x 16.1x 13.6x 20.0x 23.5x 21.04x 7.4% 9.2% Landstar 12.2x 14.2x 9.2x 13.7x 15.5x 12.96x 21.9% 22.1% Hyundai Glovis 12.6x 15.5x 9.3x 7.1x 6.2x 10.13x 11.0% 9.5% Forward Air Corp 11.2x 12.4x 12.2x 15.2x 11.8x 12.57x 11.4% 10.9% Nippon Express 17.8x 11.1x 14.5x 11.8x 13.6x 13.75x 4.3% 5.6% DSV 13.3x 10.8x 13.9x 16.1x 22.8x 15.38x 26.7% 24.8% Hitachi Transport 5.7x 6.6x 5.9x 7.1x 7.9x 6.64x 4.6% 4.9% Mainfreight 10.2x 9.5x 11.3x 11.0x 13.0x 11.00x 13.4% 23.5%
Agility 5.3x 5.7x 5.9x 6.4x 5.9x 5.84x 5.5% 7.6% Benchmark median 12.4x 12.2x 10.7x 11.9x 13.4x 12.11x 12.9% 14.5% Main competitors median 13.3x 12.2x 13.6x 16.1x 22.8x 15.61x 20.6% 22.9%
Benchmark average 14.0x 12.1x 10.9x 12.5x 14.2x 12.73x 14.3% 15.2% Benchmark minimum 5.7x 6.6x 5.9x 7.1x 6.2x 6.29x 3.9% 4.9% Benchmark maximum 31.9x 16.1x 14.5x 20.0x 23.5x 21.22x 27.3% 24.8%
ROC Relative Analysis (Source: Bloomberg, Wall Street Journal, and Team Calculations) Benchmark 2013 2014 2015 2016 2017 Average Expeditors 16.6% 17.8% 23.9% 24.9% 22.9% 21.2% JB Hunt 23.6% 21.7% 20.5% 19.4% 18.2% 20.7% Panalpina 1.9% 2.8% 13.1% 10.3% 9.2% 7.4% Landstar 22.3% 20.4% 22.6% 22.0% 22.1% 21.9% Hyundai Glovis 14.9% 11.3% 10.8% 8.5% 9.5% 11.0% Forward Air Corp 15.7% 13.1% 11.2% 6.3% 10.9% 11.4% Nippon Express 2.2% 3.8% 4.6% 5.2% 5.6% 4.3% DSV 28.3% 27.4% 31.1% 21.8% 24.8% 26.7% Hitachi Transport 4.3% 3.2% 5.2% 5.5% 4.9% 4.6% Mainfreight 10.9% 12.2% 10.8% 9.5% 23.5% 13.4%
Agility 4.6% 4.2% 4.9% 6.0% 7.6% 5.5% Benchmark Median 15.3% 12.7% 12.2% 9.9% 14.5% 12.9% Main competitors median 16.6% 17.8% 23.9% 21.8% 22.9% 20.6%
Benchmark average 14.1% 13.4% 15.4% 13.3% 15.2% 14.3% Benchmark minimum 1.9% 2.8% 4.6% 5.2% 4.9% 3.9% Benchmark maximum 28.3% 27.4% 31.1% 24.9% 24.8% 27.3%
17
Payout Ratio Relative Analysis (Source: Bloomberg, Wall Street Journal, and Team Calculations) Benchmark 2013 2014 2015 2016 2017 Average Expeditors 35.2% 32.9% 29.6% 33.5% 34.2% 33.06% JB Hunt 20.7% 24.6% 23.0% 22.9% 11.1% 20.46% Panalpina 455.4% 304.2% 59.3% 74.4% 161.6% 210.98% Landstar 21.6% 14.0% 40.3% 10.3% 10.2% 19.28% Hyundai Glovis 11.3% 11.7% 10.5% 19.9% 22.3% 15.12% Forward Air Corp 21.9% 23.8% 26.5% 38.4% 29.6% 28.03% Nippon Express 43.7% 39.4% 38.9% 28.1% 30.0% 36.01% DSV 15.4% 19.5% 13.5% 20.2% 13.6% 16.44% Hitachi Transport 25.0% 52.3% 22.7% 23.1% 19.1% 28.43% Mainfreight 39.0% 30.8% 40.1% 38.5% 39.5% 37.57%
Agility 16.4% 15.9% 14.8% 14.4% 13.4% 14.95% Benchmark Median 23.5% 27.7% 28.0% 25.6% 25.9% 26.14% Main competitors median 35.2% 32.9% 29.6% 33.5% 34.2% 33.06%
Benchmark average 68.9% 55.3% 30.4% 30.9% 37.1% 44.54% Becnhmark minimum 11.3% 11.7% 10.5% 10.3% 10.2% 10.80% Becnhmark maximum 455.4% 304.2% 59.3% 74.4% 161.6% 210.98%
Figure D: P/E Ratio Analysis (Source: Bloomberg, Wall Street Journal, and Team Calculations)
40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x 2013 2014 2015 2016 2017 Average Agility 15.6x 16.0x 10.3x 12.1x 17.6x 14.3x Benchmark median 21.4x 20.6x 21.2x 24.4x 27.3x 23.0x Main competitors median 26.2x 24.7x 23.1x 33.4x 35.9x 28.7x
Agility Benchmark median Main competitors median
Figure E: EV/EBITDA Analysis (Source: Bloomberg, Wall Street Journal, and Team Calculations)
25.0x
20.0x
15.0x
10.0x
5.0x
0.0x 2013 2014 2015 2016 2017 Average Agility 5.3x 5.7x 5.9x 6.4x 5.9x 5.8x Benchmark median 12.4x 12.2x 10.7x 11.9x 13.4x 12.1x Main competitors median 13.3x 12.2x 13.6x 16.1x 22.8x 15.6x
Agility Benchmark median Main competitors median
18 Appendix M: Debt Injection
Agility's Forecasted Debt Schedule for the Next 5 Years (Source: Team Estimations) KWD 1,000 2017E 2018E 2019E 2020E 2021E 2022E
Current portion of debt
Old current portion of debt 114,226 114,226 114,226 114,226 114,226 114,226
USD 457 Million current portion of debt - 18,045 18,745 19,473 20,229 21,014
KWD 50.1 Million current portion of debt - 9,519 9,905 10,307 10,726 2,721
Remainder of USD 800 Million current portion of debt - - 6,524 6,865 7,224 7,601
Total current portion of debt 114,226 141,790 149,401 150,871 152,404 145,563
Non-current portion of debt
Old non-current portion of debt 84,738 84,738 84,738 84,738 84,738 84,738
USD 457 Million non-current portion of debt - 106,879 88,134 68,661 48,432 27,418
KWD 50.1 Million non-current portion of debt - 33,687 23,782 13,475 2,749 -
Remainder of USD 800 Million non-current portion of debt - - 46,962 40,097 32,873 25,271
Total non-current portion of debt 84,738 225,304 243,615 206,970 168,791 137,427
Total debt for each year 198,964 367,094 393,016 357,841 321,196 282,990
Appendix N: Cost Reduction
Impact of Technology Improvement on Cost of Revenues (Source: Team Calculations and Estimations)
Cost of Revneues to Revenues Historical Trend Forecasted Trend
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Historical Ratio 73.9% 71.9% 71.1% 68.8% 65.2% 67.8% Technology Improvement Margin - 2.0% 0.8% 2.3% 3.6% -2.6% 6-Years Technology Improvement CAGR 1.7%
Forecasted ratios before the impact of 67.8% 67.3% 66.9% 66.7% 66.5% technology imrpovement
Estimated Yearly Improvement 0.5% 0.4% 0.3% 0.1% 0.0% Forecasted Cost of Revenues Ratios 67.3% 66.9% 66.7% 66.5% 66.5%
19 Appendix O: Adjusted Balance Sheet
Historical Balance Sheet Forecasted Balance Sheet
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
ASSETS
Current Assets
Inventories 13,792 15,125 19,695 13,458 14,390 16,956 18,874 20,343 21,572 23,177 23,765
Trade Receivables 274,062 256,185 270,602 239,738 241,146 308,888 340,824 369,414 393,198 423,254 433,994
Other Current Assets 78,827 73,207 72,101 70,609 93,725 113,629 125,377 135,894 144,644 155,700 159,651
Bank Balances, Cash, and Deposits 143,458 152,736 133,597 114,054 94,305 89,299 109,381 121,428 139,604 150,655 211,396
Total Current Assets 510,139 497,253 495,995 437,859 443,566 528,772 594,455 647,080 699,018 752,786 828,806
Non-Current Assets
Net PPE and Projects in Progress 208,627 195,890 203,180 218,016 268,498 312,354 528,919 615,530 633,419 659,657 630,630
Net Property, Plant, and Equipment 189,729 170,789 175,739 183,749 251,997 291,494 317,789 395,908 489,105 593,760 563,060
Property, Plant, and Equipment 381,755 369,748 396,538 421,480 499,779 568,280 627,035 742,340 879,582 1,036,263 1,062,558
Accumulated Depreciation (192,026) (198,959) (220,799) (237,731) (247,782) (276,786) (309,246) (346,432) (390,477) (442,503) (499,498)
Projects in Progress 18,898 25,101 27,441 34,267 16,501 20,859 211,130 219,622 144,314 65,898 67,570
Total Other Non-Current Assets 709,988 719,119 753,187 806,530 831,973 849,082 849,082 849,082 849,082 849,082 849,082
Total Non-Current Assets 918,615 915,009 956,367 1,024,546 1,100,471 1,161,436 1,378,001 1,464,612 1,482,501 1,508,739 1,479,712
TOTAL ASSETS 1,428,754 1,412,262 1,452,362 1,462,405 1,544,037 1,690,208 1,972,456 2,111,691 2,181,519 2,261,525 2,308,518
EQUITY AND LIABILITIES
LIABILITIES
Current Liabilities
Current Portion of Debt 36,654 33,306 47,117 41,193 52,492 114,226 141,790 149,401 150,871 152,404 145,563
Trade and Other Payables 381,759 376,266 392,865 383,213 388,821 418,068 463,519 500,854 532,002 572,076 586,593
Trade Payables 188,735 180,536 194,779 188,927 199,124 230,231 256,261 276,210 292,895 314,692 322,677
Other Payables 193,024 195,730 198,086 194,286 189,697 187,837 207,258 224,644 239,107 257,384 263,915
Dividends Payable 7,746 7,564 8,058 7,887 8,501 9,019 9,181 10,205 10,134 10,292 10,154
Total Current Liabilities 426,159 417,136 448,040 432,293 449,814 541,314 614,490 660,460 693,007 734,773 742,309
Non-Current Liabilities
Non-Current Portion of Debt 42,678 36,957 26,204 40,238 86,911 84,738 225,304 243,615 206,970 168,791 137,427
Provision for Employees' End of Service Benefits 36,039 32,481 36,938 41,294 46,301 49,970 55,197 60,161 64,821 70,592 72,675
Other Non-Current Liabilities 34,000 29,053 30,069 17,105 11,769 15,702 17,325 18,779 19,988 21,516 22,062
Total Non-Current Liabilities 112,717 98,491 93,211 98,637 144,981 150,410 297,826 322,555 291,779 260,899 232,164
Total Liabilities 538,876 515,627 541,251 530,930 594,795 691,724 912,316 983,016 984,786 995,672 974,473
EQUITY
Share Capital 104,684 109,918 115,414 121,185 121,185 133,303 133,303 133,303 133,303 133,303 133,303
Share Premium 152,650 152,650 152,650 152,650 152,650 152,650 152,650 152,650 152,650 152,650 152,650
Statutory Reserve 52,342 54,959 57,707 60,593 60,593 60,593 60,593 60,593 60,593 60,593 60,593
Treasury Shares (45,038) (45,038) (45,038) (45,288) (45,288) (49,239) (49,239) (49,239) (49,239) (49,239) (49,239)
Treasury Shares Reserve 44,366 44,366 44,366 44,366 44,366 44,366 44,366 44,366 44,366 44,366 44,366
Other Equity (55,017) (68,898) (66,448) (63,289) (74,280) (78,137) (78,137) (78,137) (78,137) (78,137) (78,137)
Foreign Currency Translation Reserve (18,442) (27,070) (16,934) (15,133) (22,918) ------
Hedging Reserve (17,037) (17,090) (20,463) (18,225) (17,801) ------
Investment Revaluation Reserve 15 80 197 1,294 1,836 ------
Other Reserves (19,553) (24,818) (29,248) (31,225) (35,397) ------
Retained Earnings 621,031 629,569 630,419 636,809 661,356 699,831 759,318 825,444 891,107 957,796 1,023,590
Equity Attributable to Equity Holders of the Parent Company 875,018 877,526 889,070 907,026 920,582 963,367 1,022,854 1,088,980 1,154,643 1,221,332 1,287,126
Non-Controlling Interests 14,860 19,109 22,041 24,449 28,660 35,117 37,286 39,696 42,090 44,521 46,919
Total Equity 889,878 896,635 911,111 931,475 949,242 998,484 1,060,140 1,128,676 1,196,733 1,265,854 1,334,045
TOTAL EQUITY AND LIABILITIES 1,428,754 1,412,262 1,452,362 1,462,405 1,544,037 1,690,208 1,972,456 2,111,691 2,181,519 2,261,525 2,308,518
20 Appendix P: Adjusted Income Statement
Historical Income Statement Forecasted Income Statement
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E
Revenues 1,417,750 1,375,692 1,357,347 1,303,459 1,234,047 1,395,417 1,539,690 1,668,849 1,776,295 1,912,071 1,960,591
Logistics and Freight Forwarding Revenues 1,294,959 1,263,469 1,223,599 1,175,654 1,081,401 ------
Rental Revenues 34,693 42,034 45,409 49,604 54,691 ------
Other Services Revenues 88,098 70,189 88,339 78,201 97,955 ------
Cost of Revenues (1,047,658) (989,396) (965,317) (897,098) (804,936) (930,684) (1,035,907) (1,116,548) (1,183,994) (1,272,106) (1,304,386)
Net Revenues 370,092 386,296 392,030 406,361 429,111 464,733 503,782 552,301 592,301 639,965 656,204
Selling, General, and Administrative Expenses (300,685) (304,904) (315,646) (320,831) (329,869) (339,890) (375,441) (409,209) (440,902) (480,156) (494,323)
Repairs and Maintenance (17,494) (17,047) (17,390) (18,651) (19,185) (23,180) (25,987) (30,440) (37,747) (46,185) (49,339)
Other Selling, General, and Administrative Expenses (283,191) (287,857) (298,256) (302,180) (310,684) (316,709) (349,454) (378,769) (403,155) (433,971) (444,984)
Earnings Before Interest, Tax, Depreciation, and 69,407 81,392 76,384 85,530 99,242 124,843 128,342 143,093 151,399 159,809 161,881 Amortization (EBITDA)
Depreciation (27,843) (25,796) (25,916) (27,405) (28,092) (29,004) (32,460) (37,186) (44,045) (52,026) (56,995)
Amortization (2,313) (3,609) (3,641) (3,789) (4,017) (4,033.0) - - - - -
Operating Income (EBIT) 39,251 51,987 46,827 54,336 67,133 91,806 95,882 105,906 107,355 107,782 104,886
Interest Income 6,328 5,228 4,885 4,605 2,066 3,155 3,414 3,966 4,485 4,987 6,221
Interest Expense (6,770) (6,946) (6,800) (5,704) (7,922) (10,491) (17,608) (18,447) (19,977) (18,507) (16,974)
Other Non-Operating Income (Expenses) 9,435 12,599 23,590 14,297 15,934 7,469 12,567 12,567 12,567 12,567 12,567
Change in Fair Value of Investment Properties 2,250 417 16,629 2,369 5,143 ------
Share of Result of Associates - - 2,136 3,592 4,446 ------
Gain on Bargain Purchase on Acquisitoin of Subsidary 4,384 - - - 1,045 ------
Miscellaneous Income (Expenses) 2,801 12,182 4,825 8,336 5,300 ------
Earnings Before Tax (EBT) 48,244 62,868 68,502 67,534 77,211 91,940 94,255 103,992 104,429 106,829 106,700
Tax (8,053) (9,668) (10,015) (8,404) (9,453) (10,857) (11,130) (12,280.1) (12,331.7) (12,615.2) (12,599.9)
Directors' Remuneration (153) (151) (140) (140) (140) (148) (148) (148) (148) (148) (148)
Profit For the Year 40,038 53,049 58,347 58,990 67,618 80,935 82,976 91,564 91,949 94,066 93,952
Net Income 33,694 46,206 50,838 53,387 59,053 67,459 68,668 76,331 75,798 76,982 75,947
Attributable to:
Equity Holders of the Parent Company 33,694 46,206 50,838 53,387 59,053 67,459 68,668 76,331 75,798 76,982 75,947
Non-Controlling Interests 6,344 6,843 7,509 5,603 8,565 13,476 14,308 15,233 16,152 17,085 18,005
21 Appendix Q: Effect of Oil Prices on Agility (Source: EIA, and Y Charts) Oil Demand by Sector 201 202 202 203 203 204 Growth 6 0 5 0 5 0 2016–2040 Road 43.0 45.4 46.8 47.7 48.2 48.4 5.4 Aviation 6.0 6.6 7.2 7.8 8.4 8.9 2.9 Oil in the transportation sector faces Rail & dom. 1.8 1.9 2.0 2.1 2.1 2.2 0.4 weak competition from alternative waterways fuels. As a result, demand is highest in Marine Bunkers 3.8 4.2 4.7 5.0 5.2 5.4 1.5 this sector. The largest contributor is Transportation 54.6 58. 60. 62.5 63.9 64. 10.3 the road transportation sector, as it 1 6 9 accounted for 45% of total oil Petrochemicals 12.6 13.4 14.3 15.0 15.9 16.5 3.9 demand in 2016. Other Industry 12.5 13.0 13.3 13.6 13.7 13.7 1.2 Industry 25.2 26.4 27. 28.6 29.6 30.2 5.1 6 Resid./Comm./Agr. 10.5 10.9 11.4 11.7 12.0 12.1 1.7 Electricity 5.1 5.3 4.8 4.6 4.2 3.9 –1.2 generation Other uses 15.6 16. 16. 16.3 16.2 16.0 0.4 2 1
Oil prices affect Agility on four fronts, one indirect, and three direct. First, Figure F: Expected Oil Prices (USD, Source: EIA, and Y Charts) Agility is a Non-vessel operating common carrier (NVOCC), it owns no 70 vessels and relies on its partnerships 60 with carriers for air and sea freight. The Partnered carriers would offer 50 higher fuel surcharges to compensate for the increase in oil prices. Agility’s 40 operating costs would increase, as road freight in the Middle East 30 continues. Tristar, Agility’s 20 subsidiary, specializes in fuel transport logistics and had to cut 10 margins to combat the lower oil prices and create a more efficient and 0 flexible business model to offset the 2015 2016 2017 2018E 2019E volatile oil prices. This re-structured WTI Crude Oil Brent Crude Oil business model would help with the recent increase in oil prices.
22
Appendix R: Agility’s Score in the Corruption Predictions Index of 2016 (Source: Transparency International)
Agility's Average Regional Score on the Corruption Predictions Index in 2016
Corruption Predictions Index Score by Operating Region Asia-Pacific 25.0% Europe 24.5% Americas 16.3% Middle East 26.1% Africa 8.1% Afghanistan 15 Austria - Argentina 36 United Arab Emirates 66 Algeria 34 Australia 79 Belgium 77 Aruba - Bahrain 43 Angola 18 Bangladesh 26 Bulgaria 41 Bolivia 33 Iraq 17 Egypt 34 Cambodia 21 Cyprus 55 Brazil 40 Jordan 48 Ghana 43 China 40 Czech Republic 55 Canada 82 Kuwait 41 Kenya 26 Guam - Denmark 90 Chile 66 Lebanon 28 Libya 14 Hong Kong 77 Finland 90 Colombia 37 Oman 45 Madagascar 26 India 40 France 69 Costa Rica 58 Qatar 61 Mauritius - Indonesia 37 Germany 81 Curacao - Saudi Arabia 46 Morroco 37 Japan - Greece 44 Dominican Republic 31 Turkey 41 Nigeria 28
Korea - Hungary 48 Ecuador 31 South Africa 45 Malaysia 49 Ireland 73 El Selvador 36 Tunisia 41 Maldives 36 Italy 47 Guatimala - Uganda 25
Nepal 29 Kazakhastan 29 Honduras 30 New Zealand 90 Lithuania 59 Jamaica 39 Northern Mariana - Netherlands 83 Mexico 30 Islands Pakistan 32 Norway 85 Nicaragua 26 Papua New Guinea 28 Poland 62 Panama 38 Phillipines 35 Portugal 62 Paraguay 30 Singapore 84 Romania 48 Peru 35 Sri Lanka 36 Russia 29 Trinidad and 35 Tobago Taiwan 61 Slovakia 51 United States 74 Thailand 35 Spain 58 Uruguay 71 Vietnam 33 Sweden 90 Venezuela 17
Switzerland - Turkmeinstan 22 Ukraine 29 United Kingdom 81
Region's median 36 59 36 44 31
Agility's weighted 28.863 average score
23 Appendix S: Agility’s Score in the Global Terrorism Index of 2016 (Source: Institute for Economics and Peace)
Agility's Average Regional Score on the Global Terrorism Index in 2016 (Source: Institute for Economics and Peace)
Global Terrorism Index Score by Operating Region Asia-Pacific 25.0% Europe 24.5% Americas 16.3% Middle East 26.1% Africa 8.1% Afghanistan 9.44 Austria - Argentina 0.49 United Arab 0.42 Algeria 4.28 Emirates Australia 2.74 Belgium 1.24 Aruba - Bahrain 4.20 Angola - Bangladesh 6.49 Bulgaria 1.63 Bolivia - Iraq 9.96 Egypt 7.32 Cambodia - Cyprus 2.04 Brazil 1.74 Jordan 2.85 Ghana 0.34 China 6.10 Czech Republic 2.17 Canada 2.51 Kuwait 4.44 Kenya 6.57 Guam - Denmark 2.15 Chile 2.69 Lebanon 6.06 Libya 7.28 Hong Kong - Finland 2.37 Colombia 5.95 Oman - Madagascar 1.67 India 7.48 France 5.60 Costa Rica - Qatar 0.23 Mauritius - Indonesia 4.42 Germany 4.30 Curacao - Saudi Arabia 5.40 Morroco 0.89 Japan - Greece 4.21 Dominican 1.56 Turkey 6.73 Nigeria 9.31 Republic Korea - Hungary 0.23 Ecuador 0.79 South Africa 3.53 Malaysia 2.69 Ireland 3.42 El Selvador - Tunisia 4.96 Maldives - Italy 2.36 Guatimala 1.14 Uganda 4.32
Nepal 4.41 Kazakhastan 0.93 Honduras 1.14 New Zealand 0.23 Lithuania - Jamaica 0.11 Northern Mariana - Netherlands 0.86 Mexico 3.72 Islands Pakistan 8.61 Norway 2.07 Nicaragua 2.09 Papua New Guinea - Poland - Panama - Phillipines 7.09 Portugal - Paraguay 3.84 Singapore - Romania - Peru 2.98 Sri Lanka 3.48 Russia 5.43 Trinidad and 0.49 Tobago Taiwan - Slovakia - United States 4.87 Thailand 6.70 Spain 1.20 Uruguay - Vietnam - Sweden 3.98 Venezuela 1.99
Switzerland 0.28 Turkmeinstan - Ukraine 7.13 United Kingdom 5.08
Region's median 6.10 2.17 1.99 4.44 4.32
Agility's weighted 3.89 average score
24 Appendix T: Discounted Cash Flow
Free Cash Flow to Firm KWD 1,000 2017E 2018E 2019E 2020E 2021E 2022E Operating Income (EBIT) 91,806 95,882 105,906 107,355 107,782 104,886 Effective-Tax Rate 11.8% 11.8% 11.8% 11.8% 11.8% 11.8% Depreciation (29,004) (32,460) (37,186) (44,045) (52,026) (56,995) Property, Plant, and Equipment 568,280 627,035 742,340 879,582 1,036,263 1,062,558 Cap. Ex. 68,501 58,755 115,305 137,242 156,681 26,296
Non-cash current assets Inventories 16,956 18,874 20,343 21,572 23,177 23,765 Trade Receivables 308,888 340,824 369,414 393,198 423,254 433,994
Non-cash current liabilities Trade Payables 230,231 256,261 276,210 292,895 314,692 322,677 Non-cash working capital 95,613 103,436 113,547 121,875 131,739 135,082 Change in non-cash working capital - 7,823 10,111 8,328 9,864 3,343
Tax-Adjusted Income - 84,559 93,400 94,677 95,055 92,501 Add: Depreciation - 32,460 37,186 44,045 52,026 56,995 Deduct: Cap. Ex. - (58,755) (115,305) (137,242) (156,681) (26,296) Deduct: Change in non-cash working - (7,823) (10,111) (8,328) (9,864) (3,343) capital Free Cash Flow to Firm - 50,441 5,171 (6,848) (19,464) 119,857
Terminal value 1,536,259 Free Cash Flow to Firm subtotal - 50,441 5,171 (6,848) (19,464) 1,656,116
Adjusted WACC 10.70% 10.71% 10.32% 10.48% 10.54%
Present value of future expected cash flows 45,564 4,219 (5,065) (13,030) 1,002,978
Long-term growth 2.5%
Firm value KWD 1,034,666,750
Add: Cash KWD 89,299,444
Deduct: Debt KWD (198,964,000)
Equity value KWD 925,002,194
Shares Outstanding 1,258,197,111
Price per share KWD 0.735
25 Appendix U: References • “2016 Third-Party Logistics Study.” Third-Party Logistics Study, Korn Ferry, www.kornferry.com/media/sidebar_downloads/2016_3PL_Study.pdf. • “The 2018 3PL Study.” Third-Party Logistics Study, www.3plstudy.com/3pl2018download.php. • “About Us.” Agility, www.agility.com/en/about-agility-3pl-company/. • “Agility.” Crunchbase, 2018, www.crunchbase.com/organization/agility-3. • “Agility Financials.” Agility Public Warehousing Co, Reuters, www.reuters.com/finance/stocks/financial- highlights/AGLT.KW. • Akil, Nadia Abdullah. Disclosure. UPAC, 20 Nov. 2017, www.upac.com.kw/userfiles/disclosure/138Symbol_note_20- 11-2017.pdf. • Akil, Nadia Abdullah. UPAC Disclosure. UPAC, 6 Aug. 2017, www.upac.com.kw/userfiles/disclosure/133Symbol_NCL_06-08-2017.pdf. • Barnard, Lucy. Reem Mall Progresses in Abu Dhabi as $800m Loan Moves Nearer. The National, 17 Mar. 2016, www.thenational.ae/business/reem-mall-progresses-in-abu-dhabi-as-800m-loan-moves-nearer-1.152413. • Berman, Karen, et al. Financial Intelligence: a Manager's Guide to Knowing What the Numbers Really Mean. Harvard Business Review Press, 2013. • Bloomberg, 27 Jan. 2018, 4:48 AM, www.bloomberg.com/research/stocks/private/people.asp?privcapId=5391649. • Global Terrorism Index. Institute for Economics and Peace, 2016, economicsandpeace.org/wp- content/uploads/2016/11/Global-Terrorism-Index-2016.2.pdf. • Graves, LeAnne. “Reem Mall Names a New Contractor but Opening Date Still Unknown.” The National, The National, 27 Nov. 2017, www.thenational.ae/business/property/reem-mall-names-a-new-contractor-but-opening-date-still- unknown-1.679248. • Khan, Sarmad. “Kuwait's Agility Reports 17.4% Third Quarter Profit Rise.” The National, The National, 4 Nov. 2017, www.thenational.ae/business/markets/kuwait-s-agility-reports-17-4-third-quarter-profit-rise-1.673030. • “NREC Signs $101m Loan Facility with Agility Investment.” Latest News, NREC, 12 Feb. 2017, www.nrec.com.kw/en/Media-Center/Latest-News?NewsId=1ed417f3-5f06-4c79-9d1b-1a3ccf4f469a. • PricewaterhouseCoopers. “Future Prospects in Africa for the Transportation & Logistics Industry.” PwC, www.pwc.com/gx/en/industries/transportation-logistics/publications/africa-infrastructure-investment.html. • AlSabah, Mohammed Sabah. Disclosures: Exhibit M. Geotext Translations, 13 Dec. 2009,www.corporatecrimereporter.com/wp-content/uploads/2017/05/clinton.pdf. • “Brent Crude Oil Spot Price:” YCharts, YCharts, ycharts.com/indicators/brent_crude_oil_spot_price. • Condon, Christopher. “The Fed's New Dot Plot.” Bloomberg.com, Bloomberg, 14 Dec. 2016,www.bloomberg.com/graphics/fomc-dot-plot/. • “ EIA - Independent Statistics and Analysis.” Short-Term Energy Outlook , U.S. Energy Information Administration (EIA), 9 Jan. 2018, www.eia.gov/outlooks/steo/report/prices.php. • Norall, Steve. “3PL Vs 4PL: What Are These PLs, Anyway? Layers of Logistics Explained.” Transportation Management Company | Cerasis, Cerasis, 8 Aug. 2013,cerasis.com/2013/08/08/3pl-vs-4pl/. • Pincus, Walter. “Kuwait-Based Military Contractor Accused of Inflating Food Prices.” The Washington Post, WP Company, 17 Nov. 2009, www.washingtonpost.com/wp- dyn/content/article/2009/11/16/AR2009111603678.html. • Sayegh, Additional Hadeel Al, and Marwa Rashad. “Exclusive: Saudi State Taking Control of Binladin Construction Giant -.” Reuters, Thomson Reuters, 11 Jan. 2018, www.reuters.com/article/us-saudi-construction- exclusive/exclusive-saudi-state-taking-control-of-binladin-construction-giant-sources-idUSKBN1F01Y7. • “Third Party Logistics (3PL) and Fourth Party Logistics (4PL).” Cquential, 13 Dec. 2013,www.cquential.co.za/industries/3pl-4pl/. • “U.S. Energy Information Administration - EIA - Independent Statistics and Analysis.” Analysis & Projections, U.S. Energy Information Administration (EIA), www.eia.gov/analysis/. • “What Do 3PL Customers Want from Their Logistics Providers?” 2017 3PL And Supply Chain Technology Update, Datex, www.datexcorp.com/2017-3pl-and-supply-chain-technology-update/. • “What Is the Difference between 3PL and 4PL?” 3PL Vs 4PL, ADLI Logistics, 3 Mar. 2017,adlilogistics.com/blog/2017/03/03/difference-3pl-vs-4pl/. • “World Oil Outlook.” OPEC : World Oil Outlook, 2017,www.opec.org/opec_web/en/publications/340.htm.
26 Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Institute - Kuwait, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
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