Following its large bond issues in 2018 and 2019, Hili Finance Company plc recently launched its third bond totalling €50 million which was fully subscribed in a very short time and closed last Thursday.
Since Hili Finance is a special purpose financing vehicle for Hili Ventures Group, with all three bonds guaranteed by Hili Ventures Ltd. In turn, Hili Ventures Ltd is the parent and holding company of the group with three main operating subsidiaries ‒ 1923 Investments plc, Hili Properties plc and Premier Capital plc, which all have financial instruments listed on the regulated main market of the Malta Stock Exchange.
As a result of the recent bond issue, the projected financial statements of Hili Ventures Ltd were published both for 2021 and 2022. Given the overall bond issuance by Hili Finance, as well as the three main operating subsidiaries, a review of these financial statements is important for the numerous investors who have exposure to this large group of companies.
Hili Ventures is Malta’s second largest bond issuer (after Corinthia Group) with a total of €308 million in issue. Furthermore, in recent years, the group also tapped the equity market through Harvest Technology plc and Hili Properties plc.
Hili Ventures has become one of the largest conglomerates in Malta following a very successful international expansion strategy. It has conducted several acquisitions in various economic segments including technology, energy, transportation and logistics, as well as quick service restaurants. Nonetheless, despite the extensive diversification in terms of economic segments and geographically, most of the revenues and EBITDA Hili Ventures generates (which are expected to be over €580 million and €82 million respectively in 2021 rising to €638 million and €97 million in 2022), emanate from the operation of McDonald’s restaurants through Premier Capital mainly in Romania.
The recent prospectus indicates that the restaurant operations is forecasted to have generated just under €397.5 million in revenues during 2021 (+24.6 per cent over 2020). Although the prospectus did not provide the segmental breakdown of the EBITDA figures across the group, the financial analysis summary of Premier Capital plc published in mid-2021 disclosed a projected EBITDA of €64 million for 2021 based on a revenue figure of just under €393 million.
The updated figures for 2021 indicate a slight improvement in overall revenue generation from the restaurant operations business. As was evident over recent years, the bulk of profits within this business segment comes from the large portfolio of restaurants in Romania, accounting for around 80 per cent of the pre-tax profits generated by Premier Capital.
Hili Ventures has become one of the largest conglomerates in Malta following a very successful international expansion strategy
The acquisition of the McDonald’s franchisee in Romania in 2016 was undoubtedly a key turning point for the Hili Ventures. Revenue from restaurant operations via Premier Capital is anticipated to register further growth of 11.7 per cent during the current financial year to December 31, 2022, to just over €440 million (69.5 per cent of total group revenues).
The company aims to add more restaurants especially in Romania and Greece given the low penetration rate of the McDonald’s franchise in these two countries.
The other principal subsidiary of Hili Ventures is 1923 Investments, contributing around 30 per cent of the group’s revenues and 20 per cent of EBITDA. 1923 Investments derives around 70 per cent of its revenues from iSpot Poland (“iSpot”), the largest Apple products retailer in Poland with 27 outlets. Moreover, the financial analysis summary published by 1923 Investments in mid-2021 indicates that iSpot is expected to have contributed over 40 per cent of the EBITDA generated by 1923 Investments in 2021 of €14.2 million.
On the other hand, although the operations of Harvest Technology plc are smaller in size in terms of revenue generation, it contributes around 30 per cent of the EBITDA generated by 1923 Investments on the back of the healthy profit margins of the company’s electronic payments division.
Meanwhile, the other operating arm of 1923 Investments is transportation and logistics, which incorporates warehousing, ship-to-ship operations and cargo handling. In this respect, 1923 Investments acquired the non-US ship-to-ship operations in April 2020 that were owned by marine energy transporter Teekay Tankers Ltd for US$26 million. Interestingly, the prospectus indicates that 1923 Investments plc intends to intensify its mergers and acquisitions activity to the tune of €50 million by forging strategic international partnerships.
The property division ‒ Hili Properties ‒ is a minimal contributor to overall group revenue and EBITDA given the size of the other business segments. Nonetheless, revenue of Hili Properties is expected to surge by almost 50 per cent during 2022 to €8.4 million, presumably on the back of the recent conclusion of the property acquisition in Lithuania.
The COVID-19 pandemic has provided ample evidence to the investing community of those industries that were significantly impacted, those that showed strong resilience and others that saw a positive impact as a result of changes in consumer patterns.
The financial performance of Hili Ventures over the past two years clearly indicates a very strong resilience during the pandemic, with group revenues only declining by 1.5 per cent in 2020 to €483.2 million but then rising to over €580 million in 2021, thereby easily surpassing the 2019 figure of €490.6 million.
As a result of the significant amount of borrowings undertaken in recent years, it is important to gauge the level of leverage of the group. While Hili Ventures is highly leveraged from a capital structure perspective with an estimated net debt of €349 million (when including lease liabilities amounting to almost €90 million) as at the end of 2021 compared to shareholders’ funds of €155 million, the group’s indebtedness is more contained when analysed from a cash flow and profitability point of view.
In fact, given the business nature of the company, the net debt to EBITDA multiple is a better measure of indebtedness. This multiple is anticipated to drop to 4.3 times in 2022 (which essentially means that it will only take a little more than four years for Hili Ventures to pay back its total debt from its cash earnings if net debt and EBITDA are assumed to remain constant in future years).
Similarly, the interest cover is expected to improve to 4.5 times in 2021 and 2022 compared to less than four times in prior years. Another important observation is that Hili Ventures is projecting to generate €45 million in free cash flow in 2022.
These metrics are also important in view of the upcoming plans for the Comino Hotel and Bungalows project which had been expected to be completed by 2024.
Apart from possible financing requirements of some of the upcoming expansion plans, Hili Ventures is expected to retain an active presence across the capital markets since in each of the years between 2024 and 2029, the €308 million worth of bonds in issue are all due to mature.
The utilisation of the capital markets by the Hili Ventures group was instrumental in enabling the company to pursue its successful international expansion strategy as is evident from the sizeable profitability generated even during the pandemic.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, ‘Rizzo Farrugia’, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2022 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.