Agthia Group PJSC (AGTHIA) Earnings Call Transcript & Summary

Good day, and welcome to Agthia Business Update and Q&A Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Nada Amin. Please go ahead.

Thank you. Hello, everyone. My name is Nada Amin. I'm from EFG's consumer and health care team. Pleasure today to be welcoming Agthia's management team on the call. I'd like to turn over the call to Ms. Sahar Srour, the company's IR Manager, for some comments. Thank you.

Good evening, ladies and gentlemen. I hope you are all managing to take care of yourselves and your loved ones. Thank you for joining us today in Agthia Group's business update Q&A session hosted by Jamal Al Dhaheri, Group Acting CEO; Tariq Al Wahedi, Adviser to Group CEO; and Ammar Al Ghoul, Group CFO. Before opening the floor to your inquiries, I want to take this opportunity to introduce our new acting CEO, His Excellency Engineer Jamal Al Dhaheri, who brings over 23 years of experience in strategic planning, expansions, regulatory compliance, joint ventures and engineering; and our new CFO, Ammar Al Ghoul, who in his term has over 20 years of experience in various executive roles as CFO of MS Pharma, CFO of Al Fozan Holdings and such. I now pass the line over to the operator for Q&A.

[Operator Instructions] And we do have a question. We will take our first question.

I want to know if -- since the beginning of the coronavirus situation in March, have you seen any uptick in the restocking activity by the retailers, given that a lot of the customers have been shopping for like FMCG items and like food items for stocking at home?

If I may, before asking the question, can you introduce yourself, please?

This is Metehan Mete from Waha Capital.

There is -- this is Tariq Al Wahedi. There is an uptick in volume that we have seen in the last -- I would say, last 45 days. There has been an increase in the uptake in the food and beverage. And there is a full coordination and conversion on the side in all the countries that we are operating in that we are seeing a closed store -- in terms of building enough stock store for the consumer.

And what percentage are we talking about, like roughly, year-on-year growth in the items that you sell?

So these are not indicated because we are at spike -- we are selling on spike, we're well within a month or so. But I mean we are seeing double-digit growth, but they are on monthly basis. And we cannot really build on them to reflect in the total financials for the whole city -- for the whole year.

And given the demand dynamics, do you also see some like temporary decline in discounting and promotions that you were offering in the water segment? Or the government is asking you to keep the promotions the same?

Yes, we are seeing a slight reduction into the promo index in the market. But overall, we are really seeing a mix of things, but there is a slight reduction into that, yes.

But when it comes to the government, there is no direction from the government to do anything specific in regard to our pricing or our promotion exercise. So that's a business decision that we are taking, depending on supply and demand.

Yes. So just -- I think I couldn't hear you clearly. You said like a decline in promotion or same promotion as like -- as the business usually?

Yes, there is a decline into the promotion index overall across the company. There is a slight reduction, yes.

[Operator Instructions] We'll go to our next question.

This is Zeeshan calling from Abu Dhabi Capital Group. I had 2 questions. Firstly, on your water business, so could you elaborate on like what part of the water business revenue is driven by the hospitality segment? And what has been the impact on that particular part of business so far? That was my first question. And the second question was -- I would -- like, I wanted to get some clarity on the community part of the business, community trading. So that -- in the Community Support Division, have you seen any increase in terms of restocking or increased volumes because of any support from government?

Okay. For the hospitality section, yes, there has been some mixed results that we have. Hotels are going down, but catering companies are going up. So it's a mixed result. So there is overall a slight reduction into the specific segment. But there is a big uptick that's happening into the other channels, like the modern trade or traditional trade or the Community Support Division that you just mentioned. So there is a big uptick that's happening when it comes direct to the consumer.

When it comes to stocking, there is -- yes, when it comes to the stocking, yes, because of this spike in requirement in demand because of the corona, yes, we are now seeing more stocks -- I mean more demand, i.e., people are stocking, but we are monitoring very closely.

Okay. And like, if you could clarify like what part of your -- like what percentage of your revenue is driven by hospitality segment for water business?

So hospitality is a mixed channel for us. This includes restaurants, eateries, catering, et cetera. So there is a bunch of things. As I said, I mean, there is uptick and downtick, I mean, into that thing. Overall, that's representing -- I mean I would say I'm not -- I think it's roughly about 15% of our total revenue.

1-5?

Yes. It's about exactly 12 to -- 10% to 11%, 10% to 11% exactly, the hospitality.

Okay. And just a follow-up to my [indiscernible]. Could you elaborate on the food security program of the government? Have you seen any increased benefit out of that in such volatile time?

There's a lot of initiatives happening in order to understand the stock level at each manufacturing company and trying to analyze the supply and the demand and all of that. So it is on progress. It's a matter that we are discussing it on a daily basis, just making sure that the food security is addressed.

And this is -- just we're getting from the overall total supply chain, from the procurement, the availability of raw material and the availability of shelf space at the retailer as well. It's across the board that the government is handling now.

Okay. And how has been the impact on the agri part of your business? Because we have been reading reports of the supply disruptions leading to higher wheat prices. And also, have you seen any input pressure on your flour part of the business?

Yes, there is a positive uptake that is happening also on the agribusiness as well. So I mean we have positive uptake, I mean, on both the consumer side and the agri side. Both of them where we have positive uptake.

[Operator Instructions] We'll take our next question.

If I can -- sorry, it's Karim Abbas from Franklin Templeton. If I can fast-track little bit and ask, can you shed some light on why the managerial changes have happened? Why Fatih has decided to leave as such a kind of difficult time for Agthia as far as the water business and some of the other struggling segments? And so is it strategic? Has there been an issue with the performance? So just if you can let us know why these things have changed so abruptly.

Well, in regards to the CFO, it was very clear by the decision that he has taken in order to step down because of personal reasons, and well, we have respected that. And we have acted accordingly. And we have searched the market for a reputable CFO that who could take over. And we have been seeing his service for the next 6 months in order to make sure that the transfer of knowledge, experience and all of that is captured and we are not dropping anything in that.

Okay. And the changes at the CEO level as well that, is that strategic in any way?

It's almost the same case, due to personal reasons. But for the case of the CEO, as it is very critical in terms of continuity, the Board has requested from Tariq Al Wahedi to stay as an adviser. Especially at this point of time, it's really a rocky moment, and it's very important for someone that -- he's been the company for a long time in order to see and be part of the journey at this point in time. So as you can hear that he is part of this discussion now determining this role.

Okay. Sorry, it was kind of spearheading the whole M&A strategy for Agthia. Does his advisory role change the time frame that we had set for Agthia? Does it change that angle of business?

In fact, as you know, robust businesses are now linked to future, okay? So strategy is the strategy of the company, okay, and that's how we are looking at it. We have a very structured, strong management team around that within the company, okay? And so we are progressing on that actively as we speak now. We are really looking at opportunities. We are looking at opportunities especially at this time where we could look at it seriously, and Tariq -- he -- plays a key role in this.

Karim, I assure you -- I mean the point that Jamal just mentioned, I have taken the steps, I mean, what I have decided, I mean, to take -- announce due to personal reasons, but I was requested by the Board to continue supporting the company. However, I mean, I must confirm what Jamal just mentioned. I mean the company is built on very strong team that really is running the show. I wasn't running the show. And that's where a very strong team that was under me that's really pushing the whole agenda. Agenda is still -- there is no change in the strategy. And we are still continuing and pursuing our plans as is.

[Operator Instructions] We'll take your next question.

This is [ Fabio Starris ] from [ Lazard Asset Management ]. I just want to ask you 2 questions. Mainly, the first one about -- is there any changes on your plans when it comes to your expansion through acquisitions? Any change in your CapEx budget going forward for what's happening, especially with the conditions around us? And are you seeing now because of maybe the kind of valuation impact of lower valuations, do you see better opportunities to be acquired in the region? I'll start with this question and then I have another question.

In fact, all of what you have mentioned is part of our analysis. We are looking at opportunities, as I mentioned earlier. We are pursuing expansion within the business in terms of CapEx investments as we have planned. And we are looking at longer-term project and a short term. We are committed to our customers. We are reevaluating as we are proceeding any matter that does arise. So in summary, we are working very hard in order to see how we can benefit from the situation in the -- in a better way for Agthia.

Okay. My second question relates to in terms of the value of the company. And it's a nonbusiness-related question, more of a kind of your view on the value of the company. Since 2015, the value of the company has been dropping significantly. Are you looking at doing something that is not conventional to be able to support the kind of the value of the company? You're trading below book. You're trading at these very low multiples and very -- it shows like the market does not really appreciate the assets or the value of the company. Is there any kind of views on buybacks, onetime dividends, taking into consideration the kind of the strong balance sheet that you have? I mean what are the things that maybe in tough times require tough decisions. Are you looking at doing something outside the box to be able to reverse this kind of very negative trend over the past?

If you'll allow me, I think as you see, I mean, from 2015 or '16 specifically, we've been doing lots of unconventional things within the company. I mean we've been driving the market and the marketing and the brand equity and the product development and the innovation cycle that we have over here. At the same time, we have expanded a lot into our strategy. I mean we had a very clear strategy that we have shared with all our shareholders. We showed them our 6-step plan that we had. And we on every single event, I mean, we shared the same plans. And we have fulfilled almost 90% of them other than one very specific one that we couldn't do, and they were exchange part of the plan. I mean what we are doing now is totally part of the plan like the geographic expansion and expanding into different countries and so on. Now when it comes to unconventional maneuvers, I mean, for the cost markets, I think that's a different discussion that we cannot kind of disclose or discuss over here. That's something that will go through the Board for them to decide, I mean, what sort of things that they want to do. But again, if you look at -- I mean you mentioned that our numbers were on a downtrend basically. And I think, I mean, that was more -- it's a macro thing rather than a micro thing. I mean it's not really belonging to Agthia specifically. But it's a total market that we have seen and within ADX or DFM, we've seen the trend, I mean, that's happening across throughout the last few years. I mean that's happening. So it's across the board. However, our financials, I think, is very strong. We have performed lots of turnaround in the company. And we have shown, I mean, a very robust number that we have held even through a very tough time.

And for example, I mean, what I'm saying is that instead of -- I mean, when you look at the company's share price, and you have say, significant balance sheet, one of the things that can maximize shareholder value is sometimes any mixing the kind of capital structure in a way that increases maybe the value of the equity and buying back share -- and if it makes more sense, buying back shares or reducing the capital compared to acquiring a company that could be higher than the multiple of the company. And I mean this is the kind of -- more kind of on the creative side on how to maximize the value, which is -- and I understand that the stock market in general has not been doing well, but also there's some specific dynamics that happened for the company over the past years with subsidies and competition that impacted the company specifically. And maybe that's why I said it's nonbusiness-related, but I think -- and we've seen that help in many, many other companies in different markets where they are more kind of looking at the capital structure side, alongside the business.

I mean I can't tell you more. There's always initiatives. There's always reviews of certain ways and means of how we can strengthen our position into the market. And so yes, we are looking at different options, okay, some of what you had mentioned. And we are evaluating continually and looking at what will be make best for everybody.

We have another question. We'll take our next question.

This is Zeeshan again. I just had one question on your international business. So basically, could you highlight to us like what has been or how year has been the impact on the water parts of your business in Saudi and Kuwait and how is it...