Agthia Group PJSC (AGTHIA) Earnings Call Transcript & Summary

Thank you, . Hi, everyone. Thank you for joining us today for our call covering the full-year 2022 results, hosted by Alan Smith, our Group CEO; and Sherif Elfaham, our Group CFO. He recently joined us on the 1st of Jan. And then I will provide an update on focus of our 5-year strategy. Sherif will then cover our financial performance, followed by a summary of key operational highlights in the period and the outlook for Agthia, leaving sufficient time for Q&A. For the reference, the investor presentation is available on the Investors section on the website. Please note that the contents of the [ call ] may contain forward-looking statements, which should be considered in conjunction with the disclaimer included in the presentation. Over to you, Alan.

Just a quick question, Sahar, is the presentation visible to the guests?

Yes.

Okay. Thank you. Good afternoon, everybody. Thank you for joining us today. Our strategic vision that we set out a couple of years ago is to be a regional food and beverage leader by 2025. 2 years into that journey, it's clear the strategy is working. We've delivered another year of -- ahead of plan across our 3 strategic pillars of growth, efficiency and capability. Today, Agthia is far bigger, far more efficient and has greater capabilities than ever before. Our increasing scale and diversification is giving us more [ choice ] over how we optimize our portfolio, product, channel and market mix, procure more favorably and drive cost and production efficiencies across the supply chain. To try and put this in context, if we look over the last couple of years, we've made 6 acquisitions with a combined revenue of AED 1.88 billion, our 2-year revenue CAGR is 40%. Our product portfolio has transformed from a legacy base of Water, Flour and Feed to a balanced mix of value-added brands across 4 segments, including our new verticals of Protein and Snacking. Our revenue footprint now extends into 45 countries. 51% of our revenue base now comes from outside the UAE compared to approximately 10% 2 years ago when we began the journey. Our strong cost discipline and ability to leverage synergies across the group has resulted in over AED 130 million of productivity gains since the start of 2021. And our enduring focus on profitable growth has seen us exit loss-making operations to improve asset utilization. These include CapriSun, Fresh Juice, UAE Frozen Bakery and our Palmera dates JV. And we successfully reset our Water business in Saudi on its path to profitability. In terms of our third strategic pillar, we've made good progress in expanding our in-house capabilities to future group growth through strengthening our leadership team. We finalized our comprehensive 5-year digital roadmap. We have continual innovation to meet the evolving needs of consumers, and we're investing in capacity growth in key markets, all the while meeting our obligations as a responsible corporate system, enjoying -- ensuring our growth trajectory is sustainable. So if we look at the next slide, we've summarized our key achievements against the commitments we made a couple of years ago. After just 2 years, our revenue has doubled to over AED 4 billion, helped by the continuing shift in our portfolio to high-growth categories. Our EBITDA margin has increased by over 600 basis points to 14.2%, combining a stronger weighting of higher-margin categories in the mix with disciplined cost management of costs and productivity gains, including integrating our back-office operations here in the UAE, centralizing our procurement function, co-locating factories to drive capacity and production efficiencies and unifying management teams and support functions, both in country, in category and cross-border. I'll now hand over to Sherif to walk you through our financial performance.

Thank you, Alan. Good afternoon, everyone. This is Sherif Elfaham. I joined the company 1st of January as the group's CFO on the back of 24 years of international experiences, mostly with the second largest FMCG globally, Unilever, whereas [ I've moved ] for my career between U.K., North Africa, Middle East and Turkey across state of strategic commercial and operational [ routes ]. This is my first set of financial results at Agthia. Very pleased to be with you today and take you through the financial performance. Let's move on with this part the highlights of full year '22. We had another strong year. We had over [ AED 4 billion ] of revenue, delivering 33% growth. A large part of that has been driven by acquisitions. If you look at it from the like-for-like business, our growth was around 9%. We managed to grow the EBITDA as well at a similar pace, 27%. If you look at EBITDA margin, it was a slight decline in EBITDA margin by 60 bps, although that's still much more stronger than the peer group average, which averaged around 175 bps lower. We managed to double-digit grow our net profit as well at 14%. And if you look at the net profit margin, you will see a slight reduction of 100 bps, and that's again much more stronger than the peer group average of around 370 basis points. We move to the next slide. We're really pleased to deliver all the external guidance we have [ painted ] the market. So when we look at the revenue growth, our guidance range is between 25% to 30%. We have delivered 31%. EPS growth guidance range was 10% to 11% for the year, we delivered 14%. And the free cash flow to equity, our guidance was around AED 400 million. We delivered almost AED 500 million. These guidances and the comparators ] were excluding the latest acquisition of Abu Auf on the like-for-like comparison, adjust these [ refunds ] the company ability to meet its core. All the strong delivery has been in a really challenging year, one of the [ problem ] here was commodity inflation. We had to be with around AED 270 million of cost inflation, 20% devaluation on currency, rising interest rates from a [ bit ] zero of almost flattish to around 2.4%. Yet, we've been able to pull together that strong delivery. We also continued our discipline in cash delivery and working capital. We improved the net working capital percentage of sales over the last 2 years by around 13% and over the last year by around 3.5%. We have delivered very strong free cash flow comparison, more than 100%, if you look at the free cash flow to group net profit conversion ratio. If you look at the top line delivery, [ breadth ] and where that AED 4 billion came from, you'll find around AED 650 million, AED 670 million coming from inorganic growth between Protein and Snacking categories. These are the future growth categories that we said we're going to double down. There is also a strong 1/3 of our growth coming from organic. Again, large part that is coming from Protein as well as Snacking, around AED 200 million, AED 230 million. Agri had a very good year, ringing around AED 90 million in one of the toughest commodity inflation year. And we have managed to drive slight growth in a very competitive environment as well. If you look at the EBITDA, you will see most of these that are coming from the inorganic growth, while also Protein and Snacking managed to deliver, on an organic base, around AED 13 million improvement, while the legacy business Agri and Water managed to have a profitability amidst a high inflation [ cost ]. If you look at the net profit growth, that was around 14% year-on-year. You will find a large part of that coming again from the [ growth companies ] organically protein and snacking delivering AED 33 million. As I said, legacy business [ held ] in a very tough year. And inorganic growth has delivered around AED 50 million, AED 55 million, largely offset by the interest cost to financial [ capital ]. And that is normally year 1, where you start acquiring before we deliver the . We maintained a very strong balance sheet. If you look at our ratios, if you look at net debt to EBITDA, 2.3x, it's quite strong. We target to go down below 2. Usually, this ratio spikes a bit with acquisitions. But then within 2 to 3 quarters, we bring it back on the market level below 2. Interest coverage is quite healthy, 7.6x. Dividend yield of 4%, one of the highest in the peer group. And we have strong liquidity as well, AED 1.9 billion, combined between cash available and borrowing capacity of another AED 1 billion to . If you look over a period of time, we have always driven an improved dividend trend, and we have changed the dividend policy in the last year to move from once a year to twice a year. We had some nice dividends and of the value division of the company plans to investors, and we are committed to maintaining the dividends for the second half, in spite of the current challenges that are arising. Now if we talk about the segments, I think it's important to realize that over the last 2 years that Alan spoke, as much as we have doubled the business and improved the profitability significantly, we've also diversified the company a lot with companies now much more diverse, stronger and management challenges. So if you look at the revenue's geographical footprint 2 years back, our 90% of revenues coming mainly from UAE. Now, only 49% of the revenue comes from UAE, have a much more . Similarly, when you look at the segments, a couple of back, we have only to , Agri business, and the [ Water and Protein ]. Now, we have 4 different segments between Snacking, Protein, Agri and Water, and the portfolio is equally balanced at almost 25 percentage. That gives us stronger ability to grow the company at the beginning of the challenging part. Also, as mentioned that last year, all the payments have delivered across to coming back to growth after a few years. We managed to hold well leading market share position in the UAE amid a tough competitive environment. [ Moving to ] segment performance. Protein has delivered 75% growth in revenue, 62% growth in EBITDA, was largely driven by acquisition, and the like-for-like business delivered around 13%. If we move on to Snacking, Snacking delivered another 75% revenue growth and around 40% EBITDA. So you will realize that most of the growth is driven by the future strategic categories that we want to double down. If you look at Water & Food, we managed slightly grow the business in a competitive environment, retained market share market in the UAE, in the . In some sub channels like the home and office delivery and the food service, we managed to deliver a double-digit growth, we're quite pleased. And we have some challenges in the municipality chart. We managed to hold the EBITDA amidst the rising cost of billing and , which was quite a good product. Moving to Agri, Agri had probably the highest commodity inflation last year and had also some challenges due to the Russian-Ukraine conflict. And yet, we managed to deliver a strong 10% growth and held the profitability in one of the tough years we [ encountered ], which is really [ commendable ]. With that, let me hand over to Alan, who will take us through the key operational highlights.

Thanks, Sherif. So as you can see from this year, we've -- during the year, we've made good progress on future-proofing growth through investing in capability, innovation and also capacity. So if we look at capability, in line with our plans to transition to a more consumer-centric performance-driven environment. We strengthened our leadership team over the past year through the following external appointments and also through some internal promotions. So in addition to the appointment of Sherif as our Group CFO, we've also appointed Vandy Dos Santos, who's joined us -- recently joined us as our Chief Digital Officer. Vandy brings over 30 years of experience in shaping and driving digital transformation from leading the global digital healthcare team in Abbott Pharma division to driving customer experience and omnichannel solutions across the Nestle Group and more recently, the growth [Technical Difficulty] in transformation of Heineken. Mubarak Al Mansoori has moved from his previous position as Agthia's Group -- Agthia's Chief of Human Capital and Corporate Services to the newly created role of President of the group's Snacking business. And Abdulla Al Marzooqi has been with Agthia since 2015, has been promoted to SVP of our Human Capital, which really is a statement of our commitment to growing UAE national talent within the organization. If we move on to innovation. Innovation really is the lifeblood of FMCG business and of Agthia's. It plays a vital role in our strategic vision. During the year, notable successes across our portfolio included rebranding of the date [ crown ] portfolio, including new packaging, new products, new Snacking pack sizes to really address consumer insights and preferences across the markets that [Technical Difficulty]. We also relaunched or updated our Al Ain premium glass bottle, which actually -- our glass bottle business grew by around 100% during the year. And we announced recently the first locally produced 100% rPET water bottle as we promised to investors as soon as legislation allowed. We've done great innovations around chicken bucket, plant-based nuggets, healthy cookies, snack bars and plant-based chews. So lots of recognition of our innovation and sustainability efforts came through prestigious awards during the course of the year. In terms of investing in growth, our Protein expansion in KSA, we finalized the plans for the construction of our new Protein manufacturing facility in the final quarter of last year. Located in Jeddah, this new 6,500 square meter facility is planned to come on stream early in 2024, and we -- is expected to play a key role in meeting local and export demands for our Protein portfolio. And on digitalization, apart from the appointment of our new CDO, we finalized our 5-year digital roadmap, which is intended to transform Agthia from a product-led company to a data-led consumer-centric organization. And we'll do that by creating a digital ecosystem to deliver breakthrough customer experiences and in place across all channels, which will allow us to drive brand equity, leverage data as a strategic asset to increase digital revenue streams, new channels to market and grow customer lifetime value. And the last thing is empowering employees by implementing digital tools to optimize our operational and process synergies across the group. On sustainability, we continue to make significant progress across the 4 pillars of our sustainability agenda, which, of course, is packaging, processes, partnerships and people. Following the recent legislative change and in line with the UAE's Year of Sustainability, we launched the UAE's first locally produced 100% of rPET bottle at Gulfood in February 2023. We also signed an MOU with Veolia and Bee’ah for the first plastic recycling plant in the UAE, and our role in that is to commit to an offtake agreement once that comes on stream. We have reduced our water usage ratio and GH 2 scope emissions by 2.6% and 4.3%, respectively. And we collected 558 tons of recyclables across 32,000 units through our sustainability-focused partnership with RECAPP. I'll now hand you back to Sherif to take you through our short-term and medium-term outlook.

Thank you, Alan. Let me start by recapping what has been achieved over the last couple of years. As said at the beginning, we doubled the business in a couple of years, grew EBITDA significantly by 600 basis points to 14.2%. And that's because we're also coming through [ into a bit ] of lower base, and we've been way ahead in our synergy [ generating ] journey. And these are the 3 key lines that the business has communicated before when we launched the 2025 strategy. With that in mind, with that strong performance in mind, we talk about what we do next, where we will take the business next, I mean what are we doing next to drive the business further. We are now much more diversified category-wise, geography-wise. And we have the resources to keep driving that -- this, bringing much more valuable achievements. So we move to the next slide. So we believe we will bring another $2 billion of the business over the coming 3 years. So still it being $4 billion business, will probably be a $6 billion business. And that would come through a combination of a double-digit growth, and some's inorganic will drive the improvement. It's unrealistic to continue assuming that [ EBITDA ] willl keep improving broaden by 100 bps a year. We will drive a more modest improvement of 50 to 70 basis points to the year -- over the next 3 years to drive EBITDA to a range of 16.55%. We'll also accelerate group net profit from the current 6.7% to [ pricing ] double digits between 8.5% to 10%. We believe that's at least we need to be, and we have now the resources to keep driving that. That will come through by the next improvement in the future growth categories like Snacking and Protein as well as premiumizing our portfolio of innovation while also bringing more discipline to our [ debt ] level. And we will also bring back development in the [ calendar ] to return more out of the acquisitions we have made the last couple of years, from the current capital of 6.5% to 9% to 10% level that will come again in our next improvement and debt discipline. To summarize 2025 outlook, so we're probably going to be looking at the business of $6 billion. 15.5% to 16.5% EBITDA, which is 150 to 200 bps improvement over the [ couple ] 3 years, group net profit margins, 8.5% to 10%, accelerated net profit improvement of 200 to 300 bps and ROI of 9% to 10%, which is also accelerated 250 to 350 bps improvement points. The phasing of the journey will not be equal for various reasons. Obviously, the current inflationary environment is not going to . We expect to start to see some easing in the second half towards Q4. And we don't know what we don't know. Also we will continuously want to about inflation . We will bring that level down. Again, that will take us some time to put down. We expect the current high interest rate environment. It will take some time before the [ line ] will go back. So with that, let me talk about 2023, we are committed to drive 10% to 12% revenue growth on the current ForEx assumption, with no further acquisition assumption. We will bring EBITDA improvement, EBITDA margin improvement, 40 to 60 bps versus an average of 50 to 70 that we spoke about, a little bit that was for the reasons we mentioned. But yet, despite all the current challenges, we will to 50 bps, back to the assumption that the debt reduction would take some time. This guidance will be on the [ current ] for expansion, and the current elaborate this year. That brings us to the end of the presentation, and we now open it for Q&A. Thank you.