Agthia Group PJSC (AGTHIA) Earnings Call Transcript & Summary

Hello, everyone. This is Hatem Alaa from EFG Hermes, and welcome to Agthia's First Quarter 2023 Results Call. We'll start off by a presentation from the management team, and then we'll open the floor for Q&A. [Operator Instructions] I'll hand over the call now to Sahar Srour, the company's IR manager. Sahar, please go ahead.

Thank you so much, Hatem. Good afternoon, ladies and gentlemen. Thank you for joining us on today's call covering Agthia Group's first quarter 2020 results, hosted by Alan Smith, our Group CEO; and Sherif Elfaham, our Group CFO. As usual, Alan will start by providing an update on the progress of our 5-year strategy. Sherif will then cover our financial performance during the period, followed by the full year outlook and have closing remarks. We will then open the floor for a Q&A session. For your reference, the investor presentation is available in the Investors section of the company's website. Please note that the content of this call may contain forward-looking statements, which should be considered in conjunction with the disclaimer included in the presentation. Over to you, Alan.

Thank you, Sahar. Good afternoon, everybody. Thanks for joining today. I think the active first quarter is really testament to the ongoing execution of our strategy and ambition to become a regional F&B leader by 2025. We continue delivering ahead of plan strongly across our 3 pillars of growth, efficiency and capability. Our group net revenue increased 12% year-on-year. Like-for-like revenue growth, including our most recent acquisition, Abu Auf, was plus 4.5% year-on-year with double-digit growth from Agri and Snacking, 24% growth from Protein, excluding the currency impact and mid-single-digit growth in our Water and Food business. Group revenue growth, excluding the impact of currency headwinds in Egypt of AED 112 million was actually 23% year-on-year. Our continued efforts to leverage synergies and focus on strong cost discipline resulted in AED 15 million of productivity gains and EBITDA margin expansion of 89 basis points in Q1. Simultaneously, as we face challenging external environment in one of our key growth markets at Egypt, we shifted our focus on leveraging Agthia's current strong platform as a manufacturing hub for key regional and international export markets. In fact, during the quarter, we strengthened our export focused resources through new foodservice volumes across the region as well as vegetarian and plant-based orders into new international markets. Our most recent acquisition, Abu Auf, is now selling Date Crown and BMB ranges through its domestic channels in Egypt and is currently scoping opportunities to increase exports with premium branded coffee and nuts products. In terms of our third strategic pillar, we've made good progress in expanding our in-house capabilities to future-proof growth through accelerating innovation to meet the evolving needs of consumers by launching new gifting range and value-add product and packaging formats within the Snacking portfolio, progressing on our sustainability agenda with the first locally produced 100% rPET water bottle and continued progress to our comprehensive digital roadmap through new digital and technology hires and creation of a staff center of excellence, a new loyalty program in our water home delivery and renewed focus on delivering a best-in-class customer experience digitally. And lastly, new partnership with Microsoft to bring state-of-the-art CRM and contact center. I'll now hand it over to Sherif to take you through the details of our financial performance.

Thank you, Alan. Good afternoon, everyone. Let me first run you through the key financial highlights. Starting Q1 was a strong quarter for us in both topline and bottom line. We have seen a strong topline growth at 12%, which was the quarter with [ AED 112.2 million ] revenue. On a like-for-like basis, this represents 4.5% growth. EBITDA growth was outpacing the revenue growth at 19%. We have seen an EBITDA margin improvement by 90 basis points across the line, which is quite pleasing. We had a healthy net profit growth as well at 7%. It's after absorbing the incremental interest costs for about AED 20 million. That translates to around 170 basis points impact on the net product margin. So overall, quite a strong quarter, in line with our original expectation. These results have been delivered in a very challenging environment. We still continue to see elevated quarterly prices. If you look at quarter 1 prices versus the same quarter last year, that's now AED 55 million of commodity inflation, mostly in our Agri business. We have seen a devaluation in the [ regional ] borrowing currency that was 50% of its value. Just for context, our exposure to Egypt is around 15%. Our operations is focusing now [indiscernible] and we have strong plans for the quarter. You will see from our results how we've been through this. However, the gross impact of the devaluation is around AED 110 million revenue, around AED 20 million of EBITDA and around AED 10 million of group net income. We have also all seen an increase in interest rates, almost tenfold the range we have seen in the same period last year, and that results in a AED 20 million of incremental year-on-year. We are taking measures to deal with that. We settling down a part of our debt, which still is around more than AED 400 million in quarter 1, and we managed to improve our net debt to EBITDA in the quarter, but further increased temporarily in Q4 to complete the acquisition of Abu Auf. If you move to the next chart and look at the topline bridge, the key drivers of incremental revenue, you will see the inorganic contributing around AED 78 million, which is the Abu Auf acquisition from Egypt. It was pleasing to see Water and Food continuing to grow and had contributed to our topline. Agri had a very strong quarter as well, adding AED 30 million. Snacking, on organic basis, added around AED 48million to the company. And our Protein and Frozen have seen a decline of around AED 43 million, after absorbing the AED 112 million currency impact, which means we have been able to offset around [ AED 70 million FX ] currency to add to pricing makes an [indiscernible]. Our growth was balanced, 6% came from pricing, [ agribusiness fell from around ] 6% from volume. And If you exclude the devaluation impact, that goes to around 23%. If you move to the next chart and look at the EBITDA bridge, you will see, inorganically, there is a contribution of around EUR 21 million of EBITDA coming from Abu Auf acquisition. Again Water and Food is contributing strongly into profitability improvement, thanks to the restructure that we have done in our Saudi operation that was [ growth-making ] last year last and recovered around to profitability this year. Agribusiness held to profitability in spite of the biggest commodity inflation, which is a strong performance. Snacking has also contributed to AED 11 million. And Protein and Frozen EBITDA has declined by AED 5 million after absorbing down AED 120 million of commodity -- of currency impact. You will see in others, also some investment we are making in digital and in capabilities as we continue to evolve the organization toward 2025. Overall, very strong performance and profitability, both with growth and on [ business points improvement ]. If you look at the net profit gross margin, it's a similar picture to EBITDA, starting -- 12 million came from Snacking acquisition. Water and Food recovered AED 11 million in the current [indiscernible] Saudi, but also growing and moving profitability in our international markets. Agri held profitability. Snacking benefited from the very strong growth. And you see on the far right, [indiscernible] impact of the interest cost, the AED 20 million [indiscernible] that we explained before, and some payment investment in capability and digital that we spoke about. Our balance sheet remain very robust. We improved net debt to EBITDA from 2.3x at the end of last year to 1.9x. As I mentioned, we settled a piece of our debt, around more than AED 400 million that, one, improved the interest coverage of 7.2x to 7.7, which is a very good [indiscernible], and we improved the liquidity available at our hand, which makes the ability to borrow up to AED 1.5 billion and around AED 700 million of cash. Our dividend yield remains very healthy and one of the strongest at 4%. So overall, we are in a very strong balance sheet. If we move to segment performance and talk about the different parts of the business. I think it's important to recognize that the company now is much more diverse and flexible than the company 2 years back. We have diversified our geographical footprint significantly. To this backdrop, 90% of the operation in the UAE. Around 49% of all operation in UAE and we have a more balance of distribution, 15% in GCC; other Arab countries which was 27%, predominantly Egypt and Jordan; and the rest of the world with our export channel has risen 9%. We have 4 balanced business units or segments as we call them. Largest-wise was Snacking at 32%; followed by Agribusiness which was at 25% of the business; then Water and Food, 21%; and Protein is around 22%. It is pleasing to see all of the business units are growing on a like-for-like basis. Even Protein after [indiscernible] regard to that. Our performance is quite healthy. If you move to the next slide and talk about the Snacking statement. For example, Snacking is leading the pack in terms of performance in Q1. The business unit grew by 50% in topline and improved profitability and grew EBITDA even faster at 56%. If you exclude the [ Abu Auf ] acquisition, the like-or-like growth is around 15%. Big part of that was driven by production and expansion of our Dates portfolio into markets like India, Indonesia, Malaysia and Brazil. It is also reinforced by innovation and premiumization in the Dates range. [indiscernible] [ penetration back ] choco dates and few other premium offering. Confectionary offering. Our BMB snacking and Al Faysal Bakery, they both do well. [indiscernible] had a very strong performance and be able to extend the currency investment in both [indiscernible]. EBITDA has also seen both ahead of revenue, as we mentioned, benefiting from mix optimization and premiumization. Overall, very strong performance and contribution from our Snacking business. If you move to the next slide, I'm speaking about our Protein category, impacted largely by the devaluation of the [indiscernible]. We see on a reported basis a 14% decline year-over-year after absorbing AED 112 million. If you strip out that, in fact, the year-on-year goes 24%. Our strategy in Egypt remain as we explained before, maximizing the value of the assets we acquired from Egypt and transforming the country into a regional export outlet, leveraging its low cost base and geographical location. While building export capability in the country, we have already increased our export in Q1 by AED 3 million in total. We currently have around AED 60 million for the year, [ excluding currency headwind ]. That will create a much strong edge and will help us navigate it better. And at the same time, we've been able to drive a lot of agile pricing, effective tiering, on top of our efficiency and positive programs in the company to be able to mitigate that [ quarter ]. And we managed to improve, actually, EBITDA margin in a very difficult environment. [indiscernible] profitability, not purely for pricing, it's a mix of efficiency, cost-saving and a solid pricing. If we talk about Water and Food, it's really pleasing to see our water capability continue to grow at 6% and a big part of that is coming from international markets. So KSA is now coming back, gaining ground strongly, proving that [indiscernible] concerned. And also turning around this profitability from loss-making last year into a profit generating this year after the restructuring that we did over. We have a strong performance and as to the international markets as well. It was also equally pleasing to see our water business in UAE maintaining market leadership in UAE. The significant [indiscernible] is largely driven by the restructuring and turnaround in our Saudi business, but also to premiumization and international expansion on channel. Going to our Agri business. Agri had a very strong growth of 12%, managed to held profitability in a efficient commodity inflation environment, high cost environment, which is a very solid performance. In spite of having some unfavorable mix as well that they have to be [indiscernible]. Now with Q1 strong results under our belt, we are pleased to reconcile our full year 2023 guidance in saying provided to deliver revenue growth in the range of 10% to 12%, EBITDA margin expansion around 40 to 60 basis points, improvement of profit margin expansion between 30 to 50 basis points. With that, let me hand over to Alan with our closing remarks.

Thanks, Sherif. So overall, strong and profitable growth in our first quarter across both the legacy and the acquired businesses. It's really a result of the tireless efforts and agility of all our colleagues across the group. Our strategy to acquire, integrate and grow attractive businesses in value-add categories continues to bear fruit and our continuing momentum in the first quarter of this year is a testament towards progressive leadership and seamless execution of this strategy. We will continue to remain focused and agile in that execution and confidence in the long-term growth trajectory of our business. I look forward to sharing Agthia's continued progress with you as we take the business from strength to strength. And thank you for listening.