Agthia Group PJSC (AGTHIA) Earnings Call Transcript & Summary

Hello, and welcome, everyone, to Agthia Group's 3Q 9 Months '25 Results Conference Call hosted by International Securities. My name is Asjad Hussain, Senior Research Analyst at International Securities. And today, I have the pleasure of introducing the Chief Financial Officer of Agthia Group, Jeroen Nijs; the IR Director, Tatiana Vlasova; and the Senior IR Manager, Amr Amin. I thank you all for joining the call today. [Operator Instructions] I will now give the floor to Agthia Group's team. Amr, over to you. Please go ahead.

Thanks, Asjad. Hello, and welcome, everyone. Thanks, Asjad. Thank you, International Securities for hosting today's call. And thank you all for joining us today to go over Agthia Group's results for the 9-month and third quarter reporting period ending September 30, 2025. So Jeroen will provide an update on the progress of Agthia's strategy and cover financial performance during the reporting period, following which we'll then open to the floor for a Q&A session. For your reference, the investor presentation will be available in the Investors section of the company's website at www.agthia.com at the end of this call. Please note that the contents of this call may contain some forward-looking statements, which should be considered in conjunction with the disclaimer included in the presentation. Over to you, Jeroen.

Thank you, Amr. Hello, everyone, and thank you for joining us today. Over the past 2 years, Agthia has made and continues to make significant progress on a journey to become a leading regional food and beverage company. And what I see is a business with solid fundamentals and significant potential yet to be unlocked. As a brief recap of our strategic journey over the past 5 years, Agthia has really evolved from a UAE-centric player into a regional food and beverage leader and growing footprint across the MENA region and beyond. Now this transformation has been guided by 3 core strategic pillars: growth, efficiency and capability. Before going into the details of Q3, let me first start by providing an overview of our 9-month performance across these strategic pillars. To start with on the growth side. Reported group net revenue declined 1.3% year-on-year, largely driven by a 3.5% decline in pricing, which was partially offset by 2.2% volume growth. Now if we adjust for the Egyptian pound devaluation and the one-off wheat trading activity that took place during Q1 of last year, underlying revenue actually grew by 5.8%. Innovation contributed AED 127 million revenue growth and now accounts for 3.6% of our revenues. While e-commerce sales rose by 20.7% year-on-year to AED 220 million and now accounts for 6.2% of our total revenue. Our recently acquired home and office delivery business, Riviere, is performing as well in line with expectations. The acquisition strengthened our leadership in the UAE water sector by expanding our customer base, enhancing operational efficiency and delivering early synergies in line with our strategic goals. On the second pillar with regards to driving efficiency, our operational efficiency initiatives delivered AED 133 million in cost savings and avoidance during the first 9 months of 2025. With ongoing improvements across procurement, manufacturing and logistics. Our combined Egyptian business delivered 3.9% of revenue growth despite the lapping of last year's Egyptian pound devaluation, which significantly impacted our Q1 performance. Now this growth was primarily driven by Abu Auf, supported by continued brand momentum and strong consumer demand. Both Al Ain Egypt and Atyab also showed early signs of recovery in Q3, recording revenue growth, and that's the first that we see during this year, so that's really reassuring. Exports from Egypt reached over AED 83 million as well the year-to-date performance. Now we continue to execute our group-wide cost optimization program aimed at streamlining support functions and improving our overhead efficiency. We've already reduced central cost by 7.8% year-on-year in the third quarter, with initial benefits already visible and larger savings expected to come as the program scales further in '26 and '27. I personally see a lot of potential to reduce overhead costs further. Moving to capabilities. During the quarter, we have strengthened our leadership team with the appointment of Chantal Charbel as our new President of Snacking, who brings nearly 25 years of leadership experience across luxury good confectionery and dairy industries in the Middle Eastern Europe. She joins us from Lactalis, where she worked the last 10 years and was responsible as GM for Lactalis Middle East. Chantal brings strong strategic and operational expertise to Agthia and I personally look forward to working with her as she leads the Snacking business unit going forward. On our digital road map, we've continued to advance our digital agenda with the improvement of Al Ain water home office services app, leading to 30% year-on-year growth in the customer base, while reducing the complaints during the first 9 months. We've also seen enhancements to our Zadina online shop, driving an impressive 82% year-on-year increase in sales. Now Agthia's sustainability, Agthia made meaningful progress, achieving a 3.8% reduction in emission rates, receiving multiple regional and global ESG rewards and launching a smart ESG platform that actually integrates 150 KPIs to enable real-time audits and transparency reporting. Looking at innovation. Innovation remains the key pillar of our strategy and a critical driver of long-term growth. In the first 9 months of the year, innovation contributed AED 127 million to our revenue, which accounts for 3.6% of net revenue. We aim to increase this and we aim to continue to focus on staying relevant to today's consumers while strengthening our presence across key channels. In Snacking, we've expanded our Turkish coffee range and introduced new snack formats, most notably the dates-filled biscuits in the Abu Auf portfolio, which are doing very well. And in Protein & Frozen, we launched several new chicken products and refreshed our packaging design to improve shelf visibility and appeal. Personally, I also -- I'm very much fond of the premium glass bottles. I think there's a lot of potential there as well. As we approach the close of 2025, we remain pragmatic about the challenges ahead, yet firmly focused on disciplined execution. While continuing to strengthen our cost foundations and drive innovations, a central priority this year is turning around our dates and protein businesses, both essential pillars of Agthia's future growth. Now let's focus on Q3 financials. Starting with the top line. Group revenue for the first -- third quarter reached AED 1.1 billion, delivering a 5% increase year-on-year. For the first time in the several quarters, all 4 of our business segments recorded revenue growth. And the Water & Food segment is leading the way, delivering a strong 10% uplift, and I'll walk you through the segment level performance in more detail shortly. Moving to gross profit. We recorded a 7% year-on-year growth. Gross margin came in at 31.5%, expanding by 57 basis points, supported by stronger profitability in Snacking and Water & Food, but partially offset by margin pressure in the Agri food business and Protein & Frozen. Looking at EBITDA. Before diving into the numbers, let me first explain the key adjustments we've made this quarter and disclosed as well yesterday. In Q3, our reported performance was impacted by a significant one-off, specifically a provision of AED 58.3 million related to a commercial counterparty who fails to meet dates delivery targets for 2025 crop season. To provide a clear picture of our core operating performance, we've adjusted this so that the reported figures also exclude this one-off item. So when we talk about underlying business performance, we take out the one-timers. I will come back to the adjustments, this one-timer when we review the snacking business in more detail. Now to the numbers. As shown on the chart, our underlying EBITDA, excluding this one-timer, declined by 5.3% year-on-year, with an underlying EBITDA margin of 12.9%. Similarly, if we look at the underlying net profit, this declined by 4% to AED 62 million with a net profit margin of 5.5%, with the decline in the absolute figure largely driven by the same factors, of course, as what impacted EBITDA. As we look ahead, our key priorities remain profitability, cost discipline and operational excellence. And we're focused on driving efficiencies across the group, leveraging the strength of our diversified portfolio and deploying targeted investment that reinforce Agthia's foundation for sustainable long-term growth. Now with that, let's move to the next session and look at net working capital, which increased by AED 218 million year-on-year. This is mainly driven due to a reduction in our use of supply chain financing. We've taken it from AED 415 million at the end of December, and we're now at 0. We've completely stopped the supply chain financing, specifically from a cost point of view. As a result, working capital decreased to 12.5% from 13.5% last quarter, but was up from 7.4% last year. Our cash conversion cycle also increased 45 to 60 days, but this was fully due to debt reduction of supply chain financing. And excluding that supply chain financing adjustment as a one-timer, our cash conversion cycle actually remained unchanged compared to last year at 45 days. Now let's take a look at free cash flow. Free cash flow for the first 9 months was negative AED 18 million compared to a positive of AED 430 million in the same period last year. The main driver was again the change in working capital, primarily due to this reduction in supply chain financing, which had supported cash flow in the first 9 months last year, and this accounted for AED 487 million, as I explained earlier. EBITDA was lower by AED 220 million, as we already discussed, those reasons for the decline. And net CapEx remained disciplined at AED 87 million, AED 31 million lower than last year, in line with our planned strategic investments. Turning to the balance sheet. As of September 2025, Agthia's net debt to EBITDA stood at 3.6x compared to a multiple of 1.5x at the end of December 2024. Now this increase was primarily driven by a decline in the reported EBITDA. We had the significant onetimers this year, alongside with the cash outflow related to acquisitions of the remaining stake in Abu Auf. We've increased our ownership from 70% to 80% and as well the full acquisition of the Riviere business in April 2025. Additionally, the reduction in supply chain financing during the quarter further contributed to the increase -- the multiple increase. On an underlying basis, however, if you look at that leverage, it stood at 2.9. We continue to prioritize deleveraging with a medium-term target of bringing the ratio back to below 2, and we'll see how quickly we can do that, but that's definitely an ambition that we have. Our interest coverage ratio remains solid at 4.4. And we continue to preserve liquidity as well during this period. Moving to the segmental analysis. So if you look at the -- in line with our strategy, we've diversified the business and expanded into high-growth segments and scalable markets. Nearly 50% of the revenue is currently coming from outside of the UAE, and our revenues now are evenly split across our 4 segments. And looking at the segment performance, let's start with the Water & Food business. This segment had a very strong quarter. Revenues are up 10.1% year-on-year. And as mentioned earlier, we completed the full acquisition of Riviere and began its consolidation in May 2025. Excluding the acquisition like-for-like, that revenue increased 1.5% year-on-year. Now in UAE, Al Ain bottled water continues to maintain solid leadership position, supported by a strong momentum across both retail and B2B channels, particularly within HORECA. We've seen an excellent performance there. Our market share in UAE bottled water has risen to 30.5%, up 260 basis points from last year. And this is visible in ePOS September 2025 readings. Our home and office service business, excluding Riviere, grew 5.2%, and this was driven by our customer-first approach and digital upgrades. Agthia International Water business, however, experienced increased competitive pressure during the quarter, leading to a 9.7% decrease in international water sales. This was especially impacted in Kuwait, but as well in Turkey, where we had some sales phasing into Q4. Meanwhile, looking at the food portfolio, this again performed a very good performance, up 22% year-on-year in terms of revenue growth, supported by a successful ramp-up of new brands, including Campa Cola and SunRice. And this is a great, let's say, way to leverage our distribution portfolio at Agthia. On the profitability side, EBITDA increased 9.9%, with margins broadly flat as gross profit margin expansion was partially offset by higher marketing spending, particularly in the UAE bottled water business. Turning to Agri business. Here, the revenue recorded moderate year-on-year growth of 1.3%. This quarter, both animal feed and flour delivered modest revenue growth, which was driven by volume, up 4.5% for the segment. However, it was partially offset by pricing as we currently observe an intense competition in both categories. The segment EBITDA declined 11.5% year-on-year, margins contracting 260 basis points, reflecting the gross profit margin decline due to the selective pricing adjustments that we've made during the quarter to match the current market level and maintain market share as the increased competitive pressure, as I mentioned before. Now to Snacking. Revenue in this segment grew by 3.9% year-on-year, primarily driven by strong performance from Abu Auf, which delivered 34.5% growth in AED terms, reflecting healthy consumer demand and the continuous strength and performance of the brand, notably through the opening of 47 new stores on a net basis since the beginning of the year and continued to drive innovation while reinforcing its market position in Egypt. We now have 383 permanent stores. And on top of that, of course, in the seasons, we also have some seasonal stores, specifically during the summer. Sales in both Al Foah and BMB came under pressure in Q3 2025, reflecting the ongoing recalibration of the business as part of the group's broader efforts to refine product portfolios and strengthen route-to-market capabilities. These initiatives are designed to enhance long-term competitiveness and unlock future growth across targeted snacking subcategories. Now Snacking underlying EBITDA declined by 5.1%, with underlying EBITDA margin at 9.7%, primarily driven by margin pressure in Abu Auf and BMB from higher raw material costs, particularly coffee and cocoa, while Al Foah delivered moderate underlying margin improvement in Q3 2025. Now reported EBITDA was further impacted by a one-off provision of AED 58.3 million in relation to a commercial counterparty, which I discussed earlier. Now this relates to the noncompliance of a commercial contract by a counterparty, including the underperformance of the dates delivery versus contractual targets, which were prepaid last year. Currently, we continue to monitor a potential residual impact of AED 30 million to AED 40 million related to the same counterparty. While we are taking all the necessary steps to recover these receivables, we believe it's important to remain transparent and inform the market of the potential implications these enforcement proceedings may have on future financials. As indicated in our disclosure yesterday, we've initiated enforcement procedures and against this counterparty. And should these proceedings result in a favorable outcome, we anticipate a potential reversal of these provisions in line with applicable accounting standards. Going forward, we've also suspended the commercial relationship with this counterparty. Turning to Protein & Frozen. Q3 saw the segment return to growth with revenues increasing 4.9% year-on-year, supported by improved commercial execution and portfolio focus across key geographies. Al Ain Egypt led the segment with strong revenue growth of 24.5%, while both Atyab and Nabil delivered low single-digit growth, reflecting the group's continued efforts to invest behind our brands and regain market share. We aim to rebuild consumer loyalty and strengthen brand equity through sharper positioning and disciplined trade activation. The segment's performance was further supported by the ramp-up of the KSA protein facility, which continues to contribute positively to overall segment sales. Phase 2 of the facility is expected to go live early 2026, unlocking additional capacity and enhancing cost competitiveness. Looking at EBITDA, it declined 18.8% from AED 27 million to AED 22 million, with a margin contracting to 8.6%. This is mainly driven by higher manufacturing overheads in Egypt, less favorable product mix in Jordan as well as the ongoing ramp-up costs in our facility in KSA, where current production volumes remain still below optimal levels and required to absorb the fixed cost basis of that site. That said, we expect this to improve as volume increase and we open up for Phase 2. Looking at Egypt. If you take that on a stand-alone basis, revenue grew by 18.8% year-on-year, reaching AED 250 million. EBITDA declined slightly, landing at nearly AED 44 million. Now the main revenue driver here was Abu Auf, which we mentioned earlier, delivering a strong 34.5% growth and Al Ain Egypt also contributed 24.5% growth versus last year. Margins, however, remain under pressure, mainly due to the higher raw material costs, which are affecting both Atyab and Abu Auf. Now we continue to execute on our Egypt as an export hub strategy. Total export revenue from Egypt reached AED 83 million in the first 9 months, representing around 12% of our sales and it's growing. That's all with respect to Q3 performance. Let's now quickly sum up our underlying performance since the beginning of the year. First, our group underlying revenue grew by 5.8% year-on-year. If we exclude the impact from the Egyptian pound devaluation and the weak trading. This growth is a clear reflection of the strength of our core businesses. On the profitability side, we delivered AED 427 million in underlying EBITDA with a solid margin of 12%. Underlying net profit came in at nearly AED 159 million, translating into a margin of 4.5%. In September, our Shareholders' General Meeting approved an interim dividend of 10.31 fils per share for the first half of 2025. This reflects our continued commitment to delivering value to our shareholders with an average dividend yield of around 4%. It also shows our commitment to continue with the dividend strategy, and we feel comfortable on the underlying business performance if we exclude the one-timers, and that's just a testament of that. All of this underscores the resilience of our portfolio and the impact of the strategic and operational transformations we've been driving across the group. On the right side of the slide, we've highlighted the one-off items that impacted our results in the first 9 months. The largest was the AED 58 million provision recorded in the third quarter related to a counterparty that breached several contractual obligations, including the underdelivery of dates. The remaining items were recorded in the second quarter and included provisions for bad debt and as well the exit of a joint venture that we had. As we close, I want to take a step back and reflect on where we are. Over the past few months, it's become clear that some parts of our business need a reset, not just a short-term fix, but a more fundamental recalibration to ensure we're positioned for the long term. That's especially true for the Snacking and the Protein & Frozen segments, where we faced a combination of external pressures, legacy internal issues and a lack of proper integration. We're not ignoring these challenges. We're facing them head on. Because of this, we believe it's right -- the right decision not to issue any full year guidance at this point. Instead, our priority is to focus on execution, doing the work, taking the tough decisions and creating the right foundations for the future. Once we have more visibility on the progress of our corrective actions, we'll be in a much stronger position to share as well a clearer view of where we're headed. In the meantime, we're moving forward with a focused and pragmatic agenda. Our teams are aligned around 6 key priorities for the remainder of the year. First, we're driving performance in our core businesses, ensuring that where we are strong, we stay strong. That means being more agile, more disciplined and more consistent in how we execute. Second, we're working to reset Snacking, not just by managing short-term risks, but by building stronger commercial capabilities, improving control systems and reinforcing how we go to market. As I already mentioned earlier, we just recently appointed Chantal, who will lead the Snacking segment. Third, we're supporting a turnaround in Protein & Frozen. We've put in place a dedicated team, including people from the head office to review the fundamentals from cost structures to pricing strategies with a clear mandate to restore profitability, but also to regain our market share and reposition the business for the long-term sustainable growth. Fourth, we're strengthening controls on receivables, making sure that growth is paired with the right governance and that sales incentives are linked to cash, not just volume. Fifth, we're improving working capital discipline. We've launched a cross-functional effort to drive tighter controls, not only across receivables, but also on payables and inventory with clear accountability and tangible targets. And finally, we're finalizing the Agthia 2030 strategy, a long-term framework that will anchor our next chapter of growth and value creation. It's not just about new ambitions, it's about making sure we're building a business that's resilient, relevant and ready for what's next, and we're planning a roadshow at the end of Q1 2026. Now before I open the floor for questions, I'd like to close by saying that Agthia remains a fundamentally strong and resilient company with a very diversified portfolio, solid market positions and big growth ambitions. While this quarter brought near-term challenges, we're tackling them decisively. We're sharpening execution, and we are reinforcing the foundations for sustainable long-term value creation. Our legacy business continued to perform well if you look at an underlying basis, and we remain confident in our ability to deliver consistent progress through disciplined operations and focused portfolio management. Thank you for joining us today. And with that, I'll now hand over to International Securities to begin the Q&A.

Thank you to Agthia Group's management team for a comprehensive review of the Group's 3Q 9-month '25 financial performance and key strategic objectives. We will now open the floor to questions. [Operator Instructions] Okay, so our first question comes from the line of Nishit.

I have a couple of generally broader observation that your Al Foah acquisition and strategy has been really tough in terms of like a lot of things have gone wrong since the dates and scaling up and the product strategy of value-added. And so this requires a lot of reset. Now you are saying that another AED 30 million, AED 40 million can be -- another impact can come from this counterparty. So how do we look at it? Like is the worst behind for Agthia? Or we should still expect a lot more of fourth quarter to be another quarter of some resets in your dates business and all? And what will change? I mean, I know you're getting a new team and you've discussed about certain things, but where will investors get confident? There's been so much value destruction in last 1 year. The stock price is half of what it was. And generally, all this acquisition-driven growth, you have AED 2 billion in goodwill sitting on your books with these acquisitions, which you will say that there's no impairment, is all okay. So I'm just worried about where the direction of the management is, and you are obviously not giving the guidance right now, but how do we look at it in terms of analysts, like where can we get confidence on the company's strategy of getting things right, not just for Al Foah, but you're also seeing this pressure on the other businesses. But Al Foah obviously gets the full major attention for now.

Okay. So thank you very much for raising the question. So let me start by addressing your concern around the dates business. Most of the issues that we faced in the dates business was not from the local UAE dates, it was from the international dates. At a certain moment, I think it started 2 years ago, the leadership team at that time was looking at expanding the revenues to the international dates. And as we have explained in the previous sessions as well is we see that, that was quite a challenge because we didn't have the sales capabilities or the route-to-market knowledge in place to manage those international dates. What we see now is an isolated case specifically to a counterparty where we had a very tight commercial agreement that were not met. If I look -- if I take a step back and look at the business, looking forward, I think this is still a very strong business. Why do I say that? Because if you look at the dates business in the UAE, it's very solid with a good margin. The international business, if we scale this down and if we review it in terms of the portfolio that we want to play, actually, this will be a benefit for us going forward, even excluding the one-timers because we've had quite some negative impact from that international business. So going forward, actually, I'm positive about the business and the direction that we're going. We just have, of course, these one-timers that we're tackling head on now this year. But as I said as well in the earlier calls, I really think that 2026, we will have stabilized the business. And from that moment, we will continue to move based on good foundations. So that's particular to your questions around, I would say, the dates business. Does that answer your question?

Yes. But just an observation, like you had an issue with the last year crop season and there were some provisions and sales were made and the collection was not done and the timing issue was there, you committed to a certain quantity and the delivery didn't happen. Then again, now you have an issue with this year's crop season, if I'm not wrong, with this counterparty, right? So you clearly are not getting this dates business under control. Or am I wrong that last season was different? This is for this season, right, I mean, this counterparty?

Yes. So these are 2 different issues. The one was really looking at expanding the business outside of the UAE crop and going into international dates. The issue that we're facing today is a separate issue with one specific counterparty where we had contractual clear agreements, which were not met by this counterparty. Those are 2 different issues. And like I said, both of them will be solved as we move into 2026. And that's why I feel comfortable. Actually, I think -- or the way I see it, it's actually positive if we digest these and move forward because the profitability will increase significantly into next year. And as we manage this international business at a lower pace than before. So it's a structural change in terms of the sales capabilities around it, the mix portfolio that we will play on the international dates and as well lapping the one-timer of that specific counterparty that we have.

Our next question comes from the line of [ Shahrukh Nawaz ]. Shahrukh, your mic has been enabled. Please unmute locally and proceed with your question. Okay, I think we'll take the next question. Our next question comes from the line of Zahid Usman.

Can you guys hear me?

Yes, I can hear you, Zahid.

Usman Zahid here from Kepler Cheuvreux. My question is pretty similar to the previous question. I'm still not clear on it. Could you please confirm the issue where against the commercial counterparty, it's for the 2024 harvest season or for the 2025 harvest season because you already had a problem of oversupply in the 2024 season, right? So is this for the -- particularly specifically for the 2025 season or '24? I'm still not clear on that.

So as I explained, these are 2 separate issues. The oversupply was related to the 2024 crop and as per the disclosure, we did yesterday, the new issue pertaining this specific counterparty was related to the 2025 proxies.

[Operator Instructions] So our next question comes from [ Issa ].

Can you hear me?

Yes, Issa, go ahead.

Yes. So I just want to ask, since these are 2 different issues. So I just want to understand in terms of the -- going forward in terms of provisioning. So for the second -- for the 2025 harvest, there's a AED 40 million remaining potential provisioning. Is that correct? And for the previous issue, which is the 2024, is there further impairments on the inventories or -- so if you can just give us maybe an idea on going forward, how much provisioning is potentially that you're expecting?

So thanks for raising the question. So when it comes to the issue of the 2024 crop, we've dealt with it. So any excess of inventory that we had, we've managed that, and we're expecting to close all of that by the end of the year. There's no remaining risk related to that issue. When it comes to your question on the 2025 crop, there is a total exposure of AED 142 million. We already had a provision of AED 50 million. We have now an additional provision of AED 58 million that was recognized in Q3 and there's a remaining amount of around AED 34 million, which is open. But I have to say that any additional provision will also depend on the progress and the outcome of the negotiation with the counterparty consistent with our receivable provisioning policy and as well the audit committee oversight. So it's not clear yet whether the AED 34 million is needed, but we want to highlight that as a remaining provision just to be clear and transparent to the market.

Okay. In terms of the -- even if you add back the provisions that you took this quarter, the earning power of the business obviously is way below the historic level. So just to -- can you give us an idea on going forward once all these issues are behind us, what is the earning power of this dates business? What kind of margins and volumes that you expect to achieve? I don't know if you can give us some high level on this.

Look, I don't want to give any forward-looking statements. The only thing I would say is that as part of the information that we provided publicly, we had about AED 110 million of onetimers this year. So that gives you already a very good view in terms of the correction you need to do from an analytic point of view. On top of that, we see continued cost efficiencies and further optimizations as we move into next year. But like I said, I don't want to give any forward-looking, let's say, statements. But that should already give you good visibility in terms of your projections.

Are you stopping to supply from internationally or going back to the -- because previously, you only supply from local.