Agthia Group PJSC (AGTHIA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Agthia's 9 months and Third Quarter 202 earnings conference call on 6th of November 2026. The format of the call will be a presentation by the management team followed by a question-and-answer session. So without further ado, I would like to pass the line to Ms. Tatiana Vlasova, Head of Investor Relations. Please go ahead, ma'am.

Hello, and welcome, everyone. Thank you to the Cadete for hosting today's call, and thank you all for joining us to review to Agthia Group's third quarter and 9 months results. On today's call, we are joined by Asia Group's CFO, Jeroen Nijs; and my colleague Abradee. It also begins an update of the operational and strategic progress. He will then review the group's financial and additional performance for the third quarter and the 9 months of the year before covering performance across our 4 business segments. Following the presentation, we will open the line for the Q&A session to address any questions and provide further clarification where needed you reference the investor presentation will be available in the Investor Relations section of our via website after the call. Please note that today's discussion may include forward-looking statements and should be considered to be with the disclaimer included in the presentation. With that, let me hand over to Jeroen.

Thank you, Tatiana. Good afternoon, and thank you as well for joining our earnings call today. Before we get into the numbers, I want to start with the environment that we have been operating in because it's important as a context for understanding our performance First and foremost, we maintained uninterrupted supply of essential products across the UAE and other markets that we operate in throughout actually the whole year of 2026. Our contingency planning as well as our active monitoring and diversified sourcing and manufacturing footprint, they all play a significant control in achieving that. At the same time, the financial impact of higher cost is now becoming more visible. In the second quarter, we still had the benefit of inventory purchase before the input and supply chain costs increased, so before the geopolitical situation. But as we work through that inventory and replenish it at today's market prices, the higher procurement, logistics and distribution costs are progressively moving through our cost base, particularly in the UA water and agri businesses. We are, of course, actively managing that pressure across procurement, productivity, route to market and portfolio management, but we also want to be transparent on this. At the current level of cost exposure, we do not expect these actions to fully offset the impact. R&D elevated input and supply chain costs are expected to weigh on our margins. and profitability in the coming periods and well into 2027. As the duration of the current market conditions cannot be determined the ultimate financial impact cannot be estimated with certainty and therefore, we will not issue any forward-looking guidance. Our approach, however, is very clear. We will continue to prioritize supply continuity and stay very disciplined on execution, and we will take the necessary actions to protect the long-term strength of Agthia. Turning to Slide 5 now. Our strategic vision remains to continue our growth as a regional food and beverage leader our strategic direction remains unchanged, delivering sustainable growth, driving efficiency, and as well productivity and building our capabilities that are required to deliver our long-term value creation. The progress achieved during the first 9 months demonstrates the value of this agenda, of course. And at the same time, the current environment reinforces the importance of executional discipline. We are focused on protecting these 3 core pillars becoming leaner and more data labs, leveraging AI where we can and directing investments towards scalable categories and markets where Agthia has a clear eye to it. Before we take a closer look at our third quarter results, I'd like to step back and briefly review our performance for the first 9 months of the year relating -- related to those 3 pillars as you can see, are highlighted on Slide 6. Let me start with growth. Our reported revenue increased 9.6% year-on-year during the first 9 months supported mainly by the water and foods as well as the Agri business and a turnaround on Protein & Froze. And it's also amplified by our participation in the UAE food security program excluding the food security sales, which we have identified as onetime as well, the underlying revenue grew 1.2%. Innovation continues to contribute to growth, generating close to PLN 166 million of revenue, which is equivalent to 4.6% of the underlying sales Digital also maintained a good momentum as we saw across the previous quarters. E-commerce revenue reached AED 267 million, which represents now 7.4% of the underlying sales and is increasing 16.4% year-on-year. Turning to the second pillar, which is around efficiency. Also here, we make progress across areas, the exports from our Egyptian platform reached AED 76.5 million. Net productivity represented 1.3% of cost of goods sold. And separately as well, we continue to work on a program to optimize our SG&A costs. On the last pillar, in terms of capabilities, also here, we took some important steps to strengthen the business for the next phase of growth. First, we strengthened our leadership team with the appointment of Ola Fayed as President of our Protein & Froze segments. Ola brings more than 25 years of industry experience, and she will play a key role, of course, in accelerating the segment's transformation and growth agenda for the Protein & Froze sectors. We also continue to build digital capabilities. We appointed a single e-commerce agency. We also rolled out digital shelf monitoring, and we made some progress on data and AI foundations as well as sales AI initiatives. And finally, on sustainability. Our focus here remains on delivering measurable operational improvements. Our sustainability productivity project generated about AED 10 million of savings, alongside some continued improvement across a range of environmental KPIs. For the business of our size and scale, we see sustainability, not just as a stand-alone initiative, it's an important part of how we operate and also how we improve the efficiency of the business. Taken together, we are making tangible progress across all these 3 pillars. And at the same time, we recognize again that the operating environment is becoming more demanding. And the next phase will require even greater discipline, even greater focus and actions to offset the higher cost pressures that we see. Turning to Slide 7. Innovations remain an important component of our growth strategy. I just highlighted that we have now generated close to AED 166 million of revenue during the first 9 months. Looking across our portfolio. So starting with snacking, AbandL4 expanded their convenience and indulgence portfolios while BNB continued developing day-to-day snacking propositions, along with an expanded freaking portfolio. Looking at the water and food business here, you see fuel marks our entry into the functional beverage category. We refer to it as well in the previous quarters alongside extensions in alkaline, sparkling and flavored water and as well as broader Altan food portfolio. Protein & Frozen launched new burger, appetizer, coated cooked and as well ready to eat formats across retail and food service. And when it comes to the Agri business, here, we introduced specialized flour products and as well expanded Agri pitas farm care solutions with cleaning and disinfection ranges for animal facilities. These launches strengthen our brands, broaden our consumption occasions and support, of course, the quality of our future growth. Now with that, let me turn to the Group's third quarter financial performance. At the Group level, revenues reached AED 1.3 billion in the third quarter, increasing 14.4% year-on-year. This included AED 104.7 million of one-off water at food sales related to the UAE food security program that I referred to earlier on. Excluding this activity, the underlying group revenue increased 5.2%, supported in particular by a strong performance in the Protein & Froze as well as the agri business. Gross profit increased 1.6% to AED 363 million, while the gross margin, however, declined 353 basis points to 27.9%. The margin movements reflect different trends across the portfolio. In snacking, margins actually improved materially as we lap the one-off impairment provisions booked last year. The results were further supported by the reset actions that we've taken across the snacking portfolio. However, this was offset by higher PET costs in Water and Food, higher beef costs in the Protein & Froze and the gradual replacement of the pre-conflict inventory at a much higher cost in the Agri business. So while the top line actually remains very healthy, the cost pressures are becoming more pronounced and increasingly visible on our gross margins. Looking at Group reported EBITDA on Slide 10. It increased 39% year-on-year to AED 123.1 million, with a reported margin expanding 167 basis points to 9.5%. Reported net profit reached AED 33.2 million compared to AED 4.1 million in Q3 2025. These reported improvements were driven mainly by the absence of prior year impairments, together with, of course, the contribution from the food security activity in the current quarter. On an underlying basis, however, the picture is more challenging. EBITDA declined 26.2% and net profit declined 67.8%, mainly reflecting the higher input costs and as well the allocated distribution expenses. We will come back to the drivers by business segments shortly when we talk about that -- those performances. The distinction between the reported and the underlying performance here is very important. So our transformation initiatives are delivering tangible results, but the benefits are increasingly being offset by our inputs in freight and distribution costs, which are placing pressure on our underlying earnings, as I've highlighted in the beginning of this earnings call. Turning to working capital. Here, we saw a meaningful improvement year-on-year. Net working capital as a percentage of annualized sales declined to 8.8% from 12.5% in the prior year quarter. This improvement was driven by higher payables and lower inventory which was partly offset by higher receivables. Now receivables increased mainly due to advances in 4 ahead of the harvest and amounts related to the UAE food security program. Inventory declined primarily due to shipment timing in the Agri business, while the increase in payables reflected higher crude expenses. As a result, the cash conversion cycle improved 14 days from 60 to 46 days. Overall, this represents a good progress in our working capital management. We remain focused on maintaining tight control across receivables, inventory and payables as well as disciplined cash management, which continues to be a key priority for us. Free cash flow. Here, that stood at AED 212 million for the first 9 months, an improvement of AED 230 million year-on-year as in the last -- last year, we were at minus [indiscernible]. The main drivers here are the improvement in EBITDA, EBITDA. The nonrecurrence of the prior year cash outflow related to the supply chain financing program. And then thirdly, as well, lower net capital expenditure. All these benefits, however, were partially offset by a negative working capital movement, which was driven mainly by a higher receivable related to the food security order and by as well higher tax payments following the increase in reported profits. Overall, the results demonstrate stronger cash generation and continued discipline in our capital allocation. Turning to the balance sheet on Slide 13. We closed the quarter with a strong cash position of AED 536 million while net debt stood at approximately AED 1.4 billion. The net debt-to-EBITDA ratio, so the leverage was at 2.4x compared to 2.9x as of year-end 2025. So we do see an improvement. However, in the previous quarter, we were at a leverage of 1.8. So you can see a small deterioration. As I mentioned at that time, there were some timing-related impacts in there. So that's why now we're also confirming 2.4%. Borrowing capacity increased from AED 0.5 billion in December 2025 to appropriately AED 1 billion and as well interest coverage remains strong. Here, we're increasing from 4.9x to 7.2x today. The improvement in leverage was driven mainly by higher reported EBITDA, of course. But overall, our balance sheet provides us with flexibility to navigate this difficult environment that we face today, while maintaining as well, of course, our focus on disciplined capital allocation, working capital management, and preserving financial headroom. At the same time, we remain committed to delivering returns to our shareholders. And in line with this commitment, the AGM approved 14.4 increase in interim dividends as we communicated earlier. Let me now move to segment performance. But before -- sorry, before we discuss the segments individually, it is worth highlighting the diversification that we have across our portfolio. Based on our underlying revenue, we broadly balanced across the 4 segments: Water & Food, Agri business, Snacking and then finally, the Protein & Froze segment. None of these segments account for more than 27% of sales. As you can see on the left chart, the underlying segment revenues vary between 23% and 27% of the total underlying sales, so quite balanced. And on the right side, geographically, the UAE remains our largest market with 54% of the underlying sales coming from the home market complemented by meaningful positions across the GCC, other Arab countries and the rest of the world. Egypt is about close to 23% of underlying net sales. The diversification provides access to, of course, multiple growth opportunities, helps balance the different categories and market cycles. While it does not make us immune to the external cost pressures that we face, especially today in the UAE and thus strengthen the resilience that we have across our operating model. Now let's move to the individual segments, starting with Water & Foods on Slide 16. Year revenue increased 36.7% year-on-year, supported by AED 104.7 million of one-off food security-related sales. Excluding this activity, our revenue increased by 2.5%. The UAE Water business actually performed well with home and office services growing 12.9% and bottled water increasing 4.9%. International Water grew 1.2%, led by Turkey and Kuwait. Food revenue, however, declined 17% because municipality store operations transferred from us to a third-party operator this year, but excluding those stores, actually, the food revenue increased by 29%. Reported EBITDA increased 0.6% while underlying EBITDA declined 28.4%. The higher PET freights and as well distribution costs, together with the disruption in regional logistical routes more than offset the revenue growth. From a commercial perspective, we continue to make good progress. Alain retained its leading position in the UAE bottled water and continue to gain value share. Actually, it grew 0.8 points to 31.2%, of course, the leader in the segment. Modern Trade and e-commerce also delivered good growth. While the integration of Revere supported further acquisition, let's say, expansion in the home and office services customer base. We now have about 400,000 home and office points where we deliver to. In Foods, the launch of a new range of sauces and condiments, together with targeted consumer activation supported the growth across this portfolio as well. These commercial initiatives strengthen the business although execution remains very much focused on balancing growth with the need to manage the rising cost to serve. So while demand remained healthy and commercial execution was actually very strong, the benefit of that growth was increasingly offset by the higher PET freight and distribution costs, which are clearly linked to the geopolitical situation in the region. The agribusiness, here, we delivered another resilient quarter with revenue increasing actually 10.5% year-on-year. Food sales grew 18%, while the flour sales increased by 1%. Profitability, however, also here came under significant pressure. EBITDA declined by 39.3%, with the EBITDA margin down by 807 basis points. As the inventory procured before the increase in input and supply chain cost was consumed, we highlighted it before, we have higher replacement costs, including elevated inbound distribution costs flowing to the P&L. These costs reflect the continued rerouting of grain shipments to Fujera parts from which onward transformation -- transportation happens by road to our silos and as well our manufacturing site in Abu Dhabi. And of course, this is significantly weighing on our margins during the quarter. Despite these pressures, the business continued to maintain strong customer relationship and its market position, especially on the feed side, we've gained significant share. But looking ahead, again, we expect margins to remain under pressure. Even from the moment the conflict would be resolved, we have a long lead time between ordering and consuming the flour and fleet-related commodities that we have in transit and in our SoCs. Turning to snacking on Slide 20. Revenues declined by 14.7% year-on-year. Strong growth by Abu was offset by lower sales at reflecting, again, the ongoing resets as well as disruption from export logistics routes due to the regional tension. Above continued to deliver, again, a very strong momentum with revenue growing 21.7%. The business added 69 net new stores year-to-date, bringing the network to 468 stores while the ground coffee value share as well increased to 12.5%. And importantly, here, for the first time in Above history, its ground coffee market share reached parity with a long-lasting market leader, it's a local leader, but in the month of August 2026, we beat them. Whilst there is still more work to do, it is, of course, very nice to celebrate this milestone, and it provides tangible evidence that our investment in the brands as well as marketing and consumer engagement is really keen in traction. Reported profitability also improved materially. Segment EBITDA reached AED 23.8 million compared to a loss of AED 30.2 million in the prior year quarter. This improvement was supported by the absence of the prior year impairments, continued progress with the Alfa reset and as well this year, again, strong performance above. B&B, however, remained under pressure as lower export sales impacted fixed cost absorption. Overall, the earnings trajectory in snacking is improving, but the work clearly is not finished. Our priority is to build on this momentum, restore sustainable revenue growth and strengthen our position in the UAE, Egypt and beyond leveraging our brand portfolio distribution capabilities and consumer reference. And finally, turning to our Protein & Froze segment on Slide 22. Protein & Froze here delivered very strong top line growth revenue increasing 25% year-on-year. Growth was here broad-based across the portfolio. Nabil grew 25% and Frozen vegetable and tomato paste grew 14% and ATP also 14% or close to 14%. And in Saudi Arabia, the Phase 2 expansion of our facility supported at 283% increase in sales, demonstrating the strong growth potential we see in this market, which is as well very much in line with the earlier communications we did in the previous quarters. Profitability, however, did not keep pace with the strong revenue growth, EBITDA declined slightly by 1%, with a margin contracting by 180 basis points to 6.8%. The improved performance in Saudi Arabia, Saudi Arabia was offset by margin pressures elsewhere, primarily reflecting higher direct material costs, and in particular, beef as well as transformation-related costs at Agthia. From a commercial perspective, we continue to build our brands, distribution and market presence across Egypt, Jordan and the MENA region supported by strong innovation agenda, refreshed packaging and as well a very targeted consumer campaigns. The Saudi facility also successfully passed the McDonald's meta audit with 0 findings further supporting our operational capabilities and future growth opportunities from that site. Overall, we are seeing strong demand and building scale across Protein & Froze. Our immediate focus is, of course, now to translate that growth into improved profitability with pricing mix, procurement and productivity drivers, all important levers to address the current margin pressure. Now before moving to Q&A, just a final thought from my end or closing statements. So Agthia delivered overall very good reported results in the third quarter. Strong revenue growth, improved reported profitability, positive free cash flow and lower leverage versus year-end. Our transformation continues to produce tangible benefits, particularly in Protein & Froze. And our diversified portfolio remains a source of resilience. At the same time, cost pressures from the regional conflict are intensifying. We see higher input freight and distribution costs, and they are increasingly flowing to our cost base. And while we are acting decisively across procurement productivity, portfolio and commercial levels, we do not expect to offset those to the full extent. We will continue to manage the business with discipline, protect supply continuity and preserve financial flexibility while investing selectively, of course, in the capabilities and categories that support the long-term value creation. Thank you for joining us today. With that, I will hand the call back to the closing team, who will open the floor for questions.

Thank you very much for the presentation. [Operator Instructions] Our first question comes from Hussain housing from ABI Analytics. Reported EBITDA rose 39% year-on-year in 3Q '26, but underlying EBITDA, excluding the food security sales and the prior year is net impairments fell 26.2%. Is the headline overstating the real improvement?

So thank you for raising the question. So no, look, we are not seeking to overstate the improvements, but actually want to ensure full transparency -- the reported comparison benefits from significant outdoor turnaround charges in Q3 last year, which we have separately identified and reconciled at that time when we continue to do so. On an underlying basis, EBITDA declined 26.2% in Q3 2026 and 9.2% in the first 9 months which was mainly reflecting the lower water and foods and as well the Agri business EBITDA due to the cost pressures. In his words, of course, noting that we have taken as well and delivered a conservative approach here by also showing the revenue and the profit contribution from the food security when we talk about the underlying calculations, the regional escalation, the inflationary pressure and the logistics fruit disruption, they weighed on the profitability and created a significantly more challenging operating environment. And we recognize those pressures. We remain confident in the resilience of the underlying business, and that confidence does not diminish the fact that we have to focus on addressing the challenges, even though we think that they will remain with us for the next quarters. But to the point, the fact that we want to report the underlying business is actually to increase more transparency. Thank you.

Thank you very much. Next question is from [indiscernible]. The MD&A says elevated input and supply chain costs will weigh on margins in the coming periods. Could you quantify the expected impact on the 4Q '26 and 2027 margins and say which cost lines are the biggest pressure. Pat, grains and seed, beef or frying and distribution.

So thank you for raising the question. So again, we don't make any forward-looking statements. What we do highlight in this call very clearly is that the pressure on the margins will continue. And specifically, to your question, we see that pressure is the highest on especially the agri business, like I explained. Here, we have the shipments rather than arriving at our facility in Mina at ports in Abu Dhabi we now have to unload those ships in Fujera. Just to give you a flavor of this, so ships range between 30,000 to 60,000 metric tons, now a ship of about 40,000 tonnes, takes about 2,000 trucks. So we need to unload the ship in Fujairah, store it at silos there. then transported by road to our Abu Dhabi facility and then as well unload those trucks. So you can imagine 2,000 trucks with roughly about 20 ships like that during the period that couldn't pass through the Strait of Hormuz, you're talking about 40,000 to 50,000 trucks that we had to manage. So it's really significant. Separately to that, indeed, the increased oil costs have an impact on everything that we do when it comes to distribution as well to our customers, but also the PET, as you mentioned in your question, so I would say the second one to highlight would be more on the water business where we have, of course, the PAT impact, but also the fuel because as you are aware, we have significant distribution to our customer, but also we have the home and office deliveries that we do. So I would say these are the two that I would highlight. Separately, next to the cost pressures. There is also, of course, the impact from possibly in Q4, we don't know how the situation will, of course, evolve, but Q4 is the high season from us when it comes to the dates business. And so being able to export is extremely important for us as well. So next to the, let's say, cost inflations that we've raised and the effect of the margin, there's also a possible business impact. So that's why providing an outlook on Q4 based on the volatile situation as we see today is not something that we are willing to do. Thank you for raising the question.

Thank you very much. Now we have 2 similar questions from the audience. The first is, the food security program has contributed to revenue in the 3 consecutive quarters why does Agthia at still classify it as a one-off? And the second is from [indiscernible]. Do you expect further debt secured sales in the 4Q '26?

So here, thank you for raising the question. It's -- we we have these government orders that are linked primarily to the unstable regional environment. So rather than seeing this as normal running commercial activity, we highlight those separately as one tower. So although the orders were received across 3 consecutive quarters, their timing, their scale and as well, further continuation are really determined by government requirements and not sufficiently predictable for us to include this in the underlying performance base. I mean it's not something we influence in any way. And so we, therefore, continue to classify those and disclose them separately again for full transparency, allowing investors to assess the recurring business independently. In Q3, by the way, the food security program contributed about AED 104.7 million of revenue and 14.7 of EBITDA, in particular in our Water business. I hope that clarifies. Thank you.

Thank you very much. We have another question from [indiscernible] from ABI Analytics. How do you expect growth and EBITDA margins to evolve across the 4 segments and the group level over the 4Q '26 and 2027 and which segments should lead the margin recovery.

Again, thank you for raising the question. It's quite similar to the previous question that I've addressed. So we don't provide any forward-looking guidance -- what we did clearly mention here in the call as well is that we do think that the impact will be more prolonged. So even as I mentioned, so even if the conflict would end let's say, tomorrow, just as an example, it takes a long time for us to consume those inventories that we have, which are at a higher replacement cost. So we have long lead times between ordering and consuming, as I mentioned, especially in the flower and fleet. And then, of course, you have the stock that is on transit, but also the one that we have on stock. So we are talking about several months, more than 5 months actually on the Angry and feed business. before you get to a more normal level. But then, of course, -- also here, it's very difficult to quantify even if the conflict would end if there would be an immediate reaction, probably only more on the oil, but it also depends on the transportation-related costs, the insurance-related costs. So it's a very difficult exercise. But what we do know is that there will be prolonged pressure on our margins, which is again why we want to be open and very clear about this as we go to the earnings call today.

Thank you very much. Our next question comes from a [indiscernible] from Integral Asset Management. How many months of loss with investors does currently hold. Shall we continue to see pressure on our business margins in the coming quarters?