Baladna Q.P.S.C. (BLDN) Earnings Call Transcript & Summary

Good morning, and welcome to the Baladna Conference Call. [Operator Instructions] Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Phibion to begin the conference. Phibion, over to you.

Thank you. Good afternoon to you all. Thank you all for joining us for the Baladna's 3Q 2022 Conference Call. My name is Phibion Makuwerere from QNB Financial Services. On today's call, we have Baladna's management team, the CFO, who is Saifullah Khan; and Upendra Jayamaha, who is the IR Officer. They will go over the performance review first and will have a Q&A session immediately after. I will now hand over to Saifullah to go over the performance review. Please go ahead, Saifullah.

Thank you, Phibion. Good afternoon, ladies and gentlemen. I would like to welcome all of you to the earnings conference call of Baladna for Q3 2022. My name is Saifullah Khan. I'm the CFO of Baladna. During this earnings conference call, I will provide you with an update on our operational and financial performance during this quarter. For additional details, please refer to our Investor Presentation, which is already published on our website in case you have not received it. During third quarter of 2022, Baladna achieved a revenue of QAR 225 million and a net profit of QAR 8 million. This represents a revenue growth of 23% compared to same period of last year, which declined 48% in terms of net profit. Baladna displayed its resilience by mitigating a challenging microeconomic environment to increasing sale volume by capturing greater market share across all of our product category. Baladna achieved a strong EBITDA margin of 26% in Q3, despite increasing global commodity prices and inflation. As of today, we are speaking now, ministry approved our selling price increase for part of Baladna product line. The increase in prices have not yet been reflected in Baladna's performance for Q3 2022 as approval was received in middle of September. Additionally, Baladna is waiting ministry approval to increase prices for remaining product category, representing majority of our core products and revenues generated. In terms of operation, Baladna managed to further enhance its operational efficiency, in particularly managing its herd productivity, which resulted in a higher average milk yield per cow of 37.3 liters per day for the 9 months of the year -- for the year compared to 36.7 liters during the same period last year. Additionally, efficiencies in manufacturing process, reduction in services, the improved control and systems, as well as cost control of overhead contributed to maintaining strong EBITDA margin. Optimization of the product portfolio through the introduction of value accretive product and delisting of low-performing SKUs products remains a key strategic pillar for Baladna's growth. During Q3, Baladna introduced 4 new products, the portfolio which are Caramel Latte, Feta Cheese, Cream Cheese and Mozzarella Cheese, specifically for HORECA channels as a part of our continuous improvement in portfolio. Additionally, Baladna managed to increase its total market share across all its product category and remained the market leader in most of the categories. For more details, please refer operational performance section of the Investor Presentation. Moving on to the Baladna's financial performance. While macroeconomic challenges including rising global commodity prices and inflation continued, dominating the retail sphere. Baladna achieved a revenue of QAR 709 million for 9 months period ended by 30 September, 2022, which represent a growth of 26% compared to same period of last year. Net profit for the YTD September 2022 period was QAR 56 million, which has declined by 45% compared to last year of same period. With all these challenges, Baladna managed to achieve YTD EBITDA margin 27.7%, which is an even a greater accomplishment considering that partial increase of selling prices are not been reflected in Baladna's financial performance for this period. Similar trends continued in third quarter with comparison to the first and the second quarter of the current year as we increased our top line, but bottom line impacted due to a higher commodity prices, as well as higher finance costs due to increase in bank lending rate. In terms of numbers for the third quarter of the year, Baladna recorded revenue of QAR 225 million, which represented a growth of 23% and net profit of QAR 8 million, which declined by 48% compared to last year. Okay. So going into the -- in terms of revenue growth by channels, as highlighted in the presentation, very clearly demonstrates HORECA's channel grew by 39% compared to last year by attracting strategic customers and introducing long-term contracts with some customers. Both retail and modern trade and traditional trade also witnessed a good growth during this period, almost 22% compared to last year. Baladna continues to improve existing client relationships, while targeting new customers as well. Baladna is continuously assessing potential value accretive opportunities for expansions. As part of our diversification and growth strategy. Baladna's Board approved acquisition of E-life 75% stake. This detergent factory is a newly established factory in new industrial area in Qatar, which have a brand name LOR'X. Another project which we previously announced in line with our international expansion strategy, Malaysia project feasibility is in progress and we are expecting that this will be completed by Q4 in this year, which we already announced in the last quarter earning call. Shareholder agreement has been signed between FGV and Touch Group. So, we are just waiting for the feasibility to start our next steps. Additionally, I would like to give you a quick update on the evap milk factory, which we had previously announced last year. Project is in the final stage and expected to be commissioned and operational in start of next year. So in terms of financing projects, Baladna is enjoying good reputation among financial institutions as greater appetite for further leverage for financing new project expansion both locally and internationally. If we look towards the last quarter of 2022 outlook, we expect the retail market will further gain momentum and management's plans on implementing new initiatives to capitalize on the improving market dynamics. With the schedule of FIFA World Cup 2022, Baladna is expecting a robust revenue growth in quarter 2 2022 this year. The World Cup will drive opportunity in both retail and HORECA channels, and management have already put the plans in place to capture the expected demand from this FIFA World Cup. We are confident that our strategic inventory levels, combined with the anticipated permission to increase the selling price moderately provides the opportunity for us for a successful last quarter of the year. To conclude, Baladna is fully dedicated to fulfilling its role as a market leader to contribute to the National Food Security Programs and self-sufficiency program in Qatar. We maintained our focus on creating shareholder value, while at the same time ensuring to serve our customers to a higher standard and ensure the safety and well-being of our employees and all the stakeholders. In the last, I would like to thank you for your attention. And I will now open the floor for any questions if you have. Please go ahead.

[Operator Instructions] The question comes from the line of Zohaib Pervez.

So which products -- for which products did you get the partial price increase approval?

Okay. We got very selected products, which represents 20% to 25% our total portfolio is in the mainly in the juices and yogurt and some partially on the cheese side. So it's not majority of our portfolio.

So it's juices, yogurt and cheese?

Yes.

And how much increase has been approved in percentage terms?

It's a very -- in the different segment and the category. Juices are different and yogurts are different and cheeses are different. So it's varying between 8% to 12%.

8% to 12%?

Yes.

So 8% to 12%. Okay. Okay. And my last question is the new investment that you're making into this detergent company. What was the size of the investment and how will it be financed?