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

Hello. Good day, and welcome to QNB Financial Services Baladna Conference Call. Please note that this call is being recorded. [Operator Instructions] I'd like to hand over the call to the moderator for today, Phibion. Phibion, please go ahead.

Thank you, Elie. Good afternoon to you all, and welcome to Baladna's 4Q and FY 2023 Earnings Conference Call. My name is Phibion. I'm a senior researcher and analyst at QNB Financial Services. On today's call from Baladna's management team, we have the Chief Financial Officer, Saifullah Khan. He'll go over the performance, and we will have a question-and-answer session afterwards. I will now turn over the call to Saifullah to begin. Over to you, sir. Please go ahead.

Thank you for, Phibion, for your time, and good afternoon, ladies and gentlemen. I would like to welcome all of you to the earnings conference call of Baladna to present results for year 2023. My name is Saifullah, and I'm the CFO of Baladna. During this earnings conference call, we will provide you with an update on Baladna operational and financial performance during year 2023. For additional details, please refer to our investor presentation, which is already published on our website, in case you have not already received it. As an opening remarks of the call, I am pleased to mention to our valued investors that Board of Directors has decided to propose QAR 132 million dividend for the year 2023. With the strong financial results for the year, the proposed dividend payment is amounting to 6.95% of the nominal share value and yield at 6%, which is higher than the market as an average. If I move to the -- move to explain our financial performance of year 2023, Baladna achieved a strong revenue growth of 7%, reaching to QAR 1.57 billion. I would be happy to mention that Baladna has passed the revenue of milestone of QAR 1 billion during this year, which is a remarkable achievement for a business that started in its operation just 5 years back. This revenue growth was mainly attributable to increase in sales volumes covering both HORECA and retail channels and capturing a greater market share across majority of our products category. The same is highlighted that Baladna successfully demonstrated its capability to capitalize on improved market dynamics. In terms of market share, Baladna managed to increase its overall market share to 53.5% by end of this year, compared to 51% at the same time last year. Net profit of the year marked a significant increase of 36% amounting to QAR 110 million, which represents a net profit margin of 10%, a 2% growth in net profit margin over the last year. Earnings per share were recorded at QAR 0.058 versus earnings per share of QAR 0.042 for the last year. The reported strong growth in net profit was mainly attributable to increase in the sales volume, fair value gain on the share investment, which is mainly coming from our investment in Juhayna Food Industry, strategic cost control measures and efficiency improvement in its entire value chain. For the same period, Baladna reported EBITDA margin of QAR 325 million, which accounted for an EBITDA margin of 30.7%, confirm Baladna remain a regional industry leaders in terms of EBITDA margin in this sector. For the fourth quarter of the year, we managed effectively to grow the top line by 3% and achieved a revenue of $284 million compared to $277 million in the same period of last year, which has a significant base set from FIFA World Cup in 2022. Net profit of the quarter amounting to QAR 45 million compared to QAR 25 million in the same period of last year, representing a significant growth of 80% mainly coming from fair value gain on the shares investment. In terms of operational performance, product portfolio management remains a key strategic pillar for Baladna growth. SKU introduced in year 2023 aims to improve Baladna margins and enhance customer experience. This is a testament of Baladna innovative product development program, which allow us to remain well positioned and effectively identify products that are value accretive and in line with market requirements, as well as our ability to bring new products to the market in a short period of time. During the year, Baladna has managed to introduce a number of new SKUs, including evaporated milk and sterilized cream, which were historically imported to country. Furthermore, Baladna launched its first domestic production of an international brand and produce spreadable cheese for Bel Group under the brand name. If I briefly talk about our cash flow, efficient working capital management, particularly related to inventories, generated better operating cash flows compared to 2022, while our steadfast management of capital expenditure contributed to a strong free cash flow to the firm position at year-end generated FCFF of year amounting to QAR 78 million, represents 7% of revenue. Our capital expenditure program is largely focused on business improvement where necessary and support the running business as Baladna invested significantly in past years to build all facilities required for efficient running the business. During the year, Baladna was able to commission a new factory, which was designed to produce evaporated milk and the sterilized creams. We started this project in 2021 for the purpose of financing countries, self efficiency, and did investment of $425 million throughout the project period. In terms of international expansion initiatives, during year 2023, Baladna increased its equity stake in Juhayna Food Industries, the large dairy producer in Egypt, to substantial 50%, which are contributed to notable dividend and fair value gain contribution for the strengthening the bottom line of Baladna during this year. Furthermore, Baladna reported a positive advancement in its forthcoming Algeria project, targeting milk production facility, anticipating significant shareholders' value creation and marking another milestone in Baladna global growth journey. If I look at the outlook of 2024, it is expected to deliver moderate growth in dairy market, Baladna aims to drive growth by continuing to grow its market share in a recent product line and through the introduction of new products. Along with protecting our market share in dairy categories, we will focus more to develop our business in juice category, in which we have greater chance to grow our market share. Operation of the evaporated milk and sterilize and processing factories started as a soft launch in 2023. The operation will be increased to cater retail and HORECA channel expecting reasonable contribution to top line growth of the company. E-Life detergent business is also expected to strengthen the top line. Further, along with the positive indicators of the top line growth, Baladna continues focus on increasing efficiency and operational excellence expect to boost our bottom line in 2024. The growth expected in more than in double digits. Baladna continues focus on expansion beyond Qatar will remain pivotal for sustainable growth of business. We will more focus on our forthcoming Algeria project, anticipating significant shareholder value creation. Similarly, we will remain focused on furthering our diversification agenda by evaluating new opportunities. To conclude, Baladna is fully dedicated to fulfilling its role as a market leader to contribute to national food security program and self-sufficiency program in Qatar. We maintain our focus on creating shareholder value, while at the same time, ensuring to serve our customers to the highest standard and ensure the safety and well-being of our employees and all stakeholders. I would like to thank you all for your attention, and we will now open the floor for any questions if you have, please.

[Operator Instructions] Our first question comes from [ Mark Krombas ] from TFI.

I've noticed on the shelves that you've introduced some price raises across your product mix. Would you mind to outline roughly what impact that might have on your margins going forward, like just overall? That's the first question. And then the second question relates to your Algeria venture. Could you somehow quantify the size of the likely investment that Baladna might make in that project? And that's it.

Thank you very much for your question. And your first question that the price which Baladna received last year in June, and we started from July, the annualized impact, we are expecting up to $50 million on our profitability. This is a full year annualized impact. In terms of percentage, it depends on how much we will deliver the revenues and the volumes, and we are -- which we are expecting the market is quite positive and is giving a year-on-year better growth. Your second question about Algeria project, it's a project with the Algerian government. They are looking for a substitution of their powder milk, which they are bringing today from outside -- more than 360 metric tonnes they are bringing every year. They are the second largest importer of powders. They want a substitution of that milk, powder milk. So Baladna aims to help the Algerian government to have their own fresh milk and to convert to the powder and use in the same channel what they are using right now. So our target to give this country, 50% to 60% sale efficiency in the 10 years timeframe. So projects they have arable farming, and then you are farming and then you have a manufacturing facility. So it's a 3-way where we will a fully integrated project. So we are working right now with the Algerian government to identify the sites, identify the -- what's going on, which area is having the water availability and the soil quality testing -- and that plan could be potentially which areas for some massive project size will be ideal. So this is where we are right now, and we are heading towards a very -- in the soon -- that we will close that MOU. And then we will disclose all the financial numbers of the project, what will be the capital structure, total funding requirement, how we will structure this. The probability that it will be mainly funded locally in that country. Algerians have enough liquidity. So the fund will be -- debt will be locally arranged. So we will take from Baladna, our equity from here to there. Yes.

Our next question comes from Shabbir Kagalwala from Al Rayan.

I'm sorry, if we were able to connect to the call earlier. So if I'm asking the same question. So I'm sorry, I hit to answer that. My question is regarding the demand outlook for 2024. I mean considering we have had this -- the cup, the Asian Cup over here, and we are already having the to the event in Al Bidda Park. So I was just -- I just wanted to have your sense of how do you see the demand panning out for 2024. T

'It's a good question. I think what we have seen so far, I think, is very positive momentum in the terms of country population, which we have seen so far, year-on-year 6%, 7% growth we have seen in the population number. I think last month, January published data, 3.1 million numbers of population. It's very, very positive impact on Baladna growth, especially our market here. We are -- as our efforts, we are growing, but it's our direct impact on our volume growth and overall revenue growth. So year-on-year, this as we speak, we are seeing very positive momentum so far. And due to Qatar government initiatives, we are also expecting this year should be -- I think they will maintain this momentum, and there is a lot of event they are organizing to keep the momentum on the population side, on the visitor, which definitely have a direct impact on Baladna volume growth and the revenue growth.

We don't have any raised hands as of the moment. I'd now like to hand back over to the management for the final remarks.

Okay. Thank you, everyone, for your time. And our investor team is available for any questions. If you have any clarification needed, please drop us e-mail or give us a call. We will be happy to answer any questions. And thanks for your time. Look forward to see you in the coming quarters. And [indiscernible], hopefully, that will be also something exceptional for you. Thank you.