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

Hello, everyone, and welcome to Baladna conference call. Please note that this call is being recorded. I'd now like to hand over the call to Roy Thomas, the moderator for today. Thank you.

Thanks, Ali. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Baladna's First Quarter 2024 Financial Results Conference Call. On this call from Baladna, we have Ghulam Abbas, the Financial Controller. We will conduct this conference call with Ghulam first reviewing the company's results, followed by Q&A. I will turn the call now over to Ghulam. Go ahead.

All right. Thank you so much, Roy. Good morning, ladies and gentlemen. I would like to welcome all of you to the earnings conference call of Baladna to present the results for the first quarter of 2024. My name is Ghulam Abbas, and I am the financial controller of Baladna. I'm handling the conference call this time as our CFO, Mr. Saifullah Khan, is out of the country on a business tour. During this earnings conference, we will provide you with an update on Baladna's operational and financial performance during the 3 months period ended March 2024. For additional details, please refer to our investor presentation, which is published on our website in case you haven't received it yet. As an opening remarks of the call, I will -- I'm pleased to mention that we have distributed QAR 132 million as a dividend for the year 2023, owing to the strong financial results of the year. This was done subsequently with the approval of general assembly meeting held on 19th March 2024. Now moving to the financial performance of the quarter. In terms of top line, Baladna achieved a revenue of QAR 313 million, which represents a strong growth of 23% in comparison with the same period of last year. This revenue growth was mainly attributable to increase in the sale value, covering both HORECA and retail channel and capturing a greater market share across the majority of our product categories. The additional days of Ramadan, in comparison to the same period of last year, also fueled the strong execution -- also fueled by the strong execution of Ramadan campaign, has also boosted the revenue of the company. This highlights Baladna's capability of successful capitalization of improved market dynamics. In terms of market share, Baladna managed to increase its overall market share to 54.1% by the end of Q1 2024 as compared to 52.5% in the same period last year. Net profit of the quarter marked a record increase of 141% amounting to QAR 48 million, which represents a net profit margin of 15.4%, almost double the net profit percentage which we have in the same period last year. Earnings per share were recorded at QAR 0.025 versus QAR 0.011 in Q1 2023. The reported remarkable growth in net profit was mainly attributable to increase in sales volume, reduction in finance costs through effective negotiations with the government, strategic cost control buyers and efficiency improvements in the entire value chain of Baladna. For the same period, Baladna reported EBITDA of QAR 96 million, which accounted for an EBITDA margin of 30.8%, confirms Baladna remains a regional industry leader in terms of EBITDA margin in the dairy and juice sector. In terms of operational performance, product portfolio management remains a key strategic pillar for Baladna's growth. Notable development in the quarter include the production of evaporated milk to bolster the country's food security, the launch of Mango Greek Yogurt, Breakfast Cream Lite and the relaunch of juices with the improved flavors and freshness aimed at enhancing the consumer experience. These initiatives underscore Baladna's commitment to ensure country's food self-sufficiency, delivering quality products and meeting evolving consumer preferences. Now briefly talking about the cash flow. Efficient working capital management, particularly related to inventories, generated better operating cash flows compared to Q1 2023. The generated FCF of the quarter amounting to QAR 153 million, which supported to fund the dividend payments through internally generated cash flows. In respect of international expansions, Baladna is making sufficient -- significant progress on its upcoming projects in Algeria. As you can see, we have already concluded the signing of the framework agreement with the Algerian government yesterday and quickly progressing towards the next step of the project. As we previously mentioned, this venture focus on establishing large-scale milk production facilities with the aim of creating substantial shareholder value. This megaproject is expected to mark a significant milestone in Baladna's global growth strategy. With the strong financial performance at the start of the year, the outlook of rest of 2024 remains very promising. We expect to continue the same momentum throughout the year. Baladna will be aiming to grow its market share in existing product lines and through the introduction of new products as well. Along with protecting our market share in dairy category, we will focus more to help our presence in juice category. We already took material steps to relaunch our chilled juices with new flavors and appearance, and expect it to grow our market share in juice category with the year going forward. Along with the positive indicators of the top line growth, the expected normalization of material prices and annualized impact of the finance rate reduction along with Baladna's continuous focus on increasing efficiencies and operational excellence expect to boost the bottom line in 2024. Baladna's continuous focus on expansion beyond Qatar remain pivotal for sustainable growth of the business. While Algeria project will stay as our main priority, 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 the national food security 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 show the safety and well-being of our employees and all stakeholders. I thank you for your attention, and we will now open the floor for any questions you may have. Thank you.

[Operator Instructions] Our question comes from [ Mark Krombas from PFY. ]

Congratulations on the results. I have a question about your Algeria venture. First of all, is this going to be a company? And if so, what would the initial equity investment contribution be from Baladna in approximate size? And secondly, how long -- sort of what are the funding requirements for that venture? And what's your plan to meet them?

Thank you so much for your question. Yes. Talking about the Algeria project, it's -- as I spoke in the speech as well, this is one of the largest projects that Baladna is going to have now. Its investment is around USD 3.5 billion. And Baladna is going to contribute 51% shareholding in this project. So this shareholding will be partially funded through our own equity and through the cash internally generated by Baladna operation in Qatar. And of course, through the other -- through the other funding channels and -- so overall, equity share of Baladna will be 51%.

Yes. Understood. But could you quantify how much you believe it is? Maybe 20% of the project size or 10% of the project size in equity? And what is the commitment initially? Is there going to be further capital calls?

51% of shareholding mean we will be having a 51% right there. So this will be funded through equity and from our own internal generated cash flows and through the bank funding. So we are aiming to fund it around 30% through our own cash and then the rest, we will be taking the support from the other funding channels.

What is the debt to...

[indiscernible]

Not directly. What do you -- if the size is $3.5 billion, how much do you anticipate in equity? And how much in the project debt?

Yes, yes. Half of -- yes, please?

That's my question.

Yes, half of half -- half of them -- half of the amount will be funded through equity and half of the amount will be funded through the bank loans.

It comes from Aashish Agarwal from TFI.

Two questions from my side. Can you quantify the top line growth in terms of its constituents? So within dairy specifically, how much fresh milk contributed and how much evaporated milk contributed? That is my first question. My second question is how much of your performance in the first quarter '24 was contributed by the Ramadan quarter, if I may say? That's my 2 questions.

Okay. Thank you so much for your question. Moving to your first question. In terms of the category contribution towards the revenue, most of the revenues are coming from the dairy sector because we have the largest share in the dairy. So if we talk about the fresh milk, there's a 20% growth in fresh milk versus the same period last year. And UHT milk, there's a 16% growth. Cheese is also growing by the same percentage. So yogurt has grown by 21%. So overall, there is a healthy growth in the dairy sector, around 20% to -- 20%, 25% in all the categories. In terms of -- in terms of juices, it is also healthy. It's around 20%. When we talk about the evaporated milk, still, it is just -- it is just a startup. So this is the -- I mean, a few commercial runs has been taken, and they have been moved to the market, and we are getting a good response. So it's just a start. In the next quarter, inshallah, we'll be able to give you a reasonable number of the growth on this sector as well.

Just a follow-up on the evaporated milk. So when you say that it is just a start, will it be fair to say that the contribution was negligible in the first quarter top line?

Yes. Yes, it is, it is...

From evaporated milk.

Yes, it is negligible because it is just the start. So -- but the good thing is that we are getting good feedback, and the room for growth is there in the market. So next quarter will be a good one, inshallah.

Understood. Second question was related to the Ramadan. So can you quantify how much -- how much -- yes.

Yes, Ramadan, we have around 10 to 11 additional days this year versus the previous year. So you may be aware of that. The 10 days move back every year. So we have around 4% to 5% -- 4% to 5% sales coming from the Ramadan period.

Okay, 4% to 5%. And 4% to 5% is the sales growth? Or 4% to 5% of the revenues?

No, this is 4% to 5% of the additional volumes that we get in March.

Okay. 4% to 5% of the additional volumes.

Yes, yes.

We have our next question coming from Zohaib Pervez from Al Rayan Investments.

So a few questions. Firstly, why are you losing market share in labneh and cheese and creams? Creams is more or less flattish, but even in juice. So why do you think these markets, there, your product is not being accepted or there's increased competition? What are your thoughts on that? That's the first question. Second question is on the margins. So you mentioned that the commodity prices have -- are now trying to -- are now kind of filtering in into the margins. Do you think the prices are like -- this is where the prices should be? Or there is more benefit to be driven from lower commodity prices because I think the -- by now, the commodity price decline should be impacting the most now, right?

Okay. Moving to your first question, regarding the share gain and share loss in labneh. If you see, overall, dairy, we are doing very well. And even in terms of labneh, we're still the market leader. But over the period of time, we have observed that a lot of competition is entering into the market from other GCC countries, and the international player is also coming in the same category. So it's something that we are working on, and we are focusing more so that we can regain our share in the next couple of months. So it is very well known to the management. We are still market leader in labneh, but yes, it has gone down, slightly down. Somehow it happens because of the -- I mean, one factor is the competition. Somehow it only happens because of the category overall shrinks. When it overall shrinks, you see that, okay, your share is going down. But most of the time, most of the time, it is because of the competition. So in our case, the competition is entering, and we are very much -- we are very much on it to cover this in the next quarter.

And the same should apply to cheese also, right?

Yes, yes. Cheese, the problem with cheese is that it was Ramadan. And the international players, they are giving a lot of discounts, even just to make sure that they're entering and they are disturbing the overall market pattern. So we are there to compete with them. But of course, we cannot destroy the shareholder values in terms of giving unusual discounts on the products, but this is a temporary phase. And the competition cannot -- we believe competition cannot retain these discounts for a longer period of time. Otherwise, there's no purpose of having business.

Okay. The second question was on the commodity prices.

Yes. Commodity prices, yes, it is getting better, and we might have a better result even if this Red Sea issue would not have occurred. So what we are seeing is that the prices -- commodity prices will become better. We are anticipating this. We are anticipating the logistics cost will go slightly up because the vessel has to take a longer route now to reach to Qatar. But overall, we are very much projecting these things. We are making sure that we are putting enough orders and enough stocks are available with us so that we have -- we don't have much hit of those logistics costs. So the inventories may not go down to the same percentage that we were planning in our vesting process, it might slightly be less. But overall, we are making sure that there's not much cost hit to our P&L, and we are managing this risk of Red Sea. So commodity prices, so your question is getting normalized, it is getting better. But on the other hand, logistic cost is the risk right now. So when we make sure that both are managed, so you might not see very, very big decrease in the material prices when we will be talking about at the quarter 4 or quarter 3 of the year. But overall, we are very much hopeful it will be much better versus the previous year.

Okay. So logistics were -- I mean where do you import your -- where is your supply chain coming from that logistics is being impacted?

Yes, they are coming from many places. It's coming from Europe. It's coming from America. It's coming from Asian regions as well. So most of the things which are coming through European or the Western regions, they are the one who are getting impact.

Okay. And how much is the logistics cost as a percentage of your total cost [indiscernible] substantial amount in that?

No, it's not substantial. 4% to 5% additional logistics cost, somehow 10%. Not very substantial. But to manage and to cater that, what we are doing is that we're making sure that we have enough stocks with us, maybe -- and enough deals locked with our vessel provided vendors.

Okay. And on your evaporated milk, you mentioned that the contribution is still negligible. Who are your main competitors in this category? And what would be the total size of this -- the size of the market?

See. Rainbow is the main competitor because they are the -- they are the only one before we launched. They are the only one in the market. And most of the tea chains are using Rainbow. Now we are having -- we are having our arrangements with them. They're tasting sessions and all these approval -- recipe approval, everything is in there. And we are getting a very, very good response from them and from their customers. So we are hoping that we will be able to get a good share from Rainbow in 2024. And of course, in the next year, it will become even better because we have...

Sorry. Rainbow, right now, you're saying is about 100% of the market share, right?

Yes. Almost. Almost 100% is Rainbow. And the market price is...

Target market share for this year?

See, market -- let me tell you the market size. Overall, the market size is around between 125 million to 150 million, 160 million. And we are hoping to get around 25% through organic growth this year. And by doing some more efforts, of course, they are yet to be concluded, and that's why we will disclose once it will happen. We are hoping that in a couple of years, we'll be 50% in the market.

We don't have any pending questions as of right now. I'd now like to hand back over to the management for the final remarks.

I think with that, we can conclude...

Good. Yes, before, yes, Ghulam, I want to just thank Ghulam Abbas for the results update and answering all the queries, and we look forward to speaking to you all for the second quarter 2024 results conference call. Go ahead, Ghulam, you can do the final comments.

Yes, inshallah. Yes. Thank you so much. And I think thank you so much for all the participants and for your questions, and we look forward to meet you again in quarter 2 and 2024 with even better results, inshallah.

Thanks for attending today's call. We hope you have a wonderful day. Stay safe. You may now all disconnect to the session.

Thank you.