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

Thank you for standing by. Hello, and welcome to Baladna. Please note that this call is being recorded. [Operator Instructions] I'd like to hand over the call now to our moderator, Phibion. Please go ahead. Thank you.

Thank you. Good afternoon to you all, and thank you for joining us for Baladna's First Quarter of 2025 Earnings Conference Call. My name is Phibion Makuwerere. I'm with QNB Financial Services. And on today's call from the Baladna's management team, we have got the CFO, Saifullah Khan. As usual, he will go over the performance, and we have a question-and-answer segment afterwards. Let me turn over the call to Saifullah to begin. Please go ahead, sir.

Thank you, Phibion. Good afternoon, ladies and gentlemen. Welcome to Baladna Quarter 1 2025 Earnings Call. My name is Saifullah Khan, I serve as the Chief Financial Officer at Baladna. Thank you all for taking the time to join us today. The presentation materials have been shared in advance and are also available on our website, if you haven't taken. I keep my opening remarks brief to ensure we have ample time of question and answer at the end. Let me begin with -- by providing a brief introduction to Baladna for the new investors who joined first time on the call. As Qatar's leading producer of high-quality dairy and beverage products we are proud to offer a trusted range of milk, dairy, juice and food items. Since our founding in 2014, we have built a robust foundation with large-scale farms, cutting-edge production and packaging facilities that support our long-term growth and sustainability goals. Our vision is to become the leading provider of nutritious and healthy food and beverages in Qatar while expanding our reach into the new regional and international markets. We are committed to delivering long-term value and progress we have made this quarter reflects that commitment. With that, let's turn to our financial and operational performance for the first quarter of 2025. Moving on the first quarter performance. Revenue for the quarter reached QAR 331 million, marking a 6% year-on-year growth. This growth was primarily driven by strong performance in evaporated milk segment, continued contribution of newly launched SKU and additional 10 days of Ramadan sales. EBITDA grew by 19%, supported by revenue growth, lower procurement cost and operational efficiency across the value chain. EBITDA margin improved to 35% in comparing to 31% in same period of last year. We recorded a net profit of QAR 58 million during the quarter, representing a 21% year-on-year growth, driven high revenue cost savings from lower procurement costs as well as good farm performance and operational efficiency, which helped offset the impact of increase in depreciation and finance cost, the net profit margin stands at 18% in quarter 1 of 2025. Furthermore, we delivered strong quarter-on-quarter growth compared to the previous quarter of Q4 2024, achieving a net profit increase of 32%. This performance was primarily driven by increased sales of Evap milk, strong farm performance and enhanced efficiency across the entire value chain. In terms of cash flows, Baladna continued to demonstrate strong operating cash flow generation capability this quarter supported by higher sales performance. This was partly offset by an increase in CapEx and investment activities and finance costs. We maintain a disciplined approach towards capital allocation. Our CapEx and investment levels remain elevated as we continue to prioritize expansion and maintenance CapEx and strategic investment in line with our reverse investment policy. Furthermore, we received 2024 government subsidy for QAR 105 million in early of April this year, which has further strengthened our cash flow position for the rest of the year. Dividend based on the financial performance of 2024, Baladna approved bonus share of 1 shares -- for 19 shares amounting to 100 million shares, further enhancing shareholders' return while preserving cash for the future growth. Domestically, we are proud to report that we have started generating significant revenue from new Plant 4, a state-of-the-art facility and QAR 100 million government contracts, which was awarded last year quarter 4 to supply evaporated milk. Production is now underway at our state-of-the-art facility, making a major milestone in our efforts to enhance Qatar food security and diversify our product portfolio. Turning to our strategic initiatives. Baladna has made strong progress on its integrated agriculture and dairy project in Algeria, which will be one of the world's largest integrated dairy farms in the world. We successfully signed a definitive agreement with Algerian Ministry of Agriculture, along with 20 years offtake agreement with a National Interprofessional Office of Milk and the Dairy Products only, which is the subsidiary of Ministry of Agriculture. Baladna Algeria spanning across 117,000 hectares in [ Adrar ] province is 51% owned by Baladna Trading and Investment, a wholly owned subsidiary of Baladna Q.P.S.C. aim to meet Algeria's demand for powder milk. Baladna Algeria is officially established now. The Board of Directors with majority of members from Baladna, along with the senior management team have been appointed. The project is aimed at fulfilling Algeria domestic powder milk needs while also supporting the growth of the local and local red market supply, creating jobs and expanding our national cattle population. early groundworks, including exploration of wells, land studies and awarding the major [indiscernible] tenders are already underway. Now turning to operational highlights for the quarters. In Q1 2025, Baladna continued to strengthen its operational foundation through strategic investment, product innovations and enhancing efficiency across the value chain Government tenders for evaporated milk remain a key growth driver, reinforcing Baladna leadership in this segment. These initiatives are directly aligned with the advancing Qatar food security self-sufficiency goals and enhancing national food security by reducing reliance on imports. Innovation remains a core focus area. During quarter, we successfully launched 11 new SKUs across our yogurt, Greek yogurt, drinks, high-protein milk 11 segment and further expanding our product portfolio and strengthening our market offerings. As Qatar leading food manufacturer and distributor, we continue to provide exceptional services across both retail and HORECA channels. In first quarter 2025, HORECA revenue grew by 26% year-on-year, driven by strong demand from hotels, restaurants, cafes and government standard of Evap milk. Retail traditional trade posted a steady 2% increase, reflecting a healthy consumer demand at local outlets, while retail key counts declined slightly by 1%, our strong partnership helped maintain segment stability. Overall, total revenue grew by 6% compared to same period of last year, reaffirming Baladna market leadership and growth momentum. At the end, looking ahead, our strategy will continue to focus on growing key product categories and increasing our market share in high potential segments. We will keep innovating new products to meet changing consumer needs using advanced technologies to further improve our existing products, supporting both operational efficiencies and long-term growth. We are also building on our success in Algeria, where our strategic plans are designed to deliver value to shareholders and expand our global presence. Financially, we will stay focused on cost control, improving operational efficiency and expanding our channel and product offering to sustain top line growth in coming quarters and beyond. In conclusion, Baladna is well positioned to maintain strong performance as we started the new financial year. Our focus in innovation, operational excellence and strategic growth will continue to drive our success. Thank you. With that, I open the floor for question and answer. Please, if anyone have any questions, I am happy to take it.

[Operator Instructions] First question comes from the line of [ Wei Chao ] with Al Rayan Investment.

This is Zohaib Pervez from Al Rayan Investment. I've got a few questions. First, the growth that we see in the dairy sales, this as per your chart on 14, it seems like this is -- all the growth is related to the new business, which is the evaporated milk. That -- is my assumption correct?

So if you see this -- we reflect if you see by category performance, and you can get a sentiment how much is coming from Evap and how much is coming from the rest of the categories. So yes, high contribution remained from Evap, but still we maintain the fresh milk, UHT and yogurt and laban also, we maintain our growth on that. The challenge was on the -- main in 2 categories, the cheese and the juices where I think the competition is entering also in the market. So that was only the 2 categories where we were having challenge. Yes, there is a contribution from other major categories.

Okay. And on the evaporated mill, so you have mentioned that your production capacity is, I think, 198,000 tonnes. So what is the current utilization for this?

At this stage, we are running Evap factory. The plant is the state-of-the-art. So it's not only accommodating Evap, we have other lines we are adding to this plant. So if we talk about Evap capacity, it's at one shift only. So we still have a huge capacity in Evap line here. So we can go to the second shift. And we are now -- I think if you see in the HORECA, especially our sales team have a target how to enhance in the HORECA, they are entering to the different contracts with the HORECA customers. to increase our sales. And similar, we are pushing in the retail also though you have a very tight competition on this, but it's moving very well on the retail and HORECA is big time.

Okay. And so the QAR 27 million this -- I think there was -- this -- how do you see this panning -- going forward in the first -- for the remaining 9 months of this year? I mean, do we see quarter-on-quarter increase? Or do we see that this is probably where going forward for the near future, it should remain?

Yes. There will be a growth because now the normal standard is we have said that it's QAR 100 million for full year, and it started from Jan somewhere, I think, first week or second week. So the addition will come from HORECA and the retail where we are growing our shares. The growth will come from HORECA and retail.

Okay. Okay. Great. My -- I've got 2 other questions. One is on the gross margins. Could you give us some color what is leading to the growth in margin -- gross margin? They expanded significantly in this quarter? And my last question is on -- in your cash flows, I see that you have purchased some equities. So have you made -- and as I understand, these equities or fair value through P&L securities are mostly for Juhayna. So have you purchased more stake in Juhayna for QAR 26 million?

Look, we have 2 securities. Now where we are having the one market is Egypt market where primarily we are investing in Juhayna. The second is Qatar market, where we are buying different stocks. So trying to make this how we can improve the profitability of available extra cash. So this is mix with the Egypt and the Qatar. So if you are seeing this is -- the portfolio is almost -- you can say it's 50-50. So the major -- I think both is mix -- return is also coming on the mix from the both market. Your first question about GP. So I mentioned that GP is basically first element is our growth on the top line is adding. And second is the overall material prices, the procurement strategy working very well, I think. So what we are trying to materialize our long-term contracts, how to best buy in the right time in the season, which really helping our material cost. And the third thing is operational efficiency across the business as business is getting mature, I think overall, we are seeing efficiency in production and our farming business also is giving us better yield and they are giving the lower cost per liter. That's also helping the overall GP margin.

[Operator Instructions] Your next question comes from the line of Mohit Singh with [indiscernible] bank.

I'm Mohit from [indiscernible]. I have a question on evaporated milk, again, coming back to that. So I think you mentioned the contract from the government is of QAR 100 million. So is this for 2025? Or is this something recurring? Or how should we look at it?

Yes. This contract normally awarded a yearly basis. And this contract is for 1 year only 2025. So basically, every year, we have to participate in the tender, and we have to win commercially this tender every year. So this is first time Baladna is producing. And as I said -- and we are optimizing our facility and we are optimizing our costing and then it's helping us to be well prepared on the coming tender as well. So basically, this is year-on-year [indiscernible] have this tender. This is something not new. But this first time they awarded the local companies. So we believe as a Baladna management that the country is quoting the ICD big time in country value where they are giving very high score to the local producer. And that will be a further value added when we will go for the coming future tenders as well.

Okay. Got it. And I think last quarter, it was just, I think, QAR 1 million and it is QAR 27 million right now. So is it safe to assume that of the QAR 100 million, I think if you divide it by 4, is it mainly coming from the government side of it?

Yes. At this stage, you can say this. And as I mentioned that our sales in the market through HORECA channels and the retail, we are promoting this big time now. So the government tender is okay, you can say that quarterly, it will be more number will be fixed, but the growth -- [indiscernible] growth will come from our retail and HORECA business.

Got it. Just one last on the Algeria project. I think there's a slide on that focusing like giving out the details of the project. So just to understand the cost of debt at 1% of the debt amount that is mentioned. Is my understanding right?

Yes. Mohit, you are right, but we disclosed a project. This is a project where the arrangement has been done with the Algerian government. So 51% debt will be locally raised by the -- having the help of the Algerian government at the rate of 1% subsidized trust rates to compensate this project, yes.

Okay. And also regarding, let's say, I think by when do we expect it to commercialize as in yielding revenues and those sort of metrics, the Algeria project?

Algeria project at this stage, we are already -- groundbreaking activities started. company already established Board, management, the work already started on the ground. We are anticipating that we have a commitment with the government for this offtake agreement that from year 2028, full year should be having production year.

All right. And it will be consolidated on Baladna's financials? How should we look at it in terms of accounting of numbers?

Yes. 51% shareholding in the equity and having majority in the boards and the management from our side, we have full operational control. Yes, it will be fully consolidated in Baladna.

Your next question comes from the line of Nikhil Phutane with CBFS.

I came a little bit late, so maybe I don't know whether the question has been asked. But actually, this is regarding your other income and actually the gains on the investment at fair value through your profit and loss statement. We have shown a gain of almost around QAR 11 million in the first quarter. While you don't flow it through your other comprehensive income, any other value of that. But overall on the balance sheet side, we see a quite good expansion of close to QAR 35 million to QAR 40 million. So I wanted to know how do you account for the risk? I mean, where it goes, the difference between QAR 37 million and QAR 11 million which we are seeing in the first quarter?

Yes. Basically, we -- what you are seeing the balance sheet, we increased our investment in the equities. So basically, we invested more during the quarter. So the fair value gain, what we are seeing very consistent now. And we are seeing this is even April things are moving well ahead from our expectations. So that's what you are seeing the difference is the real investments.

Okay. So you're saying new investment has also been provided in the first quarter.

Yes. During this quarter, we bought more equities, yes.

And suppose I may ask anything to in your annual balance sheet, you mentioned about Qatar and Egypt is a focus, right, as of now?

Yes. Yes, exactly.

Okay. So I wanted to understand, I mean, the plans are -- I mean, to further increase or because it's quite a substantial jump, suppose we look at it over a period of 2 to 3 years. So you further plan to increase it further and further? I mean -- or you could be seeing profit booking coming into the picture in case as we go forward?

Yes. Look, this was based on the availability of the excess cash, our delay on the international projects. Now we can see that on the ground project of Algeria has already started. So we believe that now that most of the excess or some -- it will go to the Algeria, not on the -- it's not our strategic plan that we will enhance, but it depends on the profitability and which we are expecting now more profits is coming from these investments. And definitely, we will be -- in the future, we will be materializing that profit as well. So it was timing because when we were not -- we were delaying on the project of Algeria, now we are moving to Algeria. So it will be less focus on the investments on the equity side.

Thank you, everyone. And that concludes our Q&A session for today. I will now turn the call over back to our moderator, Phibion. Thank you.

Thank you. It brings us to the end of the call today. And I would like to thank all of you for joining us. Please do join us for the 2Q call. And also a special thanks to the CFO, Saifullah, for taking his time to update the market. Enjoy the rest of your day.

Thank you, everyone. Thank you.

Thank you, everyone. That concludes today's call. Thank you all for joining. Have a nice day ahead.