Baladna Q.P.S.C. ($BLDN)

Hello, and welcome to Baladna conference call. Please note that this call is being recorded. [Operator Instructions] I will now hand the call over to our moderator, Fabien. Please go ahead.

Thank you, Janis. Good afternoon to you all, and I would like to welcome you all to the Baladna First Quarter of 2026 Earnings Conference call. On the call from Baladna's management team, we have Saifullah Khan, the Group Chief Financial Officer. And as usual, we will first give us an overview of what transpired during the first quarter. And we have a question-and-answer segment immediately afterwards. Let me turn over the call to Saifullah without further ado. Saifullah, please go ahead.

Thank you, Fabien. Good afternoon, everyone. Thanks for joining us today. My name is Saifullah, I'm a Group CFO of Baladna. Thank you all for taking the time to join us today. The presentation material we have already been shared on our website. Before we begin, please note that today's discussion may include forward-looking statements based on current expectation and assumptions and the actual results may differ due to external factors, including ongoing regional development. The first quarter of 2026 was hit by continued regional tension. And in that context, I want to spend a moment on how we approached the quarter. In a situation like this, the priority is to safeguard food security in Qatar, ensuring that the domestic market continued to be fully and reliably served. This was supported by maintaining continuity across operations with stable production, resilient supply chain and the ability to respond proactively to a potential disruption. This is not something we approach reactively. It is built in Baladna DNA. We have seen a similar condition before, including -- during COVID and the Red Sea disruption. And the same principles apply each time, which are early visibility on risk, forward planning on critical input, disciplined inventory management and tight coordination across procurement, production and distribution. During this quarter, these systems were tested again under a more sensitive regional backdrop, and we maintain full operational stability with no disruption to supply. As part of this context, we welcome the Ministry of -- Minister of Municipality to our facility. The visit was conducted in light of the evolving regional situation with a focus on reviewing operational readiness, supply continuity and overall resilience of the food system. During the visit, Baladna's ability to maintain stable production and ensure consistent supply to domestic market was acknowledged, reinforcing our role in supporting Qatar's food security during periods of external pressures. Going to the financial performance, revenue for the 1 stood at QAR 330 million, broadly in line with the same period last year without [ EWAP ] government tender in Q1 2026 which had contributed to revenue in Q1 last year. Excluding this impact, underlying revenue growth was approximately 8% year-on-year. The [ EWAP ] government tender for 2026 commenced in April, and its contribution will be reflected from the second quarter onwards. From the channel perspective, performance continued to be supported by the retail segment, which saw steady growth across both modern trade and the traditional trade channel. This has helped offset a softer performance in HoReCa segment, reflecting a more normalized demand environment. We delivered a strong improvement in profitability with gross profit up 22% year-on-year to QAR 106 million and margin expanding to 32% from 26%, supported by higher milk yields and ongoing cost optimization across the business. Operational profitability reached an all-time high, increasing by 26% year-on-year, driven by continued efficiency improvement across our entire value chain. Net profit rose 6% year-on-year are QAR 61 million with margins improved to 18.6% from 17.6%, supported by continued cost optimization improved overhead of operating leverage. It is also worth noting that the prior year net profit include contribution from the investment income, which impacted the year-on-year comparison. In addition, the business continued to generate strong operating cash flow during the quarter, supported by stable profitability and disciplined working capital management. This enabled us to comfortably fund ongoing capital expenditures and strategic investments, while maintaining a healthy liquidity position. Overall the quarter reflects stable revenue performance, combined with improved profitability driven by operational efficiency and disciplined cost management. From an operational perspective, during the quarter in discussion, the business may remain stable across all core areas, including farm operations, production and distribution with no disruption to output and no interruption to supply in the domestic market. Operational efficiency was primarily driven by improved farm performance supported by higher yields and low-cost farm production. This was further enhanced by a reduction in material costs, optimized overhead and continued cost savings across the entire value chain compared to the same period of last year. This is supported by structured planning across procurement, inventory and logistics, allowing us to manage variability in external environment without impacting availability in the market. At the same time, we continue to expand commercially with the project portfolio, reaching 268 SKUs, including 16 new product launches, while the customer base increased 321 and the number of sales routes expanding to 149. We also initiated further steps on efficiency, including the introduction of electric vehicles within the logistics network, which is on the test basis. On the strategic side, we continue to make progress on our international projects during the quarter while maintaining a measured and a disciplined pace of execution. In Algeria, the integrated agri industrial projects continued to make solid progress across key work stream with activity increasing shifting from early-stage development towards large-scale execution. During the period, a major milestone was achieved with a lot of Phase 2 contracts exceeding $635 million. This was complemented by the initiation of dairy cattle program from United States cases to commence in November 2026. The program will facilitate the phase or approximately 30,000 high-quality dairy cows over a 10-month period, supporting herd buildup and advancing operation readiness. On the infrastructure side, groundwater development progressed well with a substantial number of wells completed and additional wells advancing through development and regularly regulatory approvals underpinning the project long-term water requirement. Arable farming activities also move forward with the contribution of key crops, including barley, wheat, alfalfa, [indiscernible] and corn, supported by the continued expansion of irrigation system. From a construction perspective, civil works for the dairy farm have commenced while engineering, design and planning activities for the processing facilities are progressing in line with the overall project timeline. Overall, Phase 2 is driving a broader scale of construction and infrastructure across farm and supporting assets, positioning the project for its next phase of development and supporting the long-term objective of local milk powder production in Algeria. In Syria, development of manufacturing projects progressed steadily across site preparation, design and permitting activities. Site layouts grading works advanced during the period alongside the completion of key design submissions for major facilities, including dairy, warehouse and utilities. Geotechnical assessment and foundation planning remain on track while permitting process, including environmental and the building approvals continue to progress in line with expectations. In parallel, Baladna entered into an upstream engagement -- agreement with the International Finance Corporation to evaluate the feasibility of large-scale dairy processing environment in Syria. Under this engagement, IFC will conduct a comprehensive supply side diagnostic of the country's small holder dairy sector assessing milk supply potential productivity levels, infrastructure readiness and the farm level economics. The study will also provide detailed market analysis, scenarios, modeling and the bankability assessment to support the potential private sector financing. The engagement is scheduled to commence right now and expected to play a key role in risking the project, while strengthening the institutional and the land confidence in the Baladna broader integrated dairy expansion strategy. Across both markets, execution remains structured and phased with the progress aligned to a long-term development plan while remaining responses to the broader environment. In parallel, we continue to evaluate additional opportunities, particularly across Africa as part of our long-term expansion strategy. To conclude, the first quarter reflects the business that remains stable and disciplined in complex environment. With our revenue holding steady profitability improving, operations continue without disruption and supply to the domestic and maintained throughout. This quarter reinforced the strength and the resilience of our operational model, which has consistently enabled us to sustain performance and continuity through periods of disruption and external volatility, while continuing to play a critical role in supporting food security. The integrated model from input sourcing to production and distribution provides a level of control that allow us to maintain continuity even when external conditions are less predictable. This is sometimes we have demonstrated consistently over the time, and it remains a defining characteristic of how the business operates. Looking ahead, the focus remains consistent with the continued emphasis on the operational stability, cost efficiency, disciplined execution and international projects, and ensuring reliable supply within the Qatar. With the structure we have in place and the experience we have built over the time, we remain well positioned to continue managing effectively through external uncertainty. Thank you all for joining us today. Now I will leave the floor to Fabien to have any questions and answers.

[Operator Instructions] Our first question comes from the line of Aashish Agarwal from the First Investor.

Sir, please go ahead. Ashish from the First Investor. So I believe the rights issue has been postponed slightly given the regional conflict. So can you just confirm that and also, would it be correct to see any debt increases in this year for the expansions, which may drive up your finance cost? Because I'm assuming given the huge increases in the advance to suppliers you may have taken care of your immediate CapEx requirements. So -- and another follow-up would be what is the subsidy situation from the government side in terms of in terms of support for the cost increases that is happening because of the conflict. So supply chain increase costs. So any support from the government side, that would be all from my side.

Thanks for your question. You covered 3 parts of your question. First question, you asked about right issue -- right issue. So basically, it postponed for the -- this regional tensions and there's environment was not right to us to execute that. And it was honored by all the regulators that it's a good idea to postpone this. Now we are reconsidering this because whenever the time is right, we will bring back this -- so once we will feel that this is the right time. We will definitely come back to the market. But it's at the moment, I don't have any approval from the Board of Directors. We'll decide on this, what is the right time. and we will come back to the market. Your second question about our debt increasing and the finance costs increasing for the

Specifically for this year only.

This year. So basically, if you see our debt is increasing, but we are -- because our Aria project is -- we have a financing for this project. And this finance cost, we basically is capitalized. It's not going to impact our P&L. Because we have a range of this -- the loan we got it. We have a grace period for finance costs and also principles. So in line with that, all the finance costs will be -- basically, we are giving this loan to our subsidiary, so it will be capitalized. So there will be no P&L impact.

Sorry to interrupt. So the current run rate of the finance cost is good enough for the full year?

Yes. There will be no impact on the finance cost, not in this year, not in coming years because our grace period is 5 years. So basically, our mostly the loans when we are ranging is linked to dividend of -- from that project. So it will be not having any impact on the P&L because it is linked to the with a dividend and also this is a subsidiary, we have the debt, which is capitalized, all the finance cost and everything. That's your third question about cost increase impact, Ministry already informed us capture all the additional cost, what due to this scenario, we are rerouting our material and especially in the logistics side, they will reimburse the cost, and they have put some mechanism in place, and we are sharing real-time information with the ministry.

So have you already received money from the ministry or that you will receive afterwards

Right now, there is -- if you ask me today because most of the stock was using your from own internal stock. Now what the new orders are coming as in fact, is coming now into the business. So we are recording separately. So we work -- we are sharing our information with the ministry, and they promised because Minister of municipality was with us with all the team and he confirmed that all the additional cost, it will be reimbursed to the business.

Our last question comes from the line of Ana from Arian Investment. Please go ahead.

Good afternoon. This is Marmadon from Alio Investment. I have 2 questions. One is related to the margin expansion that you have explained that this quarter margin expansion is due to the higher milk yield and cost optimization. So can we expect same margin for the rest of the year because in the third quarter, this tension arises, and you are saying that some costs is increasing. So could -- can we expect that the margins will remain or it will decline?

Yes. Basically, what you have seen, this is over the period that no performance is improving. When they've come through the our provisional efficiency. So this definitely it will maintain over the period. And we are expecting further improvement as the volumes are increasing, you will see better efficiencies in the operations side, especially manufacturing site. So Palm is getting very good shape now. And because of last 2 years, what we have done. So now we are seeing this result of that all the cows procuring very good fleet management. And now we are seeing very high our productivity rate in terms of either this is conceiving new [indiscernible] because overall health of animals improved -- so that have affected it will remain over the period. It's not a onetime net cos improved and now they will be sick -- so this is what we are expecting in, yes, the rest of the year that it will remain profitability in the same trend. The trends are you need to take into consideration.

And how the current situation -- in any case, like the current situation is impacting the margins on a quarterly.

Because I mentioned that the pacministry already promised us that they will bear that cost. So we don't see any impact on the margin.

Okay. The other question is related to the Algeria project. Whenever it come online. So is there any sure that we will see any ramp-up cost initially?

Okay. Algeria, if you see our remit with Dalian government is off take 30 years. So it's a great price linked to the input index. So we have a higher price initially. So business should not be having any negative impact on the P&L. It was price was agreed in a way that initially the business would get more sport and gradually price went down as operation will be optimized. So there will be no impact in the P&L from day 1.

Thank you. I will now turn the call over to the management for closing remarks.

Thank you, everyone, for joining us today. If you have even any questions, please, you're most welcome

This concludes today's call. You may now disconnect your.

We are looking forward for your next call. Thank you.