Tanmiah Food Company (2281) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Sultan Altowaim from Al Rajhi Capital. We welcome you all to Q3 2025 Earnings call of Tanmiah. From the management, we have Mr. Zulfiqar Hamadani, the CEO; Mr. Irfan Nagi, the CFO; and Mr. Marcos, the CEO Officer of ADC. In today's call, we'll be having opening remarks from the management, followed by a Q&A session. Without any further delay, I will hand over the mic to the management. Please, the floor is yours.

Thank you very much, Sultan and good afternoon, everyone, and welcome to Tanmiah Food Company's Third Quarter and 9 months ended September 30, 2025 Earnings Call. We appreciate your time and interest in joining us today. I would like to thank Sultan and his team at Al Rajhi Capital for hosting us once again this quarter. Today, I'm joined by Mr. Irfan Nagi, who has been our Chief Financial Officer for over 10 years and now he is going into a new role of Chief Transformation Officer. I'm joined by Fadi Qutishat, who has recently joined us as our new CFO; CEO of Agricultural Development Company, Mr. Marcos Delorenzo; and our newly appointed Managing Director, Ms. Zein Attar. We released our third quarter and 9 months ended September 2025 financial results earlier this week, which are now available on Tadawul and on our Investor Relations website. Following the presentation, the management team will be available to take your questions regarding our performance, strategy and outlook. Tanmiah continued to deliver revenue growth and sustained volume expansion during the first 9 months of 2025, supported by our diversified business model and ongoing strategic expansion. In September, we inaugurated 2 new state-of-the-art facilities, including the first purpose-built large bird processing plant and a new feed mill in Dammam, Saudi Arabia. These assets will be key to improving efficiency, reducing costs and unlocking future growth, while further improving our product quality and variety. Our revenue grew by 3.3% year-on-year, reaching SAR 1.94 billion, driven by growth in restaurant operations and animal feed and health, which helped offset pricing pressures faced in fresh poultry. Market demand remains strong and fresh poultry remains the core of our business, recording stable revenues year-on-year of SAR 1.47 billion with sales volumes up 10% year-on-year and daily production volumes increasing 11% to 600,000 birds per day, which is the highest number we have ever achieved. The Animal Feed and Health Products segment delivered 4.1% growth to SAR 328 million, reflecting continued improvement in product mix and customer reach, particularly following the contribution of our joint venture with MHP, which scaled up during the last year. Our restaurant operations maintained upward top-line momentum with revenues rising 46.8% year-on-year to SAR 145 million, supported by 21 store openings under the Popeyes brand across the GCC. On profitability, gross profit margins stood at 23.7%, while EBITDA margin reached 12.7%. While margins were modestly affected by input cost inflation and pricing pressures on fresh chicken, we remain confident in the structural improvements resulting from our expansion program, which are expected to drive stronger profitability over time. Our distribution network continued to expand, up by 64% year-on-year, while our capacity expansion ensures we can better serve this growing footprint. Overall, our performance this period reflects operational discipline, strategic investment and a clear path towards sustainable growth as new capacities ramp up and market conditions begin to normalize. Sustainability continues to be a central pillar of Tanmiah's strategy, fully aligned with Saudi Arabia's Vision 2030 and international ESG best practices. During the first 9 months of 2025, we made tangible progress across multiple sustainability focus areas, reinforcing our commitment to climate action, food safety and responsible growth. Our tree plantation and carbon offset program has continued to expand with more than 550,000 trees planted across Saudi Arabia. We also commissioned our largest water treatment plant in Majmaa with a capacity to treat 6,000 cubic meters per day. The treated water will be used to plant Moringa trees near the facility, further supporting local reforestation and resource reuse. On the energy transition front, during the quarter, we began converting diesel incinerators and boilers across our farms to run on liquid petroleum gas as part of our alternative energy program. This initiative is expected to replace 48 million liters of diesel using annually by the end of 2027, translating into carbon savings of up to 60,000 tonnes per year and cost savings of approximately SAR 20 million. We also took an important step towards food safety and innovation through the signing of an MOU to advance food safety in Saudi Arabia using natural phage technology. The agreement in partnership with the National Livestock and Fisheries Development Program for Tanmiah's Capital Investment and the Dutch biotechnology company, Micreos Food Safety aims to ensure the highest Salmonella safety standards across the poultry sector in the Kingdom. Our leadership in sustainability continues to be recognized globally. Tanmiah's leadership was named as one of Forbes Middle East Sustainability Leaders of 2025, while our farm automation program, which replaces manual checks and inconsistent conditions with real-time data and control powered by IoT cloud and generative AI was awarded at the 2025 Middle East Technology Excellence Awards in Agritech. Together, these initiatives demonstrate how Tanmiah is delivering measurable sustainability outcomes, while driving long value creation for our shareholders, partners and communities. I will now hand over to Irfan, our CFO, who will walk you through our financial performance in greater detail. Irfan?

Thank you, Zulfiqar. Let me now walk you through our top line performance for the third quarter and the first 9 months of 2025. Revenue for the 9 period reached SAR 1.94 billion, up by 3.3% year-on-year, supported by revenue growth in restaurant operations and animal feed, which helped offset the softer pricing environment in fresh poultry. Let's drill down on the performance of each segment. Fresh poultry revenue remained broadly stable at SAR 1.47 billion, reflecting a 10% increase in sales volume, offset by lower average selling prices in the quarter, primarily driven by ongoing higher supply of chicken in Saudi Arabia. Our Animal Feed & Health Products segment delivered 4.1% growth to SAR 328 million, driven by ongoing improvements in product and customer mix as well as our joint venture with MHP, which scaled up during the period. In Q3, our revenues remained lower at SAR 77 million versus the last quarter. Meanwhile, restaurant operations continued to upward trajectory with revenues up by 46.8% year-on-year to SAR 145 million in the first 9 months of 2025. This performance was supported by organic growth and the benefit of new Popeyes store opening earlier in the year across the GCC. Overall, this performance during the period reflects our ability to grow revenue despite the continued market headwinds, validating the strength of our diversified and integrated business model. Let's take a closer look at our profitability for the third quarter and the first 9 months of 2025. Gross profit stood at SAR 459 million for the first 9 months of 2025, down by 3.6% year-on-year with a margin of 23.7% compared to 25.3% last year due to persistent pricing pressures from higher chicken supply in Saudi Arabia. EBITDA of SAR 246 million declined 4.2% year-on-year with the margin at 12.7% compared to 13.6% in the same period last year. While margins were impacted by inflationary cost inputs, softer pricing, higher delivery cost, efficiency and cost optimization gains as well as more optimized product mix helped cushion overall profitability. Net profit attributable to shareholders for the first 9 months of 2025 came in at approximately SAR 4 million compared to SAR 69 million a year earlier. Our YTD profitability of fresh poultry was SAR 51 million despite the loss of ASP, whereas our QSR remained bottom line negative as we work through our operational excellence initiatives. The decline was largely due to higher fuel and utility costs, continued pricing pressure in the fresh poultry, increased distribution expenses, higher financing costs and one-off new facilities ramp-up costs and ForEx translation losses. These financing costs are expected to gradually decline as the additional capacity comes online and production efficiency improves. Overall, despite short-term margin headwinds, our fundamentals remain strong. We continue to focus on cost optimization and new capacity utilization, which will facilitate lower production costs and support margin recovery in coming quarters. Looking at the net income bridge for the first 9 months, we moved from SAR 80 million in prior year to SAR 11 million this year. The primary driver for negative variance was pricing with an impact of approximately SAR 131 million, followed by diesel at SAR 45 million. The increase in rates affected our production as well as inbound and outbound logistics. These were mitigated by volume growth, better portfolio mix, efficiency and cost optimization gains contributed to SAR 139 million, offsetting a large part of those headwinds in addition to the one-off cost affiliated with the new facilities ramp up. For our debt program, our financing cost added SAR 33 million drag. This included a one-off ForEx impact as spoken in the last slide as the euro sharply appreciated against the riyals. Turning to our balance sheet. Tanmiah continues to take a balanced approach to liquidity, leverage and capital efficiency. As of September 2025, total assets stood at SAR 3.2 billion compared to SAR 2.8 billion at the end of 2024. The increase primarily reflects our ongoing investment program across production, feed and processing facilities. Equity stood at SAR 742 million, while total liabilities remained well balanced between short- and long-term obligations. On profitability, return on equity was 5.3% and ROIC came in at 4.9%, reflecting the timing of new asset deployment, ongoing construction phase of major projects, combined with margin pressure from prevailing markets. In terms of activity, we maintained disciplined working capital management. Trade receivable increased to 43 days. Inventory stood at 105 days and trade payables extended up to 55 days. The current ratio remained steady at 1.1x, underscoring healthy short-term liquidity. On solvency, our debt-to-equity ratio was 69.7% compared to 62.9% at the year-end and net debt to EBITDA increased to 4.74x from 3.45x. This movement reflects the ongoing funding of our expansion program, which is expected to normalize as the new assets come online and begin contributing to earnings and cash flow. Overall, our balance sheet remains well positioned as we approach the completion of our debt capital program with clear visibility on deleveraging as operations scale. Turning to our capital investments and strategic expansion agenda. During the first 9 months of 2025, we maintained strong momentum across our growth initiatives with CapEx addition reaching SAR 380 million, up from SAR 191 million last year. This reflects the continued execution of our multiyear investment program to expand capacity, enhance efficiency and strengthen our integrated value chain. A large part of this spend went into our new facilities, which we will discuss in the following slide. Right-of-use assets increased to SAR 675 million compared to SAR 530 million in the same period last year, mainly reflecting the expansion of our farming footprint, logistic infrastructure and restaurant network across the GCC. At the same time, CapEx commitment rose to SAR 188 million, most of which will be deployed in 2025 -- 2026, up from SAR 161 million, underscoring our robust pipeline of ongoing and upcoming projects. Our investments remain focused on expanding efficient production and processing capacity across the value chain. Current projects include the construction of new farms and automation systems, the expansion of hatchery capacity by 140 million eggs annually and extension to our corn and soya silos to support food security. The Al Kadi factory setup, among others. These projects will significantly improve the efficiency, reduce unit cost and reinforce Tanmiah position as one of the most integrated sustainable and technologically advanced food producers in the region. I will now hand it over to Marcos to talk about our newly inaugurated facilities.

Thank you, Irfan. Let me now highlight 2 of our most important new facilities that came this year for our fresh poultry business. On the left on this slide, you see Majmaa 2 primary processing plant, a first of its kind built facility design to large birds. It sets new standards in automation and key SI-ready customization with a capacity of 13,500 birds per hour. This site features advanced infrastructure, strict quality control system and a wastewater treatment capacity over 6,000 cubic meters per day, converting waste into value and supporting our sustainability goals. Once commercial and fully utilized, processing cost per bird is expected to decline by 20% to 25% compared to our least efficient facilities. On the right side of the slide, you can see our new Dahna feed mill, a fully automated biosecured operation with a capacity of 40 metric tons per hour. It's strategic located near our core farming areas and plays a key role in ensuring consistent premium quality feed for our integrated operations. We are also evaluating solar integration here as a part of our sustainability model. Together, those 2 facilities represent major milestones in Tanmiah's strategic expansion, strengthening our efficiency, biosecurity and long-term production capacity. Going to the next slide, our fresh poultry segment remains the foundation of Tanmiah's operations and the main driver of revenue. During the first 9 months of 2025, sales grew -- sales volumes grew by 10% year-on-year to 121.5 million birds sold, reaching an important milestone with our highest volume recorded, supported by strong production efficiency and geographic and channel diversification. We have grown our share across multiple channels, where Tanmiah products faced strong demand. Processing capacity increased 11% to 600,000 birds per day, reflecting the ramp-up of new facilities. Our distribution network expanded to 449 routes, a 17% increase, improving reach and delivery efficiency across Saudi Arabia and the wider GCC. We continue to deliver our go-to-market strategy, powered by sales and marketing growth initiatives with strong focus on new products, sales productivity, geographic and numerical expansion and cost reduction across the value chain. The channel mix diversification has supported us to improve resilience and offset lower average selling prices in the quarter, primarily driven by ongoing higher chicken supply in Saudi Arabia. Advertising spend rose 19% to almost SAR 18 million, reinforcing brand visibility and product demand. We also increased our farming base by 10% to 149 farms, further strengthening supply resilience and production capacity. We continue to strengthen Tanmiah brand presence through high-impact marketing and engagement initiatives. Highlights include sponsoring the Shaqra -- the fifth Shaqra Pepper Festival with live cooking and product sampling, inauguration of the new facilities, we also marketed the Saudi National Day with integrated campaigns and introduced new marinated chicken flavors, cups and barbecue, complementing our value-added range and supported by strong in-store and digital activations. These initiatives enhance visibility, consumer engagement and overall brand equity across key markets. We're finalizing -- we continue to explore ways to decommoditize poultry by delivering unique Saudi-made value-added products, consumer-oriented innovation and strategically partnering with groups like Griffith with whom we signed an MOU early this year, who bring unmatched R&D and culinary science capabilities. To help maximize the use of local ingredients and support local farming communities as well as developing food solutions for multiple sales channels and clients. I will now hand it back to Zulfiqar for his -- for the key takeaways.

Thank you very much, Marcos and Irfan. To conclude, Tanmiah delivered steady growth and operational progress in the first 9 months of 2025 despite challenging, but very much expected market conditions. Revenue grew by 3.3% year-on-year to SAR 1.94 billion, supported by our diversified business model and balanced performance across fresh poultry, animal feed and health products and restaurant operations. Fresh poultry capacity continued to expand with daily production volumes reaching 594,000 birds on average, up by 11% year-on-year, and this momentum will strengthen further as our new facilities ramp up. Our distribution network also expanded to more than 450 routes, enhancing market coverage, supply reliability and service efficiency across key regions. On profitability, we sustained healthy margins with a 23.7% gross profit margin and a 12.7% EBITDA margin, reflecting Tanmiah's resilience and operational discipline. Tanmiah's commitment to sustainability, innovation and stakeholder engagement continues to earn industry and market recognition, including the Forbes Middle East Sustainability Leaders 2025, the Middle East Technology Excellence Award in Agritech for our Farming automation program and MEIRA Award for the Best Digital Report. Looking ahead, we remain focused on executing our diversification strategy, enhancing efficiency and delivering long-term value for our shareholders, customers and communities alike. This concludes our presentation for the third quarter and first 9 months of 2025. On behalf of everyone at Tanmiah, I'd like to thank you all for taking the time to join us today and for your continued support and interest in our company. We will now open the floor for questions. The management team is here and pleased to address any queries you may have regarding our performance strategy or outlook. Thank you very much.

Thank you, management team, for the insightful presentation. [Operator Instructions] We have the first question on the queue from [indiscernible].

I have a question on the poultry cans. So despite increasing the production capacity, fresh poultry revenue declined year-over-year and sequentially, mainly driven by the pricing pressure. So can you elaborate on the competitive dynamics driving this pressure? Additionally, given that most poultry producers have been reporting similar weak results over the past 2 quarters. Could you provide context on what's been happening in the broader poultry market, whether it's the oversupply situation that we've been hearing from a couple of quarters ago or demand softness? And how are you positioning yourself to navigate this headwind?

So I'll see Marcos' input in this, but at a high-level summary, the market demand is strong, as we have mentioned. The purchasing power of course remains strong as well. So there is no problem as far as demand is concerned. It's, I think, only a balancing between imports and local production that we are working with the government as well. The country has progressed significantly in line with the 2030 food self-sufficiency targets. And now certain SKUs within the poultry sector need to be controlled or checked. And that is something which is going to happening in terms of imports. So demand is strong. The poultry companies like us are expanding, which again was very much expected. It's just that certain SKUs within the imports need to be controlled further, which we foresee is going to happen sooner than later. So we remain very bullish, and that's why we are continuing on our expansion trajectory. Marcos, you'd like to add anything?

I think just I add, [ Joha ], that we've been prepared for the situation. We knew and as you've been accompanying us, you knew what we've been doing to diversify ourselves. Of course, the pressure of the frozen imported doing some promotions grab some share and that pressured the prices. We have ourselves diversified a lot in terms of channel, sub-channels, clients and so on and so forth, not to be hit to the full extent of some players were hit. But we've been working to mitigate that through all our go-to-market. We are very well positioned to pass through this process. And we are confident that this balancing between frozen, imported and local production will be adjusted in the near future with all the activities that the government is taking on this regard. So we are very confident that these mitigations will be in place.

The next question is from [indiscernible].

I have just only one question on the animal feed. We have witnessed very strong performance in the first half of the year, then suddenly in the third quarter, we witnessed 30% drop on a year-over-year basis. Can you help me understand what drove this decline in the revenue? Is it prices? Is it lower volume, some temporary shutdowns? I would appreciate your insights.

Okay. So there are 2 separate business lines which have been impacted. One is the hatching eggs and DOCs and the other one is feed. Now feed is mostly sold to those poultry players, who are not fully integrated, and they, of course, could not take the full brunt of the current market challenges, so they reduced their placement. So that's where our feed sales came down. And the second, as far as DOCs and hatching eggs is concerned, there is -- when we place the breeder flocks, they go through this production peak and then they come down. And usually, it is designed so that in summers, which is usually considered to be a low period, the production is on decline. So that was the reason. And we now see the new flocks coming into production already, and we will take full advantage when the market -- the down cycle goes to up cycle, and we'll take full advantage of that.

The next question is from Mr. Pratik.

Do you have a ballpark sort of figure for [indiscernible] for 2024 and sort of expected range for 2025? [indiscernible].

Pratik. Can you repeat because your voice is broken. Which volumes are we talking about?

Sure. Do you have a ballpark figure for overall sales in [indiscernible] 2024 and expected [indiscernible] food macroeconomic sales versus [indiscernible]?

We couldn't really hear you properly. If I understood, you wanted to understand a little bit about the imports, the share of imports. We couldn't hear completely, but I can -- sorry...

Yes. So he's asking that what is the overall total volume sold in Saudi Arabia, do you have any idea on that? And how much of that is the import...

So Saudi Arabia total market supply is around 1.7 million tons. This is the numbers that we have through our researchers. And the imports, they have a share of 600,000 tons. So if you divide this by the total, you can see that it's about 35% is still on supply from imports. So this -- the imports are the same, it's slightly growing this year where we expected would be decreased. And then we believe the actions happening will lead to that. And the local production is responsible for the rest of the supply. And the local production has been growing at a faster rate. So I hope this clarifies. Please let me know because we couldn't hear well the question.

Yes, it's perfect. And what are your expectations for 2025 and '26, which would grow faster or imports will be stable or the sort of declines...

Pratik, we've been seeing some actions being done by the government like the good agricultural practices program, where the imported chicken will be -- we need to undergo a new certification from the government. They do have a period to get certified. All the farms will be audited from feed to waste to practices to all practices in the farms. This will lead to investments from those importance to be at par to the same way you produce in Saudi Arabia as well. We have been audited by all our farms. So we already have the gap, Saudi gap logging our packaging, so we've been on. And this process will be going now through this imported chicken, which we believe will lead for the smaller players, smaller companies that they do not have the compliance that they don't follow all that regulations established by MEWA. They might not be able to export anymore. So we are expected on that as well as the changes in licensing for import license. All those initiatives are being implemented, and we do expect that the imports tend to reduce as the local production consistently continue to produce and go, we believe this will be equalized, which was exactly the plan from the government and Saudi Vision 2030.

Now we'll move to Mr. [ Jassim Al-Jabran ].

[indiscernible] A couple of questions from my side. First question regarding the margin and profitability. We noted that the gross margin and EBITDA declined 100 basis points on a quarterly basis. What are the main contribution to this decline? And how are this being mitigated? This is my first question.

Can you repeat the question again?

The gross margin and EBITDA margins have declined. So what are the causes of those...

So as I mentioned in the call also, the major cost is the pricing, obviously. So we have shown the bridge also, where the impact mainly coming in is from the [indiscernible] we have tried to and the diesel pricing. This has been mitigated a lot from the operational efficiencies, which we have worked on not only this year, but some of these have been carried forward from previous years also. And so that has been causing the impact on both the EBITDA and the gross profit margin.

Okay. My second question is regarding the expansion. So as you now scale up the expansion or the birds per day from 594,000 to approximately 700,000 in the Q4. So what are the operational bottlenecks do you foresee some labor cost or logistics? And how are these being mitigated?

So there are no bottlenecks per se here. As we mentioned and you might have noticed in the press also, we inaugurated our feed mill and processing plant together. So we are taking the entire value chain together moving up. So there are no bottlenecks as such. Of course, we will ramp-up these capacities gradually because there is definitely a market pressure that we cannot ignore. So we will go through that. And there is raring the birds has its own time lines. So I won't call it any bottleneck. It's all as per the plan, and we will move ahead with our growth targets as we believe that the market is very strong. And it's just that imports need to be checked, which is going to happen in the next few months.

Okay. Clear. 2 more questions from my side, if you allow management. Okay. So how are you prioritizing the expansion versus the balance sheet health given the net debt to EBITDA currently stands at 4.7. Do you have a targeted leverage range going forward 2026 and beyond?

Yes. So the target is that we should not be exceeding the 5x, right? Because of the lower net profitability and the lower EBITDA levels, that has been escalated to that level. But then that's the maximum. What we are also doing is rationalizing the CapEx is already committed. We have the lines which are already there, right, as of now. Definitely, there could be a timing difference coming for our new phase, right, which can be discussed in coming quarters. But as of now, whatever we are fully committed, we have the lines available to run them through. And also, we are looking at mitigations at the profitability level to basically support the profitability and the margins to support the leverage also.

Okay. We noted that in the Q3, the finance cost impacting net income materially. So what is your time line for refinancing and cost of debt reduction as a new capacity goes live?

Yes. So that's -- so refinancing from a perspective of what can I ask? Can you clarify that part?

It's a pure debt reduction.

Yes. Okay. So see, the -- obviously, you know the Fed environment and the SIBOR environment, right? So we are waiting for a cut in Fed rates, which is going to help us reduce the SIBOR rates also. At the same time, there is a disparity in the EURIBOR versus the Fed rates, where the EURIBOR went down, but the Fed didn't. That actually created an impact on the ForEx rates, so this is what we have seen early this year, there has been an increase from 3.9 euro-dollar to 4.7, right? So that is the one-off impact we have had, especially in Q3, that was the translation loss for us was huge. So that's roughly around [ SAR 8.5 million ]. So that's a one-off impact we have received, right? So there is definitely a correction. At the same time, we are expecting that next year, we start repaying back our debt also. So that's the part where we are looking at the reduction in the leverage rates, which will come in. So from a cash flow perspective, we still remain strong. We are generating positive cash flows across our businesses. And this should basically help us service the debt in an amicable way.

The next question is from [indiscernible].

I had a couple of questions regarding the birds per day capacity that you have increased from 588,000 to 594,000. I wanted to understand is this differential coming from the Majmaa 2 facility?

So your question is that from -- how did we reach the 594 average? Much, much...

No, no, this is not Majmaa 2. So basically, this is the existing capacity. We already informed earlier that we are sitting on a capacity of almost 600,000 right? But because of the rationalization and the availability of the logistics supply chain, this is where the debottlenecking of the lines are happening, right? So there is -- in this capacity increase, there is no impact coming in from the Majmaa 2. This will be reflective in Q4.

Right. So the 750,000 birds per day target that the company announced is for the end of 2025, is it still in place? And is that differential going to come from Majmaa 2? And also I wanted to understand, so you have mentioned birds per hour capacity. Could you please specify birds per day capacity of Majmaa 2?

So birds per day capacity of Majmaa 2 is going to be 270,000 between 250,000 to 275,000 birds per day, 6 days a week. And we are currently -- we have with this Majmaa 2, we have achieved the 770,000 capacity for the year, and we are going to ramp up after assessment of the market situation whenever the market reception of our products, fresh products has improved, we will start utilizing that capacity. So as we promised, we have reached that capacity and it's utilization we will plan as per the market conditions.

All right. So one last clarification is it right to assume that the major CapEx cycle is behind us and the rest of that CapEx is to bring up the farms and the necessary vertical integration that would bring us to the required utilization of these -- the new facility?

For now, the major CapEx is behind us. And now it will be all or majority would be OpEx for ramping up the -- utilizing the capacity. But that is not to say that we will not enter another phase of expansion, if the market conditions permit because our targets and ambitions are higher than this number. But for now, yes, we will work to utilize these capacities fully before we move ahead with the next phase of our expansion.

The next question is from [indiscernible].

I have a couple of questions. The first one is in the annual release, the management has clarified that due to production capacity expansion, we are expecting meaningful cost optimization and enhancement of profitability. So is there any quantification or any kind of number that you can help us to understand that how much profitability margin expansion that we can expect this year or next year?

How much profitability can we expect this year?

Yes. Due to this new capacity expansion and optimization of the current production facilities?