Widam Food Company Q.P.S.C. (WDAM) Earnings Call Transcript & Summary

Good day, and welcome to the Widam Food Q2 2022 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Roy Thomas. Please go ahead, sir.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Widam Food Company's Second Quarter 2022 Financial Results Conference Call. On this call from Widam Food Company, we have Amar Kulkarni, the Finance Director. We will conduct this conference call with Amar first, reviewing the company's results followed by a Q&A. I will turn the call now over to Amar. Go ahead, Amar.

Good afternoon, everybody. Thanks a lot for attending the conference, and welcome to everybody. Probably briefly what I will do is just give a brief highlight on where the business is at, what is achieved so far, and then run down a few points in regards to the revenue segments of the business as well as what we're expecting briefly over the next 6 months and we think that the business is looking forward to. Firstly, in regards to the numbers half year 2022, we've achieved a revenue top line of QAR 231 million. Consolidated number with government compensation was QAR 252 million. The numbers are in line with company expectations so far, but we obviously have a long way to go in achieving further improvements. Widam's half year 2022, the numbers that we have here evidenced the strategic actions that we've implemented, resulting in a reduction of the losses we have faced comparative from last year or an improvement versus last year. We've got increased domestic competition this year and a lot of challenges in sourcing due to increased logistical costs and the company has definitely shown resilience in overcoming those costs as I can go through the numbers and present that information. We furthermore improved operational cost control, have supported our margin improvement, but the company does need to work harder to drive domestic sales in conjunction of maintaining margin and further reducing operational costs. In regards to revenues, consolidated revenues, we have an 8.1% increase year-on-year. And effectively in regards to our sales for government-compensated items, that rose by almost 26% year-on-year. While non-compensated items rose by about 6.8% year-on-year, mainly driven by Widam's international sales strategy, which has supported the drive in increased sales. Sales of the domestic non-compensated items declined 12%, and that's one of the areas where the business is working through and trying to escalate as to see how we can improve that over the next quarter. Gross margin after government compensation recorded about 2.3% versus a negative 4.4% by half year 2021. In regards to expenses versus 2021, operating expenses declined by 27% versus last year and G&A declined by 5.5% versus last year. If we now -- if I just go through the comparative in regards to the revenue line, our revenues are about 6% higher than last year. Cost of sales have only risen to 1%. Now that drive in Widam has achieved a 6% increase in revenue versus a 1% increase in cost of sales, gives information to yourselves that our drive to reduce our costs has benefited us in improving our margins. And therefore, our cost of sales has not risen as much as our revenue rise and the benefits have come through to the bottom line there for that. In regards to Q2, we initiated strategic changes in the operations of the business, leading to reduced operating expenses. Areas that we really worked on very hard were improving productivity within our slaughterhouses, increased revenues from high-margin product lines, negotiation with suppliers in reducing costs, increased international sales, which has a low OpEx cost requirement, and we also initiated high-value product revenues. So we're looking towards how we can expand on that. So Widam finished off with a loss of QAR 11.8 million for half year 2022 versus QAR 15.5 million loss in the same period last year. I'll just go through now the various revenue segments, which are key drivers of the issues. The positive -- substantially positive is the international segment. We are now exporting to over 5 countries at the moment, and we've had substantial initial success in penetrating international markets and getting a bit of a foothold. Our half year 2022, we've achieved revenues of about QAR 40 million in sales. And by end of 2022, we expect this number to reach close to QAR 100 million in international revenue. The -- another segment that has shown positive outcomes is the B2B segment. And we've seen year-on-year, an increase of 300%. We believe that this year with FIFA, this segment will present further growth opportunity in the second half of the year. The other segment that -- which is a bit of a concern and we're driving towards assessing and reassessing our efforts there is the B2C segment. And we've seen a 30% reduction versus prior year. Now this is the home delivery or the Widam app itself, in particular, is what I'm referring to. And what we've seen is a 2021 -- first half of 2021, COVID was still very active. A large portion of the population is working from home. So home delivery, HD, had a one-off boost in sales. Although we do not have a status quo as 2021, we're working towards without awareness, alternative drives to build on the revenues in this segment. Now Widam's overall market share ranges -- an estimate between 25% to 35%, depending on the market segment. At this stage, we don't have any formal assessments done and market research done to verify these numbers. But we do consider with current market conditions and our internal Kaizen focus of process improvement, we will achieve improved market share substantially by the end of 2022. We expect to see a slowdown in Q3 2022 as this period ties in with the traditional holiday breaks taken by a large portion of the population in Qatar. If I just do a quick comparative in March '22, the population within Qatar was about 2.8 million. In July '22, the population within Qatar, it's sitting at about roughly 2.6 million, and this is from the Qatar Planning and Statistics website. In regards to FIFA, we have had a substantial amount of discussions with the hotel industry, retail, catering companies as we're gearing up to building our inventories as well as forecasting for our client requirements and making sure that the business is prepared and ready for any spike in the requirements, which we're all expecting. And effectively, it is something that we are gearing up internally. Now it's going to be a very competitive time on and off the field, if I may put it that way, with possible sales at reduced margins. So it's going to be a competitive and a hectic time for the industry itself. Widam is working with key clients to support them by maintaining inventory as per their requirements as well as we expect to tie in with supply agreements with our clients. So that effectively stock is ready and available, and we do not have a scramble as we come in closer to the FIFA event. The other area or other segment interesting is that is the live sales. We -- in last year, same time last year, we had about 10,000 heads of sales. This time, it has a 50% increase versus last year, mainly from our Sudan -- Widam Sudan branch. Now we do envision that this is going to grow substantially. Our focus is to get the use and the benefit of the Sudan setup and support the requirements within Qatar as well as help support also from a margin perspective. So effectively, we are working with our Sudan branch to enhance the infrastructure to support the live sales that will be -- that we brought in from Sudan to Qatar or to our international clients. We're working with building partnerships with suppliers, who can supply quality meat at a competitive rate to provide to the Qatar market in particular. We have initiated a process, and I've worked on the Kaizen process of continuous improvement by assessment and reassessment of our processes, procedures, cost reviews. And this has been an abundant help in assessing prior year projects like the Ramadan [ Mubatsah ] project, the Eid distribution project and across -- the project across Qatar. We've done this -- the Eid distribution project in Tanzania, Sudan, Kenya and other international locations, and we have had a substantial improvement this year as compared to prior years. And so we're seeing that it's benefiting us in confidence that the charities have in us carrying out those projects, not only successfully but professionally as well as efficiently where we have initiated this process. In regards to what the business is really excited about. I'd like to mention that. The business is really looking towards the international sales as a segment that is going to grow substantially. We currently are generating sales into 5 countries. And by the end of next year, we expect to see our geographical client footprint double. Additionally, now the domestic growth is a challenge but it excites us because we have good growth opportunity and effectively another share -- additional share of the market that we can grab on to. So there's definitely a lot of scope and opportunity for us to work towards on that. In regards to numbers, if anybody has any other -- any questions, please let me know or if you would like to know more about what the business is doing and what we're achieving or what we're looking forward to, please do ask any questions. So from my side, that's it for now. But yes, I'll open the floor to anybody who has questions.

[Operator Instructions] And we do have a first question from [ Mustafa Ameer ] with Al Rayan Investment.

This is [ Akber ], Al Rayan Investment. Thank you for the presentation. Just had a bigger picture question, which is obviously the Widam of old is different to the Widam of the future. Just wanted to understand 3 to 5 years out, what would you -- what is the vision as to what it is that you, the management team or the Board is trying -- where the company trying to get to, let's say, 3 to 5 years from now? What -- will it be more international? More Qatar? Would it have different products? Different services? What's the medium-term outlook?

[ Akber ], thanks a lot for your questions. I would put it carefully, and only I say that so only because as we know, the world is a very dynamic and fluid environment where currently, things are not as steady as we've seen 10 years ago. So I put it in this way, from an internal assessment perspective within Widam, I would say we are definitely looking towards expansion of our international markets. We would look at within the next 3 to 5 years, our international market revenue base would be around 50% at least to our total revenue. So effectively, if you see numbers with what you see last year, you have the same number within the next couple of years. And that's the number that you'd be looking at from a total revenue point of view with international sales being 50% of our revenue. In regards to not only international, but as a business, the business personnel changes that have happened and the drive internally, we are looking at a substantial focus on professional futuristic minded personnel as well as process improvement personnel coming on board. And therefore, we are looking at a substantial enhancement of the business internally, not only from a process point of view, but even from a thought process point of view. We want to make sure the teams are thinking logically, thinking professionally as well as thinking in terms of how the business needs to improve and profit. So it's going to be a substantial change in the personnel we're looking at here, which will happen over a period of time in the near future. Additionally, the business also is going to be looking at other avenues or new revenue sources. At this point, there is no defined decision that has been made or direction that has been given by the Board or even the executive team at this stage. But we are considering different revenue sources, and I'll be looking at very strongly for 2023.

Great. And just 2 more questions if I can. You reduced some headcount this year. And there's been a focus on costs, not necessarily asking about more headcount reductions, but just trying to get a handle for in terms of our cost base, is it now where you think it needs to be or should be? Or do you think there's more room to optimize things?

The business is having a major ERP implementation. That on its own will lead into a restructure of the personnel as required in certain areas of the business. So that would lead into the changes, whether it's a bit of a restructure and reshuffling of the roles at certain levels. And effectively, it might lead to a marginal reduction in personnel, if needed. But the business is focusing not so much on mental reduction. We are looking at mental change to get the right personnel on board. And so it's not a number change perspective cut, it's more the right person that needs to be brought into the business so as to take this business to the next level and build it from there.

Great. And my last question is just about the World Cup. Obviously, it's a big opportunity. How -- I mean, does this mean you will be -- you are in the process of building inventories to be able to have sufficient supply to cope with the likely higher demand during November and December?

Absolutely. We're tackling inventory on a deal perspective. We have had both sides locked in. When I say both sides, I refer to discussions with clients, and we've actually locked in for a supply agreement for them during this time line. And so we know what kind of demands our clients have to a certain extent. And at the flip side, we also had agreements set up with our suppliers so that the supply is not affected during that time line. Additionally, we've also maintained a certain stock that can be kept over a period of time, like frozen or chilled stock, which has a longer shelf life. And effectively, we already have orders placed for that, which will be in our stores, in our inventory very soon, so as to cope and be ready for any spike over and above our awareness of what the clients require. So definitely, to answer your question, yes, we are having -- we are going to be looking at a bit of a spike in our inventory. And then therefore, cash requirements will be used for that. Thanks, [ Akber ].

[Operator Instructions] It appears there are no further questions for today's call. So I would like to turn the conference back to our speakers for any additional or closing remarks.

All right. There are no further questions. We'd like to thank Widam Food Company and Amar for the results update and answering all the queries and look forward to speaking to you all for the third quarter results. Thank you.

Thank you very much. Thank you all.

Ladies and gentlemen, this concludes today's call. Thank you for your participation, and you may now disconnect.