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

Good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Widam Food 2022 Third Quarter Earnings Conference Call. [Operator Instructions]. Roy Thomas with QNB Financial Services. You may begin your conference.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Widam Food Company's Third 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 over now to Amar. Go ahead.

Good afternoon, everyone. Thanks a lot for attending the Q3 2022 conference for Widam Food. I'll quickly run through a few of the figures and we’ll run through a few key aspects of our revenue, our cost of sales as well as where the business is headed towards and what business we’re focusing on in the Q4 and in the future. In regards to the top line numbers, we've achieved revenues of QAR 379 million as compared to last year numbers of QAR 348 million, which has been a 9% improvement versus last year. Gross margins of QAR 3.5 million -- profit margins, gross margins achieved as compared to a gross loss -- gross margin loss of QAR 9.3 million last year. And we ended up with an operating loss for Q3 2022 at QAR 22 million versus a QAR 24.4 million loss last year. In regards to getting into a little more in detail. Now we do see revenues have increased by 9% versus last year, versus our increase in cost of sale of 5% versus last year, which has shown we have worked towards reducing our costs, albeit, keeping our margins high by increasing revenue in regards to pricing and as well as a mix on the product that we've been able to achieve in sales. And that's turned out to give us a gross profit -- gross margin profit of QAR 3.5 million this year versus the loss of QAR 9.3 million last year. The business is showing metrics that are moving in the right direction. We've got still a long way to go in regards to achieving breakeven and profitability, which we are confident we will be looking at next year. Now Q3 2022, has been challenging, pretty much expected in the summer months in Qatar, where we expect a large portion of the population going on holidays, and there has been a big challenge for us. This consistent monitoring and improvements in the operational business has led to a reduction in the operating expenses. We have been able to focus on productivity process management within our slaughter houses. We are looking at reassessing low-margin products and working with the clients for options and alternative product for their use, which has helped turn things around from a profitability perspective for us. At the same time, we -- during the last couple of quarters, we have been focusing on our Sudan operations, so as to consolidate and drive, show the sales teams there as well as internationally for Sudan meats. to help obtain a return on our investment from Sudan. In regards to revenues. I'd like to touch on a couple of key segments there. The international sales and international segment has had a substantial achievement this year, which we -- which are pretty much running on track as per expectation. By Q3 2022, we've achieved international sales revenues of around QAR 72 million, which is a full year revenue last year reached QAR 7 million. So our international revenues have definitely started to show -- come into being in regards to achieving the numbers we're expecting. Our target for this year in international sales is roughly QAR 100 million. We expect to achieve that and a little more within the year itself. In regards to another important section, segment for us is that the B2B segment. We have achieved almost 140% increase in revenues in our B2B segment versus prior years as of date. And we expect that to substantially grow further during Q4 due to FIFA in particular. Our B2C segment and where I'm trying to touch on is the home delivery section. Now that's 1 of the sections of the business we're trying to focus on to enhance. A lot of the businesses are going online, and that's 1 area of our business we need to work on a little harder. As compared to last year, year-on-year, we see almost a 18% reduction in revenue, what we had, as compared to last year. But from a Q3 2021 quarter versus the Q3 2022 quarter, we've had a 17% increase. So it has been a bit of a challenge for us to build on the home delivery segment. That's the B2C segment. In the first 2 quarters, it seems to be picking up substantially. We are focusing on different areas of home delivery in regards to -- Widam’s app Food awareness. In regards to marketing, we've recently got a Head of Marketing, joined us about a month ago. And so we are ramping up on our marketing strategies to really boost and let us push our home delivery segment. Well, Widam’s overall market share, which have been asked consistently, I would say we range between 20% and 30% market share, but it also depends on the specific market segment. It also depends on the product mix and category. And so we're generally sitting between 20% to 30% market share. But it's not a formal assessment and these numbers have not been verified. As projected in my quarter 2 conference call, where we pretty much expected a slow Q3 2022 and as this period normally tighten with traditional holiday breaks taken by a large portion of the population in Qatar, we have seen the impact of reduced revenues which has affected our bottom line. But the revenues have substantially higher -- reduced revenues have been higher in Q3 this year than prior year. And we are assuming that this has been mainly because a larger portion of the population has been forced or may have been taking their annual break in Q3 2022, so that businesses gear up and obviously, for the now holiday period, all the holidays approved period during Q4 as we have the onset of FIFA. So effectively, what reduced revenues we have seen in Q3 far more than we expected, but we should see that turn around a little bit in Q4 in regards to standard sales besides the FIFA expectation that we already have. In regards to cost of sales, now that's 1 of the areas where we are seeing a major impact on the business. I'll probably break that down into 3 different sections. One is a key driver on Sudan. We've been to achieve higher margins mainly from our Sudan operations, because we have revamped Sudan operations with enhanced infrastructure to support increase in live sales, not only directly to Qatar, but also to our international clients. That has given us positive results in regards to reduced costs of Sudanese meat that has come through in our sales as -- and of course, we just need to be -- I need to be keeping the investors informed that we have heard and seen a lot of pointing in South Sudan. A lot of flashes between local price there. But just be mindful that our operations are far away from the conflict area. And so we don't expect any impact of this context on our operations now or in the near future. In regards to operating expenses, since my arrival or since my joining in March of 2022, we worked very hard on addressing operating costs. We've been renegotiating long-term supplier contracts, we’re improving credit terms with suppliers as well as -- that’s borne fruit in regards to a favorable result of cost reduction of 21% in OpEx cost reduction versus last year. So -- that we’ve seen the benefits come through now. In regards to our cost of goods sold, which is the cost of the direct material, we've had a challenging 2022. The war in Ukraine affecting global supply increased fuel costs mostly in Q1 and Q2, corresponding increase and freight costs has impacted our cost of goods sold. And it is being an unfavorable impact for us without increasing revenue prices too much. We've been hit with an increased cost of goods sold and effectively, a loss in a bit margin as an unfortunate situation. Obviously, the other factor we are facing now currently in Q3 and Q4 is increasing freight costs, and this is mainly because of the extreme logistic demands that are coming through as we're approaching FIFA. Shipping liners, the airfreight, cargoes are completely blocked out, filled up and effectively, the pricing being increased from Qatar Airways as well as from shipping liners for goods, for ships and air cargo coming into Qatar has pretty much affected a certain portion of our margin and such. So there's been a few impacts -- unfortunate impacts of this current year as such. We hope to see that turnaround and kind of ease off pretty much by end of Q4. So we’ll see that turning around substantially in 2023. In regards to key aspects of where the business -- or the positive for the business is looking at in the recent couple of quarters as well as the next couple of quarters coming through. In last quarter, we've been able to sign up with a Brazilian company called [ Vibra Foods ] and effectively that agreement with [ Vibra Foods ] to supply frozen chicken for the NAT brand. That’s N-A-T, NAT brand. And I'd say exclusive agreement for us to supply and distribute within Qatar itself. We do have major brands here in Qatar or for frozen chicken. And that's the Sadia brand and Seara, who have a large market share in this category. So NAT chicken, with its high quality and Widam’s distribution network, I do expect to see some great opportunities for Widam to enhance market share in this frozen chicken sector, which is roughly a market of 100,000 metric tons. And so effectively right now, we are a very small percentage of that. So we should see a lot of positives coming out of that particular sector for us by Q1 and Q2. There will be a substantial traction in us building that particular -- building and getting into that particular frozen chicken sector. FIFA has been obviously on everybody's mind now. FIFA has been a challenge for the business to gear up for the intensity of FIFA requirements for the short 2-month period. Amongst all the different challenges we're trying -- we’re covering our bases for requirements, contingency, possibility of increase in demand and we're also working with the State of Qatar to support their contingency plans, which effectively working with them directly on certain areas of frozen meats as well as frozen chicken. Now from our discussions with the hotel retail catering companies, we're building up inventory for Q4 sales acting, we’ve actually -- not only are we just in discussions with them, but also with a lot of our clients and our consistent regular clients. We’re actually having supply contracts signed up, so we are looking at confirmed and locked in sales for those clients during this FIFA period. In regards to international, I think I just touched on that a little earlier, but I'll reiterate this point. It’s that we are very confident and very happy to see that international sales has turned favorable in the direction we are expecting. Our targets were QAR 100 million for this current year. We’d probably be a little shy of about QAR 100 million by the end of this year, and we’re currently selling into 5 countries at this point. An additional new action that the business has initiated is an approval by the Board of Directors to set up office in Tanzania. Now our intention with setting our office and operations in Tanzania, which will come to fruition in Q4 2022, the intention is really to try and focus on improving profitability of Tanzanian meat coming through in Qatar, not only for that, but also we're looking for opportunities to sell Tanzanian meat across our international clients. The demand for Tanzanian meat seems to be increasing within the local market share domestically in Qatar, but as well as also discussions with our clients internationally seem to be picking up a requirement for Tanzania meat. Now Tanzania seems to have -- we’ve done a couple assessment of Tanzania and so has had a lot of discussions at a political level. And we view that it could be a reasonably stable country for us to set foot and kind of set up bases in there and look at building further opportunities for us to enhance our profitability. In regards to domestic, Tanzania meat volumes that were sold, and I'm just giving information only from an import perspective. The volumes for 2021 were roughly around 2,500 metric tons. We have, so far, an approximate estimated -- as of the end of Q3 2022, estimated volumes of imports are hitting at about 4,000 metric tons. So effectively, by the end of this year, we will be looking at Tanzania meats coming into Qatar doubling to last year. And we expect a doubling trend to continue for at least another 2 years. And we'll be jumping in on this opportunity as we've done our assessments to really grab on making sure we are there fairly early, fairly quickly. And on the ground, we want make sure we enhance and grab the opportunity for increasing profitability for our sales. That's all I had for now from information on Widam as a business and our numbers at this stage. I'm sure you may have other questions or additional points you would like me to give you information on, and I'm hoping for any questions that you may have.

[Operator Instructions] Your first question comes from [indiscernible] from Al Rayan Investment.

Thank you Amar for this presentation. This is [ Zahib ] Al Rayan Investment. So you just mentioned the opportunity regarding the chicken distribution. So is my understanding correct that you will import frozen chicken and distribute? And will it be B2C? Will it be B2B? Could you give -- talk a little bit about this opportunity?

Thanks a lot for the question. Yes, we are looking at frozen chicken and it will be import and a distribution setup here for us. We are looking currently at a B2B sales opportunity. But as you're aware, we do have our butcheries within Qatar itself. And so the channel of sales via butcheries will come up with a B2C minor portion of that sale. But majority will be B2B.

It's only going to be frozen, right?

It is going to be only frozen at this stage, yes.

And how do you see -- I mean, this segment is already well -- the number of competition there, it's already well addressed. So how do you see to make inroads into it?

We -- like any player, once we want to get inroads into it and our risk and opportunity, we are going to face a lot of challenges, challenges in terms of pricing and low margins. Challenges in regards to getting shelf space and visibility. And so there are definitely a lot of challenges. The only opportunities we're seeing is that we're starting from a very, very small market share. And effectively, it might take us a little time in getting inroads into this opportunity. We do have an [ active ] task there. But it is going to be a difficult 2 quarters to get through and start getting a footprint for our sales in the market share. And you're precisely right, there is -- it is -- this is a well-developed market in regards to long-term players like Sadia and Seara. And it is going to be a challenge, and Widam’s always up to a challenge to try and make the best of opening opportunities that's available.

[Operator Instructions] Your next question comes from [indiscernible] Adam.

So could you please give us some more insights into deal that was signed for QAR 100 million with FRIGO. Can you give us the terms and arrangement?

For sure, in regards to our agreement that was signed with the Egyptian company, FRIGO, is a supplier -- a wholesale supplier into Egypt, with a strong footprint with in Egypt with all the major retail stores there. There's a carpool for there also that we have here and other major, major players there. Now with our agreement, which was QAR 100 million, it’s a 12-month agreement with them to purchase material from us and it's for different kinds of material. It could be Pakistani meat, Indian meat, Brazilian meat and Australian meat. And so it's a multiple of products that they're looking at considering. We have initiated -- after the agreement having been signed, we have initiated supply at this stage. The country, as you know, is struggling through various different aspects politically to a certain extent, but also from a currency point of view and where our agreement with FRIGO has a little bit of stability is our sales are done through LCs. So our risk factor is very low and knowing that they have a facility available, a bank, before our product is shipped across to them. And so we have controlled factors as well as low-risk factors put into the agreement and our deals with them. And in the process of sales, like you mentioned, has been initiated about 1.5 months ago. And we’re seeing that's trending at this point, we probably completed about between 7% to 8% of the QAR 100 million. We will be looking at picking up substantially by December as production ramps up for their requirements, specific requirements and the specific cuts that they require. And we see that benefit comes to substantially in Q1 of 2023.

Okay. And then -- so overall, when do you think Widam’s going to turn profitable?

We are looking at ourselves going profitable in 2023.

There are no further questions at this time. Mr. Roy Thomas with QNB Financial Services, I turn the call back over to you.

Thank you, Abby. We'd like to thank Amar and Widam Food Company for the results update and answering all the queries and look forward to speaking to you all for the final quarter results. Thank you.

Thank you.

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