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

Hello, everyone. Welcome to Widam Food Conference Call. Please note that this call is being recorded. I'd now like to hand back over to your moderator for today, Phibion, please go ahead.

Good afternoon to you all, and welcome to Widam Food Company's First Quarter 2024 Earnings Conference Call. My name is Phibion Makuwerere from QNB Financial Services. On today's call from Widam's management, we have Amar Kulkarni, who is the Finance Director. As usual, he will go over the performance and then we'll have a question-and-answer segment immediately afterwards. Let me turn over the call to Amar. Please go ahead, sir.

Thank you, Phibion. Welcome all to the Widam conference call for quarter 1, 2024. I'm pleased to announce that our numbers for quarter 1 2024 have been very positive as compared to last year. The overall numbers, revenue line, we've achieved a revenue of QAR 204 million. For gross margin, we've -- QAR 16 million gross margin and an operating profit of QAR 10.5 million for the quarter 1. In regards to revenues, we've seen revenues are 69% higher than last year -- same time last year. Our cost of sales are only higher 53% versus last year as a comparative to revenues achieved, 69% higher. The numbers there -- our financials, other income of QAR 6.9 million (sic) [ QAR 9.6 million ] relates to reimbursement of costs by the State of Qatar for the services we provided with Widam. And effectively, the operating profit is about 161% variance to the last year. So favorably movement as compared to last year. In regards to revenue, we always look at 2 areas of the business. One is the domestic sales and the other is international sales. Domestic sales have achieved 55% above last year versus international sales as per our expectation, and they are tracking and doubled the revenue as compared to the last year same time -- same quarter. The material gross margin, in particular, has been favorably achieved -- an increase in material gross margins has been achieved mainly from procurement. Having successfully achieved a reduced purchase pricing with long-term purchase planning as well as the negotiated rates because of long-term orders put into place. Operational costs have been maintained similar to last year. And Widam, at this point, continues to face severe competition from smaller players in the market, hence, impacting our margins in certain areas like the chilled lamb category. In regards to operating costs and G&A costs versus last year, we've had a 10% increase in overall cost, but we have supported a 69% increase in revenue and definitely, that has been a good achievement. We are obviously continually working on managing our costs. And for the past 2 years, it has been consistently maintained reasonably to the same levels or reduced in areas where we can possibly manage to reduce. Future profitability focus. The business has always looked at that, and it is always put into place strategic plans for different lines of the business. The top line strategies, in particular, revenue, we benefited with the -- particularly for Q1, we benefited with external market conditions where Ramadan and Asia Cup have been a strong factor in the demand coming through for the market. The additional factor being a -- the market penetration has been achieved because of increase in sales team who have been able to obtain additional market share by increasing customer base for us. And now the key strategic top line strategy of getting new product ranges into place via our B2C channels, which is our butcheries and our home delivery. We're looking at items like frozen french fries, frozen vegetables, additionally fresh foods and vegetables through our butchery, as well as value-added options such as beef patties, koftas being worked on. These options of new product ranges should start from quarter 2, 2024. With cost of sales, Widam has been working with suppliers as partners, and we had informed the investors earlier in the last quarter that we had run a pilot program, which is being tested with the South African supplier in a sheep fattening project, and that is -- trying to see fruition of a project as well as a cost for the South African lamb coming down marginally. Consistent work on that is in place, and as -- that should see further improvements in our margins and a reduction in the procurement costs from South Africa. In regards to the revenue by segment, and I'll probably go a little bit more in detail now. The international segment, we have consistently focused on two areas of this business is -- one is obviously, expanding countries into which we sell in, as well as expanding into the customer base. Now the business has really taken off more so in 2022. We had 5 countries we're selling into. In 2023, we had 7 countries we were selling into. And now by quarter 1, '24, we are now selling into 8 different countries. So our strategic focus has been able to, for us, double our sales on a consistent basis. So particularly for quarter 1 last year to quarter 1 this year, we have doubled our sales in international. The export is just so that you're -- the investors are aware, the export is based on a direct drop ship from suppliers to the customer destination. So it doesn't route through to Qatar, but has a direct drop ship to our client base. In regards to the B2B section, business-to-business, which is HORECA industry, the traders, retailers, wholesalers, we've had a very strong demand come from the HORECA sector due to Asia Cup and Ramadan in particular for quarter 1 this year. The additional dedicated sales team members who have come on board in the last 6 months in these particular sectors has helped achieve market penetration and an increase in customer base for us, which is supporting an increase in growth in our sales. Our frozen chicken was one of the agreements we signed about 1.5 years ago with Vibra, which is our brand of Nat chicken and that has seen consistent improvement in sales over the past couple of years, in fact. The B2C segment, which is home delivery and butcheries, has seen an overall 39% increase in revenues. Home delivery has seen a 34% increase in revenues versus same time last year, and butcheries has seen a 45% increase in revenues versus same time last year. With home delivery, we have had a lot of time and money spent last year in 2023 on brand imaging as well as the Widam application. And that has seen an increase in home delivery app being downloaded. That's also supporting our increase in sales, which is looking an year-on-year, quarter-on-quarter, last year to this year about 34% increase in sales. The base foundation of our HD is not only having an increase in the client base and the home delivery app, but it's more a quality product focus, a service focus and also consistency of supply being available has been a key factor or the pillars of the growth foundation that we see there. Widam Butcheries, there have been a change of leadership, which has seen, again, a growth coming through in Q1 '24 versus Q1 '23. There's about of 45% increase in revenue. One of the key factors we need to be aware is that in Q1 '23, we had 7 butcheries, by December '23, we had to close one butchery, which was not running profitably and to our target expectations, and we closed that down. We are opening up a new butchery in quarter 2 of '24. In Q1 '24, there were 6 butcheries. Q1 '23, there were 7 butcheries. Even with one less butchery in 2024, we had a 45% increase in revenue. So it has been -- we are strategically focusing on each area of the business as decisions are made towards profitability and making sure that the growth is happening at the top line revenue as well as the margin line. In regards to Widam operations, overseas operations, Sudan, as most will be already aware, due to the conflict in Sudan since April 2023, supply is halted from Sudan. But Widam Tanzania, the operation is up and running and is slowly settling down. It's been only a short while since the Tanzania operations have started. And the Tanzanian quality of meat is good quality, and we expect that to grow quite a bit over the -- by the end of this year. We should see Tanzania, Widam Tanzania grow substantially to be a strong player, not only for supplying into the domestic market here, but also for supplying into international sales. In regards to opportunities, challenges for 2024, now domestic market has always been a challenge for us in the last 2 years. We've seen marginal decline in revenues coming through, but with consistent strategic foundational changes that have been put into place during 2023, have seen a bit of a turnaround in revenue as well as margin. For example, the domestic market, the success story of chicken -- frozen chicken, as I mentioned, that we had a exclusive deal with Vibra Chicken to supply into the Qatar market, their brand name Nat chicken has seen substantial growth year-on-year. So just in regard to frozen chicken, we've gone from 4 million sales in 2022 to 10 million sales in 2023. And I'm talking of quarter 1 of each of these years, 4 million in '22, 10 million in 2023 and 27 million in 2024 and that's quarterly sales. We've also seen margin improvement. So we've not only seen revenue go up 150% plus, but also margin improvement happening consistently. And that's slowly trickling down to the bottom line and we see that benefit coming through. In regards to international sales, our client footprint growth is key for the success of the business as it reduces risk and spread the risk across different countries and different clients. But international is always propped with risk, and we have a lot of funding requirements for upfront financing for some of our suppliers. So in 2024, overall, compared to 2023, we will -- we should see at least a minimum of 20% growth year-on-year. At this point, that's all I have for yourselves. If there are any questions, I'm happy to answer any questions from the attendees.

[Operator Instructions] Our first question comes from [ Wei Chow ] from [ Epicure ].

I just have two questions. First is on your finance cost. So I just wondering why did your finance costs not go up despite the interest rate has gone up over the past year. And the second question is on the international business. Could you just let us know what is the name of the countries that you have expanded into, as you mentioned, there are 8 countries in -- as of 2024.

Sure. Thanks you also for those questions [indiscernible] costs not having gone up. We have seen a lot more profitability come through. Our borrowing requirements have dropped substantially. So effectively, as bank borrowing has dropped, our finance costs have dropped as compared to last year. So that is one of the key drivers to the drop in finance costs. In regards to the international businesses, we are selling into these countries, Jordan, Iraq, Egypt, Saudi Arabia, Vietnam, Singapore, Hong Kong, Oman.

And from what all countries you're importing the raw material?

They're more than -- because don't forget everything for sale into Qatar is being imported. And so not only we have imports coming in from multitude countries that could be close to 20-plus countries, we're talking of Brazil, Argentina, U.S.A., Australia, New Zealand, Romania, Pakistan, South Africa, Tanzania. So there's more than 20-plus countries that we are importing from.

And if you can throw some light on Sudan, how much was Sudan as a percentage of the total imports?

At this point, it's nil imports because Sudan is closed down. But, if I go back in 2022, my imports, and I'd probably segment the answer into international. My international sales in 2022, almost about 40% of my international sales was from Sudan meat. And effectively, if I look at domestic market, I would say the import for -- by Widam from Sudan, for the domestic market, it was not more than about 12 -- 10% to 12%.

Got it. And when you say that you have been exporting to Singapore, Hong Kong. So can you throw some light as to -- are you exporting -- what kind of meat are you exporting?

We're exporting beef. So majority of almost 99% of our sales into those countries are beef sales.

And are these any premium, premium in nature or like -- because I just want to understand how do you differentiate yourself?

We have -- from our suppliers, we actually branded and have derived about two different brands. One is the premium brand, one is a commodity product. And so at this point, the premium brand is probably between 18% to 20% of our total international sales. The commodity product is around 80%. So we are now trying to focus and enhance the sales of the premium products, to try and get better margins. So yes, at this point, we're working with a lot of clients who are seeing lack of consistency of supply and consistent quality of supply. And those are the areas, which is our USP in making sure we get a continuity of orders coming through from our clients. And that's the area of success we're seeing coming through.

So I assume it's -- it will be mostly frozen?

Yes. It is 100% frozen that we're selling.

And just to get a sense on the first quarter. If we remove the impact of Asia Cup and Ramadan, what is the sense like what -- would you still be able to achieve the similar gross margins or should reduce?

Yes, I would say the gross margins would reduce by at least 20% to 30%, but if you can take the excessive demand away, which obviously helps achieve a better margin for any supplier. So if you take that away, we'll probably be down by 20% or 30% maximum. But it's been more also other factors that have helped grow sales, which is the market penetration increase in client base that we've seen, which also has supported the -- that we see there in quarter 1.

Okay. So I'm not asking you from an absolute amount basis, I understand that absolute demand will come down, but you achieved a gross margin of 8%. So you think that a more normalized margin should have been around 5%. Is it fair to assume?

For sure. It would be around the 5% mark.

Okay. Okay. And just one last -- our last question. Do you have any plans to increase the prices in the domestic market?

The prices are very much market-driven and supply availability driven. So hence, we have to always chop and change, there is no consistency of pricing even for the same products throughout the year. So we're not looking at price increase. Yes, we are strategically looking at a price difference by looking at premium product sales being expanding growth on sales of premium product rather than the commodity product.

Got it. Got it. So what was -- how -- if you have to think of your strategy, if it plays out over the medium term, what kind of gross margin percentage it will -- is it fair to assume? Like what kind of margins can be achieved?

I think 6% margin can be achieved. The consistency of our strategy being played out, we should be able to achieve a 6% consistent margin.

Got it. Got it. And what is your target in terms of international sales? How much like -- commendable growth last year, but how much -- what is the split? Is there any specific targets you have?

We -- currently we don't have a specific target that we would like to convey right now, but we, obviously -- we are hoping to achieve -- internationally, we're hoping to achieve at least doubling our growth as compared to last year.

Got it. Over the medium term, right?

Over the medium term, for sure.

As of right now, we don't have any questions on the raise-hand side. I'd now like to hand back over to the management for their final remarks.

Thank you, Ellie. If there are no further questions, let's wrap up this call. Thank you for joining us. Thank you, Amar, for taking your time to update the market and respond to investor questions. Please join us for future conference calls. Have a good afternoon.

Thank you.

Thank you, everyone, for attending today's call. We hope you have a wonderful day. You may now disconnect today's session.