Hello, and welcome to the Baladna conference call. Please note that this call is being recorded. You will have the opportunity to ask questions to our speakers later on during the Q&A session. If you would like to ask a question by that time, please press star one on your telephone keypad. We will now hand the call over to our moderator, Phibion. Please go ahead.
Thank you, Janice. A 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. As usual, he will first give us an overview of what transpired during the first quarter, and we will 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, Phibion. Good afternoon, everyone. Thanks for joining us today. My name is Saifullah Khan. I am 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 expectations and assumptions, and the actual results may differ due to external factors, including ongoing regional developments. The first quarter of 2026 was shaped by continued regional tension, and in that context, I want to spend a moment on how we approached the quarter. In situations 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 potential disruption. This is not something we approach reactively. It is built in Baladna DNA. We have seen similar conditions before, including during COVID and the Red Sea disruption. The same principles apply each time, which are early visibility on risk, forward planning on critical inputs, 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 maintained full operational stability with no disruption to supply. As part of this context, we welcome the Ministry 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 pressure. Going to the financial performance, revenue for the Quarter 1 stood at QR 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 channels. This has helped foster 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 QR 106 million and margin expanding to 32% from 26%, supported by higher milk yield 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 to QR 61 million, with margin improved to 18.6% from 17.6%, supported by continued cost optimization, improved operating leverage. It is also worth noting that 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 operational perspective during the quarter in discussion, the business will 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 high yields and low cost of farm production. This was further enhanced by a reduction in material costs, optimized overhead, and continued cost saving 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 product portfolio, reaching 268 SKUs, including 16 new product launches, while the customer base increased to 30,821 and the number of sales routes expanding to 149. We also initiated further steps on efficiency, including the introduction of electric vehicles within the logistic 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 project continued to make solid progress across key work streams, with activity increasing, shifting from early-stage development towards large-scale execution. During the period, a major milestone was achieved with the award of phase II contracts exceeding $635 million. This was complemented by the initiation of dairy cattle airlift program from U.S., scheduled to commence in November 2026.
The program will facilitate the phased import of approximately 30,000 high-quality dairy cows over a 10-month period, supporting herd build-up 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 regulatory approvals underpinning the project's long-term water requirements.
Arable farming activities also moved forward with the cultivation of key crops including barley, wheat, alfalfa, Rhodes grass, and corn, supported by the continued expansion of irrigation systems. 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 II is driving a broader scale-up of construction and infrastructure across farms and supporting assets, positioning the project for its next phase of development and supporting the long-term objectives of local milk powder production in Algeria.
In Syria, development of manufacturing projects progressed steadily across site preparation, design, and permitting activities. Site layouts and grading works advanced during the period, alongside the completion of key design submissions for major facilities, including dairy warehouse and utility. 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, scenario, modeling, and the bankability assessment to support the potential private sector financing.
The engagement is scheduled to commence right now and is expected to play a key role in de-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 a progress aligned to our long-term development plans while remaining responsive 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 a business that remains stable and disciplined in complex environment, with the revenue holding steady, profitability improving, operations continue without disruption, and supply to the market, 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 through to production and distribution provides a level of control that allow us to maintain continuity even when external conditions are less predictable. This is something 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 a reliable supply within the country. 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 Phibion to have any question and answer.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please press star followed by the number one on your touchtone phone, and you will hear a pop that your hand has been raised. If you wish to withdraw your question, please press star one again. If you are using a speakerphone, we kindly ask you to lift the handset before pressing any keys. Please hold for a moment while we gather questions. Our first question comes from the line of Ashish Agarwal from The First Investor. Sir, please go ahead.
Hi, Saifullah. Hi, team. Thanks for taking my question. Ashish here from The First Investor. I believe the rights issue has been postponed slightly given the regional conflict. Can you just confirm that? 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 am assuming, given the huge increases in the advance to suppliers, you may have taken care of your immediate CapEx requirements. Another follow-up would be, what is the subsidy situation from the government side in terms of support for the cost increases that is happening because of the conflict? Supply chain increase cost. Any support from the government side? That would be all from my side. Thanks.
Okay. Ashish, thanks for your question. You covered three parts of your question. First question you asked about rights issue. Basically, right issue postponed for these regional tensions and this environment was not right to us to execute that, and it was honored by all the regulators that it is good idea to postpone this. Now, we are reconsidering this because whenever the time is right, we will bring back this. Once we will feel that this is the right time, we will definitely come back to the market. But at the moment, I do not have any approval from the board of directors will 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 cost increasing for the-
For this year. Specifically for this year only.
This year. Basically, if you see our debt is increasing, but because our Algeria project, we have a financing for this project. This finance cost, basically, is capitalized. It's not going to impact our P&L, because we have arranged of this, the loan, we got it. We have a grace period for finance cost and also principal. In line with that, all the finance cost will be, basically, we are giving this loan to our subsidiary, so it will be capitalized. There will be no P&L impact.
Saifullah, sorry to interrupt. 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 year, because our grace period is five years.
Okay.
Mostly the loans when we are arranging, it is linked to the dividend from that project. It will be not having any impact on the P&L because it is linked to the dividend. Also, this is subsidiary, we have the debt, which is capitalized, all the finance costs and everything. Your third question about cost increase impact. Ministry already informed us and capture all the additional cost, due to this scenario, we are rerouting our material and especially 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.
Have you already received money from the ministry or that you will receive afterwards?
Right now, if you ask me today, because most of the stock was, we are using from own internal stock. Now, the new orders are coming, as impact is coming now into the business. We are recording separately. We are sharing our information with the ministry, and they have promised, because minister of municipality was with us, with all his team, and he confirmed that all the additional cost, it will be reimbursed to the business.
All right. Thanks a lot.
Thank you. Again, should you have a question, please press star followed by the number one. Our last question comes from the line of Adnan Muqeem from Al Rayan Investment. Please go ahead.
Hi. Good afternoon. This is Muhammad Adnan from Al Rayan Investment. I have two 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. Can we expect same margin for the rest of the year? Because in the third quarter, this tension rises, and you are saying that some cost is increasing. Can we expect that these margins will remain or it will decline?
Yeah. Basically, what you have seen, this is over the period Baladna performance is improving, when it comes to your operational efficiency. This definitely it will maintain over the period, and we are expecting further improvement as the volumes are increasing, we will see better efficiency in the operation side, specially manufacturing side. The farm is getting very good state now, and because of last two years what we have done. Now we are seeing this result of that. All the cow comfort, securing very good feed, management, and now we are seeing very high our productivity rates in terms of either this is conceiving new birth or milk, because overall health of the animals improved.
Yeah.
That have impact. Definitely it will remain over the period. It is not a one-time that cows improved, and now they will be sick. This is what we are expecting in, yes, the rest of the years that it will remain profitability in the same trends. The trends are you need to take into consideration.
How the current situation is impacting the margins?
No, we already mentioned. I mentioned that the impact the Ministry of Municipality already promised us that they will bear that cost. We do not see any impact on the margins.
Okay. The other question is related to the Algeria project. When it will come online, is there any sign that we will see any ramp-up cost initially?
Okay. In Algeria, if you see our arrangements with the Algerian government is offtake 20 years. It is the agreed price linked to the input index. We have a higher price initially, so business should not be having any negative impact on the P&L. Price was agreed in our case that initially the business should get more support and gradually price went down as operation will be optimized. There will be no impact in the P&L from day one.
Okay. So no dilution to the earning.
Yeah.
Thank you. Thank you so much.
Thank you. I will now turn the call over to the management for closing remarks.
Okay. Thank you everyone for joining us today. If you have even any question, you are most welcome.
This concludes today's call. You may now disconnect.
Thank you, everyone. We are looking forward for your next call. Thank you.