Hello everyone, and welcome to Baladna conference call. Please note that this call is being recorded. I would now like to hand over to our moderator for today. Phibion, please go ahead.
Thank you, Ellie. Good afternoon to you all, and thank you for joining us for Baladna's 2Q and 1H 2024 earnings conference call. My name is Phibion. I am an analyst with QNB. On today's call from Baladna's management team, we have Saifullah Khan, the Chief Financial Officer. As usual, he will go over the performance and the presentation, and we will have questions immediately afterwards. I will now hand over the call to Saifullah. Over to you, Saif. Please go ahead.
Thank you, Phibion. Good afternoon, ladies and gentlemen. I would like to welcome you to earnings conference call of Baladna to present the results for first half of 2024. My name is Saifullah Khan. I am the CFO of Baladna. During this earnings conference call, I will provide you with an update on Baladna financial and operational performance during six-month period ended 30th June 2024. For additional details, please refer to our investor presentation, which is published on our website, in case you have not received yet. Okay. In the first half of the year, Baladna achieved revenue of QAR 595 million and net profit of QAR 100 million. This represents 100% increase in revenue and a remarkable 137% rise in net profit compared to the same period of last year.
Notably, this is the first time in Baladna history that we have reached the milestone of QAR 100 million in net profit within the first six months of the financial year. The revenue growth was primarily driven by increased sales volume across all channels and products category, favorable market condition, and continued gain in market share. Earning per share for the period was QAR 0.053. The significant increase in net profit was primarily driven by the enhanced gross profit margins achieved through operational efficiencies in the entire value chain, coupled with strategic and efficient cost control measures. The gross profit margin for the first half of the year improved to 24% from 20% in same period of the previous year. In addition to these margins improvement, reduced finance cost and stringent control over general and administration expenses contributed significantly to the strengthening the bottom line.
Regarding EBITDA margin, as illustrated in our presentation, Baladna leads its industry peers with a margin of 33%. In terms of cash flow generation, Baladna continues to emphasize effective working capital management and has implemented stringent control over CapEx through rigorous investment analysis and robust business viability assessments. For the six-month period, the company generated free cash flow of QAR 198 million, which has enabled us to finance dividend payment through internally generated cash flow of the last year. In the second quarter of the year, Baladna recorded a revenue of QAR 282 million, reflecting 7% increase compared to the same period of last year. Baladna reported a net profit of QAR 52 million for this quarter, demonstrating a substantial increase of 134% compared to the previous period. Earning per share for this quarter remained QAR 0.027.
This quarter, Baladna has achieved a historic milestone by surpassing QAR 50 million in net profit for the first time. This exceptional performance underscores our continued growth trajectory and reflects our strategic focus on delivering value and operational excellence. As illustrated in the presentation, our market share in the fresh milk category has surpassed 95%, and with UHT also exceeding 90% mark. Our ongoing focus remain steadfast on expanding market share in other products category that offer substantial growth opportunities, ensuring sustainable growth for Baladna future. Baladna remain committed to enriching its product portfolio through continuous innovation and the introduction of new offering. In the first half of the year, we have made notable advancements, including our entry into the high protein milk market and successful expansion of Greek yogurt portfolio. Additionally, we have relaunched our juice line with the refreshed design and new flavors to enhance consumer experience.
The Awafi product range has also been revitalized with a distinct brand proposition, everyday value, everyday quality, featuring a new packaging identity across the entire portfolio. These strategic initiatives underscore Baladna dedication to delivering superior products, adapting to evolving consumer preference and contributing significantly to the country's food security. This exceptional performance is attributable to our relentless focus on deriving continuous improvement and operational efficiency in our farming, manufacturing, and sale operations. On a daily basis, our farms consistently supply fresh milk, while our manufacturing facility diligently produce high-quality, nutritious products, all while maintaining an impeccable record with zero quality complaints. Our sales team is equally committed to ensuring the timely delivery of fresh products that meet the evolving demands of our consumer. Regarding latest development on our Algeria project, I am pleased to report that the project is progressing as per schedule.
Groundbreaking activities are anticipated to begin within next few coming months. Currently, we are finalizing the necessary legal documents with relevant stakeholders. We will continue to provide regular update on the project's progress to our shareholders. Following our reversed financial performance in the first half of 2024, Baladna projects a positive outlook for the remainder of the year. We are committed to maintaining this momentum by expanding our market share and existing product line and launching new offering. Coupled with favorable revenue growth indicators, the stabilization of material prices, and the analyzed benefits of reduced finance costs, our continuous focus on operational efficiencies and excellence is expected to derive strong bottom-line performance through 2024. Baladna's strategic expansion beyond Qatar remains pivotal to our sustainable growth objectives.
While our primary focus is on advancing the Algeria project, we are also dedicated to broadening our diversification strategy by actively evaluating new opportunities within Qatar or outside Qatar. To conclude, Baladna remains steadfast in its commitment to serving as a market leader and contributing to Qatar National Food Security and self-sufficiency goals. We are dedicated to delivering shareholder value while upholding the highest standards of service for our customers and ensuring the safety and well-being of our employees and stakeholders. I would like to thank for your attention, and we are now open to any questions if you have, please.
We are now opening the floor for question and answer sessions. If you'd like to ask a question, please press star one. Again, please press star one. Our first question comes from Zohaib Pervez from Al Rayan Investment. Your line is now open.
Thank you, Saifullah, for the presentation. I've got two questions. Firstly, on your gross margins. They have expanded very strongly in the quarter on a year-on-year basis, on a quarter-on-quarter basis. What led to this increase, and is this sustainable, the increase in your margins? My second question is on the general administration. Again, you mentioned that you are controlling costs, et cetera, but it seems like it's declined quite significantly. Is it because there was a higher cost base last year? What is leading to this decrease in G&A for the quarter? Thank you.
Thank you for your question. I think you touched a very important question, how we can be a more sustainable our margin. I think what this year, compared to past two years, I think this is, I would say, the recovery year, especially on the bottom line and the top line, as I mentioned, because of the market sentiments were positive and we got market share more on that. In terms of gross profit, the key contributors are especially volume growth. I think this is significantly increasing because of market share gain. Baladna, in all category, we are over-delivering. That's impacting our margin. Second impact was major the commodity pricing year. In last two years, it went all-time high. Now we are seeing the momentum is getting back and many things is coming to the stage, prior COVID stage.
Third thing, you have seen these selling prices when we did last year, in quarter three. That compared to year-on-year, have also significant impact on our margins. Overall, what I mentioned in our overheads getting better. One of the element you have noticed is the G&A. This is one of item we have seen. But across in the operation overhead also getting positive momentum because volumes are increasing, and we are putting our stringent cost control measures there, and this is going down. The G&A, primarily, this is going down because of staff cost and commission. Communication cost is going down. These are the two elements, I think, and the professional fees, what we pay last year, it was high, and this year we have these three significant impacts.
If you need more details, maybe my team can share with you in the detailed comparison with the last year.
Thank you. Just a follow-up on that. You said the staff cost is being reduced.
Yeah.
Is my understanding, that is what you meant, yeah?
Yeah. Staff cost. Yeah. Because our employee cost, I said because overall overhead and the employee cost is a significant elements in overhead, in the operation side and the G&A side.
Is it being reduced because you have let go of the staff, or you have outsourced some functions?
No. If we outsource, it will come into the G&A again. It's a overall reduction and as the sales increasing. So structure, we have a change. What we did now, the new CEO came, he did a new restructuring overall in Baladna. Now we are seeing the results now. Yeah.
Sounds good. Thank you. Thank you so much.
Our next question comes from Sultan Al-Shaalan from Jadwa Investment. Your line is now open.
Yes. Hi. Thank you for the call. Just a few questions from my end. Just to follow up on what you mentioned, the reasons for the improvement in gross margins. You mentioned higher selling prices. Just wondering, of the 15% that the first half achieved, can you give us a breakdown of the volume growth versus prices? If you can give us more clarification on how you see the gross margins going forward, probably in the second half or the next few years. Should we expect further improvement in margins going forward, especially with commodity prices still going down and volume growing? If you can give us also more details on the Algeria plan, what kind of CapEx should we expect, and what type of IRR expected from that project?
Okay. Thanks for your question. Your first question, the impact on our margins or our GP. The impact of price increase is between 40%-45%. The rest is coming from our volume increase and plus the costing and the overheads. There is a significant impact from the operation side, not from the price side. On the Algeria project, as so far we publish in public domain, the number, the project size is huge, and this will be one of the largest integrated dairy project in the world, $3.5 billion of investment. At this stage, we are finalizing with third party feasibility and agreements are going on with our counterparty. We are finalizing shareholder agreements and other definite and optics agreement for this project related.
We are expecting that very soon these agreements should be finalized, and we are hitting ground in a couple or maybe in a few months' time, we will start the project. Project, definitely when Baladna decided to go with this project, there are significant return on investments and for Baladna point of view, what we have considered this project. Very soon, inshallah, once all things will be done, we will publish our numbers to the market. Yeah.
Great. Can you give us a breakdown of the sales growth? First half, 15%, how much of that was driven by volumes versus prices?
Sales growth, what you're mentioning, this sales growth is coming 45%, what I mentioned to you is from sales price, the rest is all volumes.
Got it. With regards to the margin sustainability, do you expect these margins going forward to be as the second quarter, the first half, or should we expect further improvement in margins going forward?
We are expecting further improvement. If you compare our quarter-on-quarter performance, first quarter, we have a very significant growth in top line and bottom line, and we maintain our net profit margin at 17%. If you look at the quarter two, quarter two we have a slightly Sales, because of seasonality, is down compared to quarter one, but profit went by 19%. This reflecting our continuous improvement on the operation side and the margin. Inshallah, we are planning to maintain this over the coming quarters.
Great. Last question from my end, and I am sorry to take a lot of your time. Can you give us an update on the support received from the government and how is this going to change from one year to another?
Yeah. This compensation is agreed for 10 years, and every year on time we are getting. There is no issue for this compensation. In 2023, we will receive QAR 110 million, and 2024, we are expecting QAR 105 million. These numbers and the agreement as per the compensation is coming. This is almost we reaching to prior six. I think six installment we receive only, remaining four installment.
Was this renewed or expected to end 2027, if I am not?
2027 it will be end, but there will be another discussion we will start in 2025 because business itself getting sustainability and we are expecting that business now generating profits. Then there will be definitely discussion with the government to maintain the reasonable return for the shareholders. There will be discussion on this, but more important is how to be shareholder will be getting a reasonable return on their investment.
Clear. Thank you so much.
Our next question comes from Belal Sabbah, from Jadwa Investment. Your line is now open.
Yes, hi. Thank you for the call and congratulations on a strong set of results. I just want to clarify a statement you made. You mentioned something about prices in the third quarter of last year. Can you elaborate on that? Were selling prices increased in the third quarter of last year?
Yes. If you see last 2022 and 2023 were all commodity prices went all-time high and there was very significant impact of inflation on our cost line and the profitability of the company went terribly down. That was a case where we build our to transfer our cost impact to the consumer and we got approval from the government, and they allow us to shift partially that cost impact to the consumer. This is what we got approval and we shifted and we increased on a different category, different prices in last year, July 2023.
Right. What was the range of the increase, like 5%-10%? 10%-15%?
It is different. We didn't apply across 100% SKUs, but it went from different category from fresh to long life. These were the different percentages. I don't have an exact number in front of me and if I will give you roughly it is between 10%-12%.
Clear.
Yeah.
As we are today in terms of your manufacturing capability, at what operating rate or utilization rate are you operating at now?
Okay, this is today what Baladna, you know, we are a strategic food partner with the government, and we are providing all food security, food self-sufficiency. So we maintain our reasonable capacity for any, for things went up or something go wrong. So we have a backup capacity. So our total capacity utilization today between 50%-60%.
Sure. That is clear. Last question, if I may. You started manufacturing for third parties, I think, in Al-Bashir and Jibnat Al-Walad. You also added capacity in creams. I am just trying to get a sense on how much they are contributing in terms of the third party sales as well as the new lines and creams that you added.
Actually, the third party is we are trying to diversify our portfolio, bringing internationals players, and we have excess capacity and we are trying to optimize our facility as well. The impact of the revenue is not very significant at this moment because we have right now only two we are using this. One is Bal, one is Al Balad brand. Both we are manufactured in our facility, and we are distributing on their behalf as well. There is no significant number I can translate into the percentage. Maybe the exact number team can share with you later on.
Sure. Thank you so much. Just one final question just to confirm. 100% of the animal feed is imported or is there a portion that is irrigated locally?
We are buying some locally, but we portion very limited amount. The majority is coming by import. There is other farms, local small farms, and the government is also bringing, and they are buying from the local and they are also distributing. But yeah, primarily for us, majority is still outside.
Clear. Thank you so much.
Our next question comes from Anastasios Dalgiannakis from Al Faisal. Your line is now open.
Yes. Thank you for taking my question. Could you please, now that you are in the final stretch on Algeria, give us more detail on the funding of the $3.5 billion? Basically, what you are envisaging, how much will be borne by Baladna, and in terms of mix, debt, and equity. Thank you.
Thank you. Okay. The project Algeria, basically, that equity structure is that project 51% will get locally funding from the banks, and 49% is equity. Baladna share in the equity is 51%, and the 49% is coming from the government of Algeria. This is that structure of the equity is there. In terms of our funding to this project, the project itself is a construction phases over the period of nine years, and CapEx will be spent gradually. We do have multiple source of funding if you. Debt financing is available for us, to increase in equity is also available for us, wishing school. Plus, we are seeing even we go for debt financing for initially period, because project itself will generate positive cash flow from the very starting phase, because this is how the arrangements are there with the project.
Because of construction nature, two-three years, that's the only phase you have to fund it initially, then project will also generate positive cash flows. Even we have multiple options at the moment and with us, and we will be monitoring this, how we can fund these projects to not affect our local shareholders in Qatar, because performance of the company is significantly improved, profitability, cash flows. We need to make happy our shareholders in Qatar as well to maintain their expectation. And we understand the market, because this Qatar market is different. They need to have at hand something, in form of dividend. Our plans, like, we will disclose once the things will hit on the ground and we will announce our proper plan, because this is still in the project, we are in the legal stage where we are finalizing many things.
Thank you. If I may, a follow-up, a quick follow-up. Based on your numbers, we are looking at around QAR 3 billion , for Baladna itself. The question is, this quantum, by what time frame do you expect to deploy?
What I said, this is nine years construction phase of the project. From year three, there will be operational phase and project will generate revenues, cash flows, and it will be operational. And gradually, we will be constructing, and same time, we will be putting animals and we will be growing organically. And it will be a fast track to maximize early cash flow in itself in the business. This is how the project is structured. And this money, what we are referring, this is a debt equity structure. Doesn't mean that needs one time from Qatar.
Yes, correct. The bulk of it will be by 2028, it looks like.
Yeah. It's over the period.
It will be the bulk of the deployment.
Yeah. The project itself will be generating cash flows, and this will be a differently structured. How will we be ourself? There will be a positive cash flow in the business, and we have to initial years, we have to fund this, and we have multiple options with us how to fund this.
Okay. Thank you very much. Thank you.
From Ashmore Group, your line is now open.
Hi. I just have two questions. One of them is about the market share growth you've taken, about 3% market share over the last half year. I was just wondering if you could give me a little bit of some of the industry dynamics you're facing, particularly how you can maintain this while also looking at. My next question is about your debt profile and the trajectory for your leverage reduction. Is there sort of like a healthy target you're looking at in the long term? Obviously, being aware of the Algeria project, and the associated funding cost.
I think, half of question I already answered on the Algeria. Your first question, how we will maintain our growth, what we are seeing in the business. This 15% growth, we are seeing a positive momentum in the market and our market share growth itself, is delivering this. What I mentioned during my speech, that Baladna is not limiting what we have today as QIL. We are bringing our new flavor to the consumer where we are increasing our revenue streams, which helping us to improve our revenue. That's where we have to bring our successful launch of this high protein and Greek yogurt. It really pay us. And one of new business which we added in last year, ELife Detergent, that's also helping us to improve.
We have a plan for, which built last year, and that revenue is also expected to come into the end of near future. That's where major growths we are expecting in near future in Qatar. I think on the Algeria front, I think I answered what you asked. If you have any other questions, please let me know.
Sure. It was more to do with the leverage targets for the company. What is a healthy level that you are targeting in the midterm when you have these projects in the longer term? Before you answer that, sorry, just on your comment about the diversification of your SKUs. I saw over the year that you have obviously, on average, on a blended basis, these have come down due to your cost optimizing and projects. Would you be able to just give a little bit more color on what you are actually doing with that? What kind of programs you are running to understand your consumer better to, as you say, roll out these products successfully? Thank you.
Okay. What you are asking, this is what we have, de-leveraging, because I mentioned that very soon we will announce once we start a project with Algeria. That is in the long term because of Baladna cash flows translating 130% growth is completely shifting. This is what your performance was you are having in the past. So that positive cash flow will give us completely different pictures of the near from the de-leveraging side. We will see what should be the short term and the long term and our de-leveraging plan. That we have to discuss with our board of directors. Based on their guidelines, we will reflect to the market what strategy we are going to plan for the long-term future. The market, why I mentioned this, I think our NPDs is helping us a lot.
Today, what we have delivered in the market, especially first half, if you will, notably this high protein milk, that is successful in the market, how we achieved the market share in this. Greek yogurt and redesigning our Awafi because we have a market share opportunities where we are less than 50%, and our target is how we can improve there. These are the opportunities for us other than what I mentioned.
No, that is very clear. Thank you.
Our next question comes from Zohaib Pervez from Al Rayan Investments. Your line is now open.
Thank you again, Saifullah. Just a question on your evaporated milk. Last quarter, you had mentioned in your presentation some figures on it, but this quarter, I do not see them. How is that going on, the evaporated milk? I suppose you were also expecting some contracts in that segment. Where do we stand on that currently? Thank you.
Yeah. We started our aggressive campaign for this evap milk in the HoReCa customer. This is our first target, that how we can optimize with all our existing customers, and there is a very big market for this product. Our plan is for the retail launch. We are planning also the second, how we can aggressively to hit the retail market. This is the second on this. The third, this is, yes, what we mentioned always that this project developed for Qatar self-sufficiency. There is a very big tender the government convene. Every year they have this. We are already participating this tender, and this is under review this tender right now, and we are expecting, inshallah, maybe when we have our next call, maybe we have some good news on this.
Thank you. You started with HoReCa, and when do you expect to go in the retail segment?
Look, there was soft opening in the retail, and there will be aggressive campaign on the retail because sales team and the marketing team is working on this, how to target this market. And these renowned players are there in this market, and these are not new players. So there is a very high competition in the retail market. The plan is right now marketing and sales team is working on this.
Sounds good. And you are expecting that the government contract should be finalized during this quarter, inshallah?
Inshallah. We are expecting because now the advantage of the local producer and the government spoke to the local producer that they are giving high consideration to the ICV, in-country value, and this we are expecting that we should, this time, we should get it.
Makes sense. Thank you.
As of right now, we do not have any pending questions. I would now like to hand back over to the management for the final remarks.
Thank you, Ellie. If we do not have any more questions, I think it brings us to the end of our call. Thank you all for joining us today and for the lively Q and A session. I want to thank Saifullah for handling investors' questions. Please join us again for future Baladna calls. Have a good afternoon. Thank you.
Thank you. Thank you very much, everyone.
Thank you, everyone. Thank you everyone for attending today's call. We hope you have a wonderful day. Stay safe. You may now disconnect.