Baladna Q.P.S.C. (BLDN) Earnings Call Transcript

Hello, and welcome to the Baladna conference call. Please note that this call is being recorded. [Operator Instructions] I would now like to hand the conference over to Phibion. Please go ahead.

Thank you. I would like to welcome you all to the Baladna 3Q and 9M 2026 Earnings Conference Call. On the call today from Baladna's management team is Ghulam Abbas, the Senior Finance Director. And as usual, he will first give us an overview of the 3Q performance, and we have a Q&A session immediately afterwards. Without further ado, let me turn over the call to Ghulam to begin. Over to you, sir. You can go ahead.

Thank you so much, Phibion. Good afternoon, everyone. Thank you for joining us to discuss Baladna's financial results for the 9 months ended 30th September 2026. My name is Ghulam Abbas, and I'm working as a Senior Finance Director here in Baladna. Before we begin, please note that our discussion may include forward-looking statements based on current expectations and assumptions. Actual results may differ due to external developments and other factors. Let me begin with the key headlines. Baladna's operating performance this period has been excellent, and our momentum is building. Over 9 months, gross profit increased by 18%, gross margin increased by 3.4%, and net profit, excluding the investment portfolio, grew by 20%. Third quarter remained stronger with revenue up by 7% and gross profit up by 21%. These results also proved the resilience of our core business. Through regional geopolitical developments and global market volatility, we kept local production running without interruption and consumers reliably supplied. With our rights issue fully subscribed and our international projects advancing, we entered the next phase from a position of strength, a reinforced balance sheet, expanding margins, and a clear platform for sustained profitable growth. I'll begin with our financial performance, including a closer look at third quarter, then cover our operational progress, international expansions, and shareholder initiatives before closing with our outlook and the priorities that will drive our next phase of growth. For the 9 months ended 30th September 2026, revenue reached QAR 978 million, up by 4% year-on-year, led by retail business. Retail revenue grew by 6% with both key accounts and traditional trade contributing, a clear sign that consumer demand for Baladna's brand remains strong. HoReCa channel also grew by 2% despite the pressure from the regional geopolitical situation. Gross profit increased by 18% to QAR 281 million, and gross margin improved to 29% compared with 25% same period last time. Notably, our cost of revenue declined by around 1% even as revenue grew by 4%. This reflects a stronger product mix, the benefit of our strategic inventory stocks, and disciplined procurement and cost management. Operating profit from our core operations, excluding investment income, grew by 10%. Finance costs also fell by 12% to QAR 52 million. As a result, net profit, excluding investment portfolio, grew by 20% to QAR 149 million. This is the clearest measure of the underlying strength of our operating business. Cash generated from operating activities rose by 41.7% to QAR 387 million, reinforcing the financial flexibility of our business. On a reported basis, EBITDA reached to QAR 560 million, up by 1%, while net profit increased by 1% to QAR 384 million. Our investment portfolio contributed net gain of QAR 234.4 million over the 9-month period compared to QAR 257 million same period last year. Turning to third quarter performance. Our operating momentum continued. Revenue grew by 7% to QAR 318 million, supported by higher dairy and juice sales. Dairy revenue grew by 8%, while juices revenue grew by 17%. Gross profit for the quarter rose by 21% to QAR 87 million, and gross margin expanded to 27%. Excluding the investment portfolio, EBITDA grew by 8% to QAR 102 million, and net profit grew by 19% to QAR 42 million. With a reported loss of QAR 20 million on the investment portfolio, mainly driven by current volatility in stock markets globally in general and GCC in particular, our quarterly EBITDA is reported at QAR 82 million and net profit at QAR 21.8 million. This quarter, we recorded an unrealized fair value loss of approximately QAR 20 million compared with a gain of approximately QAR 15 million in the third quarter of last year. And as explained, this is more towards the volatility of stock markets globally. It's important to note that it is unrealized and noncash. It reflects the market valuation of listed securities at the end of the quarter amid volatility in global equity markets. It has no impact on our production, our sales, margins, our cash flows. For the 9 months, the portfolio still delivered strong gains of QAR 234 million. Management remains confident in the long-term value of the portfolio and expects performance to improve as market conditions stabilize. With respect to balance sheet, cash and bank balance stood at QAR 905 million compared to QAR 375 million at the end of 2025. Total equity increased to QAR 4.3 billion from QAR 3.2 billion, and our net debt to total capital employed improved to 33.5% comparing to 39% same period last year. This gives us a solid foundation to fund our growth projects while maintaining a prudent capital structure. Now moving to operational performance. Operational resilience has been particularly important this year. Our strategic inventory covering approximately 6 months of production requirements has helped us to maintain uninterrupted production and reliable product availability amid regional geopolitical developments and global supply chain disruptions. Our integral farm-to-shelf model, diversified sourcing, and strong supplier relationships helped us avoid costly urgent imports, while disciplined cost management protected our margins. Commercially, our reach continued to expand. Our customer base grew by 7% to almost 3,900 customers, supported by 149 sales routes and a portfolio of 290 products. Growth was led by high-value categories. Yogurt revenue grew by 17%, creams grew by 13%, cheese and UHT milk both grew by 4%. In this quarter, in Qatar, innovation continued to support retail growth. In health and wellness, we introduced a high-protein [ Skyr ] yogurt, a probiotic kefir, and an Active Support drink, and broadened our on-the-go offering with new flavors in our drinkable Greek yogurt range. On the indulgent side, we launched a new ice cream range and premium Greek yogurts and desserts under the Delights brand. These conditions strengthen our premium positioning, diversify our revenue base, and extend our reach into new consumption occasions. The renewal of the government evaporated milk tender also provides continued visibility on a portion of our sales volume. Strategic progress and international expansion. In Algeria, preparations are well advanced for the first cattle link from the United States, which will begin the phased introduction of approximately 30,000 dairy cows and move the project from infrastructure development into live dairy operations. Infrastructure and agriculture work are also advancing. 59 water wells have been completed, 32 irrigation pivots have been operational. Approximately 420 hectares of land have been cultivated so far. And construction has begun on the dairy farms and the manufacturing facilities. While we talk about Syria, construction, engineering, and procurement progressed at an integrated dairy, juice, and packing facility in Adra Industrial City. This project marks our entry into high-potential [ Syrian ] market where we see long-term opportunity for local food production. Now moving to another important milestone of the year, which was our successful completion of our QAR 536 million rights issue. This was fully subscribed at 100%. We see this a clear expression of shareholders' confidence in Baladna's strategy, financial strength, and growth perspective. The new shares began trading on Qatar Stock Exchange on 8th September marked by a ring-the-bell ceremony. The rights issue increased issued capital by 25% to approximately QAR 2.68 billion, providing greater financial flexibility to invest in Qatar and advance our international projects. Our shareholder base now stands with more than 29,000 shareholders. The Board of Directors has also proposed a distribution of 400 million bonus shares, equivalent to 3 new shares for every 20 shares held or 15%, subject to approval by an extraordinary general meeting assembly. This would increase issued share capital to approximately QAR 3 billion. This proposal reflects the Board's confidence in Baladna's long-term prospects and its commitment to shareholder value. Now looking at the future outlook. Our priorities remain very clear, which is to strengthen our market leadership in Qatar and continue delivering our projects in Algeria and Syria with a disciplined approach. We are also evaluating some opportunities in other African countries where our expertise can help expand sustainable food production and support long-term value creation. Our core business delivered excellent results this period with higher revenue, significantly stronger margin, 20% growth in underlying net profit, and strong cash generation. The third quarter movement in our investment portfolio was market-driven, unrealized, and noncash, and doesn't change the strength or direction of our business. Our resilient operational model, strong cash generation, and strengthened capital base position us for the next stage of growth. We remain focused on operational excellence, prudent capital allocation, and creating sustainable value for our shareholders. Thank you again for joining us and for your continued interest in Baladna. Over to you, Phibion.

[ Prila ], I think we can open the line for questions.

[Operator Instructions] Your first question comes from the line of [ Sid Bachir ] with QIC Asset Management.

I have a couple of questions regarding the ice cream section. Could you please share some color on the initial sales performance and the long-term potential of the category? And my second question, I think during the last call, you mentioned the possibility of moving from imports to local production. I just want to know what kind of sales volume would justify such an investment?

Thank you so much for your question. Yes, ice cream is the next potential category, and Baladna management is very pleased to inform you that the response that we received from the Qatari people is enormous. We -- although due to the supply constraints, we have not been able to introduce all our SKUs planned for the year. So we're only working with 8 SKUs, but we are going to launch a dozen new SKUs next year because now the supply chain is getting slightly better. Response is also strong, so which is also very encouraging for us. And we see that the market is -- the next year's revenue, we are forecasting around QAR 15 million to QAR 20 million for year 2027. Regarding the import, stopping the import and bringing in-house, yes, that model is very much on the table, especially with the positive response. But still, we are thinking that we need to give some more time with the new flavors, with the full range, and explore more categories in the ice cream. And then given the potential, you may hear from us in 2028 that we are bringing it in-house.

Okay. And maybe 1 last question from my end. How do you expect the profitability of this category compared to your existing dairy portfolio?

This category is also having a decent margin. But right now, since we are working through a third-party distribution channel, our plan is to move to the -- once everything will be in-house, that distribution will also be done by Baladna itself. So it will make it more profitable. Even right now, the margins are very decent, very much comparable to most of our categories -- dairy categories.