“Around 28% of the growth of Agthia’s group during the third quarter (Q3) of 2022 is coming from the recent acquisitions,” Chief Executive Officer of the group, Alan Smith told us.
With net revenue of AED 954 million during the Q3, Smith noted that the group's coming strategy focuses on the categories it’s currently operating.
Group EBITDA increased 23% year-on-year to AED 128 million and net profit was AED 40.5 million, up 14% on the prior year.
Regarding the group business in Egypt, Smith pointed out that they are keen to start building their export portfolio from the Egyptian borders.
“Egypt is an attractive market to Agthia because it's a strong consumer market with a 100 million population, and a growing economy,” he commented.
In terms of the upcoming expansion, it's more about investing in the businesses that the group has, he stated, adding that the group has brought additional capacity on stream in the Ismailia Agricultural Investment Company “Atyab” in the first quarter.
Agthia’s CEO added that the group will be investing in additional marketing for the Atyab brand and communication. It will focus on manufacturing, and how do we increase output from the production lines.
In September 2021, Agthia acquired a 75.02% share in the capital of “Atyab”, which specializes in the production of frozen meat and poultry, followed by the completion of its acquisition of a 60% stake in Auf Group, a specialized healthy snacks and coffee manufacturer and retailer in Egypt, at a value of LE 2.9 billion, on November 30, 2022.
Smith explained that the Group has no plans to list Abu Auf Company on the stock exchange.
Smith referred to the reasons behind the acquisition of Abu Auf Company, saying that,” what excited us about the company was really the journey, the growth journey that's been on the resilience of Abu Auf family themselves, the three brothers who ran the business, and they still have a good shareholding in it.”
As for Saudi Arabia, the CEO announced that the group is building a protein facility (a manufacturing plant) in Jeddah which is expected to be completed within a year
The Saudi facility is around a 90 million dirham investment, according to Smith, who sees Saudi Arabia as another strategic market in the MENA region.
Here is the full interview:
Q. What are the several factors that pushed Agthia’s profits up?
On a year-on-year basis, we've had a very strong performance. Our revenue has grown 40%. During the third quarter, our revenue grew 20%, and net profit grew 14%. Overall, we're very happy with the progress that Agthia is making with its five year strategy. The results are a testament to the fact that we have diversified our portfolio very well. Nearly 50% of our revenues are now coming from markets outside of the UAE.
Two years ago, 80% of our revenue was coming from the UAE itself, so we diversified our business into four categories now. Previously, we were operating in water, food and agri-businesses. Now, we've added protein and snacks.
The growth is certainly coming from the new part of the business. So, overall, EBITDA for the first nine months of this year was over 400 million dirhams, compared to 169 million dirhams during 2020, which reflects a great progress.
The group has acquired six companies in the last two years.
We've integrated them well, and we've seen the benefit of those businesses, and that diversification coming through in our business results.
Q. To what extent did the recent acquisitions boost the group performance?
The recent acquisitions have definitely enabled the performance on a year to date basis. Around 28% of the growth is coming through from our inorganic activity.
Q. With now investing in four categories/sectors, does the company consider other sectors to enter during the coming period?
The group’s strategy stipulates to invest organically in certain geographies, and the MENA region allocated a big part of that agenda. We wanted to invest in certain countries, and categories. We identified protein and snacks, as both are two important categories, where we've now completed six acquisitions.
Our priority is to keep looking for opportunities in the categories that we are now operating in. Meanwhile, we continue to look at opportunities across the region that could potentially be interesting, but our strategy is to focus on the categories we're now operating.
Q. Does this mean that the group targets expand in the same categories it invests in?
Our immediate priority is really scaling up the investments we've made. We've made these, these acquisitions as we're looking at synergies. We're looking at how we can accelerate the businesses.
The big parts of factories growth year to date has come from both the inorganic part and the fact that the businesses we bought are growing very fast as well. That's certainly the group’s immediate priority; we continue to look at opportunities but obviously given it's a more volatile economic environment; we will make sure that we analyze those opportunities thoroughly, and make sure that they continue to be recruited for the business.
Q. What are the factors that Agthia considers when choosing a specific company or market to invest in?
Firstly, does it fit with our geographic priorities? Secondly, is it in the category of interests? Thirdly, we look for strong brands; we'd look for good growth potential and potential synergies with the rest of our portfolio.
We don't really buy businesses that need turning around. We tend to focus on well run businesses, and good management teams, strong brands, that we believe that we can integrate first, and accelerate the growth and profitability on.
Q. What is the company’s strategy during the remainder of 2022 and in 2023?
Looking at the last quarter of the year, and 2023, my view is one of cautious optimism. We think the Middle East, out of all regions globally, is relatively robust financially. There is a good outlook for the GCC. In Egypt, the recent deal done with the IMF will help to free up the economy to allow the US dollars to flow and hopefully, post evaluation, will move the market in the right direction.
We're generally positive about the outlook, particularly from a demand point of view. So consumer demand looks positive. The indications we had for September, October, and November are to encourage the businesses in terms of what our best strategies are, then, comes the stage of integrating the businesses we're acquiring the newer ones, leveraging and really getting the benefits across the group of those opportunities.
For example, with Abu Auf Company; we've already done some work identifying potential synergies in the business and by the closing of the transactions; we will be ready, together with the Abu Auf management team, to really accelerate those opportunities. The group is excited about the organic opportunities in the acquired businesses. And as I said, we'll continue to, to keep a lookout for good acquisition opportunities which can enhance the overall business.
Q. What are the challenges you see in the Egyptian market?
Egypt is an attractive market to Agthia because it's a strong consumer market with a 100 million population, and a growing economy. We have a positive outlook for it, and we are keen to continue to explore how we can accelerate the businesses we bought in the Egyptian market.
For example in Atyab, we were consolidated from quarter three last year, new capacity was brought on stream via the Ismailia facility in the first quarter, which gives us the opportunity to grow faster. We continue to see growth in that business. So, in the businesses we've invested in, Egypt, we definitely see opportunities to invest more, and to accelerate even faster. The other interesting thing always about the Egyptian market is as a manufacturing location, it has good talent, the Egyptian authorities have export incentives, and we're very keen to start building our export portfolio from Egypt on top of what we already have.
Q. What are the company’s upcoming expansion plans?
In terms of the upcoming expansion, it's more about investing in the businesses that we have. We brought additional capacity on stream in Atyab in the first quarter.
As for Abu Auf, there are some opportunities there to help them and they have some great ideas on how to scale up the business. So our main focus is going to be how we can continue to accelerate those businesses.
We'll look at potential synergies, whether it is through warehousing, through distribution, through partnerships. We'll continue to work and continue to think about how we can accelerate the business even faster.
Q. How much does the company allocate for investment during the coming period?
When looking at profitability, we're very keen to reinvest all of that profitability back into brand building. The group works on growing the business faster, through building brand loyalty, consumer loyalty.
The group has increased its investment this year in the Atyab portfolio in terms of marketing. There's natural growth coming from the growth in demand in Egypt, and across the broader business, there is natural growth coming from the synergies or the cross selling opportunities we have between the different businesses, but we also want to build brands and invest in brand building to really secure that the consumers relationship with the products that we sell.
Q. What are the development strategies for Abu Auf and Atyab?
Abu Auf is a strong brand in Egypt. The group is working at the moment in helping Abu Auf management to unlock capacity in their existing factories, to transfer manufacturing know how from the Agthia group, which hopefully will allow them to a) increase volumes, b) optimize the cost of production, and that in itself, will free up money to continue to invest in the brand.
The other thing with Abu Auf is that we have recently started to build a portfolio of outlets in the UAE. We are already working with them here in the UAE to help them with their logistics and the financing. We actually supply dates and our date cram products into their stores. We're selling through their outlets, and our B&B portfolio, our healthy snacking portfolio as well.
The big opportunity for Abu Auf apart from the organic growth in Egypt, it's certainly International, where the UAE allocates the first priority and then we'll start to explore with them how we can grow in other GCC markets such as Saudi Arabia.
As for Atyab, the group focuses on building the brand and the distribution so it’s going to invest in additional distribution infrastructure in Egypt to try and improve availability even further across the market.
The group will be investing in additional marketing for the Atyab brand and communication. It will focus on manufacturing, and how do we increase output from the production lines? How do we maximize volume growth? And most importantly for Atyab is how do we start to build the business internationally? How do we start to export from? How do we start working with some of the quick service restaurants or food service channels in Egypt?
Q. Are there any plans to list Abu Auf Company in the stock exchange?
No, there are no plans to list the company in the stock exchange.
What excited us about the company was really the journey, the growth journey that's been on the resilience of Abu Auf family themselves, the three brothers who ran the business, and they still have a good shareholding in it.
We're looking forward to working with them to accelerate the business even faster, bringing the benefit of Agthia’s scale with its brand building innovation and speed to market capabilities.
Q. What are the impacts of the current economic conditions and the increase in inflation rates on the group? How did the group face these repercussions?
ِAs a food and beverage company, our number one priority is to make sure we have materials and we're able to produce products for sale. Fortunately, we have a strong supply chain and procurement team. We obviously have the financial muscle to be able to manage our inventories at the right time, make sure we have the product available.
We also have a strong balance sheet and Treasury team. So our net debt to EBITA at the end of quarter three is about 1.3 times. We are able to make choices between what to do with the cash balance on our books, how to invest them to get preferential interest rates, and how to manage the really, you know, the relative cash and debt position to optimize the interest repayments that we have to make on the portfolio.
What we've been able to do over the last couple of years is demonstrate that ability to react to market conditions. We have a nice balance across different markets, different categories, so we can pull different levers to manage the overall profitability of the group and make sure that we always keep consumers at the heart of what we do.
Q. What are the company’s upcoming expansion plans?
We don't have any plans or announcements coming. The most recent announcement we made was the Abu Auf announcement.
Apart from that we recently announced our strategic investment in Saudi Arabia. We're building a protein facility (a manufacturing plant) in Jeddah which is just about to start breaking ground on and we hope to complete it in the next 12 months. The Saudi facility is around a 90 million dirham investment.
We see Saudi Arabia as another strategic market in the MENA region. We're keen to expand our business there as well.
Agthia
