|02 May, 2019

Abu Dhabi's Agthia sees growth potential in Egypt, Turkey- CEO

Food and beverage sector faces tough regional market conditions as consumers' discretionary spending decreases, Tariq Al Wahedi told Zawya

Al Ain Water bottles.

Al Ain Water bottles.

Agthia/handout via Thomson Reuters Zawya

Abu Dhabi-listed food and beverage firm Agthia is looking at diversifying its geographical penetration as it faces fiercely competitive market conditions, its chief executive said.

The firm has reported a year-on-year rise in net revenues in first quarter of this year, but lower net profit as a removal of subsidies to its flour business and lower pricing in the water business have hit its bottom line, with heavy promotional price reductions found for bottled water in the United Arab Emirates.

However, Agthia’s chief executive officer Tariq Al Wahedi told Zawya that the company is witnessing growth momentum in other markets, most notably Egypt and Turkey,

“In certain categories we were losing money, but now we’re making money. For instance, Egypt and Turkey were challenging because of the difficult situations earlier, but our projects there are now doing much better and we’re in good growth mode,” he said.

On the factors that affected this shift, he said: “In Egypt, the total macroeconomic situation has changed, the currency has stabilised, and the overall economic situation is different now,” he said.

“In Turkey, we restructured the whole business model. At first, we were focusing on selling inside Turkey, but then we switched around for it to become an export hub for us,” he said.

“Actually, it was a good switch, because we are now exporting our production to Europe from there , which has allowed us to penetrate markets such as the UK, and Germany and Belgium, given that Turkey is in close proximity to them, so we have benefitted from that,” Al Wahedi said.

On the firm’s overall strategy, he said: “We still believe our biggest growth engines are in Saudi and UAE, and we’ll keep investing heavily into these and looking into acquisitions in those markets including Egypt.

“Our strategy in Egypt is definitely growth. We are looking into African markets and to penetrate that as well, given that our presence in Egypt gives us an easier access to Africa. Last year, we announced expanding into Iraqi market, and our plant that we launched in Baghdad is working well,” he said.

Higher sales, lower profit

“We managed in this quarter to show progress and growth in our top line and bottom line. Top line Q1 2019 grew by 3.4 percent compared to Q1 in 2018. As for bottom line, if you take off decline from subsidy removal in flour, you see that we are actually growing in the same way, although from face value you see we are down in profit,” Al Wahedi said.

Financial statements filed on the Abu Dhabi Securities Exchange (ADX) show a 15.2 percent drop in net income to shareholders in the first quarter of 2019 to 39.9 million dirhams, in comparison to 47.1 million dirhams in the same quarter last year.

Lower subsidy-related income in flour, with subsidies to its bakery arm zeroed out as of January 2019, has been one of the main reasons for the shortfall in profits, along with the lower market price of bottled water, according to the company’s ADX statement. (Read more here).

A programme that had previously been introduced to subsidise flour and rice for consumers has been gradually phased out since 2015, according to Al Wahedi, with December 2018 the last month that subisidies were available on these products.

Agthia’s revenues grew by 3.4 percent to 507.6 million dirhams in first quarter of 2019, up from 490.9 from the same quarter last year. The consumer business (water, beverages, dairy, bakery, among others) generated 55 percent of net revenues, while its agri-segment (flour, animal feed) contributed 45 percent, according to the ADX statement.

“In comparison to other food companies, whether in UAE or Saudi, we’re still doing much better,” Al Wahedi said, noting that the entire sector faces challenging conditions.

“The markets have changed in the last two years. The consumer habits have shifted drastically, especially after the introduction of VAT (value-added tax), and there was a big change in consumer habits with the macroeconomic situation in the region. Expats left, and economic activity was changing, which led to less consumption and the share of wallet of the consumer decreased,” he said.

“Although we see a growth in volume, but the value is actually decreasing which means that there are lots of promotions in the markets and prices are going down. Competition is very fierce in the market, but we always try to maintain stewardship of the market; we don’t burn the market like other competitors are doing by pushing prices so much down… that won’t serve anyone as retailers lose , we lose, the quality for consumers comes down, and the value just deteriorates,” he added.

“We were expecting growth in some categories or markets, but it came in other categories, but the collective results were within expectations,” he said.

“As for the outlook, we expect to continue to grow at a pace of 3 to 4 percent,” he added.

On the record

Agthia has started to report how it is applying environmental, social and governance (ESG) policies across group businesses.

“Since we are applying sustainability measures on our businesses, we thought it is fair that we communicate this with our shareholders and investors, and we looked for a standard to report that. ESG is a good benchmark to report it, already adopted by certain companies, and it was recommended also by ADX as well,” Al Wahedi said. He added that Agthia has integrated ESG best practices in its business.

“We announced our sustainability statement for the next five years, and the sustainability initiatives whether short or long term, and we’re quite active in this aspect,” he said, citing the company’s plastic recycling efforts and the introduction of plant-based plastic into its bottles.

The firm uses 100 percent recyclable secondary packaging across all categories of which 99 percent are biodegradable. By 2020, Agthia plans to make all packaging 100 percent eco-friendly and to achieve zero landfill waste. The firm recently partnered with a company to recycle bottles from various Agthia locations into textiles. (Read more here).

“We will continue to add value into the products day to day, and we strive for health and wellness for our consumers,” he said.

(Reporting by Nada Al Rifai; Editing by Michael Fahy).

(nada.rifai@refinitiv.com)

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© ZAWYA 2019

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