Rashad Kawan: Savola's Q3 earnings call. My name is Rashad Kawan, an equity analyst at Morgan Stanley, and I am joined today by the Savola management team. From the company, we have CFO Wajid Khan, Chief Investment Officer Mohammad Nasr, and Head of M&A Muhammad Ali Bilal. Format-wise, I will pass it over to the company to talk through its earnings presentation, and then we will open it up for Q&A. For the Q&A, you can either use the raise your hand functionality, and we will unmute your line to ask a question, or you can type your question into the chat box, and I will read it out on your behalf. With that, I will pass it over to Muhammad Ali Bilal to walk through the presentation.
Muhammad Ali Bilal Khan: Thank you, Rashad. Good afternoon, everyone, and welcome to Savola Group's earnings call for Q3 2026. Thank you for joining us today. We are pleased to report a strong first 9 months for Savola, earnings-led growth by our food business, a stronger balance sheet, and an interim dividend for our shareholders. Before we begin, please note the disclaimer on slide 2. Let us start with the group highlights on slide 4 and 5. Four points stand out. First, earning growth on recurring basis. Group net income rose 26% to SAR 500 million from SAR 396 million last year. Second, our food business led the way. Food processing recurring net income rose 14.9% to SAR 596 million on record edible oil volumes. Third, resilience. Through severe regional disruption, our continuity plan kept our operations running, and Panda held its market share and kept EBITDA stable. Fourth, financial strength.
Muhammad Ali Bilal Khan: Our net debt fell to SAR 217 million, and the board declared an interim dividend of SAR 0.7 per share. Now, the group numbers in a little more detail. Group revenue grew 3.1% to SAR 20.1 billion. EBITDA rose 5.4% to SAR 1.89 billion. The EBITDA margin improved to 9.4%. Reported net income was SAR 530 million compared to SAR 680 million last year. The difference is mainly due to one-off gains last year. These included a SAR 300 million reversal of Zakat and other accruals. Now, a quick look at each business. In food processing, growth was supported by edible oil volumes, better sugar margin in Saudi Arabia, and a strong performance from pasta. Panda revenue was broadly in line with last year at SAR 8.5 billion, at SAR 768 million. Store expansion and omnichannel build-out largely complete.
Muhammad Ali Bilal Khan: Panda is now focused on improving returns from its current network. I will cover Panda in more detail shortly. Al Kabeer grew net income by 18% on broadly flat sales through better margins. Herfy returned to profit with net income of SAR 2 million compared with a loss of SAR 66 million last year. On operating environment, despite severe regional disruptions, our continuity plans kept our operation running. Freight, war risk insurance, and packaging costs are higher. We expect this pressure to continue into Q4, but it remains manageable through our pricing, procurement, and cost efficiency measures. Moving to slide 6 and 6 to 8. In Q3, recurring net income was SAR 127 million, broadly in line with last year. Strong growth in food processing, Herfy's recovery offset lower results at Panda.
Muhammad Ali Bilal Khan: For the 9 months, food processing was the largest contributor to growth in both revenue and recurring net income. Moving to slide 9 and 10. Our balance sheet became even stronger. Net debt fell to SAR 217 million at the end of September. That is down from SAR 411 at the end of December and from SAR 604 million a year ago. Cash flows were stronger at about SAR 1.8 billion. This funded CAPEX of SAR 554 million, lease payments of 446 million, and dividends of 541 million. Strong earnings and cash generations allowed the board to declare an interim dividend of SAR 0.7 per share, or about 210 million in total. Moving to food processing, slide 12. Food processing delivered a strong, solid performance. Strong growth in edible oil volumes more than offset lower sugar pricing, which followed softer global sugar benchmarks.
Muhammad Ali Bilal Khan: Revenue grew 6.6% to SAR 10.5 billion. Recurring net income rose 15% to SAR 596 million. Moving to slide 15. The revenue bridge. Volume added SAR 891 million to revenue, led by edible oil and sugar. Price had a negative impact of SAR 242 million. This was mainly due to global sugar prices, partly offset by pricing actions in oil. Our revenue growth this year was driven by volume, mainly in edible oil. Moving to slide 16 and 17, edible oil and sugar. Oil volumes rose 13.8% to a record 1.09 million tons. Net income grew 15% to SAR 373 million, led by Arabia. Sugar net income improved to 162 million. In Saudi Arabia, net income grew 37%, supported by pricing action. In Egypt, it was lower because of oversupply, partly offset by record beet supply. Moving to slide 18 and 19.
Muhammad Ali Bilal Khan: Pasta delivered strong profitability. Net income rose 42%. Bayara UAE grew 9%. In Saudi Arabia, our NSP business increased gross profit by 9.5%. This journey for profitability continues, which is now supported by Mehbaj. In slide 20, the Mehbaj acquisition in Q3, we completed the acquisition of Mehbaj, a Saudi premium brand in NSP. It is consolidated now into Bayara KSA from Q3. It gives Bayara an established route to market, strengthens our scale and reach in kingdom. Moving to slide 22, Panda's 9-month performance shows the resilience of the business navigating a challenging operating environment due to geopolitical situation. Revenue was broadly in line with last year at SAR 8.5 billion in more challenging operating environment. Panda maintained its shares at around 23%. Online sales grew about 2 and a half times to more than 500 million.
Muhammad Ali Bilal Khan: In our view, this shows Panda remains relevant to Saudi shoppers as they move towards value, convenience, and digital. Three factors shape Panda performance. First, the regional conflict. In our assessment, the prolonged regional conflict led suppliers to prioritize supply continuity, liquidity, and the product availability rather than promotions. This reduced promotional support and commercial income. Product availability constraints also weighed on sales. Second, market share in a challenging channel. Panda maintained its shares on a like-for-like basis. Consumer transactions were maintained, and in total, they grew despite a slight decline in basket size. Third, consumers are looking for value and convenience. Shoppers traded down to value brands and made smaller, more frequent trips. Discounters and online pure play benefited from this shift. We made targeted investments in price and loyalty to protect our customer base. As a result, gross margin declined from 24.9% to 23.5%.
Muhammad Ali Bilal Khan: New stores are still ramping up, so the depreciation and lease costs were higher. Recurring net income was SAR 28 million for the 9 months. In Q3, revenue was 2.8% lower, and Panda recorded a loss of SAR 18 million. Importantly, EBITDA was stable at SAR 786 million, supported by cost discipline. The margin pressure reflects the external environment and our investment to protect market share. Moving to slide 23, Panda e-commerce. E-commerce is another growth engine for Panda. It is still ramping up, and it is profitable at the contribution level. Around 100 of our stores across Saudi also work as fulfillment points, so no additional investment in dedicated dark store is required. Our average online basket size is about SAR 213. Based on our estimate, that is around 2 times a typical aggregator order.
Muhammad Ali Bilal Khan: About 60% of our online business comes through Panda app, and that share is growing. Around 30% of that basket is fresh food. We believe this reflects the trust customers have in our stores. Moving to slide 27, the way forward for Panda. A leaner, more resilient business. With its store expansion program largely complete, Panda is now focused on improving returns from its existing network through 4 priorities: bringing recently opened stores to maturity, growing e-commerce profitably, optimizing cost, and growing beyond traditional retail, such as retail media, which we expect to scale up from H2 2027. Our aim is to keep the customer relevance we built during the expansion while improving gross margin, cash generation, and return on invested capital over time. To sum up, Panda maintained its market share and kept EBITDA stable, with expansion largely complete.
Muhammad Ali Bilal Khan: Its focus now is on return, store productivity, profitable e-commerce, and a leaner cost base. Moving to Al Kabeer section, slide 49. Al Kabeer will deliver healthy profit growth on flat sales. Revenue was SAR 596 million, broadly in line with last year. Gross margin improved to 35.9% from 33.5% on lower promotion and product cost savings. EBITDA grew 15.5% to SAR 75 million, and net income grew 18% to SAR 45 million. Al Kabeer continued to grow beyond poultry. Seafood and dough are growing fastest. Chicken is holding up in a very competitive market, and vegetables and fruits are building a base. In summary, the first 9 months of 2026 shows the resilience and quality of Savola's portfolio. Food processing delivered volume-led growth and higher profitability. Panda maintained its market share, kept EBITDA stable, and has clear priorities to improve returns.
Muhammad Ali Bilal Khan: Al Kabeer and Herfy improved their margins and earnings. At the same time, the group strengthened its balance sheet, reduced net debt, and declared an interim dividend. Looking ahead, we remain focused on 3 things: managing regional supply chain risk, maintaining and protecting margins through disciplined execution, and building scalable growth platform across our food and retail businesses. Thank you for your continued support. We will now open the line for your questions.
Rashad Kawan: Thank you very much. Just as a reminder, if you would like to ask a question, you can use the raise your hand functionality, and we will unmute your line to ask a question, or you can type your question into the chat box, and I will read it out on your behalf. With that, I will start, if I may, gentlemen, with a couple of questions. On Panda, can we start with the top line? It is the weakest kind of quarterly top-line performance in over 3 years, I think. Obviously, grocery retail, very competitive space, and you guys have talked about that on prior calls, and you gave some good detail on the call today around the impact of the conflict, et cetera.
Rashad Kawan: But in this environment where manufacturers are, in some cases, taking higher pricing, so the fresh milk industry as an example, right, pushing through double-digit price increases, you would think that that should be supportive for your top line. So for growth to be down about 3% in this environment suggests that the competitive environment is getting much more intense very quickly. Can you talk about how those feed into each other? So higher kind of manufacturer pricing versus competition, promotions, and the market share dynamics, and how should we think about kind of the trajectory from here into Q4 and next year? I know it is a pretty broad question, but any color kind of you can give there would be helpful.
Mohammad Nasr: Thanks, Rashad. I mean, I think if we take a step back and try to understand what is happening in, let us call it grocery retail market in the kingdom, I would say most of the challenges in the operating environment today is because of the geopolitical situation, right? Yes, we do have, I would say, a bit more intensified competition in one channel, which is the discounters, but I would not put all the, say, all the attention there. I think it is a wider topic. So what does that really translate to someone like Panda or the modern trade? Suppliers are, due to supply chain issues and challenges, are very much focused on ensuring product availability in the country.
Mohammad Nasr: That means less support to modern trade retailers on activation or promotion or certain supplier support to make prices, I would say, more attractive, as well as fulfillment rate by suppliers is a bit lower than normal operating environment. So you are getting hit both on, I would say, let us say I order 100 units, I get maybe 50 of those units, right? Because suppliers are trying to manage their own supply chain constraints, and therefore, people like Panda are taking that brunt, right? So it is not just a discounter and, I would say, intensified competition, but there is fundamental challenges because of the conflict in the region, right? So I think that is one part.
Mohammad Nasr: The other part, I would say, if I look at the consumer in this environment with all the additional costs, because yes, what's happening, suppliers are both not providing, removing discounts from the shelf space, but also raising prices where they need to raise prices to be able to manage their own margins and cash flows, because cash flows is constrained in certain segments. Therefore, the consumer is seeing a higher price for many products. Therefore, if I look at Panda today, I haven't lost transactions. On a like-for-like basis, my number of transactions did not change. In absolute terms, transaction numbers actually grew with opening of new stores. That means the customer, where I'm losing is a bit on the basket size, right. I see weaker basket size.
Mohammad Nasr: That means the customer's coming to you, buying many products that they usually buy from you, but then selectively finding the best deals elsewhere, in other channels. In this case, it could be an online promotion or a discounter that is aggressively happening. So the customer, I would say, is trying to manage their own spend, knowing that they have alternative options because also, as I said, the conflict had a, I would say, a cascading effect on cost escalation in the country and the wider GCC. So I wouldn't say it's necessarily a specific issue to, I would say, more competition alone. I think it's more of the wider conflict that we're seeing. Yes, we did have an impact on top line because of that. We've seen certain weaker, I would say, demand in certain product categories.
Mohammad Nasr: But again, our number of transactions still maintains the same. We haven't lost customers as much as customers is shopping from different channels. Now, I would say one thing that we see and we need to push even further is our online channel, right, because we are underrepresented in online. But if I look at my online channel, there's two stories today unfolding in online. One is certainly it's growing faster than anticipated, even though we haven't really pushed yet the full online platform yet across our network and regional coverages. But two, if I look at my online sales, today I've already reached 60% from my own app, and it's growing. So I'm not relying on aggregators. But more importantly, I'm seeing strong support even through my app on quick delivery.
Mohammad Nasr: It's not just scheduled delivery is strong on my own app, but I'm also fulfilling, I would say, what we call today quick commerce. It's been an encouraging sign that if we scale this up, and we are working on scaling it up, today we hit around SAR 500 million a year to date. We're on a trajectory to continue that momentum in Q4, another growth, and next year hopefully even a much larger number. That tells me that wherever we're losing on certain channels, especially on online, we're able to regain it through our own online channel and so on. But yes, competition, we've seen certain aggressiveness. But if I even. Based on our own internal studies, price perception in Panda got a beating by, I would say, discounters, even though the fact is that we are priced competitively on an average basket size throughout the year.
Mohammad Nasr: We need to push more, I would say, from Panda side on communicating that value proposition again further to remind customers, because we have not lost customers, and we have the balance sheet to support the growth. I would say I would not draw so many conclusions in Q3, but if I am a betting man, the operating environment is not going to change, but Q4 typically with the Ramadan season should support Q4. I do not want to give any specific guidance, but that is the natural cycle of retailers like Panda. What will help us, I think, weathering the storm is, again, we talk about our cash flow generation, strong balance sheet. We should not just panic and say we have had a weak quarter and then draw a lot of conclusion, because the conclusion and the causes of that conclusion is not correct, right? The causes are the conflict.
Mohammad Nasr: The conflict is creating a lot of challenges on the ground. But people like us, with the strength that we have in the background and the teams on the ground, I think it is just we are going to face and continue to face those challenges in the short term. But medium term, inshallah, we will be able to be in a much stronger position as some players already exited the market. I mean, today we have had other modern trade players exit the market because of weakness, and that only allows us to capture those shares. I expect the market to consolidate around few players by the time this sort of phase or journey in the coming few years to consolidate. I mean, that is the natural progression, I think, of modern trade.
Mohammad Nasr: I would not draw so many conclusion on Q3, but it is, a lot of that is coming from the conflict that, unfortunately, Q3 was even more severe for the kingdom compared to the previous two quarters.
Rashad Kawan: Okay. No, that is very helpful color. Thank you. I will ask one more and then I will turn over to Q&A. Again, as a reminder, you can use your raise your hand functionality and we will unmute your line or just pop a question in the chat box. Mohammed, to go back to the point that you were making around online, I know at the beginning of the year you were guiding to 20 new stores with Panda. You changed it to about 12, I think, in Q2. I mean, does everything that you are seeing around the online business and the take-up today, plus I think the conflict and the increased maybe online take-up that you are seeing as a result of it, does that change how you think about new store openings on a multi-year view here and the strategy around expanding the retail footprint here for Panda?
Mohammad Nasr: In the beginning of the year, just to remind, we said that we are committed 10, and up to 15, maybe 20. That was the initial guidance. I think we have opened eight additions this year, two closed, so net six. What you are seeing is, I would say, more towards the maintenance of network, and that is the going forward. Certainly, the growth and the uplift in e-commerce encourages us that we can allocate more capital towards that than physical stores. That does not mean physical store is not important. It does not mean that we will not open new stores. But any openings in the future, generally speaking, are going to be more of a replace an old or a non-performing store in the network that we do not believe necessarily we should invest any more riyals in it or a CAPEX program in it.
Mohammad Nasr: This is going to be the, I would say, the natural progression in the coming quarters. It is more about maintenance of the network. Maybe you will have a net addition of one or two or three, but I do not want to give specific guidance because 2027 is still another ways to go. The budgets have been finalized, but we will communicate the more firm guidance in our next call. But generally speaking, I think you are right. I think there is a bit more, not slowdown, but more focus on maintenance of the existing network and increasing ultimately sales per square meter, which we need to get back up again, which got softened with the basket size softening, right? This is the ultimate focus on that, beside certainly online, which is where we need to continue to expand.
Rashad Kawan: Okay. Understood. Thank you. I will move over to Q&A. First question that we have is from Jonathan Milan. Jonathan, I am going to unmute your line here, but I think you may have to unmute it locally as well. Go ahead.
Jonathan Milan: Hi. Thank you very much. Good afternoon, everyone. First question, please, what is the impact? Have you quantified the impact of the increase in utility tariffs, electricity tariffs, and water tariffs? What is the total impact, and what is the impact also of the increase in minimum wage, both from SAR 4,000 to SAR 5,000 and then SAR 5,000 to SAR 6,000, on Panda specifically and on Savola more broadly? That is the first question. The second question, how many liters of diesel does Savola consume in Saudi Arabia across both businesses? All businesses, sorry.
Wajid Khan: Thanks, Jonathan. Regarding the first questions, with regards to the tariff increase in utilities, the impact on Panda and the foods or the group overall is anything between SAR 28 to SAR 32 million. Mainly coming from 80% is coming from Panda, SAR 4, SAR 5 million is the agreement coming from food operations and SAR 3 million from Al Kabeer. With regards to the labor law impact, this is a much broader topic, and it is currently being assessed by the respective human capital teams with the managements, because it has a lot of nuances and how to mitigate the risk as well. We are going to analyze it. Once it is done, we will let you know after completing the planning exercise for 2027.
Wajid Khan: With a lot of mitigation factors being considered, we believe that once the impact is there, we are being aware of the final impact, we can communicate. But at the moment, the impact of electricity and tariff is not material, is around SAR 28 to SAR 32 million annually. With regard to diesel, I do not have on my top of my head exactly the consumption which we are doing directly or indirectly. We will excuse, we will let you know after checking offline.
Jonathan Milan: Just one thing. Minimum wage could be more than SAR 100 million, right? I am just looking at the thousands of Saudi employees you have typically. Probably would be, even if you are above minimum wage, when the minimum wage goes up by 50%, your salary will go up, even if you make SAR 7 or SAR 8,000. I think there is no doubt. Could it be more than SAR 100, SAR 150 million?
Wajid Khan: As I have mentioned that it is not a complex. It is a very complex topic because we have to see what our Nitaqat rating is, and if our rating is already higher than the minimum, we can live without going for the minimum newly defined target wage for the Saudis or locals. To the extent it can be mitigated by outsourcing and in-house, this study is also going on. So, we cannot say that the impact would be as gross as what you have mentioned. But after the mitigations, we will come to terms at what will be the impact.
Jonathan Milan: Okay. Thank you very much. Thank you.
Rashad Kawan: Our next question comes from Mohsen Amiri. Mohsen, I will unmute your line. Go ahead.
Mohsen Amiri: Hi. Thanks again. Two questions on Panda. First is on just the expense base. If I am looking at the math, it looks like you have cut the expense base by about SAR 50 million year to date. A, is that accurate? B, what is driving that, and C, how much cost is left to cut in terms of the cost base?
Wajid Khan: Thanks, Mohsen, for the question. The main reduction coming from Panda is actually from two components. One is the people's cost, and the other is optimizing the maintenance and utilities expenses. We believe we are continuously working on reducing, optimizing our costs, and bringing more efficiencies across our footprint. We still believe that there is some way to go based on as and when we are moving towards more adoption of technology and also understanding the new realities of the operations. We will, inshallah, continue working on that, but most of it is coming from payroll and maintenance and utilities.
Mohsen Amiri: Thank you.
Mohsen Amiri: Very helpful. If I can ask, do you have a sort of a target net margin and a timeline to achieve it? When can we basically, after two quarters of negative net income at Panda, when will it turn positive, and how positive will it turn in margin terms?
Mohammad Nasr: Sorry, Mohsen. I mean, we have talked about this many times, even with you directly. Q2, first of all, was positive. I mean, if you, on a recurring basis, without the one-time impairment, it was a positive Q2. We cannot say that Q2 wasn't positive. As we have been saying on these calls and others and offline discussions, our target is 2%. We haven't communicated timelines. I think, with the current conflict and the additional cost measures that Wajid just talked about, it pushes certain things further out. If you excuse us, we will be able to give, I would say, a better clarity on these targets in the next call, given the many, many moving parts that we are experiencing in the retail market.
Rashad Kawan: Thank you very much. Again, if anyone has any questions, please use the raise your hand functionality, and we will unmute your line or ask, type a question through the chat box, and we will read it on your behalf. If I can ask, gentlemen, on the sugar business, when I look at the white premium, I think in Q3, the premium was roughly 10%, maybe higher on average versus Q2 levels. There is a big difference in your numbers in terms of Egypt versus Saudi, and you kind of talked about that in your opening remarks. If you look kind of since then, the premium has kind of come down in October, November.
Rashad Kawan: Should we read into that in terms of what that means in terms of profitability for the sugar business into Q4, or is it sometimes misleading to just kind of directly look at the white premium and translate that to your business?
Wajid Khan: Thanks, Rashad, for the question. Let me break it down that the white premium impact, there were a couple of operations, which is United Sugar and United Sugar Egypt, two refineries, around 2 million metric ton of business. Quite a sizable business is B2B, which is cost plus, which is depending upon not only white premium, but also physical premium and other stuff. We have retail component of around healthy retail and, I would say, commodity business of around 400 to 500,000 metric ton, which also entails a different kind of value proposition. So, depending on the export business is more dependent upon white premium, and some are already locked in with the back-to-back customer pricing arrangement. So, not the whole volume is subject to the white premium movement, but I would say that it gives some guidance where it is heading towards.
Wajid Khan: Still, we try to optimize with our other levers in our armory, which is retail business, commodity, as well as what we can charge for the physical premium, knowing our offering and customer loyalty and longstanding relationships. With regards to the couple of quarters you are saying, there may be some pressure of white premium. We believe that it will be there, but it does not warrant that the income will go down a lot. Then there is another element of beet sugar operations in Egypt and the local sales dynamics, which the demand and supply is a little bit different than what is the global white sugar demand and supply. At the moment, we are seeing that the prices are gradually moving up. It was very much depressed in most of the current year.
Wajid Khan: That is why you are seeing that the Egypt profitability is a bit different gross profit-wise versus KSA, because the United Sugar Egypt or the refinery business is doing better. But at the same time, the Alexandria, our beet operations were under pressure because of those depressed selling price due to oversupply in the local market. The government has opened up or lifted the export ban for locally produced sugar, which has currently at least eased up the market a little bit. And we expect that it will go further down early next year, which will be the season in Q1 and Q2, towards the end of Q1 and Q2 of next year.
Rashad Kawan: Okay, that's helpful. Thank you, Wajid. We'll go back to Jonathan to ask a question. I'm going to unmute you now, Jonathan. Go ahead.
Jonathan Milan: Thank you very much, Savola. I'd like to ask about the edible oils business. It's been having a fantastic year. Going forward, looking at how food inflation is coming back, we could see it kick in even stronger. Could you please give us some guidance on how the gross profit per ton and sales could evolve, specifically in Saudi? It's difficult to extrapolate from the last time around, because you had several other countries in the mix. Also, as a follow-up to that, would competition, tough competition that you're seeing in the current market, put some pressure on the gross profit per ton? I understand that you typically pass it on, but could the tough competition put a bit of pressure on the gross profit per ton? How do you see things evolve in that business over the next 12 months? Thank you.
Wajid Khan: Thanks, Jonathan. With regards to edible oil, first we need to understand what happened in the first 9 months of this year. We can see that the gross profit per ton has moved from SAR 776 to SAR 742, as per the slide you can see. The decline is not because of that we could not able to pass on the cost or all the price increase, but the idea is that our growth in B2B segment is much faster than the growth in the B2C side of the business. That will result in that the gross profit per ton is good towards reduction as far as the total volume is concerned. But, alhamdulillah, due to the growth in volumes, which were robust in Arabia around 18.9%, and other markets, which is primarily Egypt and Algeria, is close to 10%.
Wajid Khan: This is where we want to grow the volumes for getting the operating leverage, as well as B2B operations does not have the go-to-market expenses and other OPEX, which is primarily there in the B2C side of the business. This is how the trend should continue and would continue, because we are concentrating and focusing on how to optimize our dollar per metric ton margin from gross profit side as well as CM side. For that reason, this trend, we would say that should continue as and when we are growing faster in B2B side versus B2C channel.
Mohammad Nasr: Just to add to Wajid's point, I mean, I think we have covered this in the past. Gross profit per ton decline is not necessarily a negative thing in this context because of the B2B. Unlike B2C, B2B does not require the marketing support that you see on the shelf. Therefore, that is why you see continuous improvement in net income, because while gross profit per ton might be declining, it is still a positive contribution and growth on the net profit due to the product mix that we are talking about. Just to add a bit more color on that from P&L perspective.
Jonathan Milan: I understand, and that is what I am saying, there are very strong results. Net profit is up double digit. I am just asking that, I think if inflation were to kick in harder over the next 12 months than what we have seen over the past 9 months, how do you think this will change the numbers? Do you think on a like-for-like basis.
Mohammad Nasr: I think you need to think about this as a sticky basic product, right? This is not a luxury product. This is a staple food product that consumers need to use for everyday food consumption, right? Whether it is on the B2B side or B2C side. So, it is not a snacking item, it is not an indulgent item, it is a basic food commodity that certainly increase in prices. We have experienced this in past, I mean, if you recall in COVID. You mentioned something about competition. I mean, we have been in this cycles many, many years and many more difficult environments as well in the past. Competition for us is not during the tough times. It is in the easy times that we see competition.
Mohammad Nasr: In an environment like this, actually for us, the biggest competition is us making sure the products and the supply chain continues to deliver the product on the shelf and meet the demand of the consumer. So, we have not seen, I would say, demand destruction so far. We do not expect it because, again, this is a staple product. I cannot say that on every food product, but in our portfolio of products, we are a staple food company. I would not necessarily draw your typical demand destruction and pricing correlation and apply to an oil category, edible oil category. Just to set a bit of record straight around that. This is very, very important.
Wajid Khan: Just building on that, one element is important if the cost inflation will continue. What we have witnessed in the previous super cycles of commodities and inflation, we have thrived well as incumbent players and other competitors also, which are established players. Because of the scale, because of the capability of large-scale supply chain disruptions, we can manage much better than the smaller players, as well as the working capital requirements go up with the cost of funding is also going up. It is getting difficult for the marginal producer and trader to actually bring bulk commodities into the country. These are few elements. I am not saying that it will discount all the competition or it will definitely result in massive windfall profitability.
Wajid Khan: But at the same time, this is what we have witnessed, that we normally market stabilize and more incumbent players dominate the market and do much better.
Jonathan Milan: Understood. Just one last question, if I may. First of all, great job on paying an H1 dividend. Not a lot of companies are able to do that, especially in such a difficult environment. That was great to see. Looking at H2, do you think you can match the full-year dividend of last year of SAR 1.7, even if it means paying more than 50% of H2 net profit because you have the availability, the balance sheet strength, very little debt, strong cash flow generation? Or would you rather stick to 50%, even if it means paying less than SAR 1.7 on a full-year basis, which would still be good given the current environment?
Wajid Khan: As per the approved policy by the shareholders, and historically, we maintain the payout of around 50% to 60%. Unless it is changed, we will stick to this 50% to 60% of our net profitability by year-end or full annual profit. Interim dividend is just showing that we understand that, Alhamdulillah, the business is doing good. We have free cash flows, and we had profitability, and we have distributed the dividend, which makes sense for the first half of the year of operations. I will not comment whether we are going to match SAR 1.7 of last year or no, but I will just maintain that it will depend upon the 50% to 60% of the annual profitability after Q4, Inshallah.
Jonathan Milan: Excellent. Thank you very much, everyone.
Rashad Kawan: Thank you, Jonathan. The next question, Ilham Baidi, I am going to unmute your line. Go ahead.
Ilham Aidi: Great. Thank you so much. Ilham from the MENA sales team at Morgan Stanley. I had a question on the M&A landscape. Are you seeing more interesting opportunities versus pre-conflict? Is your conviction in different categories still the same, or have you got any preference that have changed here? I think you were previously focused more on expanding the fats business, frozen food, et cetera. Has that changed? Thank you.
Mohammad Nasr: I mean, M&A, we all say M&A is just a toolbox of many other tools for our strategy and growth. For us, you have to think and split M&A, or I would say investment, into two buckets. One is the commodity side, which is the oil and sugar largely, and you have the higher growth opportunities in frozen food and nuts and spices, where the market, especially something like nuts and spices and pulses, where it is a more fragmented market, ability to consolidate that market under a CPG or consumer goods brand, as well as food service. Then we play on the strength of each and find more opportunities. It does not mean I am going to go buy another oil today. Unlikely in the current environment. Am I going to double more in sugar?
Mohammad Nasr: Again, I'm already, I think, believe second or third largest in the world in terms of sugar processing. So it's more about finding that incremental return targets, internal targets that would generate the necessary push or step-up change in new categories for us. But ultimately, I wouldn't say M&A is a core as much as M&A is another toolbox of many other tools that we have. If I look at our fats business, for example, that wasn't an M&A business. That was a pure greenfield project and grew quite nicely. Pasta, on the other hand, was acquiring two pasta companies in the past, consolidated that, and grew that. The nuts and spices Bayara UAE is growing very, very nicely. Bayara KSA is really being positioned with the acquisition, the recent acquisition, Mehbaj, which is a more premium also brand. That acquisition is small in terms of riyal.
Mohammad Nasr: We disclose it as SAR 12 million, but the sales is about SAR 90 to 100 million. So it's a very, very, very nice addition that allows consolidation of manufacturing base and also go-to-market infrastructure that will help accelerate our Saudi expansion. So, in a nutshell, I think M&A will still be there, but it's more strategic, sometimes tactical, like in the Mehbaj situation is both a mix of strategic and tactical opportunity at the right price. But also, M&A would be very strategic in terms of how or where we invest in. But ultimately, it's about disciplined capital allocation. Nobody's holding a gun to our head to deploy capital, but our balance sheet certainly can support M&A when the right time comes.
Mohammad Nasr: But I think today, our focus is very much operational resilience, because in the current environment, I think it's being patient will pay off than trying to just panic and try to do something in an unpredictable environment.
Ilham Aidi: Very clear. Thank you.
Rashad Kawan: The next question, Mohsen Amiri, I will unmute your line. Give me one second. I think he has withdrawn the question. Actually, here, one second. Okay, Mohsen, I have unmuted your line. Go ahead.
Mohsen Amiri: Hi, sorry about that. I hit lower hand too quickly. Just on the e-commerce, there is some interesting data points in this presentation, that 60% are through the Panda app and 30% of the basket is fresh food. I guess what I am wondering is, for those customers that are coming in through the Panda app, are you able to track their behavior from before they downloaded the Panda app? I guess what I am getting at is, do you have any updated color you can provide on how many people are coming to Panda e-commerce from other competitors, as opposed to people who were previously loyal to the brand shopping in-store, moving their shop online?
Mohammad Nasr: It is hard to really track whether someone was coming from another platform to another. Today, I mean, I do not know if this is relevant or not to give you a bit additional color, 65% of my sales come from 5.5 million Panda loyal customers. That is all of Panda. On the e-commerce, certainly we can track, because the e-grocery has a loyalty program embedded in it, so we can track their shopping on the offline and online. I do not have that necessarily data on top of my head at the moment, and certainly, Mohsen, we can have another discussion around that offline. To be able to track someone moving from, are we taking a market share from somewhere else? I think that is what you are trying to ask, and please correct me if I am wrong. I think that is harder, also for one good reason.
Mohammad Nasr: There is not any reliable data on, like Nielsen proper data for online retailers. That is the one, I would say, caveat, is that we do not have necessarily the cleanest data. We can infer from the data, but to tie someone moving from an aggregator into a Panda customer or another platform completely unrelated to any aggregator and then coming to us is, I think, a harder ask to trace that. I know it is not probably a satisfying answer, but this is honestly the challenge with online data. What we can give you is what we see in our own environment, and our own environment, we see very healthy basket size, both on the aggregator side as well as, more importantly, on our own app. This is certainly, the basket size online are larger than the offline.
Mohammad Nasr: And just to kind of give you a sense of how much more attractive online is than even some of the physical data that we are seeing.
Mohsen Amiri: That is very helpful. It sort of helps fill in the picture a little bit, and understood on the challenges of getting perfect data on this. But what you have been able to provide is very helpful. I really appreciate it. Thank you.
Rashad Kawan: Thank you. Okay, so I know we have just a few minutes left here, so just a reminder for people, if you have any final questions, just use the raise your hand functionality and we will unmute your line, or just type a question in the chat box. If I can kind of go back to the oils business, gentlemen, and going off of the question that Jonathan was asking. And Mohammed, you mentioned, rightly so, that the oils, vegetable oils in general, your quintessential kind of staple food business and should be kind of stable from a demand perspective. But the volume growth that you guys have been seeing off the back of the B2B expansion, in terms of double-digit kind of volume growth over the first 9 months.
Rashad Kawan: I guess, how much more white space is there to go after in that part of the business in your minds from here? Because that is not a staple-type growth that you would typically expect with a product like this.
Wajid Khan: A very good question, Rashad, and this is, I would say, a notion which actually we want to address. We always believe edible oil is something not so good. We are seeing reduced consumption, maybe in-house, in certain households, and we believe that this category at most will not grow, it will remain stable. It is contrary to that. Actually, there are three areas where it is growing. We say B2C, which is the brands, which are quite penetrated in this part of the world where we operate. So GCC, Arabia, Egypt, and Algeria. On top of it, if we are seeing that people are trying to down-trade a little bit, we have an extremely healthy and resilient portfolio of products, which has high tiers, value for money, mainstream, as well as low tiers and fighting brands.
Wajid Khan: This is where we can always play differently than any other player in this part of the world. Number 2 is food ingredients and food services, which combine both of them together for B2B channel. Food ingredient is something which we have seen over a period of time when the per capita income increases, more industrial consumption of edible oil increases, and the specialty fats are required. This is what we are witnessing in UAE and Saudi Arabia, that quite a decent consumption is there, as well as Egypt consumption is massively growing because of that. We are seeing Algeria has a lot of potential where we have not yet penetrated to that extent. This is where we are growing. We are growing double digit, and we believe that continued expansion will be required in the next decade or so.
Wajid Khan: for us to capture more market share. Food services is a segment which you know and we know that is, for the last 10 years, is growing tremendously and will continue, despite that the restaurants' names are changing because of being out of business 20% to 30% of the time. But new restaurants are popping up, and the consumption on the food services side is also more structured as far as the key chains are concerned, and more, I would say, unstructured when we have independent players who are operating in this segment. We are providing and we are trying to cover that wider space. We are serving all those type of customers, food ingredients as well as food services, maybe more in Saudi as compared to perhaps Egypt, and Algeria is a lot wider space as we speak.
Wajid Khan: We will continuously invest in those technologies, and we will continuously expand the volumes, which should result in more volumes and more growth. Apart from that one element which we need to understand, that in countries like Egypt, we have Tamween, which is subsidized edible oil products. We believe that over a period of time, with all the austerity measures and IMF programs requirements, will result in more and more volume will come into the open market, and that will result in us also increasing our market share over a period of time. We see a lot more potential, a lot more growth in our edible oil segment with these three channels as we have provided, and that should continue with a lot of resilience.
Wajid Khan: With the capabilities we have and massive scale, I believe that we have all the right to win and to grow and to invest in this particular segment.
Rashad Kawan: Very clear. Thank you very much. I think we are right at the top of the hour. Thank you very much, everyone, for attending. Hamad and Wajid, maybe I will pass it over to you for any closing remarks before we end the call here.
Mohammad Nasr: Thanks again for hosting the call. As always, please reach out to ir@savola.com. Happy to have deeper discussions around anything that you need further clarity, and we look forward to seeing you at another conference or future calls. Thank you again.
Rashad Kawan: Thank you very much, everyone, for joining.
