Dubai: Revenues of Dh1 billion for the first quarter of 2022 – that’s what the Abu Dhabi foodstuffs company Agthia delivered. It is the first time that the company’s top-line has cleared this particular level over a three-month period.
In a different time, Agthia’s CEO Alan Smith would have been ecstatic about such breakthroughs. The global foodstuffs market is passing through the most testing times in a decade, with an ongoing conflict in Ukraine, supply difficulties, inflationary pressures all creating their own uncertainties.
Even then, Smith is counting the positives – “The Group was a Dh2 billion business just two years ago, from there to cross Dh1 billion in just one quarter makes it historic. We have diversified our revenues, with 51 per cent coming from international markets and 75 per cent of sales is generated from our consumer-branded products rather than the commodity ones.
“All of the five acquisitions we made in the recent past are also delivering.”
Sourcing from India
And then there are the concerns, which are not unique to Agthia by any stretch. “Not a single manufacturer in the F&B business can say he is not feeling the rise in import costs,” said Smith, who took on the CEO’s role in 2020. “The cost-driven inflation is hitting all markets and across the board. There have been selective price increases at our business, and we focussed more on the most profitable product-lines.”
It also helped that Agthia had been sourcing one of its key ingredients – wheat – from India over the last two years. That meant less of a disruption when the Russia-Ukraine conflict erupted and disrupting the global shipments of wheat, with Ukraine being one of the biggest producers and suppliers.
“We have a robust source in India, have had it for two years now rather than rely on supplies from the Black Sea,” said Smith. “In recent times, we actually increased our inventory, to offset the rise in wheat prices by 40-45 per cent.
“We have to wait and watch whether the situation will get other people trying to get their own wheat sourcing from India. If that happens, what will be the impact on the supply side.” (India is working on ways to increase its wheat exports and sort of partially compensate for the loss of supply out of Ukraine.)
Keeping cutting costs
On its own cost of operations, Agthia is working towards bringing about Dh200 million in savings over a five-year period. Already, Dh80 million in savings have bene brought about in two years. At a time when inflationary pressures keep rearing up, any savings made elsewhere do come in handy.
Hold back on more acquisitions?
Agthia’s super-charged growth of late has much to do from a handful of acquisitions it made in the region. All of these five entities have been fully integrated into the Group, helping with both revenue and profit. In the first quarter, Group-wide net profit was up 66 per cent for Q1-2022 to total Dh82 million. “This is mainly driven by the consolidation of margin-accretive acquired entities and cost optimisation initiatives from integration and productivity enhancements, both of which more than offset higher input and transportation costs,” said a statement.
The stark reality, though, is that the food business is caught up in a super-inflation cycle. According to Smith, that doesn’t mean this will nibble into the Group’s ambitions when it comes to more strategic acquisitions of F&B companies in the region.
“We will become more stringent on the due diligence before any buy, but that doesn’t alter any of the other criteria we look to when acquiring a business,” the CEO added. “The Egypt and Saudi markets continue to be of interest – and we will remain interested.
“We have a five-year ambition to seek more growth avenues, and that includes developing a pipeline of acquisition targets. That’s all on track.”