Agthia explores acquisitions as it looks to build scale amid pandemic, CEO says

The company is looking at buying assets in larger Mena markets such as Saudi Arabia and Egypt as part of its expansion strategy

Abu Dhabi food and beverage company Agthia is considering international merger and acquisition opportunities as it looks to expand and speed up its recovery after Covid-19, its chief executive said.

The owner of the Al Ain Water brand intends to buy assets that can help solidify its reach, Alan Smith told The National on Sunday.

Outside its home base of the UAE, Agthia also operates in Saudi Arabia, Egypt, Kuwait, Oman and Turkey.

“Internationally, what we want to do in the big, regional markets where we have a footprint but we are under-scaled [is to] to buy scale,” Mr Smith said.

“Egypt and Saudi [Arabia] are big markets, so we are obviously taking a closer look there.”

Potential deals will depend on the availability of the right assets. Gaining scale through the purchase of complementary assets will also open up opportunities for Agthia to expand into new markets, he said.

“We have got an M&A pipeline ... we have got some targets in mind,” he said. However, he declined to identify the markets, or the time frame involved.

The company, which is conducting a forensic review of its business model and rationalising its portfolio amid the pandemic-related slowdown, is pursuing both organic and inorganic options to spur growth.

“Organically, we need the [core] business to be firing. Where we expect to provide the step-change growth is inorganically,” Mr Smith said.

He said the company is pursuing a philosophy of “more is more” in the domestic market, adding new business lines, new products and acquiring accretive businesses.

The company's chairman, Khalifa Al Suwaidi, said this year "continues to be a transformational year for Agthia in an unprecedented business environment".

Agthia posted a 1.2 per cent increase in third-quarter revenue on Sunday, driven by higher sales despite the effects of the pandemic on its balance sheet.

Third-quarter revenue rose to Dh492 million ($134m) from a year earlier, Agthia said in a statement to the Abu Dhabi bourse on Sunday.

However, the company swung to a third-quarter loss of Dh32m from a profit of Dh33m in the same period last year, pulled down by Dh59m worth of one-off provisions. Excluding these one-offs, the group's net profit amounted to Dh27m, the company said.

The company made provisions for four items, including a Dh9.5m impairment on assets and inventories as Agthia ends its licensing agreement with Capri-Sun. The company also took a one-time accounting adjustment of Dh7.7m after ending its municipality partnership to take over the payment and collection process of consumer sales.

Agthia made a short-term provision of Dh38m in the third quarter related to likely bad debts given "liquidity issues in the market". It also made net provisions of Dh7.2m after reviewing its portfolio for slow-moving or obsolete inventories.

“We have made some bold changes … [also] some fairly bold improvements to the balance sheet to make sure we have a great platform moving forward," Mr Smith said.

"All of these things are prudent, they are bold and set us up for success next year."

Despite the one-time provisions, "the business has been very nimble in terms of protecting the top line", Mr Smith said.

One of the bigger challenges the company is facing during the pandemic is improving Agthia's return on capital, he said. The company wants to make sure it is "making the right choice on capex" and "sweating assets" to gain maximum returns.

"These are the kind of challenges I see moving forward," he added.

The company hired three new executives in the third quarter as part of its strategic reorganisation. It appointed Ahmad Yahya as executive chairman of growth and categories, Khalid Mansour as senior vice president of its consumer business division, and Mujtaba Hussein as senior vice president of mergers and acquisitions.

"We have split the M&A [and] strategy function into two: one person is focused on the M&A part, on what the potential investments are and building an M&A playbook [so we could] integrate any acquisition faster," Mr Smith said.

"The strategy function focuses on how to improve the base business."

Mr Smith, who joined the company in July to lead the new executive management team, is evaluating a non-binding offer for Al Foah Company, the world's largest date processing and packaging company.

Agthia and Al Foah Company are both owned by Abu Dhabi's state holding company ADQ, through industrial conglomerate General Holding Corporation (Senaat).

Combining the two companies is part of a plan to create a new national food and beverage champion and would be achieved through a share swap.

Senaat, which is the sole shareholder of Al Foah, will raise its stake in Agthia to 59.17 per cent, up from 51 per cent currently, if the deal concludes.