BinDawood Holding H1 2021 Results

BinDawood Holding —

Record gross margin of over 34% despite revenue dip

• Gross margin improved due to strict inventory and cost management
• Board approves dividend of SAR 1.25 per share for H1 2021
• Sales remain challenged due to Covid and Umrah restrictions
• Company on track to open 5 new Danube stores in H2 2021

Jeddah, Saudi Arabia; 15 August 2021 – BinDawood Holding Co. (Tadawul: 4161 and the “Company”), one of the leading grocery retail operators of hypermarkets and supermarkets in the Kingdom of Saudi Arabia (‘KSA’), today reported its half-year 2021 financial results.

Financial Highlights

Comments from Ahmad AR. BinDawood, CEO of BinDawood Holding:

“We have done well in the first half of this year in terms of improving our gross margin. Having said that, I believe a comparison of the financial performance of H1 2021 with H1 2020 is not very meaningful because of the extenuating circumstances and unprecedented disruption to business caused by the pandemic. Q1 2020 was largely unaffected by the pandemic. Q2 2020 benefitted enormously from pantry-buying in response to lockdowns and in the lead-up to the VAT hike which came into effect from 1 July 2020. In contrast, H1 2021 bore the full impact of the pandemic, resulting in a sharp drop in pilgrim traffic due to restrictions on international travel and a significant drop-in promotional activity due to the need to adhere to social distancing measures.

A comparison of H2 2020 with H1 2021 is more relevant as the trading conditions over both these periods were so similar. In this context, the Company responded positively to the challenging business environment and performed better across all financial parameters. The Company’s sales for H1 2021 were 2.3% higher than H2 2020 and the gross margin improved by an impressive 1.8%, from 32.6% to 34.4%, and net profit margin from 6.2% to 7%. The improvement in margins reflects a concerted effort to optimize inventory management and seek cost reductions whilst maintaining the quality of our service and products. The gross margin of H1 2021 compares favorably with the margin of 32.3% achieved in H1 2020. However, the net profit margin of H1 2021 is below the 10.5% net profit margin achieved in H1 2020 because of the greater impact of fixed costs following the drop in revenue.

Our improved financial performance in H1 2021 versus H2 2020 is a significant achievement. I believe it strongly demonstrates the resilience of our business and its ability to achieve sustainable growth in revenue once normalcy returns. The management remains committed to expanding the branch network of the Company and the stated objective of opening 5 new Danube stores by the end of 2021 remains on track.”

Financials: H1 2021

Revenue decreased 24.1% year-on-year to SAR 2,247.2 million in H1 2021 as compared to SAR 2,960.8 million in H1 2020. Last year’s half-year growth in sales was driven, in large part, by pantry-buying in the second quarter in response to the pandemic and anticipated change in VAT, which came into effect from 1 July 2020. Given the exceptionally strong prior year comparatives, as a result of certain exceptional factors, a more accurate reflection of like-for-like sales is H1 2021 versus H2 2020, as both periods suffered similar impacts on sales such as international travel restrictions causing a sharp drop in pilgrim traffic and a significant reduction in marketing activities due to the need to adhere to social distancing measures. Sequentially, H1 2021 revenue growth was 2.3% higher than H2 2020 sales of SAR 2,195.7 million, with BinDawood stores being the primary growth driver.

When analyzing stores performance, BinDawood’s 27 stores had revenues of SAR 634.2 million in H1 2021 versus SAR 586.2 million in H2 2020 and SAR 914.7 million in H1 2020. There has been an improvement in sales this year compared to H2 2020, with sales in the five BinDawood stores in the Makkah and Madinah area improving moderately due to the easing of certain pandemic restrictions for residents.

Over the corresponding period, Danube stores posted revenues of SAR 1,613.1 million in H1 2021 versus SAR 1,609.5 million in H2 2020 and SAR 2,046.1 million in H1 2020. Although revenue of Danube stores remained flat during H1 2021, customer traffic increased during the latter part of H1 2021, and with further restrictions lifting in the second half 2021, the Company anticipates trading to improve across its 47 stores.

Gross profit was SAR 772.8 million in H1 2021 or 34.4% of sales versus gross profit of SAR 715.3 million or 32.6% of sales in H2 2020 and gross profit of SAR 956.6 million in H1 2020 or 32.3% of sales. A 180 basis points improvement in gross margin and an 8% (SAR 57.5 million) increase in gross profit on a half-year sequential basis is a significant achievement and is due to the Company implementing a set of inventory optimization, stringent wastage and shrinkage controls, efficient pricing and procurement efficiency. The same factors were responsible for the year-on-year improvement in gross margin.

Operating expenses were SAR 573 million in H1 2021 versus SAR 568.9 million in H2 2020 and SAR 597.6 million in H1 2020. The fixed cost element of operating expenses increased due to new store openings during 2020, which were off-set against SAR 32.1 million expense savings, year-on-year, related to Covid-related expenses and the favourable renegotiation of a significant rental contract.

The Company’s net profit was SAR 157.1 million in H1 2021 compared to SAR 136 million in H2 2020 and SAR 311.7 million in H1 2020, representing a net profit margin of 7%, 6.2% and 10.5% respectively. On a sequential basis, the improvement in gross margin and reduction in operating expenses improved the net profit margin by 80 basis points in H1 2021 versus H2 2020. However, on a year-on-year basis, net profit margin was lower as a result of the greater impact of fixed costs due to a decline in revenue.

The Company’s financial position continued to be strong with no bank debt. Cash generated from operations in H1 2021 was SAR 461.2 million versus SAR 596.6 million in H1 2020. The increase in H1 2020 was due to higher profitability and lower working capital investment.

As at 30 June 2021, the Company had a cash balance of SAR 526.4 million, which represented an increase of 32.7% as compared to 31 March 2021. The Board of Directors have approved a half-year dividend of SAR 1.25 per share, or SAR 142.875 million. The cash dividend is payable to stockholders of record by the close of business within two weeks of August 26, 2021.

In the first half of the year, the Company announced the appointment of a new Chief Transformation Officer, Mohammed Belkhayatte. In his new role, Mohammed is responsible for driving fundamental transformation change and commercializing new ideas across BinDawood Holding’s business, as well as being responsible for initiating growth and facilitating management changes across BinDawood Holding’s leading retail brands BinDawood and Danube.

Financials: Q2 2021

Second quarter revenue was flat sequentially at SAR 1,122.8 million versus SAR 1,124.4 million in Q1 2021. As compared to Q2 2020, it was lower by 27.4%. As previously explained, sales in Q2 2020 benefited from an exceptional one-off boost from pantry-buying due to the pandemic lockdowns and the hike in VAT with effect from 1 July 2020.

On a year-on-year comparison, BinDawood stores posted sales of SAR 316.9 million in Q2 2021 versus SAR 452.8 million in Q2 2020. Danube stores had sales of SAR 805.9 million in Q2 2021 as compared to SAR 1,094.8 million in Q2 2020.

Gross profit was SAR 399.4 million in Q2 2021 or 35.6% of sales. Gross profit for Q1 2021 was SAR 373.4 million, or 33.2% of sales. This sequential increase in both gross profit and gross margin was due to an improvement in inventory and product cost management. The gross profit for Q2 2020 was SAR 504.1 million, reflecting higher sales. The actual gross margin achieved was lower at 32.6%.

Operating expenses were SAR 284.4 million in Q2 2021 versus SAR 293.9 million in Q2 2020. The decrease is due to reduction in Covid related expenses and savings from the favourable renegotiation of a rental contract. On a sequential basis also, operating expenses were SAR 288.6 million.

The Company’s Q2 2021 net profit was SAR 95 million, sequentially higher by 53% versus Q1 2021 but down by nearly 48.8% as compared to SAR 185.4 million in Q2 2020. Net profit margin was 8.5% in Q2 2021, higher by 300 basis points versus Q1 2021 but down significantly from 12% in Q2 2020. This year-on-year reduction in net profit margin reflects the impact of fixed costs following the drop in revenue.