Almarai Company (2280) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the First Quarter 2025 Earnings Call of Almarai. Today, we have with us the senior management of the company, which includes Mr. Danko, the CFO; Mr. Ikram Ulhaque, the Head of Finance; and Mr. Abdulhadi, the Head of Investor Relations. The meeting will consist of 60 minutes, starting with a quick presentation, followed by the Q&A session. [Operator Instructions] Without any further delay, I would hand over the mic to the management to start with the presentation. Over to the management.

Thank you, Muhammad. Welcome to Almarai First Quarter 2025 Earnings Call. This is Abdulhadi Alamri, Head of Investor Relations at Almarai. And I'm here with Almarai's CFO, Mr. Danko Maras; and Ikram Ulhaque, the company's Head of Finance. First, I would like to thank Al Rajhi Capital for organizing and hosting this call and to Muhammad Saad, our moderator. As usual, I assume that you all have downloaded the Q1 2025 earnings presentation from our website. For those who haven't, please go to Almarai's website, under Corporate, you will find the Investor Relations button. And once you press the Financial Information, you will see the Earnings Presentation as the last button on the right. Before we start our call, please pay attention to the disclaimer page. And now I will hand it over to Mr. Danko Maras, our CFO, for the next pages of this presentation.

Thank you, Abdulhadi. And good morning or good afternoon, ladies and gentlemen. Very welcome back to Almarai's earnings call. We will go through the first quarter of 2025. As usual, I'll go through a little bit on market dynamics, business performance and then financial performance. And then we will open up for Q&A, so you can ask any questions you would like to for -- relative to the business performance. If I start with market dynamics, you've seen the chart. We continue to have very strong market share position in KSA, both in Dairy, Juice, Food, Bakery and Poultry for the fresh chicken. This is followed by, I would say, a fairly good Ramadan period in our markets. We've seen good excellent execution in the marketplace. And with good execution comes good results, and we are holding very well in terms of our market share positions in the market. We have a few extensions on innovations that we always show you, some exciting things for those who do not know, our premium poultry brand, ALYOUM is also complemented with the value brand, which is called AlBashayer. And we have some launches on those products also to meet that segment of the market doing really well. And as we are building out for the ice cream seasons, we also launched new products. This is vanilla cones with chocolate ice cream that's really tasty, I recommend all of you to buy that product, and a few others as we normally do. If we sum up the performance in the first quarter, I go back and highlight, I think it has been a very good, excellent execution in the marketplace. With Ramadan being in there, it's a very active period for us, as you all know, where a lot of things have to work well. And we managed to get a 6% increase in our revenue compared to the same quarter last year. Its core GCC markets, all of them, driven by Saudi Arabia and UAE in terms of value in total. If we look at product category, you can see the highest growth was for Fresh Dairy, followed by both Food and Poultry, both in value and percentage term. And I'll go a little bit more into that soon. Operating profit increased with 1%. So you see the SAR 874 million that we are delivering there. That represents about 15.1% of EBIT margin. It's a good margin. And to preempt a few questions here on transportation costs. You all are aware that in the first day of the year, there was an announcement of increase in transportation costs through diesel. And diesel, we have both in farming, in processing our facilities and in transportation. And we have good plans in place to work on mitigating that through efficiency projects, but it somehow did affect us in the quarter when we look at the margin enhancement that we would expect from the revenue growth that we have. But overall, we are very happy with 15.1% on the EBIT margin. We further elevated our net income growth to 6% because of both interest cost and Zakat, that yielded an incremental benefit to us. So the SAR 731 million, you see that represents a net income margin of 12.7%. On the interest side, we have, as you know, a very intense capital investments for our poultry expansion plans, and we capitalize the interest cost, and we depreciate that over the lifetime of the use of the assets. That is one component. But in addition, we also have lower interest rate cost than last year. It's not a lot, but everything counts, and it's about 20 basis points lower than what we had last year. And that contributed to an incremental benefit on the bottom line if we look at the net income. On working capital, we are lower than last year. But as with both quarters in the first quarter of the year, we have negative cash outflows from working capital because we have the Ramadan period. You will see that we are building up our receivables a bit more. So if you compare receivables, quarter-on-quarter, it looks fine. But from December to March, you have a negative impact that influences our cash flow. Our capital investment continues quarter-by-quarter to increase. So this quarter, we had SAR 1.1 billion of capital investments, or SAR 316 million more than what we normally have in the past. And that continues to increase. We'll see the peak somewhere in '26 and then it starts to go down again. But all of it is part of this significant investments of SAR 18 billion that we have highlighted earlier in investing for growth for the future. So all in all, when we look at free cash flow in the quarter, it's slightly negative in the quarter. It's normal that we have that. It was more having an unusual period last year. But the capital investment is the key component of that and then a slightly negative impact we have on the working capital. If we look at top line and dissect performance, you see on the left side, the proportions of the country contributions and KSA being the biggest with 67%, also contributing strongly to the growth in the quarter. 8% growth is good. In absolute terms, it's significant. So that's the key component of the growth in the quarter, but also very good delivery in UAE and Kuwait, where you have 12% and 9%. And although very low numbers, we are building and building in Qatar. So you have a 45% growth in Qatar, but it represents about SAR 6 million. All countries are growing. What you're seeing in Egypt is a negative SAR 62 million, which essentially represents 36% revenue growth in local currencies in Egypt. However, when we translate it into our books, and we do the currency translation, it becomes negative because of the devaluation of the Egyptian pound. It has an impact when we consolidate approximately 1% when we look at the growth of total Almarai, but I think important to emphasize that underlying performance in Egypt is very good. In our bottom line, hard currency profit delivery is also positive in Egypt. So our performance metrics on the categories are very good. It's more a question of the country and the impact it has on our consolidated results. And the same thing goes for -- when we look at the product categories, we had an exceptionally good period in Fresh Dairy, and I would say, fresh milk growing significantly together with our pots and Zabadi, part of it being Ramadan, of course, that we have some incremental days. At the same time, last year, we had a leap year, so we had 1 day more. But overall, if we just look at the dairy performance in the quarter, it was very, very strong. So we are pleased to see the execution of our core category doing well. But that was not all. We can also see that the Food category grew very well. The Poultry business continues to do well in a very competitive market. People still have a good preference for the ALYOUM brand, and we are growing with 6% on the Poultry category. Bakery, we're growing 1%. And then to highlight again this point about Egypt, Fruit Juice and Long Life Dairy, when we look at category performance, we look at it, of course, from a total Almarai point of view, all countries included. And you see a decline in Long Life Dairy with SAR 24 million. That is because we are having both Juice and Long Life Dairy in Egypt. If we were to exclude Egypt from the category and just look at it ex-Egypt, our Fruit Juice growth in the business is growing 4% and not 1%. And our Long Life Dairy growth, excluding Egypt, is then plus 4% as well. So overall, if we say GCC, very strong performance in all the categories, underlying performance, including Juice and Dairy in Egypt is also very good. The currency devaluation is what makes the impact. So those SAR 308 million can also be broken up by looking at channels. And as you remember also from our previous announcement in the quarter, we grew in all channels. It's particularly pleasing to see that we're holding a strong position in our traditional trade, which is 56% of our total sales, but we're also having good growth coming now from foodservice with another 7% growth of SAR 58 million. Modern trade, fairly benign, but good growth, 23% with 2%. And then Export and Other, in particular, our IP&C business, Infant Nutrition, doing very well, growing 18%, or SAR 40 million. So overall, I think from our way of looking at it in terms of top line, a good start of the year. Great execution by our sales team and our business units in executing Ramadan. We did very well, both pre-, during and post-Ramadan and that gives us confidence for the rest of the year. Now looking at financial performance, I give the word to Ikram, and I'll let him talk you through a little bit more on how we did on the bottom line and different segments. Please go ahead, Ikram.

Thank you very much, Danko. So ladies and gentlemen, let me -- I'll take you to the Slide 13. Over the next 3 pages, let me summarize the financial performance for the quarter. On Slide 13, you will see the income bridge, our Almarai added SAR 39 million for the quarter to go from SAR 692 million to SAR 731 million. Let me go through the key drivers of this performance for the quarter. The first pillar is our net pricing. During the quarter, we had very good strong volume growth, but we also saw a lot of promotional activities, an increase in discounting by the competition. And as a result of this like-on-like, we have seen a net adverse position on pricing. Majority of it is led by Poultry followed by Long Life Dairy. If you look at the next column of cost of goods sold, we have been reporting positive numbers for the last few quarters. During the current quarter, although Almarai experienced positive cost of goods sold, on farming commodities. That's mainly corn, soy bean alfalfa, but we are seeing adverse behavior from daily commodities, which is mainly butter, cheese and related products. On a net basis, this is why like-on-like, we had a slightly negative SAR 15 million impact for the quarter. The next one is our volume, mix and others, and this is where the strong performance across the board, which Danko just talked about on all the 3 dimensions of country, product and channel has helped us deliver a very strong SAR 143 million in net profit. Part of this increase was offset by the next pillar of operational cost. Almarai experienced nearly SAR 75 million of higher cost in Q1 '25 versus Q1 '24. Majority of the increase was led by higher transportation costs, and the balance was mainly driven to facilitate the growth in volume that we've seen during the quarter. Lastly, in funding and others. Although the cash expenditure is remaining the same or less, the major impact is coming from the higher interest cost capitalization. To put this in perspective, in Q1 2024, Almarai asset under construction balance was around SAR 2.4 billion to SAR 2.5 billion. At the end of Q1 2025, we have around SAR 5.1 billion to SAR 5.2 billion of asset under construction as we are spending more money on poultry project. This is why majority of the interest costs paid on this higher CapEx is getting capitalized, and we're having a positive impact on our P&L. And that's how we reached the SAR 731 million for the quarter. Let me now go through very quickly for the next slide, Slide 14. I think revenue, Danko has talked in enough detail. I'll skip that to operating profit. If I summarize at a group level, our operating profit is getting diluted mainly because of transportation costs. If it wasn't for that, our operating profit would have grown at the same percentage as revenue growth, highlighting that Almarai was managing all the pricing pressures fairly well. And lastly, net income is up by 6%, mainly because of the more funding cost getting capitalized, which I explained on the previous slide. I'll move on to the next slide, which is by segment. I'd go through line by line. So if you look at the revenue, which is the first bar that you can see Dairy & Juice, you are seeing 6% growth on Dairy & Juice. And if you exclude Egypt, as Danko explained, this growth will be plus 8%. Almarai had a fantastic Ramadan, excellent execution, and that was very visible through the volume growth rates on Dairy & Juice across the board. If we look at Bakery, growth of 1%, this is mainly driven by bread and bun categories. The single-serve took a bit of a hit this quarter, which was understandable given the Ramadan effect because there's very few on-the-go consumption for the single-serve. Poultry, again, had a very good strong volume-led growth quarter. We are now selling close to 70 million birds for the quarter alone. And that's why year-on-year, the revenue growth was 6%, even absorbing all the discount and promotion pressure. When you look at debt margin by segment, you will notice that all the net profit margin for all segments is around 1% or 2% below the volume growth rate. And that's mainly driven by transportation costs, which is proportionately affecting all the segments. And this is how the segment profitability has come through. I'll pass on to Danko to take us through the rest of the presentation. Over to you, Danko.

Thank you, Ikram. So on capital investments, as you all know, I don't want to repeat it more than I need to, that we continue to have a significant investment plan in place to grow organically and building capabilities for that, not only in the Poultry segment, but also within our Dairy and Bakery segments and the capabilities to do the transportation. So we are seeing this increase coming and more to come. But as I mentioned before, if we look at it from a bit of a longer perspective, we should be having approximately our depreciation should be the replacement of our CapEx and that should be somewhere around 7%, 8% or 9% of our turnover. And currently, we are having this significant investments that we are doing all to ensure that we continue to grow longer term and provide the toolkit that allows us to do so organically. M&A is a different story, but we are building our capabilities for the future, what we believe is the right areas to invest in. And it's, of course, consuming a lot of cash, but it's very positive consumption in our view, to give higher ROIs for the future. Our working capital is at 20% in the quarter. Not much to say around that. We continue to be around that area. I would like it to be lower, as you all know, and we'll do more initiatives around this area. Unfortunately, I do want to highlight that the world around us has become a little bit more uncertain and the discussions around what happens to Almarai or the region in terms of the discussion around tariffs is creating a lot of uncertainty and volatility. So even if we, in Almarai, don't necessarily see direct impacts of tariffs discussions that goes on between the U.S. and some key countries around the world, what we do see is indirect effects. And we have to be very agile around that, and I'm sure you guys as investors and analysts are hearing it from other companies, too, that we might be driving up some safety stock to make sure that we don't run out of raw materials, as a temporary measure. So our team are looking very carefully around this area to make sure that we can provide our supply to the market in an undisturbed way. Most of the items that we have, we feel comfortable around. But for everything to work in a recipe, you got to have all the ingredients. So we are making sure that we are not running out of anything in case there would be problems in terms of harbors, containers, shipping and these sort of things. Okay. And then our operating cash flow continues to be strong, SAR 5.7 billion or SAR 6 billion, as you saw in full year, it's significantly higher. We are benefiting from a good cash conversion in our business with traditional trade being exemplary. So the cash generation that we have in our business, we feel still very confident about. You can see that in the next page as well. If we take that rolling 12 months, you have the SAR 5.8 billion of cash generated, slight movement in working capital. We're spending a lot of money in our plant, property and equipment and investments. And then biological assets, of course, about SAR 4.8 billion. And then borrowing, it goes up with SAR 1 million, and we have the funding cost to SAR 700 million, and the dividend, as you all know, I'll come back to that a little bit later on, but we have that annually when we look at it only and so on. So that we are using the cash for what we believe the right purposes currently. But the net trend continues to be favorable. Net debt-to-EBITDA is not going up. We have a slight increase in our net debt up to SAR 10 billion flat from SAR 9.6 billion at the end of the year, but we're also increasing our EBITDA. So the net debt to EBITDA is 2.1x. We guide 2.5x. So we are a bit below our leverage target, but gives us comfort in our balance sheet positions, and our net debt-to-equity ratio is 51%. Our EBITDA and EBIT margin on a rolling 12-month basis is 22% and 14%. In the quarter, it's 15%. But if you remember last year, I think it was 16%. So overall, if we look at the contribution of our business on a range basis, we believe we are in a good place relative to our peers in terms of what this kind of business will generate both in EBITDA and EBIT margin. Our maturity profile, we have refinancing, but we are very happy with the shape and profile of our debt maturities. So not too much to say in terms of the shape and form of our debt, and there's some refinancing that we'll do. We have very, very good access to the markets today. So we don't see any particular issues with the refinancing of the structural debt that we have in play. And then finally, dividend. My understanding is that we have until Thursday to pay out the dividend, but my team tells me that we've actually managed to accelerate that, and we've paid out all the dividend that was approved by the general assembly in our AGM that we just recently had. So all in all, the dividend ratio for '24 of 43% has been paid out. That gives, hopefully, you a good flare of the quarter in summary, I think a good start of the year. We look forward to 2025. I wish that we have a little bit less uncertainty in the world. It does affect Almarai in Saudi Arabia, even though it's not direct, it might be indirect. So we have to stay agile and see what happens to currencies, to raw material and to the logistics of shipping. That, to me, is a call out I want to do now, and please be aware that we might actually increase our safety stock in some areas. I think that would be wise for us to say to you in case we do that. We do it all to protect our delivery of sales, and we do it temporary if we need to. We have good experience from both COVID and the inflationary pressures we had a few years back. So we know exactly what to do to build up. So with that, thank you, and I'll open up for questions and answers.

There are a couple of questions. [Operator Instructions] First question is from the line of Mohammed Al-Rasheed.

A couple of questions from my side. The first is regarding the Poultry segment. So the realized revenue per bird came at around SAR 14 during the first quarter, which is a drop of around 60 halala on a year-over-year basis. So majority of the negative net pricing impact seems to be coming from the bird. But the drop was also stable on a quarter over quarter basis. So my question is, how do you see that evolving going into the rest of the year, given the additional expansion by you and by other poultry players? My second question is regarding your net income bridge. So out of the negative SAR 15 million of cost of goods sold, how much of that is related to higher diesel prices? Because my understanding, you book part of the diesel cost and COGS and part to OpEx level. And my final question is regarding your UHT sales, excluding Egypt. It seems that it was around SAR 290 million during the first quarter 2025. I would appreciate if you can share how much this SAR 290 million is within KSA.

Thank you, Mohammed. I think it's a good question on the -- first one on poultry and what is actually happening in the marketplace. And as you might -- if you've heard me before, it is very important for us to drive brand equity and behind the brand equity, around our ALYOUM brand, it's also real fundamental quality that you can trust. So what we're seeing in the marketplace is a strong competitive pressure with price reductions. We monitor this very carefully, but we are also expecting to get premium pricing on our ALYOUM brand. To do quality poultry, it doesn't come without investment. So we are investing heavily in the quality components in our farms to make sure that we have the best yield, the best quality, the lowest disease risks, et cetera. All of that to us is the fundamentals around the quality you can trust for the ALYOUM brand. So we keep a higher price on the ALYOUM brand even if we are adjusting with support on pricing to follow where the market goes. There's always a premium to buy our ALYOUM brand. And I believe that is the right strategic component for our drive to revenue that we want consumers to feel completely comfortable when they are buying our poultry. They trust our brand. We say there's no antibiotics that have been put in ever, et cetera. That creates the loyalty and brand loyalty that we are asking for, and we can actually see that consumers prefer to buy our brand. That's why you see the growth in a premium segment of ALYOUM, even though there is a hefty competitive pressure on price, longer term, which I think is what you're alluding to with all the competition you have and people coming in and producing more poultry, we still believe there will always be room for a very healthy protein consumption. And there is a drive in the Kingdom towards that. So the Saudi region is more towards seafood, healthy protein in poultry. We believe consumers will continue to buy more. We see the segment growing. And if you have the right value proposition in the market, you can even ask yourself, if you go to the shelf, which product would you buy. If you can trust us, you would buy ours. So the whole component of differentiating to other players in the market lies in our quality that you can trust. In addition to that, we have value pack that I talked about in the beginning, where we also have mainstream offerings that have still good quality, but it doesn't bring the same kind of value add that we do in ALYOUM. So overall, we are not concerned about the growth that we are seeing in the segment. We believe the category will continue to grow. And I'm not at all concerned about the poultry expansion plans that we are doing within Almarai. There is enough room for these premium offerings to the consumers because they are willing to pay for it. And as I said before, it doesn't come without investing in a cost, but that to me is the trick of the trade on poultry. On the negative margin that you asked about on COGS, the SAR 50 million that we see, we have a call out there, I think, more than diesel per se because it's evenly spread in farming, processing and distribution. So it's a little bit more in distribution. Maybe 2/4 of the total cost is in distribution and 1/3 is in the farming and the processing. But it's the price of butter. And that is more of a global issue that we've seen. If you look at the price of butter, not only in this part of the world, but also in Europe or U.S., it has skyrocketed, and that is actually the ingredient components that Ikram was referring to, where we have a slight negative impact. It's not material in the context of things if you look at SAR 15 million. But the key driver there is more in the ingredient section and not necessarily on the diesel per se. And then I don't know if we are disclosing the growth in UHT, KSA. The overall growth is 4% in GCC. But if you take the percentage of our share, like 65% of our total sales in GCC is in the KSA region, you can actually see the component how much it is. The situation for UHT is, again, I think I repeat myself a little bit from before, we have a long-term objective of driving up our market share in UHT. It is a category that we believe we have the right to be in, and we should be the undisputable leader in that category. That's not the case today. But we have patience, and we do a lot of activities to drive that market share up, and we have a longer perspective than just a quarter in that area. So you will continue to see us invest in making sure that UHT becomes much stronger in our market share in KSA and GCC going forward. Is there anything you want to add, Ikram?

No, I think you've covered it, really very comprehensive.

[Operator Instructions] Our next question comes from Taher.

Two questions, if I may. The first one is just on the diesel cost. I remember at the beginning of the year, you said you expect the total incremental cost of around SAR 200 million for 2025. And clearly, we've seen part of that coming into Q1. I just want to understand the flip side of that in terms of initiatives. How should we see the net impact of the diesel cost? I mean clearly SAR 200 million is a gross impact, but I'm pretty sure there are a couple of initiatives. So can you just guide us on what kind of a net impact could we see as these initiatives mature or come to life? That's my first question. And the second question is really on the gross margin. And correct me if I'm wrong, usually, Ramadan and Q1 should help your margins, but we've seen some pressure on the gross margin, and you've discussed that part of it is the daily commodities. Do you have any visibility on margins going forward in terms of what kind of commodities are helping or is this a new norm? How should we think about the gross margin moving forward because the level in Q1 seems to be well below the trend line over the last couple of quarters at least.

Yes. Well, thank you, Taher. On both these questions, they are both relevant short and long term. And I think, as you highlighted on the diesel costs, we do have this impact, and we announced that. I'm confident that it should not be materially impacting our objective for 2025 when we have all these initiatives in play. We work within Almarai with something we call operational efficiency programs that drives efficiency and efficacy on the way we are structured. We have the benefit and the burden of having a vertically integrated supply chain. But it allows us to work on efficiency programs that will completely offset this impact. And our objective is to mitigate it completely. Now because it was a short notice, we were expecting the increase to come, but not as much as what came, we still need some time to make sure that we are elevating some of these initiatives on the efficiency programs that will drive a mitigation of it. However, longer term, we have indications of convergence of diesel price to, let's say, global standards, or if we make benchmark of diesel price to UAE or the U.S., there's still significant increases to come, and that's more of a longer-term perspective, where you see Almarai working heavily on assessing alternative energy sources, if it's solar panels or if it is road to rail, as we call it. There's much more financial evaluation around the infrastructure building capabilities longer term, where we will become less dependent on the diesel, and we are using other energy sources. And those are also good initiatives underway that I'm sure not only us, but many others are looking into as diesel is not only an Almarai issue. It's a collective issue in the Kingdom. And those initiatives are exciting because they are also very much driving environmental impact of facilitating or reducing the carbon footprint. And therefore, those initiatives are more longer term in an effort to mitigate what we believe is going to be a continuous increase of the diesel price in the future. On the gross margin, I think there is a little bit of a temporary dip that you saw in the first quarter, 70 basis points. It is key for us. Gross margin is what delivers -- or gross profit is what delivers the key profit to support our infrastructure. And some of those components, as you said, is absolutely diesel and the ingredient components, we aim to not have an erosion of our gross margin versus '24 in terms of percentages. We think we have the tools to do that and comes back into this point about efficiency programs that we're working on and having the -- a wide assortment of areas, where we can drive efficiencies given our footprint. So rest assured, we have a core focus on our gross margin. Sometimes, there are things you cannot help if you have dilution because of mix. And in our component, if you look at Almarai relative to single companies, they don't have the dimensions of country mix, channel mix and product mix. All that can sometimes also have an impact on your gross margin in a quarter, but not over time. GCC is our strong hold. It's where we are #1 in our market share positions in our core categories. And that's also where you have the strongest disposable income. So driving that is key for us, both in terms of countries, channels and categories.

Our next question comes from Anil.

[Audio Gap] and if you could elaborate where -- what does traditional trade incorporate? Does it -- is it only the Bakala's, or is there a broader range? And then my next question is...

Anil, if I may interrupt. Your first question was not -- you start -- the voice was not audible at the start, if you can please repeat.

Sure. Could you elaborate what's included in the traditional trade? Is it just the Bakala's? Or is there a wider definition to it? And where would we see the wholesale trade getting booked?

Maybe Ikram, you can take that?

Anil, usually, we measure shops by area. So technically speaking, anything less than 100 square feet, we will call it a traditional trade. Anything above that, we'll go to modern trade. Now we'll always have exceptions. For example, you can have small shops of Carrefour or Al Othaim, which can come into a smaller area as well. You can have pharmacies. You have petrol stations. So we have different subchannel classification for that. But as a broader range and to make sure you measure the, let's say, AC Nielsen, I think a 100 square feet shop is a very good benchmark to class up between traditional and modern trade.

Understood. Just one clarification. Where do you use butter because if I remember it right, I thought you were using your own fat to produce butter. Is there a change in that?

We use a lot of varieties of fat in our creams. But if you look at the product assortment, there are butter ingredients that we're using in the array of the assortment and the actual butter today that we are selling as a consumer offering is sourced. So if you think about processed cheese, we're using butter as well. So it is really depending on the item in the product assortment, but we are indeed buying butter. We're not producing it ourselves. It also comes down to the base preference for Fresh Dairy and how much fat is being produced from the milk in our fresh category of our dairy herd, somewhat different to different countries. But in this part of the world, it's less of fat in the milk intentionally, which means that we sometimes have to buy in those ingredients.

There are a few questions on the chart. I would be reading them out loud. There's a question, how much is the maintenance CapEx of the company?

It's almost that I have forgotten it now because we are spending so much on investment. But I think somewhere around SAR 1.5 billion to SAR 2 billion a year. Maybe you can correct me, Ikram, with that. When I was saying before, we are an asset-intensive business. If you look at our balance sheet, we have hardly any goodwill. We have fixed assets of SAR 28 billion out of SAR 33 billion. So you should think about depreciation being a point towards the replacement CapEx that we need, and what you're seeing at the moment is expansion CapEx going above and beyond that level.

Yes. I think you're right. I think it's SAR 1.5 billion to SAR 2 billion, including the herd as well. So if you look at the PP, that could be SAR 1.2 billion to SAR 1.3 billion. But as you rightly said, we are forever expanding and that's where the growth is coming from. So the PPE kind of CapEx is around SAR 1.2 billion, SAR 1.3 billion. And once we add the CapEx that relates to biological herds for both the Dairy and Poultry, we will reach SAR 1.5 billion to SAR 2 billion, exactly as you mentioned. And that's a CapEx from a cash flow perspective that we will need in perpetual.

Very clear. There's a question, I believe, Danko and Ikram have already answered it, but if you would like to give any further clarity on it. The question reads, what is the measure that the company is taking regarding increase in fuel prices? If you would like to add any further clarity to what you have already said?

It's what I said before, short term and long term, we are driving away from less dependence on diesel and using alternative energy sources. We are working to watch much more efficient vehicles, route planning, how we are optimizing our reefers and our sales vans. There's a multitude of areas that we are looking into in terms of the supply chain that drives more efficient use of energy in a way that I think it allows us to do so because we are vertically integrated. So wherever we are starting from, relative to other companies is that we have much more to work on to make it more efficient, which haven't necessarily been a key focus area. If you think about diesel in the past, it was not a component of decision given that it was quite favorable in low prices. But as you move forward, you have a lot of work that is going on both in farming, in our production sites with all the 17 factories that we have and in our distribution that allows us to work more efficiently. And I think that's what I can say for now. And some of these things we can do relatively fast. So it gives me confidence to say that we're going to offset what we see as an impact in '25. Other things might require more investments, but gives good return on investments for the future. If you double the diesel price and you think about alternatives between using road versus rail, you can actually get significant benefits in making those decisions now for the future that allows you to get good cost efficiencies. I think the whole area, we already have a lot of solar panels. We are using STC to get the grid, of course. But in our line of business, we need to have backups in terms of diesel generators. It's very important for the continuity of production of fresh products, et cetera. But there are more and more companies coming in to Saudi working on solar panel solutions that are very interesting for us as well to look at. And it's a fantastic source of energy, if you use it right, and it does require investments for the future, but that doesn't necessarily have to be by Almarai. So a lot of these things are both short and long term that I think can alleviate some of the pressure we have on the -- what we see is a conversion towards higher diesel prices in the future.

Danko, that's a very clear. There's a question, can the management guide on what can be the normalized price of poultry per bird for the entire year? And also, any update on the Al Watania Poultry acquisition?

Well, on both answers, it's no. If I should be a little bit blunt. We don't give pricing to -- guidance to anyone. And there is no one price, as you all know, you need to look at the average pricing, and you need to look at if it's boneless chicken or if it legs or if it's -- whatever it might be in terms of the product offering. So we don't give guidance on the pricing. What I'm saying that is important to us is that we are investing more capital to provide quality that you can trust in buying our product, that doesn't mean that we are demeaning any of our competitors. But we are reassuring our consumers that buying our products is quality you can trust. You have to pay a little bit more for it. But on the other hand, we give that guarantee that you can trust that quality. So it will always be premium in our ALYOUM brand relative to the market. And then on your second question, I have absolutely no comment on any potential M&As that Almarai is doing. We are looking at a multitude of acquisition targets on and off all the time, and that's all I can say.

There's a question. Can you shed some light on the current market dynamics around Long Life Dairy and Almarai's market position? And there's a related second question in the same chat that one of your competitors mentioned that there was unsustainable discounting by some players. Any comments on it?

Yes. And well, if we look at, again, UHT, it is a long-term view that has a variable of components into it that are important to us. One is the actual recipe itself and the consumer preference for the recipe, which -- for which we have done a new recipe that has a strong taste desire with the consumers has done really well. Another one is the route to market where we have traditionally not maybe been in certain channels, wholesale being one, et cetera, where the numeric distribution has been low, where we are increasing our footprint on the variety of distribution channels and making sure that we are present in all of those channels. The third one is, obviously, that you need to make good money out of the products you sell sufficient to yield a return to our shareholders. Here, we work on portfolio diversification. We are able to look at it from a more of a corporate angle, where we have product offerings in UHT, Fresh Dairy, Bakery products, Juice, ice cream, baby food, et cetera. And it's allowing us to think a little bit more strategic around this issue. So even though you might not make good profits in the short term, we are investing for the future. Our perspective is not the quarters. Our perspective is to have a healthy and sustainable Almarai in the long term. And a product like UHT or Long Life Dairy is part of our portfolio, and it's part of our core category in our core markets. So if there are price pressures in the market, we are not the one driving the price pressures. Our market share in volume is growing in Long Life Dairy. And we are being supported by our portfolio to drive this longer term. That's what I can say. Currently, there is a clear place in the home for our Long Life Dairy, and we will continue to drive that going forward.

That's very detailed. There are a couple of questions on Poultry. So I will be clubbing them. There's a question on what is the current poultry capacity. Then there's a question, what will the capacity be by the end of 2025? And there's also related question of what was the current production during the first quarter? So 3 questions. What's the current capacity in the first quarter, the production in the first quarter, and what will be the current capacity by the end 2025?

Okay. So will you take that, Ikram?

Yes. Sure, Danko. So currently, our capacity is around 270 million to 280 million birds on an annualized basis. This is how much we can produce today. We've produced close to 70 million birds for the Q1. And for the excess capacity that will come on board, look, at the end of Q4, at the beginning of Q4, we will see. The excess capacity would be anywhere between 50 million to 70 million birds on an annualized basis. So please do not think we'll get the full capacity in Q4. We will get an annualized run rate effect, which could be between 1 million to 1.2 million birds on -- additional birds on a weekly basis. Or if you're thinking on a quarterly basis, it's about 14 million or 15 million birds plus on a quarterly basis. And that's the capacity increase that will come in Q4 [indiscernible]. Hopefully that answers the 3 questions.

Yes. Very clear. And then there's also a question regarding the capacity of dairy. What's the current dairy capacity? They have not specified which dairy.

Dairy capacity, it's available in our long Investor Relations presentation. Dairy Almarai has a herd of about 100,000 milking cows, on average, and we produced roughly speaking, between 1.4 billion to 1.5 billion liters of milk for the last 6 or 7 years, and we intend to do the same. The herd will keep on changing depending on the profile. So sometimes you get 90,000 milking cows, sometimes 110,000 milking cows, but it fluctuates around the 100,000 milking cows, and each cow is doing between 14,000 to 14,500 liters of milk for each station. That's 100,000 times 14,500, that's the 1.45 billion liters of milk that Almarai produces. As I said, it fluctuates between 1.4 billion to 1.5 billion liters.

There's a question, what are your future plans in ice cream?

It's -- we want to grow in ice cream. We are thrilled to see the consumer response on the offerings that we've had. So we've accelerated our business plans for ice cream this year by bringing in more sales plans and product offerings and so-called BPO, how many store visits and how many stores we have, it's accelerating. We are adding some product in this quarter, you saw the vanilla cone that will come. I think the differentiation on the product offering is key for us. And the fact that Almarai is offering ice cream has been a sought after demand in a way that surprised us a little bit. So we are positively looking at the outlook for ice cream. We're still building capabilities in this area. We are reviewing further infrastructure changes to accommodate for longer-term growth, which means -- could mean anything from a factory in the Al Kharj area or in a strategically well-placed locations. All of the plans are in a sort of a positive spin as we see it because the product offering is touching very well with the consumer. And we see that there is a good demand for it. There are some seasonal effects. You will always have with ice cream. The most ideal sales of ice cream is if you have 2 days of sun and then rain and then 2 days of sun, you optimize the consumption of ice cream. But the warmer it gets, the more you go over to more drinkable items than the ice cream and it becomes more of a convenience or sort of a pleasure for an impulse. So learning the seasonality is something we are doing at the moment and what it means in Saudi Arabia. But ice cream, you can consume every day throughout the year. There are seasonal effects of that, and we're building up for the season now and launching products.

There's a question, how does the company plan to become or achieve leadership position in the Long Life Milk category? What's your strategy?

To be honest, I think I've said what I can say on Long Life Dairy. We are patiently driving a fantastic product offering in all the channels at the right price, and it will take some time to do and to make sure that consumers are discovering our product offering. Almarai is well known to everyone, but it has been mostly associated when it come to milk with fresh dairy, and we are now driving it up to make sure that we have the same consumer preference for Long Life Dairy. So I'm not going to say more than that at this point in time.

Very clear, very clear. There's a question, do you see the first quarter discounting activity continuing for the rest of the year? And can we expect the first quarter financing costs to be sustainable for the rest of the year?

There's some seasonality effects of it. So the pricing components is difficult to say if you take SAR 48 million times 4 and then you're up to SAR 200 million. I'm not sure that's going to materialize. So we will actively work on trade support. What I can say is that we are planning for support cost between gross to net revenue, and we were spending less than what we planned for internally. But still, we are spending more than last year. So I think I'm going to leave that a little bit open for the year. And then on interest cost, you will see the financing costs will ramp up in Q4 when the poultry plant becomes functional, available for use. However, we still have significant investment, both in '25 and '26. So it becomes a variable of how much we have in debt, what's happening to the long end of the interest curve and what's happening in the world in terms of the interest cost development. We have about 50% fixed, but the rest is variable. I'm hopeful that we'll get some more stability in the world. So there's a variety of components that are affecting the interest line as well.

Very clear. We have a question from the line of Salman.

[Audio Gap] presentation and congratulation for this amazing result. Actually, I don't have a question. I have comments. Just I need the management to hear this comment. I am a small shareholder in Almarai. And in the last 3 or 4 quarters, we see disclosure level in Almarai announcements in Tadawul. It's not like before. We hope to see Almarai back again to lead companies in Tadawul to have more disclosure in Tadawul announcement.

Well, thank you very much for acknowledging us. And it's always a balance of disclosure and for somebody like myself, I've been around the world for many years, you have very detailed disclosures, and you have more directional disclosures. Currently, we feel that we are on balance in terms of disclosing information. It's always the case with intelligent people like yourself that whatever details we give you go one level below, and you start asking questions. And it's important that we keep an open field for all our shareholders to buy our share. We've had 13 consecutive quarters of growth in our bottom line and top line. So the important thing for us, to yourself as shareholders, is to grow profitably in a sustained competitive way, which I think we have done and then be open in the Q&A if you have more detailed questions, but it's always a balance there. So I'll take your point, and we will discuss it internally. But currently, we feel we have the right balance. I think we have to ask for the last question maybe and then end the call, if it's okay.

Yes. Yes. So the last question is from Mohammed Al-Rasheed. We have a question Usman Siddiqui.

A question pertaining to Poultry segment. I just wanted to understand what was the thought process behind launching our value brand in the Poultry segment? Is it getting difficult to uptake the entire volume that is being produced? And this was the reason why you entered into the value segment because you have talked a lot about -- early on being the premium brand. So I just wanted to understand, with this launch of value brand, will there be a dilution in margins moving forward?

No, no. Let me just stop you there. The AlBashayer is not a new brand. We've had it for many years. We just made an extension of the product offering. The value brand has been there for many, many years. So it's not at all distorting the mix between Alyoum or AlBashayer. But as you know, you've got to have a product assortment within the category that follows a little bit what I call the price piano, where you are making sure that you have presence in all segments. So the premium segment, the mass market and the low or the value-added. And you do that for competitive reasons as well to make sure that you have the right balance in our own product offerings. The core market for us in poultry can and will be quality that you can trust on the premium segment. We have no desire to move into value packs with low margins per se. That's not the point. But as you expand your production capacity and as you are producing more, remember, we are going to go up to 450 million birds. You have to make sure you utilize all of that in the most optimal way, and that's what we are doing.

All right. And just a related question on Poultry. How do you see the -- how the pricing sequentially? I mean, was March better or worse in terms of pricing versus Feb or January, and moving forward in April? And then as we see more capacities are coming in from other players as well, how do you see it sequentially? Is it getting any better or it's getting worse with each passing day?

I'm not sure I fully understand your question. If we get an economy of scale and we work with good yields and production efficiencies in Poultry, and we have a product offering that consumers wants to buy. There's no erosion in margin per se. I don't see that at all. And in fact, the more we can produce on a given space or given component, we increase the yield. And there, because we have air filters in all of our farms, for instance, in Poultry that protects ourselves from disease outbreaks. You can see that the disease outbreaks in our Poultry business is very, very low, which gives us higher yield, which gives us, at the end of the day, higher output per unit, which gives us a higher margin. So there's so much to work on in terms of the value chain that goes from, let's say, from farm to fork, that allows us to keep that margin. I do not see an erosion towards commodity in this area because just ask yourself, if you go to the store, do you want to buy quality you can trust, then you will have to pay more. Are you willing to do so? We will always have a market for that.

Thank you, management. I believe the time for this meeting has come to an end. If you would like to make any concluding remarks?

On my end, thank you very much for listening in, and thank you for all the good questions. And I enjoy the Q&A sessions a lot. And we get off to, I think, a good start in the first quarter. We look forward to meeting you again for the second quarter and looking at the performance full year. Most welcome to our next calls. And if you have individual questions, please don't hesitate to reach out to Abdulhadi and the Investor Relations team. So we are more than happy to provide you more input if you need it. Thank you.

Thank you, management. Thank you, attendees. The meeting should now come to an end. Have a nice afternoon. Thank you.