Almarai Company ($2280)

Ladies and gentlemen, welcome to the first quarter 2026 earnings call of Almarai. Today, we have with us the senior management of the company, led by Mr. Danko and the meeting will consist of 60 minutes [Operator Instructions]Without any further delay, I would hand over the mic to Mr. Abulhdi, the Head of Investor Relations. Over to Abdulhadi.

Thank you, San. Welcome to Almarai First Quarter 2020 Earnings Call. This is Abdulhadi Alamri, Head of Investor Relations at Almarai. I'm here with my [indiscernible] and my Head of Finance, Mr. [indiscernible] First, I would like to thank [ Aarata ] for organizing and hosting this call and to Mohammad, our moderator. . As usual, I assume that you all have downloaded the Q1 2026 spanning presentation from our website. If not, please go ahead and download it. You can also download it from our IR app. Before we start our call, please pay attention to the disclaimer page. I will now give you Mr. Danko, our CFO, for the next page of this presentation.

Thank you, Abdulhadi. Well, good morning, good day, good afternoon to everyone who's joining in and listening to our first quarter 2026 results. Nothing different to previous quarters. I'm going to go through a little bit on the market landscape, our operational business performance and then finally, some financial highlights. We also find some supplemental financial data at the end of the presentation that is available for you if you want to look at that later on. And before I start, I just want to highlight one point of order for today's call. When I'm going to go through and talk about first quarter performance, you will more or less see no effect of the impact of the Iran crisis in these numbers. There are maybe 1 or 2 things, and I will highlight them. But overall, we are unaffected by the prices that we are all under exposed to at the moment. And nothing of that is really coming through in the first quarter. But in order to help you and to preempt a little bit of the questions that might come later on, I will at the end of this session, give you a verbal update about the Iran crisis and what Almarai is doing. So allow me to do that in the end, and then we will open up for questions and answers. So with that, moving over to market dynamics, look about our Almarai market share position. You see February 26 there. Overall, we continue to hold it a little bit up or down, our #1 position in our core categories. We have a Ramadan behind us. We did very well in the Ramadan. We are very happy with the execution of Ramadan, and it gave us a boost to the growth that you are seeing in the first quarter. We'll talk a little bit about that. But overall, we are holding our positions very well in the market today. Moving on and looking at a little bit of innovation. I can recommend the mini bites with pistachio. I tried it. It's fantastic on ice cream. So if you have that in Belgium's need or someone to come for, please take some chocolate and help Almarai to get more revenue. More expansions we have, of course, but there's no disruptive innovation that was launched in the first quarter. So then moving into the Q1 highlights. So on revenue, like 3 key pillars for the 7% increase that you're seeing on the top left side of SAR 393 million. Its volume growth, almost all of it is volume growth. In fact, we have a little bit of a negative price. So all of it is volume growth. And you see that mostly in poultry. We'll come back to that and dairy. So good delivery of dairy. Excellent execution in Egypt. You'll come back to that as well. And then there is also inorganic growth in these numbers from [ water. ] That's about 1.7% on the top line. So overall, a good quarter on driving volume on the top line. And then despite if we look at EBIT and net income, despite inflationary pressure on transportation costs. You're aware of the increase we had in diesel and the elevated ramp-up cost, we have a lot of factories that will get started or commissioned and poultries one, but we also talk about Red meat and process meat. We highlighted that we will have a disproportionate amount of cost relative to revenue in the beginning. As we ramp up, we will get the revenue and the profitability will come from that. Those 2 are offset as much as we can with very strict cost control. So what you see is a flat or a $1 million increase on our EBIT margin. That's about 14% if you look at it from an EBIT margin perspective. Last year, we had 15%. We had a very good first quarter last year as well. But overall, we were in the 14% to 16% EBIT range that we want to operate under. And then there's no major issue on interest or tax or the net income. You see the same effect, SAR 732 million in delivery on the net income being SAR 731 million last year. So that, in absolute terms, is similar. But in absolute -- if we look at the margin, it's about 11.9% of net income was slightly higher than last year. On the balance sheet, we had a good mix of growth, but some of it coming from credit customers, e-commerce, modern trade, so we have a little bit of an increase in working capital, especially on the data side. For those of you who looked through our financial statements, you've seen we did a good reduction of our inventory, but like-for-like comparison versus last year, we have a slight increase in receivables. We also have [ water ] in there. However, looking at it post the closing, we have done very good cash collections in the past weeks to come. So all of it is in good order on the working capital. You see a trend of declining CapEx, I would say it's still very elevated. [ 956 ] is a high number historically. But you are seeing a decline versus last year, and that's references that I made to before on our capital investment program where we are now perhaps peaking and then we are going downhill from now on, but still being elevated and will continue to be elevated in 2026. All that bringing in a free cash flow -- positive free cash flow in the first quarter of SAR 173 million versus a negative 1 last year. And part of that is CapEx, of course. And that, of course, helps in our delivery. If we dissect the revenue a little bit more. You can see the growth coming from, well, 3 countries in particular. KSA, Egypt and UAE. KSA in absolute terms, a very large part, SAR 278 million, 7% growth. Egypt continues to deliver very strong double-digit growth in volume. It's the third quarter in a row now where you see this 20% plus or 26% in the quarter. We know there are some questions about the currency, but we are comparing this average spot rates this quarter to last year's quarter, and it's actually a small appreciation that we see that we know that the currencies are exposed recently. We'll see how that develops, but let's just focus on the underlying performance in Egypt is doing really, really well and also delivering bottom line contribution. A little bit of an issue in Oman. If all countries growing except Oman there, I would say it's a conscious choice where we've done some portfolio calibration and customer contract calibration where some of the contracts that we had in place have been discontinued, where we are trying to drive profitable growth and not only revenue growth. It's all in the profitability of it. So a little bit of work has been going on in Oman to make sure we calibrate the right portfolio with our customers. And I'm confident that we will get back into the positive territory from Q2 onwards remains to be seen. Maybe there will be a little bit of lag -- but it is a good thought behind it with some thoughts of driving higher profitability in Oman. Looking at it from a category point of view, also very good delivery across the board. Water is the SAR 98 million, you see the 1.7%. You have fresh dairy SAR 97 million. Protein, maybe I should mention from this quarter onwards, we've changed our segment reporting. So it's no longer Poultry, it's Protein. For this time, you can see, I could say, it's over 99% poultry. However, as we are commissioning these new factories on red meat, seafood, processed food, this will start growing and not only become poultries and that's why we are doing this reclassification starting this year. So over time, it will start growing. And we will make sure that you have a good understanding of what poultries doing relative to the others. [ Long lag ] dairy and food to very good delivery. Part of that is also from Egypt, a very strong growth, double digit on both the Bakery doing well. On foods, another particular issue we've seen here in terms of the allocation during the Ramadan between channels and the phasing of it. So a slight decline of SAR 55 million. This comes on top of the growth that we had last year about 80%. So overall, we are not concerned about foods. And again, without saying too much, we are seeing a large good pickup post Q1 without maybe disclosing too much. We'll see how that goes overall, but there is no concern on our end in terms of the food category. Looking at channels. You can see this balancing of Ramadan, as I was mentioning, a large effort put into modern trade in the quarter where we were growing 14%. So very good growth in our modern trade channel. Traditional trade is also growing well, 4% and very pleasing to see also quite substantial growth in foodservice with 80% export and others is a little bit of a residual coming out. So overall, good delivery on all channels and expert working cap as well insured. So with that, then we'll go into maybe the financial performance. So I just want to say a few things on the bridge, and then I'll let Ikram go through a little bit more in detail. This is the overall picture from a high level, the [ 731 and 25. ] The pricing we're looking at is a blend of both ups and downs. But overall, the predominant component of the drift that you're seeing there is in the poultry segment. And that continues to be a contested categories. We've seen large good pickups. We have very good volume growth in poultry. Actually, we sell everything we can produce. And we are expanding the production and we are continuing to commission the new factory and processing facility in [ Alcami ] to increase our capacity throughout the year. However, the market situation continues to be contested, and you'll see that a little bit more when Iran goes through the profitability. Longer term, we are not concerned on poultry in that span. We do have some favorability on feedstock and butter. So compared to last year, SAR 16 million favorable on cost of goods. And then, of course, the volume mix and others is the main contributor. When we look at operational costs, it looks a little bit high. But in here, we have the diesel charges. We also have the commissioning of the cost the full cost for the processing facilities, and we are including water in there. So on a comparative basis, it looks a little bit -- but actually, in our internal view, we are delivering a bit better than what we were expecting by stricter cost control. So overall, no concern on that area either. So that gives us the 32. So let me just give the word to Ikram to go through a little bit more detail.

Thank you very much, Seto. I think we've asked this cost in detail, but let me just summarize very quickly. But the revenue is up 7%, underpinned by water, dairy and protein and of course, by an excellent performance in Egypt. Looking at operating profit, the revenue impact is going to operating profit, but we had 2 major headwinds. A was the transportation cost and B, which is the bigger one, is a ramp-up cost for the protein which is multiple factors that Danko mentioned earlier. And whatever growth we saw in operating profit is flowing to the net income as we -- the AP expense is getting offset by slightly lower debt expense. Let me spend a bit more time on next slide, which we'll talk of different segments, which could be of interest in audience. The first one is Dairy and Juice. If you look at the first line, plus 4% growth. And as Danko mentioned, excellent nominal execution across all trends, especially via fresh dairy as well and driven by Egypt. And as a result, if you look at in the bottom section, the profit for the sector went up in the same proportion at around 3%, absorbing all the transportation costs as well and net profit income percentage is about 13%, same as last quarter. Let me now talk about bakery. Bakery growth was also pretty decent given the fact that it was summer quarter as well. We still grew by about 5%. The profit growth was disproportionately higher driven by the pricing adjustments done in Q3 last year. This effect will continue for the first half of 2026. As a result, you can see the net income percentage of Bakery, which is about 16%. The interesting part of protein segments are very happy to report, it's the second quarter in a row by crossing the SAR 1 billion mark for this segment. So it's very good. In fact, it costs SAR 1.1 billion, which is very good for this quarter. Second quarter also in a row that we are selling more than 80 million certs. And so you can see the effects of the ramp-up production is showing up in our volume and it's showing up in our revenue as well. So that's why protein sector is up 8% year-on-year, driven majority by volume growth. The profit margin looks a bit negative. It's minus 21%, but I would recommend the audience to look at Q4 2025 and see how the profit margin has been expanding for the last 2 or 3 quarters. Our profit margin in Q4 was about 8%. Profit margin in this quarter is about 10%. And this reflects the competitive environment for the quarter in the protein sector has been quite stabilized. The discounting effect has been arrested, and we are starting to see the benefit of that. So although Q1 compared to Q1 looks quite negative. So please remember that Q1 last year we did not have a major discounting activity in the market. And that's the reason the number competitive will look back. But if you look at Q4, '25, it looks much better. And we expect this trend to continue and accelerate in the future. With that, I will move on to the next slide to Slide 17. And I don't mind whether if you're a debt holder or equity holder. It's one of the best slides for the presentation. It's the manifestation of do what you say and say what you do. Almarai announced 3 years back, an $18 billion MS plan. And as Danko mentioned, you are starting to see the decline. We have reached the peak last year -- and depending on the next few quarters, maybe it's pricing as is 20%, but you're starting to see the reverse and our revenue is starting to grow because of our investments and investment is pretty much meat on an annualized perspective. And that's a manifestation of what we do the market, and we've delivered the same go to the market. With that, if I move to Slide 18. Our working capital, our business goal remains the same. We've not seen an expansion in our trading terms. So very similar results be last year as well, 19% as a percentage of sales. And same thing goes for operating cash flow. Excellent performance by the business. great online execution. And as Danko talked about recovery in terms of the factory, we're doing well as well. And that's operating cash flow remains at 25%. With that, I would like your request Danko to take us to the free cash flow and other projects.

Thank you very much, Ikram. So this one is rolling 12 months. And if we look at it, there are 3 quarters from last year and the first quarter this year. So you see last year, we started with a cash position of about SAR 0.5 billion. Then the strong cash flow delivery of SAR 5.8 billion, hardly any working capital movement. You see we are spending that with the 3 quarters from last year and this quarter on fixed asset. We acquired the water business, I believe, in July, August and then biological assets. So it's all used. And what does that mean? Well, we've borrowed another SAR 3 billion from the position last year. And we don't need all of that. That's a little bit what I would like to just elaborate a little bit on last year, we paid the funding cost and the dividend, and that gives us a cash position there. In the end, you see SAR 1.6 billion. It's unusual to have such a large cash position at the end of the first quarter. But this is one of the decisions we made when the Iran crisis broke out in order to properly manage and ensure that there are no inventories, we decided to draw down from our committed credit facility already, about SAR 1 billion extra to make sure that we can cater for the potential dividend, which we think will be approved by the 21st of May is our AGM, and we will pay out the dividend, I think, in April or beginning May. So it was all cautious cash management on our end in case something were to be more severe. We don't see that being a disruptive cost at all. We will keep this balance. And of course, we get interest on that balance. So it was a conscious choice on our end to draw down and make sure that we do not have any event risks from now on until the end of the year, which is actually the case. If everything delivers according to our plan, we don't have any direct borrowing need for the rest of the year. And if so, you can actually see here in 1 of the points we're making down here on the availability of the facilities, we have SAR 7.2 billion, which is very high. And about that is SAR 4.3 billion is uncommitted, but another SAR 2.9 billion is a committed facility. So if we were to be in the need of doing something, we still have a lot of firepower if that were to be of interest for us. So that's the explanation for you for 1 or 2 you have asked why we have such a high cash position at the end of March. So our net debt continues. It's on a good level. It's 2.48x. It's holding from what we had in '25. It's in line with our strategy where we say 2.5x to 2.7x, so not too much turn to add on this one, our EBITDA and EBIT margin also continuing the trend of where we should be in the range of 14% to 16% and 22% on EBITDA margin. So on a rolling 12-month basis is according to plan. And then if we look at the maturity by agent type, you see the SAR 1.6 billion need that we have in the up to 1 year, that's the cash position we have. So the drawdowns is available. And essentially, that's also part of the 1 to 2 years that you see from 2017 onwards, we feel that we are in a very safe territory in terms of maturity and refinancing the real issue comes maybe in 4 to 5 years and beyond where we have refinancing needs. So in that area, we feel quite comfortable at this point in time with all the uncertainties, I think we have addressed this particular risk in a good way. And then on the dividend, that's the proposed dividend, a 15% increase from last year. You can see the time we used to have 64% of our net income in '21, and it was because of our improvement in net income over the years the ratio went down to 43% in '24. And had we not decided for an increase, we would have been maybe a 4 or even below. And we are guiding that we should pay out about 40% to 60% of our net income in dividends to you, our investors. And if everything goes according to plan, this will be approved, then we will pay out, as I mentioned before. Now before we do questions and answers, so allow me here to talk a little bit about -- that was the backward looking, unaffected by the Iran conflict. Now, if we consider the impact it might have on the future financial and commercial health of Almarai, there are a few points to consider. So please allow me to elaborate on this. First of all, good safety in the Kingdom and GCC is our priority. And availability of supply is the #1 priority for us to make sure that we are providing food and water and drinkables to our consumers. Our Almarai risk management framework already built in safety stock as a going concern policy to cater for sudden disruptions. So we've learned a lot from the past years, COVID gave us also a very good learning. But the strategy has been there to ensure that we have an overall risk management framework that could allow for this disruption, especially on raw material feeds, such as alfalfa, corn and soy. So for instance, some of alfalfa, we already have a 1-year safety stock in KSA. We also have corn and soy that will allow us to work for the forthcoming months without any disruption of this. The same goes for liquidity where we have this committed credit facility available. And you can see the drawdown we highlighted earlier in the presentation. However, Almarai is not immune against these kind of disruption in the long term. Nobody is and it all depends on the duration of this conflict and currently, when we are looking at the indicative costs that are coming in, the single highest indicative cost driver among many is within the supply chain. In particular, freight charges. So I'm sure you all follow that as well. And we saw that also post COVID. There are some similarities where you can see container costs going up to almost $9,000 per container. It's come down a little bit again. But of course is a problem for us. However, the same day, the Iran crisis began, we initiated our corporate crisis management team, and we have had daily meetings to assess calibrate and manage the commercial and financial operation with a focus on the availability of supply. So far, I would say we have a good grip as you can have in this very unpredictable situation and this uncertainty continues. We'll see what happens tonight. And I'm sure you all are curious to see how whatever the outcome will be on these discussions. So with this in mind, in terms of assessing the financial impact, we have to think about time duration. The prolongation of this war is a key factor in determining the financial impact. It is currently impossible to assess the timing with certainty. And therefore, we are developing the main scenarios that we are working from on an assumed duration of the war, short-term, mid- and long term. And that you could say, as you do your calculations on this, the further out we go in time, the more complexity emerges with both direct and indirect knock-on effects on cost. So obviously, the further out this comfort continues, the impact will increase. The anticipated cost has yet to be incurred. I think this is important for all of you to know that it has yet to be incurred but however, if freight charges continue at the current level throughout the year. So throughout the full year, it will have a material impact on our income statement. And there could be other triggers than freight charges if we talk about energy or fuel, et cetera, that could have the same amplifier depending on the duration of the war. And we do not want to point out a specific number in this volatile environment at this point in time with such a high degree of uncertainty. However, we will revert to you when there is more clarity when there is cost incurred and maybe if we are all in a good place and it ends up very quickly. Unfortunately, we believe there will be a ripple effects even if it ends quickly, and there will be some on cost to it. And the sooner we have more clarity on that, we will communicate so. For those who are experts and understand Almarai and have followed us for a while, please also consider the time lag on accounting effects, given our size and our inventory policy so whatever comes in freight gets capitalized in inventory and it gets matched with the principle of revenue and cost. So you want to have this time lag -- and therefore, we will have effects on that, that might actually soften the blow a little bit in the beginning, but then eventually, all come out in the income statement. However, in the meantime, with all of this going on, we are already developing additional cost efficiency initiatives, and we are reviewing our pricing policy on promotions and discounts. We are looking at our CapEx, we are looking at our OpEx, labor and overheads. We are looking at specific initiatives if it's procurement to make sure that we optimize our actions and drive as much shareholder protection as we possibly can in this environment. Contracted conflict might mean on a broader context, a clear risk for global inflation or even stagflation. I know there is many analysts are talking about the risk of these sudden shocks causing stagflation. This will impact everyone, not only Almarai, let us hope that we will not come to that point. But that's more of a macro effect that will have repercussions for any company operating in the Middle East but also globally. So let us all hope that we will not get to that point. And with that, I would just like to start to give you that brief on how we are looking at the situation with the rand at the moment with this high level of uncertainty, our positioning was the following. So with that, I start and we open up for questions and answers.

[Operator Instructions] The first question comes from the line of Mohammed Al-Rasheed.

Two questions from my side. The first question is regarding countries, excluding KSA performance sense onset of the Iran crisis. So if you can provide how is the revenue performance in these specific countries on a over-year comparison. My second question is regarding your body reproduction of sold volumes. So you mentioned that it is more than SAR 80 million. Can you please provide us the volume that was sold during the first half of 2026 and the capacity by the end of the fiscal 2026.

Yes. Thank you. So again, what we showed you was actual sales on the countries. We don't necessarily go forward and tell you performance of paper onwards. However, our sales, what I can say without having too much reference to forward-looking statement is that we do not see a significant decline in sales. . You have to remember when I was saying that we're doing pricing reviews, promotions and discounts, there is actually -- if one can say that in this environment, there are some positives around it because we are -- people need to eat and drink, and we are selling. What we see is a little bit of a shift in channels. And if you think about it, it's publicly logical that you have our food service section or business to business with or [indiscernible] hotels, restaurants, et cetera, is declining, but e-commerce is increasing. So you see modern trade holding the traditional trade holding. And obviously, we are in a very uncertain environment at the moment. But so far, as we are seeing it. Sales are not bad in that respect. It's a shift in terms of where people are buying, if I talk about GCC X KSA. So that's what I can share with you. On poultry, I think the production was about 81 million tonnes. So 81 million [indiscernible] -- sorry, being corrected here, 1 million tonnes would be fantastic. And then we are -- maybe -- I think that's all we are providing now. We talked about -- I think we did 304 million birds in 2025, and we're going to increase that -- and I have to look at my head of counting if we have disclosed it. But somewhere around 330 million birds is what we are planning to do. Remember, in the poultry expansion program, we said we will go up to about 150 million birds. So we have ample capacity to serve the market and the certainty we can get the machines up and running in the process we will, of course, see if we can increase that.

Our next question comes from the name of Michal [indiscernible]

Maybe just a follow-up question from my end on handle point. You mentioned the change in channel mix or whatever we saw and you see wasn't a pre decline in sales. However, the change of ship can be in the time. Now on [indiscernible] that if I compare I mean, to eliminate any effect of seasonality to -- when I look at Q1 China compared to Q1 last year, we're seeing, I'd say, a shift from the traditional trade to more towards the modern trade in terms of contribution. To what extent are you seeing this drift? How are we going to digest the change in profitability profile if such a mod continues?

I think what you're seeing there is a conscious strategic choice related to Ramadan. So that is not the same as last year. So we made a lot of efforts to grow in modern plate as a plan for executing a rundown. . This one is not a trend that follows subsequently. It's an isolated event in itself, whereby if you remember, I was talking about Foods not growing as much as we expected. That was part of the strategy around the channel mix we did for Ramadan. Every Ramadan, we try to optimize and drive as much revenue as we can. So the way you should look at that is not a trend per se. It's an isolated event for every Ramadan we do. And there's no lag from Ramadan. So if you compare overall last year with this year, there's no impact in Q2 or and they are both captured in but they have 2 different execution plans. And some of it was very successful on dairy on food, we can do better, and we will get better in doing that. But that's really the reason behind this part. We also -- although we are starting from, I would say, relatively low numbers. We're seeing good double-digit growth in e-commerce, which we are turning into modern trade. Maybe we will expect that out in the future. So you can see the growth that we are doing in e-commerce. But currently, that's also growing very well and it lies in modern trade.

Perfect. And then maybe if I can add one more question on poultry. Under competition is there, it's still difficult. But did you see any recovery? I mean, since the significant situation started the end of March up until now, are we seeing any recovery? Any slowdown in terms of discounts and competition Do you mean an upholstery specifically?

Yes. Well, I am slightly positive because we are seeing a pickup I'm just happy to be mindful about what I'm saying to you all, but we are seeing a little bit of a pickup. We don't have erosion of pricing in the same way as you saw in the last 2 quarters last year. In fact, we are seeing a somewhat positive development on pricing. And then we have the good underlying component of volume growing and people buying our products. So I think it actually is becoming a little bit easier without saying too much. I can say also that the conflict in itself that is currently going on with Iran is not a negative for the poultry sale in overall. So here, we're actually selling. And we are also helping countries might be in help. We are providing that help as we are able to. Again, availability of supply is our #1 priority. KSA is very important for us, but obviously, the whole of GCC and if we can help, will do so.

If I can add just one thing that Danko talked about the container cost for our raw material, like corn and soy and everything else. If you think of the poultry sector and you think of the imports coming in from overseas as well, they are facing the same pressure for importation as we are facing for raw material. The effect of the higher transportation costs on frozen is going to be a lot more than compared to fresh because of the volume impact. And that's the benefit that you would see that's an added benefit that can positively approve, not that it is a true in Q1 that can help in Q2 as well. You're welcome.

Our next question comes from the line of Abul [indiscernible] We don't hear a question.

Yes. enters Capital. I have 2 questions regarding the polite. The first 1 is gate Saldi gap. We heard some news about Saudi Gap decision being taken in March, but we didn't hear anything from that. Do you see anything happening in this matter in terms of either restricting or putting some extra pressure on nonapplicable port policy. And the other thing you've mentioned that you have a pre-operating cost and policy. Could you quantify such to know how much is that? And if we didn't have this how the bottom line would look like?

Okay. So on the first point, I sort of want to go back to Ikram's point. We haven't seen any sort of import restrictions for frozen poultry. But if you Think about the protraction of the conflict and that continues at [ 9,000 ] per container, importing frozen poultry is not going to be I think it will be prohibitively expensive, which will benefit domestic production. And you're also in some aspects, seeing some restrictions on being the availability of corn and soy, et cetera. So all of that Well, in a way, play in our favor, but we have no desire to win in that way. We want conflict to end like all of you. But the reality of it is the shipping cost going up, a perfection of that, we have the benefit of domestic production, sufficient stock of corn and soy for the future. So if anything, it will benefit us the actual restrictions that we saw from the government, we haven't really seen any particular issue on that in terms of the effect on it. And the other point, we do not provide, if you want to have a proportionate part of the, let's say, the fixed cost with labor and overhead relative to revenue, we'll scale it up -- but the costs we are having now is 81 million birds as we start increasing the number of first it's only a variable component and therefore, you'll see an enhancement throughout the year as we are scaling it up to 330 million birds. That's all I can say for now. Of course, there are multiple factors affecting the profitability as we were talking about the net income for poultry. But we did improve it, if you remember from Q4 to first quarter from 8% to 10%. So maybe you can do the math. You sell it an extra fat and you'll get the benefits.

You have a question from the line of [indiscernible] Yes, we can hear you. Apologies.

Just a couple of questions from my side. One, obviously, because of the conflict, has your operations in OE being affected and secondly, obviously, you mentioned that obviously, because of the higher logistics and everything, if this prolongs, then obviously, there can be a material impact on the -- can have a material impact. So basically, what should we think on the plan? Would you pass it on to consumers? Or will you absorb it? Because, again, you mentioned a bit on efficiency. But again, my understanding is that, obviously, there's only so much that you can do with efficiency, obviously, you had to take on tie price hike impact in the last 2 years as well. So just your comment on how you see the margins or how you want to you absorb them at least for this year, how we should think about it?

Good questions. On the first one, first of all, we've had no personal injuries in GCC due to this company. So all our people are safe and in good health at this point. And we are taking measures to ensure that they are security. That's our #1 priority in terms of our people. In terms of the effects of debris falling down in the GCC countries, obviously, our operations have to accommodate that. And you heard today that the causeway bridge was closed for a while. We are driving trucks over to Bahrain. It opened up again, and there's no harm to the operations. But this is very dynamic, and we are managing this daily and making sure that we continue with our supply to GCC. Both on cybersecurity, IT, we are in a good place. We have good disaster recovery scenarios we have our disaster recovery of site outside Middle East to make sure that we can continue our operations and so on. There are multiple components to ensure that we can continue to operate and we will have to see how it apart from sales in terms of making just sure that we can provide products I think also we've seen good collaboration from the government. We've got a lot of support, and we are thankful to them. And we are trying to make sure, if you think about the reshipping from the east side to the west side, the government has been supportive of freeing up some flexibility to make sure that we can, instead of using the demand what we go to porthole or where we might be on the west side. On the second question, this is the whole point about what I mentioned on the prolongation of the war. I think you should draw some level of conclusions from COVID although -- it's not exactly the same. The COVID situation was a global pandemic affecting the whole supply chain worldwide. Currently, we are seeing some additional cost on freight it could elevate and become even further. And as I was saying, if it's prolonged in time and we have these kind of charges we had a very, very strong inflationary components in '22 and '23, if I remember it right. And we did significant pricing to offset that. At the end of the day, the way we talk about raw material as an FMCG is that if that is an increase, it will sooner relate to have to be passed on to the consumer. We are doing everything we can to avoid it, drive cost efficiencies -- but if you have a material impact, you'll see not only I think you will have an overall price increase, which is necessary. It all depends on the prolongation of this conflict in a good place, even soon, and we're in a good place. But what worries me the most, and I think maybe all of you who are investors is the risk of speculation or inflation. What we have seen and what we've communicated to you is that, that increase post co-bid that we saw -- the reality is that the cost pressure has remained, even though we have had benefits in corn and soy prices coming down, you've seen ingredients go up, and there's been energy inflation because post the war of Ukraine, that was driving a lot of the cost. So unfortunately, it's kind of sticky what happens on the cost side, and it takes a long time for it to come down. So that's the big worry I have both as a professional and on a personal level because it's not good if you have speculation or inflation on a global level.

The next question comes from the line of Nada Amin. And can you please go ahead.

I was just wondering if we could dig into some of the pricing -- negative pricing dynamics that you had alluded to during the quarter. If you could maybe split that out into dairy and poultry, 2 separate discussions. So have we seen the rolling back of promotions for dairy products since the 28th of February. And I know that we talked about poultry quite extensively. So maybe if we can just focus on dairy, that would be great.

Very clear voice, but I'm not sure I totally understood your question. What I talk about here when I said pricing for the first quarter, there is no scaling back of promotions in the first quarter. That's executed as planned. As we move forward, there is scaling back of some promotion and pricing activities, and I will come back to that in Q2 the SAR 27 million that I highlighted as a negative price is a mixture of price increases. Remember, Ikram was highlighting bakery, you have a pro rata effect of price increases we did in July last year. that will continue to be positive in the first half of this year. We also have some smaller price increases on use and dairy on specific products, but not materially impacting anything in this context. So the key components of the dress that we had in the first quarter was really about poultry. Your specific question about 28th of February and onwards, the reality is that all of these programs are in place as we are executing them, it's more something you will see that comes out affecting our second quarter and onwards. Okay. Did I answer your question -- and did you -- did I understand your question, right?

She is no longer [indiscernible] I'm assuming that yes. So we have a lot of hands and lots of people on the line. So the next question comes from the line of Taher Safieddine. Please go ahead for the question.

This is Taher Safieddine from JPMorgan. Just maybe the first one is just on the protein. I mean, you did talk about use extensively, but you did mention that moving forward, maybe we will see other contributors coming in like seafood and revenues -- just to understand, and you said that there is some ramp-up costs also associated with these. Just to better maybe understand what's happening on the non-out proteins. I mean, I understand it's a distribution model, but have there been any changes? I mean, how should we think about maybe this portfolio going forward in terms of revenue contribution? I mean how significant it could be for this segment or maybe the overall group, if that's possible.

Yes. As Danko said, if you look at the SAR 1.1 billion from for the quarter, I would say, roughly speaking, maybe 2% of that will be non poultry, and that will mean in the seafood area. In terms of the other products, like you talk about the bees and other ones, they are yet to be started. There's a lot of work been happening. We have hired people. We have some management in some experiments running as well. And some of it, we would love to capitalize it all, but we can't capitalize all of it. So there's some ramp-up costs coming up for the new products to be launched. So the major drag in that respect is the seafood category. We are spending a lot in terms of distribution, in terms of marketing in that category, and we would develop that further more. We will see more products coming further down the year. during year 2026 as well or seafood that would expand the sector. You will see, as you say, the launch of be that will happen in the second half of the year. So this will be an expanding portfolio. Today, non-poultry within protein is just about 1% to 2%. We would like to see in double digits in the next, say, 2 to 3 years. And that's why the significance of this sector will be very visible going forward as well. And I think that's so much guidance we can give so far. As we launch these new categories, we'll describe further, and we'll give more guidance on that.

Okay. Very clear. And just maybe another question just on the current performance Iranian. Just on the long life dairy. I mean it's up around 15% year-over-year. Just to get a better understanding, I mean, it is like-for-like in terms of Ramadan. And usually Ramadan is not that great for long life. It's more maybe of a fresh dairy type of business. But can you just share some light what's happening there? Is it competitive landscape? You guys pushing maybe more aggressively on pricing. If you can just maybe share some color on what drove your performance? And in general, what are you seeing in the long-life dairy market and Saudi Well, majority was driven by each of themselves. So we do have a big component. In Egypt sales in dairy, we sell all of it online. There's very [indiscernible] in Egypt, it's only done by yogurts. So the majority of the mill growth that we're seeing in long-act, that is coming from Egypt, and that helps a lot. There is growth in Saudi as well and , they are growing quite recently. UAE, the reason for the growth in UAE was pricing and we saw that in the day March later part of Ramadan, but that's a one-off impact, it stabilizes. Otherwise, we are seeing growth in low single digits in Saudi and other of countries. That's the component of the growth in long-life period. SPEAKER01

The next question comes from the line of Fatema Al Doseri, Please go ahead with the question.

Okay. Perfect. So my first question is regarding the poultry. I know we've talked a lot about it, but you've mentioned that you started seeing margins improve and you talked about the quarter-on-quarter improvement. Now aside from was happening in March and are the potential impact of pricing there. What led to the improvement in margins, I would say, and it was happened in the first 2 months of the quarter. Is it lower export volumes? Or is it basically rationalization from local cars? That's the first question. The second in terms of an impact more on as volumes being in line where the channel mix changed. Are you seeing a shift from Harco retail, which could potentially lead to higher margins in the short term?

Yes. So [indiscernible] on the first one on the hot question. Look, the Q4, when you were starting the plant, whenever you start on that journey, we do incur a lot of one-off costs. So Q4 was very tough for us from a cost perspective to start the plant up and running. We are seeing stabilization on all trades. Costs is getting more stabilized. Production in the factory is more stable. And on top of it, the market has been much more supportive. We have seen this thing in the first 2 months as well. We didn't see discounting getting more steeper first couple of months, discounting remains pretty flat. And then we are starting to see improvement in discounting in the producers' favor. And that has continued to online as well. Soft pressure coming in from the frozen, it's local players as well who are actually improving. And that's something you left in track every day. online as well. You can see the poultry pricing on car or you name it. So we have seen this thing on flow sprints, cost getting greater and cracking getting improved itself, those are very good. Your second question was about sorry, follow.

Mix and after the warm similar that's hard entrain market and then the shift might move into the retail market. impact given the margins on retail is better.

So Fatema, I think you're going to vary. So I can from that perspective. Think of how many hotels in [indiscernible] are occupied today as they were in January, and that will give you the answer automatically. We are seeing a reduction in [indiscernible] the eastern sea side items of Bahrain, coronated there is a volume reduction on Arca side. We are seeing some impact on, let's say, [indiscernible] There is some impact of the registrars coming down as well. But as you rightly said, we are seeing positive impact in retailers. In e-commerce that Danko talked about, it's exploding from what we can see in that respect. So we do see the channel mix changing. Some of it is temporary, driven by what's happening in oncotic -- some of it is permanent, which is the e-commerce part. And for us right now, the permanent part, which is e-commerce is beneficial to us. We do make very good margin in e-commerce sales. We need to work on that to sustain that margin. And the harder shift towards retail right now, it's pretty mature, but we will see how the cost developed production.

Yes, if I can just add to Ikram's point there, it comes back to this prolongation of the conflict. The longer that continues, the more negative impact it will have on depopulation and therefore, less revenue on our end, less tourism and so forth. At the same time, we also have the rationalization of promotion and discount that offset it, and that gives us good profitability. And then if we look at the channels and where do we get good profitability. Food service is not a bad channel in terms of profitability. So obviously, the mix will impact. So I think the answer will be we have to see how this and complete developed in time. And based on that, we'll mitigate and work on this on a daily basis. You have to work on this on a gaming basis and what it means. And this is what we're doing at the moment. But overall, when we look at turnover, we do not see a significant decline at this point because of the channel shifts you see.

Okay. Thank you. I believe we are at the end of our time, if unless the management would want to add a few more minutes so that we can take on more questions? Or would you let them to email to you separately.

If you have a long queue of questions, let's take another 2 or 3 and then we'll refer to Investor Relations. If that's okay with everyone.

Yes, let's do that. So our next question comes from the line of [indiscernible]

So I wanted to specifically talk on the home life daily segment. Your thoughts on the discounting, I mean now -- how is it going? Is it higher with respect to, say, last 2 orders? Or is it lower just on the basis

The head count thing has stabilized just like poultry, we are seeing again a stabilization of the long-life daily discounting even for evaporated mill, long-life dairy, all of it, we see the Q4 trends continuing. The growth you're seeing in Saudi is pretty much volume led. And as I said, there was a bit of burst of growth in the Eastern Sea world, mainly driven by people spending buying in terms of long life because that helps you in that respect. . But other than that, normal trend rates, as I said, we're seeing low single-digit growth rates. We are seeing growth in the markets, volume-led and we're not seeing an increase in discounting. I would say, even today, when you go and you can check online as well, right now, virtually all of the long-life try products, we think in the market is around 5 to 6 years or even more. So a lot of the discounting actually at the back end of Ramadan has dissipated. You can well imagine promotions were planned ahead to serve even after the Iron contract, those promotions were honest. And as we are walking out on the last 1 or 2 weeks, the discounting is getting further dissipate.

The next question comes from the line of [indiscernible]

I have a question on the discount on the poultry. We run a private equity, and we own some of the food companies. And what I understand is that is scaling back on the discount by all the policy companies in the market given the current situation. So my question is how much of the improvement in the poultry is it due to the discounts and have we seen the full impact in Q1 or we are going to see more improvement in Q2?

I think I come back to the answer there, [indiscernible] on what I said about the prolongation of the war and the freight cost that you see -- it has the only positive effect of the prolongation of the war in terms of poultry is that you will see very high cost for imports. It's not going to be profitable to do that. And therefore, you also have corn and soy that is to be shipped to KSA. So I think in some odd way, it benefits us if this conflict prolong gates, on top of that, there is something else going on. And you didn't see that really being impacted in the first quarter. What I mean the impact is the event conflict. It is some form of stabilization of poultry in the market. Stabilization is maybe a hard word because we continue to see very low prices to where we originally looked at. If you look at last year, you see the big difference. But there is a positive sign on that, which had nothing to do with the Iran conflict. And that, to us, is again an expected protracted but expected normalization of the market that will come sooner or later. And that's why we strategically believe that being in poultry is the right thing to do, and it's a healthy protein. We are premium because we have a quality that people trust. We are investing heavily, as you can see, and making sure that we can provide that quality and consumers know that, and they want to buy our product. countries have to stay in the long run. It's growing. It's a healthy protein. So what you're seeing maybe is the beginning at the end of discounts, and we see the beginning of something new coming. So that's why I'm saying I'm slightly positive. It has nothing to do with the conflict per se. If it will just be further amplified if this continues with high cost for shipping.

And the last question comes from the line of [indiscernible] Please go ahead with your question.

I have 2 questions, irrespective of the Ramadan volumes in fresh dairy. Overall, if you look at it on an annual basis, do you see any slowdown in demand for fresh rates we had that neo reported that the fresh TV market is growing around 1.6% to 2% in PS. So is there any impact of -- and we expected the population to grow due to all the [indiscernible] projects with a population slowing down or -- and in turn, may fetal demand slowing down. This is my first question.

Well, on fresh area, we are not seeing -- we're actually growing more than the Nielsen reported numbers. We do not see a decline in fresh dairy -- we are actually growing 5% on fresh dairy. So I do not anticipate a decline in that terms. The underlying fresh dairy business is very healthy and good and doing well. Of course, you will have an impact if tourism declines. That, for sure, we are expecting population growth and tourism increasing, not only in KSA, but also in whole. I think one of the inevitable consequences of this conflict is that you will have a protracted impact on tourism in the East side. And I feel very sorry for that. But that is the reality, I think, that people will be cautious in coming for holidays -- even if you have a short ending in time, still people will hesitate for a while. And obviously, that will impact. But that's more due to, let's say, the conflict situation rather than the underlying category per se that is growing healthy. You have to make sure you do high-quality products, good innovations, you adapt to consumer behavior and consumer trends on occasions, on flavors and these sort of things. But that's what we are good at, and we've done that for many years. So I don't see that underlying reason for decline.

Right. So my last question from my side would be on IC segment. How -- could you share some light color on where -- any stands currently are their production facilities in KSA, what our plans for expansion within this segment.

So on ice cream, we are actually seeing triple-digit growth, but it's very, very low numbers. And you also have to consider the fact that we had a lot of sell in. We are not only in KSA, were also launched in Kuwait. And in Qatar, we will launch where I think we already have -- and we have new products that we are launching, as I mentioned in the beginning there. item is a long-term strategy bet. We believe we can be in ice cream. It is closely associated category for us. So it's a little bit in the early stages. We are growing well, but we are spending money, making sure that we are establishing our brands in the market. I know we sought for. So it's too early to say more than that. But the early signs of what we're seeing in terms of growth is in line with what we have planned for in our investment case, and we are making sure that we have the distribution reach currently. Then longer term, it's a question of establishing presence in KSA for facility to produce either we do that ourselves, so we do that through a joint venture. All of these discussions are dynamic in terms of trying to find the optimal solution for [indiscernible] but what we are doing at this point in time is to establish the brand, making sure that we have good products to offer that we are a little bit above mainstream, as you can see with our product offerings because they are quality that you should trust just take you do with both your area or any of our products. So that's the answer for ice cream.

Ladies and gentlemen, if your question has not been answered, you can always reach out to the Investor Relations department of [indiscernible] [ Lukas ] Danko for is concluding the mark.

Yes. Okay. dear friends and colleagues and investors and analysts. Let us all hope that we will find an end to this conflict as soon as possible for everyone's safety and we hope it will turn out positive. In the meantime, we have to be agile, we have to be flexible. We have to be rapid, and we have to deal with it. That's the reality for Almarai. And for all of you, I am sure. So that's my wish that when we meet again for the second quarter that we have much more positive news for all of us.