A'Saffa Foods SAOG (SPFI) Earnings Call Transcript & Summary

[Foreign Language] Good morning. On behalf of A'Saffa, I would like to welcome our shareholders, investors, analysts and participants to our half year 2026 investor discussion session. Thank you for taking time to joining with us. I would like to first introduce the other team members joining this session. Mr. Yasir, our Deputy CFO; Mr. Bilal, our Financial Reporting and Planning Manager; Ibrahim, our Assistant Manager, Finance; [ Abdul Jabbar ], Senior Financial Accounting Manager; Amira ElAtta, Investor Officer. The first half of the 2026 was an important period for the company despite the challenging operating environment, including the higher raw material cost and other input costs, our core operating performance remained resilient. Most importantly, during this challenging period, we completed our major expansion project, increasing our annual production capacity from 48 million to 60 million bird, a 25% increase, promising firmly satisfying rising demand. The additional facilities are now operational, and we have started utilizing the increased production capacity. This expansion project represents an important milestone in the A'Saffa journey. It is not only increasing the volume, but also strengthening our market position, improving the operational efficiency, putting Oman Food objective in line with the Oman Vision 2040 and created a stronger platform for sustainable growth. As you are well aware of the significant increase in the input cost, we still remain focused on improving the efficiency, managing the cost, strengthening our market position and delivering sustainable value to the shareholders. With this note, I will hand over to Mr. Yasir to take you through the presentation. He will take you through the financial performance for the half year 2026. Thank you.

[Foreign Language] Good afternoon everybody. I'm pleased to share the financial for the group, A'Saffa, for the period from January to 30 June 2026. So, as usual, we will go through the income statement and look at the main indicators, and then we will leave more time for the questions. I'm sure that you have gone through the detailed financial statements which were uploaded in the MSX, and most of you [indiscernible] with your questions. However, we will just discuss briefly the main highlights of the financials. As you can see or as you can [indiscernible] analyzed that the sales revenue reported for the first half of 2026 is, [Foreign Language] more than 2025. The reported revenue is OMR 32.2 against achieved revenue last year of OMR 29.0 million. And this is due to the high demand resulting from the surplus in the region that started in the first quarter of 2026. So, we managed to sell the carry-forward stock in the first quarter itself. Also due to this turmoil in the region, our margins became under pressure, which resulted into the higher raw material cost. If you can see, although the sales was bit higher in the year 2026, however, gross profit margin is lower as compared to last year. So, the achieved gross profit this year is OMR 8.7 million as compared to OMR 9.4 million last year. And as I said, this is mainly due to the higher raw material cost resulted from the [indiscernible]. All other costs are under control and in line with the increase of the sales. If you can see, the selling and distribution, there is a slight increase in line with the increase of the sales itself. Net costs such as finance cost is in line, so slightly decreased from last year. However, you can see here a big change in the share of net gain [indiscernible] from associate. Last year, our associate reported a profit, our share was profit of OMR 450,000. However, this year, we have a share of [indiscernible] reported a loss from the associate. And unfortunately, this was due to the [indiscernible] from lower imported prices in the neighboring country. Some of the products were uploaded there with a cheaper price where the export activities saw some difficulties. In this year also, you can see that there is other income, which is resulted from our disposal of A'Namaa share that was recorded in the first half of this year. And you can see we have recorded around OMR 706,000 as compared to OMR 38,000 in the other income. Considering all of these changes in the [indiscernible] performance and the recorded first half of A'Saffa which is offsetted by a record of A'Namaa gain, we have recorded a net profit of OMR 2.9 million as compared to the last year OMR 3.5 million. And this action came mainly from the gross profit reduction and partially from [indiscernible]. This is the main highlight, and we will leave the floor to you for the discussion and the question-and-answer session. So, just to have a fair [indiscernible] let us have first, in the first round, one question per participant, and then if we don't have any other participant to have the question, then we can go back to anyone that asked a question before to ask a second question.

Okay. So we are open for the question -- to answer the question.

Can you -- I mean, you spoke about, obviously, the challenging operating environment when it comes to raw material, both cost and availability. Can you give us a little more qualitative updates about how the situation is now versus, let's say, 3 months ago? Is it getting better or worse? What is the company doing to mitigate the impact? Just to understand what's going on, on that side? And the second question I had was on the expansion that's gone live. How are you proposing to sort of hit 100% utilization? What channels are you looking at? Are you focused on the Omani market, export markets? Just to understand how the management is looking to sort of hit this 100% utilization and the challenges on the raw material side?

Thank you. So I think I'll answer your question. I'll first answer your question regarding the utilization of the expansion project. We have carefully, I mean, worked out on the expansion projects, looking at the market demand, looking at the market demand locally as well as the neighboring country. So I mean, looking at the demand, we are very confident that we can fully utilize the 100% capacity in the Oman with a similar ratio, which we are currently doing the business and in the neighboring country. So therefore, we have started utilizing the facility already at 100% utilization. We have not started partial utilization. We have started fully utilizing. I mean our slaughtering has started already, which we were slaughtering earlier around average 160,000 birds. So we have gone to the 200,000 birds slaughtering on daily basis. The commercial benefit will start from the first week of September. Production has been already started, but commercial benefit will be from the first of November. And as regards the sales, already, I mean, we are almost 70% we are selling in Oman, and we are selling 25% to 30% in the export market. So the ratio will be same. We can -- I mean, the demand is a little bit different than what we have planned, but this is our plan to sell the product. Now going to the cost escalation, I think you are well aware that how the -- not only the raw material, which is the feed material, even the packaging materials, even spare parts, all the imported items, whatever is coming from the sea that the cost has increased. Cost has increased from, I mean, 12% to 25%, somewhere 30% also. Our major commodities, which is the corn and the soybean meal. So there -- I mean, maybe the cost there -- I mean, the cost, the ex-work cost might not have increased. So that has also increased, but the logistic cost has increased significantly. Insurance cost has increased significantly. So we have seen that 20% to 25% cost increase in these materials. And even on the other all items, the costs have increased, which has increased our the -- I mean, input cost so similarly. So this is the cost increase for the -- and as regard the mitigation, we are doing -- I mean, the one thing which [Foreign Language], it was not planned for this thing, but that will help us significantly this expansion project. It will help us to, I mean, absorb the overhead cost. So that will certainly give us -- I mean, quite coverage for this additional cost. And we are taking some other measure also by -- I mean, optimizing our resource utilization by optimizing the market distribution to mitigate the -- I mean, the cost impact, but it is difficult to mitigate the full impact.

Okay. And congratulations on the 100% ramp-up. I'm sure it's not easy, but you guys have obviously executed this seamlessly, not just this time but even the last couple of times, which speaks volumes about how good the management team is. So congratulations to you and your team, Mr. Chaudhry. Follow-up question is, if you look at the EBITDA margins, right, if you ex out the onetime sort of gain that you had from A'Namaa disposal, you're looking at 17% to 18% sort of EBITDA margins for the first half of this year. And with the expansion coming in, and of course, there's going to be some sort of a depreciation increase, right, because of the new expansion, which has gone live. So that's the reason I want to focus on EBITDA and not net profit. How are you seeing the situation evolve? So your pricing cannot go up and assuming your same level of realization per tonne is maintained, so your revenues effectively go up by 25% once the full quarter is in play, which is going to be the fourth quarter. And to reflect the challenging sort of operating environment when it comes to all these cost increases, not just the raw material. So how should we look at EBITDA going into the, let's say, the fourth quarter or next year? Because I think we need some management guidance on how to sort of look at the company. Because in a normal situation, there's economies of scale that have benefited you in the past. Now I'm a little confused on how to look at you.

Okay. So our production capacity increase is quite significant. That is 25% increase. So the 25% increase and that will certainly increase the [ depreciation ], that will increase the direct production cost. But we have the huge setup. I mean, if you look at the other, I mean, facilities, which will be supporting this expansion, I mean a lot of the -- our -- I mean supporting the facility, that will be the same and the other overhead costs that will be the same. So there will be a significant -- if you look at the marginal cost for the increased capacity, that will be significantly lower than our current cost. So that is just I want to say. So the margin from the increased cost will be certainly lower. And on the -- I mean, overall, it will have a positive impact on the cost and on the EBITDA and on the [indiscernible] also.

Okay. And I noticed the notes this time, it's presented a little differently than I'm used to. So just to understand now that the entire debt has been taken on, what's the repayment period? What's the annual interest rate that you're paying? And what's the annual sort of outflow, let's say, from next year, just from us to understand how the cash flows can look once the full year is in operation?

So as far as the cost -- the finance cost you asked that I just confirmed, it's a 5% [indiscernible] project that is 5%. And yes, we have taken the finance also, bank finance. And we have contributed a significant portion from the own resources also for this expansion project.

So Mr. Chaudhry, annually, what's the repayment are you looking at interest cost plus principal repayment? What's the total expense that we should model in our cash flow statements, for example?

You're talking the repayment of the principal.

For the next year, there still the moratorium is there. So there will not be significant change in the cash flow. It will be only existing loans, which is similar to the last year.

Okay. Yes. Normally, the notes actually clarifies this. But this time, if you go to the notes, the text that clarifies this is not actually mentioned this time around. I don't know...

You will find it in the year-end because it's just the loan utilization has just started, not yet completed fully. So probably that is the reason the team did not put the full explanation there and considering that is in the moratorium period still. However, we will confirm -- I mean, elaborate this in the year-end financials.

I think your point has been well taken by Mr. Bilal and Abdul Jabbar. So they will ensure the proper note in this -- in the next financial.

Mr. [indiscernible] raising his hand for a long time now. Please go ahead and ask your question.

I just had a couple of questions. To begin with a follow-up question from what Mr. Abbas was asking. The new capacity that has just come online, the CEO was mentioning that the commercial benefit of this would be starting from the 1st of November. However, the production has started now. So how does this work? Why the delay, if you could explain it?

I think if I said 1st of November, probably that might be my mistake. So it should be 1st of September, not November. Because the production we started, I think, 13th and 14th of August. So the production has started. So the sale will be starting from the 1st of -- I mean, from the first week of September, I think I said, but maybe...