Oman Flour Mills Company SAOG (OFMI) Earnings Call Transcript & Summary

[Foreign Language] Good morning, everyone. My name is Maher Al Balushi. I'm the Investor Relations Officer at Oman Flour Mills Company. On behalf of the management, we'd like to thank you all for joining us today, and a special thanks to MSX for providing the platform at which we conduct these sessions. So today, we will be reviewing the performance of Oman Flour Mills and Group for the first half of 2025. And before we begin the presentation, I will take you through the agenda. So we will first start off with the H1 highlights, basically a snapshot of the key drivers that drove our performance. And then we will move on to a more detailed look at the OFM performance. And then thirdly, we will look at the Atyab portfolio or the group portfolio performance. And before that -- after that, we'd like to move on to the future outlook just to touch base on the future projects that we have in the pipeline. And lastly, we will end it up with the -- with an interactive session. So if you have any questions or comments during the presentation, we'd like you to hold those for the end. Now, without further ado, I would like to hand you over to our CFO, Mr. Salim Al Saadi, who will take you through the presentation in detail. Thank you.

Thank you, Maher. [Foreign Language] Good morning, and thank you for joining us today. I am pleased to report that our firm sustained its positive momentum in the first half of 2025, delivering a 20% improvement in [indiscernible]. Allow me to share with you in highlights from the first part of the year. From an operating activities, the volume supported the topline growth, where we saw 8% growth in the volumes sold, and that contributed to higher sales. Despite that, the global commodity prices maintained the overall cost of material, which basically helped us to sustain our GP levels. In terms of our overheads, the percentage of overheads to revenue increased slightly by only 1%. Now, when we move to the nonoperating profits or nonoperating activities, the company managed to increase the financing income by almost 94%. And in terms of the cost of debt or the interest cost, this was reduced by 1% despite having higher outstanding loans. And moving on to the investment activities under our portfolio, we saw the associates portfolio turning to a positive -- net positive contribution during the first 6 months, which is a very positive signal. The subsidiaries portfolio, on the other hand, still continue to have a negative contribution. And that is mainly to the ongoing -- long ongoing issue with Sohar Flour Mills. Now, in terms of future growth, we still continue our path in growth, and we have a robust project pipeline that will ensure that this sustained growth will continue in the future. Okay. So the revenue, as I mentioned, increased by 3.8% and mainly driven by the volume, where the volume -- I mean, most of the volume increase came from the feed segment. We added around 33,000 metric tonnes of sales. That helped us basically to generate around OMR 2.6 million additional revenues. Now, despite the -- basically the reduction in the prices in response to the global grain prices being reduced in the first 6 months, we still maintained a positive revenue growth. Now, to navigate through a commodity-based industry, one needs to basically pay attention to a lot of moving variables, logistics speculations, energy prices, geopolitics, trade imbalances and weather conditions to basically have a significant impact on how prices basically behaves in the market. So we have always to keep an eye on all the developments at the macro level globally. Now, how did that translate into the performance of the first 6 half -- 6 months? Now, the average price or unit price have reduced from OMR 121 to OMR 113. We've seen this across the board both at the feed products as well as the flour products. Now, how do we manage these fluctuations? We always -- our OFM risk management policy is always based on coverage and opportunities. We need always to have a sufficient stock to support the sales activities. And whenever we see a market opportunity, we basically take advantage of the same. So far, most of our positions for the remainder of 2025 is almost covered. So that is also a positive sign. Now, in terms of cost control, overheads to revenue ratios increased by 1%, and that's basically linked to increase in the depreciation cost as well as some inflationary impacts. Moving on to the nonoperating income and financing activities, other income and gains, this year we provided some provisions against some financial assets. And that's why you see that we've recorded almost OMR 360,000 negative compared to OMR 300,000 positive recorded last year. Financing income, as I mentioned, 94% increase, and this is mainly linked to our utilization of surplus cash. And we are investing that in good yield instruments. Financing costs, despite the increase in the loan outstanding from [ OMR 38.6 million to OMR 58 million ] outstanding as of June '25, the interest cost was almost the same, and that is mainly due to the reduction in the interest costs charged by the lenders. In terms of net debt, you can see that there is an increase, but it's only a marginal increase, from [ OMR 28.7 million to OMR 31.5 million ]. Now moving on to the investments, just to give you a brief, our Atyab investment portfolio is divided into 2 sections, the subsidiary portfolio and the associate portfolio. So what has changed from last time is the introduction of Bio products. It used to be an associate. However, we acquired the entire stock -- share capital of -- for ownership of Bio, and that basically moved it from associates to Bio -- to become a subsidiary. And in the associates, there is an increase in the MPF, or Modern Poultry Farm, shareholding from 84% to 91%. Okay. So the associate performance, [Foreign Language] we've seen a complete turnaround in business portfolio from a negative OMR 145,000 to almost OMR 350,000 positive. And this is mainly coming from our poultry portfolio, especially the table eggs. Our investment in AFPC, which is represented by Gulf International Poultry, Modern Poultry and Emirates Poultry, overall made profits. And that's basically as a result of basically improving the utilization and maximizing the capacity utilization of these farms. Subsidiaries, again, losses are continuing, and this is mainly driven by the long outstanding issue with Sohar Flour Mills. As you can see, the Sohar Flour Mills as a stand-alone level incurred OMR 1.28 million, which is similar to the losses that we saw last year. This is just a snapshot on the utilization under each segment, and you can see that flour mill utilization reduced from 65 to 51, and this is mainly Sohar Flour Mills. Animal feed, there is a growth of 5% in the capacity utilization. And here also, I would like to mention that we added a new stream of revenue, which is coming from our premix factory, which was introduced to the group beginning of this year. Table eggs improved the capacity utilization from 93 to 98, and this is a clear indication or clear reason why we are seeing a positive contribution coming from this segment. Poultry, we are running at 100% capacity, and that was also the case in last year. Dairy, which is Modern Dairy Factory or Al Khamayil, last year, we had a 90% utilization [indiscernible] new factory with a bigger capacity. There is still some catch-up to do in this segment. Silo rental, also, we have seen our silos in Sohar. We've seen also an increase in the utilization compared to last year. Now, in terms of future projects, major highlights is the commercial operation of Bio Products Oman. So we are -- in October [Foreign Language], we will commence the commercial operations of Bio, and that will basically enhance the revenue and the contribution to the overall portfolio. Silo expansion in Port Sultan Qaboos, we are finalizing the design of the basically silos. And hopefully, we will start the project very soon, along with building a new multipurpose warehouse in Matrah area. Other projects, like shared farming in Australia, health bar manufacturing, insect meal facility and functional food expansion and baby food facility in Uzbekistan are a few of the projects that we have in our pipeline. And as they progress, we hope that they will also positively contribute to the overall growth of the group. Yes. With that, we will open the floor for Q&A. So please.

[Audio Gap]

Okay. So Sohar Flour Mills, as reported -- I mean, in the past, we do have certain issues that we're looking -- shareholder related issues, which we are working to resolve. And probably we can basically update you in the next meeting about this, but we are positive that we are going ahead and finalizing this issue. And this will result basically in our ability to start operating Sohar Flour Mills and start basically increasing the utilization.

I have a question about the Bio Products. You said this will be launching in October. How much would it contribute to the top and bottom line as of revenue?

In terms of revenue, still this will be the initial stage. But overall, we are looking at the capacity between OMR 10 million to OMR 15 million additional revenues coming from Bio. Just to give you a brief, Bio Products will have 2 unique lines. One line is dedicated to marine and aquaculture feed, and the other line is called TMR, which is total mixed ration, which will basically utilize the green waste from our basically -- and this is a project in collaboration with BEEAH. So we'll be collecting the green waste, and we will recycle this into a usable feed to the cattle.

What about by the end of this year? Is it OMR 10 million to OMR 15 million? That's the contribution you are thinking or...

No, that's -- the OMR 10 million to OMR 15 million is the -- once we basically reach the full operation, which is expected in the future, but again, the first part of the -- or the remainder part of this year will be basically slowly growing because we need to introduce the product to the market. So we need to give time for building up the sales book.

Yes, Mr. Shaoor, you can ask. Mr. Turabee, please, you can ask.

Please unmute yourself and ask. We cannot hear you.

I think she asked, can you just tell me about the corn and wheat and major feed stocks inventory at average prices? And what is your risk mitigation plan if prices go down?

Okay. So in terms of basically corn and wheat inventory, as we just showed you, we do have sufficient stock to cover up to quarter 4 of this year. And in terms of risk, this is a commodity business. Of course, for wheat, luckily, we still have the government subsidy program. So that is a protection against increases of wheat prices. In terms of corn, this year, we are seeing basically there are some fluctuations going up and down in the market. However, there is also a quite good number of volumes coming from the production. We are getting positive signals from the market that there is good production coming this year. However, as I mentioned in the previous -- in some -- one of the slides, that this is commodity, there are a lot of factors moving up and down. So how do we manage risk is we basically buy forwards and we basically watch the market. And whenever there is an opportunity, we lock in. That's how we basically manage the risk. Hiba?

One more question, please. I wanted to ask, how can you turn around Salalah Flour Mills to make it generate like the Muscat Flour Mills? What can you do?

It is Sohar. Salalah is a different company, Hiba.

Sohar, sorry.

[Foreign Language] Okay. So for Sohar Flour Mills, again, we are in this industry since 1977. So we are -- and we have the expertise really to turn around Sohar Flour Mills. We believe once basically, we have control over the operations over there, it will be easy for us to integrate Sohar Flour Mills' operations to support Oman Flour Mills operations. If you look at the utilization of Oman Flour Mills' flour facilities, they are touching 90%, 95% utilization. So having Sohar added capacity will enable to expand more, especially in the export market.

Any more questions? Mr. Turabee, is it?

I'm sorry, there seems to be a problem with the mic. Could you please shed some light on the upcoming CapEx expectations for this year and the next?

Okay. So as I mentioned, major CapEx will be the new silos that we will be building in Port Sultan Qaboos along with the multipurpose warehouses. These are the major CapEx that we have right now. And we are talking about anything between OMR 20 million to OMR 30 million will be allocated to these projects. And these projects are actually basically to support the growing sales activities. So we need to store more, and that means basically we need additional capacity or infrastructure.

[Foreign Language] I just have a question regarding your dividends. So, is your strategy of dividends will remain same, I mean, share dividends plus cash dividends? Or you will change this strategy?

Well, I -- I mean, if you look at, last year was the first year where we basically changed and started basically giving bonus shares. Again, it's very early for me really to tell you whether we will continue or not, but it all depends on basically the expectation. Now, why basically we adopted this policy is basically we wanted to balance between the debt part, that we accumulated a lot of debt in the -- since corona. So we wanted really to [Foreign Language] restructure the capital structure, and that's why we've introduced these bonus shares. Whether we will continue or not, I think we can update you in the next meeting [Foreign Language].

During the year as well as made in the cash balance sheet, now, based on your CapEx expectation, should we expect that going forward with the cash available additional borrowing would not be as high as during first half 2025?

Yes. Again, see, the cash balance that we have is basically is reinvested, and we are generating good return out of that. We do have a couple of basically repayments in first quarter of 2026. So that is part of our plan is basically to repay part of that. And for the CapEx program, of course, we will have to go back to the market and borrow long term for that. Yes. So that is the plan. We will borrow long term for the CapEx expansion. And the cash that we are having right now, it is basically we are building this reserve to meet some repayments which are scheduled in quarter 1 of 2026.

Can you give me the average price of wheat and corn?

Yes. Maryam, so the cost will change. There is -- it's a daily basically prices. It can range anything -- nowadays, the range is anything between OMR 250 to OMR 280 for corn. It is up to OMR 250 to OMR 260 for wheat. Again, it depends on the class of wheat or the type of wheat. But we are talking today, it's anything between OMR 270 to OMR 290 for normal wheat. And for high-protein wheat, we are talking about OMR 300-plus.

It's Turabee asking. When do you expect the Atyab Bakery business to start generating profit?

Okay. So Atyab was always a profitable company. Why we have seen a negative this year, because we had also -- we had to shut down the Dubai operations because it was not really performing very well. And that's part of our, basically, management style. Whenever we basically see something that is not working, we don't really continue. We just close it down. Now, why we are seeing the drop in Atyab Food Industries or Atyab Bakery, as you mentioned, is because of the integration of Sohar Beach Bakery. We acquired Sohar Beach Bakery in the beginning of the year. And that integration is taking place. And until then, until basically we complete the integration, then we will start seeing the positive contribution. It's a temporary thing. It's not like a fundamental change in the business model of Atyab.

Mr. Turabee asking, if you may, could you give up a timeline of the integration, when it's expected to complete?

Yes, this year. We are working. The team are working very hard to finalize. I would say majority of the integration activities are complete. We took over the operations, and we took over basically the distribution. So we are progressing very well. And hopefully, before the year-end, this project is fully integrated into the operations of Atyab.

Also, Turabee asking, what is the expected payout ratio for this year?

Yes. It's like similar to Anwar's questions. I mean, we can answer this next meeting [Foreign Language]. Any further questions, ladies and gentlemen?

Okay. If there are no more questions, that wraps up today's session. Thank you all for joining us, and we shall see you [Foreign Language] in the next session that will be conducted next year. Thank you.