Oman Flour Mills Company SAOG ($OFMI)

Good morning, everyone. My name is Maher Al Balushi, the Investor Relations Officer at Oman Flour Mills Company. Joining me today is our CEO, Mr. Haitham Alfannah; and our CFO, Mr. Haitham Al Saadi. And on behalf of the management, we'd like to thank you all for joining us today and taking interest in learning more about OFM. I would like to also extend our appreciation to MSX for hosting the investor discussion every time. Today, we'll be presenting the group's 2025 financial and operational performance, the key highlights or snapshot of the full year, followed by a review of OFM at the parent level, and then we'll get into the group company's performance as well portfolio. Lastly, we'll look at the future outlook and the growth pipelines, and we'll end it up with a Q&A session, where we will welcome your questions and comments. With that being said, I would like to hand it over to our CEO, Mr. Haitham Alfannah, to start today's discussion.

Thank you, Maher. Good morning, everyone, and thank you for joining us this morning. As Maher mentioned, we will take you over the 2025 results. We had a 13.8% year-on-year increase in profitability. That is supported by top line growth of 7%, 51% increase in financing income. The subsidiaries had a net negative contribution. However, the associates had a net positive contribution. The cost of debt has reduced by 12%, and we have a robust project pipeline to ensure sustainable growth. The global commodity prices were favorable in 2025, and we have seen good prices and good purchases. The net revenue was up by 6.1% from OMR 109 million to OMR 160 million. The net revenue was up by OMR 6.63 million. That was due to a 9% increase in tonnes sold from 690,000 tonnes to 752,000 tonnes. The contribution of feed was positive by 65,000 metric tonnes. However, we've seen a slight drop in flour of 3,500 metric tonnes. The average price has decreased from OMR 162 to OMR 158, that is because of the market pressures due to the decline in the raw material prices. So the feed went from OMR 157 to OMR 150, flour from OMR 170. The revenue was OMR 2.5 million negative because of the drop. However, that was compensated by the increase in volume, which contributed OMR 9.73 million, which took the overall positive contribution to OMR 6.6 million. The cost of material as it represents 75% in 2024. We have seen a slight improvement in 2025, 74.6 cost per unit decreased from OMR 100, the average cost per unit from OMR 113 split between, feed it went down from OMR 117 to OMR 108 and flour went down from OMR 129 to OMR 124. So in the cost of material, the price of raw material has given a positive impact of OMR 6.5 million on the volume point of view, of course, has gone up by OMR 7.26 million, which give a total of negative of OMR 1.28 million on cost of material. On the global grain prices, and I'm sure a lot of you will have some questions at the end on this current trends and challenges. As we all know, the Iran conflict impact on the current situation, which also basically signals a recession risk following all of this. The energy challenge is also there, a lot of the economies are moving to alternative energy, and this is something that will impact dynamics as we will discuss on the next slides. The Middle East is facing basically one of the most challenges in the current times. There are trade flow shifts in the global markets, government interventions as we see locally within GCC of the Middle East and internationally in Europe and other countries, the changes and government interventions in terms of policies and all that. And the strategy spending, a lot of spending has been shifted towards defense and energy, which will have a change in the commodities market. On the core market, following a record crop in the United States in late 2025, South America also expects a strong production cycle. However, due to the increased oil prices, the biofuel demand is more -- has increased and will have an impact on that. So we see positive impacts and slightly negative on the other side. As of now, there is another price upside driven by sustained demand and elevated costs. The wheat market -- global wheat stocks are favorable outlook for 2026 as of now. Price close to geopolitical developments specifically to the conflict. Prices as of now are within range. We haven't seen a spike on prices and grain prices. Coverage basically for all the input material grains is roughly between 4.5 months of 9.9 months. So we're looking at somewhere between 5 to 7 months is the average for our range. In terms of cost control, 2025 has seen a headline drop in terms of overhead in relation to the revenue. So as a percent of revenue was 13.5% to 13.76% in the previous year. Our headcount has remained more or less the same. So we're still maintaining the same employment headcount from '24 to '25. When we look at the staff costs, there is a marginal increase from 5.753, material handling charges due to the increased 2 -- on the nonoperating income and finance activities, the finance income has increased from 1.3 to 1.8 billion in 2025. In terms of the advertising publicity there has been an increase and that is specific to newer markets for our products. On the nonoperating income and finance activities, the finance income has marginally dropped almost 5% over 2024. Other income has increased to OMR 507 million from OMR 333 million in 2024. Other gains, we have a negative impact of OMR 553 million and that is basically to an impairment against securities in 2025. Our loans outstandings are basically almost OMR 9 million to about OMR 41.8 million. Our investment portfolio is basically segregated into various food and structure. So we have the animals and poultry, we have tabled eggs, hatching eggs, commodity trading and quality control assurances. In terms of the performance of the subsidiaries, we had a negative impact of OMR 3 million compared to OMR 2.1 million in 2024 and basically has made a loss of OMR 218,000 compared to a profit of OMR 168,000 and lower exports due to the closure of the UAE branch and the UAE market, which had an impact over the last couple of years on the company's profitability. International Services, revenue remained stable at 2.24 million with operating profit of OMR 112 million. However, the company recorded a loss of OMR 197 million due to higher losses from early stage operation of aspect that we are lining up. And hopefully, that is happening in due course. In terms of our operation in Australia, these are sort of documentation fees and processing fees. We haven't received any shipment from Australia in 2025 due to the competitiveness of pricing at that time. Spot loans -- compared to -- poultry more or less have maintained its net profit levels. So we have recorded a loss of OMR 265,000 compared to OMR 176,000 in 2024. And in 2025, flour products came 100% on '25. And after this poultry, we more or less had maintained the mid profit levels, then improved by 16% in 2025, but higher input costs have increased the cost of material. And that basically reflected on the profitability, which is more or less in line with last 2024. Poultry has recorded 4 million net profit, 33% growth over 2024. The investment has been classified as a financial asset. The results have been mainly driven by over International Poultry farms is production egg, tabled eggs has linked a major transformation from 2024, a profit of OMR 800,000 compared to a loss of OMR 763,000. Poultry farms have net profit of OMR 549,000 compared to OMR 194,000 in the previous year. Poultry farm reported revenue of OMR 3.6 million down in line with the wind down of operation. The company has also incurred a one-off asset impairment in 2025. In Northern dairy factory, we have moved into the new factory in 2025, much bigger than the previous one due to higher cost from Brazil raw material prices and pricing constraints despite growth margins were pressured by elevated input costs. In terms of capacity utilization on the milling side, we are currently utilizing 60% on the animal feed, 60% on the tabled eggs. We have reached the full capacity 100% poultry we are 82%. in the process of evaluating the project aims to produce alternative protein. On the future projects like the major projects that we have in hand is we rebranded the monies from the net revenues, which was approved basically by the GM shareholders, this is in line with the global trends that are happening around the world from organic or sustain product practices. Part of the global trends in functions, which are basically the key area that we are focused targeting high nut products with global health and wellness trends is assessing the production of healthy snacks and bars, in parallel, we are currently assessing the production of healthy snacks and bars as one of the projects that we establish a state-of-art distribution facility joint venture in terms of proposed merger. Data consolidation has you are aware the active industry is really have had discussions with soloist margin. We are currently revisiting that proposal and will inform the market on any progress. So thank you very much for your time. We want to keep it quite brief to allow for questions. And we have Haitham Al Saadi, CFO and his team. So we open the floor for any questions.

Yes, Mr. Shaoor?

You mentioned that your capacity utilization is currently 60% now or it was in 2025. Now with the ongoing conflict that is happening in the region, how are your capacity utilizations now. Are you guys facing any issues in importing the raw materials or toward your exports? Are there any route blockages, which is hurting your operations. If you could...

Could you please repeat, Mr. Turabee?

Slightly louder.

Yes. Sure. Is it good now? Is it better?

Yes.

I'm Shaoor from Vision Capital. First question was you mentioned that the capacity utilization was 60% in 2025. Now in view of the recent ongoing conflict, would you be able to comment a bit on the capacity utilization right now? And if it is down, are you guys facing any issues with regards to the imports of raw material or on your export side due to route blockages or entrances in the shipments?

Okay. So thank you very much for the question. With regards to the first part, in terms of utilization, we are -- when we said 60%, we're combining Oman -- Muscat and Salalah -- and Sohar, sorry. In terms of silo capacity, we are at 100% now utilization. In terms of flour milling, we are still not there yet in terms of export demand because of the challenges. So a lot of the material is going by road transport. So we anticipate that part of the market to pick up at a later stage when there will be specific shortages within the region. So as of now, the positive impact is that our silo capacity is at 100% basically partially is utilized by us and the rest has been leased out to other parties who have utilized this storage capacity. In terms of the second part of the question on imports, we are covered in terms of the immediate requirements. Are there any challenges other than pricing so far, I mean, some countries have faced some challenges exporting to the region. But there are other markets that are still active and delivering. The only impact is basically, as you're aware, the logistics cost, which involves war risk insurance and all of that.

Okay. That explains. And my follow-up question is regarding the pricing. As you mentioned that the prices for the commodity has gone up significantly in the international markets. But please correct me if I'm wrong, but my understanding is here in Oman, the pricing is capped at what you can sell your product, especially flour and probably feed as well. So if that is the case and you guys are importing at a higher cost than before, you guys have to sell at the maximum cap price. So the residual will be owed towards the government or you guys will receive it from the government. Is that correct?

Basically, you're partially correct. Basically, the commodity -- prices are capped in the local market, yes. But there is also a subsidy that is activated when the prices exceed a specific number. So -- and this is an understanding we had from 2022 during the COVID time. So yes, the local prices are capped. However, if the prices go to that level, today, the prices are not there yet. So if the prices -- there is a marginal increase in terms of pricing on the grains, but nothing out of the ordinary. I mean, there is not a major shift so far. It is within the tolerable limits. And if it exceeds that -- and if I give you a classic example, today, the wheat prices are around OMR 280, the government subsidy kicks in when it reaches OMR 300. So yes, we are capped on this side, but we are also covered from the other side.

Okay. Great. But the rising prices would mean there would be some pressure on your margins?

Yes. I'm happy you mentioned this point. Yes, there will be pressure on the margins. However, that will -- in our calculation and the way we see the market demand picking up regionally, is that, that will be offset by the increased volume. We anticipate a lot of demand coming back from the region. In terms of products, we witnessed that in the last couple of weeks for food items. So yes, the margins will be squeezed. However, we anticipate that the volumes will compensate for that.

Yes. Okay. That makes sense. Just one question from the understanding side. Now when you say that, obviously, the volumes will compensate for the decline in margins, my assumption is that the increase in volume would come because the region is not able to import as easily as it was before due to the conflict. So the pent-up demand would be fulfilled by Oman Flour Mills and local producers. Is that correct?

Yes.

Right. Okay. But obviously, the logistics cost, the high logistics cost and the other local players would also have to face higher costs in terms of imports. So my question is, how favorable are you guys located in Oman compared to, let's say, a producer based in UAE or Saudi, how easy it is for you to manufacture the product to import the raw materials versus your regional competitors?

Well, as you are aware, currently, with the current situation, there are no imports happening on the -- beyond the Hormuz Strait. So majority of the markets are basically facing challenges getting the raw materials into that region. The current situation is that a lot of the raw materials are being delivered to Oman and then taken by road. So this will cater to some of the market, but the remaining market will have to take the finished products.

All right. That makes sense. If there are some other questions, I'll be happy to go back in line. If there are none, then I'd like to.

Sure, sure. Anyone else with any questions. Shaoor, it seems only you have the questions and I like your questions. So do you have any other questions.

It's a very interactive session, and I always appreciate the management, especially you guys, you are always available. My next question is regarding the Sohar mills. Any update on -- since the last call that you guys have managed, any update on that front?

Very good question. What can we update. Okay. So like what we said the last time, I mean, there is progress. I mean there is positive progress in the resolution of this transaction. We've already closed -- pushed basically the transaction towards a very soon closure. Just a couple of open points that need to be closed and within quarter 2, before the end of quarter 2, we will be able to conclude this and move forward.

Sure. And this is probably my last question. If I look at your balance sheet, you guys already have a significant amount of debt. I mean, obviously, compared to your -- the size of your balance sheet, it's manageable. But then in absolute terms, if I'm looking at it, there is a debt of close to OMR 50 million on the stand-alone basis and then on a consolidated basis, it's slightly higher. With the expansion plans that you guys have or with the future growth plans, I should say -- and also, I also have to appreciate the fact that you guys have OMR 38 million of cash on the balance sheet. So adjusting for that, do you think that your growth plans would be covered by the available cash and -- or would you guys have to even go for any additional debt or equity raising.

Well, the capital structure of the expansion, will be a mix of debt and equity for sure. In terms of our ability to raise financing, I think, I mean, we have a robust business, and we have interest from all local banks to support us with the expansion projects. So it depends on each project. I mean the capital mix will be decided based on the merits of these projects. So yes, partly part of this cash will be used in reinvestment and there will be some fresh loans taken to fund the -- both the infrastructure projects and the expansion also.

All right. Great. Just if you don't mind, I have to clarify something from my first question on the capacity utilization. You mentioned that the floor capacity, the floor capacity is not there yet. And when you say it's not there, do you mean that it's not on the 2025 levels, which was 60%? Or is it even lower or it's not 100%...

It is 60%, but what I meant is that we anticipate to raise it to a reasonable 80%, 90% level. However, there are 2 components. One is we were waiting for the closure of the Sohar transaction, which will enable us to enhance drastically the operation in Sohar once we have the ownership of the flour mill. The other part is that the markets in the region, and this is basically based on market behavior. So the current market because of the current situation has only been 32, 33 days, we anticipate that demand to start picking up from now due to shortages that go beyond the available resources or stocks that are available within these markets. So the market demand will not happen immediately once the Strait was closed, we anticipate that the demand will keep growing as the stocks in the relevant markets diminish.

Fair enough. And on the feed side, your utilization on the feed side is better?

Could you please repeat the question?

Yes. As you mentioned on the flour side, it's understood. My question is on the feed side because you guys have a feed stabilizer, right? So on the feed side, the utilization is better?

On the feed side, this is a combined number between Oman Flour Mills and Bayer products Oman. So we have combined the figure that's shown 60% because the operation of Bayer has just started. In terms of feed products, yes, we see the regional markets also. I mean, we've received inquiries that we have never received in the past to locations which are 1,000 kilometers away. And we've already dispatched a few shipments feed. This was basically impossible earlier because the logistics, the cost does not work out. But we have seen that happening already, and we are pushing that. And we have looked at even some of the floating vessels that are unable to cross the border and we made a few offers to acquire these grains, which are basically float in anticipation of the increased demand for the region. If you look at, for example, our barley stock was about 9.9 months, almost 10 months of stock, and that is basically in anticipation of our regional requirement that we foresee happening.

Perfect. Perfect. So should we expect the top line to on a net basis, go up because, obviously, you mentioned there is a decline in prices. I mean there is a decline in margins because of the rise in prices, the rise in cost, but you said it will be compensated by the increased demand or the increase in volumes. So rising cost pressure as is margins, increased demands will obviously benefit you on an operating level. So on a net basis, operating profit should -- we should expect to grow in this year under the current scenario of course, assuming that if the current scenario is there.

See, as an organization, we always aim to basically improve our results and that goes without saying. So yes, I mean 2026, given all the situation, we do anticipate a steady growth in both top line and bottom line. See, yes, the market conditions are difficult, but also presents certain opportunities that we are already taking advantage of. So yes, I mean we are anticipating a stable performance for 2026. But beyond that, I mean, we will have to wait and see the development, whether there will be further escalations or deescalations and then we will take it from there. I appreciate all the questions that you have raised.

No further questions.

No further questions, I would like to thank everyone for joining us today. Thank you very much, and we look forward to seeing you in the next session and have a pleasant day. Thank you very much.