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

[Foreign Language] Good morning, everyone. Thank you all for joining us in today's H1 2026 investor discussion session. My name is Maher Balushi, the Investor Relations Officer at Oman Flour Mills Company. It's a pleasure to have you all with us today as we share an update on the group's performance and key developments during the first half of the year. Before we begin, I would like to also extend a special thanks to Muscat Stock Exchange for, as always, providing the platform and the opportunity to engage with our investors and stakeholders alike. I'm joined today by our CFO, Mr. Haitham Al Saadi, who will take us through the group's financial and operational performance, the performance of the wider Atyab investment portfolio as well as the current market environment and risk management. Also joining us today is our Head of Grain Procurement, Mr. Mohammed Aminul, who will be available also during the discussion towards the end for any questions that you may have regarding the grain and commodity market. Also joining us is Mr. Muhamed Shamnad, Finance leader. At the very end, we'll open the floor for any Q&A for any questions that you may have. So if any questions, please reserve them for towards the end. And with that, I would like to now hand it over to our CFO, Mr. Haitham Al Saadi, to kick start today's discussion.

[Foreign Language] Thank you for attending the session. We'll take you through the results, as Maher mentioned, and then we will also highlight the recent developments in the market. So starting with the results. As you can see, the first half of 2026, we delivered 34% growth over the same period in 2025. And the main reasons behind this growth is basically the growth in the revenue. This was driven by the volume increase. Cost of material have increased also in relation to both the volume as well as the price. The operating cost, I mean, the OpEx have maintained, I mean, at a controlled level. As a matter of fact, I mean, overall overheads, we've seen a drop of around 2.903% compared to last year. In the other income category, I mean, there is a onetime gain, which is linked to the disposal of our holdings in Oman Fisheries. And in terms of cost of debt, I mean, we've managed to reduce the loan portfolio from OMR 58.6 million to OMR 53.36 million, and that basically helped us to reduce the cost of debt as well as the investment income or the interest income, we managed also to earn more than last year. The interesting part is the group results. I mean there is a significant improvement over last year, where we've seen a good contribution coming in from our portfolio, especially Sohar Flour Mills. I mean, for the first time in its history, we started seeing a positive bottom line in Sohar Flour Mills. Atyab Food Industries has recovered also and Atyab IFFCO all -- I mean stable performance is maintained. One noticeable highlight here is that we started the consolidation of Arabian Food Production Company, which is a direct result of our acquisition of additional stake in this company. So we moved from 33% to 67%. So I mean, moved from an associate to associate. In terms of revenue, I mean, the revenue is up by OMR 5.34 million, and this is mainly driven by the volume. So OMR 4.5 million increase in the sales volume and the price also, there was an increase in the price per tonne, and that resulted in OMR 1.7 million positive variance. However, the price -- I mean, the volume mix have experienced a little bit of a drop of around OMR 800,000 because there is a little bit of a shift from selling finished goods to selling more grains in response to the recent events in the market. The cost of material, as I mentioned, I mean, also have increased by around OMR 6.4 million, and this is mainly coming from the cost of material as well as other direct costs. In the other direct costs, I mean, we've seen in response to the recent events in Strait of Hormuz and there is a lot of disruptions in basically getting the ships and the cargoes. We've seen a surge in basically freight as well as additional war risk premiums being imposed by the shipowners on the basically cargoes that they are carrying. As I mentioned, the overheads, I mean, we managed to keep the overheads intact. I mean, 2.9% below last year. And while, yes, staff costs have increased, repair and advertising cost, I mean, we've seen a little bit drop in the spending, yes. Finance income. Again, there is an increase in finance income compared to last year, OMR 1.1 million compared to OMR 850,000, and this is mainly linked to fixed deposits as well as interest on group companies' loans and delayed payments. In terms of finance costs, there is a drop, and this is mainly driven by both, I mean, reduced cost of debt as well as the loan portfolio went down from OMR 58 million to OMR 53.4 million. In nonoperating activities, the other income or other gain here, this is the OMR 821 million is mainly linked to the disposal of Oman Fisheries Holdings. So moving on to Atyab Investment portfolio. I mean, the major change in the portfolio is the consolidation of Arabian Food Production Company. It used to be an associate. I mean we follow equity accounting for associates. So because of the increased holding, now we moved it to a subsidiary with a full consolidation. In terms of results, I mean, basically, the losses have reduced from OMR 785,000 last year to only OMR 202,000 this year. I mean major basically improvements are seen in Atyab Food Industries, Atyab International Oman, also Sohar Flour Mills, as I mentioned, for the first time, we are seeing positive bottom line and the contribution coming from AFPC as a subsidiary during this year. So technically, the company became a subsidiary from 1st of May 2026. In the associate side, I mean, AFPC also compared to last year was better and also Atyab IFFCO, which is basically Sohar Poultry mainly, we've seen also a very solid performance. Modern Dairy Factory, I mean, the factory is still, I mean, running below optimum capacity. And because of that, I mean, we've incurred losses of around OMR 273,000. As you're aware, I mean, a lot of things are happening in the market. I mean, from the old tariff story to government intervention in response to the recent events in the Middle East, elevated basically global spending on defense and regional logistics turbulence. We've seen a lot of ships are reluctant to come even to the area, the introduction of additional war risk premium. Shipowners are reluctant also to ship -- send their vessels to the area. And of course, the energy prices impacted the grain prices. I mean -- so mainly, it is because of the freight as well as the shipping and logistics activities, we have been seeing quite significant increase lately in the grain prices. Now one key notice, I mean, to all of you is that weather. I mean, we work in a commodity and grain. Agri commodities are always impacted by weather. And the recent reports indicates that the weather phenomena called El Nino is expected to be seen this year -- late in this year and beginning of next year. And it is expected to be one of the worst El Nino events in the recent history, actually in the history. This is what the analysts are saying. And this will have an impact -- a major impact on grain availabilities. I mean, so -- in response to this, I mean, the company decided basically to uplift the inventory holdings. So we've increased our inventory levels to up to 261,000 tonnes, which is quite a significant increase compared to last year, where we were holding only 122,000 in the same period. Also, we booked additional 178,000 cargoes, I mean, expected to come in this quarter and next quarter. So this is basically how we are basically responding to these moving parts of the market. Building the inventory will allow us to maneuver during this, what I call is a perfect storm, which is weather, geopolitics, fuel, so building the sufficient inventory gives us basically a room to navigate through this tough times. We will continue watching the market and trying to capture basically opportunities and replenish the stock as we go. So of course, this will have a consequence on both the price. The price is expected also to grow compared to last year and compared even to the first half of this year in response to what we just mentioned. And of course, the cash -- I mean, more cash will go into building up this inventory. Yes. That's in summary, I mean, the results as well as the outlook. We'll open the floor for Q&A.

Yes. Mr. Abbas, please go ahead.

Thank you, Haitham, for the very brief to the point and of course, insightful presentation. A couple of questions. Of course, the most important thing is, of course, the feedstock, which is the inventory that you spoke about. Two questions. Now how will you store this extra inventory? Can you speak about the silos that you have? And what made you go from 130 to 260? And why not 300? Why not lesser? Just to understand how you guys are looking at it in terms of number of months inventory and storage and the pricing available at the same time. Of course, I want to link this to the end product prices as well. Oman is a regulated market, so you'll not be able to increase the prices, both on the feed mill and the flour mill side. But there is a subsidy mechanism is what I understand. So how is the management sort of taking care of, of course, one is the availability of the fuel security, which is probably the #1 priority of this company. Second is, of course, the profitability. Eventually, it's a listed company who has shareholders. Just to understand how you guys are looking at it and balancing all these 3 things together.

Right. So we start first with the storage, of course. I mean, you know that there is limitation when it comes to storing such huge volumes of grains. Now yes, there are projects, I mean, going on to expand the storage capacity. However, how did we manage the situation? We are -- we started basically utilizing Sohar site. Today, the silos in Sohar are almost fully occupied. So we shifted some of the inventory to Sohar site. We also managed to get secure -- some open spaces in the port to store these grain -- feed-related grains as well as basically trying to manage the cargoes, I mean, the lineups, which is, again, it used to be tough. Now it is tough squared, I mean, because of the lineups that you are having in the region. So this is how we are managing. Now how do we decide? First, of course, as you mentioned, the objective is to have 0 interruption in terms of production. So that is why we are building the stocks. We took some market opportunities. Some of these cargoes were actually afloat. So we managed to get good prices compared to the market in certain deals or certain transactions. So this is how we are managing. Now going forward, again, as we mentioned, that we have the lineup. So yes, we do book, but there is a lineup. These are -- I mean, we basically try to plan the deliveries so that whenever we have enough space to accommodate, we call in the vessel. So this is in summary, how we are -- I mean, managing the inventory and storage. Now in terms of price pressure, of course, as you mentioned, that the price, especially in the flour and feed is regulated. I mean, we are -- I mean, we have a fallback mechanism, which is basically the subsidy for the wheat. Whenever the wheat prices goes beyond $300, the subsidy scheme kicks. So that is for the flour. For the feed. Now for the feed, there is no subsidy as such. However, I mean, we are shifting -- we are seeing a little bit of a shift in terms of the trade. A lot of people are buying raw materials, compared to finished goods. So that gives us a little bit flexibility to pass on this price increase to the customers. And so our customers are major farms, I would say, in the feed business. So there is a little bit of an opportunity to increase the price over there or to pass the price a little bit over there.

What's the average sort of wheat prices that you paid to secure this cargo, which some of it is on floating storage also, right? The way I understood it is, some of this you're storing at ports in actual silos and some of it is on floating storage. But if you have to break down in terms of average what you're paying, what have you paid on average to secure these cargoes of wheat?

I mean for the first half, it was averaging below $280, I would say, for the wheat. However, for the new ones, no, there is a price increase. I mean we are seeing certain origins like, for example, Australian wheat have moved to above $300 levels.

Okay. And the subsidy mechanism is very well documented with the government, right? So even the payment terms are agreed upon and they're not going to make you wait for like, I don't know, 2 years to pay you if at such time that you actually start paying more than $300 for your actual price that you're securing these cargoes at. So I just wanted to reflect and get your views on how quickly will the government pay you, assuming that the $300 subsidy is hit, that level is hit?

I think the subsidy mechanism is a mature mechanism. I mean there is already clarity in terms of the process, claim process. I mean, we don't really face any difficulties collecting the subsidy amounts. We just need to go through the process. There is an auditor appointed by the government comes and checks. And then based on that, we finalize the numbers and the government pays. So the government being very cooperative in processing these payments. We did not experience any major delays, I would say.

And on the non-wheat side grains, is there a conversation with the government where this -- because you spoke about the perfect storm, high freight rates, El Nino potentially being very difficult this time, fertilizer prices going up. So if you look at all these things and how important even the feed mill business is to the country, is there a conversation to introduce some sort of a subsidy mechanism to protect the company and its shareholders as well and to protect the overall market?

Yes. I mean we already started this discussion with the government. So we will wait for further directions from there. We've already raised this points. I mean -- and they are aware actually of the situation, again, from a food security point of view. So they are closely working with us in basically managing the situation.

Okay. Can you reflect -- can you update us on what's happening with the Sohar Flour Mills issue? I believe there was some settlement that was going to be issued with the -- sorry, a settlement that was reached with the shareholders, but there has been no update since. Can you please update us on what's happening with Sohar Flour Mills?

Yes. So Sohar Flour Mills, the transaction is progressing very well. Soon, we will be closing this, hopefully, in this quarter, quarter 3. There is significant progress, I would say. I mean, one I can share with you is, for example, we -- one of the loans was already paid. So let me say, put it simply, the transaction is progressing very well. And we are expecting to close it before the end of this quarter.

And the nature of the settlement is that you will be running the flour mill itself, right?

As we updated the market last time, I mean, the settlement is basically that the other shareholder will take over the silos, and we will take over the flour mill. And of course, I mean, this is all subject to basically clearing the legal aspects around the deal.

Sure. And I wanted to speak about the actual Omani market. Now all the challenges you face, I think the smaller players who don't have the financial bandwidth, they are obviously going to be suffering even more, right? I mean, so from that perspective, in terms of utilization, in terms of actually the demand in the market and who's going to supply the demand, I would imagine Oman Flour Mills stands in a very good position, right? And competitively speaking, I would imagine your competitive position has got better after the crisis than it was before. I just want to hear your views on how you look at this basically, just to reflect on the demand side of the Oman equation.

Well, see, the demand, we are seeing a little bit of -- I would say, not a major impact when it comes to the demand for the products. I mean, actually, there is a growth. And this -- yes, this storm also brought some opportunities. And this is clearly evident in Sohar performance. We've seen a lot of transshipments. A lot of people bring their wheat also, their grains to Sohar, store it there and then basically transported by land to neighboring countries. So this crisis actually, yes, I mean, brought a little bit of, I would say, opportunities, which we capitalized and the results show that.

And if you reflect on the first half performance of the company and if you were to sort of see into the second half, are you expecting a big deterioration? Or do you expect profitability more or less to be maintained given all the initiatives that you've taken at your end to actually secure your supply of wheat at pretty good prices. You told me $280. That seems like a great price for you, given that whatever was happening in the market.

Sure. I mean, I don't want really to give comments on projections, et cetera. But we are comfortable. I mean, that this year, we will close the year with good results. Again, as you are aware, I mean, the inventory, there is a lagging effect. So lagging effect means we still have some of that economically priced grains that will support the margins, one. Two is, don't forget, first half, we had that one-off or onetime gain for disposing the shares of Oman Fisheries. So that impact will not be there. So we are comfortable that the results will be in line, I would say, with the first half.

And my last question is, and I'll go back in queue if I have more questions is, can you reflect on the other growth initiatives the company has embarked upon? There are a couple of things that you've announced over the years, which are the ones that you're most excited about as a revenue and profit opportunity for the company?

Well, we do have -- as we mentioned -- as we publicly revealed, I mean, we do have a quite intensive pipeline of projects. Some of them are quite new like your insect meal project, the chlorella project. We are trying to find alternative protein sources, I mean, to support the feed industry. So we are basically progressing in this front. Our team are busy in terms of analyzing the markets, looking at the best technical solution to basically materialize these ideas. So there is work in progress in all these projects.

Okay. But in the foreseeable future, a large part of the profitability and revenue is going to keep coming from the feed mill and the flour mill.