Salalah Mills Company SAOG (SFMI) Earnings Call Transcript & Summary

[Foreign Language] Okay, Mr. Ravi.

Good afternoon, gentlemen. Welcome to this investor presentation session. We'll start our presentation for the first half of 2025 and we will compare that with the same period last year. So the agenda today is structured into 4 parts. The first part, we will show you our group structure, our business structure, how it is controlled by various entities. And then we will walk you through with the financials which is already uploaded -- third part, we will discuss about our outlook and -- and the last, we will take the questions and answers. So this is our structure, business structure. So the Salalah Mills Company is our parent company, which has 5 different activities, Flour production, Macaroni production, PP bag manufacturing, Animal Feed and then the last one is the consumer goods trading. And it has 3 subsidiaries, Salalah Laboratory is a new project, which recently completed, Salalah Grains International based in Dubai and food development company is our new venture for production of the industrial bakery, frozen industrial bakery. And we have 1 associate in Yemen, in the name of Al-Rayyan Mills Company where we have 50% -- this is the [indiscernible] human in first year -- first half of the 2025. During this 6 months, we have done the volume of 286,000 metric ton, which is 2% more than the same period last year. Revenue-wise, it was OMR 45 million, actually lower as compared to same period last year. And that reduction is primarily because of the retention in the raw material -- during the same period, we have achieved the gross margin of OMR 5 million which is 45% more than last year. And net profit is OMR 1.5 million, [ higher ] than total last year. Same in the internal expenses is 6 to 10 -- our current ratio is 1.6% -- 1.6x as compared to 1.3x last year. So I will start -- I'll continue to discuss because a couple of slides we have already discussed, so let me not go back. So I will -- on this slide, we have the balance sheet snapshot. Our current ratio is 1.6x as compared to 1.3x of same period last year, which is better. Quick ratio has also been improved, a little more than 1. And the return on equity is also better than the last year. Trade receivable is very much in control. We have paid a good attention on that for collection to improve our cash flow. So it is well within the norm of 2 months. Inventory is 113 days, still it is in control because in our type of industry, wheat inventory is strategic in nature. So we need to maintain a good amount of inventory. For flour mills inventory is very much within the norm. Our gearing is 1.4, which is better than the same period last year, which was around 1.2. The good thing that we have for the next -- for the second half of 2025, we have some initiatives. We have some plans. One plan in that frozen bakery project, which is completed. This was the initiative we took 3 years back. We already discussed to the investors community in the last presentation also that this is a state-of-art plant, European technology, and it has a capacity and capability to produce all the modern bakeries of frozen nature. So the status of this project is it is fully completed. The production -- trial production is also completed. Some commercial production is going on, but we are going to scale up in H2 2025. Packaging division, we are considering to expand into the nonwoven bag shopping bag. And this will help us to generate some extra revenue, particularly when the government has banned the polyethylene bag shopping bag. So this is an opportunity, and we want to capitalize it. So we have started the feasibility study and we will present to the Board next Board meeting. Trading division was one division within the Salalah Mills. Last year, we started where major product that we are selling is the sugar, rice and [indiscernible] . In the local market, it has already reached to a certain scale, but we want to scale up further by entering into the GCC market, Yemen and Somalia. So this is the initiative we will take in H2 2025. Laboratory project is also almost ready. We have got the necessary certification, quality certification. And we have already got a tie-up with some of the industrial houses for testing of their product. And the Salalah Port also recently -- we partnered with them. So all the imported goods, what is required testing, Salalah Port will pass on that to us. So I think in H2, we will get some -- we'll get some good volume in the laboratory business. And we are actually in order to scale up the business in order to continuously sell our product in the export market in Yemen and Somalia. One study we are carrying out should we have our own distribution house -- our warehouse. So this is actually initiated and we will no doubt when it is delivered then we will get approval from Board to approve that. So maybe towards end of this year, early next year, this initiative will be in place. For the investor community, good thing is that the bakery packaging, lab services, trading and all the initiatives which has been taken that will actually improve our margin -- top line. In the long run, we have a very positive outlook. We expect -- the expense initiative that we have taken, the strategic [ projects ] that we are talking about, all of this put together will give us such a level growth in terms of sales and profit. This is the result by division. We have 5 major divisions, the Flour, Wheat, Feed, Pasta and PP bag. So on 4 KPIs, volume, revenue, gross margin, EBITDA. So the -- we did the volume of around 286,000. Out of 286,000 metric ton, 145,000 was contributed by the Flour. Wheat was around 97,000 ton, Feed is 20,000. Pasta is 20,000 and PP bag is 3,000. Revenue was OMR 45 million that largely came from Flour, which is around OMR 26 million and the second [ phase ] is the Wheat which is around OMR 12 million, then Pasta OMR 4 million, Feed OMR 2.38 million and PP bag OMR 4.76 million. Gross margin was around OMR 5 million, which around OMR 4 million came from the Flour business. [ OMR 300,000 ] from the Wheat sales to [ OMR 57,000 ] PP bag or [ OMR 94,000 ] Pasta and [ OMR 230,000 ] from Feed. EBITDA was OMR 3.3 million, OMR 2.14 million from the Flour, [indiscernible] around [ OMR 1.15 million ]. PP bag also around [ OMR 1.15 million ], Pasta [indiscernible]. This revenue basically coming from the 4 different geography, our geography is divided into 4 parts. Local markets, on -- Africa, Yemen and other country. In the local market, we have out of OMR 45 million, OMR 17 million has come from the Oman itself. Africa is basically the Somalia, OMR 10 million, OMR 17 million from Yemen and the rest is from the other part of the world. This is another dimension of the same thing. So we have 2 parts, group and the parent. Group has 3 subsidiary and the parent is the Salalah Mill. So if we talk about the parent company, OMR 45 million sales, OMR 5 million gross margin at the rate of 11%, which is better than the same period last year because of the wheat prices -- I mean we had the wheat inventory, which was at a very competitive price, but then the price went up. So maybe the second half will have a little bit hit, but the first half, we did better than the same period last year. And our EBITDA margin is 7%, again, better than the last year. The net profit after tax is OMR 1.5 million, that is around 5x more than the same period last year. There was one extraordinary item of fair value loss through OCI. In the last quarter of the last year, we had invested into the IPO -- of 32 million shares we have obtained and we value that we continuously as required by the accounting standard, we value that. And unfortunately, the fair value was lower than our acquisition cost. So therefore, this loss. But this is shown into OCI, not into our normal profit. At the group level, actually, more or less, the numbers are same because the 3 subsidiaries that we have, they are still into the project phase. So there is nothing much -- this is the balance sheet asset side of the balance sheet. We have our total current assets OMR 43 million and noncurrent assets are OMR 53 million. Last year, noncurrent assets was OMR 41 million and the current OMR 48 million. So noncurrent has gone up because of the Industrial Bakery project that we are building. And the current assets actually is lower because of the wheat inventory. Last year, it was OMR 18 million and this year it is OMR 14 million, but this is only at the balance sheet date. But this keeps changing depending upon the timing of the vessel arrival. So our total assets, we have OMR 96 million, which is last year, it was OMR 90 million. At group level, as I say, the numbers are not drastically different because those subsidiaries stage are still under implementation stage. On the liability side, in the parent books, our liability is OMR 24 million, noncurrent liability, long-term liability. Major is the borrowing from the banks for execution of this Bakery project and some other projects. That's the OMR 19 million. The current liability is OMR 27 million as opposed to OMR 36 million last year. And the major component under current liability is the short-term borrowing to support our working capital. Last year, it was OMR 30 million, which came down to OMR 22 million, again, because of our level of inventory came down. So therefore, borrowing has also gone down. This is the equity section. So our total net worth is OMR 44.5 million as opposed to OMR 33 million last year. And the major increment has come from -- in the paid-up capital itself because during this -- I'm sorry, last year in H1 2024, this OMR 12.5 million new equity what we have issued to Solaris was not there, but subsequently, it was issued. This is the major change otherwise -- and then as I said about the fair value reserve or fair value loss on the OQEP investment is OMR 2.2 million. But this has been offset to a greater extent because we have around 3x dividend, around OMR 700,000 and 1 more, OMR 300,000 is expected in September. So around -- out of OMR 2.2 million, OMR 1 million we have already received by way of dividend. And also the -- as on 30th June, the fair value of the OQEP investment was OMR 0.33, but now it is in the range of OMR 0.35 to OMR 0.36. So this will further if I -- if we value the -- this investment today, this will further get reduced because the price has gone up. This is the cash flows in the group and parent company. I'll talk about the parent company. So profit before tax, we had OMR 1.7 million and then the noncash item is OMR 1.3 million. So total OMR 4 million is the cash from the operation. And then we got OMR 17 million cash free from our working capital. So OMR 17 million plus [ OMR 4 million ], total OMR 20 million was the cash. And out of OMR 20 million, OMR 11 million was deployed for investing activities basically for the project. And I think also OQEP investment is also coming in. And then the financing activities was OMR 9.7 million. It's a reduction. I mean we have paid part of our short-term borrowing. So net cash generation -- net cash was negative of [ OMR 1.8 million ], but we had opening of OMR 2.6 million. So therefore, closing is OMR 2.4 million. So that's all. I mean, this is a very quick walk-through for the financials. The full detail is available on the website. If any questions on that, we can take. Gentlemen, I think this presentation is over now so we will take the questions. If anybody have any questions, then we will be ready to take it up. If no questions, I think we will end. Just slide, not questions. Thank you all for coming to this presentation session.