Salalah Mills Company SAOG ($SFMI)

[Foreign Language]

[Foreign Language], audience. We welcome all of you, those who are present and those who are going to see later the recorded session. Welcome you all to our another session of the investors and analyst discussion session. In our last Board meeting, our financial results for 2026 is already approved, and we have published on the stock exchange. I believe we have already -- you got a chance to look at it. So in this session, we will have a very quick go through to the financial statement, assuming that you have already your questions. And at the end, we will take your questions. Mr. Ali, our CEO, he will give some insights on our business plan and way forward and the challenges what we have in the business, which is not captured in the numbers, and we will take your questions also. So let's begin. So this session we will have, as I said, [indiscernible] discuss about risk factors, the financial number and the prospects and way forward then we take your questions. As many of you know that our structure of the group is like that. We have Salalah Mills, which is a parent company. And in the parent company, we do the business of flour, macaroni packaging, PP bag manufacturing, animal feed and then we do B2C consumer goods trading. And we have 3 subsidiaries, Salalah Laboratory, which is based in Salalah. Salalah Grains International based in Dubai and Food Development Company to take care of our bakery division business. And we have one associate also called Al-Rayyan in Yemen. The key snapshot of our financial result for 2026 is in terms of volume, we have done [ 286 ] metric tons. Revenue -- one minute guys, I think, I am referring the wrong price. So please, excuse me, sorry, I need to [ confirm ] and say that again. [ Mr. Talal ], can you confirm you can see the slide?

Yes, yes...

My apology, I was referring to the another slide, but it's okay. So I was on this slide. So volume term, we have done 105,000 metric tons, which is 5% more than the last year. In terms of revenue, it is OMR 83 million, very similar to the last year. EBITDA is OMR 5.87 million, which is approximately 5% more than the last year. Gross margin is OMR 9 million, 17% higher than the last year. The profit after tax is OMR 2.6 million. Selling and general expenses percentage to the sales is 7%, which is more than -- by 1% just to cover the inflation and the growth. Balance sheet side, our current ratio is 1.33%, which is well within the norm. Quick ratio is 0.78. Return on equity is 5.5%, more than 3.1% last year. Receivable, we are collecting in 52 days. Inventory we are holding for 109 days and the gearing is 1.09 as compared to 1.12 last year. This gives a very quick overview of our business by division. So we have 4 dimensions here, the volume, revenue, gross margin and EBITDA. So as we can see that the flour contributed around, in terms of volume, 300,000 metric tons in the flour alone, then feed is 40,000 metric tons, pasta, again, 30,000 metric tons and PP bag 5.6 metric tons. So put together is 504 metric tons. Revenue OMR 83 million, out of which OMR 53 million comes from the flour, feed OMR 4.56 million, PP OMR 3.8 million and pasta OMR 8.23 million. We also have the bulk wheat sales during the year, which is OMR 13.5 million. Gross margin is OMR 9.2 million. Major is coming from the flour and second largest is the PP bag and then pasta, [indiscernible] feed. EBITDA, we have gained is the OMR 6 million, OMR 5 million is coming from the flour alone, which is the largest contributor. Pasta is OMR 616,000; PP bag OMR 585,000 and animal feed OMR 249,000. Geographical distribution of our sales out of OMR 83 million, OMR 45 million is the domestic sales from Oman. And if you compare from the last year, we are gaining our market share from 42% to 44%. Africa, basically the Somalia from OMR 18 million to OMR 20 million, Yemen OMR 21 million to OMR 15 million. This decline doesn't mean that the decline of the manufactured goods. We are also doing the trading of the wheat. So last year, actually, there was a consignment of OMR 6 million. So that -- if you exclude that, then we are still very much similar to the same period last year, the manufactured goods. This is our parent and group together '24-'25. So I will read the parent number for 2025, OMR 83 million sales, a margin of OMR 9 million, which is 10.9% better than the last year. Selling, general and administrative expenses is OMR 6 million and the EBITDA is OMR 6 million. So last year, EBITDA percentage and this year EBITDA percentage is we have maintained 7%. Other income is OMR 1.1 million, which is basically the dividend. Finance cost is OMR 1.5 million, very similar to the last year. And the net profit after tax is OMR 2.5 million, OMR 2.6 million. So it is double of last year. We have an investment into the OQEP. So fair value gain and loss is captured in the equity section. So during the year, there is a gain of OMR 735,000. So net of OCI, our profit is OMR 3.3 million. Balance sheet side is the current assets. We have the current assets worth of OMR 55 million. The current liability also -- noncurrent asset is also OMR 55 million approximately, total OMR 110 million. The major investment is into the property, plant and equipment, we can see OMR 44 million, which is OMR 10 million more than the last year. And this OMR 10 million basically is investment into our bakery project. The inventory, we are holding OMR 23 million, slightly more than the last year. These numbers keep changing depending upon the shipment arrival time. The liability side, we have a current liability, noncurrent liability. Current liability is OMR 22 million, basically the -- sorry, noncurrent liability is OMR 22 million, basically the long-term loan of OMR 17 million basically for the food division borrowing long term from Oman Development Bank and Alizz. The current liability is OMR 41 million. That also includes OMR 33 million short-term borrowing for our working capital fund. Equity section, parent company 2025, we have OMR 46 million as compared to OMR 44 million. The difference is basically the profit that we have earned during the year. On the cash flow, we are starting with the profit before tax, OMR 2.8 million, added back is the depreciation and the noncash item. So that gives OMR 6 million operating cash flow. And that is added further with OMR 8 million. We have got free cash from the working capital, OMR 8.7 million. So added back to the profit is OMR 4 million -- this OMR 14.9 million is appropriated in 2 forms. The investing activities is OMR 13.5 million and the payment of interest a [indiscernible] cash flow during the year. But because we had an opening balance of OMR 2.6 million, we still have a closing balance of OMR 2.3 million. That's about cash flow. Then actually this was only about the financial overview, I will request also you, Mr. [indiscernible] and take away.

Gentlemen, if you can just mute if you are not having any questions so we can.

Okay. So back to the discussion points. As you know, Salalah Mills is part of the food industry in general. And we have always -- to monitor the feedstock of flour and represented in wheat from different origins. Basically, what we have in the international markets, mainly we export to Yemen and Somalia. As you know, some of these markets are quite volatile and they behave like more of a spot market. We have increased competition as well from Turkey and Egypt in certain points of time. But we believe that this is expected as per the trend in the last few years. Raw material and price volatility is present in this kind of business. International wheat prices depend on the yield and also on the quantities produced in different origins. Obviously, the logistics and supply chain plays a quite substantial role. With recent geopolitical situation in the region, we see some volatility in these prices going up and down. Nevertheless, the company tries its level best to mitigate these plans by having preplanned purchases, close monitoring of the situations and also trying to have business continuity and risk management. In 2026, we have a major -- I mean, focus on the frozen bakery project that we have commissioned end of last year. We have started negotiating with the different buyers regionally and also in the local markets. We expect scaling up the production of this specific facility in Q2. Domestic market as well is also showing good momentum and growth rates. However, there are pressures on these commodities because they are always price regulated. Nevertheless, we see some disturbance in the market because of the geopolitical situation that is present in the region at the moment. From other aspects, our laboratory project is scaling up as well. We have been seeing some very good growth in that front in terms of service providers. The pressure on margins that anybody would expect with the increased cost and the margin and maneuver space in terms of increasing prices is a little bit tight. But the company always try to find other sources where we have local production efficiencies, some synergies in terms of purchase and supply chain and we navigate these times with caution and precision. So in the short term, we are trying our level best to keep the margins, I mean, healthy and alive. I mean despite the regional, I mean, aggression in terms of logistics and volatility in shipping and insurance. In the medium term, we are also doing quite a lot in terms of internal efficiencies and improvements. We are always exploring new products as well in terms of offerings, trying to address different segments, whether it's locally and regionally. We have been also showing some flexibilities in pricing, depends on volumes. On the longer term, we hope the situation will stabilize. It doesn't show any signs of stabilizing at the moment. But Salalah has a little bit of geographical advantage, although there have been some incidents in the region. We are a little bit away from the direct hot zone. Nevertheless, the entire region is actually seeing some disturbance here and there. But we have good faith that things, at least from our perspective, will continue to be under control. Thank you so much, and we open the floor for your questions, gentlemen.

So do we have any questions from the audience in the room. Mr. [ Talal ], Mr. [ Sultan ], anyone has any questions. We appreciate your time and we also appreciate...

I do have questions, if that's okay. My name is [ Rashid ].

Sure.

Well, if I may start, maybe from where you end regarding the geographical -- sorry, the geopolitical instability and how does that impact you? How much in your profitability do you depend or on your operation overall, do you depend on exporting? I mean I always thought that most of your business is more of a local from the upstream side. I know the supply chain might impact you in terms of the incoming raw materials. But how much do you depend on your operation on the external sources?

Well, I mean, like any flour mill, we do import the feedstock in terms of wheat, but our current level of stocks are very, very good and very, very high. In terms of export because we do export a lot of finished goods. We saw some disturbance in the port operation because we export through Salalah Mills and Salalah port locally here in Salalah. But as of now, we have seen some disturbance, but nothing substantial and material yet because the port was on and off, I mean, only for very short term. And we hope that the operation will continue to open. If that happens, we should not see any material impact.

Okay. But how much is this exporting mix out of your operation? How much do you depend on your profitability?

In terms of volumes, we export around 50% of our flour production to regional markets like Yemen, Somalia and Africa in general. So around 50% of our flour production goes to exports.

Okay, that's a lot. Can I go -- I don't know if others don't have questions. I have another question on your investment. I mean I know the gentleman went through it quickly, but I want to ask and if you could talk a little bit on your numbers specifically on the OQ investment?

All right. So what is the question then? All right. So what is the question there?

Well, the question is what's the status? I mean we know that you've sold some of the shares during January, I think, and Feb. So what's the status?

So we bought 32 million shares of OQEP at the issue price of OMR 390. And during the -- not in 2025. In 2025, there was no sale. And we got a dividend of -- cumulative dividend on the entire investment was OMR 1.3 million by end of December. But there was no sale. But there was a fair value loss on YTD basis of OMR 900,000 by end of December. But in January, February, the things changed. The price improved and that not only -- I mean, the loss was converted into the gain, but also we sold 15 million shares. So we got the profit also around OMR 200,000 in the sale of 15 million shares, And 16 million, whatever we are having today, that also we have a capital gain of around OMR 1.2 million because we bought at OMR 390 and the current price is around OMR 465. So we earned the profit of OMR 1.2 million on the stock that we are holding around 50%.

So I guess there was like OMR 291,000 that was a confirmed gain, right, from the sales in January and February, if that's correct, isn't it? Can you confirm that?

Yes, I confirm that. And because we are disclosing it under other comprehensive income, it will not impact the profitability. It will improve the retained earnings. But yes, when we publish our accounts for the quarter 1, you will see this.

No, no, good. I understand it is, okay, quarter 1. And you said there is OMR 1.2 million, okay, which is from your returned 15 million shares, isn't it?

Yes, OMR 1.2 million is the unrealized gain at the current price.

No, no, I got that, clear. So that is not going to impact your profitability directly, I guess, isn't it?

It will not improve profitability, as I said, this is OCI, so it will go straight to the retained earnings. Any other question?

I don't want to be the only one talking, but I do have a question, but I will stop maybe others want to ask.

So if you want to ask a question, you can go ahead. It's okay.

My next question is around -- I know the 60 baisa has come from because you guys have made this capital investment, okay? So how much out of the 60% was your operational gain or operational profitability? And how much is outside it? And how sustainable is this 60 baisa going forward -- the dividend?

The 60 baisa dividend that the Board has proposed and the shareholders are to approve tomorrow. Your question is that is it sustainable or whether it will be paid from the retained earnings or profitability, correct?

Yes, I know your -- I think your operational profit was not 60%. Your earnings from operation doesn't go up to 60%, isn't it? So I guess the 60% is a mix between your capital investment and your -- or I think it's a retained earnings. But my question is, how sustainable is this 60%? What's it going to be going forward?

But this is the dividend for this particular year. It is not the dividend -- will be declared in the future also. So every year, the cash flow will be reviewed. We have a dividend policy, and we have disclosed it on the stock exchange. So that clearly says that the dividend is subject to profit, subject to cash flow, subject to management plan, expansion and all. But this particular year, we are very comfortable to pay because we have a cash. And as I said to you that we have sold the 50% of OQEP. So we have a cash to pay the dividend. But next year, whether it will be 60 or 50 or 100, it depends on the numbers of 2026. Any other question?

Yes, I do have one more on your bakery project and value-added growth. If you could just put a little bit of light on that area.

What is question on the bakery, please?

I mean how much value it is going to add in terms of growth?

Well, see, this is a downstream integration, basically taking flour all the way to finalized products with value add, usually adds a lot of margins into this. And within the region, there has been strong demand on finished goods in terms of bakery products. So this is expected to add positively to the company. And taking commodities and integrating it into a downstream is usually a trend we see with also a lot of players in the same industry. So Oman Flour Mills has the same setup. Now with this new plant, we have also introduced capabilities in that front. So we expect that when this unit is up and operational in full capacity, the margins are usually much, much better compared to the basic commodity of flour.

Great. No, that's very good. You guys are doing extremely well. I mean I like your investment strategy. You guys are making really good profit out of it. And I've seen recently you are also buying other shares as well. So I wish you all the best.

We appreciate this. Thank you so much.

[Foreign Language]