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

[Foreign Language] We welcome you all to the session on first half results, financial results for Salalah Mills Company SOAG. And I will hand it over to my colleague, CFO, Mr. Ravi.

Thank you, Mr. Ali, our CEO; and Mr. Ali, our Board Secretary and Legal Adviser. We all welcome you, and good morning before that -- good afternoon, sorry. So we welcome you for this interactive online presentation of our financial performance for the quarter -- sorry, first half of 2026. These numbers are already uploaded in the stock exchange and also in the newpaper following board approval of 13th of August. In brief, the agenda for the day would be -- we will walk through the structure of our group. We have a parent company and a multiple subsidiary and associates. So we'll walk through very quickly on the structure. And then the first half 2026 financial performance. Then also in that we will go through because we have various lines of activities in this company. So we will see how each one has performed and the prospects and outlook, our CEO will [indiscernible] initiative, which we have taken and which we -- and then we will take the question answers. I hope I'm audible to everybody, hope you can hear me, can someone please?

Yes, you are audible.

So this is our structure. Salalah Mills on the top being a parent company. And under that, we have 3 subsidiaries, Salalah laboratory -- Salalah Laboratory International based in Dubai and the food development company, which is our industrial bakery product in Khazaen industrial area. And we have 1 associate, which is basically in Yemen. It is a flour mill, and we have 50% stake into that company. In parent company, we have multiple activities traditionally, we started from the flour milling, macaroni packaging, where we do the [indiscernible] animal feed and then Salalah bakeries. We have various outlets, our own outlets in the [indiscernible] market. And we also do B2C trading business of various related product, which go along with a flour like [indiscernible] This is our performance for H1 2026. On 1 slide, volume, revenue, gross margin and EBITDA. It is reflecting only the parent company by activities. So volume, we have done 220,000 in terms of revenue, OMR 37 million. Gross margin is OMR 4.2 million and EBITDA is OMR 2.5 million. We can see that our major business is coming from the flour. Our business and then the related like B2C trading. So out of 222,000 metric tons, 120,000 metric tonnes has come from the flour itself. PP bag manufacturing 3,200, pasta 30,000 feed 24,000 and wheat trading around 21,000 metric tons. When it comes to revenue, revenue again, cloud is contributing OMR 23 million, pasta OMR 6.37 million, wheat OMR 2.56 million, PP bag 2.26 and [indiscernible] OMR 2.86 million. Gross margin, OMR 2.8 million has come from flour business, 621,000 pasta. PPB has contributed OMR 469,000 and wheat trading OMR 123,000. EBITDA 995,000 has come from the four business, 668 from Pasta. [indiscernible] has contributed 554 and 123 and 168 has come from wheat and fee, respectively. From the KPI maybe our key indicators are volume 222. This is a comparison with the 2025 same period. So our volume is 222, which is less than last year, but it is because wheat trading, which is not our core business. Last year, same period, we had done a one-off wheat trade. So that quantity was included last year. So if we compare with that quantity, we are less. Otherwise, manufactured good more or less, despite of all the challenges, we have maintained the volume. We will see in the subsequent slide. Revenue is, again, because that volume of wheat is included, revenue also appears that it is down by 18% at OMR 37 million. Gross margin is OMR 4.3 million, which is the same -- the reason is same everywhere. Gross margin appears less by 14%, EBITDA is less by 25%. Net profit 1.3 million, which is 17% more than the last year. SG&A appears to be 2% more. But again, our base sales has come down because of the site. It is -- it appears more otherwise, in absolute terms, expenses is also in control. From the balance sheet side, our current ratio is 1.6x, which is stable, it was same last time. Trade receivable is also quite stable at 62 days. Quick ratio has come down because we have built up the inventory by another 20 days because of this uncertainty in the geopolitical situation, the inventory management is the key. So we -- in order to ensure that our me doesn't run short of inventory, we are -- we are making sure that there is enough inventory. So we have built up another inventory for 20 days as compared to last year same period. So therefore, quick ratio looks lower than the last year. Gearing ratio is better because part of our loan, we have shifted from the parent company to the subsidiary company. So because this is a parent company KPI, our gearing is better as compared to -- this is a representation of our revenue by geography. So out of OMR 37 million sales which we have done in this half year, OMR 20 million approximately is within the Oman and remaining is outside Oman. Africa, predominantly Somalia, we sell. So OMR 10.7 million has gone to Africa and OMR 6.5 million and the others contribute a very insignificant number. So OMR 45 million, OMR 37 million, the difference of OMR 8 million is basically the one-off wheat trading, which we had executed last year, which is not there in this year. So -- but as I said in the beginning that our manufactured goods, our core business is quite stable. This is the parent company and group company together profitability. I'll read from the right, 25 H1 and 26 H1. So this year, we have done OMR 37 million as compared to OMR 45 million. OMR 8 million difference is because of that onetime what state last year. Gross margin is quite stable, rather it is better as compared to last year in parent company, 11% to 12%. EBITDA is 7% last year, 3.3%, now it is OMR 2.5 million. Other income is quite consistent. There is a saving in the finance cost because the interest rate this year is relatively lower than the last year, the better management of our working capital. Profit before -- profit from the operating business is OMR 1.3 million as compared to OMR 1.5 million. And there is OCI gain. We have an investment in the sales of OVP and some others. So the gain on the unrealized gain is OMR 2.3 million on that. So if you add that, our net profit is OMR 3.6 million as compared to OMR 1 million last year. At the group level, because of the 3 subsidiaries and all 3 are at the ramp-up stage, especially the food where the fish cost is high, depreciation and interest we are serving. So therefore, that is actually eroded a little bit of our profit. So from 3.6 million at parent level, at group level, the profit is OMR 2 million only. I move on. Next -- now the balance sheet. This is the asset side of the balance sheet. Again, I'll start from the parent company, H1 2026. So there are 2 components, noncurrent assets and current assets. Our total noncurrent assets is OMR38 million as compared to OMR 53 million last year. And this reduction is not because there is a sale of the asset, it is because of the transfer of the fixed assets of the bakery related from the parent company to the group level. So if you see at the group level, OMR 53 million to OMR 52 million, there is no much change. But at the parent company, it looks reduction. But this reduction is just transfer of the assets from the parent company to subsidiary company. Then comes the current assets. Current assets is OMR 43 million, quite stable of last year. And major component in that is the inventory. So last year, we had OMR 14 million at the end of June. This year, we have OMR 18 million. And that's the reason our liquidity ratio was low. And in order to ensure that we are not running sort of inventory, though the wheat price is quite unstable and we are buying at higher cost, still we are making sure that we have enough inventory. So that's the reason inventory is high. Then the liability side of the balance sheet, noncurrent liability first, which is OMR 7.3 million as compared to OMR 25 million last year. And this is again because we have shifted loan related to the bakery project to the subsidiary. you can see here the borrowing noncurrent assets, which was OMR 16.7 million last year has come down to OMR 2.5 million. So the difference is basically the term loan from Oman Development Bank shifted to the subsidiary. Our short-term borrowing is stable, 22.6 million last year, 22.5 same this year because we have not changed anything in our capital -- working capital structure. So therefore, it is quite -- so therefore, our total liability is QAR 35 million put together, noncurrent and current -- then the difference is the equity. QAR 46 million is our equity, which is consisting of 17.5 million share capital, 3.5 million premium share premium, 2.5 million legal reserve and 2.8 million general reserve. And then there is a fair value reserve of IAR 936,000 on the investments and the QAR 20 million is the retail profit. So altogether is QAR 46 million and QAR 44.5 million was the last year's. At group level also, it is same -- this is our cash flow, snapshot of cash flow the H1 2026 number. Profit before tax for this period is QAR 1.5 million, QAR 1.4 billion. And then the added back to that is the depreciation, finance costs, et cetera, is QAR 1.8 million. So our adjusted profit is QAR 3.2 million. Into that, we have generated additional cash from the working capital management, so 3.2 plus QAR 9.2 million. And the QAR 21 million and QAR 30 million is basically is the change in the noncurrent assets, the assets that we have shifted to the food and the liability that we have shifted to the food. So those are the major components. So if you adjust to and add back with the profit, so we have a net cash generation of OMR 329,000 and opening cash was OMR 2.3 million. Therefore, closing is OMR 2.6 million. So all this detail is provided already on our stock exchange and our company website. If anyone want to study a little bit more, they are welcome to go and do that. If there is any question on that, then of course, at the end of the session, we will take those questions. And these are the major challenges we faced as a management during the last 6 months. As we said that our volume -- manufactured volume was quite stable as compared to -- we tried to make it stable, though there was a lot of challenges in the this period, particularly from the export market, EMN actually imposed the import duty. There was no duty before, but they import 20% import duty. So that had affected our export into that particular business. Margin pressure is already there because of the wheat price and then the logistic cost gone up. This war insurance, which was not a requirement, but these days, we need to compulsorly have a war insurance that is the additional cost. Then these 2 subsidiaries, the bakery and the laboratory, we are still ramping up. So -- but there is a fixed cost. So the ROI and all is not commensurate to that. And supply chain instability and all those things are there. So we are addressing that, and we don't see there is any concern. But of course, this is not a Sala mill specific challenge or it is Oman-specific challenge. It is a global challenge. Everybody is trying to face this and so as we -- but it is not affecting -- I mean, it is affecting, but it's not that something we need to worry about. There is a mitigation plan in place. And hopefully, second half of this year, we believe that it will do better. And then I will pass on to CEO to talk about the strategic initiative and then the way forward.

Yes. Thank you, Mr. Ravi, and thank you, everybody, for listening as well. Although as Ravi was saying it was a challenging first half of the year. I mean the aftermath of this disruptive geopolitical situation in the region continues to shed some shadows on the operations. But on a positive side, we have ramped up a lot of new plans. We have approved a new strategy for the group going forward. We are trying to focus on new segments. We have signed already a few strategic partnerships and offtake agreements. Hopefully, they will see the light in this quarter itself. We are confident that the situation is going to improve going forward. Some of these prices are still a concern, especially also the conflict in the Black Sea is still continuing. Some of our requirements for grains come from that particular origin. But the positive side that Salala and Oman in general enjoys the geographical location outside of the state of Forms and a lot of plans are actually in place to start multiple sourcing. So we are confident as executive management of the next half of the year. And usually, Q2 and Q3 are -- Q2 is the toughest. Things get back to normal in Q3. And usually, Q4 is the best time of the year, and we have already seen some signs of that, both for local demand and regional demand as well. Some markets are stabilizing, Somalia and Yemen, hopefully, to follow. The duty imports hiking prices have started showing some signs of relief, and we will already start resuming aggressive exports to those markets. a nutshell, we are confident that H2 will be much better than H1. And hopefully, when we meet you next time, I mean, the results in [Foreign Language] will be very, very different, hopefully [Foreign Language] .

Thank you, Mr. Ali. So this is all from our side as far as presentation is concerned. Now we will open the floor for the question. If there is any questions, we are happy to take from any of the investors analysts.

All right. If no questions, we thank you so much, gentlemen, for your time and your presence today, and we look forward to welcome you into other briefings in future in [Foreign Language] Thank you so much.