A'Saffa Foods SAOG (SPFI) Earnings Call Transcript
August 13, 2024
Earnings Call Speaker Segments
[Foreign Language], Welcome to everybody. Thank you for joining this second session of the investor and the financial analyst relationship. We present our the first half of the 2024 financial results. This is in compliance with the Decision E109/2022 of the CMA, 13th July 2022. My name is Muhammad Rafique Chaudhry. I'm the CFO of the company. And I have the panel with me, Mr. Yasir Salmani, he's our Deputy CFO; and Muhammad Bilal, financial planning, reporting and budgeting manager; and Amira ElAtta, she is the IRO. Before we go for the presentation, we would be happy to inform that we have completed our 20-year operation in 2022. We have gone through various milestones by increasing our capacity over the years. We have increased our capacity by 10x. I mean, from 16,000, 18,000 birds per day slaughtering to now going to the 150,000 birds per day slaughtering. We have also gone into the other investment in the diversification in our value-added meat processing factory, in the logistic company, which was last year merged for the better utilization with the parent company and the investment in the other associated companies also. So this is all done during this 2022. I would like to now ask my colleague, Mr. Yasir to present the financial further for the first half of the 2024. I want to just add here that before -- after the financial presentation, there will be question-and-answer session. I mean if any questions will be asked, we will be -- we will answer. [Operator Instructions]. Thank you.
I hope -- [Foreign Language]. Good morning. I hope that slide is visible in front of you. We will -- I think the financials already has been released in the MSX website, and all of you had the opportunity to go through the details. So here we will go to the main highlights of the income statement and the balance sheet. And as Mr. Rafique said, we will keep most of the time for the questions and answers. Just for Amira to allow one of the participants, and then we will go to the slides. Okay. So we will focus on the group results. As you can see here, there is a significant increase in the sales from first half of 2023, if we compare it to the first half of 2024. There is a 37% increase, and as a result, the gross profit also has a significant increase of almost the same 36%, if we compare it to the same period last year. The profit of -- the net income or the profit and total comprehensive income has significant increase if we compare it to the last year. It's about 131%. If you look into the cost, we have a close eye on the growth, and there is no significant increase in the -- all of the cost categories. There is a slight increase in the finance cost that was mainly related to the profit rate revision that happened during 2023. However, if you look -- if we -- if you had a chance to look into the financials, you can see there is a significant reduction in the working capital loan, which we expect now from July onward a reduction in the finance cost. The balance sheet movements, if you go to the current assets, there is a reduction in the carryforward -- the finished goods. There is a huge reduction there. That is the result -- which has resulted in the reduction in the total asset, particularly current assets. The equity increased due to the recorded profit that has resulted into the equity increase. There is a reduction also in the liabilities. That is mainly due to the reduction into the short-term loans. So all of this has improved all of the main indicators of the balance sheet, meaning the net asset per share, the current ratios, all of them have embraced positively. So this is just a brief on the financials and highlights, and we will keep the major portion of the time for your questions.
Mr. Yasir has presented that this year, we had -- we achieved a significant performance as compared to the last year only in the top line as well as the bottom line, which have already been -- all the accounts have been already uploaded on the financial statement. And I'm sure you must have gone through it. So we will be ready to answer any questions which you have, please? Please, if anybody likes to ask the question, he should introduce himself and his company.
I'm [ Anna ] from United Securities. I have a question regarding the expansion plans. Can you please provide any update on that?
Okay. So as we have explained earlier that the A'Saffa has completed its 20-year operation, and A'Saffa continuously kept on expanding its production facility and investing in the other opportunities also. We have just -- we concluded our major expansion in 2021 during a difficult time when there was a COVID also everywhere, but we completed [Foreign Language] well on time. And we have -- now, honestly speaking, we are, again, as per our tradition, we again started discussing the further possibilities of expansion or investment, but it needs further discussion. But yes, A'Saffa always keep discussing the further growth option that we are discussing. Is it okay, [indiscernible].
Okay. Also regarding Osool Poultry, can you also shed some light on -- is there any additional capacity or growth expansion plan for it?
Osool has started operation in 2021. Yes, in 2021. So that was the partial start, because it's a livestock and it needs a cycle to go into the full production. The last year was the full production at the Osool and they were in the process of developing their market and through the learning curve. But this year, their performance is exceptional. They have built the market. They are operating at a full capacity. And [Foreign Language], they are achieving the good profitability also. As you can notice that there is a OMR 377,000, which is only our share for the first 6 months from the Osool performing. So the future looks good for the Osool. As far as the further expansion of Osool that is, honestly, we cannot comment at this time anything because that is the matter -- yes, they are going into the investment of the GP first. That is what they have already -- they are exploring the possibility for that one because now they are currently importing our Parent DOC from the breed supply, but they have the plan to go to the first to set up the grandparent farm. So this is -- they already are going through the process to invest in that one.
Congratulations on a fantastic first half. We were talking, I think, after the last quarter and we -- obviously, last quarter was a fantastic quarter for you guys. I mean, in quarter 1, there was an inventory buildup that you managed to sort of sell in the Ramadan quarter. And then we said that we will speak again after the second quarter to see what the trend is. What I was very pleasantly surprised is that even though your revenues came down, the kind of net margin that you could sustain at the 9% level. Now I can't remember the last time these kind of net margins. Last year was close to, I think, 5% for the entire year. What has changed this year? I mean, what's going on? What's the outlook? Because obviously, the company is in a very sweet spot right now. So I just wanted to understand, what's the outlook for the company for the next 6 to 12 months with in regard to, obviously, revenue and net margin?
Thank you very much for your appreciation. We would like to assure that we are currently operating. A'Saffa has the history to operate at the highest production efficiency going at the full capacity and as far as controlling the cost also. But in 2022, '21, particularly '22, the prices of the raw material went abnormally high in the market, which certainly everybody, all the livestock, the company they hit, even if you look at the other company, they've got the hit from that one. And that was also because after the expansion going into the full, 100% expansion that time, so we got a little bit that time a tough time. But now we are improving our efficiency. Yes, the first half, as explained in the previous session that there was a carryforward stock, which was liquidated. It was properly explained that it will -- the plan was to liquidate in the Ramadan, but certain things came up that the liquidation started earlier also. Otherwise, the planning was there for the Ramadan. But now the -- because we have some good procurement also on the cost side also, which is helping us to maintain the better margin as compared to the last year. So that is the main reason of the control and the production efficiencies also. And if we compare at the top line also, we have a better -- the market -- the realization also better as compared to the last year.
Okay. And you expect this trend to sort of sustain because I remember, you said that you hold typically close to 3-month inventory, right, raw material inventory. So in terms of the cost of raw materials, there is no way to really hedge it, right, just because the prices are good right now. Is there a way that you can enter a long-term contract for the feed supply for the feedstock or -- and that's not how this market works.
Whenever we study hedging the procurement, we have seen that the premium cost is very high. That is we always go through this one. We are taking the prudent decision in this. Now as you have spoken for the second half, so you said something 3-month inventory. Honestly speaking, we have never gone into the 3-month inventory. Our production, if we combine the production, our production in the factory food processing, it is 4,000 metric tons. Our stock was only reaching 5,500 -- raw material. Yes, raw material, we always go for -- we try to keep that minimum 3-month stock, that is our minimum, but we go to the 5-month stock also, 6-month stock also depending upon the market prices, availability and [indiscernible]. But we are expecting that the next 6 months we are foreseeing [Foreign Language] the similar result, which was there in the Q2.
Right. Well, just a question on the balance sheet side. I noticed, obviously, I think the first quarter...
Mr. [ Aqeel ] was raising his hand, just to give a fair opportunity. Two questions for each participant. So Mr [ Aqeel ] you can proceed. [ Aqeel ], if you have questions, send the message that you want. Otherwise, we will give back to Abbas. Okay Mr. Abbas, I think Mr. [ Aqeel ] has some -- he left .
I was asking on the balance sheet side. There's been -- the receivables came down and then you ended up paying this working capital loan going forward. And you -- how do you see your debt sort of progressing over the next 6 to 12 months? Your long-term loans, I'm assuming there's an amortization schedule that's already built into the...
Mr. Abbas do you have any further question?
Yes, can you hear me? I'm actually speaking. Can you guys hear me because I was just asking a question?
We saw your -- I think, unfortunately, there is some issue that you cannot unmute and you cannot speak. But we saw your answer -- your question regarding the debt repayment plan. As Mr. Yasir has explained that there is a significant reduction already in the short-term financing, we have reduced almost to honestly to a negligible amount. As regard the term loan, we are making the payment on time. But the proper schedule is starting next year. We are already making the plan. We are making whatever the payment is due. We always -- the A'Saffa has the history to repay the loan on time without any delay. But next year, the major payments are starting, and we have already the funds available for that. But we don't feel any difficulty in repaying the debt liability. Term of repayment is 10 years or 12 years? Yes, it's a 10-year, the repayment for the term loan because this is the term loan which we have taken only for the expansion. We were having the 0 debt before the expansion.
Apologies. It started -- the repayment will start from 2024 up to 2033. So that is as Mr. Rafique just mentioned, it is 10-year repayment plan.
Any more questions from anybody?
Yes. Mr. [ Aqeel ] is raising his hand. Mr. [ Aqeel ], if you send your question through the text because we cannot hear you. We will answer your questions.
We just like to inform you that we are trying to unmute from our side, but this is not honestly in our control fully. So this is the reason we request that if you can send -- if you can just write your question, we will answer. I just saw the Abbas question because on the right side of the panel, I'm looking at the question, where do you see the debt level in the next 6 months? So the debt level, the working capital loan with short-term finance, I will say, that will stand at the 0. And the term loan, we will go according to the schedule. So that we are going [indiscernible]. So that will be -- the major reduction will start as the repayment will start.
Mr. Abbas is asking if we can use the accumulated profit to pay some of the loans to reduce the interest. So as Mr. Rafique could just explained that in the past 6 months, we are using this strategy. We have reduced the short-term loan significantly if you compare it from the end of last year to the end of the first half of this year, you can see there is a huge reduction in the short-term loan. As regard to the long term, we are expecting the big amount of the repayment will start next year that we can utilize again profit to repay the expansion loan. Mr. [ Aqeel ] is asking about the same question, can we use some of our accumulated profits to strengthen the bottom line? I think we believe we answered this question.
But I just want to add here that this is the A'Saffa always trying to use -- this is the first thing that trying to not only strengthen the bottom line but strengthening the food security and the production facility and the top line. If we look at the -- we have utilized some fund for the BMR also this year, which was supposed to be from the loan that we have not utilized and we used our resources for maximizing our capacity. At the same time, we -- just honestly I forgot to mention in the beginning that we have the solar project that has been also -- which had been installed that has also started operation from July this year, which is again a direction toward the environmental safety also, cost reduction also on both sides.
And with regard to the investments because Mr. [ Aqeel ] is following up on can we buy some of the shares. It was mentioned by Mr. Rafique earlier in the discussion that the company is always evaluating the possible investments, whether it is an expansion, natural growth, organic growth or going for other investments like subsidiaries or other investments like Osool. So that is an ongoing discussion, and we cannot disclose now the possible investments on the table. If the decision is made, then the proper disclosures will be made.
So if there is no more questions, then we will conclude this session. So please let us know if somebody has the last question. Otherwise, we will conclude the session. Thank you very much. Thank you for all the participants for this session.
I think Mr. [ Aqeel ] is typing something.
Mr. [ Aqeel ] we are waiting for your question only. Okay. We got your because those are all the commercial -- basically, those are all the proposal, which is the commercial proposal. We would like to inform that we always look for the opportunity, look for the improvement, all these things always, our think tank is always working on that one. So thank you for your suggestion, which has been already forwarded to our commercial team. Thank you. Thank you very much. Thank you again for all the participants. [Foreign Language]
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