Q2 2026 Abdullah Al Othaim Markets Co SJSC Earnings Call

August 19, 2026

[Analyst] (SNB Capital): On behalf of SNB Capital, I would like to welcome you all to a conference call with Al Othaim's management regarding their financial results of Q2 2026. With us on the call today is Mr. Abdulmalik Al Othaim, the Managing Director, Mr. Marwan Ibrahim, the CFO, and Vice Chairman Bader Alaujan. We will first listen to the management feedback, and following this, we will open the floor to questions. Now I will hand it over to Bader. Bader, please go ahead with the opening remarks.

Speaker #1: And on behalf of S&B Capital, I would like to welcome you all to a conference call with Othaim's management regarding their financial results for Q2 2026.

Sarah BinMansour: On behalf of SNB Capital, I would like to welcome you all to a conference call with Al Othaim's management regarding their financial results of Q2 2026. With us on the call today is Mr. Abdulmalik Al Othaim, the Managing Director, Mr. Marwan Ibrahim, the CFO, and Vice Chairman Bader Alaujan. We will first listen to the management feedback, and following this, we will open the floor to questions. Now I will hand it over to Bader. Bader, please go ahead with the opening remarks.

Speaker #1: With us on the call today are Mr. Abdul Maliki Othaim, the Managing Director; Mr. Marwan Ibrahim, the CFO; and Vice Chairman Badr Al-Ojad. We will first listen to the management's feedback and, following this, we will open the floor to questions.

Speaker #1: Now I'll hand it over to Badr. Badr, please go ahead with the opening remarks.

Speaker #2: Okay, thank you very much. Bismillahirrahmanirrahim. Alhamdulillahi Rabbil Alameen. As-salamu alaikum wa sallim Nabiyyina Muhammad wa ala alihi wa sahbihi wa muhtadabihi wa sara ala nahjihi ilayumiddin.

Bader Hamed Abdulrazaq Alaujan: Okay. Thank you very much. Thank you very much, everybody, for joining us on this call today. We would like to kick off with expressing our appreciation and gratitude to our ex-CEO and board member, Brother Muaffaq Mobarah. Wishing him all of the best in his endeavor and appreciating all of the contribution he has done all around the years before. On the second note, as we all know, we had a tough quarter in Q2, and we have released the results and the board of director comments on that. But we are optimistic. We believe that we know the root cause of the challenges we had in Q2. As they say, problem well defined is half solved. We believe we have not only half solved it, maybe a little bit more.

Bader Al-Aujan: Okay. Thank you very much. Thank you very much, everybody, for joining us on this call today. We would like to kick off with expressing our appreciation and gratitude to our ex-CEO and board member, Brother Muaffaq Mobarah. Wishing him all of the best in his endeavor and appreciating all of the contribution he has done all around the years before. On the second note, as we all know, we had a tough quarter in Q2, and we have released the results and the board of director comments on that. But we are optimistic. We believe that we know the root cause of the challenges we had in Q2. As they say, problem well defined is half solved. We believe we have not only half solved it, maybe a little bit more.

Speaker #2: Allahumma, allimna ma yanfa'una wa anfa'na bima 'allamtana wa zidna ilman. Allahumma, ahdina waj'alna wa yassir luda lana. Thank you very much, everybody, for joining us in this call today.

Speaker #2: We would like to kick off by expressing our appreciation and gratitude to our ex-CEO and board member, Brother Muwaffaq Mubarak, wishing him all the best in his future endeavors and appreciating all of the contributions he has made throughout the years.

Speaker #2: On the second note, as we all know, we had a tough quarter in the second quarter, and we have released the results and the management, and the Board of Directors, have commented on that.

Speaker #2: But, Alhamdulillah, Rabbil Alameen, we are optimistic. We, Alhamdulillah, believe that we know the root cause of the challenges we had in the second quarter, and as they say, a problem well-defined is half solved.

Speaker #2: We believe we are—we’ve not only half solved it, maybe a little bit more. We believe, as a board and the management team, that we are in the correct direction for Allah Subhanahu wa Ta'ala.

Bader Hamed Abdulrazaq Alaujan: We believe as a board and a management team, that we are in the correct direction. Thanks are all due to Allah. This is coupled with a great management team that we have in place. This is even complemented and integrated with the great leadership of our brother, Abdulmalik Al Othaim, who is the Managing Director, and he is going to lead the management team in this direction. All in all, we believe we have great ingredients of success and great ingredients to get us back to where we were. We have full confidence that we are in the correct direction. I am going to hand over to Brother Abdulmalik and his team to take us through the presentation. I look forward that you enjoy the presentation going forward. Thank you very much once more for joining us. Thank you.

Bader Al-Aujan: We believe as a board and a management team, that we are in the correct direction. Thanks are all due to Allah. This is coupled with a great management team that we have in place. This is even complemented and integrated with the great leadership of our brother, Abdulmalik Al Othaim, who is the Managing Director, and he is going to lead the management team in this direction. All in all, we believe we have great ingredients of success and great ingredients to get us back to where we were. We have full confidence that we are in the correct direction. I am going to hand over to Brother Abdulmalik and his team to take us through the presentation. I look forward that you enjoy the presentation going forward. Thank you very much once more for joining us. Thank you.

Speaker #2: Thanks are all due to Allah. This is coupled with the great management team that we have in place, and it is further complemented and integrated by the great leadership of our brother Abdul Malik Othaim, who is the Managing Director. He is going to lead the management team in this direction.

Speaker #2: So, all in all, we believe we have great ingredients for success and great ingredients to get us back to where we were. We have full confidence, bismillah ta'ala, that we are in the correct direction.

Speaker #2: I'm going to hand over to Brother Abdul Malik and his team to take us through the presentation. And I look forward to you enjoying the presentation going forward.

Speaker #2: Thank you very much once more for joining us. Thank you, Abu Abdullah.

Speaker #3: Thank you, Abu Omar, Abu Badr, and please if you need any طبعا احنا حاضرين لكن لأنه عندنا mix audience فراح نتكلم باللغة الإنجليزية. With no further ado طبعا we thank the management and team for the past and historical efforts that has been put.

Abdulmalik Abdullah Al Othaim: Thank you, Brother Omar, Brother Bader. Please, if you need any. With no further ado, we thank the management and team for their vast and historical efforts that has been put. If you can go to the next slide. The board has issued a statement right after the announcement of our results with regards to the unprecedented performance of the company and recording, of course, its first-ever losses. However, yes, those impacts were beyond our expectations and our investors, I am sure, have those expectations, but rest assured that the board and management is putting every effort to make sure that the company is back on track and is back to leading again.

Abdulmalik Al Othaim: Thank you, Brother Omar, Brother Bader. Please, if you need any. With no further ado, we thank the management and team for their vast and historical efforts that has been put. If you can go to the next slide. The board has issued a statement right after the announcement of our results with regards to the unprecedented performance of the company and recording, of course, its first-ever losses. However, yes, those impacts were beyond our expectations and our investors, I am sure, have those expectations, but rest assured that the board and management is putting every effort to make sure that the company is back on track and is back to leading again.

Speaker #3: If you can go to the next slide. The board has issued a statement right after the announcement of our results with regards to the unprecedented performance of the company and, of course, the recording of its first ever losses.

Speaker #3: However, yes, those impacts were beyond our expectations and our investors' and shareholders' expectations. But rest assured that the board and management are putting every effort into making sure that the company is back on track and returns to leading again.

Speaker #3: Of course, our main cause of this headwind was the change in ERP, which I will, inshallah, explain further—why we changed our ERP system.

Abdulmalik Abdullah Al Othaim: Of course, our main cause of this headway was the change in ERP, which I will, inshallah, explain further why we changed our ERP system, what happened, and what do we think the future represents, what it look like in the future, how we are positioning ourselves. So again, thank you, and we thank you for the trust in the board and the team, and management team. Inshallah, I will hand things to my brother, Marwan, to go over the details of the quarters. Then we will end up with the statement and then the Q&A. Thank you. Marwan.

Abdulmalik Al Othaim: Of course, our main cause of this headway was the change in ERP, which I will, inshallah, explain further why we changed our ERP system, what happened, and what do we think the future represents, what it look like in the future, how we are positioning ourselves. So again, thank you, and we thank you for the trust in the board and the team, and management team. Inshallah, I will hand things to my brother, Marwan, to go over the details of the quarters. Then we will end up with the statement and then the Q&A. Thank you. Marwan.

Speaker #3: What happened and what we think the future presents will look like in the future, how we are positioning ourselves. So again, thank you, and we thank you for the trust in the board and the team—and management team—and, inshallah, we will enhance things. Now, to my brother Marwan to go over the details of the quarter.

Speaker #3: And then we'll end with the statement, followed by the Q&A. Thank you.

Speaker #2: Thank you. Bismillahirrahmanirrahim. Welcome, everyone, and thank you, too, for giving us this opportunity to present the results of the financials for the second quarter.

Marwan Ibrahim: Thank you. Welcome, everyone, and thank you to Brother for this opportunity to present the results of the financial statements and the performance of the company for this Q2. As usual, we will start with the key information slide. The company is a Saudi listed company with 900 billion Saudi Riyals and 900 million shares. The market capitalization on the market cap is 5.3 billion Saudi Riyals, $1.4 billion USD. The board size, six members, has three committees, which is the committee, NRC, and the audit committee. The company is listed on Tadawul since 2008. The headquarters are located in Riyadh City. We will skip some pages just to save time. The mission and vision, and our private label. As usual, you have seen maybe these slides before, CM and LNJ. We have these, our reach is 418 stores.

Speaker #2: As usual, we'll start with the key information slide. The company has total assets of 900 billion Saudi riyals and 900 million shares. The market capitalization, or market cap, is 5.3 billion Saudi riyals, which is approximately $1.4 billion US dollars.

Speaker #2: The board size is 6,600 members. It has the committees: Executive Committee, NRC, and the Other Committee. The company has been listed altogether since 2008 and the quarters are located in Riyadh City.

Speaker #2: We will skip some versions just to save time. This is our mission and vision, and our private label. As usual, maybe you have seen these slides before.

Speaker #2: There is no change. Our reach is 418 stores during the first half of the year. We have opened four new stores, and we have 60 stores in Egypt.

Marwan Ibrahim: During the H1, we have opened four two stores, and we have 60 stores in Egypt. So the total is 478 stores. Out of those stores, 406 stores are in retail, with 672,000 square meters located across the KSA. The wholesale is 12 stores with a total of 19,000 square meters, and they happen to be wholesale contribution 6% of our total top line. In Egypt, we have 60 stores with 37,000 square meters and contributed only 2% of our total top line. As you see that during or over the last couple of years, we have slowed down our expansion plan while five years ago we had a rapid and aggressive expansion plan. But during the last half, we have opened only two stores and the same half last year, we have opened four stores. Okay.

Speaker #2: So the total is 478 stores. Out of those stores, 406 stores are in retail with 672,000 square meters located across the KSA. The wholesale is 12 stores with a total of 19,000 square meters.

Speaker #2: And they have the wholesale contributed 6% of our total supply. In Egypt we have 60 stores with 70 with 37,000 square meter. And contributed only 2% out of our total supply.

Speaker #2: As you see, during or over the last couple of years, we have slowed down the expansion—our expansion plan—while five years ago, we had a rapid and aggressive expansion plan.

Speaker #2: But during the last half, we have opened only two stores, and in the same half last year, we opened around—okay, these are the number of stores over the last five years.

Marwan Ibrahim: These are the number of stores over the last five years. This is the board of directors statement that has been published in the media and focuses on four areas. First is the interim results of anti-technology transformation challenges. The results for the Q2 2006 fell short of the inspiration of the company and its shareholders in terms of revenues growth and profitability, affected principally by challenges that accompany the technology transformation project and the development of the digital infrastructure intended to raise efficiency and improve the customer experience. These challenges had an adverse impact on supply chain, inventory management, and product availability. Executive management carried out the related investment and took a prudent approach by recognizing significant solutions. Second, accurate diagnosis and corrective actions.

Speaker #2: And this is the Board of Directors' statement that has been published in the media and focuses on four areas. First is the interim results of anthropology transformation challenges.

Speaker #2: The results for the second quarter of 2006 fell short of the inspiration of the company and its shareholders in terms of revenue growth and profitability, affected principally by challenges that accompanied the technology transformation project and the development of the digital infrastructure intended to raise efficiency and improve the customer experience.

Speaker #2: These challenges had an adverse impact on supply chain inventory management and product availability. Executive management carried out the related investments and took a prudent approach by optimizing significant projects.

Speaker #2: Second, accurate diagnosis and corrective actions. Executive management and the specialized working team intensified their efforts, in cooperation with the technology partners, to precisely identify the areas of deficiency and address their root causes.

Marwan Ibrahim: Executive management and the specialized working team intensified their efforts in cooperation with the technology partners to precisely identify the areas of efficiency and address their root causes. These actions included a review of all operational and financial processes and have contributed to a comprehensive remediation plan to improve data accuracy and the flow of operational proceeds through the system, and to reach the stage of operational stability supported by control measures in line with the best practices of governance and transparency. Three, administrative and organizational development. The board of directors is implementing a package of administrative and organizational measures aimed to re-strengthening the leadership and execution framework within the company and reviewing the management structure and balance of executive responsibilities to demonstrate with the requirements of the current stage.

Speaker #2: These actions included a review of all operational and financial processes and have contributed to a comprehensive remediation plan to improve data accuracy and the flow of operational proceeds.

Speaker #2: through the system, and to reach the stage of operational stability, supported by control measures in line with the best practices of governance and transparency.

Speaker #2: Three, administrative and organizational development. The Board of Directors is implementing a package of administrative and organizational measures aimed at restrengthening the leadership and execution framework within the company, and reviewing the management structure and levels of executive responsibility.

Speaker #2: We are concentrating on the requirements of the current state. These measures include making the necessary decisions regarding certain leadership and executive positions, as well as strengthening capabilities and competencies at the relevant management levels.

Marwan Ibrahim: These measures include the necessary decisions regarding certain leadership and executive positions and the strengthening of capabilities and competencies at relevant management levels. Number four, confidence in the future and clear priorities. The grocery retail sector in the Kingdom continues to offer promising growth opportunities supported by population and economic growth, evolving consumption patterns, the targets of Saudi Vision 2030, and expansion in digital commerce. The company's priorities for the coming stage are restore growth momentum and develop sales and profitability, alongside improving inventory and working capital efficiency, accelerating digital transformation, and enhancing product availability.

Speaker #2: Number four, confidence in the future and clear priorities. The grocery retail sector in the Kingdom continues to offer promising growth opportunities, supported by population and economic growth, evolving consumption patterns, the targets of Saudi Vision 2030, and the expansion in digital commerce.

Speaker #2: The company's priorities for the coming stage are to restore growth momentum and develop sales and profitability, alongside improving inventory and working capability efficiency, accelerating digital transformation, and enhancing product availability.

Speaker #2: Our message for the board message to the shareholders is that the Board of Directors extends its sincere thanks and appreciation to the company's shareholders for their trust and continuous support, affirming its commitment to continue working to strengthen the company's performance and standing, and to raise its operational efficiency.

Marwan Ibrahim: Our message or the board message to the shareholders, staff. The board of directors extends its sincere thanks and appreciation to the company shareholders for their trust and continuous support, affirming its commitment to continue working to strengthen the company's performance and standing, raise its operational efficiency, achieve its sustainable growth, and maximize value for shareholders. This slide is very important to show all the investors and stakeholders that there is one of our abnormal hits that affected the performance and the net income of the company for the second quarter. We have identified this abnormal hit, which amounted SAR 111 or 112 million. This amount actually, when removed or eliminated, the company's performance could be presented in a better view.

Speaker #2: Achieving sustainable growth and maximizing value for shareholders. This slide is very important to show all the investors and stakeholders that there is one-off or abnormal hits that affected the performance and the net income of the company for the second quarter.

Speaker #2: We have identified this abnormal hit, which amounted to 111 or 112 million Saudi riyals, and this amount actually, when removed or eliminated, the company’s performance will be presented in a better view.

Speaker #2: For difference to disclose our previously made in the 2025 annual financial results regarding the impact of implementing the enterprise, the ERP system on logistics operations, and the commencement of their.

Marwan Ibrahim: With reference to the disclosure previously made in 2025 annual financial results regarding the impact of implementing the Express Enterprise ERP system on logistics operations and the commencement of their improvement, and in the Q1 2026 financial results regarding the completion of the first phase of the system stabilization. Here, we are referring to our two announcements by the end of 2024, 2025, and the Q1 of 2026 about the ERP system. The company clarified that management's statement and assessment at that time was based on the preliminary operational information and indicators available at that point in time. But as longer period operational data became available and the assessment of the system's performance continued during the second quarter, the evaluation results indicated that certain operational challenges associated with its performance persisted.

Speaker #2: Improvement in the first quarter 2026 financial results regarding the completion of the first phase of the system stabilization—here we are referring to our two announcements by the end of 2024, 2025, and the first quarter of 2026.

Speaker #2: Regarding the RB system, the company clarified that the management statement and assessment at that time were based on the preliminary operational information and indicators available at that point in time.

Speaker #2: But as longer-period operational data became available and the assessment of the system's performance continued during the second quarter, the evaluation results indicated that certain operational challenges associated with its performance persisted.

Speaker #2: These challenges adversely affected the efficiency of supply chain operations and the automated inventory replenishment system, which negatively impacted sales and contributed to an increase in commercial inventory provisions during the current quarter.

Marwan Ibrahim: These challenges adversely affected the efficiency of supply chain operations and automated inventory replenishment system, which negatively impacted sales and contributed to an increase in commercial inventory provisions during the quarter. We will show the impact of abnormal here. Consolidated sales declined. We couldn't actually identify exactly how much is the impact of the ERP system on the sales, but definitely the sales have been adversely and negatively affected by the ERP system because of the auto replenishment and some other issues. The consolidated sales declined by 1% compared with the corresponding quarter of the previous year, mainly due to a decline in retail sales in the kingdom as the company's performance was affected by challenges associated with the implementation of the ERP system. Direct sales through branches declined, while sales through the online channels recorded notable growth, which partially offset the decline in the direct sales.

Speaker #2: We will show the impact of abnormal, here, consolidated sales decline. Of course, we didn't actually identify exactly how much is the impact of the ERP system on the sales, but definitely, the sales have been adversely and negatively affected by the ERP system because of the auto-replenishment and some other issues.

Speaker #2: The consolidated sales declined by 1% compared with the corresponding quarter of the previous year, mainly due to a decline in retail sales in the Kingdom, as the company's performance was affected by challenges associated with the implementation of the RB system.

Speaker #2: Direct sales through branches declined, while sales through the online channels recorded notable growth, which partially offset the decline in the direct sales. When we say direct sales, we mean offline sales directly from the stores, resulting in an overall decrease in the total sales.

Marwan Ibrahim: When we say direct sales, we mean the offline and directly from the stores, resulting in an overall decrease in the total sales. The normalized EBITDA for the company for Q2 2026 was SAR 96.4 million, a decline of 31% compared to the same quarter last year after adjusting for the commercial inventory provision amounting SAR 112 million. The decline in the normalized EBITDA is attributed to the lower gross profit in absolute terms because of lower sales related to ERP implementation, which had a negative impact on supply chain plans, resulted in lower sales. The increase in expenses associated with the online sales. Accordingly, the normalized net income attributable to shareholders of the company for Q2 '26 was SAR 4.6 million. Again, this is a normalized income after we have reversed, just to show the normalized, we have reversed the SAR 112 million provision.

Speaker #2: And the normalized EBITDA for the company in the second quarter of 2026 was 906.4 million, a decline of 31% compared to the same quarter last year, after adjusting for the commercial inventory provision amounting to 112 million.

Speaker #2: The decline in the normalized EBITDA is attributed to the lower gross profit and absolute turns, because of lower sales related to ERP implementation, which has had a negative impact on supply chain plans and resulted in lower sales.

Speaker #2: And the increase in expenses associated with the online sales. Accordingly, the normalized net income attributable to shareholders of the company for the second quarter 2026 was 4.6 million.

Speaker #2: Again, this is a normalized income after we have reversed, just to show the normal normalized, we have reversed the 112 million provision.

Speaker #2: Decline of 89% compared with the same quarter last year. This was mainly attributable to a decline in sales resulting in lower gross profit in absolute terms, and similar to the explanation of EBITDA.

Marwan Ibrahim: A decline of 89% compared with the same quarter last year. This was mainly attributable to decline in sales, resulting in lower gross profit absolutely, and similar to the explanation of EBITDA. Here is the normalized income statement. It shows the top line sales, which is 1% less than the same quarter last year. The EBIT is 42% less than last year. The net income is 89% less than last year, which recorded SAR 4.6 million. EBITDA has recorded SAR 96 million, with 31% less than the same period, the same quarter last year. For the H1 of the year, H1 2026, our sales declined by 4% compared with last year, the same period last year. The gross profit declined by only 10 basis points. EBIT declined by 28%.

Speaker #2: Here is the normalized income statement. It shows the top line, the sales, which is 1% less than the same quarter last year. The EBIT is 42% less than last year.

Speaker #2: The net income is 84%, or 89%, less than last year, which recorded 4.6 million. And EBITDA is recorded at 96 million, which is 31% less than the same period—the same quarter—last year.

Speaker #2: For the first half of the year, H1 2026, our sales declined by 4% compared with the same period last year. The gross profit declined by only 10 basis points.

Speaker #2: EBIT declined by 28%. The net income declined by 5%, and this is the 59 million—the normalized net income for the half year after adjusting the net income by 112.

Marwan Ibrahim: The net income declined by 5%, and this is the SAR 59 million, the normalized net income for the half year after adjusting the net income by 112. EBITDA recorded SAR 219 million, with a 25% first decline compared to last year. These are highlights on the balance sheets. It shows the current and non-current assets, the working capital, and the shareholders' equity. The shareholders' equity declined by almost SAR 150 million due to two dividend payments during the H1 of the year with SAR 108 million. This slide shows the cash flow statement, cash flow from the operating activities. It's fair to say that still the company is generating income from its operating activities. It generated during the H1 of the year, SAR 273 million. This slide shows the development on the trend of sales, net income, EBITDA, and gross profit over the last five years with their percentages.

Speaker #2: EBITDA recorded 219 million, with a 25% decline compared with last year. These are the highlights on the balance sheets, showing the current assets, the working capital, and shareholders' equity.

Speaker #2: The shareholders equity declined by 200 almost 150 million. Due to two dividend payments during the first half of the year with 108 million. This statement this slide shows the the cash flow statement cash flow from generated from the operated operating activities and it deserves to say that still the company is generating income from its operating activities generated during the first half of the year year 270 3 million.

Speaker #2: This slide shows the development and trend of sales, net income, EBITDA, and gross profit over the last five years, with their percentages. If you have any questions, of course we will be ready to answer them, but we are just presenting the highlights.

Marwan Ibrahim: If you have any question, of course, we will be ready to answer it, but we are just presenting the highlights. This is for the H1 of the year, same slide and the same information. Again, those are normalized figures, normalized numbers. Finally, we present the financial indicators for Q2. Return on equity, only 85%, normalized. Return on assets is 0.8%. Earn on people, employed is 4.2%. Interest is still over 2.5. Total debt to equity is almost 6 to 1, and earnings per share is minus SAR 0.06. That is all. We are ready to answer any questions.

Speaker #2: This is for the first half of the year, same slide and the same information. Again, those are normalized figures, normalized numbers. Finally, we present the financial indicators for the second quarter.

Speaker #2: Still, we could only achieve a 5% normalized return on assets, a 0.8% return on capital employed, and a 4.2% fixed assets turnover. Total debt to equity is almost 6 to 1, and earnings per share is minus 0.006.

Speaker #2: That's all, and we are ready to answer your questions.

Speaker #1: Before answering, if you don't mind Abdullah, I'd like to address some—let me say—questions or concerns that maybe would address your questions before we start.

Abdulmalik Abdullah Al Othaim: Before answering, if you do not mind, Abu Abdullah, I would like to address some, let me say, questions or concerns that maybe it would address your question before we start. First of all, of course, as a board, as a management, we are not happy with the performance. Of course, we expect that, Inshallah, the company will have a positive turnover, and Inshallah, will have a stable H2 of the year. When it comes to the strategy that has been announced, nothing will change. We are still executing, we are still working. Yes, we are slowing down in terms of our expansions, but that has previously communicated as well.

Abdulmalik Al Othaim: Before answering, if you do not mind, Abu Abdullah, I would like to address some, let me say, questions or concerns that maybe it would address your question before we start. First of all, of course, as a board, as a management, we are not happy with the performance. Of course, we expect that, Inshallah, the company will have a positive turnover, and Inshallah, will have a stable H2 of the year. When it comes to the strategy that has been announced, nothing will change. We are still executing, we are still working. Yes, we are slowing down in terms of our expansions, but that has previously communicated as well.

Speaker #1: First of all, of course, as a board and as management, we are not happy with the performance. Of course, we expect that, inshallah, the company will have a positive turnover and, inshallah, will have a stable second half of the year. When it comes to the strategy that has been announced, nothing will change. We are still executing, we are still working, and yes, we are slowing down in terms of our expansions, but that has previously been communicated as well.

Speaker #1: I'd like to address a question that has been, let me say, a little bit popular in the past few days: What is the future of retail? Where is retail heading, and why did we change the ERP?

Abdulmalik Abdullah Al Othaim: I would like to address a question that has been, let me say, a little bit popular in the last two days is, what is the future of the retail, where the head is heading, and why did we change the ERP? First, let us talk about retail. Retail, it is a logistics business. You have to buy the right product at the right time, deliver it at the right cost to the consumer, and it will be sold. With that being said, with the large network that we have, we need, of course, the right technology, and we need more sophisticated technology. When the customer behavior and the customer, as we say, the market behavior is changing and moving towards online, we do know that, and we do understand that, and we do acknowledge that as an offline player.

Abdulmalik Al Othaim: I would like to address a question that has been, let me say, a little bit popular in the last two days is, what is the future of the retail, where the head is heading, and why did we change the ERP? First, let us talk about retail. Retail, it is a logistics business. You have to buy the right product at the right time, deliver it at the right cost to the consumer, and it will be sold. With that being said, with the large network that we have, we need, of course, the right technology, and we need more sophisticated technology. When the customer behavior and the customer, as we say, the market behavior is changing and moving towards online, we do know that, and we do understand that, and we do acknowledge that as an offline player.

Speaker #1: So first, let's talk about retail. Retail is a logistics business. You have to buy the right product at the right time, deliver it at the right cost to the consumer, and it will be sold.

Speaker #1: With that being said with the large network that we have we need of course the right technology. And we need more sophisticated technology. So when we move when the customer behavior and the customer let me say the market behavior is changing and moving towards online we do know that and we do understand that and we do acknowledge that as an offline player we have a huge figures already in the online and we do have presence in the online.

Abdulmalik Abdullah Al Othaim: We have huge figures already in the online, and we do have presence in the online. It might not be the way we want it at the moment, but that is why we have invested in this new ERP system that will allow us to be more sophisticated, more agile, and can tackle the online and different formats in the right way. This is the reason why we changed the ERP system. The previous one had limitations, the new one has more sophistication. Globally and historically, any ERP system, when it is implemented, it is normal to have a debt. However, the expectations of what happened, we were not expecting that huge dip, let me say, and that is why the management or board have never communicated any concern when it comes to the ERP implementation. However, right now we have identified the most major points.

Abdulmalik Al Othaim: We have huge figures already in the online, and we do have presence in the online. It might not be the way we want it at the moment, but that is why we have invested in this new ERP system that will allow us to be more sophisticated, more agile, and can tackle the online and different formats in the right way. This is the reason why we changed the ERP system. The previous one had limitations, the new one has more sophistication. Globally and historically, any ERP system, when it is implemented, it is normal to have a debt. However, the expectations of what happened, we were not expecting that huge dip, let me say, and that is why the management or board have never communicated any concern when it comes to the ERP implementation. However, right now we have identified the most major points.

Speaker #1: It might not be the way we want it at the moment, but that's why we have invested in this new ERP system that will allow us to be more sophisticated, more agile, and able to tackle the online and the performance in the right way.

Speaker #1: So, this is the reason why we changed the ERP system. The previous one had limitations; the new one has more sophistication. Globally and historically, any ERP system, when it's implemented, it's normal to have a debt.

Speaker #1: However the the the expectations of of what happened wasn't we weren't expecting that huge debt let me say and that was and that's why the management or board have never communicated any concern when it comes to the to the ERP implementation.

Speaker #1: However, alhamdulillah, right now we have identified the most major points. Our team is working to solve these major points. We have deployed the right teams, we are working closely with our consultants, and we are seeing material improvements as we speak.

Abdulmalik Abdullah Al Othaim: Our team is working to solve the major points. We have deployed the right teams. We are working closely with our consultants, and we are seeing material improvements as we speak. When it comes to the retail, again, because a lot of people are thinking that offline is dying quickly, but we don't think so, but online is the future. Yes, that is true. But if you look at the market, we are witness that an offline player have exit in the market, and an online player also have exit in the market, or at least have raised the white flag. With that being said, it's not about online or offline, it's about mastering the logistics.

Abdulmalik Al Othaim: Our team is working to solve the major points. We have deployed the right teams. We are working closely with our consultants, and we are seeing material improvements as we speak. When it comes to the retail, again, because a lot of people are thinking that offline is dying quickly, but we don't think so, but online is the future. Yes, that is true. But if you look at the market, we are witness that an offline player have exit in the market, and an online player also have exit in the market, or at least have raised the white flag. With that being said, it's not about online or offline, it's about mastering the logistics.

Speaker #1: When it comes to retail again, because a lot of people are thinking that offline is dying quickly, but we don't think so. But online is the future.

Speaker #1: Yes, that is true, but if you look at the market, we have witnessed that an offline player has exited the market, and then an online player has also exited the market.

Speaker #1: Or at least have raised the white flag. And so, with that being said, it's not about online or offline—it's about mastering the logistics.

Speaker #1: And that's what we are doing in everything. That's what we have been doing for 70 years, and that's what we will continue doing, inshallah, with our new ERP system, with our...

Abdulmalik Abdullah Al Othaim: That's what we are doing in Al Othaim, that's what we have been doing for 30 years, and that's what we will continue doing, Inshallah, with our new ERP system, with our new, let me say, expansion in different formats, whether it was online, whether it was B2B, whether it was wholesale, no matter what it is. The idea is to sell and to buy at the right price and to deliver at the right cost and to sell at the right time. So I wanted to address that as well. The other thing is why we needed to do that now. We needed to invest today in order for us to position ourselves for the future. We have indicated that previously, of course, but maybe today it's more important to touch upon that.

Abdulmalik Al Othaim: That's what we are doing in Al Othaim, that's what we have been doing for 30 years, and that's what we will continue doing, Inshallah, with our new ERP system, with our new, let me say, expansion in different formats, whether it was online, whether it was B2B, whether it was wholesale, no matter what it is. The idea is to sell and to buy at the right price and to deliver at the right cost and to sell at the right time. So I wanted to address that as well. The other thing is why we needed to do that now. We needed to invest today in order for us to position ourselves for the future. We have indicated that previously, of course, but maybe today it's more important to touch upon that.

Speaker #1: A new, let me say, expansion in different formats—whether it was online, whether it was B2B, whether it was wholesale, no matter what industry—the idea is to sell and to buy at the right price, and to deliver at the right cost, and to sell it at the right time.

Speaker #1: So, I wanted to address that as well. The other thing is why we needed to do that now. We needed to invest today in order to position ourselves for the future.

Speaker #1: We have communicated that previously of course but maybe today it's more important to to to touch upon that. When it comes to technology adoption and we are we are considered one of the very early adopters of technology we have adopted technology in the mid 1990s so in 1995 if I'm not mistaken was the first time that we have adopted technology we were the very first one of the very first companies to adopt technology at the very beginning.

Abdulmalik Abdullah Al Othaim: When it comes to technology adoption, at Al Othaim, we are considered one of the very early adopters of technology. We have adopted technology in the mid 1990s. So in 1995, if I'm not mistaken, was the first time that we have adopted technology. We were one of the very first company to adopt technology at the very beginning. Of course, technologies evolve rapidly, and today with the expansion, there are a lot of beautiful and amazing things that we can do, but it has prerequisites. Today we have invested in those prerequisites and the infrastructure that we're doing in order to unlock the potential that we have.

Abdulmalik Al Othaim: When it comes to technology adoption, at Al Othaim, we are considered one of the very early adopters of technology. We have adopted technology in the mid 1990s. So in 1995, if I'm not mistaken, was the first time that we have adopted technology. We were one of the very first company to adopt technology at the very beginning. Of course, technologies evolve rapidly, and today with the expansion, there are a lot of beautiful and amazing things that we can do, but it has prerequisites. Today we have invested in those prerequisites and the infrastructure that we're doing in order to unlock the potential that we have.

Speaker #1: And of course, technologies evolve rapidly, and today, with the expansion, there are a lot of beautiful and amazing things that we can do, but it has prerequisites.

Speaker #1: And today, we have invested in those prerequisites and the infrastructure that we're building in order to unlock the potential that we have. With our wide network across the Kingdom of Saudi Arabia and Egypt—but mainly in Saudi, because that's where our core strength comes from—we have the best chance to succeed in the future of retail, which is the hybrid approach between offline and online.

Abdulmalik Abdullah Al Othaim: With our wide network across the Kingdom of Saudi Arabia and Egypt, but mainly in Saudi because that's where our cost strengths come, we have the best chance to succeed in the future of retail, which is the hybrid approach between offline and online. However, in order for us to do that, we needed, again, the right system, the right infrastructure, which is again why we did this move, why we're investing today and what we're doing. We are confident in the management team and the future of our economy and the contribution of our company. Inshallah, we will be back into growth. Inshallah, we expect, again, stabilization in the next half or the H2 of the year.

Abdulmalik Al Othaim: With our wide network across the Kingdom of Saudi Arabia and Egypt, but mainly in Saudi because that's where our cost strengths come, we have the best chance to succeed in the future of retail, which is the hybrid approach between offline and online. However, in order for us to do that, we needed, again, the right system, the right infrastructure, which is again why we did this move, why we're investing today and what we're doing. We are confident in the management team and the future of our economy and the contribution of our company. Inshallah, we will be back into growth. Inshallah, we expect, again, stabilization in the next half or the H2 of the year.

Speaker #1: However, in order for us to do that, we needed, again, the right system and the right infrastructure, which is, again, why we made this move, why we're investing today, and what we're doing.

Speaker #1: We are confident in the management team, the future of our economy, and the contribution of our company. Inshallah, we will be back in growth.

Speaker #1: Inshallah, we expect again stabilization in the next half, or the second half of the year, and with no further ado, I don't want to take a lot of your time. We'll open the floor for any Q&A, unless you want to add something, Marwan, or of course, our Vice Chairman.

Abdulmalik Abdullah Al Othaim: With no further ado, I do not want to take a lot of your time. We open the floor for any Q&A unless you want to add something, Marwan, or our brother, of course, our Vice Chairman.

Abdulmalik Al Othaim: With no further ado, I do not want to take a lot of your time. We open the floor for any Q&A unless you want to add something, Marwan, or our brother, of course, our Vice Chairman.

Speaker #1: Thank you. Thank you. Thank you. Ladies and gentlemen, we will now start the Q&A session. If you wish to ask a question, please raise your hand or, alternatively, send your question through direct messages to all panelists in the chat box.

Marwan Ibrahim: Thank you.

Abdulmalik Abdullah Al Othaim: Thank you.

Abdulmalik Al Othaim: Thank you.

Marwan Ibrahim: Thank you, Abdullah.

[Analyst] (SNB Capital): Thank you. Ladies and gentlemen, we will now start the Q&A session. If you wish to ask a question, please raise your hand, or alternatively, send your question through direct messages to all panelists in the chat box. We have our first question from the line of Mohammed Saad. Mohammed, please go ahead. You are unmuted.

Sarah BinMansour: Thank you. Ladies and gentlemen, we will now start the Q&A session. If you wish to ask a question, please raise your hand, or alternatively, send your question through direct messages to all panelists in the chat box. We have our first question from the line of Mohammed Saad. Mohammed, please go ahead. You are unmuted.

Speaker #1: We have our first question from the line of Mohammed Saad. Mohammed, please go ahead, you're unmuted. Thank you, SNB. Thank you, management. I have a couple of questions.

Mohammed Saad: Thank you, S&P. Thank you, Al Othaim Management. I have a couple of questions. First of all, I would like to get some clarity on the SAR 112 million provision. Is this SAR 112 million provision, does this represent that SAR 112 million worth of inventory expired because the ERP, the inventory management system within the ERP was not implemented correctly? Is that what this represents? That is my first question. My second question is—

Muhammad Saad: Thank you, S&P. Thank you, Al Othaim Management. I have a couple of questions. First of all, I would like to get some clarity on the SAR 112 million provision. Is this SAR 112 million provision, does this represent that SAR 112 million worth of inventory expired because the ERP, the inventory management system within the ERP was not implemented correctly? Is that what this represents? That is my first question. My second question is—

Speaker #1: First of all, I would like to get some clarity on the 112 million provision. Does this 112 million provision represent that 112 million worth of inventory expired because the inventory management system within the ERP was not implemented correctly?

Speaker #1: Is that what this represents? That's my first question. My second question is: yes, please go ahead if you can answer. Go ahead. Okay.

Marwan Ibrahim: Yeah.

Mohammed Saad: Yes, please go ahead.

Muhammad Saad: Yes, please go ahead.

Marwan Ibrahim: No, go ahead. It is okay. Go ahead.

Speaker #1: So my second question is, like usually, what we have seen for other companies that have implemented ERPs within KSA or internationally is that the usual pattern is that they go live with the new system only after testing the new system for a number of quarters.

Mohammed Saad: Okay. My second question is, usually what we have seen for other companies that have implemented ERPs within KSA internationally is that, the usual pattern is that they go live with the new system only after testing the new system for a number of quarters to ensure that any such instances does not happen. Was this not done in your case? Who was your technology partner? If you would like to name them, didn't they recommend you to do this testing before going live? My last question is, what are the measures that you are going to put in place to ensure that such incidences don't repeat going forward? These are my three questions. Thank you.

Muhammad Saad: Okay. My second question is, usually what we have seen for other companies that have implemented ERPs within KSA internationally is that, the usual pattern is that they go live with the new system only after testing the new system for a number of quarters to ensure that any such instances does not happen. Was this not done in your case? Who was your technology partner? If you would like to name them, didn't they recommend you to do this testing before going live? My last question is, what are the measures that you are going to put in place to ensure that such incidences don't repeat going forward? These are my three questions. Thank you.

Speaker #1: To ensure that any such instances do not happen. Was this not done in your case, and, if so, who was your technology partner, if you would like to name them? Didn’t they recommend you do this testing before going live?

Speaker #1: And my last question is: What are the measures that you are going to put in place to ensure that such incidents don't repeat going forward?

Speaker #1: These are my three questions. Thank you. Thank ank you. Thank you so much. First question is about the provisions that have been taken and the just beyond asking about the 112 million as you know that the inventory usually has different factors that are affecting the valuation of the income in terms of the quantity and in terms of the expiry in terms of the aging and slow moving so we have all those types of provisions according or because of the ERP system as we have mentioned earlier and in the announcement that the the company has preferred itself by the end of of last year for successful season given and followed by the Ramadan season and the trend before going live was moving the rapidly and the growing aggressively up to October 2025.

Marwan Ibrahim: Thank you. Thank you so much, Mohammed. First question is about the provisions that have been taken and reserved, just to be on, asking about the 112 million. As you know, the inventory usually has different factors that are affecting the valuation of the income in terms of the quantity, in terms of the expiry, in terms of the aging and slow-moving. We have all those types of provisions. According or because of the ERP system, as we have mentioned earlier and in the announcement, the company has prepared itself by the end of last year for a very successful season, year-end, and followed by the Ramadan season. The trend before going live was moving rapidly and growing aggressively up to October 2025. For this reason, we have prepared the company with an abnormal inventory to prepare the company for the two seasons.

Speaker #1: For this reason we have preferred with with an abnormal inventory to prepare the company for the for the two seasons. But unfortunately the ERP system came and let's say destroyed our dreams some major parts or quantities of the inventory were not sold and accordingly they became either expired or over aged.

Marwan Ibrahim: Unfortunately, the ERP system came and, let's say, destroyed our dreams. Some major parts or quantities of the inventory were not sold, and accordingly, they became either expired or overaged. Also we have discovered because of some other reasons which are also under investigation, there is an increase in abnormal ratios of shrinkage in the inventory. Accordingly, we have made or taken the decision to make a full inventory taking for all the stores and warehouses across the company and across the kingdom. This plan of inventory taking will be completed, Inshallah, by the end of this quarter, end of September. We have experienced shortages for those quarters. Shortages and of course, overage and expired and damaged items for those which have been counted during the last two months, couple of months. Accordingly, we have taken a provision for those stores.

Speaker #1: And also we have discovered, because of some other reasons which are also under investigation, there is an increase in abnormal ratios of shrinkage in the inventory.

Speaker #1: Accordingly, we have taken the decision to conduct a full inventory of all the stores and warehouses across the company and across the kingdom.

Speaker #1: This plan of inventory taking will be completed inshallah by the end of this this quarter end of September. We have experienced short short of this for those quarters shortages and of course over age and expired and damaged items for those which have been counted during the the last two months couple of months.

Speaker #1: Okay. Accordingly, we have taken a provision for those stores, and at the same time, we have forecasted and anticipated how much the losses will be for those stores that are still not yet counted.

Marwan Ibrahim: At the same time, we have forecasted and anticipated how much would be the losses for those stores that are still not yet counted. What I mean, and I want to say that the losses have been provided for all the stores, even those which were not yet counted. This is the clarification of the 112. Well, second question. The secondary question is about going live and the testing. Yes, we have made a testing on the ERP system and with our partner. Our partner is, I cannot disclose the name of the partner, because we don't want to violate the regulations. But it is approved and recommended by Microsoft. It's approved and recommended by Microsoft.

Speaker #1: What I mean, and the message that I want to convey, is that the losses have been provided for all the stores, even those which were not yet accounted for.

Speaker #1: So this is the clarification of the 112 question. The second question is about going live and the testing. Yes we have made a testing on the on the ERP system and with our with our partner our partner is I cannot disclose the name of the partner because we don't want to reveal the relations.

Speaker #1: But it is approved and recommended by Microsoft. It's approved and recommended by Microsoft. The testing have been performed on an environment test but the the the the performance of the ERP system was not actually tested as as as the live because the number of transactions in the company and the retail in general is huge and was not accepted by by the the ERP system itself.

Marwan Ibrahim: The testing has been performed on an environment test, but the performance of the ERP system was not actually tested as the live, because the number of transactions in the company and retail in general is huge and was not accepted by the ERP system itself. As I know that maybe Markaz Company was not prepared for a huge and a big size company with a huge number of transactions, although they know during the implementation and before that this company is a huge company with huge transactions and high scale transactions but this was happening. We have started with the corrective actions after going live.

Speaker #1: I don't know that maybe the company Microsoft company will not prepared for a huge and a big size company with a huge number of transactions although although they know during the implementation and before that that this is this company is a huge company with a huge transactions and high scale transactions but this what happening then we have started with the corrective actions after going live.

Speaker #1: The measures of course during or over the last nine months from going live from launching the ERP system the company is working together with the with the developer the Microsoft company and the partner which who have implemented the information and the the management team on improving the the system and all the failures of the system and also correcting the the consequences of the system that resulted from that system.

Marwan Ibrahim: The measures, of course, during or over the last nine months from going live, from launching the ERP system, the company is working together with the developer, Microsoft, and the partner who has implemented the information and the management team on improving the system and all the failures of the system, and also correcting the consequences of the Sudan self-imposed transition. I believe that we are now in a very good position as the system became more stabilized than before. We expect that during this quarter, the system is stabilized by maybe 80% to 90%, and by the end of the year, it will be stabilized by 100%. Hopefully that. That's all about the three questions. I hope that I have answered the questions completely. Sara?

Speaker #1: I believe that we are now in a very good position, and the system has become more stabilized than before. We expect that during this quarter, the system will be stabilized by maybe 90%, and by the end of the year it will be stabilized by 90%.

Speaker #1: Hopefully, that's all about the three questions. I hope that I have answered the questions completely. Sarah.

Speaker #2: Ladies and gentlemen, I'd like to remind you: if you have any further questions, please raise your hand or type them in the Q&A chat.

[Analyst] (SNB Capital): Ladies and gentlemen, I'd like to remind you, if you have any further questions, please raise your hand or type it in the Q&A tab. We have a question from the line of Mohsen. Mohsen, please go ahead. You're unmuted.

Sarah BinMansour: Ladies and gentlemen, I'd like to remind you, if you have any further questions, please raise your hand or type it in the Q&A tab. We have a question from the line of Mohsen. Mohsen, please go ahead. You're unmuted.

Speaker #2: We have a question from the line of Mahsin. Mahsin, please go ahead. You're unmuted.

Speaker #1: Thank you, Othaim management team. My question is on something other than the ERP. I wanted to talk about the schools initiative—the public school initiative that you're rolling out.

Mohsen Amiri: Thank you, Othaim management team. My question is on something other than the ERP. I wanted to talk about the schools initiative, the public school initiative that you are rolling out. I think when you talked about this towards the end of last year in the strategy update, you had mentioned that by August 2026 and for this school year, you aim to be in 2,000 schools. I know there are a couple of decision gates between the pilot stage and that rollout. So any update you can provide on how many schools you're serving right now and just generally how the program is going and any color you can provide on that schools program.

[Analyst 1]: Thank you, Othaim management team. My question is on something other than the ERP. I wanted to talk about the schools initiative, the public school initiative that you are rolling out. I think when you talked about this towards the end of last year in the strategy update, you had mentioned that by August 2026 and for this school year, you aim to be in 2,000 schools. I know there are a couple of decision gates between the pilot stage and that rollout. So any update you can provide on how many schools you're serving right now and just generally how the program is going and any color you can provide on that schools program.

Speaker #1: I think, in the last, when you talked about this towards the end of the year—end of last year—and the strategy update, you had mentioned that by, sort of, August 2026, and for this school year, you aim to be in 2,000 schools.

Speaker #1: And I know there are a couple of sort of decision gates between the pilot stage and that rollout. So, any update you can provide on how many schools you're serving right now, and just generally, how the program is going, and any color you can provide on that schools program?

Speaker #3: To clarify on the program, and thank you for the question. The timelines that you have mentioned—those are agreed upon based on the initial testing that we are currently doing and still conducting.

Marwan Ibrahim: To clarify on the program, thanks for the question. The timelines that you have mentioned, those were the initial agreements based on the initial testing that we are currently doing and still doing. Once both parties are satisfied with the success of the partnership, then we will scale it. As of now, it is still in the testing period.

Speaker #3: So once both parties are satisfied with the success of the partnership, then we'll scale it. So as of now, it is still in the testing period.

Speaker #1: Understood. So, are you in the same sort of 280-odd schools you were in around Q1 of this year?

Mohsen Amiri: Understood. Are you in the same sort of 280 odd schools you were in around Q1 of this year?

[Analyst 1]: Understood. Are you in the same sort of 280 odd schools you were in around Q1 of this year?

Speaker #3: Yeah. Yeah. This is the existing, now existing, contract—287 schools. This is the phase one of the project. Okay. But it is still under testing, and once it's approved that it is successful and profitable for the company, we will, inshallah, expand.

Marwan Ibrahim: Yeah. This is the existing contract, 287 schools. This is phase 1 of the project, okay? But it is still under testing, and once it is proved that it is successful and profitable for both the companies, we will, Inshallah, expand.

Speaker #1: Understood. So just just finally just so I understand this so are the amounts because the the the sort of number of schools there was kind of a schedule of 2000 and 6000 I think if if memory serves me.

Mohsen Amiri: Understood. Finally, just so I understand this. Are the amounts, because the number of schools, there was a schedule of 2,000 then 6,000, I think, if memory serves me. Those are individual gates that both parties go through when you are ready as opposed to starting on this date. I guess any color on how the agreement is written would be helpful.

[Analyst 1]: Understood. Finally, just so I understand this. Are the amounts, because the number of schools, there was a schedule of 2,000 then 6,000, I think, if memory serves me. Those are individual gates that both parties go through when you are ready as opposed to starting on this date. I guess any color on how the agreement is written would be helpful.

Speaker #1: Those are individual gates that you that both parties go through sort of when you're ready as opposed to being on starting on this date starting on this date.

Speaker #1: Just, I guess, any color on how the agreement is written would be helpful.

Speaker #3: Well we have we have signed an agreement with with the university and the company actually and they have promised to to give us 2000 schools but unfortunately they they they couldn't do that within the time limit and they are there are some delays so we for this reason we are not well prepared to to work on this project after the this this delay from from the company.

Marwan Ibrahim: Well, we have signed an agreement with the ministry and the computer company, actually. They have promised to give us 2,000 schools. Unfortunately, they couldn't do that within the time limit. There are some delays. For this reason, we are not well prepared to work on this project after this delay from the computer company. For this reason, we agreed with them to focus more now on the existing project for phase one. We can expand in the future, Inshallah, once they are ready and also we are ready.

Speaker #3: For this reason, we agreed with them to focus more now on the existing project with phase one, and we can expand in the future, inshallah, once they are ready and once we are ready.

Speaker #1: Understood. Thank you.

Mohsen Amiri: Understood. Thank you.

[Analyst 1]: Understood. Thank you.

Speaker #2: Thank you, management. We have a question from the line of Nishay in the chat box, which asks: Can any part of this inventory provision be recouped?

[Analyst] (SNB Capital): Thank you, management. We have a question from the line of Nishai in the chat box, which asks, "Can any part of this inventory provision be de-cubed? You said you have taken a more conservative approach and accounted for all of the stores.

Sarah BinMansour: Thank you, management. We have a question from the line of Nishai in the chat box, which asks, "Can any part of this inventory provision be de-cubed? You said you have taken a more conservative approach and accounted for all of the stores.

Speaker #2: You said you have taken a more conservative approach and accounted for all of the stores.

Speaker #3: For sure. The some of the provisions have been taken for example for the overage stock and also for the shrinkage it is the conservative for this reason once we have for example sold and tried to liquidate and we are working on a plan to liquidate the overage stock the relevant for the respective provision would be reversed during the term of 40 partner according

Marwan Ibrahim: For sure. Some of the provisions have been taken, for example, for the overhead stock and also for the shrinkage. It is conservative. For this reason, once we have, for example, sold and tried to liquidate, and we are working, for example, to liquidate overhead stock. The relevant or the respective provision would be reversed during the Q3 or Q4 accordingly.

Speaker #2: Thank you, management. Ladies and gentlemen, I'd like to remind you that if you have any further questions, please raise your hand or type them in the chat box.

[Analyst] (SNB Capital): Thank you, management. Ladies and gentlemen, I'd like to remind you, if you have any further questions, please raise your hand or type it in the chat box. We have a question from the line of Salman Abajhi. Salman, please go ahead. You're unmuted.

Sarah BinMansour: Thank you, management. Ladies and gentlemen, I'd like to remind you, if you have any further questions, please raise your hand or type it in the chat box. We have a question from the line of Salman Abajhi. Salman, please go ahead. You're unmuted.

Speaker #2: We have a question from the line of Salmana Vajhe. Salman, please go ahead. You're unmuted.

Speaker #3: Hello everyone. Thank you, management, for the presentation. Salmana Vajhe from Sabrina Investment. My question is regarding the strategy moving forward. So I was just wondering, what is the exact strategy?

Salman Al Bajhi: Hello, everyone. Thank you, management, for the presentation. This is Salman Abajhi from Sabrin Investment. My question is regarding your strategy moving forward. I'm just wondering what is the exact strategy. It will be focusing more on online or brick-and-mortar small stores, or more focusing on the value chain of the business or even white label, or mix of both. I want to know or give me some visibility, if possible, on the upcoming strategy.

Salman AlRajhi: Hello, everyone. Thank you, management, for the presentation. This is Salman Abajhi from Sabrin Investment. My question is regarding your strategy moving forward. I'm just wondering what is the exact strategy. It will be focusing more on online or brick-and-mortar small stores, or more focusing on the value chain of the business or even white label, or mix of both. I want to know or give me some visibility, if possible, on the upcoming strategy.

Speaker #3: It will be focusing more on online or become mortar small stores or more focusing on the value chain of the business or even white label so basically or mix of so I want to know or give me some visibility if possible on the upcoming strategy.

Speaker #3: Thank you for your question. As we mentioned at the beginning of this call, we will be expanding, regardless of the format.

Abdulmalik Abdullah Al Othaim: Allah give you Afia, Brother Salman, and thanks for your question. We have addressed at the beginning of this call that we will be expanding in no matter what is the format. We will be expanding in offline and in online. When we say expanding, we mean expanding our sales and our profits, Inshallah. That means, we aim to have more efficiency in our value chain. We aim to tackle the online. Remember, we have the largest network in Saudi Arabia. That means that we have the largest distribution channel in Saudi Arabia. That means once, Inshallah, we overcome this ERP and system accuracy of implementation thing, we will become one of the largest logistics, let me say, companies in Saudi Arabia. But if you are going to talk then about be it online, offline, wholesale, whatever it is, we will be, Inshallah, present.

Abdulmalik Al Othaim: Allah give you Afia, Brother Salman, and thanks for your question. We have addressed at the beginning of this call that we will be expanding in no matter what is the format. We will be expanding in offline and in online. When we say expanding, we mean expanding our sales and our profits, Inshallah. That means, we aim to have more efficiency in our value chain. We aim to tackle the online. Remember, we have the largest network in Saudi Arabia. That means that we have the largest distribution channel in Saudi Arabia. That means once, Inshallah, we overcome this ERP and system accuracy of implementation thing, we will become one of the largest logistics, let me say, companies in Saudi Arabia. But if you are going to talk then about be it online, offline, wholesale, whatever it is, we will be, Inshallah, present.

Speaker #3: We will be expanding in offline and in online. When I when we say expanding we mean expanding our sales and our profits inshallah. So that means we will we are we aim to have more efficiency in our value chain we aim to tackle the online remember we have the largest network in Saudi Arabia that means that we have the largest distribution channel in Saudi Arabia that means once inshallah we we overcome this ERP and system accuracy or implementation thing we will become one of the largest logistics let me say companies in Saudi Arabia.

Speaker #3: But if you are going to talk, then about—be it online, offline, wholesale, whatever it is—we will, inshallah, be present. However, how we want to tackle, for example, the online, we inshallah are planning to launch our internal and own mobile application by the end of this year. We never forgot about our application, because we always hear this comment and everyone is asking us where is it.

Abdulmalik Abdullah Al Othaim: However, how we want to tackle, for example, the online, we, Inshallah, planning to launch our internal and own mobile application by the end of this year. We never forgot about our application because we always hear this comment and everyone is asking us where is it. We never forgot about it. However, we want to do it right. So we have tested the online, through our online channel right now. We understood the operations. We understood the complexity between the offline and online. Currently, we are building the right model to fit it within our offline model. Again, we could treat them all as logistics. I need to sell for my offline worker or to the online customer.

Abdulmalik Al Othaim: However, how we want to tackle, for example, the online, we, Inshallah, planning to launch our internal and own mobile application by the end of this year. We never forgot about our application because we always hear this comment and everyone is asking us where is it. We never forgot about it. However, we want to do it right. So we have tested the online, through our online channel right now. We understood the operations. We understood the complexity between the offline and online. Currently, we are building the right model to fit it within our offline model. Again, we could treat them all as logistics. I need to sell for my offline worker or to the online customer.

Speaker #3: We never forgot about it. However, we want to do it right. So we have tested the online through our online channel right now. We understood the operations.

Speaker #3: We understood the complexity between offline and online. Currently, we are building the right model to fit it within our offline model, and again, we could feed them all as logistics.

Speaker #3: I need to sell for my offline work or to the online customer. In addition to that, let me add: the company has 418 stores in the Kingdom and 60 stores in Egypt. With a solid experience of 70 years, we have a strong infrastructure that qualifies the company to leverage its resources in different channels and opportunities.

Marwan Ibrahim: In addition to that, let me add, a company with 418 in the Kingdom, 60 stores in Egypt with a solid experience for 70 years. We have a strong infrastructure that qualifies the company to leverage its infrastructure and its experience in different channels and opportunities. For example, still we have the B2B, B2E, we have the HoReCa, so many projects and opportunities are still on the ground that we can, Inshallah, look at for the future.

Speaker #3: For example, still we have the B2B, B2E, we have so many projects and opportunities that are still on the ground, that we can, inshallah, pick for the company.

Speaker #3: Did we answer your question? Yeah. Thank you. Just to summarize and to understand even more, what I'm understanding is you are utilizing your logistics infrastructure to enhance your online store to deliver even faster—maybe in less than one hour—compared to other players.

Abdulmalik Abdullah Al Othaim: Did we answer your question, Salman?

Abdulmalik Al Othaim: Did we answer your question, Salman?

Salman Al Bajhi: Yeah. Thank you. Just to summarize and to understand even more, is just what I am understanding is utilizing your logistic infrastructure to enhance online store to deliver even faster, maybe less than 1 hour, compared to maybe other players. This is-

Salman AlRajhi: Yeah. Thank you. Just to summarize and to understand even more, is just what I am understanding is utilizing your logistic infrastructure to enhance online store to deliver even faster, maybe less than 1 hour, compared to maybe other players. This is-

Speaker #3: This is inshallah just to rephrase what you said: we are not utilizing, we are capitalizing, because we are already utilizing our infrastructure. We are planning to capitalize on our existing infrastructure, our return on assets, our return on equity, and that's how we are planning to do it, inshallah. When it comes to the fast deliveries, I want to talk about online, just for everyone to understand. Online market share out of the grocery is roughly about close to 7%.

Abdulmalik Abdullah Al Othaim: Inshallah. Just to rephrase what you said, we are not utilizing, we are capitalizing because we are already utilizing our infrastructure.

Abdulmalik Al Othaim: Inshallah. Just to rephrase what you said, we are not utilizing, we are capitalizing because we are already utilizing our infrastructure.

Salman Al Bajhi: Okay.

Salman AlRajhi: Okay.

Abdulmalik Abdullah Al Othaim: We are planning to capitalize on our existing infrastructure, our return on assets, our return on equity, and that is how we are planning to do it, Inshallah. When it comes to the fast deliveries, I want to talk about online just for everyone to understand. Online market share out of the grocery is roughly about close to 7%. Of course, it grows every year. The 7% that we are talking about, most of it, maybe 60% to 70%, is actually brokerage. So it is all small size tickets that are insufficient to be focused on. So it is not really the online or the idea that you are referring to, it is not going to break or make the company. The idea again is to diversify, to have multiple sources of revenues. Yes, delivery within an hour. What we want to achieve is delivery in five minutes, Inshallah.

Abdulmalik Al Othaim: We are planning to capitalize on our existing infrastructure, our return on assets, our return on equity, and that is how we are planning to do it, Inshallah. When it comes to the fast deliveries, I want to talk about online just for everyone to understand. Online market share out of the grocery is roughly about close to 7%. Of course, it grows every year. The 7% that we are talking about, most of it, maybe 60% to 70%, is actually brokerage. So it is all small size tickets that are insufficient to be focused on. So it is not really the online or the idea that you are referring to, it is not going to break or make the company. The idea again is to diversify, to have multiple sources of revenues. Yes, delivery within an hour. What we want to achieve is delivery in five minutes, Inshallah.

Speaker #3: Of course, it grows every year. The 7% that we are talking about, most of it—maybe 60 to 70%—is actually beverage. So it's, it's small-size tickets that are insufficient to be focused on.

Speaker #3: So it's not really—it's not—it's the online or the idea that you are referring to; it's not going to break or make the company.

Speaker #3: The idea, again, is to diversify and have multiple sources of revenue. And yes, for delivery within an hour, what we want to achieve is delivery in five minutes, Inshallah.

Speaker #3: But again, it requires technology, it requires infrastructure, and we want to reach there as fast as we can, but in the right way and at the right pace.

Abdulmalik Abdullah Al Othaim: Again, it requires technology, it requires infrastructure, and we want to reach there as fast as we can, but at the right way and at the right pace. Today, investors and people, they feel like everyone shifted to online. But if you look at the sales, actually 95% of the grocery sales still are offline. Only 5% are online. So it does not make sense to focus and to shift everything into online. That does not mean that we will avoid it. We will still work on the online, we will develop our infrastructure, and we will work on our technologies, and Inshallah, we will lead in the online, Inshallah, just like the offline.

Abdulmalik Al Othaim: Again, it requires technology, it requires infrastructure, and we want to reach there as fast as we can, but at the right way and at the right pace. Today, investors and people, they feel like everyone shifted to online. But if you look at the sales, actually 95% of the grocery sales still are offline. Only 5% are online. So it does not make sense to focus and to shift everything into online. That does not mean that we will avoid it. We will still work on the online, we will develop our infrastructure, and we will work on our technologies, and Inshallah, we will lead in the online, Inshallah, just like the offline.

Speaker #3: Today, investors and people feel like everyone has shifted to online, but if you look at the sales, actually 95% of the grocery sales are still offline.

Speaker #3: Only 5% are online, so it doesn't make sense to focus and shift everything into online. But that doesn't mean that we will avoid it.

Speaker #3: We will still work on the online. We will develop our infrastructure, and we will work on our technologies, and inshallah, we will lead in the online.

Speaker #3: Inshallah, just like the offline. Thank you, management. The next question comes from the line of Fahad. Fahad, please go ahead. You're unmuted. Thank you.

[Analyst] (SNB Capital): Thank you, management. The next question comes from the line of Fahad. Fahad, please go ahead. You are unmuted.

Sarah BinMansour: Thank you, management. The next question comes from the line of Fahad. Fahad, please go ahead. You are unmuted.

Speaker #3: Thank you, management. My question is on the smaller store format. Since 2024, you haven't added any new stores in the smaller format. I just wanted to get some color on how the profitability is, what is the sales per square foot of these smaller stores versus bigger stores, and are they delivering up to expectations? Thank you so much. Actually, you know, again, I don't want to reveal every— for every question that we have suffered and we have been affected by the system. Of course, now any measures or indicators, any effects that I will give to you now are not reflecting the normal metrics of the company and are abnormal.

[Analyst]: Thank you, SNB, and thank you, management. My question is on the smaller store format. Since 2024, you have not added any new stores in the smaller format. Just wanted to get some color on how is the profitability, what is the sales per square feet of these smaller stores versus bigger stores, and are they delivering up to expectations?

[Analyst 2]: Thank you, SNB, and thank you, management. My question is on the smaller store format. Since 2024, you have not added any new stores in the smaller format. Just wanted to get some color on how is the profitability, what is the sales per square feet of these smaller stores versus bigger stores, and are they delivering up to expectations?

Marwan Ibrahim: Thank you so much. Actually, you know that, again, I do not want to repeat for every question that we have suffered and we have been affected by ERP system. Of course, now any measures on these indicators, any measures that I will give to you now is not abnormal and not reflecting the normal effects of the company. For sure, the sales per square meter decline, the gross decline of even the like to like and all the indices are now negative with our case. But inshallah, all these will be again, turn around and shift to the right track inshallah.

Speaker #3: So for sure the sales per square meter decline the decline of the even the right to right and all the metrics are now negative with our case but inshallah all these will be again turn around and shift to to the right track I mean what and in terms of you know challenges so apart from this ERP what other you know key challenges you think or key issues you think there are that you are working on and trying to turn around because I think that these stores are sort of like mostly here to be lost loss making there is no plan on down you know reducing these stores these smaller formats to improve the profitability profile of course you don't think this has a challenge yeah evaluation and assessment of the performance for all the stores is an ongoing process ongoing process now and before usually we are evaluating the performance and we are giving the any any store the chance to to grow and to perform and to move to make profitability time but you know that the the maturity of the store in the past it was around six to six months to 12 months.

[Analyst]: In terms of challenges apart from this ERP, what other key challenges you think, or key issues you think there are that you are working on and trying to turn around? Because I think that these stores are mostly appear to be loss-making. There is no plan on reducing these stores, these smaller formats to improve the profitability profile.

[Analyst 2]: In terms of challenges apart from this ERP, what other key challenges you think, or key issues you think there are that you are working on and trying to turn around? Because I think that these stores are mostly appear to be loss-making. There is no plan on reducing these stores, these smaller formats to improve the profitability profile.

Marwan Ibrahim: Of course.

[Analyst]: You do not think this as a challenge?

[Analyst 2]: You do not think this as a challenge?

Marwan Ibrahim: Yeah. Evaluation and assessment of the performance for all the stores is an ongoing process, now and before. Usually we are evaluating the performance, and we are giving any store the chance to grow and to perform and to move to break profitability side. But you know that the maturity of the store in the past, it was around six months to 12 months. Now, the maturity and the break even required for the new store is around two to three years because of the changes in the market, the competition and the saturation of the market. However, we are monitoring all those stores and the stores that are not performing after giving the sufficient period, they are shut down. They are shut down and this year we have already shut down one store, and there are some other stores under consideration. Thank you.

Speaker #3: Now the maturity and the break even is required for this the new store is around two to three years. Because of the changes in the in the in the market the competition and the saturation of of the market.

Speaker #3: However, we are monitoring all those stores, and the stores that are not performing after giving them a sufficient period are shut down. They are shut down, and this year we have already shut down one store, and there are some other stores under consideration.

Speaker #3: Thank you. Thank you. Thank you so much. Ladies and gentlemen, I'd like to remind you: if you have any further questions, please raise your hand or type them in the chat box.

[Analyst]: Thank you. Thank you so much, Ma'am.

[Analyst 2]: Thank you. Thank you so much, Ma'am.

[Analyst] (SNB Capital): Ladies and gentlemen, I'd like to remind you if you have any further questions, please raise your hand or type it in the chat box. I believe we have a follow-up from the line of Mohsen Amiri. Mohsen, please go ahead. You're unmuted.

Sarah BinMansour: Ladies and gentlemen, I'd like to remind you if you have any further questions, please raise your hand or type it in the chat box. I believe we have a follow-up from the line of Mohsen Amiri. Mohsen, please go ahead. You're unmuted.

Speaker #3: I believe we have a follow-up from the line of Mahsen Amiri. Mahsen, please go ahead. You're unmuted. Thanks. Thanks for letting me come back in with another one here.

Mohsen Amiri: Thanks. Thanks for letting me come back in. Another one here. Maybe a very basic question, but I'll just ask it. The normalized net income, which you showed on the prior slide, even adding back the inventory provision, which is all of the ERP issues, even the sort of the normalized net income is down, you said, I think, 88% year over year. Other than the ERP, because the ERP is already incorporated into that normalized figure, what are the other things that have challenged your profitability this year? I think you mentioned something about e-commerce investments. What else describes the. Other than the ERP, even if I take the ERP into account, it looks like the performance year over year has been challenged. What explains that?

[Analyst 2]: Thanks. Thanks for letting me come back in. Another one here. Maybe a very basic question, but I'll just ask it. The normalized net income, which you showed on the prior slide, even adding back the inventory provision, which is all of the ERP issues, even the sort of the normalized net income is down, you said, I think, 88% year over year. Other than the ERP, because the ERP is already incorporated into that normalized figure, what are the other things that have challenged your profitability this year? I think you mentioned something about e-commerce investments. What else describes the. Other than the ERP, even if I take the ERP into account, it looks like the performance year over year has been challenged. What explains that?

Speaker #3: Maybe a very basic question but it's I'll just ask it. So the normalized net income which you which you showed on the prior slide even you know adding back the inventory provision which is all of the ERP issues even the sort of the normalized net income is is down you said I think 88% year over year.

Speaker #3: So, other than the ERP, because the ERP is already incorporated into that normalized figure, what are the other things that have challenged your profitability this year?

Speaker #3: I think you mentioned something about e-commerce investments. What else describes that, other than the ERP? Even if I take the ERP into account, it looks like the performance year over year has been challenged.

Speaker #3: So what explains that? Thank you. Good question actually. But if you relate to our presentation that we have identified that we said that the 112 is only one factor that was materialized precisely as the 25 because the major factor but still we have other factors that we couldn't materialize that decline in the sales big decline in the sales and as I mentioned also that the company we was flying during the by the end of the 2025 before launching the ERP system.

Marwan Ibrahim: Thank you, Mohsen. A good question, actually. If you refer to our presentation that we have, the slide that we said that the Q1 of 2026 is only one factor that was materialized besides the 2025. Of course, the major factor. But still we have other factors that we could just materialize that decline in the sales, big decline in the sales. As I mentioned also that the company was flying during the, by the end of the 2025 before launching the ERP system. Suddenly after going live, the sales dropped sharply. This drop actually means that lost gross profit, with a fixed overhead. This means that this loss gross profit hits directly the net income.

Speaker #3: And suddenly after going live the sales drop sharply. So this drop actually means the lowest gross profit okay with a fixed overhead so this means that this lost gross profit hit directly the net income so the impact is not limited only to the loss in inventory but it extends to the loss in sales and other things materialize prior to implementing I think that prior to implementing the ERP system in November 2025 the company was actually witnessing a high single digit growth versus the market because the market was negatively declining we had a a low to mid single digit growth so we were growing exponentially beyond the market however when the system was implemented that pulled us back which again it was expected to to have some shakeup but it wasn't expected to be this big and therefore just like my brother Marwan have highlighted we have taken the conservative approach of taking the right provisions and to estimate the future let me say impact of of the rest of the the stores that haven't yet been finalized in terms of inventory count and have taken finger crossed that what we are hoping for is that the sales will come back we hope that the provisions might have slight reversal but again we expect a stabilized second half and the to remain to to continue the growth next year and onward that makes sense thank you so much thank you management ladies and gentlemen I'd like to remind you if you wish to ask any questions please raise your hand or type it in the Q&A chat box.

Marwan Ibrahim: The impact is not limited only to the loss in inventory, but it extends to the loss in sales and other things that we will not materialize on this.

Abdulmalik Abdullah Al Othaim: Adding to that, prior to implementing the ERP system in November 2025, the company was actually witnessing high single-digit growth versus the market, because the market was negatively declining. We had a low to mid single-digit growth. So we were growing exponentially beyond the market. However, when the system was implemented, that pulled us back. Which again, it was expected to have some shakeup, but it wasn't expected to be this big. Therefore, just like my brother Marwan has highlighted, we have taken the conservative approach of taking the right provisions and to estimate the future, let me say, impact of the rest of the stores that haven't yet been finalized in terms of inventory count and have taken. But inshallah, fingers crossed, what we are hoping for is that the sales will come back. Inshallah, we hope that the provisions might have slight reversals.

Abdulmalik Al Othaim: Adding to that, prior to implementing the ERP system in November 2025, the company was actually witnessing high single-digit growth versus the market, because the market was negatively declining. We had a low to mid single-digit growth. So we were growing exponentially beyond the market. However, when the system was implemented, that pulled us back. Which again, it was expected to have some shakeup, but it wasn't expected to be this big. Therefore, just like my brother Marwan has highlighted, we have taken the conservative approach of taking the right provisions and to estimate the future, let me say, impact of the rest of the stores that haven't yet been finalized in terms of inventory count and have taken. But inshallah, fingers crossed, what we are hoping for is that the sales will come back. Inshallah, we hope that the provisions might have slight reversals.

Abdulmalik Abdullah Al Othaim: But again, we expect a civilized H2 and to continue the growth, inshallah, next year and onward, inshallah.

Abdulmalik Al Othaim: But again, we expect a civilized H2 and to continue the growth, inshallah, next year and onward, inshallah.

Marwan Ibrahim: That makes sense. Thank you so much. God bless you.

[Analyst 2]: That makes sense. Thank you so much. God bless you.

[Analyst]: Good luck.

Abdulmalik Al Othaim: Good luck.

[Analyst] (SNB Capital): Thank you, management. Ladies and gentlemen, I would like to remind you, if you wish to ask any questions, please raise your hand or type it in the Q&A chat box. If there are no more further questions, and we are nearing the end of our call, I would like to give it back to Al Othaim's management to give their concluding remarks.

Sarah BinMansour: Thank you, management. Ladies and gentlemen, I would like to remind you, if you wish to ask any questions, please raise your hand or type it in the Q&A chat box. If there are no more further questions, and we are nearing the end of our call, I would like to give it back to Al Othaim's management to give their concluding remarks.

Speaker #3: If there are no further questions and we are nearing the end of our call, I’d like to hand it back to management to provide their concluding remarks.

Speaker #3: Thank you, Sarah, for organizing this call. I would also like to thank our investors for trusting the board and management to take the right steps and the right measures. Once again, retail will continue to grow despite the format that we are in.

Abdulmalik Abdullah Al Othaim: Thank you, Sarah, and SNB Capital for organizing this call and would like to thank our investors for trusting the board and the management to do the right steps and to take the right measures. Once again, retail will continue to grow despite the format that we are in. Thank you all, and wish you all the best.

Abdulmalik Al Othaim: Thank you, Sarah, and SNB Capital for organizing this call and would like to thank our investors for trusting the board and the management to do the right steps and to take the right measures. Once again, retail will continue to grow despite the format that we are in. Thank you all, and wish you all the best.

Speaker #3: And thank you all, and wish you all the best. Thank you. Thank you, management. I would like to thank management for taking their time to conduct this call, and we would also like to thank all of the participants for attending.

Marwan Ibrahim: Thank you all.

[Analyst] (SNB Capital): SNB Capital. Thank you, management. SNB Capital would like to thank Al Othaim's management for taking their time to conduct this call, and we would like to also thank all of the participants for attending. We wish you all a pleasant day. You may now disconnect. Thank you.

Sarah BinMansour: SNB Capital. Thank you, management. SNB Capital would like to thank Al Othaim's management for taking their time to conduct this call, and we would like to also thank all of the participants for attending. We wish you all a pleasant day. You may now disconnect. Thank you.

Abdulmalik Abdullah Al Othaim: Thank you very much.

Abdulmalik Al Othaim: Thank you very much.

Marwan Ibrahim: Thank you. Thank you, everyone.

Q2 2026 Abdullah Al Othaim Markets Co SJSC Earnings Call

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