Q2 2026 Gulf Mushroom Products Co SAOG Earnings Call
Speaker #1: Hello everybody, welcome to this 8th session of the university discussion. I'm Deepak Agarwal, CFO. With me is Mr. Abdullah Nasral Hadrami, the CEO, and our colleagues.
Speaker #1: So we are here today meeting today to discuss the Harfield results for the current year 2026. And the accounts have been all uploaded, and this small presentation I have opened for you just to quick start the discussion.
Speaker #1: So I welcome you all. For any questions, please feel free. Latifa, you can hear me?
Speaker #2: Yes, we hear you.
Speaker #1: Okay. Yes, Mohammad, please go ahead. Mohammad, you are mute. Yeah.
Speaker #3: yeah. Am I audible?
Speaker #1: Yes.
Speaker #3: good morning, afternoon. good morning, sorry. congrats on the results, and some questions from my side.
Speaker #1: Yes, please.
Speaker #3: The first is regarding your margins. So the revenue basically grew around 16% in H1, while operating profit grew like around 38%. what drove this strong margin improvement, and do you see it sustainable in H2?
Speaker #1: Yes. We, we feel we can sustain the same thing, going forward next in the next 6 months. But, we are, depending some quantity of, we are importing some quantity of compost as our compost capacity is fully utilized.
Speaker #1: So the supply chain is still affecting. So subject to that, we will achieve the same results, hopefully, for the next half.
Speaker #3: Yeah. And regarding your, operating, cash flow, what caused the pressure on the cash conversion? And do you expect some improvement to be in H2?
Speaker #1: Yeah, we had we have distributed dividends this time. 25% cash. And we had some loan installments, which we have serviced. So that's the reason.
Speaker #3: And speaking about the dividends, given the company's capex and funding requirements, do you expect that the current dividend level to remain sustainable going forward?
Speaker #1: yes. So far we feel we can sustain it.
Speaker #3: Okay. And regarding the utilization, you mentioned in Q1's call that, in worst-case scenario your utilization level is 80%, and in Q1 it was around 85%, if I'm not mistaken.
Speaker #3: So can we know more about the utilization rate in Q2 and going forward?
Speaker #1: okay. our new capacity, now one second. Give me a moment. I'll just open this. Yeah. As you can see here, Mohammad, can you see this?
Speaker #3: Yeah.
Speaker #1: Yeah. So this is our capacity, the new capacity with the addition of new growing rooms, is 25 tons per day. And against that, we are we have done 81% in the half current half.
Speaker #1: Last year when we hadn't had the new rooms, our capacity was almost fully utilized at 96%.
Speaker #3: So the Q1 utilization, assuming it was 85%, and the Q2 was around 75?
Speaker #1: It is similar. Similar. and across the two quarters.
Speaker #3: Okay, clear.
Speaker #1: Yes. The Joyce, please.
Speaker #4: Mr. Deepak, good morning. I just joined a little bit. late right now. but.
Speaker #1: No problem. Yeah.
Speaker #4: I don't know whether you have discussed it, but just wanted to know how the market, for mushrooms has been last year and this year, you know, particularly after, all these events, has happened.
Speaker #4: you might be seeing a lower, competition from imported mushrooms in the region, but and you are one of the major suppliers from the region.
Speaker #4: So how do you see the market, developments and, how do you see the market evolving? assuming the things are getting after things are getting back to normal.
Speaker #1: Yes. as in this half year, as you have rightly said, the market is affected because a lot of mushroom was coming from Iran, which stopped so from supply side.
Speaker #1: That was a plus for us. But from demand side, the hotels were affected. In the region, the occupancy was single digit. So on the demand side, we also we were affected.
Speaker #1: So more or less, it was, in our favor. as of now. Now going forward, we don't know how things will, will change. And how the hotel occupancy will improve, but everything remains the same.
Speaker #1: Then, it's it's a plus for us.
Speaker #4: Okay. When you say, you know, there is a, the, imports, where competition from imports were not there, but at the same time there is a demand destruction, what what quantum of demand destruction that you are seeing, there in the market currently?
Speaker #1: yes. The rough estimate, would be about, about, 3 tons per day. Yeah.
Speaker #4: 3 tons per day and, when we can provide a context to that, probably what's the total market size?
Speaker #1: sorry for competitive reasons. I can't give you, that kind of detail.
Speaker #4: no. you said 3 tons per day for Gulf mushrooms, or, for the entire market?
Speaker #1: For the market.
Speaker #4: Okay. And what's the total market size? That we are talking about when we say, you know, there's a.
Speaker #1: I'm sorry, Joyce. I can't go into that.
Speaker #4: Okay. Okay. I got it. And, what what are you doing, you know, Gulf mushroom is doing, to retain the clients, you know, when you say there's a de decline in demand, how are we generating more revenue from that?
Speaker #4: And, what's your strategy going forward when things gets back to normal? Will it be a do you think you will be able to, gain, the confidence of the existing customers and the new customers probably you have, you know, done business during this time?
Speaker #1: Well, our customer base is, is very dedicated for last two decades. And the main customers have been with us for a long time. And our strategy is to make sure the mushrooms of good quality, is available all the time.
Speaker #1: And we are taking advantage of the economies of scale. so to give, to match the competition, as and when it arises. So if, if competition from overseas comes up, we will be in a position to, to face the price competition as well due to our advantages of economies of scale.
Speaker #4: So this one are you talking about Oman or, for, for the entire GZC markets?
Speaker #1: Well, the imports are mostly affecting the, GCC only. Yeah. I'm talking about the GCC. Oman is a small market. Yeah.
Speaker #4: Yeah. And, how are the prices behaving, during this time? compared to end of last year, what, how are your average prices, for mushroom products behaving in, during the.
Speaker #1: The prices prices for different products for different customers for different countries they are different. And, prices are under pressure because, raw material costs went up.
Speaker #1: Supply chain costs went up significantly. So we had to also increase our prices, a few times in this period to, to match the increase in costs.
Speaker #1: And our customers have been very cooperative.
Speaker #4: So were you able to get gain any new customers, from the competition from the import competition during this period?
Speaker #1: see, all the customers are the same. I mean, some of them used to import from overseas as well. So that share got decreased. But customers are more or less the same.
Speaker #4: Okay. And what's your average realization that, you know, you were able to, obtain during the second half of the year and last year and during first half of this year?
Speaker #1: I can say that whatever we are published, you can you can see GP is 52% in this half in this year. And it is, above, last year by 2%.
Speaker #1: EBITDA was 35% this this year against 31 of last year. And 24% PAT against 20% last year.
Speaker #4: Okay. can you can you, give us what was your volume, sales sales volume, during the first, the, second half and, first half of this year?
Speaker #1: you can see the profile here. Yeah. 3658 and 3446 tons.
Speaker #4: Okay. Okay. Got it. So, and what's, what's your take on, the, general price, environment, for, for the remaining part of, this year? How do you see the prices behaving?
Speaker #4: Do you see, will there be further increase, decrease, or are you expecting the prices to remain stable?
Speaker #1: The procurement costs, I think, will not change much. I mean, they are already high, significantly higher. And, geopolitical situation also doesn't seem to be improving anytime soon.
Speaker #1: So we think our cost profile will be more or less the same. And so our, selling price profile also will have to maintain the, same.
Speaker #1: So so we don't expect much of a change there.
Speaker #4: Okay. Can you show me the volume numbers again, please?
Speaker #1: Yeah.
Speaker #4: And generally, second half of the year, winter is considered a major, consumption, season for, mushrooms, isn't it?
Speaker #1: Yeah. The tourists in tourist season. So yeah, of course. The summers are slightly down.
Speaker #4: Okay. And this summer, despite, you know, the seasonal, decline in demand, still you were able to push more volumes. What were the major reasons for that?
Speaker #1: No. The summers are always, we have to work harder to, to, to, to sell the same volumes. So we have to do a lot of promotions.
Speaker #4: Okay. And, could you talk about your expansion plans? Now, now you're coming up with, a composter, facility, compost plant expansion. in, in Tumrate. And, is it because, for further mushroom cultivation, expansion probably you need a more, you know, more capacity for your compost, so is it like.
Speaker #1: Yeah. Exa-exactly. Because we have we have increased the number of growing rooms. So we have a lot of area. To cultivate mushrooms. But for to cultivate the mushrooms, we need compost.
Speaker #1: So that capacity also, we have now decided to increase. So that we, we can, we don't have to import. Which we are temporarily doing as of now because that'll take some time.
Speaker #4: Okay. And, if you are to further im increase your cultivation capacity, mushroom capacity, will you be able to do that? And, or will you be ready to do, increase your capacity by importing compost during the, to bridge the time gap?
Speaker #1: No, no. We, we are importing compost because compost is the shortage. growing capacity we have plenty. So we want to use our growing capacity fully.
Speaker #1: So that is why we are having to import compost, compost, to meet the shortage.
Speaker #4: Okay. So what's, what's your compost capacity, 7,000 metric tons?
Speaker #1: it is to almost about 20,000 tons per year.
Speaker #4: Yeah. 7,000. And, 20,000 right now and, where are you, increasing it to?
Speaker #1: 30. 50%.
Speaker #4: 50%. And, when is it expected to, start, operational?
Speaker #1: We have given, tentative date of end of 29. Three years.
Speaker #4: Okay. And what's the end research, capex for this?
Speaker #1: sorry. We haven't, disclosed that. So I, I, I can't comment on that now.
Speaker #4: Okay. Fine. Thank you very much.
Speaker #1: Thank you,
Speaker #5: Q2s. Yes, sir. Muhammad, please.
Speaker #6: Yeah, one more question from my side. When do you think you'll reach to a utilization level of more than 90%?
Speaker #5: Off.
Speaker #7: 90% of— yeah, which capacity you're talking about, growing or composting? Composting. Uh, that will depend on the, on the, on the construction of new growing rooms.
Speaker #7: So with the existing growing rooms, we'll use about 86%. By the end of '29— I mean, by the end of '30, actually. Okay, clear.
Speaker #7: Thank you. Welcome. Yeah, Chetak, please.
Speaker #8: Yeah, hi sir, good morning. I just wanted to know, uh, what's your dependency on the Horeca segment overall?
Speaker #7: Actually, we don't sell directly to the, to the retail. We are selling through distributors. But we have a, we have an estimate, an idea of about 50-50 retail and Horeca.
Speaker #8: Okay, so, uh, it's— is it fair to assume that, uh, first half, the 50% of the business was impacted? Uh,
Speaker #7: It was impacted. Yes, the Horeca was impacted, but exact volumes can't be commented upon because we don't sell directly. Okay, thank you. And one more thing, Jyotir, is Uh, all the hotels, all the restaurants don't use fresh mushrooms.
Speaker #7: So That also has to be seen. But I, I want to correct myself that the estimate of 50-50, I'm not quite sure. Uh, that Horika will take 50% of the market.
Speaker #7: That is something data we don't have because they're selling directly to distributors.
Speaker #8: Okay, thanks. Yes, Hamdan sir. Yes, my question here is about the capacity utilization. I see a decline from '96 to '81. While the sales and the profit increased.
Speaker #8: Yeah, because we added, we added new capacity in this. Yeah, sorry, my question is what main reason for this decline and when do you expect utilization will increase?
Speaker #7: For the cover, yeah, this is actually not a decline because we increased our capacity of growing rooms. of growing production. So from, from 20 tons per day, it has increased to 25 tons per day.
Speaker #7: That is why as a percentage, terms of utilization has gone down, but the sales have actually gone up.
Speaker #9: All right, all right.
Speaker #8: And sales volume increased by only 6%, while revenue 16%. So you see gross revenue
Speaker #7: came higher than the price. This is the volume, higher volume. Yes, yes, because we had to increase the prices to match the cost increase in raw material costs.
Speaker #9: All right, thank you.
Speaker #7: Hello. Uh, yes. Um, Can I speak? Is there someone else before me? No, you know, please go ahead. So, Mr. Deepak, just a question about going to the future.
Speaker #7: If everything gets better in terms of the current war situation, I keep hearing about the Iranian mushroom products in the market.
Speaker #10: Do you think or consider that that's a threat to the business by any means?
Speaker #7: Yeah, they are a good challenge to the company's business, of course, because they produce cheap. And they produce in big quantities. They are a challenge.
Speaker #7: We cannot ignore that.
Speaker #11: But our advantage is the quality. consistency. That is our advantage.
Speaker #10: Okay, within the next, let's say, 2 to 3 years, I've heard that you have expanded a little bit and/or are planning to expand. When do you see the impact of that investment in the coming 2 to 3 years or so.
Speaker #11: Yeah, currently our compost capacity expansion has just been decided and we have started working on that. So that will be completed by the year 2029.
Speaker #11: And so for the next, uh, 2-3 years, up to till the compost expansion is completed, we are going to import the compost to, to meet the shortage.
Speaker #11: And once, once our own compost capacity goes up, then our margins, everything will go up accordingly.
Speaker #10: And obviously I'm thinking the, the distribution for shareholders will increase probably at that time.
Speaker #7: Inshallah, we hope so, but we cannot say now. Yeah.
Speaker #10: Okay, thank you so much. Thank you, Mohammed.
Speaker #7: Hi, Pritam, your question.
Speaker #11: That will we be able to maintain the current price levels?
Speaker #7: Or will, will we have to reduce them as normalcy returns to the region? It is possible that we may have to if the cost of raw materials go down substantially, the competitor prices go down, then we'll also have to make adjustment to our price.
Speaker #11: So it all depends. Mr. Deepak,
Speaker #10: You've seen the local mushrooms, especially the ones in Salalah. This is just a random question. From what I'm hearing, that it has very good qualities.
Speaker #10: Is that cultivable?
Speaker #7: I think you're talking about— I think Mr. Abdullah will answer this question, sir. Abdullah?
Speaker #11: Yep.
Speaker #12: He's talking about the Kamba. This is the Ghafari mushroom. It's in fact, it's not a mushroom. It is a type of truffles. And this is till now not cultivable.
Speaker #12: We can't cultivate indoors because it needs special food. It comes from ants. Oh, so yeah.
Speaker #10: Because what I've seen, it looks like mushroom and it's, it's quite big, large in size. Yes, yes, yes. Okay, okay. Because it sells for very highly expensive prices in Sarada.
Speaker #10: I think 1 kilogram is like 10 riyals or so.
Speaker #12: Yes, now is the season. Season on Ghafari now and during Harif is the season now. Yeah, but till now is not cultivated. Okay, clear.
Speaker #12: Thank you.
Speaker #11: Hi, there's a question from one of the attendees. Can you tell us about distributors? Uh, sorry, that again is competitive information we would not like to go into.
Speaker #11: And, uh, when is the next mushroom production expansion? Mushroom production expansion? Well, we have just completed 6 growing rooms. This year in January. And we don't have enough compost.
Speaker #11: to use it fully. So we are importing temporarily. So the next mushroom expansion, we don't plan anytime soon until our compost capacity is completed.
Speaker #11: Do you have any volume growth targets for full year? Uh, we are not discussing budget, uh, and we would like to keep it that way, sir, if you don't mind.
Speaker #7: Because that might give some misleading ideas. We always try to, of course, improve. You can, you can go by our previous year growth, that will give you an idea.
Speaker #11: Hi, one question from Muhammad Aziz Ali regarding export percentage compared to local sales in Oman. Yeah, as you have mentioned, about 90% is exported, and that we are maintaining that plus minus 1%.
Speaker #11: So Oman market is growing consistently, of course, but then our overall sales are growing, so that sectarian ratio is still maintaining. One question from Mr. Ahmed is, what is the expected percentage increase in net profit this year compared to net profit achieved last year?
Speaker #11: Well, as you can see, we have increased in the first half by 40%. So we can, we can, we can base our understanding from this.
Speaker #11: I cannot exactly comment on that. But that should be a good indicator. Ahmed, I hope I have answered your question. From Ahmed, uh, Amri, do you think that the rise in net profit will continue in the coming years, or will it reach a point
Speaker #7: where it remains stable. Well, hypothetically
Speaker #11: the profits will rise as long as, uh, our production goes up. So once we reach our capacity, we're not able to expand our capacity further.
Speaker #11: Then there will be a kind of stability that also will be subject to matching increase in selling price with increasing costs. So basically, if you can see that once you reach your capacities, the profits should start basically tapering down slightly.
Speaker #11: It will not remain stable continuously or indefinitely.
Speaker #7: So we have to continue to grow.
Speaker #11: Will you decrease cash dividends in the next few years to focus on compost expansion and pay debts like when the company stopped it doing?
Speaker #7: Well, our cash flow, as we are planning,
Speaker #11: I mean, as of now, I mean, there's no commitment as to what kind of dividend will be for the next 2 years. But
Speaker #9: It's difficult to say anything.
Speaker #11: But our cash flows and our funding lines are comfortable to meet
Speaker #7: to meet the expansion cost.
Speaker #11: Without creating undue pressure on our internal cash requirements or for dividend purpose. So that's all I can say. But anything is possible. In the next 3 years.
Speaker #11: But definitely we are not under pressure to liquidate our debts. Our DCR, debt servicing ratio, is comfortable. Yes, sir.
Speaker #8: I have 2 questions. First question regarding the geopolitical issues currently, what implications that you had, and what is your mitigation towards, uh, on it?
Speaker #8: This is the first question. Second question is, as investor, when I would feel the expansion effect as a return? At what time?
Speaker #11: Yes. So taking your first question, Geopolitically, the circumstances are challenging. The raw material supplies are affected. The container costs have increased. The raw material availability also is under pressure.
Speaker #7: But we have mitigated that risk by keeping a good stock of material, raw material. We're keeping some high stocks.
Speaker #11: And we have dedicated supply lines. We plan our procurement well in advance. So So that is the mitigation steps we have taken. Regarding the geopolitical impact on the supply chain.
Speaker #11: And regarding the, the expansion,
Speaker #7: it will take 3 years for the expansion, and during that time, uh, we have— we, we don't expect any problem.
Speaker #11: In getting sufficient funding for the project.
Speaker #7: So our cash flow from operations should not get impacted.
Speaker #11: So our dividends will not be under threat, as you can see. If everything remains the same. That also again depends on the policy of the board, the policy of the shareholders.
Speaker #11: But if, as far as cash availability is concerned, everything goes on fine as it is.
Speaker #7: Then the cash flows are not under, under pressure.
Speaker #8: So by end of '29, I mean, okay, '29. And this year should not be affected by dividends due to geopolitical or due to the expansion.
Speaker #8: Do you see any effect on dividends this year?
Speaker #11: We don't know. There is going to be a policy decision by the board, but from the cash flow side, I can say I'm not very worried.
Speaker #11: Thank you everybody for attending this meeting, and now it's 12 o'clock, so we will now close this meeting. Thank you, thank you very much.
