First Mills raises production capacity to 97%: CEO

Abdullah Ababtain, CEO of First Milling Co.

First Milling Co. (First Mills) increased its production capacity by 7% to 97.2% in the third quarter of 2023 compared with the same period last year, CEO Abdullah Ababtain told Argaam.

He added that the company continues to improve its business and enhance its operational efficiency, despite the temporary decrease in production capacity, which amounted to 3,900 tons per day, due to the temporary closure of Mill-C in Jeddah factory to increase the production capacity and enhance value in the long term.

The firm looks forward to expanding its capabilities and enhancing its leadership in the market, the CEO said. He added that the Mill-C expansion is an important step in this regard as it will improve efficiency and contribute to raising the total grinding capacity to 4,450 tons per day, an increase of 250 tons per day, following the completion of expansion in the fourth quarter.

Here are the details of the interview:

Q: Q3 earnings fell by 15% year-on-year (YoY) to SAR 54 million. What are your comments on the results?

A: First Mills, in general, recorded stable revenues and double-digit profit margins in the first nine months of 2023, which reflects the strength of the company's financial performance, robust profit, and ability to achieve its strategy through retail and distribution channels at the level of individual and institutional clients.

As for the quarterly results, the company had several factors that contributed to the decline in its earnings, compared to the previous year, the most important of which was an increase YoY in financing cost (FC) by nearly SAR 8 million in Q3 2023. In addition, the FC rose by SAR 34 million YoY in the first nine months of 2023 as a result of the allocation purposes, which were detailed in the IPO prospectus.

Following the firm's merger with its parent company, AlRaha AlSafi Food, the latter's loans were transferred to First Mills and recognized in its financial statements. When excluding the impact of interest-rate costs and FCs, we will achieve net earnings on a like-for-like basis compared with the levels achieved in Q3 2023 and 9M 2023.

The second factor was the increase in selling and distribution expenses to keep pace with the volume of demand during the suspension of Mill-C in Jeddah factory for upgrade and the resulting transportation and distribution expenses from the company’s other branches to support the Jeddah branch. However, the operational expenses, in general, remained stable compared with the previous period as a result of re-adjusting and managing general, administrative, and other expenses.

Despite all these factors, we recorded a net profit margin of 22.7% and 21.8% in 9M 2023 and Q3 2023, respectively, which reflects the company’s strong financial performance and robust earnings.

Q: What are the drivers of the increase in flour and feed sales?

A: If we consider Q3 2023 sales that increased by 4.3%, we will find that flour sales were the main driver of this growth, given that it is our main product. The company posted 10% growth YoY in its net revenues, supported by a by 40% leap in retail package sales, in addition to a 16% increase in net feed revenues.

As for bran, its sales decreased as a result of directing this product to support feed manufacturing, as the company maintained its selling prices despite the fluctuation in raw material prices. The increase in flour and feed sales was driven by the firm's success in implementing its strategy through boosting its leadership position in the local market and attracting a new segment of customers by expanding the geographical presence of products.

We observed an increasing demand for the company’s products in new geographical areas. In addition, the company is constantly focusing on creating distinctive products and various options to satisfy the demands of its customers. The company also pledges high quality, through building distinguished relationships with customers and increasing their loyalty to its products.

Q: What are the reasons behind the decline in bran sales to constitute 12.3% of revenues in Q3 2023 compared to the previous year?

A: The fall in bran sales, as mentioned previously, is mainly due to giving priority to increasing allocation to support feed products due to strong demand, in exchange for reducing bran sales to maintain prices. Despite this decline, First Mills has the ability to deal with any fluctuations in market prices and benefit from its diverse product portfolio, which allows it to hedge these risks through the flexibility of allocating products with higher profit margins.

Q: How about the total production capacity of First Mills factories in Q3?

A: The company covers four strategic regions in the Kingdom through four mills (branches) in Makkah (Jeddah Governorate), Qassim (Buraydah Governorate), Tabuk (Tabuk City), and Eastern Province (Al-Ahsa Governorate), with a total grinding capacity of 4,200 tons per day, and a feed manufacturing capacity of 900 tons per day.

In Q3 2023, we raised the production capacity utilization rate to 97.2%, an increase of 7% YoY. This is due to our continuous efforts to improve business and enhance operational efficiency, despite the temporary decrease in production capacity, which amounted to 3,900 tons per day due to the temporary closure of Mill-C in Jeddah factory.

Looking forward, we aim to expand our capabilities and enhance the company's leadership in the market. Mill-C expansion is an important step in this regard as it will improve efficiency and contribute to raising the total grinding capacity to 4,450 tons per day, an increase of 250 tons per day.

Q: How do evaluate prices in the third quarter?

A: Global markets recently witnessed fluctuations in the prices of raw materials due to the geopolitical changes. However, we have a diverse product portfolio that always helps us hedge against any risks or potential price fluctuations, as is clear with the bran product.

Q: What is your outlook for the company’s performance in Q4 2023?

A: We expect the company to continue posting outstanding results in Q4 2024, in addition to achieving an increase in its daily production capacity, as it will have completed the expansion of Mill-C, which is located in the firm's largest factory in Jeddah.

In addition, First Mills aspires to continue seeing the results of its projects and expansions in the new segments with higher profit margins, which will support the company's revenues and profit. The firm also succeeded in launching the PESA Mill with a daily production capacity of up to 150 tons, in addition to the Pre-Mix Plant in Q3 2023. We are expected to begin achieving returns from these two units in Q4 2023 and Q1 2024.

We also look forward to starting the operation of the Durum Mill, which will produce semolina used in the manufacture of pasta, sweets, groats and mash during Q4 2023.