First Mills has a leading position in the flour market with a 33.8% share: CEO

Abdullah Ababtain, CEO, First Mills

First Milling Co. (First Mills) secured a leading position in the flour market during 2021, with a market share of 33.8% in terms of total sales volumes. It also holds an advanced position in the compound feed market, CEO Abdullah Ababtain said.

In an interview with Argaam, Ababtain added that First Mills’ net income rose from SAR 125 million in 2019 to SAR 198 million in 2021 at a three-year compound annual growth rate (CAGR) of 25.6%.

Through its initial public offering (IPO), First Mills aims to expand and diversify its shareholder base, support food security and enhance governance and transparency levels, given that it is the first milling company to be listed on the Saudi market.

Ababtain also detailed storage and milling capacities of the company’s factories, highlighting the role of the General Food Security Authority (GFSA) in importing and subsidizing flour prices in the Kingdom as well as the company’s financial performance, products and future plans.

Here’s the full interview with Abdullah Ababtain:

Q: First, what is the size of demand for flour and its products in the Kingdom currently and over the next few years? And what is the size of local production vs. imports?

A: The flour market value in the Kingdom was estimated at SAR 1.64 billion, or 2.7 million tons of flour, in 2021. Amid better consumer spending and positive development in the food services and tourism sector, as well as urban expansion and booming modern retailing, growth in the Kingdom’s baked goods sector is expected to accelerate from 2.9% in 2018-2021 to 5.5% in 2022-2026. This will drive the flour market growth by 3.5% during the same period.

First Mills is well placed to leverage its production capacity and market share, thanks to burgeoning demand for flour-based products.

Q. How many factories does First Mills have and what about their annual capacity? Also, what about the number of silos and their storage capacity?

A. First Mills is the sole company in the Kingdom owning four strategically-located factories in Jeddah, Qassim, Tabuk and Al-Ahsa.

The production capacity of wheat milling at First Mills is estimated at 1,348,200 tons annually, with silo storage capacity of 220,000 tons.

Jeddah’s factory, the company’s oldest facility, has the largest annual milling capacity of nearly 674,100 tons and a 120,000 ton-storage capacity. The Qassim-based factory takes the second place with an annual production capacity of nearly 288,900 tons and a 60,000 ton-storage capacity. Tabuk’s factory follows with an annual production of nearly 192,600 tons and a 10,000 ton-storage capacity. Al-Ahsa’s factory comes at the end with an annual production of nearly 192,600 tons and a 30,000 ton-storage capacity.

Q: What about First Mills wheat import sources? And what is their percentage of the company’s inventory?

A. GFSA assumes responsibility for importing and storing wheat, while milling companies produce and distribute the flour.

According to GFSA’s data, a total of 3.5 million tons of wheat were distributed to companies, of which three million tons were imported, while 500,000 tons were locally manufactured in 2021 to produce flour and related products.

These companies fulfill the largest part of market needs. Only a little potion of flour is imported.

Q. What are First Mills’ products? And what about its market share in the Saudi market?

A. The company produces flour, animal feed products and other wheat derivatives. It achieved a leading position in the wheat market during 2021, garnering a market share of 33.8% in terms of total sales volumes. The company also holds a strong position in the compound feed market.

First Mills produces various kinds of multi-purpose flour. In February 2022, it launched Aloula-branded premium flour, its first retailing brand. The company is also developing additional products, including various kinds of flour, recipe mixes, and semolina to be offered in the market going forward and meet the needs of businesses and retail clients.

Further, it produces other wheat derivatives composed of milling byproducts, including fine bran for human consumption, animal barn and wheat germs.

It is worth noting that First Mills is the first milling company to obtain a conditional secondary license to produce semolina to meet local demand.

The company is well-placed to leverage its production capacity and market share, thanks to burgeoning demand for flour-based products and the government initiatives to boost local production of compound animal feed.

Q: How was First Mills’ financial performance before and after privatization?

A: First Mills was part of the Saudi Grains Organization (SAGO), which rebranded to GFSA. Since the privatization process, First Mills has reported robust financial performance, as its sales rose from SAR 643.9 million in 2019 to SAR 801 million in 2021, implying a three-year CAGR of 11.5%. During that period, the company’s net income jumped from SAR 125 million in 2019 to SAR 198 million in 2021 at a CAGR of 25.6%.

Q: Can you give us insight into the government flour subsidy in exchange for selling the company’s products at fixed prices in the Saudi market?

A: The GFSA sells wheat at a subsidized price of SAR 180 per metric ton, regardless of market prices.

It is worth noting that the price difference between wheat purchase and flour selling prices is deemed fixed until mid-2025. We are grateful for the role played by the GFSA to provide this subsidy. We are certain that any decision on subsidy will be in the interest of the national economy and society as a whole. One of First Mills’ strengths lies in its risk management ability. The company maps out proactive initiatives and preventive measures to alleviate and curb the impact of risks. We believe that our clear vision and future strategy will contribute to sustaining growth and enhancing our leadership.

Q: What goals First Mills is seeking from its IPO on Tadawul?

A: The company's IPO plan is part of its belief that this move is the next stage of our long journey that extends for decades. We look forward to increasing and diversifying our shareholder base and allowing a larger base of investors to participate in the success story of our company and support the Kingdom's food security. In addition, we aspire to leverage the long experience of our senior management team in the food and feed sectors, both locally and globally.

Thus, we will build on the breakthroughs we made in the field of governance, as we look forward to reaching advanced levels of transparency in line with our planned listing. This will in turn serve the best interest of the company, society, and shareholders.

In addition, we look forward to supporting national economy through playing a pivotal role in the private sector, given that we are the first Saudi milling company to be listed in the Saudi market. This move will contribute to achieving the Kingdom's Vision 2030, which aims at increasing competitiveness in the private sector.

Q: So, what are the company's plans and upcoming projects?

A: We have a strategy and a clear roadmap we follow to maintain the achievements we made during the past decades. This strategy is based on four pillars, namely strengthening market leadership, building an efficient and distinguished operational framework, as well as creating outstanding products and providing exceptional services, in addition to building the necessary capabilities and an effective framework to achieve the company’s strategy.

First Mills seeks to enhance its market leadership by focusing on fulfilling customer needs and the company relies on the principle of customer centricity in all operations. Therefore, it aims to continue applying this principle, which in turn will boost its market leadership by developing distribution operations and expanding sales channels to include all available channels for selling the company's products.

The company achieved tangible success in this regard through the reach of “Aloula” product, which relied on new sales channels; hence the company managed to gain a significant share in the retail flour market within eight months (March - October 2022).

Regarding the building of our operational framework, First Mills is leading a series of efforts and initiatives to enhance efficiency and achieve operational excellence permanently, as the efficiency of assets and operations is one of the most important components to achieving corporate success. Accordingly, First Mills is undertaking essential steps such as promoting integration in the value chain through a program it launched to improve the interdependence between its departments through integrated planning.

On creating outstanding products and providing exceptional services, the company is working on developing strategic partnerships to launch systematic research and development operations to enable us to innovate and address the needs and aspirations of a diverse customer base. First Mills is leveraging its supply chain capabilities, such as utilizing its flour in innovative products and cake mixes. 

In order to achieve our strategy, we need to build necessary capabilities and implement an effective framework, as such, First Mills is strengthening its capabilities across a range of areas. This includes enhancing technical capabilities, research and development, and supply chains, in addition to attracting and nurturing the best talent, and boosting our safety and quality capabilities.