Good afternoon, ladies and gentlemen. Welcome to Second Quarter 2024 Earnings Call of Almarai. Today, we have with us the Senior Management of the company. Without any further delay, I will hand over the mic to the management. Before I do that, I will just give a short reminder that the participants can type in their questions into the Q&A chat box. And at the end of the presentation, they can also raise their hands to ask the questions. Without any further delay, over to the management.
Thank you, Mohammed. Welcome, everyone, to Almarai Q2 Earnings Call. This is Mohammed Al-Khalidi, and I am here today with Almarai CFO Danko Maras and Ikram Ul Haque, Head of Finance. First, I would like to thank Al Rajhi Capital for hosting our call today. As usual, I assume all of you have downloaded the earnings presentation. For those who haven't, please go to Almarai website, investor relations page, and you will find it. Before we start, please pay attention to the disclaimer on page two. Now, I will leave you with Danko. Danko, over to you.
Thank you, Mohammed. Good morning, good day, good afternoon, ladies and gentlemen. Pleased to be with you again in the earnings conference for Q2. I hope everyone is doing great. So, ahead of the holiday period, for those who will have that, and hopefully, you can hear me okay as well with the audio. It was a little bit distant with Mohammed. Hopefully, it's okay. As usual, we will sum up the performance for Almarai in this quarter with three main topics: market dynamics, business performance, and financial performance. And then there are some more slides also in the appendix that you can see a little bit more data that we can also discuss if you want to during our Q&A.
If we go to our first main topic for market dynamics, you see this quarter, we have a lot of flavor extensions and packaging designs, not really any new disruptive innovation like we had with ice cream in the last quarter, but all doing very well. If we also look at pleasing performance on how we have developed in terms of market, if you go to the next chart, you can see that we continue to be number one in those categories where we are operating. In some of the categories, we have increased our market share, so we are holding steady. There was a temporary increase in December for poultry, but overall, you see that we have grown and we are holding our number one market share position. You will also see that when we talk about the revenue performance for poultry. So, very good position in the market.
We continue to feel good about that, and that doesn't make us relax at all. We continue to drive in our subcategories to win the market positions in those categories. So, should we go into a summary of the key highlights for the quarter? You can see it goes from left to right there on revenue. We've increased revenue in the quarter with 8% compared to last year's quarter. Strong performance in core GCC market led by Saudi Arabia, Egypt, and UAE in nominal terms. Strong momentum in percentage growth led by UAE, Oman, and Kuwait in GCC with Egypt and Jordan also showing high double-digit growth in hard currency. So, great performance there. In product category, growth rate was the highest for Long-Life Dairy, you will see, with the inclusion of ice cream that is doing well.
Still not major to make an impact for Almarai in total, but we're very pleased with the launch of our ice cream category. And this was then followed by poultry and food. I'll come more into it, but this quarter, we saw growth in all countries, all categories, and all channels. And I'll highlight that a little bit more, but very pleasing to see. Also, considering that we had 12 days less in the second quarter compared to the first quarter with the Ramadan impact that we have been highlighting. Therefore, I'll also show you a little bit on what we're doing in the first half of the year where there is no Ramadan impact at all in our performance. Operating profit is increasing even more than the 8%-10% due to the volume growth, favorable product mix, and strong operational control, I would say.
Despite higher funding costs, the net profit for the second quarter increased by 11%, mainly due to the top-line growth and operational efficiencies that we saw. So, pleasing quarter on both top and bottom line. On balance sheet, working capital of SAR 3.8 billion is a decline versus last year, about SAR 260 million. It's almost SAR 500 million decline since year-end. So, the efforts we've done to drive down working capital are pleasing, and you'll see that also coming through in the cash flow that you have in the appendix that you can look at. And you will see that also in the key KPIs that we are highlighting. The CapEx is SAR 817 million. So, we are all part of the plan in our expansion plans for poultry and other activities that we have. So, it's all in good order. We are spending more.
You'll see more of that when I come into the balance sheet a bit more in detail. The free cash flow is positive with SAR 748 million, and it's a little bit less than last year. But please also remember that we acquired Etmam Logistics also in the second quarter, affecting our free cash flow. Again, if we go back and dissect a little bit on the top line, you'll see the three dimensions here. The left side is the proportion of countries out of total, and then on the right side, you see the growth in percent and absolute. And the biggest one in KSA is SAR 123 million. That's 4%. But again, you can see stellar performance from Egypt. That was the case also in Q1, if you recall. Very strong delivery in hard currency, doing very well both on top line and bottom line.
UAE, all of them essentially on double-digit growth, with the exception of others, which relates to our overseas farming sales that we do that doesn't really carry traditional EBIT margin. It's just alfalfa sales that we've done. So, overall, very pleasing in all countries in terms of growth. And if we look at it and break it down by categories on the next page, you can see also again on the left side the proportions. Here, poultry is leading with 14% growth in absolute terms, SAR 120 million, but also very strong resurgence of Long-Life Dairy with 27% growth or almost SAR 100 million, doing very well and impacting us also in growing in our market Fresh Dairy, 4% or SAR 67 million. Foods doing well with 10% growth, SAR 50 million. Fruit juice, 29 or 7%.
Bakery driven by good growth in single- serve and bread categories with pleasing margins that contributes to overall profitability. Then if we look at channel, you can also see a good balance between traditional trade and modern trade, 9% and 8%. But given that our stronghold isn't traditional trade, as you can see on the left side there, it's SAR 236 million in traditional trade contribution, while modern trade is about SAR 86 million. Food service growing about 6% with SAR 44 million. And the other in export is again the alfalfa sales that you've seen that I talked about before. If we then go into the financial performance, I'll just have a little word on the bridge, and then I'll let Ikram speak a little bit more in detail. You can see here the SAR 557 net income last year is now SAR 620. It's an increase of 11% or SAR 63 million.
Almost all of that is coming from volume and mix, which is very pleasing to see. There is a slight impact on negative pricing, which is there. It's not a permanent price reduction. It's to drive volume growth. So, the SAR 32 million in the quarter has a bit of an impact in our revenue and bottom line. Overall, first half year, we're still having positive pricing. I'll come back to that. Another pleasing thing to see is the cost of goods sold going down, the SAR 41 million. So, it's not a radical reduction of raw material costs, but it is coming down. You had a somewhat similar impact also in Q1, but it continues to come down as we turn our inventory and we are buying at lower costs.
So, a positive momentum for the operational cost, SAR 61 million is partly planned because of the support we need to do to drive the volume growth. But about 50% of that is also diesel if we compare to last year. So, today it's SAR 115 per liter, and that is impacting us with about SAR 30 million-SAR 40 million per quarter. We've anticipated it, and we've built it into our plans, but obviously, it has an impact in our operational cost, and we have to drive operational efficiencies to mitigate that. The funding cost and other costs increased by about SAR 12 million due to higher average funding rate in line with a higher SIBOR rate and SAR 4 million on security and tax with current year's profit growth. And then the one-off items is a net that we've done is about SAR 5 million.
If you look at that overall, we're pleased to see the income growth with 11%. If we break that down a little bit more, I'll let Ikram come in and talk a little bit more in detail on segments and overall.
Thank you very much, Danko. So, let me talk on slide number 15, where we will talk about the revenue, operating profit, and net income. I think Danko has discussed revenue in much detail, so I will move to operating profit. Almarai operating profit for Q2 went up by 10%, and that was mainly driven by two factors. The bigger factor, of course, was the volume-led growth of 8%, and we've discussed in detail where we can see growth by product, by country, by channel as well. But the major issue, which is under management control, was how do we manage our cost in the business. As Danko talked about diesel, which is about SAR 30 million-SAR 40 million every quarter, we have the one-off subsidy last year.
Despite these cost challenges, the operational efficiency initiatives which are running in Almarai are allowing us to manage costs which are only relevant to the volume-led growth. So, we are allowing costs which are growing towards the trucks, the HHTs, the sales drivers, but we're trying to manage all other costs as much as possible. This is the major reason for giving us an operating profit growth, which is two percentage points higher than the revenue growth. If I move on to the third bar, which is the net income of 11%, again, net income growth was higher than operating profit growth, driven mainly by a balancing on the zakat and tax, which is pretty much similar to last year. But on the funding cost, we had a bit of an increase, and this is a rate-led increase. Today, our debt portfolio is around 54% fixed rate basis.
As we have a rolling fixed rate regime, as and when we roll over the debt, we are locking in a higher rate, although it's fixed. It's costing us around 60-70 basis points on average, and that's the reason for the higher funding cost. So, the debt in totality hasn't changed much. It's a very slight change, but the major reason for funding cost increase is a rate change. With that, let me move on to the next slide, which is by segment. So, I will talk of revenue by segment, and I'll talk more on the net profit by margin. When I look at revenue by segment, the only disappointment I see is poultry, which is SAR 969.
We were really hoping for a SAR 1 billion mark, and inshallah, in the next coming quarter, so the next two or three, you will see poultry hitting SAR 1 billion each quarter, which will show how investment in this segment is paying off Almarai. But the main issue I want to talk about for Q2 is the net income margin, which is the percentage of revenue column, which is the second first column on the page. If you look at dairy and juice, for Q2, our net income margin is 12% versus 11% last year. You look at bakery, it's 15% versus 14% last year. For poultry, for every SAR 100 Almarai sells, Almarai reports a net profit of SAR 13 compared to SAR 12 last year.
I'm very proud to see that every segment is improving compared to last year, and that shows categorically the profit is growing faster than the top line. In that respect, if I go through segment by segment, dairy and juice is a broad-based increase. Majority of that is coming from Long-Life Dairy and, of course, the stellar performance of ice cream, which is what's resulting in the growth on the top line and correspondingly bottom line as well. If you look at bakery, again, it was both single- serve and bread categories for the second quarter, 4% top line growth and 6% bottom line growth. Lastly, the poultry category, which the top line grew by 14%, but the bottom line grew by 25%, which was mainly driven by channel optimization and volume growth across the board.
With that said, I would like to request Danko to take us through the second half of, sorry, the first half of Almarai performance on slide number 18. Danko, over to you, please.
Thank you, Ikram. Second half, we cannot talk about yet, but let's talk a little bit about first half. Again, I just very briefly want to highlight the point that we are pleased with the overall business strategy of Almarai. We're driving good volume growth. The 8% is easy to remember. It was 8% in Q1, Q2. The first half year is an 8% growth of SAR 754 million. And we are accredited to growing a bit more on our operating profit and net income with 9% and 10%. So, if we look at our EBIT margin now in the first half year, we're about 16%, which is good. And we're also at about 12% on net income margin, which continues to be good. And also, considering that we had some one-offs, most of that one-off was in our gross margin.
So, if we wouldn't have had that one-off last year, you would have seen an accretion also to the gross margin, which is for us the most important thing, of course. But strong cost control driving the business in holding the price, getting the volume, and being tight on labor and overheads is a key directive in 2024. And we are confident about the second half of the year, but we won't speak too much about that at this point in time. The working capital improvement I talked about, but also you'll see we are spending SAR 1.6 billion in the first half year in CapEx. And despite all of that, we are increasing our free cash flow to SAR 1.25 billion. So, a good testament of cash converted in from the business driving predominantly from our volume growth.
If I move on, again, you see the growth in the countries where we also continuously have good growth in all countries. We'll go to categories again. First half year, you see also strong Fresh Dairy is a bit stronger now than poultry, but that is, as you know, the lion's share of our composition of categories and is driving significant absolute growth, but also Long-Life Dairy coming strong across the board. You see all the categories growing very well. And then on channels, you see the same point as I've mentioned before on Q2, good balance between traditional trade, modern trade, 9%, 3%. We are picking up on food service, which was a little bit benign in the first quarter.
And if we look at net income or financial performance, again, here you see a good shape of the improvement of 10% you have in net income, SAR 120 million. SAR 230 million of that comes from volume mix, which is a key component this year. About SAR 9 million positive pricing. We are doing some selective pricing, but the majority that for those of you who participated in the calls and are following us, we had significant pricing and costs coming in in the last two years. That has halted a bit, and you can see that it's all about volume growth. Again, cost of goods, SAR 69 million versus operational cost there. You have, again, a big part of diesel, as I mentioned before. I'm not going to go through that more in detail, but it's the same story in a way.
The good point for us is our strategy and execution of our countries and categories and channels are working well, and we are confident about continuing that for a full year basis. Maybe also you can say a few words, Ikram, on the detailing of the first half year.
Sure, Danko. I think, as you rightly said, the story is very similar for the first half compared to the Q2. So, if you see this page, 8% top line growth that Danko talked about, operating profit of 9% growth. Again, it is driven by cost control, which is to support the volume-led growth. And the net income is growing by 10%. And as I said, the only difference here is the funding rate change. Otherwise, everything remains well under control. If I move on for the interest of time on page number 25, the main story, if you look at the bottom left-hand side, the net profit margin by each segment, you will see dairy and juice contributing 12% for the first half on a net income basis. Bakery is 14% and poultry is 14%.
Across all categories, again, you would see that the net income growth is doing faster than revenue growth. Same reasons as Q2, so I will not take much time, but move on to the next slide if that's okay. If I go to some other information, this is our CapEx spend page. We are now looking at 15% of our revenue is being spent on a trailing 12-month basis on CapEx. This is purely driven by our investment in poultry. We announced to the stock markets in Q2 and Q1 as well, and it's going perfectly in line with our expectation. If I move on to slide number 28, this is one of the targets that Danko has given us as one of the operational efficiency targets. I'm very pleased to see that's driven by inventory reduction. Inventory valuation coming down.
The working capital as a percentage of revenue is now trending to around 18%, slightly lower than our target of 20%, which is creating more cash flow for us. If I move on to slide number 29, operating cash flow, it's rising for the last three years. You can see it's rising consistently up, which is a testament of the growth of EBITDA in our business and the volume-led growth that Danko talked about by country channel and product mix as well. If I move on to slide number 30, Danko, if you can please take us through on how free cash flow is evolving, that would be great.
I just, one point maybe, you can see significant operating cash flow, SAR 5.7 billion, and now a better movement of working capital. We continue to drive inventory as we can and when we can to be even more efficient to release capital because we do need for our CapEx, SAR 4.1 billion on a rolling 12 months is quite significant. It also includes the biological assets, but it's all part of the plan. And then essentially the funding cost and the dividend you're all aware of. But if I look at the free cash flow generated in the quarter, much of it comes from the fact that we have had positive movements in working capital giving us an additional benefit.
So that in turn then means that the KPIs, when we look at both the EBIT margin, net income margin, and net debt to EBITDA on the next chart, you can see that we are holding a net debt position of about SAR 9.5 billion despite paying dividend, acquiring Etmam Logistics, etc. And much of that comes from good working capital management. The net debt equity ratio at 53%, and we are holding the 2.1 x net debt EBITDA. And we've said, as you know, we should be somewhere around 2.5 x. So we're in a good area in terms of cash generating despite investing a lot of it in future growth for our poultry expansion and other places. And then on EBITDA and EBIT margin, these are rolling 12 months.
So the 14% you see there for Q2 is 16% in the first half year, but then we are blending it with the four quarters, so it becomes 14%. Hopefully, we can drive that a little bit higher, 14%-16%. And then EBITDA is just maybe just a little bit of a rounding there on 23%-22%. But we are confident that as a company and driving fast moving consumer goods, this is all the ranges we should be in, and we strive to improve it even further, of course, as you all know. And then on the final ones, two charts, not too much to say. Nothing has really changed. We still have a lot of bilateral loans in place, but we have, as you know, replaced our Sukuk with a new one. Our average debt maturity profile is about 5.4 years.
We look with a good anticipation of interest rates perhaps coming down in the near future, but we are exposed just like everybody else as we roll over our loans. We'll then have the impact of the Sukuk. But overall, very comfortable in our debt maturity profile and how they are maturing year- on- year, you can see for yourself. So we don't really see any particular issues despite us having announced, as you all know, about SAR 18 billion, SAR 18.5 billion of investment for the next five years. It's a testament of the cash generating capabilities of Almarai and the conversion of cash that we can do. And then finally, the dividend. We paid dividend now in Q2, as you all know. Hopefully, those of you who have missed and got the proceeds in time. And it represents 49% of our net income.
So it's in line with what our dividend policy says that we should be in within that range. But we are a little bit prudent, as the board of directors believe that we should be prudent and make sure that we are also safeguarding for investments that we have in the future. With that, I think I stop there and allow for the Q&A to start, and then we'll do a wrap-up in the end. So a word back to Al Rajhi.
Thank you. Thank you, Danko. Ladies and gentlemen, this is the Q&A session. You can raise your hand if you want to ask a question. Furthermore, you can also type in your question in the Q&A chat box. I will be starting from Mr. Mohammed Al-Rashid. Al-Rashid, can you please introduce yourself and ask the question? Hello. I think Mr. Al-Rashid has dropped off. The next in line is Mr. Taha Javed. Taha Javed. I'm unmuting you. Mr. Taha Javed, please introduce yourself and ask your question.
Congratulations on that. So just a couple of small questions. Like you've talked about, obviously the margins have sort of improved in this first half. So what's the outlook going forward on the gross margin front? Do you see them on the similar trajectory or see them improving further? And the second question is that we've seen that there's sort of a scare on the bird flu globally happening. So do you see any impact on this in the GCC and KSA in particular? Thank you.
Let's see here if I understood the first question, but I think the development of our gross margin or gross profit, overall, you see a continuous decline of raw material cost. You don't see radical impacts in Almarai, and I believe we have talked about it quite a lot that we have quite significant inventory. The churn of inventory is impacting because of the way we match the cost when we are selling our products. But overall, I would say it's a very positive sign not only for the next six months, but overall, assuming geopolitical situation continues to be stable. And that we don't know, but if we keep everything else equal, I see an enhancement in our gross margin continuing. We don't give you forward-looking statements on absolutes, but overall, we are confident that we see commodity costs coming down.
We have also very positive mix in the volume growth that we are having. It comes to finding the right balance of bulky products versus single-serve, occasional products that people are buying in store, always have higher margins. We've been having a benefit from the mix component, less so than previously, but still coming in positive. Overall, we are confident that we should keep the 32%-33%. Maybe we can drive it even more. I leave that for the future to show, but rest assured that we are focusing a lot on making sure that the gross margin is creative and that we are driving profitability from that. That means a lot to us. At the end of the day, that's really where the rubber hits the road.
And then in terms of bird flu, I think from our point of view, we have not been exposed to it. We've heard not only in the region, but elsewhere in the world. Our quality standards, as you know, are very, very high. We have a patented solution on air filters to avoid potential risks that might travel by air. And at our end, I think our quality standards are as high as it can get, but we are not immune to that either. So if something were to happen, we would obviously also let you know. But on our end, we haven't had any of those issues on our farms so far. And I think it's partly a testament to good biosecurity standards that we're having at the farms. But again, these things, nobody's immune to them when they happen. It could also happen to us.
So far, our quality metrics and standards have been mitigating some of the impacts that you might have heard elsewhere.
Thank you so much.
Thank you.
The next question is from Prateek. Prateek, I'm unmuting you. Can you please introduce yourself and ask the question? Prateek, you can go ahead. Introduce yourself and ask the question.
Prateek from GIB Capital, and thanks a lot for the call. I have three questions. The first is, can you talk a bit in detail about GCC? Like what was the reason for such strong growth for the second quarter in a row? Is it like due to the increased distribution capabilities or what exactly is driving that? And the second is on the poultry subsidy. I wanted to know whether this was higher compared to Q1. And the last is on the UHT milk. So how is the response in KSA? Have you gained market share in UHT milk in Saudi Arabia in particular? So yeah, these are the three questions. Thank you.
Thank you, Prateek. So on GCC, I would say overall, we are pleased to see volume growth essentially in all markets in GCC with our categories. It's also pleasing to see that we're growing steadily, slowly, but steadily also in Qatar. Some pricing we have done in Oman and elsewhere, but very residual. If you look at the first half year, you saw it was only SAR 9 million in total for Almarai. But some of the growth is also coming on some pricing. But the base effect, if I look at that, it's both pricing and volume led, and it's also in all of our categories. I just simply think it's coming back to the brand equity we have and strong growth coming through in those markets spearheaded by, in absolute terms, by KSA.
And then on poultry and subsidy, it's the same as in Q1, but what we have seen, we're doing a catching up of subsidies because the announced number that we are seeing, we are getting a little bit less than that. And without saying too much, what we have seen is a bit of a catch-up if we compare it to last year. But there's nothing out of the ordinary on the subsidy on the poultry that we are seeing more than that that we're doing the particular catch-up. It's about SAR 0.33 per bird that we are receiving, and we were anticipating to receive a little bit more. But overall, we are sort of catching up to the overall SAR 0.85, I think, was what we were supposed to get per bird.
And then your last question on UHT milk, there's a lot of activities that we've done to drive as part of our strategy to become number one in Fresh Dairy and UHT, and not at the expense Fresh Dairy. there is a market for both of them, and a lot of efforts have been put in in terms of numeric distribution, a recombined formula that we know that consumers are having a strong preference for. We've seen a very strong increase in our market share. We still have a way to go to take the number one position, but we're not in a hurry. We have good time ahead of us, and we are firm in our belief that having an indisputable number one position both Fresh Dairy and UHT is something that Almarai is striving for.
We will continue with this, regardless if it takes a year, two, or five years. Very clear direction strategically for us to be driving the category together with our competitors, but also making sure that we are winning in, let's say, in the UHT category. Very promising to see the resurgence in the second quarter. I believe we have good momentum to continue also in Q3 and Q4 without saying too much. Hopefully, that answers your questions.
Thank you. The next question is from Mr. Nauman Khan. Nauman, I'm unmuting you. Please go ahead. Introduce yourself and ask the question.
Congratulations to you for another very strong quarter. Just a couple of things. One on the dairy segment, the long life, as well as Fresh Dairy. there has been a very strong growth in the first half as well. So if you may elaborate further on it, how much is volume and how much is it price? And if the price action has been taken fully, so what would be the normalized growth that you're looking forward at that time? That's my first question. Second question is about your emerging products that you were talking about last time around, about trying to introduce fish, beef into it. So is there any progress on that, any further progress on that market as well, that if you expanded the market within Saudi, and what's the response on that?
And lastly, just to take it up on the comment that I think you said about that 54% of your interest rates or your debt is fixed on a fixed rate. So it is safe to assume that the rate decline or the interest cost will be a little more sticky going downwards. It will not be immediate once interest rates start going down. The impact on the financial cost will not be immediate or rather it will be delayed. These are the three questions that I have. Thank you.
Thank you, Nauman. Maybe I should just let Ikram speak a little bit also. You're getting bored of my voice. Ikram, can you take those three and I'll chip in if I need to?
No, no worries. Thank you. So Nauman, on the first part of the dairy question on the Long-L ife Dairy and Fresh Dairy, all of it was volume led. If you remember, the all-new price increase in dairy was done for Zabadi in the first quarter of 2023. And then we have seen a selective price increase in Gulf countries, but in general, pricing has been fairly static for dairy, as well as Long-Life Dairy for the last 18-24 months. The only last pricing is, as I mentioned, was done on the first week of 2023. So like on like, the pricing has been, there's no major change. So all of it is driven by volume led growth, which is very refreshing for us to see that.
The second point on emerging products that you mentioned, so ice cream is a great example that is done really well. Seafood is doing good as well. It's still in the trial phases, and then we are seeing where are we getting the higher output? Is the place where we have some wastage? How do we fix that? So for us, we are working in parallel to expand our production capability. But for the time being, we are importing the seafood product and testing the market per se, and it's done really well too. Lastly, on the rate increase of 54%, you're right. Almarai has a policy where we will try to maintain a fixed rate portfolio of between 50%-80%. Then management decides depending on the rate curve where we are in the cycle.
Given the fact that the impact of higher rate increases was delayed for us, the reverse will also apply if the rate starts to go down. But the best example I can give you is the Sukuk, which is a well-known factor that we locked in a 10-year rate of, let's say, 5.23%. And that's nearly one-third of our portfolio. So you can see the fixed rate is already done at a much lower rate. But again, it's not just the fixed rate. You have to see what part of the curve you're fixing the rates, how much are you carrying in your current loan, and how that's getting to rollover as well. So it's not as simple as that. But rest assured, our objective is to maintain that we are hedging the risk properly, not that we start to get the gain out of it.
I think if you would like to add more to these things, I would really appreciate that.
No, I think it's fine. Thank you very much, Ikram. We can move on to the next question.
Thank you. The next question comes from Mr. Prateek. Prateek, I'm unmuting you. Please go ahead. I think Prateek has dropped off. The next question is from Mr. Anil. Anil, I'm unmuting you. Please go ahead with your question.
Yes. Following up on the UHT growth, and you alluded to volume growth. Is it market share gains or is it something else? Because I'm assuming market didn't grow this much. If you could also give us some color on maybe who is potentially losing this market share. Then within the UHT, if you could also talk about what's the impact of ice cream because I understand maybe it's bulked in there. Then I can ask my next question, please.
Yeah. So on the UHT growth, we are gaining market share. And a category as such, what we've seen both Fresh Dairy and UHT is the categories are not declining. They are growing steadily. But on our point where we look at our UHT in particular, our objective is to drive the category to benefit, let's say, the whole category, but also to take market share. And doing that is nothing really that we spend too much focus on in a quarter. It's more the overall objective of where do we want to be within Long-Life Dairy or UHT strategically. And there we've made it, I think, very clear to both yourself as investors, but also externally and internally that we want to drive this category. There is a consumer trend towards more convenience and shelf life, but not at the expense of Fresh Dairy.
So both categories, there's space for both subcategories, if you see what I mean. And even though we might win one or two percentage points, the overall objective is to move towards a number one position. On the impact on ice cream, every big thing has a small beginning, and it doesn't really have a major impact for us, even though we are including it in overall turnover numbers. However, what we are very positive about is the response from consumers, the response from our retailers, the fact that we have innovative ice cream offerings that were not in the market in terms of the bites, etc. All of that is very positive to us. And as you know, with all innovations, when you do, you also need to make sure you get the repeat, and you need to get the repeat fast.
We are working with our supply chain to ensure that we have availability of supply because the response was overwhelming, and we are now making sure that we have the supply chain capability of distributing it across the board. Very positive start and also a long-term view on how to drive this particular category and making sure that we get a good home for that also in the Almarai portfolio. There's an obvious synergy, as you all know, with our dairy category. We want to be very large in ice cream as well. We had a very positive start, but a very small beginning, if I may say so, relative to comparing to total UHT or Fresh Dairy.
Thank you. Our next question is from the line of Michael. Michael, I'm unmuting you. Please go ahead.
From Franklin Templeton. I had a couple of questions on the market trends. Did you witness any change in consumer behavior across your products recently that's worth highlighting? This is my first question. And the other one regarding we've been seeing a lot of advertisement on the protein milk. So we'd like to understand what's the progress, what's the feedback from the consumers, what's the growth in segment, and do you believe this can be the next big thing for you? Thank you.
Thank you, Michael. I think in terms of market change, we haven't seen any scaling down, if that's what you're asking about. I think our assessment, like any other player in FMCG, is also to look a little bit on how did Ramadan go and how much religious tourism, what impact that did have in the consumption. I think overall, when we look at the Ramadan performance for us, we're very happy with the performance, one of our best years ever. There was a little bit less on the religious tourism that we were anticipating. It was not at the high end. Overall, that's the only sort of impact we saw that despite having a little bit less religious tourism than we were anticipating, we were actually selling more in the Ramadan period. That, to us, was very positive to see.
Almarai had a central place during the Ramadan in terms of offerings, both selling, but also supporting those who needed support because it was, as you know, very warm during that period. I would say that consumer preferences and the buying remains very strong overall. I think overall macroeconomics in terms of growth, in case that you see population growth, expect growth. If I look at it beyond the quarter, I don't get nervous or worry about the trends. They are on our side so far. I mean, they're available for you also to look at as much as for us, but we feel confident about the opportunity ahead of time. When it comes to protein milk, we have products Vetal as alternative to our dairy milk. It's not indicating the same trends that you're seeing in Europe, U.S., in terms of alternatives to our dairy.
We do look at all that we are in these categories or subcategories to offer this particular offerings to consumers, but it still continues to be a niche. And if it were to increase, we are there with our product range, and we will rest assured we will make sure that we have the availability to consumers if they want to have it. But we do not see that kind of radical trend as I'm from Sweden, and when I look at the consumer trends here, they are very much into alternative proteins or alternatives to the dairy. That's not really what's happening in the region that we are looking at. So we are there, but we don't see that being a big thing to tap into. When it comes, we will have availability of those products in terms of innovation.
We already have good recipes and availabilities for the technologies to do that, but not really kicking in in the same extent that I've seen elsewhere in the world at this point in time.
Thank you. Thank you, management. The next question is from Michel Salameh. I'm unmuting you. Please go ahead.
Hi, gentlemen.
Hello.
This is Meshal Salameh from Citi. First question is you kind of addressed that, but I want to see the growth in the GCC versus the growth in Saudi, around 4% versus 15%. Is that category-specific? Is that a management strategy that you want to further boost sales in the GCC? And my second question is on the channel mix. Also, we've seen the food services growth being softer than what you've seen last year, for example. Is that also a conscious decision, or is it basically demand-driven? These are my two questions. Thank you.
Thank you, Meshal. Ikram, will you be able to take those two?
As Meshal, when I look at if I dissect the GCC growth by product type, the biggest growth is still coming in Long-Life Dairy. This is when we talked about that we are expanding Long-Life Dairy. We're changing the recipe. So what we're seeing here is the biggest growth we are witnessing is still coming from the GCC, and that's driving the overall growth rates. That's the biggest contributor of growth if you look at by product, by country. That's helping us a lot in recording higher growth rates compared to the average. It's driven mainly by volume. It's not driven by pricing. Pricing has remained the same. If you remember, we had the issues in Q3, and now that we have the extra capacity online, we have the new products online, and this is the reason for expanding our distribution.
I think it was Anil who was asking the question before as well. Our distribution gains are coming mainly in non-traditional channels, especially for the Long-Life Dairy. What I mean by that is this is our wholesale channel. This is our food service channels. We were very weak in distribution in those channels in the past, and that has been our key focus. And that's what's causing us to achieve more than 90%-95% numeric and weighted distribution. So on the shelf, for example, if you go to Panda or Othaim this quarter versus same quarter last year, you would not have seen a major change. But the major change in terms of our product is available in the wholesale and other shops. That's what's driving a lot of growth, not just in Saudi, but also in GCC.
So hopefully that answers your question, which is more by product, by channel, by country as well. Your second question, Michelle, do you mind repeating the question again? Sorry, I missed that.
Yeah. Yeah, go ahead, please. Go on.
Yeah. So it's on the food service channel. I mean, last year, we saw very strong focus from Almarai, and the growth was much stronger in the food services channel. Is that like a management decision because it's higher margins?
No, look, we talked about once we had the disruption in Q3 and Q4, we lost some of our major food retailers' customers, especially on the food service. This was an issue in Q3, Q4, but that's continuing. Our long-term strategy, as we talked earlier in various investor conferences as well, remains for the next five years. The food service channel will be our key contributor towards the top-line growth. That focus is still there, and we are still running strong on that front. This is the best channel where we can leverage the volume to make sure that we fulfill our capacity utilization for our factories. This is an area where the religious tourism, where the general tourism is creating a lot of demand.
One of the first products, if you look at the presentation of the new NPDs, one of the first products you will see for the quarter is the cream cheese box, for example, which is made dedicated for the food service channel. So you will see our innovation is in line to service that channel. Our product range, our excess capacity in factories are available to service that channel, and that focus will remain. What you're seeing here is just a phase-in because of what happened in Q3, Q4, and the prolonged effect that has continued till Q2. Once we will reach a like-on-like phase, you will see that the underlying growth remains very strong, and our focus on this channel is not waving away.
Yeah. And maybe I can just add also that we see this particular channel growing significantly in line with the Saudi Vision. If you think of urbanization and the constructions being all of it needs cafes, restaurants, etc. So we see this channel as critical for our strategy to grow, and we have the distribution capability to ensure that it does grow. But it's very important for us also to grow profitably. So it's not a point for us to get volume compensation at a loss, etc. So one or two occasions, we're quite firm also when we are talking with larger customers that we're not willing to enter into a long-term agreement where we are making a loss just because of the strength of the customer. It has to be a win-win for both.
So if we look at our food service channel today, I dare to say that it's having very healthy profitability margins because it's a conscious choice to do so. And that's not necessarily the case. If you go to other FMCG companies, it's always a challenge to get the right profitability levels. But for us, it's important. So one or two contracts that we had, we were not willing to accept continuing with that if we were to make a loss. And that comes back to, I think, the strength that you need to have as a supplier. And we do have that. And that growth will elevate further, as Ikram was saying, as we go into the second half of the year.
Thank you. Ladies and gentlemen, since we are running a bit short on time, I would request the participants to limit their questions. With that, our next question is from Mr. Abdul Rahman. Abdul Rahman, please go ahead.
I have just a couple of questions regarding the diesel price increase. You have mentioned that the diesel prices came to SAR 1.5 per liter. So how does that impact your cost, and how much does it contribute to your costs in the second quarter? This is my first question. And my second question, I just want to understand better the SAR 0.85 per bird situation. Thank you very much.
Okay. I hope I didn't say 150. I think I said 115 with VAT. So the diesel price, I believe, is SAR 1 per liter, where the VAT is 115. Correct me if I'm wrong, Ikram.
No, you're right.
Yeah. And the impact you see of diesel in the second quarter is between SAR 30 million-SAR 40 million incremental cost that we have to deal with. With the increase that came in the first quarter, we already have inventory of diesel. So the impact wasn't fully there when I look at the impact for the first half year. So overall, if I look at diesel, it's about SAR 400 million in total if we look at the whole logistics and the supply chain that we have. And not to forget, we are the biggest logistics provider in Saudi Arabia, but also in GCC, I believe. And that comes with a mindfulness around the diesel cost and what we will do if this continues. There's been an announcement that the diesel price will continue to increase.
And if it does, we might have to look at ways to mitigate that either through more initiatives in our operational efficiencies, but ultimately also pricing if we are seeing the necessity of doing that. It all a little bit depends because the development of the diesel price is not that firm for us. We've just had indications. I think we are managing it well overall through our operational efficiency initiative. We don't want this to be dilutive to our EBIT margin or net income margin, but it is a significant cost for us. And therefore, we need to monitor this carefully and make sure that we don't miss out on the impact of it. At the end of the day, we see that a little bit like raw material costs where the consumer in the end should be paying for it.
If we can drive efficiencies, and we can, and we are doing a lot of initiatives, we're trying to mitigate it also through that way. And then the SAR 0.85, the actual subsidy received for poultry, this is a little bit out of our league, but there is an allotment or a budget for subsidy of poultry that gets allocated out to poultry players. We are not in an immediate need for the subsidy of poultry. It's more for the poultry producers who are only working with, let's say, poultry as a category and dependent on profitability, maybe being in a somewhat more difficult situation than ourselves. But what we've seen is that we get an allotment that is slightly below. And what I was referring to before, also in Q2, we saw a catch-up of that.
So we're supposed to get SAR 0.85 per bird, and we're getting slightly less because of the allotment and the intricacies around, and there is a budget for that. What we then saw in Q2 was a catch-up on that.
Thank you. Because of short time, I would again request the participants to limit the number of questions. Our next question is from Mr. Mohammed Al-Rashid. Muhammad, please go ahead. Mohammed, please go ahead. Hello. Yeah. Now we can hear you. PPA, can you please go ahead with your question?
Yes. So my first question is regarding the Food Security Program subsidy based on the net income bridge for the first half of 2023. For this half, it seems that you have received around SAR 26 million of Food Security Program subsidy during the second quarter. Can you confirm that?
Well, I think overall, last year, we had a one-time food security support in the first half of about SAR 104 million that we did not get this year. I would say the number that you're referring to is directionally correct. As I was referring to before, not sure I see that as a food security compensation. It's more the catch-up of the subsidy that we are supposed to receive on poultry that reality was we got a little bit less. The amount that you referred to is directionally correct. Yes.
Thank you. Our last question for the earnings call today is going to come from Mr. Anil. Anil, can you please unmute yourself and go ahead with your one last question?
Hello. Thank you.
Please go ahead.
Yeah. My question is on the net pricing effect for the second quarter shows a negative trend. I know during the call, you alluded to it's temporary, but could you elaborate where did it come from in particular? Thank you.
Yeah. So again, you saw in the quarter support to drive volume, in particular in the poultry food service and UHT that we were driving. And overall, we are monitoring this very carefully. If you remember, I was referring back to that we made significant price increases to mitigate the cost increases over the last two years. We talk about SAR 2.5 billion. What we are not seeing is a radical decline of commodity cost. Even though we see the ease, we are not seeing the radical decline. So every now and then, we meet those consumers and investors who are expecting to see very dramatic decreases. But the reality is we don't see that overall. So it's key for us to preserve the price. And that's why we don't do price reductions per se. We do discounts of different sorts to promote volume growth.
The resurgence that you've seen in UHT is giving us a lot of volume. You have to do the cost-benefit analysis of that impact. They are all temporary. There are no permanent price reductions that we've done. We do that to get new categories in going and also to give the volume boost that we need for UHT, which we also are seeing. It all is a fine balance, essentially, to ensure that you pull the right levers or you're in the gearbox and you need to make sure that you're humming with the engine of finding the right balance between volume and price. Overall, as a direction, we don't want to give in on price because we have still significant costs. Please make no mistakes on that in how I am communicating the message. We see this ease because of the inventory churn.
We are buying corn and soy much less expensive than in the past. Shipping costs are less than in the past, but they are not radically reduced. Therefore, we have a very close eye on the pricing components. As you all know, a price reduction trickles down to net income immediately. While on volume, you only get the 40% impact. So we have to drive 2.5 x more on volume to mitigate that price impact. We are very aware of that overall. That's why you also see first half year, no particular trend in Q2. It's more about the overall year and how to manage that by not losing too much on price.
Thank you, Danko. That's about it from the Q&A session. Since we are running out of time, I would request you for any closing remarks that you can share with investors.
Well, I feel it's important for us that you feel that you get answers to your questions. So please don't hesitate to reach out to investor relations if you have more questions and you didn't have the opportunity to ask them this time. But overall, I think we closed the first half year confident about the profitable growth journey that Almarai is on. 8% growth on top line is good to see all of it being volume and mix. So we are very happy to see that we have the consumer confidence for our categories. And we're also confident about going into the second half of the year. We have ambitious plans to continue to grow both in our core markets and our core categories, but also in our adjacent categories that we've launched.
Looking forward to talking to you again as we close in on the third quarter later on in October, I believe. In the meantime, please enjoy a holiday for those of you who have that. Please make sure also that you buy our products ongoing. It will help us. Thank you very much and talk to you soon. Bye-bye, everyone.