Sapphire Dairies (Pvt.) Limited ("the Company" or "SDPL") is a private limited company incorporated on January 31, 2008, under the Companies Ordinance, 1984, which has since been repealed with the enactment of the Companies Act, 2017.

SDPL was incorporated in January 2008, representing a deliberate strategic diversification initiative by the Sapphire Group into the dairy sector. Since its establishment, the Company has progressively evolved from a raw milk production unit into a fully vertically integrated dairy enterprise encompassing farm operations, processing, and branded packaging. Key milestones in the Company's evolution include the establishment of processed milk and beverage operations, the development of export capabilities, and the commencement of cow fattening and meat exports, reflecting the Company's continued expansion across the livestock value chain.

SDPL is principally engaged in the production and processing of milk and dairy products at its dairy farm located on Manga Raiwind Road, District Kasur. During 9MFY26, the Company produced approximately 14.8mln gross liters of milk. The farm currently maintains a herd of around 4500 cattle, of which 2,000 lactating cows, representing nearly 45% of the total herd. The Company's registered/head office is located at 7 A-K, Main Boulevard, Gulberg, Lahore, supporting the efficient management of its production and distribution operations.

The ultimate effective control of SDPL resides with the Sapphire Group founding family, led by Mr. Mian Mohammad Abdullah, who is the Chairman and Founder of the Sapphire Group of Companies and the principal decision-maker across the group's diversified business interests. SDPL is a subsidiary of Diamond Fabrics Limited, which holds a ~53.755% majority stake in the Company. Sapphire Textile Mills Limited holds a further ~12.946% stake, while Sapphire Fibers Limited holds ~5.509%. The remainder of the shareholding is distributed among other group companies. The entire shareholding base is therefore concentrated within the Sapphire Group corporate structure.

Ownership stability is considered strong. The Company's long-standing integration within the Sapphire Group's portfolio of businesses reinforces the expectation that the current ownership structure will be maintained in the foreseeable future.

The sponsors possess demonstrable cross-sectoral business experience accumulated over several decades. The Sapphire Group's operations span textiles, power generation, cement, real estate, and dairy, reflecting a capacity to manage diverse business models and navigate complex operational environments. The group has sustained its growth trajectory through multiple economic cycles characterised by currency depreciation, inflationary pressure, and energy cost volatility, which is indicative of sound strategic judgement and operational discipline.

The financial strength of SDPL stems from the robust financial backing of its sponsors. This strong sponsorship provides the Company with enhanced financial flexibility, supports future expansion initiatives, and reinforces its ability to withstand industry and economic challenges.

The Board of Directors of SDPL comprises five members, all of whom belong to the sponsoring group. The Board functions primarily in an advisory capacity, complemented by professional management teams that oversee day-to-day operations. Board meetings are conducted periodically, and financial results are formally presented to the Board for the evaluation of the Company's performance. Minutes of meetings are recorded and maintained.

Mr. Mian Mohammad Abdullah serves as Chairman of the Board and is the Founder of the Sapphire Group of Companies. He has been honoured twice with Pakistan's foremost civilian distinction, the Sitara-e-Imtiaz, in recognition of his contributions to the country's business landscape. Mr. Amer Abdullah holds a Master of Business Administration degree from the United States and joined the Sapphire Group in 1990. He has served as a director across various group entities and currently holds the position of Chief Executive Officer of both Diamond Fabrics Limited and Sapphire Dairies (Pvt.) Limited, combining strategic oversight responsibilities across two significant group subsidiaries. Mr. Shahid Abdullah holds a Bachelor of Commerce degree from the University of Karachi and has been associated with the Sapphire Group since 1980, bringing over four decades of group-level experience. He currently serves as Chief Executive Officer of Sapphire Fibres Limited, Amer Cotton Mills (Pvt.) Limited, and Sapphire Electric Company Limited. Mr. Nadeem Abdullah is a graduate of McGill University, Canada, and has served as Chief Executive Officer of Sapphire Textile Mills Limited for sixteen years. He concurrently holds the role of Chief Executive Officer of Sapphire Wind Power Company Limited, providing oversight across the group's textiles and renewable energy interests. Mr. Yousuf Abdullah holds a Master of Business Administration degree from the United Kingdom and serves as Chief Executive Officer of Sapphire Finishing Mills Limited, with additional directorships across other group businesses. He has been a director in various Sapphire Group companies since 1995. Mr. Abdul Sattar Arain is a Fellow Member of the Institute of Chartered Accountants of Pakistan and holds a Master of Commerce degree. He has been with the Sapphire Group since 1981 and has served in key managerial and oversight positions throughout his association with the group. The Board's collective skill set encompasses textiles, energy, finance, and corporate governance, though the composition is concentrated within a single family group, limiting the diversity of independent perspectives.

The Board operates in a predominantly advisory capacity, with sponsors playing an active executive role and providing ongoing guidance to the management team. Board meetings are convened regularly, and financial performance is presented and reviewed at these meetings, with formal minutes recorded and retained. The roles of Chairman and Chief Executive Officer are held by Mr. Mian Mohammad Abdullah and Mr. Amer Abdullah respectively, maintaining a degree of functional separation at the top governance level. The absence of constituted board committees, including an Audit Committee, means that oversight of related-party transactions and financial controls is exercised directly by the Board rather than through a dedicated committee structure, which represents a governance gap relative to established best practice.

The external audit function is performed by M/s ShineWing Hameed Chaudhri & Co., Chartered Accountants. The firm is QCR-rated by the Institute of Chartered Accountants of Pakistan (ICAP) and is classified in Category 'B' on the State Bank of Pakistan's (SBP) Panel of Auditors. The auditors have expressed an unqualified opinion on the Company's financial statements for the year ended June 30, 2025.

SDPL's organisational structure is designed around two primary business units, namely SDL Farm and SDL Processing, supported by a centralised shared services function. The Chief Executive Officer, Mr. Amer Abdullah, provides strategic direction at the apex of the hierarchy. Operational authority within each business unit is delegated to dedicated unit heads who report upward through the management hierarchy. The shared services function consolidates cross-cutting support disciplines under a single organisational umbrella, facilitating coordination across business units. Decision-making reflects a moderately centralised model given the sponsoring family's active involvement at the executive level, supplemented by professional management at the functional layer.

Mr. Amer Abdullah as Chief Executive Officer of SDPL, has been instrumental in directing the Company's strategic expansion within both the textile and dairy segments. His tenure with the Sapphire Group since 1990 provides him with deep institutional knowledge and a long track record of group-level leadership. Mr. Arslan Ahmad, Deputy General Manager of Accounts and Finance, oversees the Company's financial operations including treasury, reporting, and financial management. Mr. Faizan Elahi, the Business Unit Head since 2014, carries responsibility for leading operational strategy and growth initiatives at the farm and processing level, representing over a decade of continuity in operational leadership.

Management has made tangible progress in executing the Company's strategic priorities, including the implementation of genetic improvement programmes, enhancement of average herd milk yields, expansion of the processed dairy product portfolio, and commencement of export operations. However, the formal establishment of management committees would further strengthen the governance structure, improve oversight, and enhance overall organizational effectiveness.

The Company implemented the SAP Business One enterprise resource planning system on January 17, 2018, in partnership with ABACUS, a specialist ERP implementation firm. The SAP B1 platform was adopted to streamline core business processes, enhance financial management, and provide real-time operational insights to support informed decision-making. The system is subject to a formal annual update cycle conducted each December in accordance with the implementation agreement. The ERP system supports the Company's integrated operations spanning farm management, processing, quality control, accounts, inventory, and supply chain functions.

SDPL maintains a structured operational control environment with particular emphasis on herd health and biosecurity. Foreign veterinary experts are engaged to oversee animal health protocols, and comprehensive vaccination programmes are implemented to safeguard herd vitality and mitigate disease risk. Environmental and nutritional management practices are applied to ensure livestock welfare standards, including stress-free housing conditions and nutritionally balanced feed regimes. Stocking density is regulated in accordance with established standards to control herd quality and maintain mortality rates at manageable levels. Breeding optimisation practices are employed to sustain lactation yields within operationally feasible parameters. The organisational structure includes an internal audit function as part of the shared services framework, which provides a degree of independent oversight over financial and operational controls.

Pakistan's dairy sector occupies a significant position within the global milk production landscape. According to the Pakistan Economic Survey 2025-26, total milk production increased to 74.7 billion litres, compared to 72.3 billion litres in FY25, comprising 28.1 billion litres of cow milk, 44.4 billion litres of buffalo milk, and the remainder from goats, camels, and sheep. The livestock sector contributed ~14.4% to total gross value added during FY25 and ~67.2% to agricultural value addition, underscoring its macroeconomic significance. The sector supports the livelihoods of more than 8 million rural families, with 35 to 40 percent of their income derived from livestock activities. Pakistan's scale of production, however, contrasts sharply with its processing and formalisation levels. Approximately 97% of total milk consumption is attributed to fresh or loose milk, with processed UHT milk accounting for ~3% of total consumption. The informal distribution network, dominated by traditional milk vendors, holds a market share estimated between 90% and 95%, driven by lower pricing and established consumer trust relationships rather than hygiene or quality differentiation. The formal packaged milk segment is estimated to be growing at 8% to 12% annually in urban markets, supported by rising health awareness, urbanisation, and expanding modern retail infrastructure, yet overall formal market penetration remains limited. A persistent structural weakness in Pakistan's dairy sector is low average milk yield per cow, significantly below the international benchmark of 45 to 55 litres per day, partly attributable to suboptimal breeding, inadequate nutrition, and disease burden. Disease risks including foot-and-mouth disease and lumpy skin disease represent ongoing systemic threats to herd productivity and overall sector output. Cold chain infrastructure deficiencies across rural and peri-urban geographies impede the transition from informal to formal milk distribution. From a regulatory standpoint, the imposition of general sales tax on packaged dairy products has constrained volume growth for formal processors in recent years, exerting pressure on price competitiveness relative to untaxed loose milk. Feed cost volatility, driven by global commodity price movements and domestic supply constraints, represents a primary input cost risk for organised dairy operators. Climate change introduces additional systemic risks through weather disruptions, yield fluctuations, and heightened disease outbreak frequency. The sector's key endemic credit risks include raw milk price sensitivity, feed cost inflation, disease outbreak exposure, cold chain and infrastructure gaps, and the regulatory and tax asymmetry between formal and informal dairy channels. Barriers to entry in the organised corporate dairy segment are moderately high given the capital intensity of farm construction, herd acquisition, processing facility investment, and the regulatory compliance burden, which tends to favour established integrated operators over new entrants.

SDPL holds a differentiated position within Pakistan's organised dairy sector by virtue of its fully vertically integrated farm-to-pack model, which encompasses cattle rearing, raw milk production, processing, packaging, and branded distribution. The farm maintains a herd of ~4,479 cows, positioning it as one of the larger corporate dairy farms in the country. The Company's adoption of automated milk collection technology, international veterinary expertise, and advanced genetic improvement programmes for breed quality distinguishes it from conventional small-scale operators and places it in a segment of the market targeting institutional buyers and quality-conscious consumers. The Company's primary institutional relationship with Nestle Pakistan Limited as the anchor customer for raw milk provides revenue certainty but also concentrates customer exposure. The Company has extended its competitive footprint through the commencement of export operations, the initiation of the fattening farm project, and the expansion of its branded beverage portfolio, reflecting incremental diversification of its revenue base.

The Company's net revenue increased to PKR 3.8bln during 9MFY26 (9MFY25: PKR 3.5bln), reflecting a YoY growth of approximately 7%, primarily supported by sustained business volumes. The majority of sales were generated from the local market. Revenue quality remains concentrated, with raw milk as the principal contributor to the topline and Nestlé Pakistan Limited continuing to be the Company's largest institutional customer. While this customer concentration poses a structural risk, the Company continues to pursue diversification initiatives to broaden its revenue base. Non-core income, mainly from the revaluation of dairy livestock, continues to provide supplementary support to profitability.

The Company's cost structure remains primarily driven by animal feed, energy, veterinary expenses, and labour. During 9MFY26, profitability margins weakened as the gross profit margin declined to 5.5% (9MFY25: 8.7%), primarily due to higher raw material costs, which increased to PKR 4.3bln (9MFY25: PKR 2.3bln). Despite the pressure on operating profitability, the net profit margin remained positive at 2.5% (9MFY25: 3.1%), supported by non-core income, including revaluation gains on dairy livestock.

Management's strategic focus is directed at several growth-enabling initiatives intended to enhance long-term earnings quality and revenue diversification. These include the continued roll-out of advanced genetic improvement programmes for dairy breeds, which are expected to progressively increase average milk yields across the herd and improve unit economics. Following the successful pilot of its fattening farm project, the Company is scaling up operations through the import of approximately 300 Holstein-Friesian cattle from the Netherland and the meat is being exported to UAE.

The Company's working capital profile remains supported by the perishable nature of its products, resulting in a short operating cycle. During 9MFY26, the net working capital cycle improved to negative 10 days (9MFY25: positive 3 days), driven by lower trade receivable days of 11 (9MFY25: 17 days) and higher trade payable days of 25 (9MFY25: 16 days), partially offset by an increase in inventory days to 4 (9MFY25: 2 days). Short-term borrowings increased to PKR 1.6bln (9MFY25: PKR 1.5bln) to support working capital requirements, primarily for feed procurement.

The Company's debt servicing capacity remained sufficient during 9MFY26. Finance costs decreased slightly to PKR 200mln (9MFY25: PKR 220mln). On the non-cash front, the Company periodically recognizes mark-to-market gains on its biological assets. However, as these gains are non-cash in nature and excluded from operating cash flow, the actual Funds from Core Operations (FCFO) remained relatively muted, limiting the Company's cash-based debt servicing capacity despite the reported accounting gains.

The Company's capital structure remained stable during 9MFY26, with total borrowings largely unchanged at PKR 2.8bln (9MFY25: PKR 2.7bln), comprising PKR 1.6bln in short-term borrowings and PKR 966mln in long-term debt. Shareholders' equity improved to PKR 4.1bln (9MFY25: PKR 3.9bln), resulting in a slight improvement in leverage to 40.3% (9MFY25: 41.1%). The short-term debt continues to support working capital requirements, while long-term borrowings are primarily utilized for capital investments in farm and processing infrastructure.