Saudi food company Almarai fourth-quarter profit down 16% on higher expenses

Saudi food company Almarai posted a 15.88% drop in net profit for the fourth quarter of last year compared to the same period in 2018.

The company made 311.9 million riyals ($83.17 million) in net profit versus 370.8 million riyals for October to December 2018, it reported in a bourse filing on Sunday (Jan 19).

Almarai’s expenses dragged down its 9.54% revenue growth. Costs for selling and distribution were up 19% to 101 million riyals and general and administration expenses increased by 25.1% to 24.8 million riyals.

The company competes in several F&B sectors including dairy, juices, poultry and bakery.

Gross profit “increased by 2.4%, at a lower rate due to higher input costs in Q3, mainly alfalfa, feed and labour cost,” said Almarai.

“The shift towards food services and higher export sales in the quarter resulted in an unfavourable margin mix. In addition, gross profit was further negatively impacted by inventory adjustments for infant nutrition and horticulture businesses,” it added.

For the 12-month period, the company posted a 9.95% drop in net profit, to 1.812 billion riyals compared to 2.012 billion riyals for 2018.

It is expecting a better 2020.

“With a focused business strategy on top line growth driven by channel expansion, new product development and pricing rationalisation, coupled with managed cost control and higher free cash flow, we expect the firm yet difficult steps taken in 2019 to bring positive impact during 2020 both in terms of sales and profit growth,” it said.

BUSINESS SEGMENTS: POULTRY LEADS

Almarai saw profit growth in poultry and bakery, but a decrease in dairy and juices, while it made a loss in its “other” business category.

Poultry was its best performer, with profit increasing 103% driven mainly by revenue growth of 23.9%.

“The top line growth was supported by the food service segment and this significant growth was aided by consistent lower mortality and improved cost control and operating efficiencies,” said Almarai.

It strengthened its poultry and food service businesses over the course of 2019. In February it bought Riyadh-based Premier Foods, which manufactures value-added meat and poultry products for the food service sector, and in August it acquired poultry broiler grandparent farming company Pure Breed.

Bakery earned it an 80.4% increase in profit due to higher sales and leveraging economies of scale, said the company.

Almarai’s juices and dairy segment continues to post lower profit growth. It saw a decrease of 41.3% in profit, which the company attributes to higher bad debt provision due to its entry in the food service channel, higher imported alfalfa and labour costs, and higher losses in Egypt for underused assets impairment and deferred tax assets adjustments.

In the “other” category, the company clawed back losses, from 95.7 million riyals for the corresponding quarter in 2018, to 74.7 million in the last three months of last year. Losses continued because of the lower performance of its infant nutrition business and provisions to enable the business to re-focus from retail to wholesale, said the company.

PERFORMANCE BY REGIONS

Almarai’s revenues increased in Saudi Arabia, other GCC and other countries for the fourth quarter versus the corresponding period in 2018.

The company posted profit rises of 9.2%, 3.5%, and 27.4%, respectively, for these geographies.

Almarai announced a new CEO, Majed Mazen Nofal, in December.

Its biggest shareholder is Saudi Arabia's investment holding firm Savola Group, which owns 34.5% of the company. 

 ($1 = 3.75 Saudi riyals)

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