Saudi’s Almarai posts 10.5% Q2 profit rise, warns of ‘significant’ challenges for H2

Saudi Arabian food company Almarai reported a 10.54% increase in net profit for the three months ending June 30 compared to the same quarter last year.

Net profit attributable to shareholders reached 643.9 million riyals ($171.7 million) versus 582.5 million riyals for the same quarter in 2019, the company reported in a bourse filing on Sunday (Jul 5).

Almarai attributes the rise to revenue growth led by foods, long life dairy and poultry.

Poultry was its best performer, earning a 50.9% profit increase driven by a revenue growth of 16.6%. “The top line growth was supported by higher retails sales throughout the quarter. This significant profit growth was further aided by consistent lower mortality, improved cost control and operating efficiencies resulting in significantly higher category profit,” said Almarai.

The company has in recent years boosted its poultry business. In April it committed 275 million riyals to expand its existing poultry processing facilities and in August last year it took its ownership of Pure Breed Company to 93.5%.

After poultry, Almarai’s bakery business earned a 46.4% increase in profit for the second-quarter due to higher sales, leveraging economies of scale and lower marketing spend compared to the same quarter of 2019, it said.

Its dairy and juice category was the lowest earner with 4.5% profit growth. Almarai said its juice business dropped due to a “general decline in juice market and introduction of sugar tax in late 2019”.

For its ‘other category’ business, the company earned a loss of 25.2 million riyals for the second-quarter compared to a lower loss of 10.2 million riyals in the same period last year. This, it said, “despite stabilised overseas arable operations, as decline in food service channel due to COVID-19 impacted premier foods subsidiary” that resulted in higher losses.

SALES CHANNELS

Revenue and profit increases were mainly driven by retail with double digit growth, said the company.

Its food services channel declined mainly due to the COVID-19 pandemic that saw most countries globally impose strict movement restrictions and either stop or limit dining-in at eateries.

PERFORMANCE BY REGION

In its home market, Almarai’s revenue grew by 10.8% year-on-year for the three months ending June 30.

Revenue growth in other GCC countries was in negative territory, at -2.6%.

However, revenue growth in other countries and regions was up by 17.2%.

‘SIGNIFICANT’ CHALLENGES FOR H2

The company anticipates “significant challenges” for the second half of 2020 due to the threefold increase in value-added tax, additional custom duties and expected general decline in population.

Saudi authorities in May announced VAT would increase threefold to 15% from July as the Kingdom sees a drop in public revenue and pressure on public finances due to the shocks from the COVID-19 pandemic that required a further reduction in expenditures and measures that support the stabilisation of non-oil revenues.

The country’s population is expected to drop due to expatriates leaving the Kingdom as the pandemic impacts jobs. Borders have also been closed to international visitors since March and the decision to only hold a “limited” hajj with pilgrims already in the country means a significant loss of revenue for businesses. Last year, around 2.5 million pilgrims performed the hajj, around 1.86 million of whom came from abroad.  

“Almarai is developing multiple scenarios to manage these impacts and will roll out additional plans during the year to ensure the supply of quality products to its customers, whilst maintaining a healthy return for its shareholders,” it said.

The company reported in April a 14% increase in profit for the three months ending Mar 31, compared to the same period last year.

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