Almarai's second-quarter net profit slides on lower revenue

Saudi Arabia's Almarai, the biggest dairy company in the Middle East, has reported a 25 per cent slump in second-quarter net profit on lower sales.

Net income attributable to the company’s shareholders for the three months through to the end of June slipped to 482 million Saudi riyals ($128.6m), down from 644m riyals in the same period in 2020, Almarai said in a statement to the kingdom's Tadawul stock exchange, where its shares are traded.

Second-quarter revenue fell by 1.87 per cent from the same period a year ago to 4.1 billion riyals, which the company said was due to differences in buying patterns.

Retail sales suffered "double-digit" declines, compared with a year ago when grocery purchases were higher as a result of the pandemic and before the kingdom's VAT rate was tripled on July 1. However, food service sales to restaurants and hotels are up 50 per cent this year as more businesses reopen.

“Almarai faced a challenging quarter due to the base-year effect of Covid-19 and VAT rate change-related purchases last year,” the company said on Sunday.

Revenue declined by 7.9 per cent in Saudi Arabia and by 4.2 per cent in other GCC markets during the quarter. However, it surged 42.2 per cent outside the GCC region on the back of a “stellar performance” in Egypt and Jordan.

The profitability of its dairy and juice business was affected by higher imported alfalfa costs and lower subsidies, the company said. The bakery business reported a 9.4 per cent drop as school closures continued while the poultry unit had a 45.1 per cent slump in income.

The company’s quarterly selling and distribution expenses declined by 5.6m riyals, or 0.5 per cent on a yearly basis, as a result of “strong cost controls”. Its general and administrative expenses fell by 1.3 per cent from a year ago. However, other expenses rose by 19.5m riyals.

Despite the “challenging" conditions, Almarai said it is gaining market share.

“With looming school openings in the second half and continually improving vaccination rates in [the] GCC, Almarai expects an improved trading and travel environment across GCC and, in particular, in Saudi Arabia in the second half,” it said.

The company continues to invest in growth. It plans to plough 6.6bn riyals into the expansion of its poultry business across the kingdom over the next five years.

Its board already has approved the investment, which will help to double its market share in the segment, it said in a May 3 statement.

The dairy company has also been on an acquisition spree in recent months. It revealed plans in June to buy Binghatti Beverages Manufacturing's production complex in the UAE for Dh215m ($58.54m) as it continues to expand its product range.

It plans to fully finance the deal through its operating cash flows.

Last month, Almarai's subsidiary Western Bakeries Company bought an additional stake in Riyadh-based snacks maker Modern Food Industries for 150m riyals. This took its stake in Modern Food to 75 per cent, Almarai said on May 9.

Almarai also acquired Bakemart's business in the UAE and Bahrain for $25.47m in March.