Agthia's first-half net profit drops on higher expenses

Agthia, the Abu Dhabi food and beverage company that owns the Al Ain Water brand, said its first-half profit fell by about half in the first six months of the year, due to higher expenses.

Net profit for the six months through to June declined to Dh42.26 million, the company said in a statement to the Abu Dhabi Securities Exchange where its shares trade.

Selling and distribution expenses increased by 3 per cent to Dh187.3m while general and administrative expenses were up 31 per cent to Dh103.3m.

Revenue also grew by 2.5 per cent to Dh1.09 billion, according to the company.

“In the first half of 2020, Agthia Group demonstrated resilience and agility in dealing with the uncertainty imposed by the Covid-19 pandemic and its influence on the operational environment across our markets,” Aghtia chairman Khalifa Al Suwaidi said.

“Enforcement of ... movement restrictions caused business disruptions, logistics transformation and changed consumer demand patterns. In response, we reprioritised our resource allocation across our flexible supply chain to ensure business continuity and products availability at appropriate cost,” he said.

Net revenue contribution by the consumer business line that includes water, beverages, dairy, tomato paste, frozen vegetables, bakery and trading items reached 54 per cent.

Agri-businesses – flour and animal feed – generated the remaining 46 per cent, the company said.

In the UAE, Agthia’s five-gallon home and office distribution business grew by 8 per cent year on year on higher demand, particularly from the home segment.

Second-quarter net profit fell by 64 per cent to Dh15.6m as revenue declined by 6.5 per cent to Dh518.7m.

Selling and distribution expenses also slipped during the period while as general and administrative expenses increased.

Agthia appointed Alan Smith as chief executive earlier this month.

Mr Smith was previously with US confectionery multinational Mondelez International, where he spent more than 19 years in various roles, and was most recently managing director for the company's Middle East and Pakistan region.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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