Almarai's fourth-quarter income slides as expense climb

Drop in profitability comes despite a rise in quarterly revenues

Almarai reported a 16 per cent drop in its fourth quarter net profit. Sammy Dallal / The National

Saudi Arabia’s Almarai, the biggest dairy producer in the Middle East, reported a 16 per cent drop in its fourth-quarter net profit as the company's costs rose and selling and distribution expenses surged.

Net profit attributable to the company’s shareholders for the period ending 31 December fell to 311.9 million Saudi riyals (Dh305.6m), the company said on Sunday in a statement to Saudi Arabia's Tadawul stock exchange, where its shares trade. The company’s total comprehensive income for the period more than halved to 277.4m riyals at the end of December from 582.2m riyals reported a year earlier, it said.

Almarai's net profit came in about 27 per cent lower than an analysts' estimate from EFG Hermes, mainly on weaker-than-expected margins, the Egyptian investment bank said in a note to investors.

The drop in quarterly net profit came despite a 9.5 per cent rise in revenue, driven mainly by higher sales in the poultry, fresh dairy and food categories. Almarai saw revenue growth in all its business segments except its juice business, which has seen a general decline in the past few quarters, the company noted.

"The company’s ability to grow revenue in all but one category is impressive, however, the extent of the margin pressure is somewhat alarming,"  EFG Hermes noted. "We are neutral on the stock, given muted expected earnings growth on continued cost pressures [labour, feed], as well as full valuation."

Almarai’s net income was dented by a 19 per cent rise in selling and distribution expenses to 101m riyals “due to higher labour costs, general marketing expenses and trade support to support the sales development”, it said in the bourse filing.

General administration expenses jumped 25 per cent to 25.3m riyals, while its financing cost climbed to 24.8m riyals “mainly due to higher interest rate driven by higher Sibor and lower capitalisation of funding costs for qualified capital projects”, it noted.

For the 12-month period, the company reported a 10 per cent decline in consolidated profit of 1.81 billion riyals, despite revenue increasing by 5.9 per cent to 14.35bn riyals.

The consumer goods company has seen a continued decline in income in recent quarters, as contributions to overall profits from various business lines has shrunk, and the company had to reshuffle its top management last year.

Almarai in December appointed Majed Nofal as chief executive, who took over from company veteran Georges Schorderet at the beginning of this year. Mr Schorderet, the company’s former chief executive and chief financial officer, was called back from retirement to assume charge from Alois Hofbauer, who only took up his role in April last year but resigned due to personal reasons.

"In line with our plans, Mr. Georges P. Schorderet will handover on 31st December 2019, and continue to serve as an advisor to the board of directors," Almarai said in a statement in December.

Despite the decline in profitability, the company has continued to grow its asset base. The firm in August 2019 said it has completed a deal to increase its stake in Pure Breed Poultry from existing shareholders for 52.9m riyals. With the additional 37.6 per cent stake, the company controls 93.5 per cent of Pure Breed's share capital.

"The increase in shareholding will add to Almarai's ongoing efforts to further strengthen the poultry industry in Saudi Arabia and [the] GCC, and secure its supply of poultry parent stock," it said in a statement to Tadawul at the time.