Almarai's third quarter net income slips 8.5% as expenses and cost of funding climbs

The drop in quarterly income came despite a 7.7 per cent rise in revenue

A man looks at a dairy product produced by Almarai at a grocery in Riyadh, Saudi Arabia June 2, 2016. REUTERS/Faisal Al Nasser  - S1AETIRYYYAA
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Saudi Arabia’s Almarai, the biggest dairy producer in the Middle East, reported an 8.5 per cent drop in its third-quarter net income despite a rise in revenue as its cost of funding and expenses climbed.

Net profit after zakat and taxes for the period ending 30 September fell to 581.2 million Saudi riyals (Dh569.2m), the company said on Sunday in a statement to Saudi Arabia's Tadawul stock exchange, where its shares trade.

Revenues in the third quarter climbed to 3.57 billion riyals, from 3.32bn riyals reported for the same period in 2018. The company beat the highest revenue estimate of 3.41bn riyals estimates by two analysts, according to Bloomberg data.

“The revenues growth of 7.7 per cent was broad based across product categories and countries,” Almarai said in a statement to the exchange.

However, sales in the juice category continued to decline, albeit at a slower rate, as general market conditions deteriorated. Sales also fell in Bahrain due to the implementation of VAT earlier in the year, the company noted.

Almarai attributed the slide in quarterly profit in part to a more than 10 per cent rise in selling and distribution expenses, which rose by 54.6 million at the end of September.

Funding costs also climbed by 30.3m riyals, “mainly due to higher interest rate driven by higher Sibor [Saudi Interbank Offer Rate], accounting treatment of perpetual sukuk profit payment against equity and lower capitalisation of funding cost for qualified capital projects”, it said.

The company also reported a higher level of impairment for financial assets held, by 24.8m riyals, as it had reported a reversal of impairment provisions in the same period last year.

The company has witnessed a continued decline in income in recent quarters, as contributions to overall income from various business lines has shrunk, and the company reshuffled its top management earlier this year.

In July, the company said its chief executive, Alois Hofbauer, who only took up his role in April, resigned due to personal reasons. Georges Schorderet, the company’s former chief executive and chief financial officer, was called back from retirement to take over the reins from Mr Hofbauer.  The Almarai board also appointed Majed Mazen Rasheed Nofal as deputy chief executive, and promoted Paul Gay as the chief financial officer, it said at the time.

Despite the decline in profitability, the company has continued to grow its asset base. The firm in August 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 GCC, and secure its supply of poultry parent stock," it said in a statement to Tadawul at the time.