Saudi Arabia's Savola Q3 profits rise on Almarai stake sale

Core profitability continues to suffer in tighter economic climate

Almarai reported a fall in its first quarter net income on Sunday. Satish Kumar / The National

The Savola Group, Saudi Arabia's biggest food company, posted a more than four-fold increase in third quarter net profit, thanks to a one-off 694.1 million riyal gain booked from the sale of a 2 per cent stake in dairy company Almarai.

Excluding the stake sale, announced in September, profits continued to decline as an economic slowdown hit consumption in the Arab world's biggest economy. Savola's second quarter net profit fell 9.5 per cent and plummeted 96 per cent in the first quarter on lower retail sales and margins.

Net profit in the three months ending September 30 reached 829m riyals up from 179.5m riyals in a year-earlier period, the Riyadh-listed company said in a statement on the Saudi stock exchange.

Savola, owner of the Panda supermarket chain, sold a 2 per cent stake in Almarai for 1.12 billion riyals, decreasing its holding from 36.52 per cent to 34.52 per cent.

Lower costs, and payment of zakat and tax also contributed to the profit gain for the quarter.

Net third quarter revenue dropped 8 per cent to 5.7bn riyals from 6.2bn riyals in a year-earlier period, coming at the lower end of analyst forecasts compiled by Bloomberg.

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Operational profit plunged 20.9 per cent to 280.2m riyals from 354.2m riyals, and gross profit declined 11.9 per cent to 1.04bn riyals from 1.18bn riyals.

“This increase in net income is despite of lower gross profit, mainly due to lower sales and lower margins in the retail sector,” the company said.

Excluding the one-off gain from Almarai stake sale, Savola’s net profit plunged 25 per cent, missing estimates by Egyptian investment bank EFG-Hermes because of “weakness” of retail sales at Panda, the lender said in a note.

Gross margin also continued to shrink for the fifth consecutive quarter, falling 0.8 per cent to 18.4 per cent, compared with EFG Hermes estimate of 18.8 per cent “on continued margin pressure at Panda,” the bank added.

“Another weak results set for Savola that confirms our view that challenges at its core consolidated businesses (still generating losses) will likely continue for another year or so,” EFG-Hermes said.

Saudi Arabia’s retail sector is suffering from lower purchasing power as the economy dipped into recession in the first two quarters of the year because of low oil production and fiscal consolidation slowing down growth in the non-oil sector.