Saudi Arabia's Almarai, the Middle East's biggest dairy company, said net income for the third quarter fell an annual 34 per cent on lower margins and continued Covid headwinds.
Net profit attributable to the company’s shareholders for the three-month period to the end of September dropped to 409 million Saudi riyals ($109.1m), from the same period a year earlier, Almarai said in a statement on Sunday to the Tadawul stock exchange, where its shares are traded
Gross profit for the period declined about 16 per cent 1.27 billion riyals during the quarter, from the same period a year earlier. Overall third-quarter revenue, however, rose an annual 2 per cent to 3.94 billion riyals, the company said.
“Almarai faced a challenging quarter due to the base year effect of Covid-19 and rising commodity costs,” the company said. “Despite continued commercial normalisation post Covid-19 restrictions, core product revenues dropped by 3 per cent within GCC countries.”
The drop in revenue was even higher for food sales due to one-off purchase made in this category last year.
“The GCC revenue decline was partially offset by growth in bakery sales due to partial opening of educational institutions,” the company said.
The company said its gross profit slipped mainly on the back of lower margins due to adjustments related to subsidy reduction, driven by “no subsidy in 2021 on corn and soybean and without the benefit of subsidy overlap in poultry in 2020”.
The slide was further exacerbated by higher feed cost as the company meets all its alfalfa needs from imports and “higher commodity cost as hedge cover in the first half of 2021 were not available in the third quarter of 2021”, Almarai said.
In terms of business categories, profit for dairy and juice business dropped 30 per cent, while income of the company’s poultry division slumped about 51 per cent. However, the bakery division profit increased 19 per cent, primarily due to partial opening of education institutions in Saudi Arabia and other GCC countries.
Despite challenges in markets, “Almarai has continued to exercise cost control on its entire supply chain to deliver value for its customers,” the company said.
Almarai said it is developing "multiple scenarios to manage these impacts and will roll out additional plans during the next few quarters”.
The company’s revenue from its operations in Saudi Arabia declined about 2 per cent, while in other GCC countries it dropped 5 per cent in the third quarter. In markets beyond the Gulf revenue climbed 32 per cent,
The company's net income for the first nine months of the year fell about 22 per cent to 1.28bn riyals. Revenue in the same period slipped 4 per cent year-on-year in Saudi Arabia. It dropped by 6 per cent in the other GCC market, while it rose arond 39 per cent in markets beyond the gulf region.
Despite market headwinds Almari plans to invest 6.6bn riyals to expand its poultry business in Saudi Arabia over the next five years.
The company’s board already has approved the investment, which will help double its market share in the segment, it said in a May 3 statement.
The dairy company is also looking at inorganic growth. In June it said it was buying Binghatti Beverages Manufacturing's production complex in the UAE for Dh215m ($58.54m).
In May, Almarai's subsidiary Western Bakeries bought an additional stake in Riyadh-based snacks maker Modern Food Industries for 150m riyals, pushing its stake to 75 per cent in the company.
Almarai also acquired Bakemart's business in the UAE and Bahrain for $25.47m in March.