Saudi Arabia’s Almarai posts 5% jump in third-quarter profit on higher sales

The company's net profit from the bakery and poultry divisions rose on higher sales and additional capacity

Almarai's revenue during the third quarter rose by 0.6 per cent to 4.79 billion riyals. Sammy Dallal / The National

Saudi Arabia’s Almarai, the Middle East’s largest dairy company, reported a 5 per cent increase in third-quarter net profit, boosted by revenue growth in core markets, cost controls in operations and stable commodity costs.

Net profit attributable to shareholders, after zakat and tax, for the three-month period ending September 30, rose to 486.26 million Saudi riyals ($129.67 million) from the same period last year, the company said in a bourse filing on Sunday to the Saudi stock exchange Tadawul, where its shares are traded.

Revenue rose by 0.6 per cent to 4.79 billion riyals from the same period a year earlier, mainly driven by higher sales in its bakery and poultry divisions.

“This robust operational performance allowed the group to offset higher funding costs caused by the increase in the Saibor interest rate and a one-off benefit for zakat provision in 2022,” Almarai said.

“A strong performance in core GCC markets resulted in year-on-year revenue growth of 4 per cent. This was led primarily by an expansion in the capacity of the poultry category, followed by growth of the dairy and bakery category, thanks in part to another successful back-to-school season.

“However, the devaluation of the Egyptian pound and a marked reduction in demand of external alfalfa sales [mainly to East Asian countries] reduced the group’s quarterly revenue by 3 per cent, with no material impact on profitability.”

Almarai’s dairy and juice business posted a decline in earnings because of the devaluation of the Egyptian pound, higher investments in marketing activities and delayed phasing of commodity cost inflation, mainly alfalfa, corn and soya, the company said.

However, net profit from the bakery and poultry segments grew on higher sales driven by the back-to-school season, leveraging of fixed costs, and additional capacity, it added.

Almarai's net profit in the first nine months of 2023 rose 19.5 per cent to 1.67 billion riyals from the same period a year earlier.

Revenue in the first nine months increased by 5.6 per cent to 14.7 billion riyals.

“On a year-to-date basis, top line growth has been driven by capacity expansion and market share gains across multiple categories,” the company said.

“In addition to revenue growth, tight controls on overheads were applied, despite having higher funding costs due to the higher Saibor rate.”

Almarai’s dairy and juice business posted a decline in earnings due to the devaluation of the Egyptian pound. Satish Kumar / The National

Net profit growth was also supported by the full consolidation of the group’s Egypt and Jordan operations earlier in the year.

A unit of Saudi Arabia's Almarai completed the acquisition of International Dairy and Juice Limited, its former joint venture with PepsiCo in Egypt and Jordan, in February.

Almarai Investment Holding bought PepsiCo’s 48 per cent share in IDJ, increasing Almarai’s stake in the company to 100 per cent from 52 per cent, in a deal worth 255 million Saudi riyals.

IDJ specialises in food and beverage manufacturing and distribution in Egypt and Jordan. The company also exports its products to other markets.

The Mena region’s food and beverage companies are increasingly evaluating acquisitions to drive growth, diversify their product range and increase their presence to better deal with challenges that arose from the coronavirus pandemic.

Almarai’s results come as Saudi Arabia’s economy continues to post strong growth, boosted by the non-oil sector. The country's economy grew by 1.2 per cent in the second quarter of this year, a slightly faster pace of growth than the initial estimates, driven by an expansion in the non-oil sector.

Business activity in Saudi Arabia’s non-oil private sector economy remained robust in September as a sharp increase in output and the number of new orders drove business activity.

The headline Riyad Bank purchasing managers’ index reading climbed to 57.2 in September, up from 56.6 in August, rising further above the neutral 50-point mark that separates growth from contraction.