Saudi Arabia's Almarai first-quarter income falls on rising costs

Net profit after zakat and taxes fell 2.6 per cent to 336 million Saudi riyals, says dairy producer

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

Almarai, the biggest dairy producer in the Middle East, reported a 2.6 per cent fall in its first-quarter net income as a rise in costs dented profitability.

Net profit after zakat and taxes for the period ending March 31 fell to 336 million riyals (Dh329.1m), the company said on Sunday in a statement to the Saudi stock exchange, where its shares are listed. Almarai’s first-quarter net income fell more than 9 per cent over the previous quarter, it said.

Revenue, however, climbed 3.8 per cent to 3.35 billion riyals during the period.

Almarai attributed the fall in net income, primarily, to a drop in profit at the dairy and juices segment of its business and a rise in expenses.

“The [dairy and juice] category profit decreased by 4.2 per cent due to adverse market conditions in juice category, and higher alfalfa costs, coupled with discounting and promotions specifically in long-life milk [segment], Almarai said in the bourse filing.

“The bottom line was further impacted by additional investment in marketing and branding activities in the current quarter.”

Funding costs also rose, by 28m riyals, mainly due to higher interest-bearing debt after repayment of perpetual sukuk last year, a higher Saudi interbank borrowing rate and lower capitalisation of funding cost for qualified capital projects, the company said.

Impairment of financial assets, however, decreased by 31.6m riyals, mainly due to a stable credit profile compared with a more adverse outlook last year, when Saudi Arabia, the biggest Arab economy, implemented value-added tax in the kingdom, it noted.

The company managed 9.4m riyals gains on foreign exchange in the first quarter, compared with a loss of 19.1m riyals in in the corresponding period, due to favourable movement in currencies, particularly in euro. Selling and distribution expenses, during the three-month period increased by 14.5m riyals, it said.

Almarai which reported sales of 13.7bn riyals at the end 2018 counts Savola Group, and Public Investment Fund, the Saudi sovereign wealth fund among its major shareholders.

It received a Baa3 credit rating from Moody’s Investors Service company with a stable outlook. The investment grade rating of Almarai reflects its leading market positions and high ebitda (earnings before interest, tax, depreciation and amortisation) margin, Lahlou Meksaoui, a Moody's lead analyst said in February.

The rationale for the stable outlook “reflects our expectation that Almarai's credit profile will be able to withstand the current adverse market conditions without breaching the current rating category guidance”, Moody’s said at the time.