Saudi Arabia's Almarai to spend $1.76bn on expanding its poultry business

The company is planning to double its share of the market by reinvesting cash flows

Almarai, one of the biggest dairy companies in the Middle East, acquired an additional 15% stake in Modern Food Industries. Reuters.

Saudi Arabia's Almarai, the biggest dairy company in the Middle East, plans to invest 6.6 billion Saudi riyals ($1.76bn) over the next five years to expand its poultry business across the kingdom.

Almarai’s board has approved the capital expenditure that will help it achieve its goal of doubling the company’s market share in the segment, the company said in a statement on Monday to the Saudi Stock Exchange, Tadawul, where its shares trade.

The strategic expansion of the poultry business will be funded through "internally-generated cash flows".

“The expansion will be implemented in several phases … and include the development of grandparent farming and production facilities to enable full vertical integration of poultry supply,” the company said in the bourse filing.

“Expansion will focus on different geographical locations in the kingdom to enhance the biosecurity in poultry farms.”

The move to expand the poultry segment is in line with Saudi Arabia’s aim of boosting its food security, with the help of the private sector.

Food and beverage companies in the region are increasingly evaluating acquisitions and product diversification to boost their standing in a market that has previously relied heavily on food imports.

Abu Dhabi’s Agthia Group, one of the Mena region’s top food and beverage companies, recently completed its merger with date-processing company Al Foah. Agthia also bought Kuwait’s Al Faysal Bakery and Sweets, which quadrupled its presence in the country, as part of its strategy to acquire complimentary businesses.

Almarai increased its stake in Pure Breed Poultry in August 2019 after acquiring processed meat company Premier Foods earlier that year.

In March this year, Almarai agreed to buy Bakemart’s bakery and retail business in the UAE and Bahrain for $25.47 million. In April, the company said it spent 299.1m riyals on investment activities in the first quarter, although this was about 45m riyals lower than the same period last year before movement restrictions to stem the spread of Covid-19 were enforced.

Almarai's first quarter net income rose slightly to 385.9m riyals on a 1.46 per cent increase in revenue to 3.64bn riyals. The cash used in investing activities represented 8.2 per cent of the company’s revenue, it said at the time.