A local poultry producer suffered tens of millions of dirhams in losses on the stock markets last year, wiping out all its profit despite higher earnings from chicken sales.
Ras Al Khaimah Poultry & Feeding, listed on the Abu Dhabi Securities Exchange, said its investment portfolio lost Dh34 million last year, compared to a gain of Dh88m in 2013.
As a result, net losses stood at Dh13.4m for last year, compared with a profit of Dh101.5m a year earlier.
A market rally in 2013, fuelled by the index compiler MSCI’s upgrade of the UAE from frontier to emerging market and Dubai’s winning bid to host the Expo 2020, ran out of steam in the middle of last year as a combination of negative local corporate news and an accelerated decline in crude oil prices reversed investor sentiment towards riskier asset classes.
The Abu Dhabi Securities Exchange General Index, which had advanced more than 60 per cent in 2013, climbed more than 22 per cent in the first half of last year before erasing much of its gains by the end of the year. The Dubai Financial Market General Index, which was the world’s best performer in 2013 when it gained more than 107 per cent, advanced 59 per cent in the first half of last year, before also wiping out most of its gains by the year’s end.
Before including the losses from share trading, RAK Poultry made a profit of Dh21.7m last year compared with a profit of Dh12.8m in 2013. It reported poultry sales of Dh52.1m last year, compared to sales of Dh35.3m in 2013. However, its cost of sales increased to Dh47m last year from Dh32m a year earlier. Most of the remainder of the profits came from share sales during the year.
A senior executive at RAK Poultry yesterday said the company has for several years relied on its investments to compensate for a fiercely competitive and overcrowded market.
“The business of poultry is not enough to sustain the company,” said Adel Jalabi, the chief accountant at RAK Poultry. “Poultry companies in Abu Dhabi, Al Ain and the Western Region enjoy strong backing from their emirate – their feed is subsidised by 40 per cent. In addition, they get vaccines free. They can sell a kilo of chicken meat for Dh13, whereas we have to price it at Dh14. The market is not fair. So what has been helping us is the investments.”
RAK Poultry’s share trading follows moves by other local companies in difficult sectors looking to make up for lower earnings from regular business activities. Asmak, an Abu Dhabi-based fish farming holding company, expanded into the property sector to offset weaker profit in 2009 and 2010 when red tides – huge blooms of oxygen-depleting algae – threatened its stocks.
Insurance companies also incurred big losses from their investment portfolios in the years following the 2008 global financial crisis amid increasing competition and falling premiums.
The Insurance Authority, the industry’s regulator, last week introduced a raft of regulations including limits on exposure to different asset classes in a bid to strengthen insurers’ financial positions and reduce their vulnerability to stock market volatility.
The credit ratings agency Moody’s on Monday said the regulations were “credit-positive for all UAE insurers because they will strengthen several credit characteristics of insurers, including capital, asset quality (by reducing risk-taking) and reserve adequacy”.
The new rules are expected to spark further consolidation in the insurance sector.
“From an investor point of view, if I need a company that invests in the stock market I would invest in investment banking stocks. If I invest in a company investing in agriculture, I wouldn’t expect it to make the bulk of its money from the stock market,” said Tariq Qaqish, the head of asset management at Al Mal Capital in Dubai. “It is useful for the long-term story of the UAE capital markets to reduce such vulnerability and therefore recommended [regulators in other sectors] to follow the same footsteps of the UAE Insurance Authority.”
RAK Poultry’s stock yesterday fell 4.6 per cent to Dh1.45 a share from Dh1.52.
halsayegh@thenational.ae
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