Sweeter second quarter for Savola

Savola, which owns the Middle East's biggest sugar refining business, sees stronger results buoyed by a fall in global food prices.

Savola, a Saudi food producer that owns the Middle East's biggest sugar refining business, reported stronger first-half results yesterday, buoyed by a fall in global food prices.

The company, which also runs supermarkets across the kingdom and produces edible oils, was under intense pressure in the first quarter of this year from rising raw material costs. Net profit for the first quarter declined 58 per cent to 165.2 million riyals (Dh161.7m), compared with 394m riyals in the same period last year, resulting in a sharp sell-off of the group's shares.

But sales for the half-year beat analysts' expectations as food prices eased in the second quarter.

Net profit increased 11 per cent to 230m riyals compared with the same period last year. It increased 39.6 per cent compared with the first quarter.

"On a very basic level the company has been suffering because of high food prices," said Farouk Miah, an analyst at NCB Capital in Jeddah. "Profit grew strongly following a decline in selected food prices, including sugar. This was further aided by decreased operating expenses."

Food producers and suppliers have been dealing with pressure on both costs and pricing this year, as the Saudi government indicated that companies cannot raise sale prices by significant amounts, despite global increases in raw material costs.

The global price of sugar hit a high in January of 29.7 US cents a pound before falling 27 per cent in the months up to May and rising again last month.

Sales at Savola grew 29 per cent to 6.3 billion riyals in the first half, which the company attributed to an increase in market share in its retail and food divisions.

According to Savola, the company has a 62 per cent share of the Saudi edible oils market and 68 per cent of the sugar market through its 113 supermarkets and hypermarkets in the kingdom. Savola's strong sales performance was achieved despite widespread regional unrest, particularly in its Egyptian sugar business.

The company's shares were slightly off in trading yesterday at 25.7 riyals. "We have been neutral on Savola since the end of 2009 due to our concerns on the exposure to global commodities and non-core businesses," Mr Miah said.