Riyadh-listed Almarai will cut its annual investment from next year in response to softening economic conditions.
In its last annual report the dairy foods company said it would invest 21.4 billion Saudi riyals (Dh20.95bn) between 2016 and 2020, or an average of 4.2bn riyals a year. However after a review yesterday by the board, that figure will go down to an average of 2.9bn a year between 2017 and 2021, according to a filing to the Saudi stock market yesterday.
The company also expects between now and 2021 to create 4,500 jobs for Saudi nationals, of which 20 per cent will be for women, which it said would assist with the kingdom’s Vision 2030 programme to diversify the economy away from oil.
“The ongoing market softness and general belt-tightening are factors behind the plan revision,” said Asim Bukhtiar, an analyst with Riyadh-based Saudi Fransi Capital.
“If the market conditions remain unchanged, adjustments in capex across other sectors and companies are possible,” he said.
Between 2017 and 2021, Almarai’s capital expenditure of 14.5bn riyals will focus on replacement of existing assets, improvement of production capacities across its farms, manufacturing, distribution and transportation facilities, and geographic expansion.
The investment, the company said, will be funded from the operating cash flow besides financing from banks, the Saudi Industrial Development Fund, the Saudi Agricultural Development Fund and sukuk programmes.
The Arabian Gulf’s largest dairy firm will focus on its core businesses in the poultry and infant nutrition categories, besides the dairy and juice divisions in Egypt and Jordan that are managed through its joint venture International Dairy and Juice, the company said.
Under the new investment plans, Almarai expects a compound annual growth rate for sales at around 10 percentage points.
“For Almarai this is a prudent move and may be re-evaluated if market conditions improve in subsequent quarters,” Mr Bukhtiar said. “Summer months will provide a better indication of the true impact of higher utilities and fuel costs.”
New regulations and a cut in subsidies in Saudi Arabia mean an increase in fuel, electricity and water charges and restrictions on growing green fodder at home. These are expected to create challenges for the dairy sector.
Almarai said in January that its production costs this year would rise by 500 million riyals as a result. Almarai clocked a net profit of 308.5m riyals for the first quarter, down 36.2 per cent from the fourth quarter of last year. It was 0.6 per cent higher on a year earlier. Almarai attributed a growth in net sales to its bakery division, followed by the dairy and juice segments.
Almarai’s shares closed up 1.5 per cent at 55.84 riyals, down from 67.75 riyals a year ago.
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