‘Adverse market conditions’: Saudi Arabian dairy giant Almarai attributes profits drop in first half to dairy, juice performances

By Guan Yu Lim

- Last updated on GMT

Almarai said the sector had come under pressure last year due to a slowing economy ©Almarai
Almarai said the sector had come under pressure last year due to a slowing economy ©Almarai

Related tags Middle east Almarai Dairy

Saudi food conglomerate Almarai has reported a drop of 11.9% in second-quarter profits this year to SAR 582.5 million (US$155 million) compared to the corresponding quarter in 2018, attributing this to the performance drop in its dairy and juice category.

The dairy and juice category decreased by -23.5% due to adverse market conditions, and higher alfalfa importation cost coupled with increased promotions, labour and depreciation costs​,” said Almarai via an official statement

The importation of grain forage has had a direct effect in the alfalfa importation costs​.”

However, sales rose 2.6% for the second-quarter, reaching SAR 3,767.4 million (US$1 billion), compared to the same period last year.

Almarai said the sector had come under pressure last year due to a slowing economy and the introduction of VAT triggering a conservative consumer’s behaviour, resulting in a drop in consumption.

They also reported increases in labour and energy costs but: “These unfavorable trends have been partially offset by better cost management, and enhanced production efficiencies​.”

Profits in the bakery category were also slighted affected by heavy marketing efforts to sustain the launch of new products, reduction in sales of the discretionary part of the bakery portfolio, and general changes in the product portfolio mix.

The poultry category however achieved strong profitable growth due to higher sales, greater operational efficiencies, strong growth within the food service channel and frozen products, and persistent low mortality.

The company had in May 2019 said they plan to reach SAR 7.1 billion (US$1.89billion) in capital investment level from 2020 to 2024.

This is in line with the long-term investment cycle of the company calling for less expansionary investments and a focus towards more efficiency and sustainability​."

The company said in a statement: “Given the persistent challenging economic conditions across the region, the focus on efficiency and cost optimisation measures will continue throughout the plan period to ensure continuous competitive advantage​.”

The investments will be used for the replacement of existing assets; adoption of green and cleaner energy footprint, improvement of production capacities and capabilities in farms and manufacturing facilities; and the enhancement of innovation and product development capabilities.

The five-year business plan was approved by the Board of Directors in May.

Almarai has grown to become one of the region’s largest food and beverage manufacturers and was recently announced​ to be one of the top three ‘most intimate’ brands among UAE consumers.

It was also listed the 7th​ most valuable dairy brand worldwide by Brand Finance, valued at US$2.18 billion in the 2019 Brand Finance Report Update.

Former CEO reprises role

In an official statement in July 2019, Almarai announced that its former CEO Georges P. Schorderet had been re-appointed as CEO, taking over Alois Hofbauer who had resigned due to personal reasons.

Schorderet served as CEO from 2015 to 2019, before retiring from office in April. He spent 15 years with the company, most recently as Advisor to the Board of Directors.

Alongside Schorderet, Majed Mazen Rasheed Nofal was appointed deputy CEO, and Paul Gay as chief financial officer.

The Board believes that these changes in Almarai leadership executive management positions will ensure the continuity while paving the way for its future strategy​,” the statement said.

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