Halal Industry

Market squeeze takes juice out of Saudi dairy giant Almarai earnings

| 07 October, 2018
Market squeeze takes juice out of Saudi dairy giant Almarai earnings
Photo: A man looks at a dairy product produced by Almarai at a grocery in Riyadh, Saudi Arabia June 2, 2016. REUTERS/Faisal Al Nasser

Saudi Arabia’s Almarai, the Gulf’s largest dairy company, reported a decline in third-quarter profits as its feed costs increases amid challenging market conditions.

The company has cut costs in response to a market slowdown, with both administrative and selling expenses being trimmed back over the quarter.

Third-quarter sales were broadly flat at about SR3.37 billion ($917.5 million) but profit dropped by about 4.9 percent to SR634.5 million compared to a year earlier.

As a supplier of dairy products to the region, Almarai is not just impacted by market conditions in the Kingdom. Last year it was also affected by the boycott of neighboring Qatar as well as the devaluation of the Egyptian currency which made imported products in the country more expensive for Egyptian consumers.

Regional dairy companies, less endowed with natural grazing than in other regions of the world because of the arid climate, are more reliant on cattle feed such as alfalfa.

The sector has come under pressure over the last year with the economic slowdown affecting consumption, especially for discretionary products, while the introduction of VAT and the departure of expatriates has also hit demand.

Almarai also reported higher labor costs during the period.

“This has been partially offset by better cost management, stable commodity costs and enhanced production efficiencies,” it said in a statement to the Tadawul stock exchange on Sunday.

The biggest decline in sales was recorded in the dairy and juice category. which Almarai said was caused by “adverse market conditions, expat exodus and higher Alfalfa costs coupled with discounting and promotions, specifically in long life milk.”

Still, poultry sales performed comparatively strongly, generating profits of SR51.5 million compared to a loss of SR6.6 million a year earlier.

Almarai was able to cut some SR29.2 million, or almost 10 percent of its general and administrative expenses through reduced payroll costs and business efficiency programs.

Established in 1977, Almarai has grown to become the region’s largest food and beverage manufacturer in the region.

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