Food producers reveal mixed full-year results

By Eliot Beer

- Last updated on GMT

Related tags: Savola, Abu dhabi

Food producers reveal mixed full-year results
Regional food manufacturers have seen mixed results 2013, with Savola Group's earnings up 21% and Agthia up 28%, but dairy giant Almarai posting profits of just 4%.

Savola earned SAR1.7bn (US$450m) last year, up from SAR1.4bn in 2012. In a statement to the Saudi Tadawul stock exchange, the group credited the increase to continued growth in the Saudi retail sector, along with falls in prices of commodities such as wheat.

Excluding one-off items, such as the SAR231m sale of land to Madinah's Knowledge Economic City, Savola's profit was SAR1.57bn, a 16% increase from last year. The company said it expected to earn SAR1.8bn in 2014, in a separate announcement to the Tadawul.

Domestic growth helped offset a fall in profits from Savola's Iranian operations, caused by a massive fall in the value of the Iranian Rial last year. Revenue from Iran makes up around 14% of Savola's income, according to NBK Capital.

Almarai investment cuts profit

Almarai announced full-year net profits of SAR1.5bn, up 4/3% year-on-year, and at odds with its gross annual profit of SAR4bn, up 12.6%. The company identified an increase in capital investment as the reason for the lower net profit growth.

Despite strong gross profit growth... and tight expenditure control, the net income for the year has been restricted due to increasing depreciation and funding costs as a result of the investment program​,” said Almarai in a statement.

As with Savola, falling commodity prices also contributed to UAE food conglomerate Agthia's AED160m (US$43m) profit, allowing the company to increase its margins on subsidised sales of flour to the northern emirates in the UAE.

Agthia's consumer division, which includes brands such as Al Ain water, Capri-Sun and Monster drinks, and Yoplait dairy products, saw healthy growth on its own, with sales up 16% year-on-year. Its agricultural division, which makes up 60% of the business, saw sales rise 13%.

Future margins threatened

Net profit growth outpaced sales growth in 2013 due to improved gross profit margins in both the agri business division and the consumer business division resulting from an improved sales mix, competitive procurement, in-house production of previously outsourced feed volume, cost saving initiatives and higher flour pricing in the northern emirates​,” said the company in a statement.

Analysts said Agthia's profit was broadly in line with expectations, but suggested this level of profits might not be sustainable in the future.

In 2013, Agthia benefitted from a market anomaly, wherein, despite wheat/corn prices being on downward trend, subsidies remained relatively elevated. Thus, in our opinion, as we progress into 2014, flour price in the northern emirates should adjust for current softer commodity environment, which would lead to lower subsidies from the Abu Dhabi government​,” said NBK Capital.

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