Almarai Q1 profit soars as Savola issues warning

By Eliot Beer

- Last updated on GMT

Savola has cut its profit forecast in half
Savola has cut its profit forecast in half

Related tags Profit

Saudi food producers are seeing mixed first quarter results, as Almarai announced 12% Q1 growth, while the Savola Group cut its quarterly profit forecast by half.

Savola, which hasn’t yet released its official results for the quarter, issued the warning last month, saying it now expected to bring in only US$47.5m, instead of its original forecast of US$96m. The firm blamed lower retail sales, currency devaluations in its export markets, and “operational difficulties​” in its foreign divisions.

Six months of struggles

The announcement comes after a weak final quarter of 2014 for Savola​, which saw profits fall 23% year-on-year to US$115.5m, which it attributed to a one-off investment during the period. The firm reported a full-year profit of US$551m for 2014, and forecast a 2015 profit of US$483m excluding capital items, a figure which may now be in doubt.

Almarai’s quarter was distinctly sunnier, with the company reporting a US$81.7m profit, on total sales for the period of US$809.9m. Last year the firm made a profit of US$445m​.

The growth in net income for the first quarter of 12%, compared to the corresponding period of the previous year, is due to the growth in quarter sales of 11.7%, as a result of continuous sales growth in the poultry, dairy and juice segments by 46.4% and 10.7% respectively, in spite of a decrease in the bakery segment sales by 4.8%​,” said the company’s results statement.

On the other hand, selling and distribution as well as general and administrative expenses and depreciation continued to increase because of the on-going infrastructure expansion across product categories, distribution, geographies and past investments​,” the statement added, also noting the quarterly results showed a 28% decline from Q4 2014, which the firm attributed to normal seasonal trading variations.

Bakery pay-out

Among the one-off payments during the quarter was US$66.6m received from Almarai’s insurers as part-payment on its claim for bakery facilities destroyed last October in a fire. The firm’s financial results noted the claim process was still ongoing, saying “This advance payment is not in respect of a specific claim item and is intended as an advance payment against the claim until the full extent of the claim is assessed and finalised​”.

Overall, the company is pleased with its business performance for Q1 2015. The continued top line growth this quarter generated improved profitability both at gross margin and operating income levels. The strategic execution in investments also continued during the quarter as planned. Barring unforeseen events, the company should continue its profitable growth for the next quarters​,” said Almarai’s statement.

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