Savola sees rocky first half as it beats Q1 profit forecast

By Eliot Beer

- Last updated on GMT

Related tags: Saudi arabia, Food, Savola

Q1 profit was up 11% year-on-year, but the company's CEO said he expected a 17% dip in Q2 profits compared to the prior year period
Q1 profit was up 11% year-on-year, but the company's CEO said he expected a 17% dip in Q2 profits compared to the prior year period
Savola Group beat its own first quarter forecasts, but still saw a like-for-like fall in profits, as it warned Q2 would also be weak.

The firm’s headline profit for Q1 was US$125m, up 11% year-on-year – but this was largely boosted by the one-off sale of Savola Packaging Solutions (SPS), which netted US$70.7m. Excluding this, Savola made just US$54.2m for the period, down 44% year-on-year, but still more than the company’s revised forecast last month​.

The increase in the company's actual results versus the revised forecast is due mainly to higher share of profit from associates by [US$4.27m], better margins in retails and foods sectors by [US$2m] and the balance is for lower administrative and financing cost​,” said a statement from the firm on the Saudi stock exchange.

Sales up, expenses soar

Total revenues were up almost 5% to US$1.7bn, with gross profit up 8%. But this was hit by a 17% increase in operating expenses totalling US$250m, with selling and marketing costs up 23% to US$211m, while administrative expenses fell slightly year-on-year.

Higher financial charges and lower income from associates and investments also contributed to Savola’s challenging first quarter. The firm blamed store opening costs, foreign income tax and currency fluctuations for its increased costs.

As for the current quarter, the group’s managing director and CEO, Abdullah Rehaimi, said he expected a profit of US$114.4m, down nearly 17% year-on-year. However, some analysts noted Savola’s forecasts are often very conservative, and expect its actual Q2 performance to beat the prediction.

Regional consumer leader

In more positive news for Savola, the group was listed as the only GCC company on Deloitte’s Global Powers of Consumer Products 2015 report, which lists the 250 top consumer product producers in the world. Savola was listed at 111, two places below US confectioner The Hershey Company, and with a 2008-2013 CAGR of 13.8%, the 36th highest on the list.

Savola Group owns a number of major food producers, including edible oils and fats maker Afia International and United Sugar Company in Saudi Arabia, and Al-Malika Foods and Al Farasha Foods in Egypt, along with the Panda retail chain. In recent years the group has refocused on its food production activities, and has been selling off non-core subsidiaries such as SPS.

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