Almarai’s Profits Plummeted by 34%

Almarai Company’s net profit, after zakat and tax, fell by 34% in the third quarter, to SR409 million, compared to SR622 million, in the same quarter the previous year.

This comes as the company released its consolidated interim condensed financial statements for the three months ended September 30, 2021 today (9 months).

The total profit for the third quarter was SR1.27 billion, down 16% from SR1.51 billion, in the previous quarter.

The operating profit for the third quarter was SR519 million, down 31% from the previous quarter’s SR750 million.

The current period’s net profit after zakat and tax was SR1.27 billion, down 20% from the previous year’s figure of SR2 billion.

Earnings per share in the current period were SR1.13, compared to SR1.68, in the previous year’s same period.

The drop in net profit attributable to the company’s shareholders of 34.2 percent in the third quarter of 2021G compared to the same quarter the previous year is mostly due to:

Revenue, the impact of the core year, purchases connected to (Covid-19), and increasing costs of basic commodities, Almarai faced a struggle this quarter.

As a result of prolonged trade normalization limitations following (Covid-19), revenue of core products fell by 3% inside the GCC countries.

The impact of the decline was higher in food sales due to a single purchase made in this sector last year.

However, the decline in GCC revenues was partially offset by the growth in bakery sales, due to the partial return to educational institutions. However, total revenues increased by 2% due to excellent performance in Egypt and Jordan, in all sectors.

• Gross profit: decreased by 15.8% at a slower rate due to structural adjustments related to subsidy reductions, as a result of the absence of subsidies on corn and soybean products for the year 2021, without benefiting from the overlap of subsidies in the poultry sector in 2020, and what caused the exacerbation is an increase in feed costs, as is the case in the poultry sector.

Given the high cost of basic commodities and the fact that the precautionary cover in the first half of 2021, was not accessible in the third quarter of 2021, in the amounts of alfalfa used with a % import rate.

• Selling and distribution expenses: Due to tight cost control, selling and distribution expenses increased by SR4.4 million, or 0.7%, in line with the previous year.
• General and administrative expenses: Due to good cost control, general and administrative expenses increased by SR1.14 million, or 1.4%, compared to the previous year
• Other expenses: dropped by SR20.3 million, owing primarily to a one-time profit in the agricultural sector during the previous year.
• Due to the current increase in debts in the sphere of food services, a loss of SR6.3 million occurred.
• Financing Costs: Financing costs fell by SR33.1 million Saudi as a result of lower financing rates and average net debt.
• The following are the comparable quarterly results of the company’s key operational sectors, which resulted in a 34.2% decline in net income attributable to shareholders for the present period:

• Dairy and juice sector: It has decreased due to the high cost of imported corn and soybeans, lower year-to-year subsidies and the discontinuation of non-green fodder subsidies, price adjustments for fresh dairy products to compensate for the replacement volume in long-term dairy products in Saudi Arabia, and lower sales to non-GCC countries, and price adjustments for fresh dairy products to compensate for the replacement volume in long-term dairy products in Saudi Arabia, and lower sales to non-GCC countries. The industry grew by 30.2%.

• Bakery segment: Bakery category revenues climbed by 19.1%, owing to the partial resumption of educational institutions in Saudi Arabia and the Gulf Cooperation Council.

• Due to the (Covid-19) pandemic and related buying behavior, the sector’s net profit declined by 50.8 %. Nevertheless, the channel mix was more beneficial for retail, and the second cause was the negative channel mix, which was associated with higher maize and soybean costs. As a result, the profit margin for the quarter was lower.

• Other activities: Revenues of SR212.1 million were recorded in the current quarter, compared to a return of SR148.8 million, in the same period the previous year, due to an increase in external sales of fodder to manage current stock and an increase in sales of infant formula for the unregistered mark.
• As a result, the net impact on the profit and loss for the quarter was less. Crop production differs in terms of timing.

The reason for the increase (decrease) in net profit in the current quarter compared to the previous quarter is a 15.1% decrease in net income attributable to the company’s shareholders in the third quarter of this year (SR409.1 million) compared to the previous quarter (SR482.0 million), which occurred due to seasonal demand.

The reason for the increase (decrease) in net profit during the current period compared to the same period last year is the reason for the 22.5% decrease in net income attributable to the company’s shareholders during the nine months ending September 30, 2021 compared to the same period last year.

Specifically, it involves:

• Revenues: Due to the impact of the base year relating to (Covid-19) and the change in the value-added rate of purchases from last year, Almarai had a struggle this quarter, and as a result, revenues remained flat, with growth in revenues from Egypt, Jordan, and unbranded items. Commercial offsets the fall in core sector revenues in Gulf Cooperation Council countries as they decline year on year due to lower food product sales as a result of the major impact of greater long-term product purchases last year. In addition to the negative channel mix, there has been a drop in commercial regulation as a result of the base year impact (Covid-19), although this has been partially offset by the resumption of growth in food services (due to the establishment of restaurants) and international markets.
• Gross profit: As previously stated, the decrease in gross profit was due to structural adjustments related to subsidy reductions, as a result of the absence of subsidies for the year 2021, on corn and soybean products without benefiting from the overlap of subsidies in the poultry sector in 2020, as well as an erosion of the margin due to an increase in feed costs.

The profit was largely offset by the precautionary cover in the first half of 2021, as it was in the amounts of alfalfa consumed by importing % and the high costs of corn and soybeans.

• Due to tight cost control, selling and distribution expenses were reduced by SR1.2 million, or 0.1%, compared to the previous year.
• Due to tight cost control, general and administrative expenses were reduced by SR1.5 million, or 0.5%, compared to the previous year.
• Financing cost: Due to lower financing rates and a drop in average net debt, the financing cost decreased by SR96.2 million.
• The following are the comparative period results for the key operational sectors, which resulted in a 22.5 percent decline in net income attributable to the company’s shareholders for the current period:

• Revenues in the dairy and juice industry fell by 19.5% as a result of a reduction in subsidies and an increase in feed prices due to the import of alfalfa, as well as price increases and a global increase in the prices of basic foodstuffs such as corn and soybeans.

• Bakery sector: Profits fell 7.9% due to an increase in the fundamental fixed cost of the bakery sector’s revenue chain, which resulted in losses rising faster than revenues and a considerable fall in quantity in the first half due to the ongoing closure of schools.

• However, due to the (Covid-19) epidemic and related purchasing behavior, channel mix was more beneficial for retail.
• Receiving strong support during the last year and in comparison, to the present year, as well as high feed prices due to rising maize and soybean prices.

• Other activities: Due to sustained improvements in agriculture overseas, the sector suffered losses of SR40.4 million, during the current quarter, compared to losses estimated, at SR37.1 million in the same time the previous year.

Additional Information:

• Revenue Distribution by Country: Revenue losses in the Kingdom of Saudi Arabia and the Gulf states were 2.2% and 4.9%, respectively, in the third quarter of the current year 2021, compared to the same quarter the previous year, while revenue growth in other nations was 32.1%. The results for the nine months ending September 30, 2021 (nine months) compared to the same time the previous year showed a decline of 4.0% and 6.0% in the Kingdom of Saudi Arabia and Gulf states, respectively, while a rise of 39.3% was seaen in other nations.
• Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA): In the third quarter of this year, earnings before (EBITDA) was SR879.1 million, down 23.7 % from SR1,151.4 million, in the previous quarter.
• (EBITDA) were SR2,706.8 million for the nine months ended September 30, 2021, a 14.8% decrease from SR3,176.0 million for the same time period the previous year.
• Profit margins: the ratio of gross profit, operating profit and net income for the period attributable to the shareholders of the company, representing 32.4%, 13.2% and 10.4% respectively of the revenues of the third quarter of 2021 compared to 39.2%, 19.4% and 16.1% respectively of the revenues of the same quarter of the year previous straight.

They amounted to 33.4%, 14.0%, and 11.0%, respectively, of the revenues for the period ending on September 30, 2021 (nine months), compared to 37.3%, 17.5%, and 14.3%, respectively, of the revenues for the same period of the previous year.

A Summary of the cash flow statement for the nine-month period ending September 30, 2021:

• The cash flows generated from operating activities increased by 18.7% to SR3,482.8 million from SR2,934.2 million in the same period the previous year, owing to the high movement of working capital, which was aided by a reduction in inventory for supply chain management during the (COVID-19) pandemic. Operating cash flows accounted for 30.0 percent of revenues in the period, compared to 25.4% in the previous year’s same period.

• The cash flows utilised in investment operations were SR1,200.5 million, up from SR402.9 million in the previous year’s same period, a 198.0% rise.
• Cash flows utilized in investment operations accounted for 10.4% of total revenues in the quarter, compared to 3.5% in the previous year’s comparable period.
• Because the capital project program is limited to the replacement and generation of capital expenditures, the cash flows used in investment operations have fallen dramatically.

• Free cash flows during the quarter totaled SR2,282.3 million, down 9.8% from SR2,531.3 million in the same period the prior year.
• Free cash flows accounted for 19.7% of total revenue in the quarter, compared to 21.9% in the prior year’s same period.
• This was aided by the development of operating cash flows and a pledge to cut capital investment.

General remarks:

Trading conditions remained normal throughout the year, but the impact of the base year of (Covid-19) resulted in a benign growth in revenues for the current year.

The growth in revenues was due to excellent performance, in Egypt, Jordan, and foreign markets, while the plausible impact of (Covid-19) resulted in a benign growth in revenues for the current year.

Despite these challenges in the trading market, Almarai continued to use cost control on suppliers to provide superior value to its customers, as the majority of the costs were structural in nature, such as the elimination of subsidies and the 100% increase in the cost of imported alfalfa, in addition to the high commodity costs for corn and soybeans at the global level, which affects the current cost operating rates.

The current cost increase was largely offset by the accomplishment of financing cost reductions and cost reduction activities; in other words, structural changes reduced the operating profit to 19.8%.

Almarai is creating a number of scenarios to address these issues, and will roll out more plans in the coming quarters to guarantee that it continues to supply high-quality products to its consumers while ensuring a solid return for its shareholders.

The company drew the shareholders’ attention to that the consolidated interim condensed financial statements for the period ending on September 30, 2021, will be available on the Almarai Investor Relations application for smartphones and tablets, and through the company’s website at the following link, after sending it to the competent authorities.

https://www.almarai.com/corporate/investors/annual-report-financial-statement/

On October 12, 2021, at 4:00 p.m. Riyadh time, a conference call with analysts and investors will be held.

On the Almarai website, under the Investors section and under the Shareholders’ Presentations area, the presentation accompanying the conference call will be available at the following link:

https://www.almarai.com/en/corporate/investors/earning-presentations/

To download the attached files:

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