Abu Dhabi, UAEWednesday 18 September 2019

Almarai to spend 7.1bn riyals under new five-year business plan

Despite challenging economic conditions the dairy company plans to expand its geographic footprint

A man looks at a dairy product produced by Almarai at a grocery in Riyadh, Saudi Arabia June 2, 2016. REUTERS/Faisal Al Nasser - S1AETIRYYYAA
A man looks at a dairy product produced by Almarai at a grocery in Riyadh, Saudi Arabia June 2, 2016. REUTERS/Faisal Al Nasser - S1AETIRYYYAA

The board of Almarai, the Middle East's biggest dairy producer, approved a new five-year business plan with 7.1 billion riyals (Dh6.95bn) in capital investments as the conglomerate vies to cut costs and return to profit growth.

“Given the persistent challenging economic conditions across the region, the focus on efficiency and cost optimisation measures will continue throughout the plan period to ensure continuous competitive advantage," Almarai said in a statement to the Tadawul stock exchange, where its shares trade.

The latest plan is “in line with the long-term investment cycle of the company calling for less expansionary investments and a focus towards more efficiency and sustainability”, the company said.

The board, which approved the initiative in its May 15 meeting, plans to fund the investments over five years, mainly through company operating cash flow.

Almarai will focus on replacing existing assets; adopt greener energy footprint, improve production capacities and capabilities in farms and manufacturing facilities; enhance innovation and product development and its distribution and transportation methods.

Despite tough operating conditions and a softer economic outlook, Almarai’s programme includes extending its geographical footprint. The company did not specify where it intends to expand to over the next five years.

Almarai, which counts Saudi Arabia’s Savola Group and the kingdom’s sovereign wealth fund, Public Investment Fund, among its major shareholders, has struggled to maintain profit growth as operating costs rose and consumer spending declined amid softer economic backdrop at home and across its exports markets.

The company reported a 2.6 per cent drop in its first-quarter net income which fell to 336 million riyals. Almarai attributed the fall in net income primarily to a drop in profit at the dairy and juices segment of its business and rise in expenses.

Almarai has a "Baa3" rating from Moody’s Investors Service with a stable outlook. The investment grade rating reflects the company's leading market position and high earnings before interest, tax, depreciation and amortisation margin, according to Moody's.

The rationale for the stable outlook “reflects our expectation that Almarai's credit profile will be able to withstand the current adverse market conditions without breaching the current rating category guidance”, Moody’s said.

Updated: May 16, 2019 12:00 PM

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