The Arab world’s largest dairy company says it is battling “persistent challenging economic conditions”
May 27, 2018
Saudi Arabia’s Almarai, the Arabian Gulf’s biggest dairy producer, plans to spend 10.6 billion riyals ($2.83 billion) in capital investment as part of a five-year business plan approved on Sunday to increase efficiencies and reduce costs.
“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 regulatory filing with the Tadawul stock exchange, where its shares are listed.
Investment for the period 2019 to 2023 will be financed through increasing operating cash flow and bank debt, issuing local and international sukuks or Islamic bonds, and through the Saudi Industrial Development Fund and Agricultural Development Fund, the statement added.
Consumer spending in Saudi Arabia has been curtailed by the introduction of value-added tax (VAT) in January, as well as higher energy prices and fiscal consolidation efforts in the past two years. However, the outlook for the sector is improving as ongoing social and labour market reforms and an uptick in regional and global economic conditions boost consumer spending, according to a report by BMI Research this week.
At the same time, VAT, subsidy cuts and rising oil prices could raise inflation and push up prices for Saudi households in 2018, BMI said.
Almarai’s investment strategy will focus on replacing existing assets, improving production in farms and factories, upgrading distribution and transport facilities and widening the company’s geographic footprint and product development capabilities.
“The review of the plan has confirmed that the infrastructure, in terms of processes, people and systems, is in place to enable the company to face future challenges and meet its long term ambition,” the statement said.
Almarai in January reported a 4.3 per cent drop in fourth-quarter 2017 net profit to $136.8m as revenues fell on the back of declining sales in regional markets.