Almarai's fourth quarter net income drops 28% on higher expenses

Almarai, the Arabian Gulf’s biggest dairy company, reported a 28 per cent drop in fourth quarter net profit due to higher expenses and one-off items.

Net profit after zakat and taxes fell to 369.6 million riyals (Dh362m) from 512.9m riyals reported in a year-earlier period, the company said on Sunday in a statement to the Saudi stock exchange, where its shares are listed.

Four analysts polled by Bloomberg had a median forecast of 515m riyals for the company's fourth-quarter net income.

Revenue fell 0.9 per cent to 3.39 billion riyals during the period.

“During 2018, the company’s performance was impacted by difficult economic conditions emanating from the implementation of VAT, which led to a cautious consumer behaviour and created problems in traditional trade channels and an increase in labour and energy costs,” the company said in the bourse filing on Sunday.

“The year also saw a big drop in the consumer base due to the fall in the number of residents.”

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Saudi Arabia, the Arab World’s biggest economy, is introducing a series of reforms to shore up government revenues affected by the three-year oil prices slump that began in mid-2014. The kingdom introduced a 5 per cent VAT at the beginning of 2018 and increased energy prices among other reforms aimed at helping to contain the fiscal deficit, which widened during the years of lower crude prices.

Almarai stock fell more than 6 per cent following lower-than-expected quarterly earnings.

NCB Capital said the results were "weak" and came under their estimates of 489m riyals, impacted by one-off items and gross margin contraction by 262 basis points year-on-year to 36.4 per cent.

"We believe the increase in alfalfa costs and promotions to support market share in the dairy segment were the main drivers behind the contraction in margins," NCB Capital said in a note on Sunday.

Almarai said its dairy and juice sector’s fourth quarter net profit slid 23.5 per cent from a year earlier due to changing market dynamics, increase in cost of fodder and promotions on certain products.

Profit was also hurt by two one-time write-offs of assets amounting to 50m riyals, Almarai said.

"We expected a decline of 8.2 per cent year-on-year in fresh dairy as a result of the expat exodus and loss of market share by Almarai, primarily to [its competitor] Nadec due to July 2018 price increase by Almarai on select fresh dairy products," NCB Capital noted.

The bakery segment’s net income fell 35.4 per cent due to promotional investments as the company continued to introduce new products to the market.

The poultry segment’s net profit rose 194.3 per cent on the back of an increase in sales. Operational efficiencies, and lower mortality rate of poultry also helped profitability, the company said.