The brief let-up in rising global commodity prices has provided little respite for one of the biggest UAE food companies, which is suffering squeezed margins and has warned of future price increases on the shelves.
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Prices of basic food commodities, such as sugar, grains and dairy produce, have fallen in recent months after reaching all-time highs earlier in the year.
But these decreases have yet to have an effect on the profits of food companies, which are still being squeezed as other raw materials costs rise.
"A wide range of raw materials have increased … in 2011 and this has undoubtedly put pressure on our margins," said Ilias Assimakopoulos, the chief executive of Agthia, a food company in Abu Dhabi that recorded sales last year of more than Dh1 billion (US$272.2 million). "This has affected gross margins and profits for the year."
Agthia, which is listed on the Abu Dhabi Securities Exchange, increased sales 14 per cent in the first nine months of the year, but profits fell 24 per cent to Dh60m as margins decreased 4 percentage points on higher costs.
The company's share price has fallen 20 per cent from Dh2.1 at the start of the year to Dh1.67 at close of trading yesterday.
Mr Assimakopoulos said the fourth quarter would be the best of the year, but full-year profits would be affected by rising costs.
"There will be need for some sort of price increase in the future," he said.
The UN's Food and Agriculture Food Price Index dropped to 216 points last month, down 4 per cent from September and 9 per cent below its peak in February.
The index, which is made up of a basket of 55 food commodities, has consistently declined since June, but it is still 5 per cent above October last year.
Despite the continued fall in food prices, volatility in raw materials costs has affected profits. The flexibility of companies in dealing with the rising cost of commodities is also somewhat hampered by government policy.
Mr Assimakopoulos said Agthia had taken part in discussions with UAE government authorities in which it was made clear any price increases would be bad for the economy.
"Food inflation is of great concern these days in the region in general," he said. "So, obviously, the ability for us to pass on that input cost has been hampered at this time."
Mr Assimakopoulos expects commodity prices to remain at historically high levels for the foreseeable future.
Agthia has about 1,600 employees in the UAE across its food and beverage operations, which include producing and distributing Al Ain water, Capri-Sun drinks, processed fruits and vegetables and animal feed.
The company this week began the production and distribution of the French brand Yoplait, and it plans to start selling the US brand Chiquita next month.
Yoplait claims to be the second-largest brand in terms of sales in the fresh dairy product category worldwide, and the biggest in huge markets such as the US and Australia.
Mr Assimakopoulos said the fall in the company's share price was likely to be an indicator of the overall investment environment and global economic fears, as opposed to any negative sentiment about the individual stock.
"We remain optimistic that we will hit profit delivery in 2012," he said.
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Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
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Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
LOS ANGELES GALAXY 2 MANCHESTER UNITED 5
Galaxy: Dos Santos (79', 88')
United: Rashford (2', 20'), Fellaini (26'), Mkhitaryan (67'), Martial (72')
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Iftar programme at the Sheikh Mohammed Centre for Cultural Understanding
Established in 1998, the Sheikh Mohammed Centre for Cultural Understanding was created with a vision to teach residents about the traditions and customs of the UAE. Its motto is ‘open doors, open minds’. All year-round, visitors can sign up for a traditional Emirati breakfast, lunch or dinner meal, as well as a range of walking tours, including ones to sites such as the Jumeirah Mosque or Al Fahidi Historical Neighbourhood.
Every year during Ramadan, an iftar programme is rolled out. This allows guests to break their fast with the centre’s presenters, visit a nearby mosque and observe their guides while they pray. These events last for about two hours and are open to the public, or can be booked for a private event.
Until the end of Ramadan, the iftar events take place from 7pm until 9pm, from Saturday to Thursday. Advanced booking is required.
For more details, email openminds@cultures.ae or visit www.cultures.ae
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MATCH INFO
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Liverpool 1 (Lallana 84')
Man of the match: Marcus Rashford (Manchester United)
Cricket World Cup League 2
UAE squad
Rahul Chopra (captain), Aayan Afzal Khan, Ali Naseer, Aryansh Sharma, Basil Hameed, Dhruv Parashar, Junaid Siddique, Muhammad Farooq, Muhammad Jawadullah, Muhammad Waseem, Omid Rahman, Rahul Bhatia, Tanish Suri, Vishnu Sukumaran, Vriitya Aravind
Fixtures
Friday, November 1 – Oman v UAE
Sunday, November 3 – UAE v Netherlands
Thursday, November 7 – UAE v Oman
Saturday, November 9 – Netherlands v UAE
