Dairy producer Almarai's third-quarter profit rises 6.9% on higher revenue

The company's top line grew in nearly all categories while food and long life dairy segments recorded double digit growth

Almarai recorded 7% growth in third-quarter net profit as revenue rose. Reuters.

Saudi Arabia's Almarai, the Middle East's biggest dairy company, posted a 6.9 per cent rise in third quarter net profit as revenue increased.

Net profit attributable to the company’s shareholders for the three months ending September 30 rose to 621.5 million Saudi riyals ($165.6m), compared to 581.2m riyals in the same quarter last year, Almarai said in a statement to Saudi Arabia's Tadawul stock exchange on Sunday. Third quarter revenue climbed 8.1 per cent year-on-year to 3.86 billion riyals.

Almarai's net profit was broadly in line with analyst estimates at EFG Hermes as "mainly on solid top-line growth and lower finance costs ... as the benefits of lower interest rates and debt levels ... offset the lower capitalisation of funding costs related to capex", the Egyptian investment bank said in a note to investors.

Almarai's third-quarter revenue grew by 4.8 per cent in Saudi Arabia, 4.5 per cent in other Gulf countries and 35.3 per cent in other markets.

The company's "top line grew in nearly all categories, led by foods and long life dairy by recording double digit growth", despite VAT tripling from July 1 in the kingdom, Almarai said. "The only exception was the bakery category due to a drop in singe serve range."

The performance of its food services category bounced back during the period from the previous quarter after Saudi Arabia eased movement restrictions to curb the Covid-19 virus, but was flat year-on-year. Revenue growth was led by sales in Saudi Arabia, followed by Kuwait and Egypt.

Selling and distribution expenses for the reporting period rose 8.1 per cent year-on-year due to higher labour costs, higher growth in retail and increased distribution costs in line with the revenue increase, the company said.

General and administration expenses increased by 5.4 per cent, it said.

Impairments on financial assets increased by 34m riyals due to higher expected credit losses for the food services segment, after the impact of the Covid-19 pandemic and a general increase in debtors.

Almarai's nine-month net profit rose 9.9 per cent to 1.64bn riyals as revenue grew 8.3 per cent to 11.5bn riyals.

"The first nine months of the year have proven quite challenging," the company said.

While volume growth in the Gulf region remains weaker due to "lower tourism and competitive pressures", Saudi Arabia, Jordan, Egypt and Kuwait showed significant growth, the diary producer said.

The company expects the outlook for the rest of this year and the next to be challenging.

"Despite this robust performance in first nine months of 2020, Almarai remains cautious for the balance of the year and 2021 due to significant economic challenges facing the industry driven by expected population decline, lower GDP growth due to Covid-19 and labour reforms," it said.

Almarai is developing multiple scenarios to manage these impacts and will roll out additional plans during the year to secure the supply of products and maintain a healthy return for its shareholders, it said.