Earnings report sends Savola shares sliding

Savola, which owns the Middle East's largest sugar refining business, declined the most in two weeks yesterday as earnings took a 58 per cent on higher commodities prices.

Savola Azizia dropped the most in more than a month after the Saudi food producer blamed a 58 per cent decline in first-quarter profit on higher commodity prices.

Shares in the company fell 2.2 per cent yesterday, the biggest drop since March 14, to 26.70 riyals.

Net profit for the first quarter declined to 165.2 million riyals, compared with 394m riyals in the same period last year, according to a filing posted on the website of the Saudi bourse. A consensus of analysts had forecast the company would report a profit of 181.6m riyals for the quarter. "The drop is mainly due to higher prices of our raw materials as high commodities globally impacted negatively on our margins," the statement said.

Savola, which owns the Middle East's biggest sugar-refining business and produces edible oil, was expected to make a net profit of 225m riyals in the second quarter, up nearly 6 per cent from the same period last year.

Profit also declined in relation to last year because last year's first-quarter revenue was boosted by capital gains from the floatation of the fast-food chain Herfy, Savola said. Savola's board yesterday approved a first-quarter dividend of 0.25 riyals per share.

The managing director of Savola Group last month said his company's plants in Egypt, Algeria, Pakistan, Turkey and Iran were not affected by unrest in the region but that workers in the Suez had some "demands" that were settled without disruptions.

However, analysts remain cautious on the company's outlook.

"We have been neutral on Savola since the end of 2009 due to our concerns on the exposure to global commodities and non-core businesses at Savola," said Farouk Miah, an analyst at NCB Capital in Riyadh. "Although the stock has fallen 12 per cent in the past three months, expectations of another loss-making year for the Egyptian sugar business and slow progress in retail margins provide a muted short-term outlook for the stock."