Almarai profit up 22%, but subsidiaries lose US$87m

13-Jul-2015 - Last updated on 14-Jul-2015 at 10:01 GMT

Saudi food producer Almarai announced a 22.4% rise in profits to reach US$141m for its second quarter, with increased sales, but also a US$87.5m write-down of its subsidiaries.

The company booked total sales of US$973m for the quarter, up 11% year-on-year, with growth in all sectors except bakery, which fell 0.7%. Almarai said it had managed to hold down the rate of increase in costs, leading to growth in gross profit of 20.8%.

Costs held down

“The result of core business segments was as follow; dairy and juice increased by 7.2%, bakery increased by 22.5% and poultry losses declined by 47.5%. Poultry losses declined to [US$14.5m] which represents 17.3% of segment sales compared to 2014 losses of [US$27.6m] which represented 41.3% of segment sales,” said the company in a statement.

“The continued top line growth this quarter generated improved profitability both at gross margin and operating income levels. The strategic execution on investment in capital expenditure also continued during the quarter as planned. Barring unforeseen events, the company should continue its profitable growth for the next quarter,” the statement added.

But while Almarai’s core business is growing, its joint ventures and subsidiaries have increased their losses compared to a year ago, according to its quarterly accounts statement. The company listed a US$9.8m loss from its associate and joint venture operations, compared to a US$721,000 loss the year before.

Goodwill lost

It also posted a net loss of US$23.3m against “Others”, compared to US$2.3m a year ago, which Almarai expands on in its notes, listing a write-down of US$87.5m of goodwill around its subsidiary operations. This is more than offset by a payout of US$118.1m from the company’s insurers as compensation for a bakery destroyed in a fire last October, for which Almarai already recorded income over the last two quarters, and which is also listed under “Others”.

Discussing the write-down of its subsidiary operations, the firm’s financial report noted: “During current quarter, the Group reassessed the business plans of its subsidiaries including their corresponding impact on existing goodwill. Based on changes in business plans and other operational conditions the cash flows from certain subsidiaries are negatively impacted and therefore goodwill that arose on their respective acquisitions is considered as impaired.”

On the bakery fire payout, Almarai’s report said: “A settlement agreement was signed with [the insurer] for [US$210.5m] as a full and final settlement of the insurance claims arising from the fire incident which occurred at one of the manufacturing facilities in Jeddah on… 9 October 2014. Out of total [US$210.5m] a partial amount of [US$57.1m] was recognised as income during the year ended 31 December 2014 and the remaining amount of US$153.4 million has been recognised as income in the current period.”