Almarai Second Quarter 2018 Deterioration of Core Businesses partially compensated by Poultry
The GCC market environment remained challenging this quarter with overall negative consumer’s trends continuing from 2017. As such, Almarai is reporting a slightly negative top line growth (-1%) for the quarter against the backdrop of an overall market. Macroeconomic challenges include: structural economic changes driving higher costs in energy and transportation, changes in the retail landscape leading to the closure of more than 3,000 shops, the introduction of VAT, the introduction of the expatriate levy, lower export sales combined with a general slowdown in the GCC markets. This general contraction in the market has particularly impacted our discretionary categories.
Almarai ended the second quarter with a reduction in topline growth from SAR 3,760 million in 2017 to SAR 3,731 million in 2018, thus -1%. This translated into a decrease of -2% in the bottom line, reducing Profit attributable to shareholders from SAR 674 million in 2017 to SAR 660 million in 2018.
The segments performance for Q2 2018 followed the same pattern of Q1 2018.
The Dairy & Juice and Bakery segments have seen the most marked slowdown and have shown the greatest sensitivity to the changes in market dynamics. We have achieved moderate volume led growth, but the increase in operating costs, mainly due to input cost of feed, expatriate levy costs and energy and transportation costs together with a high level of promotions and discounting activities led to significant margin erosion. Despite the emphasis on cost rationalization, efficiency efforts, product innovation and geographic expansion the performance of the two segments, combined with a reduction in export sales led to a decline in the profit attributable to shareholders for Q2 2018 as compared to Q2 2017, -SAR 48 million or -8% for Dairy and Juice, and – SAR38 million or – 45% for Bakery.
On the other hand, the poultry segment once again has achieved a record sale this quarter SAR 437 million and profit SAR 67 million, we anticipate that the positive momentum for this segment will continue in the medium and long term. The Infant nutrition segment continues to make progress towards an EBIT positive performance for the full year.
The cash flow generation for the period remained strong at SAR 425 million mainly attributed to a reduction in Capital Investments.
After 6 months, the reduction in top line growth amount to – SAR 180 million or -3%, the majority coming from the first quarter negative performance. The Profit attributable to shareholders at the end of June 2018, reached SAR 1,004 million an increase of SAR 2 million, the increase of the first quarter was lost by the low profitability level of the second quarter.
Overall for the remaining part of the year, we anticipate the same underlying trends to continue within our core categories. Our focus will continue to be on delivering quality products.