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Weighed down by the global financial crisis with 2009 GDP growth estimated at 0.15%, Saudi Arabia is expected to register modest GDP growth of 2.01% in 2010. While a number of global food and drink companies continue to struggle for earnings and sales growth momentum, Saudi industry leaders such as Almarai and Savola Group announced strong year-end headline earnings over the quarter as discussed in the recently published Saudi Arabia Food & Drink Report for Q210.
Despite under par fourth quarter earnings of SAR248.8mn, below the bottom of the range SAR264.9mn forecast by analysts polled by Reuters, Almarai recorded strong year-end earnings of SAR1.1bn (US$290mn) for the 12 months to December 31 2009. As well as posting year-on-year (y-o-y) annual earnings and turnover growth of 20.5% and 16.7% (to SAR5.9bn), Almarai pursued a raft of significant organic and non-organic growth initiatives.
The establishment of a groundbreaking joint venture with PepsiCo was arguably the most significant event of Almarai's financial year and in our opinion will significantly open up access to some of the Middle East's most promising underdeveloped consumer goods markets such as Egypt and Jordan. Not focusing on quick-fire non-organic growth alone, Almarai also strengthened organically by entering into the infant formula segment. With new business units coming online and ongoing expansion into core dairy units anticipated in 2010, Almarai is increasingly well positioned to capitalise on a forecast 16.07% increase in headline food consumption to SAR72.72bn to 2014.
Unperturbed by the downturn, Savola reported particularly significant FY09 earnings growth in Q110; headline earnings increased 371.3% year-on-year (y-o-y) to SAR952mn (US$253.9mn). Per share earnings strengthened to SAR1.9 from SAR0.4 a year earlier. The Gulf region's leading sugar refiner and a leading global producer of branded edible oil, Savola is also Saudi Arabia's largest mass grocery retailer (MGR) by sales. We anticipate its Panda unit taking on even greater strategic significance in 2010. Bolstered by the acquisition of assets from the Geant supermarket banner owned by Saudi-based Farad Alhokair Group, Savola plans to grow its store count to 120 by 2010 (from about 60 in 2008). Laid out across the hypermarket and supermarket segments, Savola's retail unit is well positioned to take advantage of The forecast 27.18% increase in headline Saudi MGR sales to SAR83.89bn in 2014. Also this quarter, New Zealand's dairy giant Fonterra underlined its commitment to the Gulf region (specifically Saudi Arabia) after reaching a final agreement to acquire the outstanding 51% stake in its Saudi joint venture partner Saudi New Zealand Dairy Products Company from Saudi Dairy and Foodstuff Company (Sadafco). The Gulf region already contributes significantly to Fonterra's foreign market business. In the financial year ending July 31 2009, sales revenues in the Middle East, Asia and Africa were up by 22% y-o-y to US$1.7bn (total group sales were US$12.6bn). Anticipated strengthening in dairy consumption and further industry segmentation should continue to support group Fonterra's ability to grow its Gulf business.
Saudi Arabia Food and Drink Report Q2 2010: http://www.companiesandmarkets.com/r.ashx?id=7617011HP274116&prk=f7231a3e78fd45f43c40fb8e69e66d22
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