Key Stock Data Sector Dairy Reuters Code 2280.SE Bloomberg Code ALMARAI AB Equity Net Out. Shares (mn) 109.00 Market Cap (SAR bn) 15.751 Market Cap (USD bn) 4.199 Avg. 12m Vol. (‘000) 226.32 Volatility (30 day) 19.684 Volatility (180 day) 54.050

Executive Summary Setup in 1976, Almarai is one of the world’s largest integrated dairy companies. The vertically integrated company covers all supply chain activities, including dairy farming, food processing, marketing, and sales and distribution. Almarai has 6 dairy farms with 58,000 milking cows and serves more than 42,000 customers within the GCC. Its annual milk production capacity reached 470 million litres in 2008. Net profit margin widens, registers healthy revenue growth During 1Q09, Almarai’s revenue reached SAR 1,326.08 million, an increase of 18.5% from SAR 1,119.07 million in 1Q08, driven by an increasing sales volume and price realisation across the segments. The company’s CoS jumped during 1Q09. However, it declined 113 bps relative to revenue to 61.7% in 1Q09 from 62.8% in 1Q08. Its gross profit stood at SAR 508.25 million, an increase of 22.1% over SAR 416.26 million in 1Q08. Consequently, gross profit margin increased to 38.3% in 1Q09 compared to 37.2% in 1Q08. In addition to this, selling & distribution expenses rose 17.3% and general & administrative expenses were higher by 17.0% during the quarter. The company’s operating profit increased to SAR 248.22 million from SAR 194.46 million in 1Q08. Buoyed by the performance, the company’s net profit went up 21.7% to SAR 197.37 million, while as a percentage of revenue it stood at 14.9% compared to 14.5% in 1Q08. Annualised EPS rose to SAR 7.24 from SAR 5.95 per share. However, RoAA dropped from 9.5% to 9.3%, on higher asset base and RoAE rose from 20.5% to 22.5%. Outlook and Valuation The world dairy industry witnessed a positive growth till 2007, as a result of the high product prices across the world, but subsequently witnessed slower growth as a result of decline in commodity prices due to lower level of economic activity. The regional food processing sector also followed the same trend benefiting from high oil prices and booming economy, which in turn resulted in higher disposable income and increased household consumption. However, following the recent economic downturn, the spending pattern has changed negatively impacting the demand pattern. Meanwhile, at the same time, given the GCC’s nominal growth in the near term and growing food processing industry, the region remains an attractive destination for the global food industry. Almarai has a strong presence in Saudi Arabia and the MENA region. Further, its medium-to-long-term expansion plans make it a key player in the region. The company’s healthy profit margin is definitely going to aid its expansion plans, thereby keeping its long-term growth drivers intact. To determine the value of the company, we have used the DCF valuation method. Currently, Almarai’s stock is trading at a P/E multiple of 14.10x and 11.82x on 2009E and 2010E earnings, and at a P/B multiple of 3.63x and 3.04x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has gained 3.2% since the beginning of this year as against a rise of 20.5% by the Saudi’s Tadawul. Considering the above factors, we initiate our coverage with price target of SAR 163.51, which exhibits a potential upside of 13.2% from its closing price of SAR 144.50 (as on May 28, 2009). Therefore, we initiate our coverage on Almarai with an OVERWEIGHT opinion. SAR Millions 2007A 2008A 2009E 2010E 2011E Total Revenue 3,770 5,030 5,927 6,943 8,120 EBITDA 981 1,275 1,557 1,831 2,113 EBITDA Margin (%) 26.0 25.3 26.3 26.4 26.0 Net Profit 667 910 1,117 1,332 1,551 Net Profit Margin (%) 17.7 18.1 18.9 19.2 19.1 Adjusted EPS (SAR) 6.12 8.35 10.25 12.22 14.23 Total Assets 6,336 8,181 9,563 10,603 11,857 RoAE (%) 27.0 27.3 28.1 28.0 27.3

OVERWEIGHT

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Almarai (2280.SE)

CMP SAR 144.50 Target SAR 163.51 Potential Upside 13.2%

MSCI GCC Index 384.85 Saudi Tadawul 5,789.43

Stock Performance (%) 52 week high / low (SAR) 183.00 / 113.00

1M 3M 12M Absolute (%) -0.5 -4.9 -3.8 Relative (%) -6.9 -28.0 57.5

Shareholding Pattern (%) HH Prince Sultan Mohammed Al Saud 30.27 Savola Group Company 29.00 Omran Mohammed Al Omran and Company 5.70 Board of Directors 2.89 Other Investors 6.20 Public 25.94

Almarai and Tadawul Movement

Background Saudi-based Almarai was established in 1976, and is one of the world’s largest integrated dairy companies. Its business spans from food supply chain for dairy farms and arable farms to retail outlets spread over six gulf countries. The vertically integrated company covers all supply chain activities, including dairy farming, food processing, marketing, and sales and distribution. Its products are distributed across the GCC through 40 sales warehouses. During 2005, Almarai changed from a privately owned entity to a publicly listed company. It currently trades on the Saudi Stock Exchange (Tadawul). The public holds 25.9% stake, 38.9% stake is held privately and Savola group holds 29.0%. Almarai

(Operating Division)

Dairy Products Juices Bakery

Source: Almarai Almarai’s origin dates back to 1977, when HH Prince Sultan bin Mohammed bin Saud Al Kabeer, recognised the potential to transform traditional dairy farming in Saudi Arabia to meet the needs of a rapidly growing country. In order to realise the same, the company developed a number of agricultural projects which began with the processing of fresh milk and laban and soon thereafter expanded into dairy farms, fresh processing plants and cheese processing plants. In the early 90s, Almarai entered into a restructuring and reinvestment phase, thereby centralising the process. The first central processing plant was commissioned replacing 5 de-centralised plants. A second and larger central processing plant incorporating a new cheese plant was commissioned in late 2005. Almarai also established 4 large dairy farms in the central area replacing 10 de-centralised small farms. In 1998, Almarai entered the growth phase utilising its competitive advantage of being the market leader and low cost producer. In 1999, Almarai initiated a major fresh milk and laban price promotion in Saudi Arabia. During the first quarter of 2007, the company fully acquired Western Bakeries Company Limited and International Baking Services Company Limited, thereby entering into the bakery business and diversifying its revenue base. Almarai has 6 dairy farms with 58,000 milking cows. The company has a strong fleet of more than 800 chilled trailers serving more than 42,000 customers within the GCC on a daily basis and has 97 sales depots. Its annual milk production capacity reached 470 million litres in 2008.

The world’s largest integrated dairy company Almarai entered bakery business in 2007 Almarai has 6 dairy farms with 58,000 milking cows

Business Model Board of Directors • Chaired by - HH Prince Sultan bin Mohammed bin Saud Al Kabeer

• Mr. Mosa Omran Al Omran • Mr. Mohammed Al Damer • Mr. Nasser Al Muttawa • HH Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer

• Dr. Majed A. Al Gassabi • Mr. Ibrahim M. Alissa • Dr.Sami Mohsen Baroom Source: Almarai

Subsidiaries/Associates/Affiliates of Almarai Almarai has a number of subsidiaries, associates, affiliates and strategic investments.

SUBSIDIARIES/ASSOCIATES/AFFILIATES/INVESTMENTS COUNTRY % SHARE

Al Safwa Dairies Saudi Arabia 100.00 Almarai Company - Bahrain Bahrain 100.00 Almarai Holding Company Bahrain 100.00 Green Farms Dairies Saudi Arabia 100.00 International Baking Services Company Saudi Arabia 100.00 Markley Holdings United States 100.00 Riyadh Dairy Company Saudi Arabia 100.00 Western Bakeries Company Saudi Arabia 100.00 Arabian Planets for Trade and Marketing Oman 90.00 Teeba Investment for Developed Food Processing Company Jordan 75.00 Modern Food Industries Company [via Western Bakeries Company] Saudi Arabia 60.00 International Dairy and Juice Company Saudi Arabia 48.00 INVESMENTS Jannat Agricultural Investment Company Saudi Arabia 10.00

Source: Zawya

Products are marketed under the Almarai brand, and distributed mainly through retail outlets

ALMARAI GROUP

Primarily engaged in dairy, bakery & beverages

The company is vertically integrated, which makes it a cost efficient producer

The company follows strict quality control norms in line with ISO 22000 standards

Slowdown to impede economic growth Nominal GDP advanced 22.0% YoY, led by oil boom in first half of 2008 Saudi is the largest and most populous markets in the Gulf

Industry Scenario The world economies are witnessing an economic slowdown triggered by the US subprime crisis. According to the International Monetary Fund (IMF), world growth might fall to a negative 1.3% in 2009 - it’s lowest since World War II - after witnessing high growth of 5.2% in 2007 and 3.2% in 2008. However, on a positive note, the trend is likely to reverse with the growth rebounding to 1.9% in 2010. The Middle East & North Africa (MENA) region is likely to be relatively less affected by the financial crisis, supported by available liquidity and resources and also timely government support to the public sector. After registering a real growth rate of 5.7% in 2008, GDP is projected to slow to 2.6% in 2009, before improving to 3.6% in 2010. At the same time, as fallout from the ongoing global financial meltdown, the IMF estimates that the GCC economies would see a fall in growth to 1.3% in 2009 from 6.4% in 2008 on lower oil prices, before rebounding to 4.2% in 2010. As per preliminary estimates, Saudi Arabia’s nominal GDP advanced 22.0% YoY to reach SAR 1,753.50 billion in 2008 from SAR 1,437.68 billion in 2007, driven by soaring oil prices till July 2008. The average oil prices jumped to USD 95.0 per barrel in 2008 from USD 67.6 per barrel in 2007. However, in light of the financial turmoil and economic slowdown along with falling oil prices, the IMF forecasts negative real growth rate of 0.9% in 2009 and rebound to positive growth of 2.9% in 2010.

S a u d i A r a b ia 's N o m in a l G D P

04 0 08 0 0

1 ,2 0 01 ,6 0 02 ,0 0 0

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 E0 .0 %

1 0 .0 %

2 0 .0 %

3 0 .0 %

N o m in a l G D P ( S A R B illio n s ) N o m in a l G D P G r o w th ( % )

Source: SAMA, Central Department of Statistics & Information A.T. Kearney’s Global Retail Development Index (GRDI) ranks 30 emerging countries on the urgency for retailers to enter the country. According to the 2008 GRDI, seven MENA countries featured among the top 20 making the region the favoured destination for retail expansion. Strong Europe-backed investments in the region, familiarity of consumers with modern retail concepts and petrodollar wealth are the primary factors making the region attractive. The six nations of the Gulf Cooperation Council (GCC) are expected to earn USD 9 trillion by 2020. Among the gulf countries, Saudi Arabia, with a robust 9% growth rate and low retail consolidation − less than 7% of the market is held by the top 5 retail players – is among the most attractive global retail destinations. Despite the global credit squeeze, Saudi is expecting a steady capital flow in sectors such as energy, transportation and knowledge-based industries, which have the potential to attract USD 600 billion. The continued inflow of FDI, coupled with the state spending plan, budgeted at SAR 475 billion, is expected to help the country in sustaining growth levels in challenging times. Meanwhile, its sizable population of 24 million, increased tourism and tax-free status make Saudi Arabia attractive to retailers with expansion plans. Despite a majority of small to medium-sized towns where retail is mainly in the hands of outdoor markets and baqalas (neighbourhood stores), modern outlets are attracting Saudi shoppers, especially in cities such as Riyadh, Jeddah, Dammam, and Jubail. Meanwhile, the country’s annual inflation rate slowed to 6% in March 2009 from 6.9% in February 2009, mainly due to a fall in food prices and a slowdown in local demand. The Central Department of Statistics reported that the cost of living index rose to 121 points as of March 31, 2009 from 114.2 points a year earlier. The annual inflation in food and drink prices eased to 2.8% in March from 4.6% in February. After peaking at more than 11% in July 2008 inflation, in line with the drop in the world oil prices, has since plunged to around one-third of that level. Retail Market According to a retail research report by CB Richard Ellis, London is still the top international retail city, while Dubai is placed in the top five retail destinations among 160 major cities. Dubai accounts for 46% of retailers and is ranked 4th on the list. Saudi cities included in the list are Riyadh (32% and 28th) and Jeddah (29% and 45th).

GCC food retail segment expected to grow faster than the non-food segment Saudi has the world’s youngest and fastest growing consumer base

Major GCC Retailers, Revenue Growth, 2008 (%)

44.7

21.818.0

52.062.5

15.116.7

010203040506070

Jarir Marketing Faw azAbdulazizAlhokair

Sultan CenterFood Products

Abdullah AlOthaim Markets

Fitaihi HoldingGroup

Bahrain DutyFree Complex

Villa Moda LifeStyle

Average Emerging M arkets

Average Developed M arkets

Source: Bloomberg, Thomson One Analytics, Zawya Colliers International believes that Saudi Arabia will account for the majority of the retail space in the GCC by 2010. Looking at the growing population in the region and high per capital income, the rising trend of shopping at modern retail formats and with regional consumers increasingly preferring international brands, the GCC region boasts of several unique retail projects in the world. According to the Economist Intelligence Unit (EIU) the GCC food retail segment is expected to grow faster than the non-food segment. Food, beverages and tobacco is the largest retail segment with an estimated share of 53.4% of retail sales in 2007. Retail sales reached an estimated USD 45.8 billion in 2007 - equivalent to 12.8% of GDP. The Saudi retail industry is undergoing consolidation, and many companies are expanding through acquisitions. RNCOS research shows that the Middle East retail market is concentrated in the GCC region and is likely to grow three-fold by 2016 mainly on the back of an increasing tourism industry and growing regional population.

Gross Leasable Area in the GCC, 2008

UAE36.5%

Saudi Arabia41.9%

Qatar5.9%

Kuw ait5.3%

Bahrain6.4%

Oman4.0%

Source: Retail International, 2009 The IMF expects the GCC population to grow at a six year CAGR of 3.2% till 2014. The GCC region is expected to continue to enjoy higher GDP per capita than the rest of the world. However, Saudi Arabia is emerging as one of the largest and prosperous retail markets in the Middle East with an estimated population of 24.9 million and per capita GDP of USD 19,345 in 2008. Food, beverages and tobacco is the largest retail segment with an estimated share of 53.4% of retail sales in 2007. Within the non-food segment, clothing is by far the biggest, followed by footwear. The rapidly rising population also makes it one of the world’s youngest and fastest growing consumer bases. Retail sales reached an estimated USD 45.8 billion in 2007 - equivalent to 12.8% of GDP. Most retail businesses in the country are locally owned. The top-five retailers account for 13.9% of the total consumer goods market.

The Saudi retail industry is undergoing consolidation, and many companies are expanding through acquisition. The food sector is import-reliant, owing to a shortage of arable land and low rainfall. However, the domestic dairy industry is relatively successful, reflecting a consumer preference for fresh local dairy produce. The domestic food-processing industry is supported by the government through generous financing schemes and subsidies. A number of foreign companies have entered into licensing agreements with local firms for the production of their own brands. Supermarkets are the most popular outlets for purchasing food. The vast majority of consumer-ready food items sold in Saudi supermarkets.

Age Distribution (% of Total population)

25.9%

42.7%

26.4% 21.8%

38.0%

20.4%

70.2%

54.5%

70.7%76.8%

59.5%

78.7%

Bahrain Oman Kuwait Qatar Saudi Arabia UAE

0-14 years 15-64 years

Source: CIA Factbook, April 2009 estimates The Food Sector Saudi Arabia is the largest importer of agricultural, fish and forestry products among GCC countries. The food sector continues to grow - with categories like ‘Halal’ now worth USD 500 billion and the organic food market worth around USD 70.2 billion. Food imports into the Middle East continue to enjoy double-digit growth with Saudi Arabia, UAE and other GCC states being major importers. Meanwhile, the combined food bill of Middle East countries, including Saudi Arabia, rose 25.0% to USD 20.00 billion in 2007 from USD 16.00 billion in 2006. According to a study conducted by the Gulf Organisation for Industrial Consulting in August 2008, Saudi Arabia accounted for about 75% of the total volume of fast food in the Gulf markets. According to the study, the fast food sector has grown rapidly in the region because of changes in lifestyles and the adoption and spread of western trends. Interestingly, of the 60 fast food factories in the Gulf, 29 are in Saudi Arabia. Meanwhile, Saudi accounts for less than a quarter of the regions milk consumption; however, fresh milk consumption in the country has risen 5% over the past two years. Feeling the pinch of the economic slowdown, food & beverages (F&B) outlets in the region are taking various steps to reduce the impact of the economic downturn through a series of consolatory moves and changes. In December 2008, Saudi Arabia's Consumer Protection Association urged authorities to force merchants to cut prices of products and services, as a response to a global decline in the prices of products and services. Saudis have been found to adjust buying patterns for groceries as prices of most grocery products rose last year. According to the research firm TNS, consumers continued to spend the same amount of money on their weekly shopping, but bought fewer items. The shortfall on groceries bought was made up by more frequent visits to local, small grocery shops. Amid these changes, Saudi Arabia is to increase its subsidies of rice and baby milk. The government will subsidise the sale of rice at the rate of SAR 1,000 per tonne, while for baby milk the subsidy will be raised from SAR 2 per kg to SAR 12 per kg. This would lessen the impact of inflation which has seen price of rice increased 30% in 4Q08 alone. World Dairy Industry Global demand for dairy food products increased 15% from 40.9 million tonnes in 2003 to an estimated 47.0 million tonnes in 2008. Global prices for dairy products are declining from record levels since mid-2007. With uncertainty over economic conditions along with increasing supplies, prices are expected to continue the decline over the next couple of years. In the long run, growth in population and income continues to put an upward pressure on dairy prices. Australia, New Zealand, and the EU (European Union) remain the bigger exporters. However, with the excess supply from EU reaching stagnation, Argentina and Brazil are expanding their dairy exports.

The domestic food-processing industry is supported through generous financing schemes and subsidies Middle East food bill rises 25% to USD20billion in 2007 As customers change food habits on rising prices, government increases subsidies Dairy food products grew 15% to an estimated 47.0 million tonnes in 2008 from 2003

The milk production was mainly concentrated in the European Union (EU), which has contribution of 26% of total milk produced in the world during 2008. However, on a country basis, the contribution from India remained foremost at 20% followed by US with a share of 17%. Furthermore, the major milk producing locations’ contribution to the global market is expected to remain same in 2009. However, China’s market share is expected to increase on a projected decline from other countries in the world.

Source: FAPRI Over the next decade, world milk production is expected to increase 18.8% on higher productivity per cow. Of the 98.1 mmt (million metric tones) increase in milk production, 34.2% is produced in the Americas, primarily in the U.S. and Brazil, and 51.9% in Asia, primarily China and India. Oceanian milk production would increase moderately because of water, land, and environmental constraints. Total butter production would grow 29.3% over the baseline, with India accounting for about 90% of the growth. Total cheese production would increase 18.2%, with the U.S. and the EU accounting for about 52.4%. NFD and WMP production is likely to rise 16.1% and 21.2%, respectively. Milk powder production is expected to increase in most countries except the EU. Based on the FAPRI forecasts, the world milk & dairy product supply is expected to increase at a five year CAGR of 1.8% during 2008-13. The growth is expected to be led by the overall rising population and expansion of operations by companies.

Forecasted World Milk & Dairy Production

540550560570580590600610

2009 2010 2011 2012 2013

Miili

on M

etric

tonn

es

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Total Milk & Dairy Product % Grow th

Source: FAPRI Saudi Milk & Dairy Product Industry Dairy production in the MENA region has grown 20% over the last three years due to an increase in consumption rates and the awareness of milk’s benefits; at the same time, many Middle East and North African countries show low levels of dairy consumption, which means they still hold an important expansion potential. Most of the GCC rely on imports for its dairy and related products requirements. Most of the raw milk in the GCC region is imported from outside i.e. Australia, New Zealand, Europe, and South Asia. Processed food products manufactured in any of GCC countries can be exported to other GCC countries duty-free.

World milk & dairy product supply expected to increase CAGR of 1.8% during 2008-13 MENA region’s dairy production has grown 20% over last three years

Saudi Arabia has the largest dairy industry in the GCC region

Saudi Arabia, being the most populous country, has the largest dairy industry in the GCC region. It has the largest production facilities in the region, being the largest regional dairy milk & products market, which has enabled the regional leader to make exports to its neighbouring countries. Most of the regional dairy products are produced by the manufacturers in Saudi Arabia. According to FARPI, during 2003, there were 94,369 cows in Saudi Arabia which increased to 113,062 in 2008. Meanwhile, per cow milk production in Saudi Arabia fell from 9.41 tonnes in 2002 to 9.0 tonnes in 2008. The number of cattle in Saudi Arabia is expected to increase at a CAGR of 3.34% to 133,237 in 2013 with the domination of Almarai dairy herd. Saudi Arabian population is expected to increase at a CAGR of 2.8% during 2008-13 to 29.9 million. Since population is the key growth factor of dairy market, the Saudi Arabian milk and dairy products market is expected to increase in the coming years. Almarai holds 59% and 51% market share in milk and laban, respectively in Saudi Arabia.

SAUDI ARABAIN DAIRY – FUTURE MARKET DYNAMICS

Cow Milk Production and Consumption

0500

1,0001,500

2008 2009 2010 2011 2012 2013'000

met

ric to

nnes

Cow Milk Production Fluid Milk Consumption

No. of Cows and Per cow production

100110120130140

2008 2009 2010 2011 2012 2013

'000

Hea

ds

8,8008,9009,0009,1009,200

Prod

uctio

n pe

r cow

Milk Cow Numbers Milk Production per Cow

Butter

020

4060

2008 2009 2010 2011 2012 2013in '0

00 m

etric

tonn

es

Production Consumption

Cheese

0

50

100

2008 2009 2010 2011 2012 2013in '0

00 m

etric

tonn

es

Production Consumption

Non Fat Dry Milk

010203040

2008 2009 2010 2011 2012 2013in '0

00 m

etric

tonn

es

Production Consumption

Whole Milk Powder

050

100150

2008 2009 2010 2011 2012 2013in '0

00 m

etric

tonn

es

Production Consumption

Source: FAPRI Looking at the current scenario of the country, being net importer of dairy and related products, in the medium- and long-term, the companies are expected to count upon the available opportunities. Food manufacturing in Saudi Arabia is expanding rapidly. The government assists this sector by providing attractive financing and subsidies on selected equipment and by imposing higher import tariffs on certain imports that compete with locally produced goods. Despite a seemingly bleak short-term outlook for dairy drinks through 2009, a growing world population, rising long-term income levels and shifting demands in emerging markets for packaged and functional goods should ensure a more optimistic long-term outcome.

Financial Performance – FY 2008 Revenues Almarai’s sales revenue increased at a three year CAGR of 32.8% during 2005-08, whereas the year-on-year revenue increased 33.4% to SAR 5,029.90 million from SAR 3,769.83 million a year ago. This was led by rising population and higher pricing.

Sales Performance

01000

200030004000

50006000

2005 2006 2007 2008

SAR

milli

on

0%

10%

20%

30%

40%

Sales % Grow th

Source: AlMarai Sales Revenue Composition

Source: Almarai Expenses Almarai’s cost of sales (CoS), excluding depreciation and appreciation of livestock, increased 34.8% to SAR 2,905.55 million from SAR 2,155.22 million in 2007. The increase in cost was due an increase in direct material cost and higher employee costs. Further, as a percentage of revenues, CoS increased 60 bps to 57.8% in 2008 from 57.2% in 2007. The company’s selling, general & administrative (G&A) expenses rose 34.2% to SAR 849.56 million from SAR 633.16 million in 2007. As a percentage of revenues, SG&A expenses increased 9 bps to 16.9% in 2008. Depreciation expenses increased 32.4% to SAR 485.42 million in 2008 due to 108.7% rise in depreciation of livestock. Further, bank charges also increased 32.3% to SAR 125.49 million from SAR 94.86 million a year ago. Livestock appreciation increased 63.8% to SAR 271.59 million. Profitability The company’s gross profit increased 31.6% to SAR 2,124.35 million due to higher sales. Gross margin contracted to 42.2% from 42.8% in 2007. Operating expenses increased 34.4%, subsequently as percentage of revenue it increased to 84.3% from 83.7% in 2007. Further, the company’s profit from operations rose 35.9%. Net profit attributable to equity shareholders rose 36.4% to SAR 910.26 million from SAR 667.27 million in 2007, due to higher sales. Accordingly, net profit margin also expanded to 18.1% in 2008 from 17.7% a year ago and adjusted EPS rose to SAR 8.35 from SAR 6.12 in 2007. However, RoAA dropped from 13.2% to 12.5%, on higher asset base and RoAE rose from 27.0% to 27.3%.

Revenue increased at CAGR of 32.8% during 2005-08 Adjusted EPS rose to SAR 8.35

01,000

2,0003,0004,0005,000

6,000

2006 2007 2008 1Q08 1Q09

Revenues (SAR Million)

0

200

400

600

800

1,000

2006 2007 2008 1Q08 1Q09

Net Profit (SAR Million)

EBIT and EBIDTA Margin

0%6%

12%18%24%30%

2006 2007 2008 1Q08 1Q09

EBIT Margin EBITDA Margin

Net Profit Margin

0%4%

8%12%

16%20%

2006 2007 2008 1Q08 1Q09

0%

6%

12%

18%

24%

30%

2006 2007 2008 1Q08 1Q09

Return on Average Equity (RoAE)

0%

3%

6%

9%

12%

15%

2006 2007 2008 1Q08 1Q09

Return on Average Assets (RoAA)

-

1,800

3,600

5,400

7,200

9,000

2006 2007 2008 1Q08 1Q09

Total Assets (SAR Million)

-

800

1,600

2,400

3,200

4,000

2006 2007 2008 1Q08 1Q09

Shareholders' Equity (SAR Million)

Chart Gallery

Size of the Company The salient features of the balance sheet are:

The share of current assets in the total assets base decreased to 20.0% in 1Q09 from 23.0% in the previous year, led by a decrease in cash and cash equivalents. Trade and other receivables, which accounted for 5.5% of the total assets base (7.1% in 1Q08), decreased 6.3% to SAR 481.32 million compared to SAR 513.93 million. Inventories, contributing 12.4% (11.3% in 1Q08) to the total assets, rose 32.3% YoY to SAR 1,087.23 million in 1Q09, as raw materials accumulated. Derivative financial instrument declined 82.0% to SAR 2.48 million from SAR 13.78 million in the year ago quarter. Cash and cash equivalents declined 43.7% to SAR 183.37 million taking its share in total assets to 2.1% (4.5% in 1Q08).

The share of non-current assets in the total assets increased to 80.0% in 1Q09 from 77.0% in

1Q08. Investment and financial assets rose 10.9% to SAR 866.76 million, while its share in total assets decreased to 9.9% from 10.7%, due to higher asset base. Property, plant & equipment (PPE) increased 31.1% to SAR 5,559.63 million from SAR 4,239.36 million in the last year.

Total assets base expanded 20.3% to SAR 8,767.34 million. Assets turnover ratio fell to 0.63 from

0.66 in 1Q08, reflecting higher asset base.

The company’s current liabilities increased a substantial 58.1% to SAR 1,548.28 million with its share in total assets rising from 13.4% in 1Q08 to 17.7% in 1Q09. This was led by a 46.7% increase in payables and accruals to SAR 1,127.82 million from SAR 768.81 million in the previous year.

During 1Q09, non-current liabilities increased 24.6% to SAR 3,789.58 million with its share in total

assets rising to 43.2% from 41.7% in 1Q08. Long-term loan rose 24.9% to SAR 3,657.76 million.

Almarai’s shareholders’ equity increased 4.5% to SAR 3,415.72 million. The rise was due to 51.1% increase in retained earnings to SAR 1,397.49 million from SAR 924.57 million in 1Q08. The adjusted book value per share (BVPS) rose to 31.34 compared to 29.99 in 1Q08. The shareholders’ equity to total asset ratio fell to 0.39 in 1Q09 compared to 0.45 in the previous year same quarter.

Financial Performance Analysis – 1Q 2009 For the three months ended on March 31, 2009, Almarai reported an 18.5% increase in revenue to reach SAR 1,326.08 million as against SAR 1,119.07 million in the same period of the last year. This can be attributed to increase in sales volume and average realised prices. Almarai also witnessed increased CoS in first quarter of 2009. It declined 113 bps relative to revenue to 61.7% in 1Q09 compared to 62.8% in 1Q08. The company’s gross profit rose 22.1% to SAR 508.25 million compared to SAR 416.26 million in the same period of the last year. Consequently, gross profit margin increased to 38.3% in 1Q09 compared to 37.2% in 1Q08. Selling & distribution expenses rose 17.3% and general & administrative expenses increased 17.0% during the recent quarter. The company’s operating profit increased to SAR 248.22 million from SAR 194.46 million in 1Q08. Subsequently, net profit after tax went up 21.7% to SAR 197.37 million, while as a percentage of revenue it stood at 14.9% compared to 14.5% in 1Q08. Annualised EPS rose to SAR 7.24 per share from SAR 5.95 per share. However, RoAA dropped from 9.5% to 9.3%, on higher asset base and RoAE rose from 20.5% to 22.5%.

Total assets base expanded 20% Assets turnover ratio fell to 0.63 from 0.66 Revenue increased 19% in 1Q09

Working Capital Snapshot SAR Millions 2007A 2008A 1Q08A 1Q09A

Total Current Assets 1,240,296 1,759,733 1,675,094 1,754,399 Cash and Cash Equivalents 137,975 246,585 325,430 183,370 Derivative Financial Instruments 938 6,648 13,776 2,481 Receivables and Prepayments 367,810 409,777 513,933 481,322 Average Collection Period (Days) 29 28 36 31 Inventories 733,573 1,096,723 821,955 1,087,226 Inventory Conversion Period (Days) 99 115 101 122 Total Current Liabilities 767,718 1,288,795 979,168 1,548,277 Short Term Loans 182,348 511,165 203,199 311,509 Payables and Accruals 575,337 669,558 768,812 1,127,818 Average Payment Period (Days) 83 78 87 100 Derivative Financial Instruments 10,033 108,072 7,157 108,950 Net Core Working Capital 526,046 836,942 567,076 440,730 Average Core Working Capital Cycle (Days) 44 65 50 52 Net Current Assets 472,578 470,938 695,926 206,122 Average Working Capital Cycle (Days) 33 34 48 23 Source: Almarai Financial Statements

Peer Comparison In order to do a peer comparison, we have taken comparable companies as Dean Foods (DF) of the USA, Parmalat SpA (PLT) of Italy and the Almarai. PLT DF Almarai 2008 1Q09 2008 1Q09 2008 1Q09 Ratios: Total Assets Turnover Ratio (x) 0.90 0.19 1.77 0.39 0.69 0.63 Operating profit margin 2.6% 21.8% 5.1% 7.4% 21.1% 18.7% EBITDA Margin 8.1% 24.3% 7.0% 9.7% 25.3% 23.6% Net profit Margin (x) 17.2% 19.6% 1.5% 2.8% 18.1% 14.9% RoAE (%) 25.0% 23.1% 60.3% 49.9% 27.3% 22.5% RoAA (%) 15.4% 3.8% 2.6% 1.1% 12.5% 9.3% Market Indicators: Adj. EPS (USD) 0.58 0.55 1.19 1.97 2.22 1.93 P/E (x) 4.2 4.5 15.8 9.5 17.3 20.0 Adj. BVPS (USD) 2.35 2.37 3.61 4.30 8.83 8.35 P/BV (x) 1.0 1.0 5.2 4.4 4.4 4.6 Current Market Capitalisation (USD mn) 4143 4143 2903 2903 4199 4199 (USD mn) Net Sales 5722 1174 12455 2703 1339 353 % YoY change 8.2 -15.4 5.4 -12.2 33.2 18.5 Gross Profit 151 256 631 201 282 66 % YoY change -55.6 44.1 7.4 45.4 35.6 27.7 Net Profit 463 286 869 262 339 83 % YoY change -7.6 34.5 6.0 32.4 29.6 26.6 Total Assets 985 230 184 76 242 53 % YoY change 6.9 70.4 39.9 147.8 36.1 21.7 Shareholders' Equity 6097 6025 7040 6916 2178 2335 % YoY change -8.5 -14.9 0.1 -1.4 28.9 20.3

Source: Bloomberg, Almarai

The company to invest SAR 6 billion on expansion and development Joint venture with Pepsico to produce and sell dairy products and fruit juices Likely to invest SAR 200 million to build new factories

New Projects and Strategies In a bid to overcome the competition and expand its presence in the MENA region and beyond, Almarai is seeking expansion through organic as well as inorganic routes. Its extensive network and expansive geographical spread provides access to broader customer base. As a part of its expansion plan, the company intends to invest SAR 6 billion on expansion and development over the next five years. The company targets to double its turnover and profit by 2013.

The company has undertaken a SAR 650 million capital investment programme for setting up a production plant and the infant food market program. It is planning to enter infant foods market to tap growing demand from the region's booming population and rising incomes, which it expects to be fully operational by 2011.

Almarai plans to move beyond its home market in the Gulf and has thus formed a joint venture with PepsiCo named as Global Dairy & Juice Co., wherein PepsiCo will hold a 52% stake, while Almarai holds 48%. It will set up entities to produce and sell dairy products and fruit juice in Africa, the Middle East and Asia. The two companies seek to build business through a combination of greenfield projects and acquisitions.

Almarai recently acquired 75% stake in Teeba, a Jordanian food and dairy company, to enter the untapped markets. It is also in talks to acquire International Company for Agricultural Industrialization Projects (Beeaty), an Egyptian dairy company, in a deal worth around 600 million Egyptian pounds. The company entered into a share swap deal with Hail Agriculture Development Company, a Saudi poultry and animal feed company.

Almarai is expected to invest SAR 200 million to build new factories in the country. The company plans to spend the funds on a new facility for bread and pastry production, and new production facilities for its dairy and food business close to its existing central processing plant.

In order to enhance its fleet, the company ordered 168 MAN TGA-WW trucks. The trucks were expected to be delivered in February 2009. These trucks are specially designed to meet the requirements of the Middle East regions and are thus optimally suited for the climatic conditions in the extreme heat and sand of the desert.

Risks and Concerns:

The recent dip in oil prices amidst global economic turmoil may slow down the economic growth and investments in the GCC, which may further hamper growth.

Given the economic scenario, the central banks are promoting savings, which in turn is likely

to negatively impact consumer spending and the business volumes for the retail sector.

The demand for goods and services in the retail and wholesale sectors is highly dependent on the performance and wealth generated in an economy. The ongoing global economic crisis has tightened the liquidity position of many economies with declining oil prices further reducing the large reserve surplus enjoyed by them. As a result, the overall economic activity has slowed down resulting in high unemployment rate, thereby leading to a decline in demand in the retail sector.

Valuation Methodology: We have used DCF valuation method to arrive at the fair value of Almarai, as discussed below: Assumptions:

(i) Risk free Rate (Rf) of 3.32%, equivalent to 12-months average yield on 10-year US T-bill.

(ii) Unlevered Beta of 0.81 (iii) A terminal growth rate of 2.5%

Based on the inputs and the Capital Asset Pricing Model (CAPM), we have arrived at a Cost of Equity of 10 45% and a WACC of 9 02%

SWOT Analysis Cost of Equity: 10.45% WACC: 9.02%

THREATS

Intensified competition on account of expansion initiatives taken by regional and international players Price caps put by the government to control the inflation, may hit sector’s profitability

OPPORTUNITIES

Expected government subsidies in the country to boost the demand Expected rise in the population in the region, led by increase in expatriates Expected growth in the economy over the long run Geographic expansion of operations to MENA countries

WEAKNESS

Continuous increase in leverage level is a cause of concern High concentration of business operations in Saudi Arabia

STRENGTHS

Leading dairy company in the GCC and Saudi Arabia, AlMarai carries tremendous brand value Wide geographical reach gives access to customer base, thereby increasing the penetration of the brand Diversified portfolio of products including fruit juices and bakery Strong distribution capabilities across GCC

DCF Calculations

DCF Valuation (FCFF Model) (in SAR ’000) 2009E 2010E 2011E 2012E 2013E Operating Profit (EBIT) 1,040,121 1,519,201 1,749,998 1,978,268 2,224,286 Zakat on EBIT 27,421 40,051 46,135 52,153 58,639 Effective Tax Rate 2.6% 2.6% 2.6% 2.6% 2.6% NOPAT 1,012,701 1,479,151 1,703,863 1,926,116 2,165,647 Add: Depreciation and Amortisation 203,580 351,438 395,200 447,211 502,772 Less: Capex 797,165 1,003,776 1,004,446 1,012,333 1,000,103 Less: Change in Net Working Capital 47,980 5,149 -39,559 -24,009 -29,460 Free Cash Flow to Firm (FCFF) 371,136 821,664 1,134,175 1,385,003 1,697,777 WACC (Ko) 9.02% 9.02% 9.02% 9.02% 9.02% Present Value / Discount Factor 0.9373 0.8598 0.7886 0.7234 0.6636 Long-Term Growth Rate (g) 2.50% Terminal Multiple [(1 + g) / (WACC - g)] 15.72 Nominal Terminal Value [(FCFF * (1 + g)) / (WACC - g)] 26,696,903 Present Value of Free Cash Flows 347,863 706,430 894,448 1,001,903 1,126,564

Calculation of Equity Value and Fair Value Per Share NPV of Free Cash Flows (during Explicit Forecast Period) 4,077,209Terminal Value: Residual Cash Flow (FCFF of 2013E) 1,697,777 WACC 9.02% Long-Term/Terminal Growth Rate (g) 2.50% Divided by Capitalisation Rate (WACC - g) 6.52%Equals Nominal Terminal Value 26,696,903 Implied Multiple of 2013E EBITDA 9.88 Times PV/Discount Factor 0.66Present Value of Terminal/Residual Value 17,714,792 Enterprise Value 21,792,001 Implied Multiple of 2013E EBITDA 8.06 Less: Market Value of Long-term Debts 3,969,273Less: Market Value of Preferred Shares 0Add: Surplus Cash and Investments 0Equity Value 17,822,728Net shares outstanding (‘000) 109,000Fair Value Per Share (SAR) 163.51

* figures in SAR ’000 unless specified Sensitivity Analysis We have prepared a sensitivity analysis table, showing the probable nominal terminal value, discounted terminal value and enterprise value, given different growth rate assumptions and the WACC. The shaded area represents the most probable outcomes.

Sensitivity Analysis of Nominal Terminal Value (SAR ’000)

Discount Factor

Long-Term Growth Rate 1.50% 2.00% 2.50% 3.00% 3.50%

7.02% 31,227,010 34,507,391 38,513,770 43,517,148 49,942,570 8.02% 26,436,445 28,773,781 31,534,666 34,845,699 38,889,514 9.02% 22,920,231 24,674,040 26,696,903 29,055,876 31,842,321

10.02% 20,229,571 21,596,878 23,146,046 24,915,943 26,957,361 11.02% 18,104,267 19,202,132 19,202,132 21,808,612 23,371,861

Sensitivity Analysis of Discounted Terminal Value (SAR ’000) Discount

Factor Long-Term Growth Rate

1.50% 2.00% 2.50% 3.00% 3.50% 7.02% 22,625,698 25,002,515 27,905,359 31,530,583 36,186,157 8.02% 18,326,859 19,947,198 21,861,160 24,156,508 26,959,851 9.02% 15,208,773 16,372,517 17,714,792 19,280,094 21,129,046

10.02% 12,853,625 13,722,396 14,706,718 15,831,289 17,128,381 11.02% 11,019,303 11,687,527 12,434,195 13,273,982 14,225,465

Sensitivity Analysis of Enterprise Value (SAR ’000)

Discount Factor

Long-Term Growth Rate 1.50% 2.00% 2.50% 3.00% 3.50%

7.02% 26,953,368 29,330,186 32,233,029 35,858,254 40,513,828 8.02% 22,526,555 24,146,895 26,060,857 28,356,204 31,159,548 9.02% 19,285,982 20,449,726 21,792,001 23,357,303 25,206,255

10.02% 16,813,539 17,682,310 18,666,632 19,791,203 21,088,295 11.02% 14,866,840 15,535,063 16,281,731 17,121,518 18,073,002

Investment Opinion While the world economies are witnessing an economic slowdown, the MENA region is likely to be relatively less affected by the financial crisis, supported by available liquidity and resources amidst increasing government support for the public sector. The regional food processing sector witnessed an unprecedented expansion over the past years on healthy economic growth, higher disposable incomes, increasing household consumption, rising share of affluent population amidst a flourishing food industry. According to the 2008 GRDI report, seven MENA countries featured among the top 20 making the region the most attractive destination for retail expansion. Amongst the GCC countries, Saudi Arabia holds an edge with a sizable population of approximately 24 million, buzzing tourism sector and tax-free status. Meanwhile, on a positive note, the country’s annual inflation rate slowed to 6% in March 2009 from 6.9% in February 2009, which is likely to improve demand and boost volumes. Meanwhile with the expected flow of an estimated USD 9 trillion into the region by 2020 mainly through infrastructure investments, the consumer and retail sectors would definitely see more activity, over the next decade. Almarai is one of the world’s largest integrated dairy producers. The company has 58,000 milking cows in 6 large dairy farms. The company has a strong fleet of more than 800 chilled trailers with 97 sales depots serving more than 42,000 shops within the GCC on a daily basis. It attained annual milk production capacity of 470 million litres in 2008. It has a plan of investing SAR 6 billion for expansion over next five years. Almarai is expected to invest SAR 200 million to build new factories in the country. Also, the company has undertaken a SAR 650 million capital investment programme for setting up a production plant and an infant food market program. The company also focuses on inorganic growth initiatives as a part of its expansion plans. It recently acquired 75% stake in Teeba, a Jordanian food and dairy company, as a part of its initiative to enter new untapped markets. Despite the economic downturn, the company achieved a top-line growth of 18.5% YoY in 1Q09, which exhibits its sound fundamentals. However, as the company’s revenues are more concentrated in Saudi Arabia, it is exposed to the country’s systematic risk. Nevertheless, the company’s growth initiatives and sound fundamentals make it an attractive investment opportunity. Currently, Almarai’s stock is trading at a P/E multiple of 14.10x and 11.82x on 2009E and 2010E earnings, and at a P/B multiple of 3.63x and 3.04x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has gained 3.2% since the beginning of this year as against a rise of 20.5% by the Saudi’s Tadawul. Considering the above factors, we initiate our coverage with price target of SAR 163.51, which exhibits a potential upside of 13.2% from its closing price of SAR 144.50 (as on May 28, 2009). Therefore, we initiate our coverage on Almarai with an OVERWEIGHT opinion.

Fair Value: SAR 163.51 Investment Opinion: OVERWEIGHT

Financial Statements

Consolidated Balance Sheet (in SAR ’000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Current Assets Cash and Cash Equivalents 137,975 246,585 325,430 183,370 223,390 442,733 950,914 Derivative Financial Instruments 938 6,648 13,776 2,481 2,481 2,481 2,481 Receivables and Prepayments 367,810 409,777 513,933 481,322 482,860 556,124 629,248 Inventories 733,573 1,096,723 821,955 1,087,226 1,165,283 1,221,007 1,251,838 Total Current Assets 1,240,296 1,759,733 1,675,094 1,754,399 1,874,014 2,222,345 2,834,481 Non Current Assets Investments and Financial Assets 471,074 489,337 781,587 866,758 936,758 936,758 936,758 Property, Plant and Equipment 4,041,132 5,343,308 4,239,363 5,559,628 6,165,317 6,857,510 7,499,287 Intangible Assets - Goodwill 548,636 548,636 548,636 548,636 548,636 548,636 548,636 Deferred Charges 34,692 40,270 44,877 37,915 37,915 37,915 37,915 Total Non Current Assets 5,095,534 6,421,551 5,614,463 7,012,937 7,688,626 8,380,819 9,022,596 TOTAL ASSETS 6,335,830 8,181,284 7,289,557 8,767,336 9,562,640 10,603,164 11,857,077 LIABILITIES AND EQUITY Current Liabilities Short Term Loans 182,348 511,165 203,199 311,509 545,297 568,276 580,573 Payables and Accruals 575,337 669,558 768,812 1,127,818 763,221 887,060 1,030,574 Derivative Financial Instruments 10,033 108,072 7,157 108,950 108,950 108,950 108,950 Total Current Liabilities 767,718 1,288,795 979,168 1,548,277 1,417,469 1,564,286 1,720,097 Non Current Liabilities Long Term Loans 2,409,428 3,132,956 2,929,075 3,657,764 3,642,974 3,676,994 3,746,954 Employees' Termination Benefits 104,903 128,041 111,916 131,811 149,660 165,945 185,569 Total Non- Current Liabilities 2,514,331 3,260,997 3,040,991 3,789,575 3,792,634 3,842,939 3,932,523 Total Liabilities 3,282,049 4,549,792 4,020,159 5,337,852 5,210,102 5,407,225 5,652,620 Shareholders' Equity Share Capital 1,090,000 1,090,000 1,090,000 1,090,000 1,090,000 1,090,000 1,090,000 Share Premium 612,000 612,000 612,000 612,000 612,000 612,000 612,000 Statutory Reserves 325,663 416,689 325,663 416,689 528,431 661,638 816,769 Other Reserves -9,095 -83,161 317,132 -100,456 -100,456 -100,456 -100,456 Retained Earnings 1,034,878 1,581,614 924,573 1,397,485 2,205,791 2,914,159 3,765,347 Total Shareholders' Equity 3,053,446 3,617,142 3,269,368 3,415,718 4,335,765 5,177,341 6,183,660 Minority Interest 335 14,350 30 13,766 16,773 18,598 20,797 TOTAL LIABILITIES AND EQUITY 6,335,830 8,181,284 7,289,557 8,767,336 9,562,640 10,603,164 11,857,077

Consolidated Income Statement (in SAR ’000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Sales 3,769,833 5,029,904 1,119,066 1,326,080 5,926,984 6,943,017 8,119,800 Cost of Sales -2,155,216 -2,905,552 -702,807 -817,835 -3,392,676 -3,967,323 -4,651,931 Gross Profit 1,614,617 2,124,352 416,259 508,245 2,534,307 2,975,694 3,467,869 Selling and Distribution Expenses -499,225 -671,896 -171,453 -201,114 -779,874 -906,621 -1,068,406 General and Administration Expenses -133,936 -177,659 -50,350 -58,916 -197,490 -238,288 -286,796 Income before Bank Charges, Zakat and Minority Interest 780,738 1,060,971 194,456 248,215 1,288,336 1,519,201 1,749,998 Net Bank Charges -94,860 -125,489 -27,861 -45,817 -139,959 -150,219 -155,698 Income from Main and Continuing Operations 685,878 935,482 166,595 202,398 1,148,378 1,368,983 1,594,300 Zakat -18,079 -24,662 -4,277 -5,183 -30,275 -36,090 -42,030 Income before Minority Interest 667,799 910,820 162,318 197,215 1,118,103 1,332,892 1,552,270 Minority Interest -530 -558 -123 156 -685 -817 -951 Net Income for the Year 667,269 910,262 162,195 197,371 1,117,418 1,332,076 1,551,319

Consolidated Cash Flow Statement (in SAR ’000) 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Net Income for the Year 667,269 910,262 162,195 197,371 1,117,418 1,332,076 1,551,319 Adjustments for: Depreciation of Property, Plant and Equipment and Livestock 366,525 485,415 87,015 110,814 572,682 655,514 739,131 Livestock Appreciation -165,807 -271,589 -34,043 -45,788 -304,076 -343,931 -376,461 Loss on Disposal of Property, Plant and Equipment 26,966 56,086 14,649 12,105 0 0 0 Bank Charges 94,860 125,489 27,861 45,817 139,959 150,219 155,698 Change in Employees' Termination Benefits 19,509 23,138 7,013 3,770 21,619 16,285 19,624 Share of Minority Interest in Net Income of Consolidated Subsidiary 530 558 123 -156 685 817 951 Changes in: Receivables and Prepayments -131,698 -41,967 -146,123 -71,545 -73,083 -73,263 -73,125 Inventories -279,646 -363,150 -88,382 9,497 -68,560 -55,724 -30,831 Payables and Accruals 141,801 91,894 -79,025 76,760 93,663 123,839 143,514 Cash Flows from Operating Activities 740,309 1,016,136 -48,717 338,645 1,500,307 1,805,830 2,129,820 INVESTING ACTIVITIES Net additions to Property, Plant and Equipment -1,025,640 -1,572,088 -265,852 -293,451 -1,090,616 -1,003,776 -1,004,446 Acquisition of Investments and Financial Assets -471,074 0 0 -389,671 -447,421 0 0 Acquisition / Disposal of Derivative Financial Assets 931 0 0 0 5,045 0 0 Acquisition of Subsidiaries, Net of Cash Acquired 7,580 0 0 0 0 0 0 Cash Flows used in Investing Activities -1,488,203 -1,572,088 -265,852 -683,122 -1,532,992 -1,003,776 -1,004,446 FINANCING ACTIVITIES Increase in Loans 1,127,596 1,052,345 540,498 325,152 526,855 56,999 82,257 Dividends Paid -199,396 -270,173 0 0 -381,500 -490,500 -545,000 Distribution to Minority Interests -387 -543 -428 -428 -685 -817 -951 Bank Charges -94,860 -125,489 -27,861 -45,817 -139,959 -150,219 -155,698 Change in Deferred Charges -15,110 -5,578 -10,185 2,355 2,355 0 0 Minority Interest Share in Modern Food Industries Company Ltd. 0 14,000 0 0 2,423 1,825 2,199 Cash Flows from Financing Activities 817,843 664,562 502,024 281,262 9,490 -582,711 -617,193 Increase in Cash and Cash Equivalents 69,949 108,610 187,455 -63,215 -23,195 219,343 508,182 Cash and Cash Equivalents at 1 January 68,026 137,975 137,975 246,585 246,585 223,390 442,733 Cash and Cash Equivalents at 31 December 137,975 246,585 325,430 183,370 223,390 442,733 950,914

Common – Size Statements

Common-Size Consolidated Balance Sheet 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E ASSETS Current Assets Cash and Cash Equivalents 2.2% 3.0% 4.5% 2.1% 2.3% 4.2% 8.0% Derivative Financial Instruments 0.0% 0.1% 0.2% 0.0% 0.0% 0.0% 0.0% Receivables and Prepayments 5.8% 5.0% 7.1% 5.5% 5.0% 5.2% 5.3% Inventories 11.6% 13.4% 11.3% 12.4% 12.2% 11.5% 10.6% Total Current Assets 19.6% 21.5% 23.0% 20.0% 19.6% 21.0% 23.9% Non Current Assets Investments and Financial Assets 7.4% 6.0% 10.7% 9.9% 9.8% 8.8% 7.9% Property, Plant and Equipment 63.8% 65.3% 58.2% 63.4% 64.5% 64.7% 63.2% Intangible Assets - Goodwill 8.7% 6.7% 7.5% 6.3% 5.7% 5.2% 4.6% Deferred Charges 0.5% 0.5% 0.6% 0.4% 0.4% 0.4% 0.3% Total Non Current Assets 80.4% 78.5% 77.0% 80.0% 80.4% 79.0% 76.1% TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES AND EQUITY Current Liabilities Short Term Loans 2.9% 6.2% 2.8% 3.6% 5.7% 5.4% 4.9% Payables and Accruals 9.1% 8.2% 10.5% 12.9% 8.0% 8.4% 8.7% Derivative Financial Instruments 0.2% 1.3% 0.1% 1.2% 1.1% 1.0% 0.9% Total Current Liabilities 12.1% 15.8% 13.4% 17.7% 14.8% 14.8% 14.5% Non Current Liabilities Long Term Loans 38.0% 38.3% 40.2% 41.7% 38.1% 34.7% 31.6% Employees' Termination Benefits 1.7% 1.6% 1.5% 1.5% 1.6% 1.6% 1.6% Total Non- Current Liabilities 39.7% 39.9% 41.7% 43.2% 39.7% 36.2% 33.2% Total Liabilities 51.8% 55.6% 55.1% 60.9% 54.5% 51.0% 47.7% Shareholders' Equity Share Capital 17.2% 13.3% 15.0% 12.4% 11.4% 10.3% 9.2% Share Premium 9.7% 7.5% 8.4% 7.0% 6.4% 5.8% 5.2% Statutory Reserves 5.1% 5.1% 4.5% 4.8% 5.5% 6.2% 6.9% Other Reserves -0.1% -1.0% 4.4% -1.1% -1.1% -0.9% -0.8% Retained Earnings 16.3% 19.3% 12.7% 15.9% 23.1% 27.5% 31.8% Total Shareholders' Equity 48.2% 44.2% 44.9% 39.0% 45.3% 48.8% 52.2% Minority Interest 0.0% 0.2% 0.0% 0.2% 0.2% 0.2% 0.2% TOTAL LIABILITIES AND EQUITY 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Common-Size Consolidated Income Statement 2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales -57.2% -57.8% -62.8% -61.7% -57.2% -57.1% -57.3% Gross Profit 42.8% 42.2% 37.2% 38.3% 42.8% 42.9% 42.7% Selling and Distribution Expenses -13.2% -13.4% -15.3% -15.2% -13.2% -13.1% -13.2% General and Administration Expenses -3.6% -3.5% -4.5% -4.4% -3.3% -3.4% -3.5% Income before Bank Charges, Zakat and Minority Interest 20.7% 21.1% 17.4% 18.7% 21.7% 21.9% 21.6% Net Bank Charges -2.5% -2.5% -2.5% -3.5% -2.4% -2.2% -1.9% Income from Main and Continuing Operations 18.2% 18.6% 14.9% 15.3% 19.4% 19.7% 19.6% Zakat -0.5% -0.5% -0.4% -0.4% -0.5% -0.5% -0.5% Income before Minority Interest 17.7% 18.1% 14.5% 14.9% 18.9% 19.2% 19.1% Minority Interest 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net Income for the Year 17.7% 18.1% 14.5% 14.9% 18.9% 19.2% 19.1%

Financial Ratios

2007A 2008A 1Q08A 1Q09A 2009E 2010E 2011E Liquidity Ratios: Current Ratio (x) 1.62 1.37 1.71 1.13 1.32 1.42 1.65 Quick Ratio (x) 0.66 0.51 0.87 0.43 0.50 0.64 0.92 Inventory Conversion Period (Days) 98.64 114.96 100.98 121.84 121.68 109.77 97.01 Average Collection Period (Days) 28.51 28.21 35.95 30.66 27.49 27.31 26.64 Length of Operating Cycle (Days) 127.15 143.18 136.93 152.50 149.16 137.08 123.65 Average Payment Period (Days) 82.88 78.19 87.26 100.27 77.07 75.91 75.23 Length of Cash Cycle (Days) 44.27 64.98 49.67 52.23 72.09 61.17 48.42 Activity Ratios: Debtors Turnover Ratio (x) 12.80 12.94 10.15* 11.91* 13.28 13.37 13.70 Creditors' Turnover Ratio (x) 4.40 4.67 4.18* 3.64* 4.74 4.81 4.85 Total Assets Turnover Ratio (x) 0.75 0.69 0.66* 0.63* 0.67 0.69 0.72 Equity Turnover Ratio (x) 1.52 1.51 1.42* 1.51* 1.49 1.46 1.43 Profitability Ratios: Gross Profit Margin (GPM) (%) 42.8 42.2 37.2 38.3 42.8 42.9 42.7 EBITDA Margin (%) 26.0 25.3 22.1 23.6 26.3 26.4 26.0 Operating Profit Margin (OPM) (%) 20.7 21.1 17.4 18.7 21.7 21.9 21.6 Net Profit Margin (NPM) (%) 17.7 18.1 14.5 14.9 18.9 19.2 19.1 Return on Average Equity (RoAE) (%) 27.0 27.3 20.5* 22.5* 28.1 28.0 27.3 Return on Average Assets (RoAA) (%) 13.2 12.5 9.5* 9.3* 12.6 13.8 14.5 Leverage Ratios: Debt to Equity (D/E) Ratio (x) 0.85 1.01 0.96 1.16 0.97 0.82 0.70 Shareholders' Equity to Total Assets Ratio (x) 0.48 0.44 0.45 0.39 0.45 0.49 0.52 Total Liabilities to Total Assets Ratio (x) 0.52 0.56 0.55 0.61 0.54 0.51 0.48 Current Liabilities to Equity Ratio (x) 0.25 0.36 0.30 0.45 0.33 0.30 0.28 Growth Rates: % YoY Growth in Revenue 36.7 33.4 NA 18.5 17.8 17.1 16.9 % YoY Growth in Operating Profit 46.0 35.9 NA 27.6 21.4 17.9 15.2 % YoY Growth in EBITDA 42.2 29.9 NA 26.6 22.1 17.6 15.4 % YoY Growth in Net Profit 43.6 36.4 NA 21.7 22.8 19.2 16.5 % YoY Growth in Total Assets 68.0 29.1 NA 20.3 16.9 10.9 11.8 % YoY Growth in Shareholders' Equity 60.9 18.5 NA 4.5 19.9 19.4 19.4 Ratios used for Valuation: Adj. EPS (SAR) 6.12 8.35 5.95* 7.24* 10.25 12.22 14.23 Adj. BVPS (SAR) 28.01 33.18 29.99 31.34 39.78 47.50 56.73 P/E Ratio (x) 23.60 17.30 24.28 19.95 14.10 11.82 10.15 P/BV Ratio (x) 5.16 4.35 4.82 4.61 3.63 3.04 2.55 Current Market Price (SAR) 144.50 144.50 144.50 144.50 144.50 144.50 144.50

* Annualised

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