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Global Research
March 2009
Equities
Almarai Company - Almarai
Saud
i Ar
abia
Nurturing Success
Global Investment House KSCCGlobal Tower,P.O. Box 28807 Safat13149 KuwaitTel: (965) 22951000Fax: (965) 22951299Email: research@global.com.kwhttp://www.globalinv.net
Global Investment House stock market indices can be accessedfrom the Bloomberg page GLOHand from Reuters Page GLOB
Faisal Hasan, CFAHead of Researchfhasan@global.com.kwPhone No:(965) 22951270
Syed Taimure AkhtarFinancial Analystsakhtar@global.com.kwPhone No:(965) 22951278
Umar FaruquiFinancial Analystufaruqui@global.com.kwPhone No:(965) 22951438
Global Research - Saudi Arabia Global Investment House
1Almarai Company - AlmaraiMarch 2009
Tickers: ALMARAI AB Equity (Bloomberg) 2280.SE (Reuters)
Listing: Saudi Stock Exchange (Tadawul)
Current Price: SR144.2 (As on 10th March, 2009)
March 2009
Buy
Almarai Company - Almarai
Investment Summary
- Almarai Company (Almarai) was converted in to a Saudi Joint Stock Company in August 2005. The operating sphere of the Company is mainly based on the wide-range of dairy foodstuff, pastes, juices and other integrated value added products. The Company has a dominant position in the local market as well as in regional markets and a strong influence on the Middle East region as a whole. The Company’s milk processing facilitiesare located in Saudi Arabia and UAE, while distribution activities are carried by its long-haul distribution fleet.
- The growth story of Almarai is mainly associated with (i) the efforts of the Company to further strengthen its existing position, which will lead to an improvement in the market shares in local as well as in regional market and (ii) expected growth in the local and regional population. This will cause the Company to post a strong growth in the bottom line, which is expected to increase at a CAGR of 15.9% during 2008-12.
- Under the expansion program, Almarai has recently acquired majority stakes in Teeba Investment and Food Industries Company in Jordan and also acquired Western Bakery, which has added bakery products in the production line of Almarai. Moreover, the Company is under negotiation with the acquisition of major shares in Hail Agricultural Development Company (HADCO). This will help the Company to expand its product line to Chicken and other crops like dates, olives and grapes.
- The Company core business is itself a major strength as the dairy foodstuff sector is much inelastic and has minimal and limited exposure to the global recession and financialcrisis.
- Saudi Arabia’s Almarai has signed an agreement with PepsiCo Inc. (PEP) to set up a company to invest the dairy and juices sector. Moreover, as per the press release, this joint venture will have focus on the investments in South East Asia, Africa and the Middle East, excluding the Gulf. The new joint venture will be 52%-owned by PepsiCo, while remainder is owned by Almarai.
- The Middle East milk & dairy product market is expected to increase at a CAGR of 2.6% during 2008-12 to 7.4mn tons. The growth is mainly based on the forecasted growth in regional population at a CAGR of 2.5% during 2008-12. The population growth in the regional market (GCC) is expected to increase at a CAGR of 2.3% during 2008-12, while the milk and dairy market in this region is expected to reach 6.5mn tons 2012.
Global Research - Saudi Arabia Global Investment House
2 Almarai Company - Almarai March 2009
- The prices of raw milk are expected to remain in the range of US$330.0-375.7 per ton (US$0.15-0.17 per lb) during 2009-12. While the average per ton prices, during 2009-12, of Class 1 milk, Class 2 milk, Class 3 milk, Class 4a milk and Class 4b milk is expected to range at an average level of US$355-360, US$325-330, US$320-325, US$305-310and US$303-309 respectively.
- We have valued Almarai using the weighted average valuation approach, with an 80% weight to the discounted cash flow methodology and 20% to value derived from therelative valuation technique. Based on the weighted average valuation approach, our fair value for Almarai arrived at SR161.3 which offers a potential upside of 11.8% over the current market price of SR144.2 as of 10th March 2009. We, therefore, initiate our coverage of Almarai with a “BUY” recommendation.
Table 01: Investment IndicatorsPrice as on 10th
March 2009 (SR)
Shares in issue
(mn)
Market Capitalization
(SR mn)
52-Week Price
(High / Low)
144.2 109 15,718 183.0 / 113.0
Revenues
(SR Mn)
Net Profit
(SR Mn)
EPS
(SR)
BVPS
(SR)
ROAE
(%)
P/E
(x)
P/BV
(x)
2010E 5,443.3 1,178.2 10.8 45.9 25.1 13.3 3.1
2009E 5,191.8 1,037.2 9.5 40.2 25.9 15.1 3.6
2008A 5,029.9 910.3 8.4 33.2 27.3 16.2 4.1
2007A 3,769.8 667.3 6.1 28.0 27.0 19.3 4.2
Source: Annual Reports and Global Research Historical P/E & P/E multiple pertain to respective year-end prices, while those for future years are based on closing price as at 10th March 2009
Chart 01: Share Price Performance
Source: Reuters, Global Research
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
9,000.0
10,000.0
11,000.0
Index
SR
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
100.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
180.0
Tadawul Almarai
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 3
Company Overview
Almarai Company (Almarai) was converted in to a Saudi Joint Stock Company in August 2005. However, the origins of the Company date back to 1977, when HH Prince Sultan bin Mohammed bin Saud Al-Kabeer recognized the potential to transform traditional dairy farming in Saudi Arabia to meet the needs of a rapidly growing country. In the same context, HH Prince Al Kabeer 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 1991, the ‘restructuring and reinvestment’ phase started with the establishment of Almarai Company Trading Limited. Moreover, during that time the Almarai brand had already achieved market leadership and was well positioned to benefit from the economic upturn in the region during that period. Recognizing the long-term strategic competitive advantages that would accrue to low cost fresh dairy producers, the Company undertook a major investment program involving a total capital expenditure in excess of SR 1.1bn in five years from 1993 to 1997. A single large fresh processing plant,CPP, was commissioned with a capacity for both existing and new products for 10 years forward, and allowance for further expansion Four large dairy farms, each with a capacity for 10,000 cattle, were built incorporating the latest technology. Moreover, the Company had built four large dairy farms incorporated with the latest technology, while each dairy farm having a capacity for 10,000 cattle.
The Company markets a range of food and beverage products under the Almarai brand, principally through retail outlets. The product range includes fresh and long-life dairy products, which are made primarily from fresh milk, as well as fruit juices, cheese, butter and some nondairy products. Furthermore, Almarai is an integrated organization spanning the food supply chain from dairy farms through to retail stores.
Table 02: Product Line of AlmaraiTons 2006A* 2007A* 2008E* 2009F 2010F 2011F 2012F
Fresh Dairy 195,262 199,146 241,808 246,644 251,577 256,609 261,741
Long Life Dairy 35,665 36,374 44,517 45,407 46,315 47,242 48,186
Fruit Juice 42,647 43,495 44,360 45,247 46,152 47,075 48,017
Cheese & Butter 70,653 72,058 88,189 89,953 91,752 93,587 95,459
Bakery Products - 70,215 83,555 99,431 118,323 140,804 167,557
Others Non Dairy 13,769 16,851 20,053 23,863 28,397 33,793 40,214
Total 357,966 438,139 522,483 550,546 582,517 619,109 661,173
Source: Almarai Prospectus, Annual Report & Global Research* We have calculated the production of Almarai based on the information given in Almarai Board Report 2008.
All the milk processing units of Almarai are located in Saudi Arabia and UAE from where the end products are taken through the company’s own designated distributors. Moreover, the distribution centers of the Company are located in every GCC country, which are liable to deliver the final products at retail outlets.
Global Research - Saudi Arabia Global Investment House
4 Almarai Company - Almarai March 2009
Figure 01: Almarai Distribution Network
Source: Almarai Company Prospectus
Management
The board of directors of the company is led by HH Prince Sultan bin Mohammad bin Saud Al Kabir. HH Prince Sultan is acting chairman of the Company’s board. Table 03: Board of DirectorsNames Position in AlmaraiHH Prince Sultan bin Mohammad bin Saud Al Kabir ChairmanSami Mohsin Baroum DirectorHH Naif Bin Sultan Bin Mohammed Bin Saud Al Kabir DirectorAbdulrahman Abdulaziz Ibrahim Al Muhanna DirectorDr Majed Abdullah Al Gassabi DirectorIbrahim Mohammed Al Issa DirectorMohammed Abdulrahman Al Damer DirectorNasser Mohammed Al Mutawwa DirectorMoussa Omran Al Omran Director
Source: Zawya
The senior management of the company is headed by Mr. Abdulrahman Al Fadely. Mr. Al Fadley first joined Almarai Company in 1996 as the General Manager of the CentralProcessing Plant. Before joining Almarai, he was the Vice President of Mahmood Saeed Collective Company in Jeddah.
Table 04: Senior ManagementNames Position in AlmaraiAbdulrahaman Al Fadley Chief Executive OfficerGeorge Schorderet Chief Financial OfficerAlan van der Nagel General Manager, OperationMalcom Jordan General Manager, Quality and Product DevelopmentAndrew Mackie General Manager, FarmingAbdulrahaman Abdulkareem General Manager, AdministrationHussam Abdulkader General Manager, MarketingMajed Nofal General Manager, BakeryNicolas Jay General Manager, SalesDr. Abdulrahman Al Turaigy General Manager, Human ResourcesTom Trimble Head of Strategic Business
Source: Zawya
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 5
Shareholding and Liquidity
The Company has ended the year 2007 with the paid up capital of SR1.09bn (109mn shares @ SR10 each). Majority of the shares are in the hands of general public, while on an individual basis, HH Prince Sultan Mohammad Saud Al Kabir Al Saud holds largest portion of the Company’s shares. Almarai is among the few companies in Saudi Arabia, in which the foreign investors who reside in Saudi Arabia can own 100.0% shares.
Table 05: Almarai ShareholdersShareholder Holding
HH Prince Sultan Mohammad Saud Al Kabir Al Saud 30.2%
Savola Group 27.9%
Omran Mohammad Al Omran & Company 5.7%
General Public 36.2%
Source: Zawya
Over the period of last three years we have seen an improvement in the market capitalization of the Company. However, there is significant decline in average volume traded, which couldbe mainly because of the recent growth in non-food sector i.e. banking, industries, insurance and so on. The trading volume has increased in 2009 as the investors are more interested to go for defensive investments due to recent ‘financial crisis’ and fall in crude oil price, whichhas left the related sectors in disastrous situation.
Table 06: Stock Liquidity
Year Volume
Market Price
(Year End)
Market Cap
(SR mn)**
2006 1,642,641 74.5 8,120
2007 459,663 118.0 12,862
2008 262,514 135.0 14,715
2009* 165,575 144.2 15,717
Source: TADAWUL, Global Research * Market price as on 10th March 2009 ** at present outstanding shares
Global Research - Saudi Arabia Global Investment House
6 Almarai Company - Almarai March 2009
Milk & Dairy Product Market Overview
Raw milk is the sole, major component of milk and dairy industry, and the ability to generate revenues since the composition of nutrients in raw milk varies from different producer. is varying from producer to producer. Typically higher butterfat levels offer higher returns. The perishable nature of raw milk (in liquid form) has lead the trade in international market to focus on long life dairy commodities such as milk powder, frozen butter and hard cheese. This allows for the storage of more milk and dairy products for long period during the time of excess supply of milk.
The ability to produce raw milk at low cost is a natural competitive advantage in this industry and helps the producer to sustain lower input costs and remain most active in the market. However, a constant supply of milk is much needed to carry out the production of fresh perishable dairy products such as short-life liquid milk. The milk must be produced relatively close to the market place and be of consistently high quality and appropriate composition, otherwise costs could therefore higher.
Figure 02: Milk Products
Source: Wikipedia
Classes of Milk
Generally, raw milk is classified into five classes based on the end products obtained fromraw milk. The immediate outcomes of milk are (i) fluid milk, (ii) butter, (iii) cheese and (iv)yoghurt. However, the importance of milk is mainly based on the natural composition of nutrients i.e. fat, non-solid-fat and fluid carrier, which also determines the profitability, as theprices of each type of milk are different and rely on the composition of nutrients.
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 7
Chart 02: Classes of Milk & Usage
Source: CDFA
Pricing Procedures of Different Classes of Milk
The pricing procedures of different classes of milk were first introduced by California’sDepartment of Food & Agriculture (CDFA), with the intention to (i) promote the stability in the dairy sector and (ii) establish minimum prices that dairy farmers should get from the processors for fluid milk.
The most important components for the pricing of each class of milk are butter (fat), solids-not-fat (SNF) and fluid carriers. However, the pricing of Class 1 milk is entirely based inthese three components, while the pricing of Class 2, 3, 4a and 4b milks are based on only fat and SNF. Furthermore, the prices of class 2 and 3 are adjusted bimonthly and the prices of remaining classes are required to have monthly adjustments.
- Class 4a Milk Pricing Based on CDFA pricing procedures the price of Class 4a milk is a summation of Class 4a fat prices and Class 4a SNF prices. However, the prices of Class 4a fat and SNF are mainly relying on the commercial market prices of butter, NFDM & Cheddar Cheese, which are subjected to have adjustment with manufacturing cost allowance. The following steps are presented by CDFA:
Step 01 Class 4a fat = ((butter price - US$0.0285) - (butter manufacturing cost allowance) x butter yield factor
Step 02 Class 4a SNF = (NFDM price - NFDM manufacturing cost allowance) x NFDM yield factor
Step 03 Class 4a milk price per cwt (100 lbs) = (Class 4a fat price x 3.5) + (Class 4a SNF price x 8.7)
Where;Butter Price = Bulk butter price at CMEButter Manufacturing Cost Allowance = US$0.1560 per lb of butterButter Yield Factor = 1.2 lbs of butter per pound of fatNFDM Price = California weighted average price for NFDM
Raw Milk
Class 1 Milk Class 2 Milk Class 3 Milk Class 4a Milk Class 4b Milk
Used in fluidproducts
Used in heavycream, cottagecheese, yoghurt
& sterilized products
Used in icecream, & other forzen products
Used in butter& dry milk i.e.nonfat dry milk
Used in cheese, & other than
cottage cheese
Global Research - Saudi Arabia Global Investment House
8 Almarai Company - Almarai March 2009
NFDM Manufacturing Cost Allowance = US$0.1520 per lb of butterNFDM Yield Factor = 1.0 lbs of NFDM per pound of SNFCME = California Mercantile ExchangeCRP = Commodity Reference PriceCA = California Weighted Average PriceNFDM = Nonfat Dry MilkSNF = Solid Non-FatClass 4a Milk = 3.5% fat, 8.7% of SNF and 87.8% fluid carrier
- Class 4b Milk Pricing Similar to the 4a milk prices the price of 4b milk is the combination of fat and SNF components prices. However, the price of SNF in Class 4b is arrived by using the monthly average prices of cheese while pricing mechanism for 4b fat is equal to the 4a fat prices. In addition, for the price of cheese, CDFA uses average CME prices for 40lbs block of Cheddar cheese to set a base price. The base price is subjected to have adjusted with the difference in the CME price and the price actually received by California Cheddar cheese processor. Moreover, the derived commodity prices for class 4b formula are implemented for the period of 26th of the previous month and 25th of the current month. CDFA defines the following steps to arrive atthe per cwt (100 lbs) price of milk class 4b:
Step 01: Cheese price per cwt (100lbs) = (((Cheddar cheese price - US$0.0290) - Cheese manufacturing cost allowance) x (Cheddar Cheese Yield) + (((CME AA butter - US$0.10 - butter manufacturing cost allowance) x whey butter yield) + ((dry skim whey price - dry skim whey manufacturing cost) x (dry whey yield))
Step 02: Class 4b fat price = Class 4a fat price
Step 03: Class 4b SNF = ((Cheese price per cwt) - (3.72 x Class 4b fat)) / 8.80
Step 04 Class 4b milk price per cwt (100 lbs) = (Class 4b fat price x 3.5) + (Class 4b SNF price x 8.7)
Where;Cheddar cheese price = 40lbs block CME priceCheese manufacturing cost allowance = US$0.1710 per lb of productCheese yield factor = 10.2lbs of cheese per cwt of milkWhey butter manufacturing cost allowance = US$0.1560 per lb of productWhey butter yield factor = 0.27 lbs of butter per cwt of milkDry skim whey price = Monthly average of the dry whey priceDry skim whey manufacturing cost = US$0.20 per lb of dry skim wheyWhey butter yield factor = 5.87 lbs of whey per cwt of milkButter Price = Bulk butter price at CMEButter Manufacturing Cost Allowance = US$0.1560 per lb of butterButter Yield Factor = 1.2 lbs of butter per pound of fatCME = California Mercantile ExchangeCRP = Commodity Reference PriceCA = California Weighted Average Price
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 9
NFDM = Nonfat Dry MilkSNF = Solid Non-FatClass 4a Milk = 3.5% fat, 8.7% of SNF and 87.8% fluid carrier
- Class 1 Milk Pricing The pricing of Class 1 milk is the combination of the prices of (i) Class 1 fat, (ii) Class 1 SNF and (iii) Class 1 fluid carrier. However, the end price of Class 1 milk could be varying basedon the composition of all these components. The following are the procedures set by CDFA to determine the prices of each component of Class 1 milk:
Step 01 Price of Class 1 fat = (CME butter - US$0.10) x 1.2
Step 02 CRP is the higher of:(CME Cheddar) x 9.8 + (CME AA butter - US$0.10) x 0.27
OR(CME butter x 1.2) x 3.5 + (CA NFDM x 0.99) x 8.7
Step 03 Price of Class 1 SNF = (((CRP+US$0.464)-(Class 1 fat price x 3.5)) x 0.76) / 8.7
Step 04 Price of Class 1 carrier = (((CRP+US$0.464)-(Class 1 fat price x 0.24)) x 0.76) / 87.8
Step 05 Price of Class 1 milk per cwt (100 lbs) = (3.5 x Class 1 fat) + (8.7 x Class 1 SNF) + (87.8 x Class 1 carrier)
Where;CME = California Mercantile ExchangeCRP = Commodity Reference PriceCA = California Weighted Average PriceNFDM = Nonfat Dry MilkSNF = Solid Non-FatClass 1 Milk = 3.5% fat, 8.7% of SNF and 87.8% fluid carrierSource: CDFA
- Class 3 Milk Pricing Class 3 milk pricing mechanism is mainly based on the average prices of Class 4a fat prices and SNF prices. However, these pre-determine prices are subjected to have adjusted with the charges of the milk Producer Security Trust Fund.
Step 01: Class 3 fat prices = Average Class 4a fat price + (US$0.0370 OR US$0.0393)
Step 02: Class 3 SNF prices = Average Class 4a SNF price + (US$0.0586)
Step 03: Class 3 Milk price per cwt (100 lbs) = (3.5 x Class 3 fat) + (8.7 x Class 3 SNF)
Global Research - Saudi Arabia Global Investment House
10 Almarai Company - Almarai March 2009
- Class 2 Milk Pricing Class 2 milk pricing mechanism is similar to the class 3 milk pricing procedure. However, the only difference is in the adjusting factor in class 2 SNF prices.
Step 01: Class 2 fat prices = Average Class 4a fat price + (US$0.0370 OR US$0.0393)
Step 02: Class 2 SNF prices = Average Class 4a SNF price + (US$0.0643 OR US$0.0901)
Step 03: Class 2 Milk price per cwt (100 lbs) = (3.5 x Class 2 fat) + (8.7 x Class 2 SNF)
Where;CME = California Mercantile ExchangeCRP = Commodity Reference PriceCA = California Weighted Average PriceNFDM = Nonfat Dry MilkSNF = Solid Non-FatClass 1 Milk = 3.5% fat, 8.7% of SNF and 87.8% fluid carrierSource: CDFA
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 11
World Milk & Dairy Products Industry
Milk Supply
According to Food & Agriculture Policy Research Institution (FAPRI) and Food & Agriculture Organization (FAO), the milk supply has increased at 2004-08 CAGR of 3.1% to 696.6mn tons. In addition, based on the FAPRI, the average ‘dairy products to milk ratio’ remained at an average level of 5.9% during 2004-07, while the ratio is expected to remain at the same level of 5.8% in 2008.
Chart 03: Milk Production (‘000’ tons) & Dairy Products to Milk Ratio
Source: FAPRI, FAO & Global Research
The production of milk during 2004-07 was mainly concentrated from the area of European Union (EU), which has an average contribution of 21.1% of total milk produced in the world. However, on a country basis, the contribution from India remained dominant throughout 2004-07 with an average contribution of 14.4% followed by US with the world market share of 12.5%. Furthermore, the contribution from major milk producing locations in the global market remained the same in 2008, except for Brazil and China, where the market shares is expected to increase on account of a decline in shares from other countries.
Chart 04: Major Milk Producers 2007A Chart 05: Major Milk Producers 2008E
Source: FAPRI, FAO & Global Research Source: FAPRI, FAO & Global Research
6.1%
5.8%
5.8%5.8%
620,000
630,000
640,000
650,000
660,000
670,000
680,000
690,000
700,000
710,000
2005A 2006A 2007A 2008E5.60%
5.70%
5.80%
5.90%
6.00%
6.10%
6.20%
Total Milk Production Dairy Product to Milk Ratio
New Zealand1%Russia
5%United States12% Ukraine
2%
Mexico2%
India15%
China6%
Canada1%
Brazil4%
European Union20%
Production FromOther Countreis
32%
New Zealand1%Russia
5%United States12% Ukraine
2%
Mexico2%
India15%
China6%
Canada1%
Brazil4%
European Union20%
Production FromOther Countreis
32%
Global Research - Saudi Arabia Global Investment House
12 Almarai Company - Almarai March 2009
Dairy Product Supply
According to FAPRI and our estimates, the world production of basic dairy items i.e. butter, cheese, whole milk powder and skim milk powder during 2004-08 registered an increase at a CAGR of 2.4% to reach 40.4mn tons in 2007. We believe that the past growth in the production of dairy products is mainly due to (i) the growth in world population, which has widened the demand - supply gap (ii) the increasing trend of conversion traditional dairy farming to advanced dairy farming (iii) the filling up demand - supply gap, occurred duerising population and (iv) undisrupted supply of milk to processor.
Chart 06: Historical World Dairy Production (‘000’ tons)
Source: FAPRI & Global Research
Since EU is the leading supplier of milk to the global market, as per FAPRI, which has made the continent to also remain dominant throughout 2004-08 in the world dairy product supply with an average contribution of 28.5%. However, we saw a decline in the market share of EU to 27.1% on 2007 from 29.1% in 2004. The decline was mainly due to an increase in the market share of India, China and Brazil to 9.1%, 3.9% and 3.3% respectively in 2007. Unlike milk production US remained the largest producing country of dairy commodities, followed by India during 2004-07. Furthermore, the market share of EU is estimated to further relax down in 2008 with an improvement in production contribution from India, China and Brazil.
Chart 07: Major Dairy Producers 2007A Chart 08: Major Dairy Producers 2008E
Source: FAPRI & Global Research Source: FAPRI & Global Research
7.7%
-2.4%
1.6%
2.7%
37,500
38,000
38,500
39,000
39,500
40,000
40,500
41,000
2005A 2006A 2007A 2008E-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Dairy Products Growth
New Zealand5%
Russia2%
United States15%
India9%
China4%
Brazil3%
European Union27%
Production FromOther Countreis
33%
Australia2%
New Zealand5%Russia
2%United States
15%
India9%
China4%
Brazil3%
European Union27%
Production FromOther Countreis
33%
Australia2%
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 13
Per Capita Consumption of Milk & Dairy Products
The consumption of milk & dairy products in any country is much dependent on (i) taste preference, (ii) income level in the country (iii) weather and (iv) demographic characteristics of the population. According to FAPRI, in 2007, the highest per capita consumption of milk & dairy products was recorded at 153.4kg in Uruguay followed by 125.1 kg in Switzerland.
Table 07: Milk & Dairy Product Consumption per Capita (kg) 2005A 2006A 2007A 2008E*
Argentine 60.9 62.2 63.9 65.9
Australia 120.5 119.0 124.5 124.6
Brazil 76.8 76.9 83.4 89.0
Canada 104.1 103.1 107.3 105.3
China 8.0 6.7 9.2 9.0
Colombia 96.7 101.9 101.6 102.8
Egypt 26.0 25.3 25.6 26.7
European Union 98.5 94.9 88.9 88.6
India 37.7 39.6 41.2 44.2
Indonesia 2.0 2.2 2.3 2.4
Japan 42.0 40.9 39.7 7.9
Malaysia 8.3 8.6 8.7 8.9
Mexico 48.8 46.8 46.3 45.7
New Zealand 103.9 103.0 102.0 103.4
Peru 25.1 25.5 26.0 26.3
Philippine 2.6 2.7 1.8 2.0
Russia 95.5 96.4 94.5 95.9
South Korea 33.7 34.5 34.4 34.1
Switzerland 119.4 128.7 125.1 125.8
Thailand 14.7 16.2 16.3 16.8
Ukraine 98.1 136.6 116.3 117.8
United States 111.7 111.9 112.2 110.6
Uruguay 114.6 158.8 153.4 155.3
Venezuela 16.6 17.5 15.6 15.9
Vietnam 2.9 4.3 2.2 2.5
Source: FAPRI, per capita consumption is based on FAPRI estimations
Outlook of World Milk & Dairy Market
Based on the FAPRI and our forecast, the world milk & dairy product supply is expected to increase at a CAGR of 1.9% during 2008-12. The expected growth in the market is mainly attributed towards (i) the rising population, which increases the demand of these products, (ii) expansion of operations by existing companies, through acquisition and (iii) being a relatively low capital intensive industry, there is an increase in trend of conversion from traditional farming.
Global Research - Saudi Arabia Global Investment House
14 Almarai Company - Almarai March 2009
Chart 09: Forecasted World Milk & Dairy Market Supply (000 tons)
Source: FAPRI & Global Research
On other hand, the per capita consumption of milk and dairy products is expected to show some improvement and increase at an average CAGR of 2.1% during 2007-12, while the per capita consumption in Uruguay remained on the higher side at 166.9kg per head in 2012. However, India is expected to register the highest growth in per capita consumption at a CAGR of 5.0%, during 2007-12, followed by Brazil.
Milk & Dairy Product Prices
The price of milk as a whole is expected to remain in the range of US$330.0-375.7 per ton (US$0.15-0.17 per lb) during 2009-12.
Chart 10: Prices of Whole Milk (US$ per ton)
Source: Bloomberg, Agriculture & Applied Economics (aae) & Global Research
Moreover, we have calculated the prices of different classes of milk on the basis of pricing procedures and mechanism given by CDFA. The average per ton prices of Class 1 milk, Class 2 milk, Class 3 milk, Class 4a milk and Class 4b milk is expected to range between the levels of US$355-60, US$325-330, US$320-325, US$305-310 and US$303-309 respectively.
2.3%
2.7%2.4%
2.2% 1.6%1.4%
660,000
680,000
700,000
720,000
740,000
760,000
780,000
800,000
820,000
2007A 2008E 2009E 2010E 2011E 2012E0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Total Milk & Dairy Product Growth
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
1Q05A
2Q05A
3Q05A
4Q05A
1Q06A
2Q06A
3Q06A
4Q06A
1Q07A
2Q07A
3Q07A
4Q07A
1Q08A
2Q08A
3Q08A
4Q08A
1Q09E
2Q09E
3Q09E
4Q09E
1Q10E
2Q10E
3Q10E
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March 2009 Almarai Company - Almarai 15
Chart 11: Prices of Milk Classes (US$ per ton)
Source: Agriculture & Applied Economics (AAE), CDFA & Global Research
We have derived the future prices of butter, cheese, fluid milk (skim milk), powder (dry)milk and dry whey from the price of whole milk (raw), which is the basic input for these products. In addition, the processor has to pay a price to farmers / suppliers, based on the class of milk.
Chart 12: Prices of Dairy Products (US$ per ton)
Source: Agriculture & Applied Economics (AAE) & Global Research
Feed Stock Prices
The main feedstock price in dairy food industry is the price of corn and grains, which are used to feed the cow. Moreover, prices of these products have a major impact on the cost of producing raw milk, which consequently have an impact of the prices of end of products. In addition, the price of corns is correlated with the price of crude oil, since corn is also use to make ethanol fuel an (alternative fuel). Hence, higher the price of crude oil the higher will it leads to an increase in the demand for ethanol, which requires corn as a feedstock. Consequently, this creates shortage of corns for cow feeding thus leading to an increase in prices.
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Butter Cheese Skim Milk Dry Whey Milk Powder (Dry)
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16 Almarai Company - Almarai March 2009
Chart 13: Prices of Feedstock (US$ per ton)
Source: USDA & Global Research
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2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
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March 2009 Almarai Company - Almarai 17
GCC Milk & Dairy Product Industry
Milk & Dairy Product Market
Most of the countries in GCC are relying on imports of milk and dairy products, which are mostly composed of inter-regional trades. However, most of the raw milk in the GCC region is imported from outside i.e. Australia, New Zealand, Europe and South Asia.
According to the data given in ‘Almarai Prospectus’, ‘Investors Presentation 2009’ and our estimates, the regional milk & dairy market increased at a CAGR of 2.1% during 2004-07, while the market is estimated to expand further by 2.3% in 2008. The major factor of recent growth during 2004-07 in the market is mainly associated with an annual regional growth rate of 2.0%-2.5%, which is expected to further increase at 2007-12 CAGR of 2.3%. Furthermore, the secondary factors are (i) conversion from traditional farming and (ii) effort to reduce dependence on imports outside the region.
Chart 14: GCC Milk & Dairy Product Market
Source: Almarai Prospectus and Investors’ Presentation 2009 & Global Research
Country-Wise Composition of Milk & Dairy Market
Being the most populated regional country, Saudi Arabia is the largest milk & dairy market in GCC and constituted 64.0% of the regional market at the end of 2007. Moreover, the domination of the Saudi Arabian market is estimated to remain in 2008 with a contribution 63.8%. Furthermore, in 2008, based on our estimations, UAE is the 2nd largest market with the regional market share of 13.6% followed by Kuwait with 9.4% of the regional market in 2008. However, the per capita consumption in Bahrain is expected at the level of 208.4kg followed by 190.7liters in Qatar and 171.8 liters in Kuwait.
Table 08: Regional Population and Milk & Dairy Market 2007A 2008E
Country Population
(mn)Milk & dairy Market
(000 tons) Population
(mn)Milk & dairy Market
(000 tons)Saudi Arabia 27.6 3,885.8 28.1 3,963.0UAE 4.4 704.4 4.6 732.5Kuwait 2.5 425.6 2.6 441.5Oman 3.2 469.4 3.3 484.8Qatar 0.8 155.6 0.8 157.3Bahrain 0.7 147.7 0.7 149.7Total 39.2 5,788.4 40.1 5,928.8
Source: Almarai Prospectus & Global Research
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40.5
Milk & Dairy Products Population (mn)
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18 Almarai Company - Almarai March 2009
Product-Wise Composition of Milk & Dairy Market
The major chunk of the GCC milk & dairy market is based on the milk i.e. short life fresh milk, long life milk, dry milk, flavored milk, cheese and butter. While, cheese and butter arethe two main products of the GCC dairy milk and product market, going forward, we do not expect any major shift in the consumption pattern of milk & dairy products.
Chart 15: Product Wise Composition 2007A
Source: Almarai Prospectus & Global Research
GCC Milk & Dairy Market Outlook
We expect the regional population to increase at a CAGR of 2.3% during 2007-12 to 43.9mn tons from 40.2mn in 2008. While keeping the per capita consumption at the same level, the forecasted increase in population will lead to a proportionate increase in the regional dairy milk and product market to6.5mn tons in 2012 from 5.8mn tons in 2007.
Chart 16: Forecasted GCC Milk & Dairy Market (‘000’ tons) & Population
Source: Almarai Prospectus & Global Research
Regional Dairy Milk & Products Market
As change in taste preference and demographic is rigid to change, so we are expecting constant product-wise market composition throughout our forecasted period of 2008-12.
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Milk & Dairy Pruducts Pupulation (mn)
Milk - Long Life20%
Other Cheese11%
Milk - Short Life6%
Butter Chee13%
Evaporated Milk7%
Natural Cheese25%
Laban9%
Yoghurt4%
Cream5%
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Chart 17: Saudi Arabian Dairy Market Composition
Chart 18: Saudi Arabia Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research Chart 19: UAE Dairy Market Composition Chart 20: UAE Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research
Chart 21: Kuwait Dairy Market Composition Chart 22: Kuwait Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research
Chart 23: Oman Dairy Market Composition Chart 24: Oman Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research
Milk - Long Life21%
Other Cheese11%
Milk - Short Life4%
Butter Chee11%
Evaporated Milk6%
Natural Cheese27%
Laban11%
Yoghurt3%
Cream5%
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2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012EMilk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Milk - Long Life16%
Other Cheese13%
Milk - Short Life11%
Butter Chee16%
Evaporated Milk12%
Natural Cheese18%
Laban4%
Yoghurt7%
Cream3%
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Milk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Milk - Long Life21%
Other Cheese17%
Milk - Short Life4%
Butter Chee12%
Evaporated Milk5%
Natural Cheese24%
Laban5%
Yoghurt3%
Cream8%
Labneh1%
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Milk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Milk - Long Life18%
Other Cheese4%
Milk - Short Life8%
Butter Chee28%
Evaporated Milk10%
Natural Cheese22%
Laban3%
Yoghurt5%
Cream2%
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2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012EMilk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
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20 Almarai Company - Almarai March 2009
Chart 25: Bahrain Dairy Market Composition Chart 26: Bahrain Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research
Chart 27: Qatar Dairy Market Composition Chart 28: Qatar Product Wise Growth (000 tons)
Source: Almarai Prospectus & Global Research Source: Almarai Prospectus & Global Research
Milk - Long Life19%
Other Cheese8%
Milk - Short Life8%
Butter Chee12%
Evaporated Milk7%
Natural Cheese33%
Laban4%
Yoghurt3%
Cream5%
Labneh1%
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Milk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Milk - Long Life16%
Other Cheese9%
Milk - Short Life11%
Butter Chee14%
Evaporated Milk15%
Natural Cheese20%
Laban4%
Yoghurt5%
Cream5%
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2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012EMilk - Short Milk - Long & Short Laban Yoghurt Labneh CreamDairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
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March 2009 Almarai Company - Almarai 21
Saudi Milk & Dairy Product Industry
Leading Position in the Regional Market
Being the largest regional dairy milk & products market, Saudi Arabia has the largest production facilities in the region, which has enabled the regional leader to make exports to its neighboring countries. Most of the regional dairy products are produced by the manufacturers of Saudi Arabia. However, Saudi Arabian manufacturers are also relying on the imports of raw milk to carry out their operations, which is expected to come down further due to the efforts of the big local players to increase their cattle head.
Chart 29: Saudi Share in GCC 2008E Chart 30: Saudi Share in GCC 2012E
Source: Al Marai Prospectus & Global Research Source: Global Research
Product - Wise Market Share of Saudi Arabia in GCC Market
Saudi Arabian dairy products are widely used among the GCC member countries and act as a market leader. In some dairy product range KSA has very strong hold i.e. laban and condensed milk.
Table 09: Product Wise Regional Market Share.2005 2006 2007 2008E 2009E 2010E 2011E 2012E
Milk - Short 52.6% 52.3% 52.0% 51.7% 51.4% 51.2% 50.9% 50.7%
Milk - Long & Short 70.9% 70.7% 70.4% 70.1% 69.9% 69.8% 69.6% 69.4%
Laban 85.6% 85.4% 85.3% 85.1% 85.0% 84.9% 84.8% 84.6%
Yoghurt 58.1% 57.7% 57.4% 57.1% 56.8% 56.6% 56.3% 56.1%
Labneh 67.4% 67.2% 66.9% 66.6% 66.4% 66.2% 66.0% 65.8%
Cream 74.3% 74.1% 73.8% 73.6% 73.4% 73.2% 73.1% 72.9%
Dairy Desert 68.1% 67.9% 67.6% 67.3% 67.1% 66.8% 66.6% 66.4%
Natural Cheese 72.2% 71.9% 71.7% 71.4% 71.3% 71.1% 70.9% 70.8%
Evaporated Milk 54.5% 54.2% 53.9% 53.6% 53.4% 53.1% 52.9% 52.6%
Condensed Milk 74.0% 73.8% 73.6% 73.3% 73.2% 73.0% 72.8% 72.6%
Butter Ghee 56.1% 55.7% 55.4% 55.1% 54.9% 54.7% 54.4% 54.2%
Other Cheese 66.8% 66.4% 66.1% 65.8% 65.6% 65.4% 65.1% 64.9%
Total Milk & Dairy Products 67.7% 67.4% 67.1% 66.8% 66.6% 66.4% 66.2% 66.0%
Source: Almarai Prospectus and Investors’ Presentation 2009 & Global Research
Oman8%
Qatar3%
Bahrain3%
Kuwait7%
Saudi Arabia67%
Oman8%
Qatar3%
Bahrain3%
Kuwait7%
Saudi Arabia66%
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22 Almarai Company - Almarai March 2009
The domination of Saudi Arabian products in regional market is expected to prevail in future, which is mainly due to the presence of largest producer in Saudi Arabia i.e. Almarai, SADAFCO, NADEC, Al Safi and so on.
Increase Raw Milk Production
According to ‘Almarai prospectus’, the number of cows in Saudi Arabia was recorded at 81,710 in 2003 which had increased 112,432 in 2007, as per FAPRI 2008 Agriculture Outlook, which has further jacked up to 135,000 (excluding young stocks) in 2008. Meanwhile, per cow milk production in Saudi Arabia is estimated to drop from10.5tons in 2003, as mentioned in Almarai prospectus, to 8.0tons in 2008 as per our calculation and FAPRI 2008 agriculture outlook, this is mainly due to increase in number of old cows. The decline in per cow milk production rate, due to the natural factor, will cause the local industry to increase the number of cattle in local market. We believe that the number of cattle in Saudi Arabia is expected to increase at a CAGR of 3.7% to 147,000 – 150,000 in 2012 with the domination of Almarai dairy herd, where the Company is handling 100,000 cows of which 55,000 are milking cows. This will help the local market in two ways (i) increase actual production, (ii) maintain the production per cow rate and (iii) gradual reduction in the dependence on the imported raw milk, which is expected to come down at 71.7% in 2012 as compared to 74.6% calculated in 2007.
Chart 31: Number of Cows & Production per Cow
Source: Almarai Prospectus and Investors’ Presentation 2009, FAPRI & Global Research
Saudi Arabian Dairy Milk & Product Market Outlook
Saudi Arabian population is expected to increase at a CAGR of 2.0% during 2007-12 to 30.4mn. Consequently, since population is a key growth factor of dairy market, the Saudi Arabian dairy milk and product market is expected to increase to 4.3mn tons in 2012 as compared to estimated 3.9mn tons in 2008.
10.09.0 8.9
7.9 8.0 8.1 8.18.2
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2.0
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12.0
Number of Cows Milk Production per Cow (tons)
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March 2009 Almarai Company - Almarai 23
Chart 32: Saudi Population (mn) & Dairy Milk & Product Market (000 tons)
Source: Almarai Prospectus, CIA Fact Book 2008, Almarai Investors’ Presentation 2009 & Global Research
Saudi Dairy Market Composition
A major portion of Saudi dairy market is associated with fat rich dairy products i.e. butter and cheese, which is mainly due to the geographical demographic factor, while the high consumption of milk-long life and laban is mainly due to the weather factor. Since the demographic changes are rigid and responding slowly, so we do not believe a significantchange in the consumption pattern, going forward.
Table 10: Saudi Dairy Milk & Product Market Composition
‘000’ tons 2005 2006 2007 2008E 2009E 2010E 2011E 2012EMilk - Short Life 164.5 167.8 171.1 174.5 178.0 181.6 185.2 188.9 Milk-Long 772.1 787.4 803.1 819.1 835.4 852.2 869.2 886.6 Laban 421.9 430.2 438.8 447.5 456.5 465.6 474.9 484.4 Yoghurt 122.0 124.5 126.9 129.5 132.1 134.7 137.4 140.1 Labneh 18.6 18.9 19.3 19.7 20.1 20.5 20.9 21.3 Cream 217.6 221.9 226.3 230.8 235.4 240.1 244.9 249.8 Dairy Desert 10.6 10.8 11.0 11.3 11.5 11.7 11.9 12.2 Natural Cheese 997.6 1,017.4 1,037.7 1,058.3 1,079.5 1,101.1 1,123.1 1,145.6 Evaporated Milk 209.6 213.8 218.0 222.4 226.8 231.3 236.0 240.7 Condensed Milk 10.6 10.8 11.0 11.3 11.5 11.7 11.9 12.2 Butter Ghee 395.3 403.2 411.2 419.4 427.8 436.3 445.1 454.0 Other Cheese 395.3 403.2 411.2 419.4 427.8 436.3 445.1 454.0 Total 3,736 3,810 3,886 3,963 4,042 4,123 4,206 4,290
Source: Almarai Prospectus and Investors’ Presentation 2009 & Global Research*Figures are based on our estimations
26.5 27.1
27.628.1
28.729.3
29.930.5
3,4003,5003,6003,7003,8003,9004,0004,1004,2004,3004,400
2005 2006 2007 2008E 2009E 2010E 2011E 2012E24.0
25.0
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Dairy Milk & Product Market - LHS Population - RHS
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24 Almarai Company - Almarai March 2009
Almarai Competitors’ Profile
We have identified the following potential competitors in the local and regional market.
1 Nestle
2 Al Safi Danone Company (Alsafi)
3 National Agricultural Development Company (NADEC)
4 Al Othman Dairy (NADA)
5 Al Rabie Food Company (Alrabie)
6 Saudia Dairy Foodstuff Company (SADAFCO)
Nestle
Nestle was founded in 1866 and has headquarter in Vevey, Switzerland. Today the company is the world’s leading nutrition, health and wellness company. Nestle has employed around 276,050 people and has factories or operations in almost every country in the world. The existing products of Nestle grow through innovation and renovation while maintaining a balance in geographic activities and product lines. During the recent time period, the company has expanded its operation through various acquisitions.
Nestle started its acquisition process from the first half of the 1990s, when the trade barrierswere eased down and world markets developed into more or less integrated trading areas. During the last two decades, the company has made numerous acquisitions that include (i) San Pellegrino in 1997, (ii) Spillers Petfoods in 1998 and (iii) Ralston Purina in 2002. Moreover, the company has made two major acquisitions in North America and merged its US ice cream business into Dreyer’s, while announced US$2.6bn acquisition of Chef America, Inc. Furthermore, the company started the year 2003 with the acquisition of Movenpick Ice Cream, which enhanced the company’s position as one of the world market leaders in ice cream. In 2006, the company’s portfolio had increased with the acquisition of Jenny Craig and Uncle Toby’s and by the end of 2007, Novartis Medical Nutrition, Gerber and Henniez were acquired by the company.
Al Safi Danone Company (Alsafi)
Al Safi project was initiated by Royal Prince Mohammad Bin Abdullah Al Faysal in 1979and he established the farm in Sahbaa valley, Kharj region. The company was basically involved in the entire range of the dairy foods industry, which included rearing cattle and yielding raw milk. In addition, the farm had also established an integrated private factory, which processed and packed fresh milk, long life milk, as well as its various subsidiaries. At present, the company has approximately 3,500 hectares of land and has 1,400 employees. In 2001, the company entered into an agreement with Al-Faisaliah Holding Group and International Danone Group has formed a joint venture between Alsafi and French dairy. Thejoint-venture has allowed Alsafi to produce 165mn liters of milk per annum.
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March 2009 Almarai Company - Almarai 25
National Agricultural Development Company (NADEC)
The company was established in 1981 and has been engaged to present the finest and healthiestnutritional products. NADEC is 20% held by the Government, while the balance of equity is in the hands of the local public. This makes the company one of the very few widely held Saudi companies. The company has a contribution to supply around 1,200tons of dried dates per year and 30mn liters of milk. The company has 4 cow farms that contain 24,000 cattle heads. NADEC has aimed to (i) reduce the dependence of Saudi Arabia on imports, (ii) increase dependability on national economy and (iii) encourage the contribution of the agricultural sector in the national product.
Al Othman Dairy (NADA)
NADA has the capability to produce 200,000 liters milk per day and principally engaged in the production of milk, juices, cheese spreads and tomato paste. The company was firstestablished in 1982 in the Eastern Province and has a workforce of 2,000 people. Al Rabie Food Company (Alrabie)
The company was formed in 1980 and was formerly known as ‘The Saudi Irish Dairy Company’ till 1983. It is the largest juice and beverage manufacturing company in the Middle East region. The company’s product includes juices, milk, iced coffee, chocolate drinks, tomato pastes, chick peas and beans. Moreover, the processing facilities of the company are located in Riyadh and have 22 storage areas.
Saudia Dairy & Foodstuff Company (SADAFCO)
SADAFCO stared its operation in mid 1970 as a local milk producer but started expanding, vertically and geographically, in 1987 to become leading regional company. The company was formed as a Danish Saudi dairy Company, a joint venture between several Kuwaiti and Saudi businessmen, with Danish Turnkey Dairies as a minority shareholder and the partner responsible for building and managing the Jeddah factory. At present, the company is one of the leading dairy and food processing companies in Saudi Arabia, with five plants producinga range of 100 different products. In 1987, the company acquired one of its main competitors in Riyadh and in 1991, merged with two sister companies, Gulf Danish Dairy and Medina Danish Dairy. Following the mergers, SADAFCO embarked on a strategy to extend its limited product range of milk and ice creams, to include tomato paste, cheeses, dips, bottled water and snacks. The company’s geographical expansion into neighboring countries was mainly associated with the acquisition of several well established companies in the dairy, juice and foodstuff business in key countries in the Middle East.
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26 Almarai Company - Almarai March 2009
Almarai Financial Overview
Key Milestones in 2007
Almarai had diversified and expanded its operation and focus in the year 2007. During the yearAlmarai has finalized diversification and expansion steps, which benefitted the Company’sgrowth. Under the expansion plan, Almarai made the acquisition of major stakes in Western Bakery during 2007, which pulled the sales revenue of the Company by 13.3%, while rest of the growth was associated with the traditional business of farming. However, under the diversification plan, the Company has acquired 5.0% stakes in Zain Kuwait, the shareholdingof Almarai has diluted to 2.5% after the IPO in February 2008.
Figure 03: Key Milestones in 2007
Source: Almarai Annual Report 2007
The acquisition of Western Bakery expanded the product line of Almarai from dairy products to bakery products.
Figure 04: Almarai Company – Dairy &Food Products
Figure 05: Almarai Company – Bakery Products
Source: Almarai Investors’ Presentation 2009 Source: Almarai Investors’ Presentation 2009
Sales Revenue
The Company’s sales revnue witnessed a robust performance and increased at a CAGR of 32.8% during 2005-08, which is mainly associated with the (i) estimated increase in population at a CAGR of 2.2% during 2005-08 and (ii) increase in prices of dairy product, which include prices of butter, cheese, skim milk, powder (dry) milk, and yoghurt increased at a CAGR of 25.2%, 17.9%, 12.4%, 20.5% and 12.4% respectively during 2005-08.
Acquisition of Wstern Bakeries
Launch of Alphonoso Mango Juice with Pulp
i) Launched New 2ltr bottel packaging for Milk & Laban (ii) Launch of Vetal
(i) Launch of Jucie in Carafe Bottle (ii)Launch of 'Maher the AdventurerUHT Milk
Acquisition of 5% stakes from Zain KSA
Introduction of Lower Cholestrol Feta
Launch of Green Apple Juice with Pulp
Launch of 300ml Single Serve Juice
Launch of 1ltr Juice Bottle
Introduction of Fortified Cheese Triangles
Feburary March May June July August Septemberv October November December
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March 2009 Almarai Company - Almarai 27
Chart 33: Historical Sales Revenue (SR mn) Growth
Source: Almarai Annual Reports & Global Research
Sales Revenue Composition
Sales revenue of the Company is mainly concentrated on the revenues generated from the sales of fresh dairy products. By the end of 2008, revenue generated from fresh dairy products accounted for 49.2%, while the next big chunk is coming from cheese & butter. Moreover, the non dairy revenues i.e. bakery products and other has contributed 11.0% in the Company’s overall sales revenue.
Chart 34: Sales Revenue Contribution 2008A
Source: Company Annual Report
Maintaining Gross Margins
The increase in the prices of dairy products during 2005-08 was mainly due to the increase in raw material prices. This indicates that both prices had increased in proportion and resulted in maintaining the gross profit margins of the Company at an average level of 39.0%. In 2008,the Company has registered its gross margin at 39.7%.
13.8%
28.5%
36.7%33.4%
-
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 20080.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Sales Revenue Growth
Fresh Dairy 49%
Long Life Dairy 10%
Fruit Juice10%
Chesse & Butter 20%
Bakery Products 10%
Others1%
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28 Almarai Company - Almarai March 2009
Chart 35: Gross Profit (SR mn) & Gross Margins
Source: Company Reports & Global Research
Core Revenue Generating Assets
Core revenue generating assets of the Company constitute the total number of usable cows. Almarai ended the year 2008 with the number of cows ranging from 55,000 milking cows and 45,000 young stocks. In our valuation, we have kept the number of cattle at 55,000 milking cows. During 2004-08, milk production per cow in Almarai remained on higher than the country average. By the end of 2008, the average production per cow in Almarai was recorded at 12.5 tons against the country average of 8.0 tons.
Chart 36: Core Revenue Generating Assets (Number of Cows)
Source: Almarai Prospectus, FAPRI & Global Research*2008 cattle stock is based Almarai investor presentation 2009
Major Concerns
Almarai has a benefit of being involved in the entire supply chain of the milk & dairy market.This has ensured the undisrupted supply of raw milk to carry out its process of making fluid milk and dairy products. Moreover, the cost of purchasing raw milk is low due to theexistence of synergy among the processes. At present, the Company has 6 farms, which are handling 100,000 cattle (including young stock). Another benefit to the Company is relatedto its strong presence in local as well as regional market through its strong marketing network which is mainly based on the regional and local retail outlets. In addition, the core business of the Company is itself a biggest benefit due to its inelastic nature. The prime concern ofthe Company is associated with core revenue generation assets, i.e. cows. Though the risk is
39.46% 38.98% 39.61% 39.74%
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
2005 2006 2007 20080.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Gross Profit Gross Profit Margins
13.4 13.0 12.7 12.9 12.5
-
10,000
20,000
30,000
40,000
50,000
60,000
2004 2005 2006 2007 2008-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Core Revenue Generation Assets Per Cow Production (tons)
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 29
mainly based on natural factors, which is uncontrollable and any negative event could lead to a massive impact on the Company’s growth. Milk Production Growth
We believe that future production is based on the number of cattle held by the Company, which will help the Company to overcome the problem of natural decline in per cow production rate. We believe that the large young stock held by the Company in 2008 will help the Company to efficiently replace old cattle with the new one, and lead to maintain percow production ratio at 13.0tons till 2012.
Chart 37: Forecasted Milk Production (tons) & Per Cow Production Rate
Source: Almarai Prospectus and Investors’ Presentation 2009, Annual Reports & Global Research
Sale Revenues Growth
We believe that the Company sales revenue will maintain the high growth trajectory, though at a slower pace and expected to increase at a CAGR of 5.9% during 2008-12, which is mainly due to lower prices in 2009 and onwards. We expect a decline in prices will lead the Company to show a slow growth of 3.2% in 2009. However, the future growth in the sales revenue is mainly due to expected improvement in the local market share of the Company, which is based on (i) the commitment of the Company to make valuable acquisitions on continuous basis in future and (ii) adding value in the recent acquired companies through introducing value added products.
Chart 38: Sales Revenues (SR mn)
Source: Company Annual Reports & Global Research
13.4 13.0 12.7 12.912.5 12.9 12.9 12.9
12.9
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Milk Production Per Cow Production (tons)
33.4%
3.2% 4.8%7.0%
8.7%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2008 2009E 2010E 2011E 2012E0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Sales Revenue Growth
Global Research - Saudi Arabia Global Investment House
30 Almarai Company - Almarai March 2009
Going forward, we are not expecting any major changes in the sales revenue composition and the domination of revenues contribution from fresh dairy products and cheese & butter will remain till 2012.
Chart 39: Sales Revenue Mix 2008A Chart 40: Sales Revenue Mix 2012E
Source: Annual Report & Global Research Source: Global Research
Maintaining Gross Profit & EBITDA Margins
We believe the expectations of stable feed stock prices at lower levels will enable the Company to reduce its cost of producing raw-milk. The Company is expected to maintain its gross profit margins at an average level of 43.7% during 2009-12 against the previous levelsof 39.4% during 2005-08. This is mainly due to the expected lower prices of feed stock. Furthermore, we expect the EBITDA margin of the Company to remain in the average range of 36.1% during 2009-12 against the historical average range of 30.4% during 2005-08. More interestingly, the spread between GP margins and EBITDA margins are expected to shrink gradually, which is a positive for the Company, as it indicates the effective management of operating costs and other non-cash income and costs.
Chart 41: Gross Profit (SR mn), Gross Profit & EBITDA Margin
Source: Company Annual Reports & Global Research
Improving Profitability
We expect the Company will register, after tax profit of SR1,037.2mn (translating intoEPS of SR9.5) in 2009 as compared to SR910.3mn in 2008. Based on our calculations the profitability of the Company is expected to increase at a CAGR of 15.9% during 2008-12.The expected growth in profitability is mainly attributed to the improvement in gross profitand EBITDA margins. On other hand, Almarai is expected to maintain its ROAA and ROAE in at an average level of 13.7% and 26.0% respectively, during 2008-12.
Fresh Dairy 49%
Long Life Dairy 10%
Fruit Juice10%
Chesse & Butter 20%
Bakery Products 10%
Others1%
Fresh Dairy 44%
Long Life Dairy 8%
Fruit Juice7%
Chesse & Butter 31%
Bakery Products 9%
Others1%
38.5% 39.5% 39.0% 39.6% 39.7%41.8% 42.8%
43.6%
46.5%
31.0% 30.4%
29.8%
30.4% 30.7%33.4%
35.4%36.4%
39.3%
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
Gross Profit Gross Profit Margin EBITDA Margin
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 31
Chart 42: Profitability & ROAA
Source: Company Reports, Global Research
Chart 43: Profitability & ROAE
Source: Company Reports, Global Research
14.4%13.8%
13.2%12.5%
12.2%
13.0%
14.1%
16.7%
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2005 2006 2007 2008 2009E 2010E 2011E 2012E10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
Profitability ROAA
28.4% 27.9%27.0% 27.3%
25.9%25.1% 24.9%
27.0%
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2005 2006 2007 2008 2009E 2010E 2011E 2012E10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
Profitability ROAE
Global Research - Saudi Arabia Global Investment House
32 Almarai Company - Almarai March 2009
Valuation and Recommendation
Discounted Cash Flows Methodology
Our DCF model is based on a 4-year (FY2009-FY2012) explicit forecast period for the Free Cash Flow (FCF). The terminal value is estimated using the constant growth rate. The forecasted cash flow and the terminal value is then discounted at the company WeightedAverage Cost of Capital (WACC). In our DCF valuation, we have used the following assumptions:
1. Risk Free Rate (RFR) of 5.5%. 2. Equity risk premium of 5.75%.3. Beta of 1. 4. A terminal growth rate of 3.5%.5. A target cost of debt of 7%.
Using the above assumptions, we have derived a cost of equity for the Company at 11.3%, by using Capital Assets Pricing Model, and a WACC of 8.7%, resulting in a fair value of SR171.1 per share.
Table 11: DCF Calculations(SR Mn) 2009 (E) 2010 (E) 2011 (E) 2012 (E)FCF 649.4 785.8 1,048.5 1,139.2Discounted Cash Flow 607.6 676.6 830.7 830.6Terminal Value 22,806Primary Value 2,946Terminal Value (discounted) 17,772Total Enterprise Value 20,717Debt (2,976)Add: Investments & cash equivalents 911Total Equity Value 18,651Shares Outstanding (‘000) 109,000Fair Value Per Share 171.1
Source: Global Research
Sensitivity Analysis
We provide below a sensitivity analysis table, which shows the probable value given different growth rate assumption and WACC. The shaded area represents the most probable outcomes.
Table 12: Sensitivity Analysis Terminal Growth Rates 1.50% 2.50% 3.50% 3.50% 4.50%
WA
CC
6.67% 178.4 221.0 290.5 290.5 424.07.67% 146.4 174.7 216.5 216.5 284.78.67% 123.4 143.4 171.1 171.1 212.29.67% 105.9 120.7 140.4 140.4 167.6
10.67% 92.2 103.6 118.2 118.2 137.5
Source: Global Research
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 33
Relative Valuation
For relative valuation, we have made a comparison of Almarai with selected regional and international players.
Table 13: Relative Comparison
Company Name Country Price in Local
Currency Market Cap in
USD mn P/E Current
Year EV/EBITDA
COCA-COLA AMATIL AUSTRALIA 8.3 4,012 14.212 8.776
METRO INC-A CANADA 39.39 3,488 13.606 7.665
SAPUTO INC CANADA 20.49 3,371 14.956 9.292
LUZHOU LAOJIAO-A CHINA 18.99 3,955 18.914 13.759
TSINGTAO BREW-H CHINA 14.58 3,181 23.772 12.757
HENGAN INTL HONG KONG 27.45 4,160 24.619 17.32
COCA-COLA ENTER UNITED STATES 10.42 5,195 8.756 5.544
SARA LEE CORP UNITED STATES 7.12 5,061 8.9 4.982
ESTEE LAUDER UNITED STATES 21.02 4,225 15.287 6.684
HORMEL FOODS CRP UNITED STATES 30.65 4,206 13.751 6.73
JM SMUCKER CO UNITED STATES 34.58 4,185 10.722 8.724
MCCORMICK-N/V UNITED STATES 30.81 4,096 13.32 9.37
PEPSI BOTTLING UNITED STATES 17.92 3,875 8.186 5.813
CHURCH & DWIGHT UNITED STATES 46.82 3,356 14.279 8.258
HANSEN NATURAL UNITED STATES 36.31 3,354 16.849 9.633
DEAN FOODS CO UNITED STATES 19.96 3,148 12.39 8.022
SUPERVALU INC UNITED STATES 14.49 3,135 5.188 4.362
RALCORP HLDGS UNITED STATES 54.23 3,135 13.077 7.475
EASTERN TOBACCO EGYPT 135.19 609 4.277 3.392
DELTA SUGAR EGYPT 15.62 348 7.733 4.644
SULTAN CENTER FD KUWAIT 186 372 6.643 10.906
SAVOLA SAUDI ARABIA 17.65 2,405 7.862 12.193
NADEC SAUDI ARABIA 31 488 23.15 8.06
SADAFCO SAUDI ARABIA 18.35 157 11.88 10.3
Source: Bloomberg * As on 10th March 2009
The comparison is made on sector EV/EBITDA of 2009, which is calculated at 9.0. By employing the sector EV/EBITDA on the Company’s EBITDA, our fair value of the Company arrives at SR127.7.
Weighted Average Fair Value
In order to arrive at a consolidated fair value for the Company, we have assigned 80% weightage to the value arrived from DCF base valuation and 20% to the relative value. On the basis of this, our consolidated value for the Company comes at SR161.3
Global Research - Saudi Arabia Global Investment House
34 Almarai Company - Almarai March 2009
Table 14: Weighted Average Value
Valuation TechniquesValue per
Share (SR) WeightsWeighted Value per
share (SR)
DCF Method 171.1 80% 136.9
Relative Valuation 122.2 20% 24.4
Weighted Average Fair Value 161.3
Source: Global Research
The weighted average fair value of the Company offers a potential upside of 11.8% from the current market value per share of SR144.2 (as on 10th March 2009). We, therefore, initiate our coverage on Almarai with a ‘BUY’ recommendation.
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 35
Bal
ance
She
etA
lmar
ai C
ompa
ny -
Alm
arai
SR ‘
000’
2006
2007
2008
2009
E20
10E
2011
E20
12E
Cur
rent
Ass
ets
C
ash
& B
ank
Bal
ance
s
6
8,02
6
137
,975
246
,585
365
,255
404
,868
389
,279
413
,475
D
eriv
ates
Fin
anci
al I
nstr
umen
ts
5,69
0
938
6,64
8
6,98
0
7,32
9
7,69
6
8,08
1 R
ecei
vabl
e &
Pre
paym
ents
221,
100
3
67,8
10
4
09,7
77
5
88,0
36
5
59,9
65
5
39,2
16
5
79,0
68
Inve
ntor
ies
431,
283
7
33,5
73
1,
096,
723
1,
206,
395
1,
327,
035
1,
459,
738
1,
605,
712
Tot
al C
urre
nt A
sset
s
726
,099
1,2
40,2
96
1,7
59,7
33
2,1
66,6
67
2,2
99,1
97
2,3
95,9
29
2,6
06,3
36
Non
-Cur
rent
Ass
ets
In
vest
men
t & F
inan
cial
Ass
ets
-
4
71,0
74
4
89,3
37
5
38,2
71
5
92,0
98
6
51,3
08
7
16,4
38
Prop
erty
, Pla
nt &
Equ
ipm
ent
3,
045,
810
4,0
41,1
32
5,
343,
308
5,
513,
191
5,
700,
062
5,
739,
386
5,
871,
623
Inta
ngib
le A
sset
s-G
oodw
ill
-
548
,636
548
,636
603
,500
663
,850
730
,235
803
,258
D
effe
red
Cha
rges
34,
692
40,
270
44,
297
48,
727
53,
599
58,
959
Tot
al N
on-C
urre
nt A
sset
s 3
,045
,810
5,0
95,5
34
6,4
21,5
51
6,6
99,2
58
7,0
04,7
36
7,1
74,5
28
7,4
50,2
78
Tot
al A
sset
s 3
,771
,909
6,3
35,8
30
8,1
81,2
84
8,8
65,9
25
9,3
03,9
33
9,5
70,4
57
1
0,05
6,61
5
C
urre
nt L
iabi
litie
s
Shor
t-T
erm
Loa
ns
11
0,78
1
182
,348
511
,165
383
,374
287
,530
215
,648
161
,736
Pa
yabl
es &
Acc
rual
s
40
3,37
8
575
,337
669
,558
840
,286
867
,931
917
,111
948
,832
D
eriv
ativ
e Fi
nanc
ial i
nstr
umen
ts
-
10,
033
1
08,0
72
1
18,8
79
1
30,7
67
1
43,8
44
1
58,2
28
Tot
al C
urre
nt L
iabi
litie
s
514
,159
7
67,7
18
1,2
88,7
95
1,3
42,5
39
1,2
86,2
29
1,2
76,6
02
1,2
68,7
96
Non
-Cur
rent
Lia
bilit
ies
L
ong-
Ter
m L
oans
1,
277,
425
2,4
09,4
28
3,
132,
956
2,
976,
308
2,
827,
493
2,
403,
369
2,
042,
864
Em
ploy
ees
Ter
min
atio
n B
enefi
ts
8
2,10
2
104
,903
128
,041
147
,247
169
,334
194
,734
223
,945
T
otal
Non
-Cur
rent
Lia
bilit
ies
1,3
59,5
27
2
,514
,331
3
,260
,997
3
,123
,555
2
,996
,827
2
,598
,103
2
,266
,808
T
otal
Lia
bilit
ies
1,8
73,6
86
3
,282
,049
4
,549
,792
4
,466
,094
4
,283
,056
3
,874
,705
3
,535
,604
Sh
are
Cap
ital
1,
000,
000
1,0
90,0
00
1,
090,
000
1,
090,
000
1,
090,
000
1,
090,
000
1,
090,
000
Shar
e Pr
emiu
m
-
612
,000
612
,000
612
,000
612
,000
612
,000
612
,000
St
atut
ory
Res
erve
s
25
8,93
6
325
,663
416
,689
520
,409
520
,409
520
,409
520
,409
O
ther
Res
erve
s
4,75
9
(9
,095
)
(8
3,16
1)
(4
1,58
1)
(1
0,39
5)
(
1,04
0)
2,07
9 R
etai
ned
Ear
ning
s
63
4,33
6
1
,034
,878
1,58
1,61
4
2,20
3,93
4
2,79
3,04
2
3,45
7,76
9
4,27
9,08
0 T
otal
Sha
reho
lder
s’ E
quit
y 1
,898
,031
3,0
53,4
46
3,6
17,1
42
4,3
84,7
63
5,0
05,0
57
5,6
79,1
39
6,5
03,5
68
Min
ority
Int
eres
t
19
2
335
1
4,35
0
1
5,06
8
1
5,82
1
1
6,61
2
1
7,44
3 T
otal
Lia
bilit
ies
& S
hare
hold
ers’
Equ
ity
3,7
71,9
09
6
,335
,830
8
,181
,284
8
,865
,925
9
,303
,933
9
,570
,457
10,
056,
615
Sour
ce:
Ann
ual R
epor
ts a
nd G
loba
l Res
earc
h
Global Research - Saudi Arabia Global Investment House
36 Almarai Company - Almarai March 2009
Inco
me
Stat
emen
tA
lmar
ai C
ompa
ny -
Alm
arai
SR ‘
000’
2006
2007
2008
2009
E20
10E
2011
E20
12E
Sale
s
2,75
6,93
5
3
,769
,833
5,
029,
904
5,1
91,7
97
5,44
3,33
3
5
,826
,287
6,
334,
886
Cos
t of
Sale
s(1
,682
,262
)(2
,276
,495
)(3
,030
,947
)(3
,019
,355
)(3
,112
,463
)(3
,284
,399
)(3
,390
,655
)
Gro
ss P
rofit
1,0
74,6
73
1,49
3,33
8
1
,998
,957
2,
172,
441
2,3
30,8
70
2,54
1,88
8
2
,944
,231
Selli
ng &
Dis
trib
utio
n E
xpen
ses
(423
,181
)(5
70,1
49)
(750
,878
)(7
78,7
70)
(816
,500
)(8
73,9
43)
(950
,233
)
Gen
eral
& A
dmin
istr
ativ
e E
xpen
ses
(116
,760
)(1
42,4
51)
(187
,108
)(2
28,0
21)
(211
,283
)(2
24,4
67)
(241
,435
)
Inco
me
Bef
ore
Ban
k C
harg
es, Z
akat
& M
inor
ity
Inte
rest
5
34,7
32
78
0,73
8
1
,060
,971
1,
165,
651
1,3
03,0
87
1,44
3,47
8
1
,752
,564
Ban
k C
harg
es(5
5,91
5)(9
4,86
0)(1
25,4
89)
(100
,790
)(9
3,45
1)(7
8,57
0)(6
6,13
8)
Inco
me
Bef
ore
Ban
k Z
akat
& M
inor
ity
Inte
rest
4
78,8
17
68
5,87
8
935
,482
1,
064,
861
1,2
09,6
36
1,36
4,90
7
1
,686
,426
Zak
at(1
3,68
7)(1
8,07
9)(2
4,66
2)(2
6,62
2)(3
0,24
1)(3
4,12
3)(4
2,16
1)
Inco
me
Bef
ore
Min
orit
y In
tere
st
465
,130
667,
799
9
10,8
20
1,03
8,23
9
1
,179
,395
1,
330,
785
1,6
44,2
65
Min
ority
Int
eres
ts
(40
2)
(53
0)
(55
8)(1
,038
)(1
,179
)(1
,331
)(1
,644
)
Net
Inc
ome
4
64,7
28
66
7,26
9
910
,262
1,
037,
201
1,1
78,2
16
1,32
9,45
4
1
,642
,621
App
ropr
iati
on A
ccou
nt
Ope
ning
Bal
ance
216
,081
634,
336
1,0
34,8
78
1,58
1,61
4
2
,203
,934
2,
793,
042
3,4
57,7
69
Tra
nsfe
r to
Sha
re C
apita
l
-
-
-
-
-
-
-
Tra
nsfe
r to
Sta
tuto
ry R
eser
ves
(46,
473)
(66,
727)
(91,
026)
(103
,720
)-
- -
Div
iden
d Pa
id-
(200
,000
)(2
72,5
00)
(311
,160
)(5
89,1
08)
(664
,727
)(8
21,3
10)
Ret
aine
d E
arni
ngs
6
34,3
36
1,03
4,87
8
1
,581
,614
2,
203,
934
2,7
93,0
42
3,45
7,76
9
4
,279
,080
Sour
ce:
Ann
ual R
epor
ts a
nd G
loba
l Res
earc
h
Global Research - Saudi Arabia Global Investment House
March 2009 Almarai Company - Almarai 37
Cas
h F
low
Sta
tem
ent
000
SR20
0620
0720
0820
09E
2010
E20
11E
2012
E
Profi
tfor
the
year
464,
728
667,
269
910,
262
1,03
7,20
1 1,
178,
216
1,32
9,45
4 1,
642,
621
Dep
reci
atio
n &
Am
ortiz
atio
n 17
3,76
2 31
5,52
8 37
8,96
8 56
8,73
8 62
5,61
2 67
5,66
1 73
6,47
1
Oth
er N
on-C
ash
Inco
me
- (1
14,8
10)
(165
,142
)(2
48,7
11)
(286
,017
)(3
14,6
19)
(346
,081
)
Oth
er I
ncom
e -
- -
(12,
798)
(14,
078)
(15,
486)
(17,
034)
Oth
er N
on-C
ash
Exp
ense
s -
26,9
66
56,0
86
60,0
38
66,0
42
72,6
46
79,9
11
Inte
rest
Exp
ense
55
,915
94
,860
12
5,48
9 10
0,79
0 93
,451
78
,570
66
,138
Cha
nge
in W
orki
ng C
apita
l (8
0,97
6)(2
69,5
43)
(313
,223
)(1
17,2
03)
(64,
924)
(62,
775)
(154
,105
)
Cas
h Fl
ows
from
Oth
er O
pera
ting
Act
iviti
es
16,3
03
20,0
39
23,6
96
- -
- -
Net
Cas
h fr
om o
pera
ting
act
ivit
ies
629,
732
740,
309
1,01
6,13
6 1,
388,
056
1,59
8,30
2 1,
763,
452
2,00
7,92
0
INV
EST
ING
AC
TIV
ITIE
S
Plan
t & P
rope
rty
(877
,517
)(1
,099
,196
)(1
,655
,619
)(7
38,6
21)
(812
,483
)(7
14,9
85)
(868
,707
)
Oth
er I
nves
tmen
t Act
iviti
es53
,272
(3
89,0
07)
83,5
31
164,
159
193,
027
212,
347
233,
600
Cas
h F
low
s fr
om I
nves
ting
Act
ivit
ies
(824
,245
)(1
,488
,203
)(1
,572
,088
)(5
74,4
62)
(619
,456
)(5
02,6
38)
(635
,107
)
FIN
AN
CIN
G A
CT
IVIT
IES
Incr
ease
in L
oan
277,
141
1,12
7,59
6 1,
052,
345
(284
,439
)(2
44,6
59)
(496
,006
)(4
14,4
17)
Fina
ncia
l Cha
rges
(55,
915)
(94,
860)
(125
,489
)(1
00,7
90)
(93,
451)
(78,
570)
(66,
138)
Div
iden
d Pa
id-
(199
,396
)(2
70,1
73)
(311
,160
)(5
89,1
08)
(664
,727
)(8
21,3
10)
Oth
er F
inan
cing
Act
iviti
es(3
62)
(15,
497)
7,87
9 1,
466
(12,
016)
(37,
099)
(46,
751)
Cas
h F
low
s fr
om F
inan
cing
Act
ivit
ies
220,
864
817,
843
664,
562
(694
,924
)(9
39,2
34)
(1,2
76,4
03)
(1,3
48,6
17)
Incr
ease
/Dec
reas
e in
Cas
h 26
,351
69
,949
10
8,61
0 11
8,67
0 39
,612
(1
5,58
9)24
,197
Cas
h B
egin
ning
Bal
ance
41
,675
68
,026
13
7,97
5 24
6,58
5 36
5,25
5 40
4,86
8 38
9,27
9
Cas
h E
ndin
g B
alan
ce
68,0
26
137,
975
246,
585
365,
255
404,
868
389,
279
413,
475
Sour
ce:
Ann
ual R
epor
ts a
nd G
loba
l Res
earc
h
Global Research - Saudi Arabia Global Investment House
38 Almarai Company - Almarai March 2009
Fac
t Sh
eet
20
0620
0720
0820
09E
2010
E20
11E
2012
EL
iqui
dity
Rat
ios
C
urre
nt R
atio
1.41
1.
62
1.37
1.
61
1.79
1.
88
2.05
C
ash
Rat
io0.
13
0.18
0.
19
0.27
0.
31
0.30
0.
33
Pro
fitab
ility
Rat
ios
G
ross
Mar
gin
%39
.039
.639
.741
.842
.843
.646
.5E
BIT
DA
Mar
gin
%29
.830
.430
.733
.435
.436
.439
.3E
BIT
Mar
gin
%17
.418
.218
.620
.522
.223
.426
.6N
et P
rofit
Mar
gin
%16
.917
.718
.120
.021
.622
.825
.9R
OA
E%
27.9
27.0
27.3
25.9
25.1
24.9
27.0
RO
AA
%13
.813
.212
.512
.213
.014
.116
.7
L
ever
age
Rat
ios
D
ebt t
o E
quity
0.40
0.
44
0.46
0.
40
0.36
0.
30
0.24
D
ebt t
o A
sset
%36
.840
.944
.537
.933
.527
.421
.9L
iabi
litie
s/T
otal
Ass
ets
(x)
0.50
0.
52
0.56
0.
50
0.46
0.
40
0.35
G
row
th R
ates
R
even
ue G
row
th R
ate
%28
.536
.733
.43.
24.
87.
08.
7N
et I
ncom
e G
row
th R
ate
%20
.443
.636
.413
.913
.612
.823
.6E
quity
Gro
wth
Rat
e %
32.8
60.9
18.5
21.2
14.1
13.5
14.5
Tot
al A
sset
Gro
wth
Rat
e %
26.7
68.0
29.1
8.4
4.9
2.9
5.1
Rat
ios
Use
for
Val
uati
on
Num
ber
of S
hare
s (m
n)10
910
910
910
910
910
910
9Pa
r va
lue
per
shar
e (S
R)
1010
1010
1010
10B
V p
er s
hare
(SR
)17
.4
28.0
33
.2
40.2
45
.9
52.1
59
.7
EPS
(SR
)4.
3 6.
1 8.
4 9.
5 10
.8
12.2
15
.1
Mar
ket P
rice
74.5
118
135
144.
2514
4.25
144.
2514
4.25
Mar
ket C
ap in
(SR
Mn)
8,12
1 12
,862
14
,715
15
,723
15
,723
15
,723
15
,723
E
V (
SR M
n)9,
329
15,1
33
17,6
01
18,3
34
18,1
4517
,737
17
,352
EV
/EB
ITD
A11
.34
13.1
9 11
.38
10.5
7 9.
41
8.37
6.
97
P/E
Rat
io17
.47
19.2
8 16
.17
15.1
6 13
.34
11.8
3 9.
57
P/B
V R
atio
4.28
4.
21
4.07
3.
59
3.14
2.
77
2.42
So
urce
: A
nnua
l Rep
orts
and
Glo
bal R
esea
rch
His
tori
cal P
/E &
P/E
mul
tiple
per
tain
to r
espe
ctiv
e ye
ar-e
nd p
rice
s, w
hile
thos
e fo
r fu
ture
yea
rs a
re b
ased
on
clos
ing
pric
e as
at 1
0th
Mar
ch 2
009
This Page is Intentionally Left Blank
This Page is Intentionally Left Blank
Company
Almarai Company -Almarai
Recommendation
Buy
Tickers
ALMARAI AB Equity (Bloomberg)2280.SE (Reuters)
Price (SR)
144.2
Disclosure
1,10
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