Savola Group Close to fair value - Al Rajhi Capital

RSI10
Vol mn
Savola Group Company
Food-Diversified –Industrial
SAVOLA AB: Saudi Arabia
28 March 2012
US$4.600bn 60.1% US$4.960mn
Market cap Free float Avg. daily volume
Target price 35.46 2.8% over current
Consensus price 38.00 10.2% over current
Current price 34.50 as at 27/3/2012
Underweight Neutral Overweight
Neutral
Key themes
We expect the food sector in Saudi Arabia to
continue growing on the back of ever-increasing
population and improving education. A surge in
shopping in supermarkets and hypermarkets should
support food sales and benefit Savola with its
presence in retail and food space.
Implications
Savola is one of our favourite companies in the food
sector. It has a leading market share in nearly all the
regions it operates in. However, our target price
offers limited upside as Savola share price has
recently rallied. In addition, the company has
operations in unstable markets such as Iran and
Egypt, which might affect its performance.
Therefore, we downgrade our rating on the company
to Neutral.
Performance
37
32
27
22
70
30
-10 4
3
2
1
Earnings
Period End (SAR) 12/11A 12/12E 12/13E 12/14E
Revenue (mn) 25,196 27,833 30,726 33,587
Revenue Growth 20.1% 10.5% 10.4% 9.3%
EBITDA (mn) 1,822 2,076 2,344 2,583
EBITDA Growth 7.2% 14.0% 12.9% 10.2%
EPS 2.40 2.85 2.92 3.36
EPS Growth 35.6% 18.6% 2.5% 15.1%
Source: Company data, Al Rajhi Capital
Valuation
40
35
30
25
20
15
10
5
0
Price Close MAV10 MAV50 Relative to SASEIDX (RHS)
03/11 06/11 10/11 01/12
Source: Bloomberg
P/E (x)
01/09 01/10 01/11 01/12
Source: Company data, Al Rajhi Capital
120
116
113
109
105
101
98
94
90
Savola Group
Close to fair value
Research Department
Moath Al Shaikh, Majed Al-Solaim
Tel 966 1211 9426, alshaikhma@alrajhi-capital.com
Savola posted outstanding results for 2011. Revenues were up by 20% y-o-y
mainly on the back of a strong performance at its edible oil division. Though
margins of edible oil and plastics divisions slipped, they were offset by better
margins at sugar and retail segments. Operating profits, as a result, grew by
43% y-o-y while net profits rose by 36% y-o-y (including capital gains of
SAR135.5mn). We are concerned about the stability of operations and currency
impact from Iran and Egypt; therefore, we have raised our WACC calculations
in an attempt to reflect our view that investors across the MENA region may
demand a higher risk premium. We have also changed our valuation
methodology and accordingly revised our target price to SAR35.4. We
downgrade our rating to Neutral as our new target price offers limited upside.
Food division delivers decent performance: Last year, the aggregate edible
oil business, in both emerging and mature markets, delivered a remarkable top
line growth of 33%. However, margins took a beating last year as the gross
margin declined by 300 bps reaching 14%. Saudi’s margins took a major hit as
the company fixed the prices of its finished products in an attempt to stabilize
them. This coupled with the poor performance in Iran and Egypt was the reason
for the 7% y-o-y decline in operating profits in the mature markets. However, the
emerging markets (mainly Algeria and Sudan) helped it offset this poor
operating performance, resulting in an aggregate operating profits growth of
14.5% y-o-y. On the other hand, the Sugar division clocked a respectable top and
bottom-line growth in 2011 with revenues and profits up by 17% and 39% y-o-y
respectively.
Pasta, latest division in the food basket: Just after acquiring 80% of the two
Egyptian pasta companies, Savola announced that it acquired the remaining
20% stake. This acquisition might be termed as opportunistic, taking advantage
of the weaker Egyptian pound. However, this increased the company exposure to
Egypt, adding to its risk profile. That said, we believe that moving one step
further in the food value chain is in line with the group’s strategy to focus on
core business.
Retail revenues up 12%: Retail revenues rose by 12% y-o-y in 2011 with
margins showing a noticeable improvement; net margin reached 2.2% as
compared to 0.6% in 2010. Nevertheless, retail margins are still weak as
compared to international peers. We don’t expect margins to improve
significantly as the group has lined up an aggressive outlet expansion program.
Savola operates in unstable markets: The year 2011 was an eventful year for
the MENA region. Egypt (12% of revenues) witnessed a political unrest from
which the country is yet to recover fully. Furthermore, the outlook for the
political and economic situation in Iran (13% of revenues) remains negative.
Valuation and summary: We like Savola’s business model, but we are
concerned as the political and economic outlook in two of its key markets
remains uncertain. As a result, we have raised our WACC calculation from 11.3%
to 13%. We have also changed our valuation methodology and accordingly raised
our target price to SAR35.4 (from SAR32.9). We downgrade our rating for
Savola group to Neutral as our new target price offers limited upside potential.
Disclosures Please refer to the important disclosures at the back of this report.
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Savola Group Company
Food-Diversified –Industrial
28 March 2012
Corporate summary Share information Valuation
Savola, one of the leading companies
in food and retail industries, is a group
that holds several companies which
operate in different industries. The
Group operates its businesses through
three Core Sectors; these are "Savola
Foods Sector", including Edible Oil,
Sugar and Pasta, "Savola Retail
Sector", including Retail (Panda - and
Hyper Panda), and Savola Plastics
Sector. Furthermore, Savola has a
major investment in the leading dairy
company in the GCC (Almarai) and in
Herfy Foods Company with stakes of
29.9% and 49% respectively.
Edible oil was a key top-line
growth driver in 2011
Savola added pasta to its
product portfolio
Savola expects capital gains of
SAR231mn this year
Market cap (SAR/US$) 17.25bn / 4.600bn
52-week range 23.70 - 35.40
Daily avg volume (US$)
4.960mn
Shares outstanding
500.0mn
Free float (est) 60.1%
Performance: 1M 3M 12M
Absolute 5.5% 21.5% 23.2%
Relative to index -3.1% 0.1% 4.1%
Major Shareholder:
Masik Holding Company 12.0%
General Organisation for Social Insurance 10.9%
Source: Bloomberg, Al Rajhi Capital
Period End 12/11A 12/12E 12/13E 12/14E
Revenue (SARmn) 25,196 27,833 30,726 33,587
EBITDA (SARmn) 1,822 2,076 2,344 2,583
Net Profit (SARmn) 1,202 1,426 1,461 1,682
EPS (SAR) 2.40 2.85 2.92 3.36
DPS (SAR) 1.30 1.30 1.30 1.35
EPS Growth 35.6% 18.6% 2.5% 15.1%
EV/EBITDA (x) 9.3 7.8 6.6 6.2
P/E (x) 14.3 12.1 11.8 10.3
P/B (x) 2.2 2.0 1.9 1.7
Dividend Yield 3.8% 3.8% 3.8% 3.9%
Source: Company data, Al Rajhi Capital
Savola Group
Positive outlook, concerns persist
Creditable performance in 2011
Savola ended 2011 with increases of 20% in revenues, 17.8% in gross profit, and 42.6% in
operating profit. Excluding capital gains, net profits were up by almost 9.2% y-o-y, exceeding
our as well as management’s expectations. The robust performance was mainly propelled by
an exceptional performance from the edible oil division, with revenue growth of 33% y-o-y.
Sugar, plastics, and retail divisions also fared well with revenues growing by 17%, 13% and
12% y-o-y respectively. Margins of edible oil and plastics divisions slipped. However, they
were offset by better margins at sugar and retail segments
In 2011, Savola acquired two Egyptian pasta companies - Al-Farasha and Al- Malika - for a
value of SAR713.5mn. Despite having limited information about both the companies, we
believe that moving a step further in the food value chain is a significant development for the
group and thereby diversifying its food basket.
Further, Savola was able to turn its edible oil operation in Algeria into a profitable business;
the group recorded profits of SAR23.5mn versus a loss of SAR37.5 in 2010. Furthermore,
Savola managed to sell lands in Riyadh and Jeddah last year, recording handsome capital
gains of SAR153mn. Savola also signed a contract with Knowledge Economic City Company
to sell its shares in a plot of land located in Al Madinah city. Savola, as a result, expects to
record capital gains of SAR231mn this year.
Figure 1 Savola: 2011 vs. 2010
(SAR) mn 2010 2011 %chg. Comments
Revenues
Edible oil 7,004 9,312 33.0% Outstanding revenue growth for the year from both mature (32%) and emerging markets (37%)
Sugar 5,023 5,861 16.7% Solid performance for 2011; revenues from Saudi and Egypt rose by 15% and 20% respectively.
Retail 8,183 9,182 12.2% Strong like for like growth of almost 7% in addition to opening 4 supermarkets and 3 hypermarkets during the year
Plastics 884 1,002 13.3% Strong top line performance driven by increasing prices and higher utilization rates
Pasta 0 51 N/A Pasta acquisition was completed in Q4 2011
Franchising 44 47 6.8% Company sold this business in 2011
HQ/Elimination/Impairments -153 -259 N/M
Total 20,985 25,196 20.1%
Operating profits
Edible oil 605 693 14.5% Despite having a decline in mature markets, emerging markets drove operating profit growth
Sugar 216 327 51.4% The ability to pass higher prices in the local market helped improving the profitability of this division
Retail 154 228 47.8% Solid improvements in margins as many hypermarkets and supermarkets are maturing
Plastics 118 99 -16.1% Declines in operating profits as raw prices increased
Pasta 0 8 N/M Pasta acquisition was completed in Q4 2011
Franchising -1 7 N/M Company sold this business in 2011
HQ/Elimination/Impairments -206 -98
Total 886 1,263 42.6%
Net income 887 1,202 35.6% Excluding capital gains, net profit were up by almost 9.25%
CAPEX 478 453 -5.4% 2011 did not witness huge CAPEX compared to previous years
CAPEX/Sales 2.3% 1.8% -0.5% As mentioned above
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 2

Savola Group Company
Food-Diversified –Industrial
28 March 2012
We are concerned about the
economic outlook for Iran and
Egypt this year
Savola operates in unstable markets
The year 2011 was an eventful year for the MENA region. Egypt - which accounts for almost
12% of Savola’s revenues - witnessed a political unrest from which the country is yet to
recover fully. Furthermore, the outlook for the political and economic situation in Iran –
another country contributing 13% to the total revenue- is negative. Many countries, including
Europe and the US, have imposed an oil embargo on Iran. In our view, these developments
will leave an impact on the economic situation in those countries.
Figure 2 Savola Group geographic revenue breakdown
Figure 3 Savola Group geographic net profit breakdown
11.9%
Title:
Source:
5.2%
2.6%
Please fill in the 8.2% values above to have them entered in your report
12.0%
13.3%
62.9%
84.0%
Saudi Iran revenues Egypt revenues Other
Source: Company data, Al Rajhi Capital
Source: Company data, Al Rajhi Capital
Saudi Iran revenues Egypt revenues Other
Market consensus suggests
that further depreciation of
Iranian Riyals and Egyptian
Pounds is possible
However, it is pertinent to mention that sugar and edible oil are essential products, and
hence the prevailing economic situation should have a limited impact on their demand.
Having said that, the problems in these countries have resulted into a depreciation in their
respective currencies against the US dollar (against the Saudi Riyal also as Riyal is pegged to
the dollar). Market consensus suggests the possibility of a further depreciation of their
currencies. Therefore, Savola’s foreign earnings, in terms of Saudi Riyal, might be affected in
the near future as further depreciation is expected.
Figure 4 Iranian Riyal vs. US Dollars
Figure 5 Egyptian Pounds vs. US Dollars
15,000
14,000
13,000
12,000
6.1
6
5.9
5.8
5.7
Title:
Source:
Please fill in the values above to have them entered in your report
11,000
10,000
5.6
5.5
5.4
9,000
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
5.3
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Source: Bloomberg, Al Rajhi Capital
IRR/USD
Source: Bloomberg, Al Rajhi Capital
EGP/USD
We have raised our WACC to
reflect investors’ demand for
risk premium
In addition, we are concerned about the fund flow between Saudi Arabia and Iran. Though we
are unaware whether Savola is facing problems in transferring and receiving its funds from
Iran, we suspect that fund flow wouldn’t be as smooth as it is with other stable countries.
Based on the above, we have raised our WACC for Savola from 11.3% previously to 13% now
in a bid to reflect our view that investors in the MENA region may demand a higher risk
premium. We will discuss the WACC calculations in detail later in this report.
Disclosures Please refer to the important disclosures at the back of this report. 3

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Savola now has pasta in its
food basket
Savola has also been growing
organically in sugar and retail
segments
Savola is reducing its reliance
on capital gains
Expanding through organic and M&A routes
In line with its recent strategy of focusing more closely on its core businesses, Savola has
successfully wrapped up several acquisitions in food and retail categories. It has acquired
minority stakes in Afia Egypt, New Marina Plastics Egypt, and Tate & Lyle in the sugar
business. In addition to its 80% interest in Giant Stores Trading Company, Savola has
completed a major retail acquisition by purchasing the assets of Saudi Geant (eleven stores).
The most recent acquisition - which took place in 2011 - was acquisition of Al-Malika and Al-
Farasha companies. Both are Egypt-based companies and are specialized in manufacturing
pasta. The aggregate capacity of both the factories is 124,000 MT pa, with a market share of
30%. In our view, this acquisition is an encouraging augury as it not only adds to the
company’s basket, but also paves the way for further forward integration in Savola’s food
division. We expect revenues from the pasta division to reach SAR199mn in 2012.
Savola has also been expanding its footprint through the organic route. The company is
carrying out construction work of a beet sugar refinery in Alexandria (Egypt) with a capacity
of 0.18mn MT pa, which is scheduled to kick-start commercial production in Q1 2013. The
group has also rolled out new Panda stores last year (four hypermarkets and three
supermarkets) and will continue opening new outlets in the coming years as part of its plan to
operate a total of 200 outlets by 2015.
We believe that these accomplishments reflect Savola’s commitment to its strategy and
confidence in its core business. For 2012, we expect profits from core operations of
SAR1,258mn, we also expect Savola to lock capital gains of SAR168mn this year.
Figure 6 Savola: reducing reliance on capital gains
1600
1400
1200
1000
800
660
753
97
129
168
600
400
852
933
1,074
1,258
200
488 477 496
0
-200
-294
-46
-400
2006 2007 2008 2009 2010 2011 2012E
Net income before capital gain
Capital gain
Source: Company data, Al Rajhi Capital
Fruitful investments
Last year, Savola posted respectable income of SAR463mn from its associates. Additionally,
Savola recorded dividend income of SAR194mn from Almarai and Herfy. As the company
uses equity reporting method for its associates (above 20%), we present below our forecasts
for Savola’s income from its associates. In addition, we present the interest income
(dividend) for the group (excluding capital gains) for the coming years. We have used our
own forecasts for Almarai and Herfy, both of which are under our coverage. We have also
forecasted dividend payments for both the companies. We further note that we did not
forecast any dividend payment from Savola’s other associates (Kinan and others) as we have
inadequate information about them.
Figure 7 Savola: income from associates and interest income (mn SAR)
Income from
associates 2010 2011 2012 2013 2014 2015 2016
Almarai 384 340 453 535 628 716 816
Herfy 61 72 83 96 107 118 130
Real estate 36 30 27 24 22 20 18
Eliminations and other -19 -30 -39 -46 -53 -60 -67
Total 462 412 524 610 704 794 897
Interest income
Almarai 155 155 155 175 201 229 261
Herfy 39 44 44 44 67 67 74
Total 194 199 199 219 267 296 335
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 4

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Oil division
Tough year ahead
Emerging markets helped offset
poor operating profits from
mature markets
Last year, the aggregate edible oil business, emerging as well as mature markets, posted an
outstanding revenue growth of 33%. However, margins were severely impacted as the gross
margin declined by 300 bps reaching 14%. The Saudi margins took a massive hit as the
company fixed the prices of its finished products in an attempt to stabilize them. This
impacted the margins severely as raw material prices fluctuated throughout the year.
Additionally, Iran’s net margins also declined to 6.3% from 7.7% in 2010. This was mainly
due to negative currency impact and higher logistics costs. The foregoing issues coupled with
poor profit growth from Egypt and Turkey led to operating profits declining in the mature
markets by 7%. However, the emerging markets (mainly Algeria and Sudan) helped offset
this poor operating performance; operating profits grew to SAR109mn in 2011 as compared
to losses of SAR23mn in 2010. This resulted in an aggregate operating profit growth of 14.5%.
Figure 8 Edible oil geographical revenue breakdown (mn SAR)
182
595
1,800
847
2,600
Operations in Saudi, GCC, Yemen & Sham Savola Bahshahar Afia Egypt Yudium Turkey Savola Kazakhestan
Source: Company data, Al Rajhi Capital
As a pure refiner, we question
Savola’s decision to offer stable
prices in the local market
Declining margins in local market pose a concern
Last year, the local operations chalked up an impressive revenue growth of 38%. However,
the net profit declined by almost 9%. According to Savola’s annual report, the company
wanted to stabilize oil prices in the market. We question Savola’s decision to do so as this will
expose the company to any fluctuations in raw material prices and make the company’s
future profits unstable. Looking ahead, we are unenthusiastic about the local operations
despite having market consensus forecasts relatively lower commodity prices in 2012.
Figure 9 Crude soybean prices (US$c/lb)
65
60
55
50
45
40
35
30
14-Dec-09 14-Jun-10 14-Dec-10 14-Jun-11 14-Dec-11 14-Jun-12 14-Dec-12
consesus estimates
Crude soybean Usd/lb
Source: Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 5

Savola Group Company
Food-Diversified –Industrial
28 March 2012
We expect the margin pressure
to continue in Iran
Uncertain outlook in Iran
As mentioned earlier in this report, the outlook for Iran’s economy is uncertain. Many
countries, including Europe and the US, have imposed an oil embargo on the country. This
has resulted in a depreciation of Iran’s currency against the US dollar. Market consensus
suggests the possibility of a further depreciation of its currency. Therefore, Savola’s foreign
earnings, in terms of Saudi Riyal, might be affected in the near future. In addition, we are
concerned about the fund flow between Saudi Arabia and Iran. Last year, revenues from Iran
rose by 29%, while profits only grew by 5%. The management attributes weak profits mainly
to currency devaluation and higher logistic costs. As edible oil is an essential product we
expect revenues to remain strong; however, margins are likely to remain under pressure
Weak profitability in Egypt
Despite 24% hike in revenues, Savola did not report any profit growth from Egypt. Given the
tough economic and political conditions in Egypt, we believe Savola managed its operations
well. Looking ahead, we expect the operations in Egypt to fare well this year compared to last
year. That said, profits will remain under pressure as the political and economic situation
remains unstable.
Emerging markets made the difference
Last year, the company clocked an outstanding revenue and profit growth of 50% and 224%
respectively in Sudan. Algeria also dished out a respectable performance as the company
managed to turn around its fortunes. Revenues in Algeria grew by 46% while profits reached
SAR23.5mn as compared to a loss of SAR37.5mn. These remarkable results helped offset the
operating declines from the emerging markets. On the other hand, operations in Morocco
continue to encounter problems as the company has failed to record profits since 2009.
Savola is currently re-evaluating its operations, which implies that exiting this market is
possible.
We are expecting a revenue
growth of 5.8% from the edible
oil division
2012; emerging markets to spur growth
Looking ahead, we are not excited about the revenue growth from the mature markets as we
expect it to grow by a modest 2.5%. We also expect the pressure on margins to continue,
especially in Saudi and Iran. On the other hand, we are positive about the emerging markets
(mainly Algeria and Sudan) and expect them to fuel growth this year. We expect revenues
from the emerging markets to grow by 25%.
We believe poor performance from mature markets will outweigh positive performance from
emerging ones; hence, we expect operating profits from edible oil division to decline by 6.8%
next year.
Figure 10 Figure 8 Edible oil forecasts (mn SAR)
(SAR mn) 2010A 2011A y-y% 2012E y-y%
Revenues
Global Afia (mature markets) 6,014 7,958 32.3% 8,153 2.5%
Emerging markets 989 1,354 36.9% 1,695 25.2%
Total 7,003 9,312 33.0% 9,848 5.8%
Operating prift
Global Afia (mature markets) 628 584 -7.0% 505 -13.4%
Emerging markets -23 109 N/M 141 29.1%
Total 605 693 14.5% 646 -6.8%
EBIT% 8.6% 7.4% 6.6%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 6

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Saudi still imports refined sugar
and we expect local refiners to
close this deficit
Sugar division
Saturated local market
The Saudi sugar market is one of the biggest ones in the MENA region. According to the US
Department of Agriculture, the total supply of refined sugar in the Saudi market was almost
3mn MT in 2011. Out of the total supply, local production was almost 86%, which
surprisingly implies that imported refined sugar is still considerably high (around 13%). This
makes no sense as shipping refined sugar is very expensive as compared to shipping raw
sugar. Similar to edible oil, shipping refined sugar requires hygienic conditions and care.
Figure 11 Saudi sugar market top view
(000) MT 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
Beginning stock 189 199 644 864 1,194 1,424 1,574 1,655 1,728 1,802 1,866
Raw sugar imports 1,000 1,335 1,245 1,320 1,280 1,150 1,072 1,068 1,061 1,050 1,038
Local production 1,189 1,534 1,889 2,184 2,474 2,574 2672 2759 2845 2926 3017
y-y% 29.0% 23.1% 15.6% 13.3% 4.0% 3.8% 3.3% 3.1% 2.8% 3.1%
Refined sugar imports 260 425 450 380 410 400 392 381 370 357 332
% of tot supply 17.9% 21.7% 19.2% 14.8% 14.2% 13.4% 12.8% 12.1% 11.5% 10.9% 9.9%
% of tot consumption 35.1% 54.8% 49.2% 42.2% 44.6% 42.1% 40.0% 38.0% 36.0% 34.0% 31.0%
Total supply 1,449 1,959 2,339 2,564 2,884 2,974 3063 3140 3215 3283 3348
Total exports 510 540 560 470 540 450 429 408 386 368 342
Total consumption 740 775 915 900 920 950 979 1,003 1,027 1,049 1,070
y-y% 4.7% 18.1% -1.6% 2.2% 3.3% 3.0% 2.5% 2.4% 2.1% 2.0%
Savola local mrkt share% 69.9% 86.7% 84.8% 89.4% 89.0% 88.9% 89.0% 88.9% 89.6%
Population (mn) 24.1 24.9 25.8 26.7 27.6 28.5 29.3 30.1 30.8 31.4 32.1
Population growth 3.4% 3.4% 3.4% 3.4% 3.3% 3.0% 2.5% 2.4% 2.1% 2.0%
consumption per capita (kg pa) 30.7 31.1 35.5 33.8 33.4 33.4 33.4 33.4 33.4 33.4 33.4
Source: Bloomberg, USDA, CDSI, Company data, Al Rajhi Capital
Note: USDA figures are combined figure. i.e., it is based on real, estimated and forecasted figures
We expect Saudi’s per capita
sugar consumption to stabilize
From a strategic top-down view, we believe that the Saudi sugar market is saturated and
apart from normal population growth, the sole room we see for growth is closing the
imported refined sugar gap or deficit. To put this gap into perspective, it is approximately
40% of Savola’s local capacity. We believe in the long run, local refiners will close this gap
gradually. That said, we don’t think Savola will expand their capacity as its market share,
based on our calculations, is currently high (90%) and increasing it further might trigger
monopolistic violations. Also, the Saudi per capita consumption is within regional
consumption rates, supporting our view that the Saudi market is mostly saturated.
Figure 12 Global sugar consumption per capita (KG/capita)
Figure 13 Local consumption ( 000 MT) and Savola’s market share
60.0
50.0
40.0
30.0
20.0
10.0
0.0
57
45
40 38
35 35 33 33 32 32 32
21 19
10
1,600
1,400
1,200
1,000
800
600
400
200
0
Title:
Source:
95%
90%
Please fill in the values above to have them entered in your report85%
2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
80%
75%
70%
65%
60%
55%
50%
Consumption/capita
Refined sugar imports Total consumption Savola local mrkt share%
Source: Bloomberg, USDA, CDSI, Company data, Al Rajhi Capital
Source: Bloomberg, USDA, CDSI, Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 7

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Problems faced by Savola’s sugar division
Savola runs three distribution channels for their refined sugar. 1) industrial clients, and2)
repackaging customers, where the cost increasing or decreasing is transparent to both types
and Savola does not face problems passing on any increases in raw cane prices to its
customers . Finally, 3) retail customers, where most of Savola’s problems come from. Ideally,
the highest margins for Savola’s sugar division should come from retail clients. Savola takes a
small refiner premium from industrial and repackaging clients, while the highest margins
accrue from branded refined sugar. However, Savola still finds it difficult to pass rising prices
to retail customers due to aggressive consumers’ reaction and governments’ restrictions. For
instance, the Egyptian government has a cap on sugar prices. This creates an unlevelled
playing field for Savola as they do not receive subsidies from the government like local
players while they are not allowed to raise their prices either. The local market is favourable
compared to the Egyptian market as we believe Savola can pass on most increases in prices to
its retail customers more easily.
We expect Savola to integrate
its operations by crop growing
and processing beet sugar in
Egypt
As refineries are operating at
close to capacity rates, we do
not expect much growth from
the sugar division
Integrated sugar business to ease pressure on margins
In contrast to edible oil operations, Savola is moving toward integrating its sugar business;
the group announced its plan to refine beet sugar in Egypt. Until now, the group did not
unveil any plans to crop grow or process beet into raw sugar yet; however, we believe that it
will happen soon given the fact that Egypt is considered a source land for beet sugar. Beet
sugar prices are cheaper than cane sugar; therefore, producing beet sugar in a market like
Egypt where the government has caps on refined sugar prices makes perfect sense. In
addition, Savola is planning to export beet sugar to neighbouring countries. We are positive
on the beet sugar plan as it will be easier for Savola to not only pass on fluctuations in raw
beet prices to its customers but also secure raw sugar on the long run. The proposed capacity
for the beet refinery is 0.18mn MT pa; the group expects production to start in Q1 2013.
Softening in sugar prices to boost margins
Last year sugar division witnessed decent performance; revenues grew by almost 17% on the
back of strong performance from Saudi and Egypt. This was mainly due to increases in prices
especially in the local market. Bloomberg consensus forecast slightly lower prices for raw
sugar of USd23.6/lb on average for 2012 compared to an average of USd26.85/lb in 2011.
Further, the volatility of prices since the beginning of the year was low compared to the first
quarter of 2011 and 2010. Therefore, we expect EBIT margins to improve from 5.6% levels in
2011 to 6.1% in 2012. In addition, we expect a revenue growth of little roughly 3.8% this year
as most refineries are running close to full capacity.
Figure 14 Raw sugar prices and consensus estimates (US$c/lb)
40
35
30
25
20
15
10
5
0
02-Jan-09 02-Jul-09 02-Jan-10 02-Jul-10 02-Jan-11 02-Jul-11 02-Jan-12 02-Jul-12 02-Jan-13
Consensus estimates
Raw sugar prices (sugar#11)
Source: Bloomberg, Al Rajhi Capital
Below we summarize our forecasts for sugar division
Figure 15 Savola sugar division forecasts
(SARmn) 2010A 2011A y-y% 2012E y-y%
Revenues
Saudi 3,541 4,082 15.3% 4,160 1.9%
Egypt 1,482 1,779 20.0% 1,921 8.0%
Total 5,023 5,861 16.7% 6,081 3.8%
EBIT 216 327 51.4% 371 13.4%
EBIT margin% 4.3% 5.6% 6.1%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 8

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Retail segment
Margins to make the difference
Boosted by ever-increasing population and changing shopping habits, the grocery retailing
sector in Saudi Arabia is growing at a steady pace. We expect the grocery market to grow at a
CAGR of 3.3% to reach SAR99bn by 2016. With a market share of about 10% as per our
estimates, Al-Azizia Panda United (owned 74.4% by Savola) leads the grocery retail market,
followed by Alothaim which occupies a market share of about 4.5%. While we believe that
small convenience stores will continue to dominate the market space, we see ample potential
for hypermarkets and supermarkets to up its market share as a result of Saudis’ changing
lifestyles and habits.
Figure 16 Saudi grocery retail market size (mn SAR)
Figure 17 Saudi grocery retail: dominated by small groceries
60
50
46 47 48
50
51
53 53 53
Title:
Source:
Please fill in the values above to have them entered in your report
40
30
20
15
21
21
25
10
0
FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
Hyper markets Super markets small grocery & other
Source: Euromonitor, Al Rajhi Capital estimates
Saudis’ changing lifestyle is
favouring large retailers
Source: Euromonitor, Al Rajhi Capital estimates
As mentioned earlier, the grocery retail market is still dominated by small grocery stores. We
estimate its share to be about 57%. Hypermarkets and supermarkets constitute around 18%
and 25% respectively. Over the past few years, the hypermarkets clocked the highest growth
rates; we estimate that it grew between 2008 and 2011 at a CAGR of 7.6%. Supermarkets
come in second with a CAGR of 4%, while small groceries grew at a CAGR of only 2.25% over
the same period.
Low penetration for hyper and super markets
We believe that Saudi shopping habits are undergoing a makeover and moving closer to a
western pattern. This notion is supported by different facts. Firstly, Saudi Arabia has a young
population which is increasingly shopping in supermarkets and hypermarkets rather than
traditional ones. Secondly, even older people are changing their shopping habits given the
comfortable experience such supermarkets and hypermarkets offer. Finally, as the Saudi
society is generally conservative and places of entertainment are limited, supermarkets and
hypermarkets are seen as a perfect destination to unwind. As a result, families tend to visit
large stores partly for entertainment. Compared to many local grocery retailers, Al Azizia
outlets are well positioned as they offer a feel-good experience families are looking for.
Figure 18 International retailing: sub-segment break down
Figure 19 Savola: number of supermarkets and hypermarkets
120%
250
Title:
Source:
100%
200
Please fill in the values above to have them entered in your report
80%
60%
40%
150
100
81 85 87
120
126
132
139
146
20%
0%
United
Kingdom
Italy Spain United Arab
Emirates
Saudi Arabia
50
0
47 48 51 54
64
1 3 5 8 16
33 34 38 40 46 53 61 70
Hyper markets Super markets small grocery & other
Source: Euromonitor, Al Rajhi Capital
Source: Company data, Al Rajhi Capital
Hypermarkets
Supermarkets
Disclosures Please refer to the important disclosures at the back of this report. 9

Savola Group Company
Food-Diversified –Industrial
28 March 2012
We expect Savola to operate
200 stores by 2015
More outlets are in the pipeline
We assume that growth in supermarkets and hypermarket will outperform that of small
convenience stores. Al Azizia is leading this trend and has outlined a clear strategy of
launching new supermarket and hypermarket outlets. Savola announced that it is planning to
operate a total of 200 outlets by 2015 (now 131). This aggressive expansion plan will ensure
that Panda will be better placed to capture a higher market share in this space in the future.
We estimate that if everything goes as planned, Savola’s market share will reach 14% by 2015.
Figure 20 Savola: retail revenues vs. sales per sqm per week
Figure 21 Savola: retail SSS and EBIT margins
20,000
18,000
16,000
14,000
12,000
10,000
550
500
450
400
14.0%
12.0%
10.0%
8.0%
6.0%
Title:
Source:
Please fill in the values above to have them entered in your report
450
400
350
300
250
200
8,000
6,000
4,000
350
300
4.0%
2.0%
150
100
50
2,000
FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
250
0.0%
FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
0
Retail revenues (SARmn)
Source: Company data, Al Rajhi Capital
Sales per sqm (SAR per week) - RHS
Source: Company data, Al Rajhi Capital
EBIT (SAR mn) - RHS SSS growth% EBIT margin%
As much as this is encouraging, Savola’s retail margins are squeezed. Usually, new
hypermarkets take between 3-4 years to reach full utilization, while supermarkets take only 1-
2 years. During the past three years, we estimate that aggregate selling space grew by 13%;
while hypermarkets’ selling space grew by 15% over the same period. Compared to 2010, last
year’s retail margins have shown significant improvement. As Savola intends to embark on an
aggressive expansion program for the next few years, we do not expect any major
improvements in margins.
As hypermarkets mature, we
expect margins to improve
Low efficiency compared to local and international players
When we compare Savola’s retail division with its international peers, we can see its
depressed efficiency ratios. That said, compared to local players such as Alothaim, Panda’s
efficiency are decent. We believe the western lifestyle makes international players’ sales per
sqm higher than the Saudi ones. In addition, online selling is a major sales channel for
international retailers. Looking ahead, we believe efficiency will improve gradually as hyper
and super markets mature. We expect sales per sqm to increase at a CAGR of 4% over the
next 4-5 years.
Figure 22 Comparing Savola’s (retail) sales per sqm per week with international peers
1,400.0
1,200.0
1,000.0
1,315
6.0%
5.5%
5.0%
800.0
600.0
689
4.5%
4.0%
3.5%
400.0
383
3.0%
200.0
2.5%
0.0
Tesco* Sainsbury's Savola**
2.0%
Sales per sq mt (SAR weekly)
EBIT%
Source: Companies data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 10

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Online selling is emerging as
one of the major selling
channels for international
retailers
More work needs to be done to
improve Panda labelling
No movement toward online selling
With above 50% of the Saudi population under 18 years, we strongly believe that online
selling will be one of the main selling channels in Saudi retail space. We have seen the
banking sector investing heavily in building the adequate infrastructure for it and the number
of online users is increasing rapidly. However, we do not see serious initiatives from most
retailers in Saudi toward improving this channel. We suppose the main reason is the lack of
proper addressing systems. As much as we concur that this is a major concern, we strongly
believe that such problems can be resolved through innovative ways. Online selling is now
one of the major selling channels for international retailers, for example, Sainsbury’s online
sales reached GBP1bn in 2011.
A lot more needs to be done to improve Panda labelling
Labelling accounted for almost 4-5% of Savola’s top-line retail revenues in 2011. In our view,
this is very low compared to international grocery retailers, for example, ASDA (UK grocery
retailer) claims that 50% of its revenues are from their own labels. Given Panda’s long history
(established in 1978), we consider that Panda’s management was not successful in marketing
their labelled products. We see that the effort Panda puts in expanding its outlets should at
least match its efforts in promoting their own brands. This is critical considering Savola’s
retail weak margin; we believe that developing this area coupled with improving efficiency
ought to boost retail segment margin to a reasonable level compared to international peers
2012: Retail is a key growth driver
We expect the retail segment to continue its double-digit top-line growth to reach SAR10.7bn
(growth of 17%) in 2012. Furthermore, as the company announced its aggressive expansion
plan for the next 3-5 years, we do not expect significant improvement in margins as the
company’s focus is to gain market share. Furthermore, we expect sales per sqm to steadily
improve over the next few years. Below we summarise our forecast for the retail division for
the next four years.
Figure 23 Savola: Retail division forecasts
FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
Hypermarkets 33 37 41 45 50 55 60 61
Supermarkets 81 87 90 101 112 125 140 142
Sales per sqm (SAR per week) 412.2 368.2 382.4 397.9 413.9 430.7 448.1 466.2
Revenues (SAR mn) 7,356 8,183 9,182 10,737 11,741 12,792 13,946 14,711
Revenue growth% 31.1% 11.2% 12.2% 16.9% 9.4% 8.9% 9.0% 5.5%
Same stores sales% 13.0% 5.0% 7.4% 5.9% 5.5% 5.0% 5.0% 5.0%
EBIT% 1.0% 1.9% 2.5% 2.6% 2.7% 2.7% 2.7% 2.8%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 11

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Plastic division
Charts steady growth path, margins to
improve
Savola’s plastic division was established in 1980 as a supporting unit for the edible oil
division. Currently, only 5% of this division’s revenues are from the edible oil business, while
the remaining 95% is from external customers. With a production capacity of about 140k MT
per annum, Savola’s plastics division is one of the leaders in the region. Savola operates its
plastic division through six manufacturing facilities (four in Saudi and two in Egypt). The
output product range for this division includes film, packaging materials, bottles, closures,
pre-forms, industrial containers, and crates.
Last year, the plastics division witnessed a solid top-line growth of 13%. However, the
margins were squeezed as feedstock prices rose. This resulted in a decline of almost 9% in
profits. Generally, passing any hikes in raw materials (petrochemical products) is not as
difficult as it’s in sugar and edible oil segments due to the fact that the company has no retail
clients for this division and price fluctuations are transparent to its clients. However, Savola’s
plastics division is under clients’ pressure to lower its prices as those clients such as Almarai
is unable to pass such increases to end consumers.
Outlook for this year
The plastics division’s margins are severely affected by rising raw material prices. In our
latest petrochemical report (Diversified companies to outperform published on February 20,
2012), we expect average prices for polyethylene and polypropylene in 2012 to be relatively
lower than that seen in 2011, despite the recent rise in the last couple of weeks. Based on that,
we expect slight improvement in margins. For top-line growth, we believe revenues will
slightly increase on higher utilization rates. Hence, we expect revenues to grow by 12%
reaching SAR1,122mn. Below we summarize our forecasts.
Figure 24 Savola: plastic division forecasts
2010 2011 2012E 2013E 2014E 2015E 2016E
Total production (MT pa) 99.0 101.0 106.9 112.8 118.0 122.7 127.7
Utalization rate% 69.5% 70.9% 75.0% 79.1% 82.8% 86.1% 89.6%
Revenues (mn SAR) 884 1,002 1,122 1,204 1,267 1,318 1,371
y-y growth% 18.0% 13.3% 12.0% 7.3% 5.3% 4.0% 4.0%
EBIT (mn SAR) 118 99 116 126 134 145 158
EBIT% 13.3% 9.9% 10.3% 10.5% 10.6% 11.0% 11.5%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 12

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Valuation
Previously, we valued Savola Group by using two methods - Long-Run DEP and comparative
multiples. Now, we will replace the latter by Sum of The Parts (SoTP) approach. We believe
that valuing each division of the group separately will be more appropriate for Savola given
its diverse operations.
For the long-run DEP method of estimating Savola’s fair value, we use a WACC of 13%. We
calculate WACC as shown below.
Figure 25 Cost of Capital
Risk-free Rate 2.4%
Market Risk Premium 14.2%
Adjusted Beta 0.98
Cost of Equity 16.3%
Pre-tax Cost of Debt 6.2%
Effective Tax rate 13.6%
After-tax Cost of Debt 5.4%
Target D/(D+E) 30.0%
WACC 13.0%
Source: Bloomberg, Al Rajhi Capital
We have decreased our previous assumption of a 30-year period of competitive advantage
when we first initiated coverage of Savola in 2010 to 28 years now. On this basis, we estimate
the fair value per share at SAR31.
The SoTP approach attempts to value the constituent segments of Savola separately. In an
ideal case, we would use the long-run DCF or DEP analysis for all segments of the business.
However, the fact that many of Savola’s companies are unlisted and hence financial
information on these companies as well as overseas operations is limited.
We have therefore decided to value Savola‘s various operations – including its domestic
business – on a comparative basis, using aggregate EV/EBITDA multiples for peer companies
to estimate a fair enterprise value for Savola‘s constituent parts. We believe this method
provides a practical and speedy way of valuing Savola‘s constituent parts. We have always
preferred EV/EBITDA to PE as a valuation measure since it is not affected by differences in
financial structure or tax rate.
Edible oil
We have used a selection of international companies as a base of comparison with Savola’s
Edible oil division.
Figure 26 Savola: comparables for edible oil business
Comparables Bloomberg Ticker Market Cap (mn SAR) Country name EV (mn SAR) EBITDA (mn SAR) EV/EBITDA
2011A 2012E 2011A 2012E
Tiger Brands LTD TBS SJ Equity 24,780 Johannseburg 25,734 1,958 2,066 13.1 12.5
Archer Daniels Midland ADM US Equity 79,501 New York 107,914 12,320 12,190 8.8 8.9
China Agri-Industries 606 HK Equity 10,354 Hong Kong 25,560 2,119 2,503 12.1 10.2
Aggregate 159,208 16,397 16,758 9.7 9.5
Source: Bloomberg, Al Rajhi Capital, as of 26 th March, 2012
Sugar
We have used a selection of international companies as a base of comparison with Savola’s
Sugar division.
Disclosures Please refer to the important disclosures at the back of this report. 13

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Figure 27 Savola: comparables for sugar business
Comparables Bloomberg Ticker Market Cap (mn SAR) Country name EV (mn SAR)
2011A 2012E 2011A 2012E
Tongaat Hulett TON SJ Equity 5,376 Johannseburg 8,218 943 994 8.7 8.3
Suedzucker AG SZU GY Equity 22,422 Germany 33,136 5,092 5,035 6.5 6.6
TATE & LYLE PLC TATE LN Equity 19,943 London 22,631 3,186 2,697 7.1 8.4
Cosan SA Industria CSAN3 BZ Equity 29,098 Brazil 37,938 4,468 5,474 8.5 6.9
Aggregate 101,922 13,689 14,200 7.4 7.2
Source: Bloomberg, Al Rajhi Capital, as of 26 th March, 2012
Figure 28 Savola: comparables for plastic business
EBITDA (mn SAR)
EV/EBITDA
Plastics
We have used a selection of international companies as a base of comparison with Savola’s
Plastic division. We have also included Takween (which was recently added to the Saudi stock
market) into our comparison universe.
Comparables Bloomberg Ticker Market Cap (mn SAR) Country name EV (mn SAR)
2011A 2012E 2011A 2012E
Takween TAKWEEN AB Equity 1,913 Saudi 2,153 131 N/A 16.4 N/A
Ball Corp BLL US Equity 24,316 New York 36,081 4,381 4,591 8.2 7.9
Amcor LTD AMCRY US Equity 34,213 Australia 47,874 4,824 6,143 9.9 7.8
Aggregate 86,108 9,336 10,734 9.2 8.0
Source: Bloomberg, Al Rajhi Capital, as of 26 th March, 2012
Figure 29 Savola: comparables for retail business
EBITDA (mn SAR) EV/EBITDA
Retail
Savola’s biggest division in terms of revenue share is retail. It is considered the leader in the
Saudi market and has minor retail operations outside the Kingdom. It has one store in the
UAE and eleven stores in Lebanon. Saudi operations account for 94% of the total retail
turnover. We have used a selection of companies in the local and international markets as a
base of comparison with Savola’s retail division.
Comparables Bloomberg Ticker Market Cap (mn SAR) Country name EV (mn SAR)
2011A 2012E 2011A 2012E
Alothaim Markets AOTHAIM AB Equity 2,070 Saudi 2,357 219 266 10.7 8.9
Tesco PLC TSCO LN Equity 163,074 London 217,825 30,320 31,437 7.2 6.9
Wall-Mart WMT US Equity 786,031 New York 978,518 130,090 136,242 7.5 7.2
Sainsbury PLC SBRY LN Equity 35,910 London 48,697 7,130 7,751 6.8 6.3
Aggregate 1,247,398 167,759 175,696 7.4 7.1
Source: Company data, Al Rajhi Capital
Figure 30 Savola: comparables for pasta business
EBITDA (mn SAR) EV/EBITDA
Pasta
We have used a selection of international companies as a base of comparison with Savola’s
pasta division.
Comparables Bloomberg Ticker Market Cap (mn SAR) Country name EV (mn SAR)
2011A 2012E 2011A 2012E
Ebro Foods Sa EBRO SM Equity 11,082 Spain 12,917 1,519 1,541 8.5 8.4
M Dias Branco SA MDIA3 BZ Equity 11,230 Brazil 12,173 1,081 1,263 11.3 9.6
Aggregate 25,090 2,601 2,804 9.6 8.9
Source: Company data, Al Rajhi Capital
EBITDA (mn SAR) EV/EBITDA
Investments
Savola’s main investments are in Almarai and Herfy; both companies are listed on the Saudi
Stock exchange and will be included in our valuations at their market value. Currently, we are
Overweight on Almarai and Neutral on Herfy. Had we rated any of these investments as
underweight, we would have used our estimated fair value for it. Other Savola’s investments
include real estate and private equity investments. We will include these investments as their
book values due to limited available information.
Disclosures Please refer to the important disclosures at the back of this report. 14

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Savola: Sum of the parts (SoTP) valuation
Using the above basis of comparison, we calculate SoTP fair value for Savola as follows:
Figure 31 Savola: SoTP valuation
EBITDA 2011 2012
Enterprise Value
(SAR mn) Method 2011 2012E (x) (x) Interest in EV 2011 2012E
Retail business Comparables 483.0 553.4 7.4 7.1 74.4% 2,672.0 2,922.9
Oil business Comparables 809.0 823.5 9.7 9.5 86.7% 6,814.3 6,786.4
Sugar business Comparables 417.0 462.2 7.4 7.2 72.9% 2,263.8 2,418.7
Plastics business Comparables 153.0 182.9 9.2 8.0 100% 1,411.1 1,467.2
Pasta business Comparables (started Q4 2011) 8.0 31.2 9.6 8.9 100% 77.2 279.4
Total Enterprise Value 13,238.4 13,874.7
Associates Method Ownership Value
Almarai Market price (SAR111.75) 29.9% 7,685.0
Herfy Market price (SAR88.5) 49.0% 1,301.0
Kinan Real Estate Devalopment Book value at 1.0x 30.0% 507.6
Other Book value at 1.0x value at YE 2011 832.8
Enterprise Value YE 2011 13,238.4 13,874.7
Net debt 5,019 4,233
Equity value at YE 2011 8,219.4 9,641.3
Associates and other investments 10,326.4 10,326.4
Total Equity Value 18,545.8 19,967.7
Shares outstanding (mn) 500 500
Price per Share 37.1 39.9
Source: Al Rajhi Capital
Almarai and Herfy 26 th March closing prices
On SoTP basis, we estimate
fair value at SAR39.9
On a comparative SoTP basis, we therefore estimate the fair value per share for Savola at
SAR39.9. As mentioned earlier, we are Overweight on Almarai and Neutral on Herfy, had we
been underweight on any of them we would have replaced the market value with our
estimated fair value. We believe our calculations represent a fair value of Savola’s share price.
The chart below presents a breakdown of our estimated fair enterprise value for Savola.
Figure 32 breakdown of estimated fair enterprise value using SoTP
2.0%
10.6%
21.1%
17.4%
48.9%
Source: Al Rajhi Capital
Retail business Oil business Sugar business Plastics business Pasta business
To recap, we estimate the fair value per share for Savola on a long-run DEP basis at SAR31,
but on a SoTP basis at SAR39.9. The two methods are both valid, thus we gave an equal
weight for both. Our new target price for Savola is SAR35.47.
Our new target offers limited upside potential to the current price; therefore we change our
rating to Neutral. We further note the group trades at an EV/EBITDA of 7.8 and P/E multiple
of 12.1.
Disclosures Please refer to the important disclosures at the back of this report. 15

Savola Group Company
Food-Diversified –Industrial
28 March 2012
We are expecting revenues for
2012 to reach SAR27.8mn
Income Statement (SARmn) 12/10A 12/11A 12/12E 12/13E 12/14E
Revenue 20,985 25,196 27,833 30,726 33,587
Cost of Goods Sold (17,614) (21,225) (23,357) (25,578) (28,104)
Gross Profit 3,370 3,971 4,475 5,148 5,483
Government Charges
S.G. & A. Costs (2,485) (2,707) (3,062) (3,533) (3,695)
Operating EBIT 886 1,263 1,414 1,615 1,788
Cash Operating Costs (19,286) (23,374) (25,756) (28,382) (31,003)
EBITDA 1,699 1,822 2,076 2,344 2,583
Depreciation and Amortisation (813) (558) (662) (729) (795)
Operating Profit 886 1,263 1,414 1,615 1,788
Net financing income/(costs) (218) (317) (388) (376) (376)
Forex and Related Gains - - - - -
Provisions - - - - -
Other Income 782 690 926 798 934
Other Expenses (284) (35) - - -
Net Profit Before Taxes 1,166 1,601 1,951 2,037 2,347
Taxes (140) (132) (190) (199) (219)
Minority Interests (139) (266) (336) (377) (446)
Net profit available to shareholders 887 1,202 1,426 1,461 1,682
Dividends (625) (650) (650) (650) (673)
Transfer to Capital Reserve - - - - -
We assume a dividend payout
ratio above 40% for the next
three year
We are expecting net profit
growth of 18.6% this year
We expect improvement in
retail and sugar margins to
boost overall margins
12/10A 12/11A 12/12E 12/13E 12/14E
Adjusted Shares Out (mn) 500.0 500.0 500.0 500.0 500.0
CFPS (SAR) 3.68 4.05 4.85 5.13 5.85
EPS (SAR) 1.773 2.405 2.852 2.922 3.364
DPS (SAR) 1.250 1.300 1.300 1.300 1.346
Growth 12/10A 12/11A 12/12E 12/13E 12/14E
Revenue Growth 17.1% 20.1% 10.5% 10.4% 9.3%
Gross Profit Growth 8.5% 17.8% 12.7% 15.0% 6.5%
EBITDA Growth 19.6% 7.2% 14.0% 12.9% 10.2%
Operating Profit Growth -6.3% 42.6% 11.9% 14.2% 10.8%
Net Profit Growth -6.8% 35.6% 18.6% 2.5% 15.1%
EPS Growth -6.8% 35.6% 18.6% 2.5% 15.1%
Margins 12/10A 12/11A 12/12E 12/13E 12/14E
Gross profit margin 16.1% 15.8% 16.1% 16.8% 16.3%
EBITDA margin 8.1% 7.2% 7.5% 7.6% 7.7%
Operating Margin 4.2% 5.0% 5.1% 5.3% 5.3%
Pretax profit margin 5.6% 6.4% 7.0% 6.6% 7.0%
Net profit margin 4.2% 4.8% 5.1% 4.8% 5.0%
Other Ratios 12/10A 12/11A 12/12E 12/13E 12/14E
ROCE 8.1% 10.6% 10.6% 11.1% 11.2%
ROIC 10.5% 17.2% 14.6% 16.9% 18.7%
ROE 12.7% 16.3% 17.6% 16.5% 17.2%
Effective Tax Rate 12.0% 8.2% 9.7% 9.8% 9.3%
Capex/Sales 2.3% 4.1% 3.8% 4.7% 4.8%
Dividend Payout Ratio 70.5% 54.1% 45.6% 44.5% 40.0%
Savola trades on a forward PE
of 12.1
Valuation Measures 12/10A 12/11A 12/12E 12/13E 12/14E
P/E (x) 19.5 14.3 12.1 11.8 10.3
P/CF (x) 9.4 8.5 7.1 6.7 5.9
P/B (x) 2.5 2.2 2.0 1.9 1.7
EV/Sales (x) 0.8 0.7 0.6 0.5 0.5
EV/EBITDA (x) 9.3 9.3 7.8 6.6 6.2
EV/EBIT (x) 17.8 13.5 11.4 9.6 9.0
EV/IC (x) 2.3 1.9 1.9 1.8 1.5
Dividend Yield 3.6% 3.8% 3.8% 3.8% 3.9%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 16

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Savola’s balance sheet is
expanding
Balance Sheet (SARmn) 12/10A 12/11A 12/12E 12/13E 12/14E
Cash and Cash Equivalents 533 1,214 2,028 3,141 2,916
Current Receivables 1,503 1,816 1,928 2,128 3,090
Inventories 2,527 3,152 3,262 3,078 3,359
Other current assets 1,348 1,592 1,432 1,432 1,432
Total Current Assets 5,911 7,774 8,651 9,780 10,798
Fixed Assets 4,739 5,384 5,660 6,377 7,194
Investments 6,107 5,332 5,804 5,804 5,804
Goodwill 1,025 1,302 1,341 1,341 1,341
Other Intangible Assets - - - - -
Total Other Assets - 309 309 309 309
Total Non-current Assets 11,871 12,328 13,114 13,831 14,648
Total Assets 17,782 20,101 21,765 23,610 25,446
Short Term Debt 2,779 3,412 3,410 3,410 3,410
Accounts Payable 2,076 2,719 2,847 3,241 3,493
Accrued Expenses 1,550 1,429 1,898 2,161 2,284
Dividends Payable - - - - -
Other Current Liabilities 200 181 - - -
Total Current Liabilities 6,605 7,740 8,155 8,812 9,187
Long-Term Debt 2,395 2,821 2,852 2,852 2,852
Other LT Payables 292 58 284 284 284
Provisions 276 410 307 307 307
Total Non-current Liabilities 2,962 3,290 3,442 3,442 3,442
Minority interests 1,195 1,348 1,699 2,076 2,522
Paid-up share capital 5,000 5,000 5,000 5,000 5,000
Total Reserves 2,020 2,722 3,468 4,280 5,295
Total Shareholders' Equity 7,020 7,722 8,468 9,280 10,295
Total Equity 8,215 9,071 10,167 11,356 12,816
Total Liabilities & Shareholders' Equity 17,782 20,101 21,765 23,610 25,446
Ratios 12/10A 12/11A 12/12E 12/13E 12/14E
Net Debt (SARmn) 4,641 5,019 4,233 3,121 3,345
Net Debt/EBITDA (x) 2.73 2.76 2.04 1.33 1.29
Net Debt to Equity 56.5% 55.3% 41.6% 27.5% 26.1%
EBITDA Interest Cover (x) 7.8 5.7 5.3 6.2 6.9
BVPS (SAR) 14.04 15.44 16.94 18.56 20.59
Cashflow Statement (SARmn) 12/10A 12/11A 12/12E 12/13E 12/14E
Net Income before Tax & Minority Interest 1,166 1,601 1,951 2,037 2,347
Depreciation & Amortisation 813 558 662 729 795
Decrease in Working Capital (137) (187) 116 641 (868)
Other Operating Cashflow 12 (398) (190) (199) (219)
Cashflow from Operations 1,853 1,573 2,540 3,208 2,055
Capital Expenditure (478) (1,025) (1,056) (1,446) (1,612)
New Investments (497) 152 - - -
Others (164) 104 - - -
Cashflow from investing activities (1,139) (768) (1,056) (1,446) (1,612)
Net Operating Cashflow 714 805 1,483 1,763 443
Dividends paid to ordinary shareholders (623) (498) (650) (650) (667)
Proceeds from issue of shares - - - - -
Effects of Exchange Rates on Cash - - - - -
Other Financing Cashflow (689) (385) - - -
Cashflow from financing activities (1,138) (124) (650) (650) (667)
Total cash generated (424) 682 833 1,113 (225)
Cash at beginning of period 1,001 533 1,214 2,028 3,141
Implied cash at end of year 577 1,215 2,047 3,141 2,916
We expect Capex/sales ratio to
remain relatively low
Ratios 12/10A 12/11A 12/12E 12/13E 12/14E
Capex/Sales 2.3% 4.1% 3.8% 4.7% 4.8%
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 17

Savola Group Company
Food-Diversified –Industrial
28 March 2012
Disclaimer and additional disclosures for Equity Research
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Khalid Alruwaigh
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Disclosures Please refer to the important disclosures at the back of this report. 18