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ALMARAI
Capex of SAR 6.5 billion expected in 3
years
March 05, 2012
GENEROUS CAPITAL EXPENDITURE
INITIATION OF COVERAGE EQUITY RESEARCH
For the past 3 years, more than 34% of Almarai’s sales revenues have been ploughed back into
business development, infrastructure and technology. The company capex totaled SAR 3.2 billion
in 2011, including:
1 Poultry expansion.
1 Development in the infant nutrition facility.
1 Establishment of the dairy and food polytechnic in Al Kharj.
1 Improvement of the company’s distribution capabilities.
1 Backward integration with the acquisition of Blue Yulan and Fondomonte
Almarai plans to spend SAR 2.8 billion in 2012. No acquisition are expected, rather the company will
focus on improving efficiency.
ESTABLISHED DISTRIBUTION CHANNELS
Almarai fleet comprises of more than 800 trailers and 66 tankers that transport products from the
manufacturing facilities to the 90 sales depots in the GCC. The company is also establishing depots
in Oman and Kuwait. It has about 3,000 vans serving 50,000 retail outlets on a daily basis. This large
distribution channel puts the company is an advanced position compared to its peers in GCC,
allowing it to easily distribute new products in the GCC market.
CHANGES IN THE WORK ENVIRONMENT
Material costs consumed 43.2% of total 2011 revenues for Almarai, compared to 41.5% in 2010. Both
ingredients and feed costs form 76% of total material cost, and they were negatively affected by
high inflation during 2011. Packaging costs form 24% of material cost and they were hit by increased
crude oil prices which also impacted distribution cost. Labor and overhead cost consumed 37.7% of
the company’s 2011 total revenues. Almarai workforce enlarged from 17 thousand workers in 2010
to 22 thousands in 2011, and a similar number is expected to be added during 2012. These factors,
combined with unpleased performance from IDJ and most significantly the inability to pass the
increase in raw material costs, negatively affected the EBIT margin which dropped by 200 bps to
stabilize at 19.1% in 2011, first time below the targeted 20% since 2006.
DEBT IS INCREASING
Almarai paid more than SAR 3.2 billion capex and SAR 0.5 billion cash dividend in 2011, and it
generated only SAR 1.9 billion cash flow from operating activities. As such, the company’s net debt
increased by more than SAR 2 billion in 2011 to reach SAR 6.7 billion. On the other hand, average
cost of borrowing dropped from 3.19% in 2010 to 2.15% in 2011. Net debt to equity ratio increased
from 75.6% in 2010 to 99.6% in 2011. While Almarai targets 1:1 ratio on the medium term, it is
expected that 2012 ratio may be slightly higher because of the high capex of SAR 2.8 billion. The
company plans to diversify its sources of fund by issuing Sukuk. The first tranche of SAR 1.5 billion
to be offered in a private placement this month, arranged by HSBC. About SAR 800 million are for
refinancing purposes and the remaining amount is to partially finance the company 2012 capex.
While a tenor of 6 months is expected for the SAR 500 million tranche, tenor of 5 to 7 years is
expected for the other SAR 1 billion.
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