Almarai says market challenges, negative consumer trends to continue

Almarai Co. expects the challenging market environment in the Gulf region, along with overall negative consumer trends, to continue within its core categories for the rest of this year, the dairy producer said in a statement on Sunday.

“Our focus (for the year) will continue to be on delivering quality products,” it added.

The firm has posted a flat net profit for the first six months of 2018 at SAR 1 billion, while noting a slowdown in bakery, dairy and juice segments.

Its second-quarter profit slipped 2 percent year-on-year (YoY) to SAR 661 million, driven mainly by lower revenue, according to the company’s financial statement.

“As such, Almarai is reporting a slightly negative top line growth (-1 percent) for the quarter against the backdrop of an overall market,” it added.

Almarai said the macroeconomic challenges that the firm faced included “structural economic changes” that led to higher costs in energy and transportation.

Also affecting the dairy producer’s topline were the changes in the retail landscape leading to the closure of more than 3,000 shops, the introduction of VAT, the introduction of the expatriate levy, lower export sales combined with a general slowdown in the GCC markets, the statement said.

“This general contraction in the market has particularly impacted our discretionary categories,” it added.

The dairy, juice and bakery segments saw the most marked slowdown, displaying the greatest sensitivity to the changes in market dynamics, Almarai said

“We have achieved moderate volume led growth, but the increase in operating costs, mainly due to input cost of feed, expatriate levy costs and energy and transportation costs together with a high level of promotions and discounting activities led to significant margin erosion,” it added.

On the other hand, Almarai’s poultry segment achieved a record sale and profit in Q2 2018, and the firm expects the positive momentum in the segment to continue in the medium and long term.