Almarai CFO discusses retail spending downturn, Egypt operations

Saudi dairy giant Almarai’s chief financial officer Paul-Louis Gay tells Argaam about the company’s investment and expansion plans for 2016, sales targets, and how business in Egypt has been affected by the devaluation of the pound.

Q: In February, Almarai announced in its annual report that it plans to invest SAR 4.2 billion throughout 2016. Which areas have you expanded, and what other segments will Almarai invest in over the coming months?

A: We have invested into five major areas: manufacturing in the bakery plant in Hail and dairy processing plant in Al-Kharj; dairy farming capacity; capacity increase in depot development, fleet expansion and fridges; manufacturing expansion of cheese and dairy capabilities for our joint venture company Beyti in Egypt; and, expansion of our overseas land bank and supply chain to procure the majority of alfalfa in line with Saudi Vision 2030.

Q: How do you anticipate Vision 2030 will impact Saudi Arabia’s food and beverage sector over the next five years? Do you feel that consumers in the kingdom are now spending less? 

A: We have noticed that for discretionary spend, Saudi consumers are spending less. However, within the food sector, spending does not seem to have reduced. We believe that Vision 2030 will result in an increasingly competitive landscape offering opportunities for further efficiency gains and consolidation within the sector for the benefit of consumers.

Q: Is there a timeframe for when you plan to raise financing for your investments? Any plans for upcoming sukuk/loans?

A: For the time being, the expected increase in the company’s cash flow combined with a reduction in capex from the current levels does not call for raising additional financing. In fact, the objective is to reduce the gearing ratio of the company. External financing will only be used to refinance and optimize the bet debt position.

Q: Will you let go of any expat workers as you push ahead to employ 4,500 Saudi nationals by 2021, as outlined in your five-year plan?

A: There is no plan of letting employees go. The natural attrition we have experienced over many years will play its role to let us achieve our localization target.

Q: You have stated that you plan to raise sales by 10 percent this year. How are you looking to achieve that?

A: We have only provided to the market an overall top line guidance for 2016 of a growth ranging from eight to 10 percent. This growth will be driven organically from volume growth and spread over the entire portfolio of products and geographies where Almarai operates.

Q: How has business in Egypt been affected by the devaluation of the pound, and how are you coping with this?

A: The devaluation has resulted in increasing costs of imported materials and equipment into Egypt, a persistent lack of hard currencies to fulfill the import requirements and also a negative revaluation loss in March 2016. These adverse factors have been partially mitigated by selected price increases and a strengthened financing both from renewed bank facilities, and as planned, increasing equity contribution from the shareholders.

Q: Do you expect increased competition from frozen products and higher utility costs to continue to affect sales in the poultry segment?

A: We expect competition to continue in the poultry segment both from local and international players in a deteriorating macroeconomic environment.