Almarai won’t be affected by lower consumer spending, says CEO

Lower consumer spending in Saudi Arabia is not expected to affect Almarai, because the company offers food and dairy products used regularly by consumers, said chief executive Georges Schorderet. In an exclusive interview with Argaam, Schorderet said the Saudi-listed company plans to boost its performance and products in the kingdom, as well as the United Arab Emirates. The Gulf’s largest dairy producer is also eyeing land purchases in the Middle East, as well as Europe to maximize their benefit on the long-run.

Q: How do you anticipate consumer spending will impact the company following the Saudi government’s recent austerity measures?

A: I don’t believe that lower consumer spending will significantly impact Almarai’s performance, as the company offers basic food products that are used regularly by consumers.

The company’s profit margins also hit a five-year high in Q3-2016, driven by the company’s successful cost-cutting measures, lower input costs, and higher operating efficiency.

Q: The poultry segment widened its losses in Q3 due to a decline in its sales, when compared to Q3-2015, how will Almarai overcome these losses?

A: The poultry segment losses are attributed to two factors: First, there are large imports of frozen meat coming in and being sold at lower prices. This did not only hit Almarai, but other fresh meat producers. Second, there is lower demand compared to the same period last year, as Ramadan fell in Q2-2016.

Q: How will you drive growth in such a key segment amid the current conditions?

A: We will boost the segment’s core operations and enhance the geographic distribution of its products. We will also focus on developing food catering services to aggrandize profit margins, reduce poultry mortality rates, and cost per kilogram.

Q: Do you have any plan to hike prices going forward, after you expected costs to rise nearly SAR 200 million this year due to water and energy price hikes?

A: We currently don’t have plans to hike prices, as we are focusing on cost management, as well as enhancing operating efficiency and transparency. 

Q: It true that you asked authorities to extend dairy products expiry dates to 10 days instead of seven?

A: Expiry dates will not affect product quality. Consumers use the products after a long time. Therefore, it is much better now to reduce food wastage and benefit from the extra time.

Q: In June, Almarai said it will use operating cash flows to finance its investment program, however cash flows declined in the first nine months of this year. So, how do you think Almarai will depend on them following such a decrease?

A: The decline came due to the company’s expansions, which will boost Almarai’s performance, increase its inventory, boost production capacities and presence over the coming period, and help it issue sukuk going forward.

Q: Will the company tap bank loans to complete its investment plans?

A: Almarai will not secure any loans to finance investments over the coming period. We will rather capitalize on investment returns to fund expansions, and likely refinance some debts as well.

Q: How will FX shortage and higher prices affect Almarai’s operations in Egypt?

A: Economic conditions in Egypt have impacted the currency, however, Almarai’s sales saw remarkable growth. We also still see large growth potential for the company in Egypt.

Q: You bought an agricultural land plot in California, are there any other alternative countries to cut costs?

A: We aim to diversify our land portfolio to increase benefit. We purchased lands in the United States and Argentina. We may buy other lands in Eastern Europe, Turkey and Iraq. Sudan could also be on the radar, but on the long-term. We will always eye new lands to diversify our options.

Q: What are the targets on Almarai’s agenda in the near future?

A: First, we are looking to increase consumers’ confidence in our products and develop our core segments— mainly dairy, juice, foods and bakeries to stand out among market peers.

We’ll also bolster the performance of the poultry segment. We are also planning to improve our performance in the United Arab Emirates (UAE), enhance services in the kingdom and UAE, and secure our needs of green fodder supplies from outside of the kingdom.