Almarai did not reveal any figures, but released a short statement confirming it would start due diligence on the deal, which has been speculated about since December last year. The firm has stated it will spend US$5.6bn on investments and acquisitions up to 2020, as part of a major expansion plan intended to double its revenue by the end of the decade.
“Almarai Company announces its interest to acquire a controlling stake in National Food Products Company (NFPC) in the United Arab Emirates. NFPC has officially initiated a competitive sale process for part of its share capital and has invited Almarai to proceed with due diligence. In accordance with CMA Regulations, should this process proceed further, Almarai will make the necessary public announcements,” said the company in its statement.
Geographic and category expansion
Asim Bukhtiar, an analyst with Saudi Fransi Capital in Riyadh, said the acquisition would help Almarai expand into the UAE market, and would add water and packaging production facilities to its portfolio.
The UAE’s National Food Product Company (NFPC) is one of the country’s largest food and beverage producers, with brands including Milco, Lacnor and Oasis water, as well as a joint venture with Danish dairy giant Arla, and a new factory under construction in Abu Dhabi. It first put itself on sale in October 2015, offering a controlling 51% stake to potential buyers.
Almarai’s statement on the NFPC purchase came the week after it announced its first-quarter results, revealing almost flat profit growth despite a 13% rise in sales for the period, with bakery performing well, but profits on sales dairy and juice falling 4%, and poultry revenue growth slowing. The firm said increased fuel costs had hit its performance, and warned of competitive market conditions.
Poultry problems again
The majority of financial analysts gave Almarai’s stock a neutral rating, with 12 of the 17 analysts listed by the firm on the fence, versus four buy recommendations and one sell. Analysts at EFG Hermes noted a number of weaknesses at the firm, particularly in its long-challenged poultry operation.
“[The] division [is] no longer on-track to meet break-even target for 2016 [around 110 million birds] given intense pressure from cheaper frozen Brazilian competition. While mortality is reportedly stable, revenue growth slowed to an all-time-low of 6% and losses widened [to around 69% year-on-year], exacerbated by higher utility and transport costs. Almarai is running aggressive promotions and reformulating its poultry plan with a focus on reducing fixed costs,” said EFG Hermes’ report on Almarai’s Q1 results.