KMEFIC Research Equity Analysis Report Initiation of Coverage. Expected rate of return on equity in GCC Almarai Company (Almarai)

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1 Initiation of Coverage Expected rate of return on equity in GCC Almarai Company (Almarai) May 2013 Department شركة الكويت والشرق األوسط لإلستثمارالمالي ش.م.ك.م Kuwait and Middle East Financial Investment Company K.S.C.C

2 TABLE OF CONTENTS EXECUTIVE SUMMARY... 2 BUSINESS PROFILE... 3 ALMARAI COMPANY... 3 EXPANSIONS... 3 INDUSTRY: OVERVIEW & OUTLOOK... 4 INDUSTRY OVERVIEW... 4 PORTER S FIVE FORCES MODEL... 6 OUTLOOK... 7 FINANCIAL PERFORMANCE... 8 REVENUES & MARGINS... 8 ASSETS BREAKDOWN... 9 FINANCIAL LEVERAGE FORECASTS & ASSUMPTIONS REVENUE BREAKDOWN COST OF SALES SELLING & GENERAL EXPENSES NET INCOME FINANCIAL LEVERAGE VALUATION DISCOUNTED CASH FLOWS Free Cash Flow to the Firm RELATIVE VALUATION CONCLUSION KMEFIC RECOMMENDATION SCALE APPENDICES BALANCE SHEET INCOME STATEMENT RATIOS Almarai Company Page 1

3 Almarai Company (Almarai) Listing: Saudi Stock Exchange (Tadawul) CMP (May 07, 2013): SAR Ticker: 2280 Fair Value: SAR Reuters: 2280.SE Upside/(Downside): 15.23% Sector: Agriculture & Food Industry Recommendation: ACCUMULATE Executive Summary We initiate in this report our coverage of Almarai Company. Established as a Saudi joint stock company in 1976, Almarai is mainly engaged in the production of dairy products, fruit juice, cheese & butter, bakery, poultry, and infant milk. The company is listed on the Saudi Stock Exchange (Tadawul) with 29.18% of its shares in free float. In 2012, the company continued its strategic plan to expand regionally through investing in capital projects and entering new acquisitions and new production lines (bakery, poultry, and infant formula). During the same year, the company increased its share Financial Highlights (mil. SAR) Total Assets 15,654 19,519 Total Liabilities 8,876 11,348 Total Equity 6,718 7,549 Sales 7,951 9,883 Operating Income 1,518 1,673 Net Income 1,147 1,440 in International Dairy and Juice Limited Company (IDJ) UAE from 48% to 52%. Further, during December 2012 the company announced that new products of International Pediatric Nutrition Company, a joint venture between Mead Johnson and the Company, have complied with the requirements of predetermined quality standards and that its new factory is qualified to start production in KSA. Moreover, Almarai announced that poultry processing facility with a potential capacity of 180 million birds per annum will be commissioned during Despite a solid growth in earnings between 2007 and 2012 where net profit grew at a CAGR of 21.18%, Almarai s net operating profit margin witnessed a decline from 20.71% in 2007 to 16.93% in 2012 mainly due to higher costs of raw material resulting from commodity prices inflation, in addition to hikes in Selling & Distribution expenses after supply expansion of bakery and poultry products across GCC countries. Almarai revenues grew at an average of 21.4% annually over the period (+24.3% YoY in 2012). Revenues reached SAR 9.88 billion in 2012 and net income SAR 1.44 billion, a net profit margin of 14.57%. However, due to seasonality in revenues the company results for the first quarter 2013 showed net profit margin at 10.31%, yet lower than 12% in 1Q On the other hand, Almarai Selling & Distribution expenses hiked 30.58% YoY for the first quarter of Net income of the company declined by 12.24% YoY in 2011 but has recovered ever since, growing 25.54% in The main reason for this decline was the impact of impairment loss on Zain investment of SAR million. Almarai s assets have grown at an average annual rate of 25.41% between 2007 & 2012 reaching SAR billion in Fixed assets account dominates the majority of Almarai s total assets, a share of 68.73% at the end of Almarai Company Page 2

4 In general, Food & Beverage sector is of high defensive nature. In Saudi Arabia, the sector is foreseen to remain positive. According to Business Monitor International (BMI), the sector is expected to grow at CAGR of 8.90% for the Kingdom over the years , and to grow at an average CAGR of 6.04% for GCC excluding Saudi Arabia and Oman over the same period. We valued Almarai using two main approaches: Discounted Cash Flow Analysis and Relative Valuation. In order to compute the fair value per share for Almarai, we used a weighted average of the two approaches. We allocated a 50% weight to the discounted cash flow method and equal weights of 25% to the P/E multiple and P/BV multiple valuation methods. We reached a final fair value of SAR for the company s share, representing 15.23% upside from the current price level as of May 07, Accordingly, we issue our report with an ACCUMULATE recommendation for Almarai Company. Business Profile Almarai Company Almarai Company is a Saudi joint stock company established in Prior to the consolidation of activities in 1991, the company s core business traded between 1976 & 1991 under the brand name Almarai. The company and its subsidiaries are engaged mainly in the production of dairy products, fruit juice, cheese & butter, bakery, poultry, and infant milk formula. The dairy, fruit juices and related food business is operated under the brand names Almarai, Beyti, and Teeba. Bakery products are manufactured and traded by Western Bakeries Company Limited (in KSA) and Modern Food Industries Limited (in KSA) under the brand names L usine, and 7 Days respectively. Poultry products are manufactured and traded by Hail Agricultural Development Company (HADCO) under the brand name Alyoum. Almarai is listed on the Saudi Stock Exchange (Tadawul) with 29.18% of its shares in free float. The remaining shares are divided among 3 other shareholders: Savola Group Holding (36.52%), HH Prince Sultan Bin Mohammed Bin Saud Al Kabir (28.60%), and Omran Mohammed Omran and Partners Company (5.7%). As of May 07, 2013, Almarai s market capitalization stood at SAR billion. Expansions Figure 1 - Company's Ownership Structure 28.60% 5.70% 29.18% 36.52% Sources: Company Filings, Savola Group Holding Public HH Prince Sultan Bin Mohammed Bin Saud Al Kabir Omran Mohammed Omran and Partners Company In order to fuel its future growth and to continue growing from strong to stronger, Almarai invested in many projects growing organically along with acquisitions and partnerships. The major projects were the poultry expansion, the region s first infant formula facility, continued Almarai Company Page 3

5 investment in dairy and juice production facilities and distribution capabilities in addition to a downstream investment in securing supplies of feed, with the acquisition of an Argentinean agriculture company. In the new production line, poultry, the capital investment consists of the design and construction of poultry processing facility with a potential capacity of 180 million birds per annum, a rendering plant and the related distribution infrastructure throughout GCC countries. These facilities will be commissioned in three steps during 2013, with the first being the primary processing line, initially planned to be commissioned during first quarter of Almarai owns a modern infant formula manufacturing plant in Al Kharj, which is leased to International Pediatric Nutrition Company, a joint venture between Mead Johnson and the Company. On 16 th of December 2012, the company announced that its new products have complied with the predetermined quality standards and that its new factory is qualified to start production in Saudi Arabia. On January 04, 2012, Almarai Emirates Company L.L.C (UAE) was incorporated (100% owned by the Group) for the purpose of operating in the United Arab Emirates. Trading has not yet commenced. On March 28, 2012, the Company, through its subsidiary Almarai Investment Holding Company W.L.L., increased its shareholding in International Dairy and Juice Limited (IDJ) from 48% to 52% through an equity contribution of SAR 83.8 million. IDJ was incorporated in 2009 between the Company and PepsiCo, focusing on new business opportunities in dairy and juice products in the Middle East, Africa and Southeast Asia excluding the GCC countries. On July 10, 2012, Nourlac Company Limited was incorporated, 100% owned by the Group, for the purpose of trading infant formula. Trading has not yet commenced. On December 28, 2012, the liquidation of Blue Yulan S.A., 100% owned by Almarai Investment Holding Company W.L.L., was completed. All assets and liabilities of Blue Yulan S.A. have been taken over and absorbed by Almarai Investment Holding Company W.L.L. On March 25, 2013, the company announced that it has entered a joint venture with Saudi Company for Agricultural Investment and Animal Production (Saudi Arabia) and Saudi Grains and Fodder Holding (Saudi Arabia), to establish a new company, with a capital of SAR 1 million, under the name "United Farmers Holding Company". Almarai s share in the latter company is 33%. Industry: Overview & Outlook Industry Overview While a growing population is one of the main drivers of the food industry, economic wellness and higher wages can actually boost the industry growth at faster paces. Despite the ongoing Almarai Company Page 4

6 turbulence in the world economy, Business Monitor International (BMI) continues to maintain a very positive outlook for Saudi Arabia's consumer sector. As per the International Monetary Fund (IMF), Saudi Arabia s GDP will expand at an average of 4.35% for the period The Saudi economy is set to grow at 6.81% for 2012 down from 8.48% in the precedent year. In fact, with the exception of the year 2::9, the Kingdom s economy continued to grow smoothly while government spending hit record unprecedented highs. This helped the country absorb better the shocks from the financial mayhem created by 2::8 s crisis. On the other hand, the fast recovery in oil prices helped Saudi Arabia to maintain sustainable cash flows from oil revenues. In parallel, the Kingdom s domestic spending hiked as a result of wages and social benefits boost. As nearly all economic leading indicators point to higher spending throughout 2012, BMI retains its positive outlook on private consumption in the near term, forecasting an expansion of 6% in 2012 and 5% in In more details, BMI forecasts food consumption growth in 2013 at 9.8%; confectionery value sales growth 8.6%; and mass grocery retail sales growth to be 11.7%. Food Industry involves a vast global collection of many businesses in order to avail food energy consumed throughout the world population. It can be said that the food sector is a forked sector if we take in consideration its subsectors from crops, bakery, poultry, dairy, beverages, etc. The majority of Saudi Arabia s crops needs are imported due to the arid weather conditions and scarcity of water resources. The most Saudi s imported products are barley and rice. On the other hand, the Kingdom was classified as a net exporter of wheat, but it is expected to reduce its annual production due to high cost of fertilizers, farm equipments.etc. The Saudi government had identified many countries for investing in arable land abroad, aiming to achieve secure food supplies. According to a recent report issued by Al Rajhi Capital, the GCC dairy market was worth USD 3.2 billion in 2011 and expected to grow at a CAGR 9.5% over the next three years. The main share of Saudi dairy market is milk market, accounting for more than 60% of GCC dairy market. Milk derivatives such as cheese market is another major share of Saudi dairy market; representing more than two third of the GCC market. Cheese consumption is expected to grow at a CAGR 10.8% for the period According to the same report, the juice, nectar, and carbonated soft drink (CSD) market in Saudi Arabia grew respectively at a CAGR 4.3%, 8%, and 9.7% during The growing trend is expected to witness changes in the coming years to read CAGRs of 6.6% for juice drinks, 10.1% for nectar, and 3.5% for SCD during Saudi Arabia s bakery market size is expected to grow to USD 4.7 billion over the next five years. In line with the intense attractiveness of bakery industry, the competition increased through commencing new products or ramping up capacities. As for poultry subsector, Saudi Arabia ranked fourth in the world in term of chicken consumption per capita, and second as the largest importer. 60% of Saudi consumption of chicken was supplied by imports. Almarai Company Page 5

7 Porter s Five Forces Model Below is Porter s Five Forces Model applied to the Saudi Food & Beverage industry in order to assess its attractiveness. Figure 2 Porters Five Forces Model Suppliers' power: MODERATE Threat of new entrants: LOW Threat of substitutes: LOW/ MODERATE Food & Beverage Industry Business rivalry: LOW Customers' power: LOW Source: Bargaining power of customers We believe the bargaining power of buyers is low due to the limited number of companies operating in dairy & juice segments relative to the high population of KSA. Furthermore, Almarai, a gigantic company of global standards, is believed to be saturating consumers standards through offering high quality products. Almarai Company Page 6

8 Bargaining power of suppliers The determinants of suppliers power are the degree of quality in the products offered and the supplier s size relative to the market, and Almarai fulfills both. On the other hand, prices of dairy products are subject to the control of government authorities. Therefore, we believe the bargaining power of suppliers is moderate. Threat of substitute products The most important threatening factor here is the ability to produce high quality and innovative products. The threat for fresh dairy products comes from milk powder products but it is low as consumers prefer the fresh & healthy alternatives. On the other hand, juices and soft drinks markets are subject to wider threats from competitive products. Therefore, we rate the threat of substitute products at low-moderate. Force 4: Threat of new entrants In addition to high capital requirements, the lack of natural grazing would be one of the key challenges for any new entrants in the dairy market. This requires more investments to set up an irrigation system in arid regions. Moreover, hot climate is another hurdle which causes damage on certain varieties of products. Hence, we believe the threat of new entrants is low. Force 5: Industry rivalry We believe the industry rivalry is low following the absence of new entrant s threat and low of bargaining power for customers. Outlook Saudi Arabia has a vibrant food retail market; approximately 63% of the entire Middle East s food and beverage imports for Saudi Arabia, which puts the country as a leading player in regional food production. Saudi s major retailers expanded regionally through investing in capital projects and entering new acquisitions in order to meet changing consumers' preferences and increased competition. The food & beverage sector in GCC is expected to grow further fueled by rising population and high GDP per capita, mainly Saudi Arabia; the consumption is expected to increase following the population growth rate at twice the world rate. Almarai Company Page 7

9 (Revenues SAR Million) May 2013 Financial Performance Revenues & Margins Almarai s sales has been in upward trend over the period FY08 FY12, growing at CAGR 18.39% to reach SAR 9.88 billion in FY12. The high compound annual growth rate is a reflection of entry into new products categories and acquisitions. All the major categories saw significant improvements by the end of FY12: (i) the backbone business dairy delivered robust growth of 19.86% YoY to reach SAR 5.08 billion, (ii) cheese & butter, the second largest segment by value, grew 10.7% YoY, (iii) bakery sales reflected a growth of 33.6% YoY following the improvement of distribution across GCC coupled with the leveraging of new production facility in Al Kharj, (iv) according to the company s BOD report, the company is the leader of fruit juice market in five out of the six GCC countries, the category delivered a significant growth of 40% YoY to reach SAR 1.24 billion. Figure 3 - Revenues, Operating and Net profit margin 12, % 21.79% 21.06% 10, % 18.11% 18.75% 18.86% 16.93% 8, % 14.57% Figure 4 - Sales Distribution by segment (SAR million) 10,000 8,000 6,000 4,000 2,000 6,000 4,000 2,000 0 FY08 FY09 FY10 FY11 FY12 0 FY09 FY10 FY11 FY12 Others Poultry Fruit Juice Bakery Cheese & Butter Dairy Sources: Company filings, 25% 20% 15% 10% Revenues Net profit Margin Operating Profit Margin Sources: Company Filings,. 5% 0% The company serves a wide customer base in the Middle East. As presented in Figure 4, a hefty chunk of 67% of Almarai s revenue stream is generated through marketing operations of food products in the Kingdom of Saudi Arabia (KSA). Furthermore, 26% of revenues are generated through GCC excluding KSA, followed by other countries (Egypt, Jordan, and others) at 7%. It is noticed that throughout the past 5 years, more Figure 5 - Company's Revenues Geographical as per FY12 7% 26% Sources: Company Filings, * Excluding KSA 67% KSA GCC* Others attention and concentration has been paid to the GCC, representing an average of 97.77% from total sales. Almarai Company Page 8

10 SAR Billionn May 2013 Revenues from KSA grew from SAR 3.45 billion in FY08 (68.66% of total revenues) to SAR 6.65 billion by FY12 (67.29% of total revenues). GCC excluding KSA behaved similarly following the same trend line, growing from SAR 1.51 billion in FY08 to SAR 2.58 billion by FY12. The company s bottom-line grew at CAGR of 12.13% over the past 5 years from FY08 to FY12. Almarai maintained its solid performance throughout the crisis in 2008 and 2009, reporting significant double digit growth in net profit for the two fiscal years at 36.39% and 20.79% respectively. During FY11, the company s bottom-line figure declined by 12.24% YoY due to the impact of impairment loss on Zain investment of SAR million. The company reported 9.43% YoY slump in operating profit margin by the end of FY11, the dent was caused by commodity prices inflation which boosted direct material costs. During FY12, the company s operating profit margin contracted shrinking by 11.32% despite slightly softening commodity prices. The key factors contributing to this drop were (i) the consolidation of International Dairy & Juice Company LTD (IDJ) for the first time in FY12, and (ii) the distribution expansion of bakery and poultry products throughout the GCC countries which widened the company s Selling & Distribution expenses. Assets Breakdown Figure 6 - Assets Breakdown 25,000 Deferred Tax Asset 20,000 15,000 10,000 5,000 Deferred Charges Intangible Assets-Goodwill Biological Assets Property, Plant and Equipment Investments and Financial Assets Inventories Receivables and Prepayments 0 FY-08 FY-09 FY-10 FY-11 FY-12 1Q2013 Derivative Financial Instruments Cash and Bank Balances Sources: Company filings, The greatest proportion of Almarai s assets is property, plant and equipment, 68.73% of total assets by the end of FY12 and 63.88% at the end of the first quarter of Since FY08 total assets witnessed growth at a CAGR of 24.28% to reach more than SAR billion in FY12. The hike stemmed mainly from the increase in property, plant and equipment, resulting from ongoing program of intensive investment in production infrastructure, distribution capabilities and marketing, as well as entry into new categories and acquisitions. Finally, the company s total assets to equity ratio is maintained above a two-fold level; the ratio went up from % in FY09 to % by the end of FY12 and % by the end of the 1Q2013. For the same period, the company s cash has experienced exceptional growth, Almarai Company Page 9

11 expanding at 5+folds YoY. The issuance of Sukuk amounting to SAR 1.3 billion during March 2013 was the main reason behind this increase. Financial Leverage Table 1 - Leverage FY-08 FY-09 FY-10 FY-11 FY-12 1Q-13 D/E % 81.31% 79.03% % % % Interest Coverage Sources:, Company's filings The company s leverage has increased over the past five years and continues the trend through 1Q13, going from SAR 3.65 billion in FY08 to SAR 8.65 billion in FY12 and SAR10.68 billion in 1Q13. Total debt represents % and % of the company s equity in FY12 and 1Q13 respectively. During 2012, the increase in leverage stemmed mainly from financing facilities in respect of its major investment programs. Almarai obtained expenditures financing through Sukuk issuance, which bears a return based on SIBOR plus a pre-determined margin payable semi-annually. Also the company has obtained partial credit facilities from Saudi Industrial Development Fund (SIDF), a Government financial institution in Saudi Arabia. This SIDF financing is not commission-bearing; therefore the SIDF loan is not subject to commission rate risk. Moreover, the company secured additional financing through Islamic banking (Murabaha). Finally, the interest coverage ratio which stood at 8.45x in FY08, peaked in FY10 to 12.06x then stabilized in FY12 at 10.47x. Forecasts & Assumptions Revenue Breakdown In order to forecast the revenue of Almarai, we broke down our analysis into geographic segments, taking into account growth expectations of food consumption for each country. BMI (Business Monitor International) expected that Saudi food consumption will record a compound annual growth rate (CAGR) of 8.9% over the period Furthermore, BMI expects that food consumption in GCC excluding KSA and Oman will record an average compound annual growth rate of 6.04% for the same period. We expect Almarai s total revenue to grow at 8.35% YoY to reach SAR billion in FY13. Cost of Sales Cost of sales (COGS), as a percentage of revenues, has been stable over the period from FY08 to FY10 hovering around 60%. Further, COGS as a percentage to sales witnessed a slight increase to 62.3% and 64.5% in FY11 & FY12 respectively. As mentioned before in our report, theses hikes are attributed to the increase in direct materials costs following stretching commodity prices, in addition to the consolidation of new subsidiaries accounts. Almarai Company Page 10

12 Selling & General Expenses Selling & Distribution expenses increased by 33.26% in FY12 due to expansions in target markets. We expect the account to reach SAR 2.48 billion at the end of FY17, representing 16.79% of revenues. Additionally, we expect General & Administrative expenses to reach SAR 0.42 billion at the end of FY17, at 2.84% of revenues. Net Income As a result of our assumptions, Almarai is expected to conclude the fiscal year of 2013 with a net profit around SAR 1.52 billion, up by 5.41% YoY. On average, we expect the company s net profit margin to be circa 13.64% over the period FY13 FY17. Financial Leverage In order to finance its facilities in respect of its major investment programs, the company s debt to equity ratio was high and stood at % in FY12. We presume the high company s debt to equity ratio to decrease over the projected period due to strong cash flow from operating activities, to reach an average of % during FY13 FY17. Valuation We valued Almarai Company based on two main approaches: the Discounted Cash Flows (on a Free Cash Flow to the Firm basis) and the multiples analysis (Price to Earnings and Price to Book Value). Discounted Cash Flows Free Cash Flow to the Firm Following the DCF (FCFF) method, we applied a top down approach taking into account all relevant factors to estimate the company s primary sources of income. These estimates were coupled with forecasts of expenses in order to work out the company s operating profits and net profits over the forecast horizon. Capital expenditure and variations in working capital requirements were taken into account when computing Enterprise Value. Debt, Investments in associates, and Cash & Cash Equivalents recorded in the Company s filings (FY12 financial statements) were also taken into account in the calculation of the firm s value. We used a two stage DCF (FCFF) model with a WACC of 3.97% (the CAPM was used to compute the cost of equity) and set the terminal growth rate assumed at 3.00%. Our DCF (FCFF) model returned an estimated fair value of SAR per share, a 26.46% upside from Almarai s closing price on May 07, Almarai Company Page 11

13 Growth May 2013 Relative Valuation Following the relative valuation techniques, we used the industry s trailing P/E multiple and P/BV multiple. Based on Almarai s forecasted EPS in FY13 and the trailing P/E for the industry, we reached a fair value of SAR for the company s stock, suggesting a downside of 9.39%. Similarly, using the expected BVPS in FY13 and the trailing P/BV for the industry, we obtained a fair value of SAR for the company s stock, an upside of 17.41%. Conclusion In order to work out the hybrid fair value of Almarai s stock, we used a weighted average of the previously mentioned valuation approaches. We allocated a 50% weight to the discounted cash flow method and equal weights of 25% to the P/E multiple and P/BV multiple valuation models. We reached a final fair value of SAR for the company s share, representing an 15.23% upside from the current price level (as of May 07, 2013). Accordingly, we issue our report with a ACCUMULATE recommendation. Table 2 Almarai Equity Valuation Method Value Weight Weighted Value DCF - FCF to firm % Relatives - P/E % Relatives - P/B % Fair value per share Current market price (as of May 07, 2013) Potential upside/(downside) 15.23% Table 3 - Sensitivity analysis in (SAR) to WACC and Growth WACC % 3.87% 3.97% 4.07% 4.17% 1.00% % % % % Almarai Company Page 12

14 KMEFIC Recommendation Scale BUY potential upside is more than 30% ACCUMULATE potential upside is between 15% and 30% HOLD potential upside or downside is less than 15% REDUCE potential downside is between 15% and 30% SELL potential downside is more than 30% Almarai Company Page 13

15 Appendices Balance Sheet SAR"000" FY-12 FY-13F FY-14F FY-15F FY-16F FY-17F Cash and Bank Balances 417,304 1,297, , , , ,494 Derivative Financial Instruments 34, Receivables and Prepayments 791, , ,448 1,056,213 1,145,070 1,241,654 Inventories 2,317,097 2,623,200 2,857,186 3,111,125 3,386,756 3,685,984 Total current assets 3,561,023 4,819,994 4,826,061 4,805,793 5,003,796 5,384,133 Investments and Financial Assets 244, , , , , ,112 Property, Plant and Equipment 13,415,836 14,898,538 16,451,143 18,081,301 19,797,343 21,608,343 Biological Assets 901, , ,807 1,032,976 1,092,731 1,159,966 Intangible Assets-Goodwill 1,335,455 1,335,455 1,335,455 1,335,455 1,335,455 1,335,455 Deferred Charges 50,756 60,093 71,148 84,236 99, ,078 Deferred Tax Asset 10,222 11,103 11,571 12,460 13,243 14,127 Total Non-Current Assets 15,957,625 17,536,047 19,146,515 20,853,100 22,660,657 24,575,081 TOTAL ASSETS 19,518,648 22,356,041 23,972,576 25,658,893 27,664,453 29,959,214 Short-term Loans 1,399,818 1,724,089 1,770,477 1,809,066 1,883,198 1,986,899 Payables and Accruals 2,176,575 2,192,988 2,388,600 2,600,893 2,831,319 3,081,474 Derivative Financial Instruments 102, , , , , ,578 Total Current Liabilities 3,679,370 4,028,625 4,279,907 4,540,845 4,856,296 5,221,950 Long-term Loans 7,254,743 8,530,654 8,760,177 8,951,111 9,317,913 9,831,014 Employees Termination Benefits 287, , , , , ,283 Deferred Tax Liability 126, , , , , ,770 Total Non-Current Liabilities 7,668,288 9,001,393 9,300,252 9,572,454 10,034,433 10,658,067 Total Liabilities 11,347,658 13,030,018 13,580,160 14,113,299 14,890,729 15,880,018 Total Equity 8,170,990 9,326,024 10,392,416 11,545,594 12,773,724 14,079,196 Total Liabilities and Equity 19,518,648 22,356,041 23,972,576 25,658,893 27,664,453 29,959,214 Income Statement SAR"000" FY-12 FY-13 F FY-14 F FY-15 F FY-16 F FY-17 F Sales 9,882,996 10,707,909 11,604,037 12,577,714 13,635,854 14,786,003 Cost of Sales (6,371,919) (6,872,554) (7,485,577) (8,150,876) (8,873,003) (9,656,957) Gross Profit 3,511,077 3,835,355 4,118,460 4,426,838 4,762,851 5,129,046 Selling and Distribution Expenses (1,616,749) (1,767,895) (1,925,449) (2,096,353) (2,281,798) (2,483,084) General and Administrative expenses (221,402) (300,280) (325,584) (354,559) (385,997) (420,119) Net Operating Income 1,672,926 1,767,180 1,867,427 1,975,926 2,095,055 2,225,844 Share of Results of Associates (24,583) (11,906) (3,605) 6,262 11,352 12,676 Bank Charges (157,487) (191,144) (210,108) (215,217) (221,995) (232,687) Zakat & Income Tax (50,946) (46,320) (48,973) (52,327) (55,805) (59,401) Net Income 1,439,910 1,517,810 1,604,740 1,714,643 1,828,607 1,946,431 Almarai Company Page 14

16 Ratios FY-12 FY-13F FY-14F FY-15F FY-16F FY-17F Current ratio 0.97x 1.2x 1.13x 1.06x 1.03x 1.03x Quick ratio 0.34x 0.55x 0.46x 0.37x 0.33x 0.33x Cash ratio 0.11x 0.32x 0.23x 0.14x 0.1x 0.09x Gross profit margin 35.53% 35.82% 35.49% 35.20% 34.93% 34.69% Operating profit margin 16.93% 16.50% 16.09% 15.71% 15.36% 15.05% Net profit margin 14.57% 14.17% 13.83% 13.63% 13.41% 13.16% Return on total capital 8.9% 8.0% 8.0% 8.0% 7.9% 7.8% Return on average assets 8.2% 7.2% 6.9% 6.9% 6.9% 6.8% Return on average equity 20.2% 18.8% 17.6% 16.9% 16.3% 15.7% LT Debt to Equity ratio 1.15x 1.19x 1.1x 1.01x 0.95x 0.91x Debt to assets ratio 58.1% 58.3% 56.6% 55.0% 53.8% 53.0% Almarai Company Page 15

17 This report is being provided for informational purposes only and on the condition that it will not form a primary basis for any investment decision. This report is not an offer to buy or sell any of the securities that may be referred to herein. In no event will KMEFIC be liable for any loss occurring from investment decisions made based on the recommendation here-enclosed. Past performance is not necessarily a guide to future performance. Investors should make their own decision on whether or not to buy or sell the securities covered herein based upon their specific investment goals and in consultation with their financial advisor. KMEFIC has no obligation to update, modify or amend this report or to otherwise make any notification or announcement thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The inclusion of any opinions/estimates does not necessarily imply a recommendation or endorse the views expressed within them. Many areas of the report contain opinions and/or analysis that represent the involved analysts' views; neither the analysts nor KMEFIC shall be in any way liable for their opinions expressed in the report. KMEFIC may or may not have ownership or interest in companies mentioned in this report. This report has been prepared and issued by the Research Kuwait & Middle East Financial Investment Co. K.S.C.C. (KMEFIC), a licensed Kuwaiti investment company regulated by the Central Bank of Kuwait and the Capital Markets Authority. KMEFIC prepared this report using publicly available information, internal data, and other sources considered reliable; however, KMEFIC makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability with respect to the report or the information, analysis, opinions, or related graphics contained on the report for any purpose. While great care has been taken to ensure that the facts stated are accurate, neither KMEFIC nor any of its employees shall be in any way responsible for the contents. Neither this document nor any of its contents may be distributed in any jurisdiction where its distribution is restricted by law. Neither this document nor its content may be copied, transmitted or distributed without the prior written consent of KMEFIC. Additional information on the contents of this report is available on request. Almarai Company Page 16

18 Research Team: Safaa Zbib, CVA AGM Research Department Ali Al-Moussawi Snr. Equity Analyst Research Department شركة الكويت والشرق األوسط لإلستثمار المالي ش.م.ك.م ص.ب: 819 الصفاة 13::9 الكويت هاتف : 22255::: )+965( فاكس : )+965( Kuwait and Middle East Financial Investment Company K.S.C.C P.O.Box 819 Safat Kuwait Telephone: (+965) Fax: (+965) research@kmefic.com.kw