Earnings call transcript: Almarai Q3 2025 shows strong growth amid market challenges

Almarai Company reported a notable performance in its Q3 2025 earnings, with revenue and net income both showing significant growth. The company achieved a 7% increase in revenue, reaching SAR 757 million, and an 8% rise in net income to SAR 613 million. According to InvestingPro data, the company maintains a FAIR financial health score, with analysts anticipating continued sales growth. Despite the positive financial results, the company’s stock saw a decline of 1.19% during the trading session, closing at 50.5 SAR, reflecting investor concerns over market conditions and future guidance.

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Key Takeaways

• Almarai’s Q3 2025 revenue increased by 7% year-over-year.
• Net income grew by 8%, highlighting effective cost management.
• The company’s stock fell by 1.19% following the earnings release.
• Almarai continues to focus on volume growth and operational efficiency.
• The poultry segment faces market pressures but remains a long-term focus.

Company Performance

Almarai demonstrated robust performance in Q3 2025, driven by volume growth across various categories and markets. The company maintained its leadership position in multiple food categories, despite facing challenges in the oversupplied poultry market. Geographical diversification, particularly strong growth in Egypt, has contributed positively to the overall performance.

Financial Highlights

• Revenue: SAR 757 million, up 7% year-over-year
• Operating Profit: Increased by 2% to SAR 757 million
• Net Income: SAR 613 million, an 8% rise from the previous year
• EBIT Margin: Maintained between 14-15%
• Year-to-Date Revenue: SAR 16.6 billion, a 5% increase

Outlook & Guidance

Looking forward, Almarai is committed to a volume-driven growth strategy, focusing on operational efficiency and potential price adjustments to manage input cost fluctuations. The company aims to maintain an EBIT margin target of 14-16% and is exploring alternative energy sources to enhance sustainability. InvestingPro analysis shows the stock generally trades with low price volatility, making it an interesting consideration for stability-focused investors. Based on InvestingPro’s Fair Value analysis, the stock currently appears to be trading near its fair value.

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Executive Commentary

Danko, an executive at Almarai, emphasized the company’s focus on volume growth, stating, "Volume is the name of the game for us, making sure that we grow volume profitably." He also highlighted the company’s commitment to long-term market presence, saying, "We are here to stay in the long run. We want our consumers to love our products."

Risks and Challenges

• Oversupply in the poultry market could pressure margins.
• Potential diesel price increases may affect operational costs.
• The need for continuous innovation to maintain market leadership.
• Macroeconomic factors impacting consumer spending in key markets.
• Managing debt levels while pursuing growth opportunities.

Almarai’s strategic initiatives and focus on operational efficiency position it well for future growth, although market conditions and external challenges will require careful navigation.

Full transcript - Almarai Company (2280) Q3 2025:

Danko, Primary Presenter/Executive, Almarai: We’re on to the regular presentation as well as how the market share of recently growing as we go in some of our forecasted ways. We remain to hold firm in holding our leadership position even despite forecasted growth, as you can see here. What would be a bit of a tough part of the market share? If we look a little bit on innovations, for those of you who like cheese, like I do, and very good innovations in the third quarter, you have the Greek feta cheese called Trofos, which is a big seller in different sizes and packaging and well-known for culinary versatility and very good taste. It’s doing very well in the market. Another one that we launched in the third quarter is the expansion of cheese, the Marabello, Gouda, and Cheddar cheese that you see in traditional packaging that is a little bit more premium.

Very good sales from those as well. You’ll see later on as we present the fruit category doing very well in delivering growth in the quarter. We also have some Almarai version of the, if you go back on the tahini dressing that is also a big seller that we’ve done in the quarter. More expansion on the dairy food side, but doing very well as a category, which I kind of more allude to as we go through the results. Now, moving into the summary of the third quarter. There are the key highlights here. I’m sure you’ve read it, but there’s some flavor to it. 7% growth in the quarter. From now on, we will add acquisition growth to our organic growth. As you might have seen, water represents about 1.5% of the 7% growth that we have. It is included on the beginning of August and September.

Two months of water is coming in. The rest is across the board, good growth along all the categories. Also very strong delivery in the region. Let me come back into that. Our operating profit increased about 2%, driven by strict cost control. Despite high transportation costs, you can see our operating profit at SAR 757 million is 14% EBIT margin, similar to last year. Our net income elevated a bit more into 8% growth to SAR 613 million, holding about 12%, sorry, 11% of the net income at the same as last year. This growth comes from items that relate to the interest cost and the tax that I will come into a little bit more. On the cash flow, you can see that we are still continuing to increase working capital as a balanced position to last year.

Please keep in mind that about $150 million of that relates to the acquisition, the water acquisition that we are adding to our net working capital in the quarter. It is also some more safety stock that we are having in our working capital, given the geopolitical situation that we’re in. It is calming down a little bit, but we still want to make sure that we have availability of supply. Therefore, we have a little bit more working capital than what we normally would do in a normal circumstance. Our CapEx growth is not that significant, $88 million, but we have a very high base. Already, when you look at Q3 in 2024, close to $900 million, a little bit more than $900 million spent last year, and we’re spending $1 billion in the quarter.

All part of the plan for the expansion, having a majority of the expansionary CapEx that we have. Even though you might not see a big increase quarter to quarter, it’s on a relatively high level.

Abdulhadi, Moderator, Almarai: Apologies, Mr. Danko. Can you move maybe a little bit closer to the microphone as you’re going a little far ahead?

Danko, Primary Presenter/Executive, Almarai: Let me try it like this now. Hopefully, it will be easier for you to hear me. If we look at the free cash flow for the quarter, it’s negative relative to last year, but essentially, all of that is related to the acquisition we’ve done. The consideration was approximately SAR 1 billion that we paid in the quarter. You also see some movements that we have done in working capital and CapEx. Overall, free cash flow without the acquisition would be positive. Hopefully, you hear me clear and not too loud or not too soft. I move into revenue and the components of the revenue. It’s very pleasing to see that we are growing again in all our core markets. KSA obviously stands for the highest absolute, but we have also a very strong quarter in Egypt with SAR 92 million additional revenue versus last year, growth being 25%.

What’s positive also with Egypt is that we see an appreciation of the currency. The underlying growth is also 25%. The hard currency returns are actually very good in Egypt. That’s very positive to see. You can see for yourself across the countries, we are growing literally in all of the countries in the quarter. If we look at the categories, you can see that we’ve added water in the category now, SAR 83 million. That’s the perceived what we have from the revenue in August and September. I’ll speak a little bit more about that in the end. What is good to see is the growth that we have in the food category, SAR 82 million, where it’s a 13% growth in that category, fueled by the innovations that we had and a good program to sell literally a variety of dairy food products and culinary products.

In particular, good with buttercream and concentrated milk in the quarter. Essentially, we are growing in all categories as well in the third quarter, which is great to see when you have a diversified portfolio like this. Also, in terms of channels, if we move to the different channels we are operating in, very strong growth in modern trade in the quarter with 14% growth on the SAR 156 million, but also growing well in traditional trade. Given the size we have, it’s also an absolute, quite significant SAR 142 million. Growing also in food service. We continue to go back into good growth numbers in food service with 4%, and also good growth in export and others with another 4%. Overall, that adds up to the 7% on the portfolio as we have it.

Now, a few words also on the net income and the bridge that we want to present in terms of financial performance. Before I give the word back to Ikram, you can see last year $570 million. Most of the growth or essentially all of the growth that we are seeing in the quarter is volume-related. The contribution from water is a little bit diluted to our margins. We have an impact when we look at the operational cost. The $63 million you see there also includes the water component. Over time, we will address this to make sure that we have an equity margin also for water. It’s a little bit too early with the two months that have gone so far. Overall, no real pricing. We have some individual category pricing, but the net impact is basically flat.

We have some costs going up on ingredients, but also not materially impacting our bottom line. The contribution is really from volume mix and others, the $87 million that you see there. We also have a $28 million benefit to last year. There we have a comparative component that might be fair to highlight that we had a charge last year in tax related to land sale in Argentina that we don’t have this year. We are favorable to last year because of this one-off also. That yields the $613 million that you see on the net income basis. Now, I’ll give the word to Ikram to go through a little bit more detail. Please go ahead, Ikram.

Ikram, Financial Executive, Almarai: Thank you very much, Danko. Let me now go through.

Danko, Primary Presenter/Executive, Almarai: Ikram.

Ikram, Financial Executive, Almarai: Thank you very much. Thank you. Let me now go through the financial performance for the quarter. I think Danko addressed that on previous slides. If I have to summarize the performance for the quarter, I will just talk about three numbers. If you go from left to right, our revenue is up +7%, operating profit is up +2%, and net income is up +8%. All are positive signs. Let me go through one by one for each. Revenue growth is 7%. Danko has talked about in multiple dimensions. That has been addressed already. Operating profit growth is higher compared to last quarter or same year, mainly driven by revenue growth, but it was muted because of the higher transportation cost. If I look at the net income growth of +8%, there are two major reasons.

The first is the lower funding cost, which is coming mainly because of lower interest rates. One of the key initiatives was the SACUPE experience, which Danko will address later on in the slides. Higher capitalization because we are in the middle of a capacity expansion, mainly for poultry. The other issue is mainly on the corporate income tax, but that’s more of a comparison issue, as Danko just addressed before, mainly because of a one-off expense in the same quarter last year related to Argentina. That’s the story financially for the quarter. If I can look at the same numbers by segments, and I’ll move on to the next slide, which is results by segment. I will focus on, again, just six numbers in the middle of the slide. If you look at the first one, dairy and juice, the revenue has grown by +5%.

If you look at the bottom section, the profit has grown by +6%. This, again, profit is growing at a faster rate than revenue, mainly driven by a very strong performance of Egypt. Danko spoke earlier, we had a very good quarter. Exchange yield is now like on like. That’s resulting in volume growth rates, as well as bottom line growth rates across the board, but especially contributed by Egypt. When you look at bakery, which is +6% revenue growth rates and +10% growth rates in terms of profits. Again, it’s the top line supporting the profit growth rate. The bakery profit or bakery top line is growing mainly because of a better sales mix and a better selling price per SKU, which is helping us in the quarter.

The last thing, poultry, +3% growth rate for the quarter on the top line, but the profit was actually slightly negative, -1%. The top line has done well in terms of volume, as Danko spoke about, the discounting in the category, in the segment, was quite tough for the quarter. Our revenue is still up, but the profits were slightly down, mainly because of the higher discounting pressure. Although our scale is helping us a lot, we are able to manage the profitability growth better because of our scale operations. That’s helping us to at least make it more or less like on like, slightly behind year on year. That’s the story of the quarter by segment. I’ll now pass over to Danko to take us through for the year-to-date results.

Danko, Primary Presenter/Executive, Almarai: Yeah. Thank you, Ikram. Delivering on our strategy, you can see how we have performed so far, January to September. We’re pleased with the 5% growth we see so far, SAR 16.6 billion turnover or SAR 786 million more, growing in, as you will see, in core categories, markets, and channels. Ikram was alluding to that some of the markets, there is some price competition that we can see, especially in the poultry segment. Given our capacity and the demand for the product, we are selling well and also ensuring that we are having a premium position on the offering that we’re having. Obviously, there is increased focus on poultry, which is necessary for us. If we look at operating profit, we increased to SAR 2.445 billion or 2%. That also retains the EBIT margin of actually 15% in January to September.

It’s slightly higher than what we saw in the quarter. The same for net income. It’s sort of the same pattern in terms of delivery that we’re even elevating that a bit more with 6% growth or SAR 109 million more. Very close to SAR 2 billion in the first nine months of the year, supported by both interest and the benefits we have from tax. The working capital is the same chart as you saw in the third quarter. I’m not going to go through that more, but here you can also see that we are increasing our investment on CapEx. We are currently, in a nine-month period, spending about SAR 3.1 billion versus last year, SAR 2.5 billion. If we look at an annual replacement cycle, we are somewhere around SAR 2.5 billion or SAR 2 to 2.5 billion overall.

We expect this to continue also in the fourth quarter, an additional spend to continue with our poultry expansion project. It’s actually also the same story in what might look very negative on free cash flow, again, the acquisition we did in the quarter of SAR 1 billion. The additional support for executing our strategy for our capital projects is increasing. Therefore, you see it being consumed by capital investments and M&A in the first nine months. A little bit of this working capital, we’re adding the acquisition and the geopolitical safety stock that we are having at the moment. I’ll come back to what it means for our leverage, etc. We’re very comfortable with the delivery of our plan. Nothing is what’s unknown to us. It’s actually very much intentional in terms of delivering the strategy.

I’m very pleased to show now, for those of you who participated in the second quarter on this presentation. If we go to the countries, you can see that we had some negative growth in Egypt in the first half year. Given a very strong performance in the third quarter, we are essentially doing very well in all countries. KSA is taking the lead, of course, with $549 million growth or 5%. UAE, our second largest market, Kuwait doing well, and then Egypt coming in with good growth. Very pleased to see that both Egypt and Jordan are doing very well in addition to the GCC markets. If we look again at the category delivery, the benefit of having a diversified portfolio is very evident when we see some of the categories having some challenges in the marketplace because of pricing competition. We’re still doing very well.

Food, 10% growth in the first nine months. It’s a good delivery, $210 million. Our core fresh dairy is doing very well with 3% and an absolute $192 million more. Bakery, as Ikram was into, the fact that we are growing overall with about $100 million or 5% is good. We are adding water also to it. It will be, again, something I come back to later on. Same thing with channels. It’s actually quite easy to present. We are growing very well also in our respective channels. Traditional trade in absolute still being our lion’s share with $391 million, growing 4%. Actually growing very well also 8% with modern trade at $274 million. Food service, 4%. Overall, growing also in all our channels. A positive outcome in that way. I think I give the word back to Ikram.

If you can go through a little bit the context of our profitability and where we are in the first nine months, so it’s a little bit better understood.

Ikram, Financial Executive, Almarai: Thank you very much, Danko. It is indeed my pleasure to report the year-to-date numbers, which are just south of $2 billion, nearly there within the first nine months. It’s a pleasure to talk about how we are going from $1.88 billion to $1.99 billion for the first nine months. If I go through each of the bar charts, I’ll start with the net pricing, which is unfortunately negative, but $107 million. The majority of it relates to what’s happening to the discounting within the poultry sector, and that’s contributing to a lower pricing on a year-on-year perspective for the first nine months. The next bar is $32 million of negative cost of goods sold. Here is a tale of two cities. We are having positive variance from farming commodities, be it soya, be it corn, but it is getting offset by dairy commodities.

We are paying a lot more for butter, for cheddar, and that’s getting offset, the benefit of getting offset from that perspective. The most pleasing bar on this chart is at $307 million. We have a higher profit driven majority, virtually all of it, to volume and mix, which is very pleasing to see what we can extract in the current markets. The operational cost of $128 million includes the higher transportation cost. Once you adjust for that, it highlights to you what the company is doing on an operational level from an efficiency perspective, and that’s helping us a lot to manage and mitigate the impact of the transportation costs. Lastly, funding and other is positive year on year, mainly because of lower interest rate costs and higher capitalization due to our poultry expansion. That’s the story for the first three quarters for the year.

If I go on to the next slide, again, it’s a summary performance by three matrices. Revenue is up +5%. Operating profit is +2%, slightly lower than the revenue growth, but that’s mainly because of transportation costs. Net income is +6%, driven by higher revenue and lower funding costs for the year, as I explained earlier. I’ll move on to the next slide, which is the same results by segment. Dairy and juice for the first nine months have grown by +5%. For the first half of the year, we had a comparison issue because of Egyptian pound devaluation. Now, with the third quarter, with a stronger Egyptian pound, with a strong performance of Ramadan included within the numbers, this is why the growth on the top line is +5%. Profit is slightly behind, mainly because of transportation costs.

When we look at bakery, bakery is plus 5% on the top line and plus 6% on the bottom line, again, because of a better delivery in Q3, which I explained a few slides before. Poultry is plus 3% with all the pressure we have seen so far in the year. You saw on the income bridge SAR 100 million worth of discounting year on year. We are able to deliver still positive profit for the year at plus 1%. With that, I will move on to some of the key other highlights. If I can move on to slide number 25 or 26. This is on capital investments. Today, as we speak right now, on a trailing 12-month basis, Almarai is spending around 19% of its revenue in CapEx programs. Majority of it relates to poultry. The number is exactly the same as Q2 as well.

We are keeping pace with our stated ambition of increasing our poultry capacity to around 450 million birds over the next three years. We will touch base on that later on in the presentation. If I move on to the next slide of working capital, as Danko spoke earlier as well, this includes the impact of consolidation of water business. Around SAR 150 million of extra working capital has come up. We are keeping between SAR 100 to 200 million worth of safety stock, given what’s happening in tariffs and other issues around the globe. Even after accounting for that, we are maintaining the ratio at around 20%, which is more than normal over the last four to five years.

If I move on to the next slide on operating cash flows, the impact of working capital affects this chart, but we have ranged between 23% to 27% for the last five years. We are maintaining the same ratio. We are converting our investments into cash flow, and that’s the reason operating cash flow is looking positive as a percentage of revenue over the last four to five years too. To the last slide, and before I hand over to Danko, is on free cash flows. Free cash flow looks negative compared to what we presented in Q2, but all of it relates to our acquisition of water business, which was done at SAR 1.01 billion. If I adjust for that, free cash flow will be positive, driven by a strong performance on the revenue line, which we spoke on earlier.

The other things to note there are our funding costs at around SAR 600 million a year and the dividends of SAR 1 billion for the last 12 months. With that said, I would like to pass on to Danko to take us to the end of the presentation.

Danko, Primary Presenter/Executive, Almarai: Thank you, Ikram. Overall, if we then consider the delivery of the execution in our income statement, you see that in the growth and the net income and the net income margins that we are retaining. Obviously, now, when we did the acquisition, we are spending about $1 billion on M&A. The addition of the capital, incremental capital investments that we have, you see the leverage has gone up to 2.5 times, the net debt/EBITDA ratio. That is in line with our financial strategy of retaining the right balance between debt and equity. If anything, I think we have been a little bit under-leveraged over a long period of time. We are now using the funds we are generating, creating this balance in investing in our business as intended, in line with our strategy. 2.5 times to 2.7 times is what we said strategically that we should be in.

With the acquisition, we added another 20 points to the leverage ratio on top of the capital investments that are incremental. 2.5 times net debt/EBITDA is completely in line with our financial strategy. The net debt/equity ratio going to 60% is also in line with our strategy. We can also see that in the EBITDA and EBIT margins that we are having on a rolling 12-month basis, we are holding the 14%, even though the first nine months were 15% on EBIT. We think somewhere around that level, that’s where we should be on EBIT delivery. 22% on our EBITDA level continues to hold firmly on delivery. Being in production or being a result of having a diversified portfolio in the marketplace gives us this good yield. I won’t speak too much about the debt maturity if we go to the next page.

You can see that we’ve added now another equivalent of $500 million. I speak more about the SACUPE in a second, but we have a very diversified portfolio now with good average debt maturity profiles so that we can manage every year in the next five years. In case something would happen, we can actually pay it back with our cash flow. That’s a little bit the idea of having these maturities that you see. I won’t speak too much about dividend. We’ll see what happens for 2025, but we’ve kept it at this level. We’ll have a reason to come back to that later on in the year or in the beginning of next year as we are proposing the dividend that the board of directors will propose to the AGM. Let’s leave that for now and maybe move in a little bit to the SACUPE.

On top of our regular presentation, we did launch two and a half weeks ago a $500 million SACUPE and the maturity profile being five years. I think we are very happy with the pricing of 4.45, which was the five-year treasury deal plus the spread of 85 basis points. Very good pricing for a triple B minus company, even with a stable or positive outlook. I think this is a testament and we’re grateful for that, what Almarai has earned at the market. Finding that kind of pricing is probably the tightest spread we’ve seen in any triple B minus corporate in the GCC region ever. What it does for us, it diversifies our portfolio. It gives us a global reach.

Only 10% of the SACUPE was invested domestically and 90% was outside KSA, with a very good blend from Asia, Europe, UK, and a small part from the US. Very happy with these issues. It’s just refinancing. It was not associated with anything else. It’s how to manage our maturities in the marketplace. That gives us a good sense for where we stand among our debt investors. We are grateful and appreciate the trust that we receive from those investors in the pricing. Also, the order book, we were up to about $2.1 billion at one point in time and then it looked down given the spread tightening. We could see the order subscription was also giving us some positive headache in the allocations that we have to do later on. That’s the issue of the SACUPE that we did.

If I then move to Pure Beverage Industry Co., which is the name of the water company, but it relates to the brand Eval and Oscar. For those of you who are living in Suburbia, you know the brand fairly well. We have about, with Eval and Oscar, 4% to 5% market share in KSA. We acquired 100% of this company by the end of July, starting to record revenue coming in from August onward. This fits into our overall strategy of our first pillar growing in core markets and core categories, second pillar being moving into adjacencies and tapping into our competitive advantage that we have in customer relationships in the value chain from the supply chain and our ability to do product innovations. It fits well into our strategy of expanding and also getting additional leverage and synergies from our infrastructure that we have in place.

We believe this is an interesting category. It’s currently, when we look at it, fairly fragmented with a lot of players in the market. We think we can drive value in this category by essentially transferring the quality you can trust also into water in a later stage. We see an opportunity to grow in this area. The market size is about $10 to $12 billion. As you all know, we need to drink in the purest form of water. To present that in a high-quality way, we believe there is premiumization and portfolio expansion that we can do. The acquisition is with fairly new assets. We have a good machine park, and we have capacity to expand in this area. It is also fairly modern in terms of its ERP systems and having exactly the same as we have in Almarai. We are optimistic about this.

It will take some time to get it right. We try to hurry slowly in this category, make sure we do the right thing in particular towards consumers and our customers. We do believe we have strong revenue synergies in the fact that we have unprecedented customer relationships with our existing portfolio. There is a lot more to come. As I said before, currently, this business is dilutive to our EBIT margins, but we are working towards ensuring that it will become accretive over time so that we not only grow the top line, but that we also grow the bottom line. We believe we can do so. I think that’s it for our presentation. We can move into questions and answers.

Abdulhadi, Moderator, Almarai: Thank you. Thank you very much for the presentation. We’ll now move to the question and answer section. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you’re dialed in by the web, you can type your question in the box provided or request to ask a voice question. We’ll just wait a moment or two for the questions to come in. Okay. We are already seeing a few questions. Our first text question comes from Mohammed Al-Rashid from Hasana. What was the volume sold in poultry during the third quarter of 2025? What is the current capacity in poultry?

Danko, Primary Presenter/Executive, Almarai: Yes. I can see some of the texts here saying that the audio is not very good. Hopefully, you can hear me and Ikram well enough. I speak slowly and I articulate a little bit more. I apologize if the audio is poor. That should not normally be the case. On poultry, we don’t normally disclose individual category growth on volume, but we can say that for poultry, it was double-digit. The point of our poultry expansion plan is that, yes, it’s a tough market in poultry at the moment. I’m sure you know that from other market players. At the same time, we are seeing a good demand from consumers on our products.

We have a premium price on our Almarai own, but we are actually adjusting it to make sure that we still continue the premium, but the pricing that we see in the discounting around it is met so that we can handle the volume growth. We also have that we are entering more into frozen poultry. We are selling more, and the mix is impacting also the revenue. As you can see, we did not have double-digit revenue growth, but on the volume, we are very pleased to see that the demand is there. That doesn’t take away the fact that when Ikram was talking on the profitability for poultry, we see that it’s not growing as it has done historically. That’s the situation we are in at the moment where it’s a contested market. The desire for buying our product is there still.

We think we’ve done that through the qualities and trust on the brand itself, to be honest.

Abdulhadi, Moderator, Almarai: Okay. Thank you. Thank you very much for this. Our next text question comes from Marina Atallah from Rinco Investments. What is the gross margin for the bakery segment in the first quarter of 2025 and the second quarter of 2025?

Danko, Primary Presenter/Executive, Almarai: Oh, that’s a lot of details. I don’t know if we normally are disclosing the individual category gross margin. Our bakery segment is healthy. We should not forget that we have a strong leadership position. Even there, there are issues on transportation costs that we also have to bring in. We don’t normally want to disclose the individual gross margins. We haven’t done that in the past. We do not intend to continue to do that. You have to look at our overall gross margin development. There was some dilution in the quarter with 60 basis points if you look at the Cokes line. Part of that is the mix that we see between the categories and that we are adding a little bit more from Egypt. It does not have the same gross margin as we are having in GCC. We also add water.

Some of those parts are affecting the overall gross margin. We can speak more about that if you want, but not necessarily on the category.

Abdulhadi, Moderator, Almarai: Okay. Thank you. Thank you very much. We’ll move to the next text question that was sent by Mohammed Hamza from Axio Research. Why is there pressure on your pricing? What’s your expectation about pricing in the next quarter and full year 2026?

Danko, Primary Presenter/Executive, Almarai: Sorry, I did not hear the beginning of the question. Can you repeat that again?

Abdulhadi, Moderator, Almarai: Of course. Why is there pressure on your pricing? What’s your expectation about pricing in the next quarter and full year 2026?

Danko, Primary Presenter/Executive, Almarai: Yes. Generally, what we see is that the growth coming from Almarai is essentially entirely volume-related. We are growing our business through volume growth in our categories, in our markets, and in our channels. Pricing is slightly negative, as we highlighted. If we look at the first nine months, we are about $100 million negative on pricing. That is a result of both positive and negative pricing overall in the categories. If we look at it, I go back to the period where we had very significant inflation in the region or in the world, and we did significant pricing at that point in time. We are retaining that pricing more or less. We are not increasing or decreasing it. We’re trying to retain it because it comes back to this point about us trying to work as a peer benchmark on having 14% to 16% EBIT margin.

If you have commodity cost increases, we want to pass that on to the consumers in pricing. Overall, pricing is not contributing to the growth in Almarai currently. In the environment that we are in at the moment, we’re also very mindful about what that actually means, especially in poultry. No specific plan is the general answer I can give to you. We continue to drive volume, and you’ll see that also in the fourth quarter as we go forward. You will have very little element of pricing in there. It’s all about driving volume. Volume is the name of the game for us, making sure that we grow volume profitably. That’s the key focus we have.

Abdulhadi, Moderator, Almarai: Okay. Thank you. Thank you very much. We’ll be moving to the next voice question that comes from Nada Abdul Lamik from GIB Capital. Please go ahead, Nada. Your line is now open.

Hi, gentlemen. Am I audible?

Yes, you are. Please go ahead.

Yes, thank you. I have two questions from my end. The first one is related to your financials. Honestly, if I look at the cash flow in the third quarter, it seems that you had a reversal of inventory and receivables around SAR 118 million that you have booked in the third quarter. If I adjust for that, actually, your gross profit has dropped by SAR 40 million on a year-over-year basis. Is it coming from the water segment? As Mr. Danko Maras has elaborated, there was a pressure from the water business on the gross margin or something else. I would appreciate if you confirm my understanding. My second question is related to the pricing. How much of the negative pricing was coming from poultry versus UHD and the positive price impact coming from bakery? Thank you.

Danko, Primary Presenter/Executive, Almarai: Thank you, Nada. I think I’ll give this one to Ikram if you can elaborate a bit more, I’m sure. I presume you’re talking about the cash flow statement because this is not detailed. In cash flow statement, it’s not inventory. It’s inventory and trade receivable. Basically, you’re going from this is an indirect method of cash flows. We start with the profit. You start to reverse the thing out. This includes the acquisition impact and all those elements as well. I’m not sure how to phrase it. We are not taking any extra provision. It’s visible on our balance sheet as well. Cash flows of 2024 are 2023 to 2024. Cash flows of 2025 are 2024 to 2025. I’m not getting your assertion that you cannot take one against the other. This is a three-year movement, not a two-year movement.

Yeah, I got your point, Ikram. If we look at the third quarter financial cash flow, and actually, if we look at the line of provisions from inventory and receivables in the cash flow statement, there was a negative SAR 52 million, right? Which is, again, in the P&L, a reversal. If we look at the first half, there was a SAR 6,600 million positive in the cash flow, which is a provision in the P&L. Net and net, doing the math, it is positive SAR 118 million reversal in the third quarter.

Oh, I see your point. Okay. No, look, this is purely because of the consolidation issue and what we are referring to. If you like, I can send the data to you guys separately. If you can approach our accounting team, we’ll explain it.

Yeah, sure.

No problem.

Thank you, Ikram. About my second question related to the negative prices breakdown.

Correct. Look, I think we don’t disclose price impacts for each segment. Majority, if you look at the Q3 number, all of it on a YTD basis, virtually all of it is coming from poultry. There is a slight negative adjustment on UHD milk that you referred to. Bakery is indeed positive, but you have to understand that Almarai was giving a lot of discounts in Q3 for the bakery segment itself. I would say 80% to 90% of the discount that you see on the Q3 YTD income bridge, it’s all coming from poultry today. I think if I may just add to that, the overall picture is that our pricing is holding, but the negative impact you see for Almarai is derived in a majority to the poultry category.

There are ups and downs, but not materially moving things for the Almarai group, with the exception of the poultry, which is in a tough environment at the moment.

That’s very helpful. Thank you very much, gentlemen.

You’re welcome. Please make sure she gets a good answer, Ikram, on the reversals because maybe it’s too technically detailed here, but we can do that separately.

Ikram, Financial Executive, Almarai: Sure, Danko. We’ll arrange that straight away.

Abdulhadi, Moderator, Almarai: Okay. Thank you. Thank you very much. We’ll be moving to the next voice question that comes from Abdullah Alboo from Emirates NBD. Please go ahead, Abdullah. Your line is now open.

Danko, Primary Presenter/Executive, Almarai: Hello. Am I audible?

Abdulhadi, Moderator, Almarai: Yes, you are. Please go ahead.

Danko, Primary Presenter/Executive, Almarai: Yeah. Yeah. Just to follow up on that question that was asked before me from Nada, clearly, the net income for this quarter is SAR 613 million. The net income for 2024, third quarter, was SAR 517 million. A big part of the growth is happening due to lower tax provision and a reversal of SAR 118 million. If we correct for this, we will end up with a net income of below SAR 500 million, which is a big decline. What we are trying to understand is how much of this is attributed to poultry prices and the water, if the water is loss-making. That’s the first question. Maybe Danko, can you respond to that?

Ikram, Financial Executive, Almarai: Yeah, sure.

Danko, Primary Presenter/Executive, Almarai: Yeah, sure, Danko. Sorry, we had a mute and unmute issue. Coming back to the question again, we’re looking to the reversal of the luxury provision, and we’re trying to deduce numbers. I’m not sure the deduction works in only one way. If that’s the case, we’ll have to deduce the same thing on the indirect cash flow and then go back to the P&L, looking at the whole inventory and everything else. I’m not sure the assertion of SAR 500 million you can deduce by one line on the cash flows. If you’re especially happy to look back into it, I’m just surprised by the question here.

Ikram, Financial Executive, Almarai: Yeah. Okay. The other thing is that we noticed that a big part of the increase in revenue is coming from Egypt, maybe mainly in, correct me if I’m wrong, currency movement. The $83 million that is coming from water, if we adjust for this, we would notice that the growth in revenue for this quarter is only 3.2%, which is lower than this year’s average so far. Is it mainly due to prices?

Danko, Primary Presenter/Executive, Almarai: Let me ask to broaden the picture that first of all, Egypt is part of the family. If they are growing well, that’s something we applaud and appreciate. As you go through and look at the revenue, you can see that we are growing in all of these categories. The contribution from water is SAR 83 million or 1.5% that I was referring to. The 7% growth we saw in the quarter, the underlying categories are also growing well. The water business is not making losses per se, but it’s dilutive to our EBIT margin. It’s not materially moving the Almarai group in any way or form. We are managing that. We will see a period where the profitability from water will be slightly diluting our bottom line delivery. Overall, because of our portfolio, we are able to deal with that. That’s part of our acquisition strategy also going forward.

It will not materially impact our bottom line delivery. We will make efforts elsewhere to ensure that we are compensating for the dilution that we see temporarily. If you are excluding water or if you are excluding Egypt, we are still growing in individual categories. In particular, in this quarter, you saw the food category. The 13% growth or SAR 82 million is good delivery. Overall, I think we are delivering on all the fronts with Egypt or without Egypt, still very good underlying growth. Of course, we are very happy to see the underlying growth in Egypt being, if you can go to the previous chart, it’s actually 25% as well. The valuation impact on Egypt is not having any impact in our bottom line this time.

Ikram, Financial Executive, Almarai: Actually, Danko, if I can add to this as well, the comments that you made about effect, there is zero effect there. The Egyptian pounds to the riyal is around, whatever, 13, and it’s been the same on a like-on-like basis. In fact, we have a slight appreciation. The number you see for Egypt is pure volume growth numbers. There is no FX impact on the top line. The FX impact was coming for the first two quarters, and we were reporting that, look, we were growing in local currency, but the comparison was at a different rate. That was the issue. The devaluation happened in the second week of March. After the hedges and everything is gone, the third quarter is a pure like-on-like quarter. It actually shows how much the Egypt operation is delivering on volume and revenue. As I said, there’s zero effects on that front.

I’m not sure how you are making that assertion on FX.

Danko, Primary Presenter/Executive, Almarai: No, no. Sorry. What I’m referring to is that the growth in Egypt is coming from that FX is stable. That’s the point in contrast to the last previous quarters. In any case of any devaluation in Egypt, this volume of growth would evaporate away. That’s what I’m trying to allude to. That’s a stable currency market. Excluding water, we are not growing as the headline figure is suggesting too. Again, without water, we grew 5% in our... You can see where we grew in categories, countries, and channels. I think overall it’s healthy. Also, from a principal point of view, when we look at Egypt, we always look at their underlying performance in local currency. They have had tremendous growth in Egypt, being impacted by the economic situation of devaluation of the currency. For us, it’s important to also ensure that they are delivering on, let’s say, hard currency.

We do look at the returns from Egypt. So far, this year, even with the devaluation that has been there for, let’s say, the first six months when we reported, they are delivering bottom line profits as well. Overall, it’s healthy. Most of the growth that you see in Egypt in the third quarter is volume. There is also some pricing as they did pricing from August onward. Underlying business in Egypt is always what we look at. Like any fast-moving consumer goods company that is international, we have to look at the returns in the underlying currencies. For us as Almarai, it’s also important to get hard currency returns in Egypt. That’s a key focus area for the team in Egypt. So far, they’ve done very well.

I’m very pleased to see that we’ve turned around the negative growth in hard currency for Egypt in the first six months to a positive delivery now year to date in Egypt. Hopefully, there’s more to come. They are growing very well on the food sector and on the long-life dairy business.

Ikram, Financial Executive, Almarai: Thank you very much. That was quite helpful and informative.

Danko, Primary Presenter/Executive, Almarai: You’re welcome. Thank you.

Abdulhadi, Moderator, Almarai: Okay. Thank you. Thank you very much. Our next question in the queue is from Pratik Kandeleval from Emirates NBD. Please go ahead, Pratik. Your line is now open.

Danko, Primary Presenter/Executive, Almarai: Hi. Am I audible?

Abdulhadi, Moderator, Almarai: Yes, you are. Please go ahead.

Danko, Primary Presenter/Executive, Almarai: Yeah. My first question is on this La Nina impact in Southern U.S., where basically most of the cultivation of alfalfa is done. In this scenario, are you seeing any impact on alfalfa prices? Or if you can just tell us how much is your inventory cover for alfalfa, which can sustain you for how many months? Just trying to understand that. That’s the first question. Second, on this inventory provisioning reversal, just wanted to understand which commodity or raw materials or final product was it. On the first question, I’ll take that, and then maybe Ikram, you can take the second one. The alfalfa, as you know, we are buying alfalfa. We are also producing it ourselves. We’ve seen costs go down significantly in the feedstock material on corn, soy, and alfalfa over time.

What we are doing is to protect ourselves because there is a long lead time on the shipping of alfalfa. We have about a year of inventory of alfalfa to make sure that our dairy herd has the availability of food in case something were to happen. That’s part of our strategy. We are sourcing it from very high-quality alfalfa in the U.S. and Argentina. We’re also buying in partly from Europe, depending on the quality of the alfalfa. That to us is not only a key critical component of supply, but we also protect ourselves by hedging our commodities going forward. We have pricing protection on movements that if you have strong inflationary pressures, like we had in 2021 and 2022, we saved about $100 million by being hedged over time, allowing us to do pricing in the market. You saw the pricing come subsequent to the inflationary pressures.

This is the way we operate, that we take no risk on the availability supply of alfalfa. We have sufficient alfalfa in hand. We also have our own production of alfalfa. We don’t necessarily see a risk on what is happening in the reference that you made. If prices were to go up, again, our principle is to pass that on to consumers if you have inflationary pressure, which we have done in 2022 and 2023. That’s the first one. Maybe again on this question about inventory reversal, Ikram, if you can.

Ikram, Financial Executive, Almarai: Sure. Thank you. The reversal, there’s many ways to do deckers. It wasn’t inventory. I want to stress here, the line covers both inventory and deckers. It’s an IFRS requirement. It was mainly the write-up issues for the deckers. Because of the indirect method year on year and the provisions we took last year, that’s the reason the number was there. I can see there’s a lot of interest in this accounting and this provision. I think there’s two or three people. We will send it separately. If anybody else has the same concern, please feel free to reach out to Mr. Relation. We will send the reply in full detail. Absolutely no issues.

Danko, Primary Presenter/Executive, Almarai: on maintaining a healthy balance between volume and value growth across all segments.

Ikram, Financial Executive, Almarai: Go ahead.

Danko, Primary Presenter/Executive, Almarai: Yeah, just to clarify, it’s a decker thing, right? It’s not related to inventory as such.

Ikram, Financial Executive, Almarai: It’s not. I think people just, if you read the full line, it says there categorically provision for inventories and trade areas.

Danko, Primary Presenter/Executive, Almarai: I think given that there are one or two questions on this, please connect with us on IR, and we will give you a good explanation because there is absolutely nothing to be concerned about in that area. We will give you a more elaborate explanation outside the meeting. There’s no problem.

Ikram, Financial Executive, Almarai: Got it. Just one last question from my side. For the first nine months, we have seen decent volume growth, right? You have been taking price hikes in selected SKUs, and there is a hit also on the poultry side because of oversupply in the market. I just wanted to understand, currently, as we see, most of the input costs are down. How easy is it for you to increase prices in the fresh dairy or other SKUs? I’m just trying to understand if the gross profits can improve from here going forward, because the pricing is one of the elements which can uplift your gross margins from here, right? Since the input cost is down, the competitors probably would be reacting to the price hike. They will play the market share game.

In my view, it’s difficult to do the price hike, and we may continue to see a slight pressure in the gross margins in Q4 and Q1 going forward. If you can just clarify on this point.

Danko, Primary Presenter/Executive, Almarai: As a matter of principle, our pricing for the, especially when it relates to, let’s say, commodity related to inflation, we are passing that on to consumers, which we have done. That’s the principle. We do that to retain what we believe is a reasonable margin for a business of our type and the risk profile that U.S. investors are investing in the customer and consumer goods industry. That’s the driving force behind pricing and nothing else, not really strategic pricing. What the gross margin is because of our category mix, I know it sounds a little bit complicated, but the mix component of the category contribution and the average sales price, we can do a lot on the gross margin. We are spending a lot of time doing the analysis of what drives value in terms of profitable SKUs in the respective categories.

There is a strong belief to drive the combination of our categories, and that is actually the reason to why we see some dilution that we’ve had when we go from poultry fresh to poultry frozen. There is a different kind of gross margin on that. The play we can do within the category growth is really how we will drive the gross margin. I’m not into the perception that we might be seeing sliding gross margins because of the situation we’re in. We have very healthy categories that we can drive. That is a key operational lever that we are looking at. Maybe many other single players don’t have the benefit of being able to do so, but we can do so.

If there is a need for pricing more into the strategy of ensuring that inflationary pressures are mitigated through pricing because of the commodity we’ve got going up, it’s not coming down entirely. If you look at the total portfolio, the bottom price has been up to $7,000 a ton, which is the highest ever. If we look at the blended portfolio with corn and soy going down significantly, we definitely got benefits from that, but ingredients going up, a weak dollar is also impacting us because we are sourcing a little bit from Europe. All in all, that’s really the position we are in. If we look at the overall of our, let’s say, cost pressure, and you saw year to date, they’re fairly flat on the coals, and quarter was fairly flat. There are some positives, there are some negatives.

What we do in driving gross margin is operational efficiencies with coal, but also the mix component in the category. There are a lot of levers for us to push before we do anything on pricing.

Ikram, Financial Executive, Almarai: All right. Thanks a lot, Danko.

Danko, Primary Presenter/Executive, Almarai: You’re most welcome.

Abdulhadi, Moderator, Almarai: Thank you. Thank you very much. As we’re approaching the end of this call, we’ll just take one final question. Our next in line is Taher Safedin from JP Morgan. Taher, please go ahead. Your line is now open.

Danko, Primary Presenter/Executive, Almarai: Hi, good afternoon, Ikram. It’s Taher from JP Morgan. Again, thank you for taking my question. Just maybe two questions. The first one is just trying to understand what’s happening on the poultry side. Maybe from a market perspective, we’re hearing that there is a lot of discounting. If you can just elaborate, is this discounting mainly being driven by the fresh players? How is the frozen category reacting to that? If you can just give us some more clarity and just want to understand what’s the end game there because you guys, along with others, are bringing in a new capacity to the market over the next, say, one to two years. How should we think about the category moving forward? How sustainable do you believe these discounts are? That would be my first question. Maybe I can ask the second question after that. Yeah. Hi here.

Clearly, as you can see in the market, there is an oversupply and we’re in a contested market with a lot of players in poultry today. The positive that we see is that our Almarai brand is very well reputed. The fact that you have a bit of a pricing situation in poultry, we still have double-digit growth on volume when we look at our poultry segment, but less so on 2% on revenue. Over time, it will mature, just like you are seeing the dairy category today that is pricing is stabilized. It is a saturated market. There is a lot of profitability if I look at the category. I was saying when you have single providers of a segment, you can also see that it is impacting profitability in some of the players. We don’t believe that that’s sustainable longer term.

The important thing for us is to continue to be able to expand our capacity. We know consumers like our products and they are buying our products, but we cannot be overpriced in the market. We have to follow that. Temporarily, we are dealing with this, but if you’re looking at a longer-term horizon over time, I believe this market will also stabilize. Poultry is a healthy protein, just like seafood is a healthy protein. We want to increase consumption of healthy proteins in the market. It’s also part of the sour division. Those temporary imperfections, if I may call it that, in terms of maturing in the market, over time, we will overcome. We are here to stay in the long run. We want our consumers to love our products and make sure that poultry is a natural protein for them. We see that happening.

The category will continue to grow. There are some short-term issues for sure. It might actually continue for a little bit longer, but if you look strategically, poultry is a key category for us. We see that growing in the long term. If anything, we see some convergence into fresh more than to frozen. It has to do a little bit with the pricing that we’re seeing in the market currently. Overall, we are confident about the category growing, and we are staying there and expanding. We are convinced that as we are building the capacity, consumers will buy our product because of the high quality that we produce. Not only do we say that, we also spend a lot of time on biosecurity in ensuring that you get the best quality poultry in the world and in some regions.

Abdulhadi, Moderator, Almarai: Okay. All right. Clear. Just maybe my second question is on the cost inflation environment. We’ve seen higher diesel costs at the beginning of this year, and I think the expectation is that potentially we could be up for another diesel cost increase come early January 2026. Is that another maybe reason for you to bring in a price increase? I mean, clearly, you’ve mentioned that you are trying to pass through inflation to the end consumer. The reason I’m mentioning this is how should we think about margin trajectory, right? The lost margins have been under pressure, and you’ve highlighted higher transportation costs since the beginning of the year. Are we going to expect a similar story into next year with another diesel cost hike?

Danko, Primary Presenter/Executive, Almarai: Yeah. There are many aspects on that, Zahir. The point is that, again, we take a more longer-term view and convergence of diesel prices to, let’s say, what they are in the UAE or in the U.S., over time. We definitely have an impact also for Almarai. We are watching this space carefully. It’s not an Almarai component. I think it’s more of an aggregated issue overall in the Kingdom. It is affecting everyone who’s having diesel as a core component. We are also looking at alternative sources for energy. Diesel is fairly competitively priced currently, but if we are moving against convergence, it starts to make a lot of sense to use alternative energy. Strategically, we are looking at alternative energy sources already for our expansion in poultry in the Al Shamli area where we are expanding and building our processing facilities.

We are entering into a new solar panel arrangement where energy will come from a collaboration. It’s not yet burned in stone, but we have a very good plan to move towards even more energy from alternative sources than diesel. Obviously, when you think about distribution and the distribution cost, it is a core component. We are trying to manage this as good as we can with operational efficiency projects that we have in Almarai. We’ve done fairly well this year in mitigating it. It doesn’t have to be directly on the diesel, but other activities that we can actually optimize the cost of our structure. You can only go as far on some of those parts. If it continues over a longer term, then there has to be some form of consideration on it.

We will watch this space very closely and see what happens as we move into the next year and maybe over a three to four-year period. Then we will know more certainly what we will do.

Abdulhadi, Moderator, Almarai: Okay, thank you very much.

Danko, Primary Presenter/Executive, Almarai: Okay, thank you very much. We are a little bit over time here, but I pass the word back to Abdulhadi. Thank you very much. We’ll make sure we follow up on those detailed questions so that you get a good answer. We’ll do that through IR. Feel free to connect with us on this part. All yours, Abdulhadi.

Abdulhadi, Moderator, Almarai: Thank you, Danko. Thank you to everyone who participated in today’s earnings call. We will show a short survey. If you can please take a few moments of your time to fill out the survey, it will help us a lot. Thank you, everyone.

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