King Fahd University of Petroleum and Minerals
Accounting & MIS Department
BUSINESS VALUATION OF ALMARAI
Final Report – Term 182
Prepared for
Dr. Yasser Fallatah
Prepared by
Name ID#
Omar Alshukr 201803540
Mohammed Aldossary 201127810
Abdulrahman Khayyat 201040160
April 2019
Table of Contents
Introduction ………………………………………………………………………………………………………………………………… 3
SWOT Analysis ………………………………………………………………………………………………………………………….. 5
Data Analysis on the economy and Marketplace ……………………………………………………………………………… 8
Top Six Factors that affect Marketplace and competition between different key players …………………….. 11
Industry Research ………………………………………………………………………………………………………………………. 12
Financial performance of Almarai Company …………………………………………………………………………………. 13
Profitability Ratios (time series and cross-sectional analyses) ……………………………………………………… 13
Efficiency Ratios (time series and cross-sectional analyses): ……………………………………………………….. 15
Liquidity Ratios …………………………………………………………………………………………………………………….. 16
Estimation of Enterprise value …………………………………………………………………………………………………. 16
Market Capitalization……………………………………………………………………………………………………… 16
Stock Price Trends …………………………………………………………………………………………………………………. 18
Estimating Future Enterprise Value with Income Approach ………………………………………………… 18
Stock Share Offering Price Range: …………………………………………………………………………………………… 20
References …………………………..………………………………………………………………………………………………… 21
Non-Business Use
Introduction
Almarai conglomerate started as a trading company in 1977 under Almarai brand name, prior to the
consolidation of activates in 1991. Since its inception, Almarai is a leading dairy food & related goods
producer started its operation with processing fresh milk and laban and aimed at transforming Saudi
Arabia’s traditional dairy farming. Almarai is A Saudi Joint Stock Company. The company went under
various restructuring to cope with customers’ need. It expanded its portfolio from dairy milk business to
other related products businesses which made Almarai to have almost half of the market share in the
kingdom. Although Almarai’s headquarter is located in Riyadh, Saudi |Arabia, It also operates in other Gulf
cooperation Council (GCC) countries, Egypt and Jordan. Nowadays, the company is the world’s largest
vertically integrated dairy company and the region’s largest food and beverage manufacturing and
distribution Company. Contribution from equity & debt in Almarai’s capital structure is taken at 44.9%
&55.1%, respectively for 2018 and 46.65% and 53.53%, respectively for 2017. 67% of Almarai’s sales are
in Saudi Arabia while the rest are mainly in the GCC region with exception to Egypt and Jordan.
Almarai conglomerate is made up of 40 subsidiaries and the ownership interest percentage for each varies.
The table summarizes these subsidiaries and the percentage ownership interest for each one.
#
Name of Subsidiary
Country of
Incorporation
Direct (a)
Effective
1
Almarai Investment Company Limited
Saudi Arabia
Holding Company
100%
100%
2
Almarai Baby Food Company Limited
Saudi Arabia
Manufacturing
Company
100%
100%
3
Almarai Agricultural and Livestock Production Company
Saudi Arabia
Dormant
100%
100%
4
Almarai Construction Company
Saudi Arabia
Dormant
100%
100%
5
Almarai for Maintenance and Operation Company
Saudi Arabia
Dormant
100%
100%
6
Agricultural Input Company Limited (Mudkhalat)
Saudi Arabia
Dormant
52%
52%
7
Hail Agricultural Development Company
Saudi Arabia
Poultry / Agricultural
Company
100%
100%
8
Hail Agricultural and Livestock Production Company
Saudi Arabia
Dormant
100%
100%
9
International Baking Services Company Limited
Saudi Arabia
Dormant
100%
100%
10
International Pediatric Nutrition Company
Saudi Arabia
Dormant
100%
100%
Non-Business Use
11
Modern Food Industries Company Limited (MFI)
Saudi Arabia
Bakery Company
60%
60%
12
Nourlac Company
Saudi Arabia
Dormant
100%
100%
13
Western Bakeries Company Limited
Saudi Arabia
Bakery Company
100%
100%
14
Pure Breed Poultry Company (Refer note 11)
Saudi Arabia
Poultry Company
62%
62%
15
Agro Terra S.A.
Argentina
Dormant
100%
100%
16
Fondomonte South America S.A.
Argentina
Agricultural Company
100%
100%
17
Almarai Company Bahrain S.P.C.
Bahrain
Trading Company
100%
100%
18
Almarai Investment Holding Company W.L.L.
Bahrain
Holding Company
99%
99%
19
IDJ Bahrain Holding Company W.L.L.
Bahrain
Holding Company
100%
52%
20
International Dairy and Juice Limited (IDJ Bermuda)
Bermuda
Holding Company
52%
52%
21
International Dairy and Juice (Egypt) Limited
Egypt
Holding Company
100%
52%
22
International Company for Agricultural Industries Projects
(Beyti) (SAE)
Egypt
Manufacturing and
Trading Company
100%
52%
23
Markley Holdings Limited
Jersey
Dormant
100%
100%
24
Al Muthedoon for Dairy Production
Jordan
Dormant
100%
52%
25
Al Atheer Agricultural Company
Jordan
Livestock /
Agricultural Company
100%
52%
26
Al Namouthjya for Plastic Production
Jordan
Dormant
100%
52%
27
Al Rawabi for juice and UHT milk Manufacturing
Jordan
Manufacturing
Company
100%
52%
28
Teeba Investment for Developed Food Processing
Jordan
Manufacturing
Company
100%
52%
29
Arabian Planets for Trading and Marketing L.L.C.
Oman
Trading Company
90%
90%
30
ALYOUM for Food Products Company L.L.C.
Oman
Dormant
100%
100%
31
Fondomonte Inversiones S.L.
Spain
Holding Company
100%
100%
32
Hail Development Company Limited
Sudan
Dormant
100%
100%
33
Almarai Emirates Company L.L.C.
United Arab
Emirates
Trading Company
100%
100%
34
International Dairy and Juice (Dubai) Limited
United Arab
Emirates
Holding Company
100%
52%
35
BDC international L.L.C.
United Arab
Emirates
Operations
Management
100%
100%
36
International Dairy and Juice Farm Egypt (S.A.E.)
Egypt
Holding Company
100%
52%
37
Fondomonte Holding North America L.L.C.
United States of
America
Holding Company
100%
100%
38
Fondomonte Arizona L.L.C.
United States of
America
Agricultural Company
100%
100%
39
Fondomonte California L.L.C.
United States of
America
Agricultural Company
100%
100%
40
Hayday Farm Operation L.L.C.
United States of
America
Agricultural Company
100%
100%
By End of 2018, only 43% (SAR 13.9 B out of SAR 32.3 B) of assets is attributed to shareholders, which
compromises 96% (SAR 13.9 B out of SAR 14.5 B) of equity. On the other hand, 4% of equity or 1.8% of
assets is attributed to non-controlling interest which is the portion of equity ownership in a subsidiary not
attributable to the parent company. The company has 1,000,000,000 shares outstanding valued at SAR 55
Billion.
Non-Business Use
Almarai has offered certain employees (the “Eligible Employees”) the stock option for equity ownership
from the company treasury shares (opportunities and performance-based incentives), which will result in
more alignment between the interest of both shareholders and these employees. These will be distributed
only if the company meets its target set by the management. Also, it is contingent upon the shares of the
company continuing to be listed on Saudi Stock Exchange (Tadawul). Those eligible employees but not
granted in the reporting period shall carry over to the next reporting period.
In the event of a capital increase, share split or dividend distribution (in the form of shares), the number of
restricted shares and the exercise price subject to the Option will be adjusted accordingly. The estimated
value for the employee stock option program (ESOP) is around SAR 9.99 B.
SWOT Analysis
Strengths
1. GCC Dairy Product Market Leader
Dairy market has 5 main product categories; fresh milk, long-life milk, milk powder, laban and
yogurt. Dairy is the core segment of Almarai and it has grown from strength to strength in years
making Almarai the market leader in GCC. The closest competitors of Almarai in this market are
Nestle and Al Safi with a market share of 7.6% and 7.4% respectively. Hence, Almarai holds a
Non-Business Use
strong grasp on the dairy market in the GCC.
2. High Quality Products
Almarai maintains stringent quality measures and highest food safety standards at every step of
supply chain. Complete ownership of supply chain helps them source their raw materials and other
requirements in an efficient manner and ensure high quality standards. These efforts have made
them one of the most trusted brands in terms of quality and reputation which can be seen from the
survey of YouGov. A Brandlndex survey conducted by YouGov named Almarai as Saudi Arabia’s
top brand; the ranking was based on overall brandhealth taking into account the customers’
perception about the brands and their satisfaction with them.
3. Strong Distribution Network
Almarai’s Transport and Logistic division is the largest in Middle East. They employ more than
3,000 staff in transport, warehousing, maintenance and planning departments across GCC in their
Sales depots which are a total of 88 depots. This extensive infrastructure helps them deliver
products to over 110,000 retailers across GCC. More than 8000 trucks deliver 2 billion kg of high–
quality products on time.
4. Hot Climate Conditions Conducive for Beverage Market
The hot climate in Saudi Arabia and overall Middle East region is conducive for the beverages
sector. Taking advantage of this potential, Almarai has established itself as a strong leading player
in the beverages segment in the region.
Weaknesses
1. High Operating Costs
Compared to market competitors, Almarai is having higher operating costs which is negatively
affecting its net profits. At the end of 2016, the group has launched a productivity improvement
and cost cutting program which has led to improve their cost base by SAR 500 million over two
years. However, Almarai still need to adopt many similar programs in order to boost its net profits.
2. Over Dependence on Dairy Products and Juices
The core sector of dairy and juices sales were around 9.9 billion in 2018. Dairy products and juices
contribution to the total sales was around 73%. While other segments of Almarai like bakery and
poultry have shown an increase in their sales over the past few years, they are still way below the
sales contribution of dairy products and juices with a contribution of 13% and 13.8% of total sales
respectively. Such a huge dependence on two sectors for revenue may be a source of threat for
company in future.
Opportunities
1. Expected Growth of Milk Market in GCC
Almarai dairy products have always been the heart of the company products since its foundation in
1977. Milk market, in particular, in GCC has witnessed a steady growth in recent years. GCC fresh
milk market grew at CAGR of 7% during 2009-2017 reaching production volumes of more than
850 million liters in 2017. Saudi Arabia represents the largest market for the segment, accounting
for majority of the share. And yet the market is expected to reach a volume of 1100 million liters
by 2022. This presents a very good opportunity for Almarai which is the market leader in the
segment with a market share of 57%. Almost twice the volume of its nearest competitor.