Agthia Group reports 2011 Financial Year results

Agthia Group P.J.S.C., one of the UAE’s leading Food and Beverage companies (ADX: Agthia), today released their audited financial results for the year ended December 31st 2011. The Company posted net sales of AED 1.14 Billion, a strong 14% year on year growth, and net profits of AED 86 million, a 25% decline year on year caused by the higher soft commodity and PET prices. Over the last five years, Agthia has achieved an impressive CAGR of 21.4% in sales revenue and 24.3% in net profits. Cash dividend of 5% has been recommended by the Board of Directors.

The results highlight the strong performance of Consumer Business Division (CBD) recording a solid 18% net sales growth year on year at AED 376.9 million and Agri Business Division (ABD), which manages the Flour & Animal Feed business, delivering a 12% net sales growth reaching  AED 767.4 million. 2011 also saw the launch of fresh dairy products under the “Yoplait” brand, long shelf life 100% natural fruit juice under the “Chiquita” brand, and fresh fruit juices under the “Al Ain Fresh” brand.

In December 2011, the Company announced the acquisition of Pelit Su, the Turkey based natural spring water bottling plant with direct access to a natural spring water source. The Company has taken over management control of the Turkish entity and has completed 100% equity acquisition in March 2012, with plans to expand its regional distribution footprint in Turkey. This strategic venture will also facilitate the Company’s entry into higher margin premium ’natural spring ‘drinking water in the UAE and other geography.

Commenting on the results, His Excellency Rashed Mubarak Al Hajeri Chairman of Agthia Group said, “We are very satisfied with our performance for the year in light of the challenging environment for food & beverage manufacturers which, among others, has been characterized by increasing input costs and regional unrest. Nevertheless, business fundamentals remain strong as evident by the strong sales and volume growth across all categories during 2011 and this performance is consistent with our long term growth model.”

Ilias Assimakopoulos, Chief Executive Officer of Agthia Group, added, “Our investments remained focused on growth opportunities, while we continued addressing the challenge of higher input costs by pursuing cost savings initiatives, pricing opportunities, and by accelerating entry into new categories. We view such entries into new segments as strategic growth drivers and will contribute to Agthia’s ambition of becoming the UAE’s leading food and beverage group.”

Sales

The Company has delivered strong 14 percent year-on-year net sales growth, reaching AED 1.14 billion. This is attributable to solid performance of Water & Beverages business delivering 21 percent sales growth, and the Flour & Animal Feed business achieving 12 percent sales growth. This rise in sales was primarily driven by volume increases, pricing and distribution expansion.

Over a period of five years (2006-2011), the Company has achieved impressive CAGR 21.4 percent in sales revenue.

Profitability

Although total year net profit at 86 million declined by 25 percent versus last year, it is encouraging to see profit recovery in Q4, 2011. Net profit for Q4, 2011 reflects a 33 percent growth over the average of the preceding three quarters. This improvement arose from the price increase in Water & Beverages, which took effect during Q4, 2011, in-house production of previously outsourced flour and feed volumes following the capacity increases, and lower grain input cost. Further expansion in poultry feed capacity is planned for Q4, 2012 including restructuring of the feed mill with the aim of reducing cost and improving efficiency. 

Decline in total year 2011 net profit resulted mainly from a four percentage point drop in gross profit margin attributed to two factors: (a) the continued increase in input cost of raw materials (grains and PET); and (b) during last year, the Company’s Flour business benefited from a decline in wheat prices which outpaced the drop in the market selling price of flour resulting in higher one-off profit margins. 

Measured on five-year period 2006-2011, CAGR in net profit was 24.3 percent.

Divisional Performance

Agri Business Division (ABD)

Flour & Animal Feed

ABD net sales at AED 767.4 million in 2011 reflect a growth of 12 percent year-on-year driven by pricing, and volume increase of 4 percent. The division maintained its number 1 market position in both flour and animal feed in the UAE.

Net profit of this division at AED 87 million declined by 24 percent year-on-year. This is mainly attributable to the gross margin contraction of 5.1 percentage points due to a significant increase in grain prices, as well as for the fact that the flour segment during the same period last year benefited from a decline in grain prices which outpaced the adjustment in market selling price resulting in a higher one-off profit margin.

Actions initiated during 2011 to address the profitability of this segment are delivering results. Q4, 2011 gross profit margin improved by 2 percentage points compared to first nine months of 2011. Production capacity expansion of existing flour and animal feed mills has been completed, and previously outsourced volumes are now being produced in-house (effective Q4, 2011); feed profitability has improved; and the recent drop in grain prices has helped.  Further expansion in poultry feed capacity is planned for Q4, 2012 including restructuring of the feed mill with the aim to reduce cost and improve efficiency. In the latter part of 2011, the Company also secured contract to manage stock of wheat on behalf of the Abu Dhabi Government as part of its Food Security initiative, in return for a management fee.

Consumer Business Division (CBD)

Once again, the CBD delivered a strong and consistent performance. Net sales at AED 376.9 million reflects solid 18 percent growth, driven by Water & Beverages segment. The contribution of CBD division to total Company sales has reached 33 percent (2006: 17 percent), reflecting the Company’s strategy to accelerate diversification to sustainable higher margin products. 

Net profit at AED 33.3 million is marginally behind last year due to higher PET cost. A price increase of around 10 percent was implemented on bottled water and Capri-Sun juice during Q4, 2011. This will partially offset the increased PET cost and will improve the profit margin going forward.

Water & Beverages 

The Water & Beverages segment, despite a challenging and competitive market, has continued its strong performance with sales growing by 21 percent year-on-year driven by a solid 19 percent volume increase in water and a 23 percent increase in Capri-Sun juice drink. Al Ain Water brand has maintained its leading market position in Abu Dhabi Emirate and strong number two position in the UAE. 

In December 2011, the Company launched 100 percent natural juice under the “Chiquita” brand and acquired Turkey-based natural spring water bottling plant with direct access to a natural spring water source. The Company plans to expand its regional distribution footprint in Turkey, as well this strategic move will enable us to enter the higher-margin premium ‘natural spring’ drinking water in the UAE and the wider geography.

Food

Food segment sales at AED 55.6 million are 3 percent higher than 2010 while the Al Ain branded business in the UAE grew by 11 percent. Al Ain tomato paste brand has further consolidated its leading market position in the UAE and is continuing to grow its presence in the frozen vegetable segment. 

Food segment loss of AED 10.6 million is attributed to the newly-launched fresh dairy and fresh juice products’ losses of AED 2.4 million, Egypt operation losses of AED 3.6 million due to domestic/regional unrest, and low-priced Chinese tomato paste, while the loss for the UAE branded tomato paste and frozen vegetables has significantly dropped to AED 4.6 million against last year’s AED 10.2 million. The Company remains focused on turning the Egypt operation and UAE tomato paste and frozen vegetable business to profitability. 

Future outlook