• Net sales reached Dhs921.4m up 8% versus 2008
• Record profit for the year of Dhs105.7m, up 43.4% year-on-year
• Gross profit margin increased 630 basis points compared to 2008, to 27.2%
• Earnings per share increased 43.4% to Dhs0.176 compared to Dhs0.123 in 2008
• Return on Capital, at 17.6%, reflects an improvement of 530 basis points over last year
For the full year ending December 31st 2009, Agthia reported Net Sales of Dhs921.4m, up from Dhs853.9m in 2008, representing an 8% increase. Sales were underpinned by volume growth across all product lines. Profits continued to grow faster than sales, at 43.4% year on year reaching Dhs105.7m. Earnings per share also grew in line with profits, with EPS reaching Dhs0.176. Return on capital, at 17.6%, reflects an improvement of 530 basis points compared with last year.
Highlighting the company’s achievements, His Excellency Rashed Mubarak Al Hajeri, Chairman of Agthia, said:
“While food is a fundamental part of people’s daily lives, and therefore somewhat insulated to economic fluctuations, there is no denying that 2009 was a difficult economic time for businesses across the globe. Despite this challenging backdrop, the Company’s management team maintained its track record of continued growth, achieving another year of strong financial and operational performance. This marks a promising start to the ‘Sustainable Growth’ phase of our strategy.”
Ilias Assimakopoulos, Chief Executive Officer of Agthia, commented, “We are delighted with the Company’s strong performance in 2009. As we look to the future, key strategic initiatives that will drive our overall objective of delivering long term, sustainable growth are; brand building and brand leverage, product portfolio expansion, regional expansion, entering new synergistic categories and margin expansion. Our unwavering goal is to become the industry leader in the categories that we choose to compete in.”
Agthia recorded an 8% increase in net sales to Dhs921.4m for 2009. This compares to Dhs853.9m in the same period last year. Sales were underpinned by volume growth across all product lines and in the water & beverages business in particular. The integration of Capri Sun in the first half of 2009 also contributed to the sales growth.
All three business segments delivered strong volume growth compared with 2008. However, the decline in the animal feed selling price, caused by a reduction in the price of grain, meant sales revenues in the flour & feed segment were not in line with the volume increases. Sales in the Water & Beverage division grew by 49%, the Tomato Paste & Frozen Vegetable business delivered sales growth of 8%, while Flour & Feed sales, as explained above, remained flat despite 6% volume increase. We believe that the animal feed price decline has now levelled out.
Net Profit for the year reached Dhs105.7m, representing year-on-year growth of 43.4%. The net profit growth was predominantly driven by an improvement in the gross profit margin, higher sales volumes and the favourable impact of the ongoing cost saving initiatives that continued through the year. These record results are in line with management’s desire to grow profit faster than sales.
Gross profit margin for the year increased to 27.2% from 20.9% in 2008, reflecting an improvement of 630 basis points, mainly generated by the flour business. While the first half saw unusually high profit margins in flour business where wheat prices fell faster than the retail price of flour, the second half saw the profit margins return to normalized levels.
Earnings per share for the year grew by 43.4% to Dhs0.176 compared to Dhs0.123 in 2008 following a trend similar to profit growth.
Selling and General Administration Expenses (SG&A) in 2009 reached Dhs146.2m, an increase of 28.5% year-on-year. This is primarily due to the consolidation of costs in 2009 relating to the Capri Sun business, as well as the costs associated with the new factory in Egypt that were not included in last year’s consolidated results. On a comparable basis, growth in SG&A is 21%, reflecting higher distribution costs (volume related), the full year impact of the Tomato Paste & Frozen Vegetable business and normal inflationary increases.
Cost of Goods Sold, at Dhs671m, remained almost flat compared to last year despite strong volume growth primarily due to the drop in grain prices. In 2009, a state subsidy of Dhs154m from the Abu Dhabi Government was recognized in the Accounts as a reduction from cost of goods sold. The purpose of the subsidy was to reduce the impact of high grain prices on food retail prices for consumers in the Abu Dhabi Emirate. This social commitment by the Government is welcomed by Agthia.
On March 28, 2010, the Company’s Board of Directors recommended a 5% cash dividend for the year 2009; this will be submitted for approval at the Annual General Meeting of shareholders.
The Grand Mills brand remains a leading brand in both flour and animal feed in the UAE. In line with Agthia’s commitment to gradually reduce its reliance on the flour & animal feed business and to diversify into higher margin businesses, the contribution to total group revenue by this division further dropped by 6 percentage points, to 73%, in 2009.
Despite the 6% volume growth delivered by the flour & feed business, revenues at Dhs669m remained almost flat as the result of drop in animal feed selling prices compared to last year due to a decline in grain prices. The flour and animal feed gross profit margin improved by 700 basis points to 23% in 2009. This improvement mainly came from the flour business during the first half of the year when the decline in wheat prices outpaced the decline in the market selling price of flour. As outlined above, as the market selling price began to decline in line with the drop in grain prices, the margin has almost reached a normalized level during second half of the year.
Currently, the Company’s flour mill is running at full capacity and additional flour demand is met by outsourcing to third parties. Agthia’s management plans to increase the Company’s flour milling capacity by 50% by installing a new milling plant involving estimated Capex of Dhs50m. Management expects to begin production in the second half of 2011. Additional capacity will meet the Company’s current and future requirements and will ultimately help to improve margins in this business.
Increasing focus is being placed on flour retail packs, specialty flour and mixes and frozen products. These products continue to represent a good growth opportunity for Grand Mills. Management has increased the number of animal feed distribution channels that will provide the Company with a competitive edge and will help to increase volumes. In addition, the animal feed programmes introduced for dairy and poultry have been received well by customers.
The UAE flour and animal feed sector is becoming increasingly competitive. As a consequence, it will be a challenge to maintain the current level of high profitability while management is focused on maintaining its existing market share.
Al Ain Water is the number one brand in Abu Dhabi with volume market share of 41%, and a strong number two player in the UAE with 24% volume market share. The water and beverages business represents 22% of total Group revenues, corresponding to an increase of 6 percentage points over last year’s figure.
The water and beverages business sustained its strong growth track record in 2009 despite a challenging and competitive market. This division achieved sales of Dhs206m, representing 49% growth. Discounting the Capri Sun juice line that was launched in March 2009, the water business sales grew by 23%, while volume recorded a growth of 31%.
The water and beverages gross profit margin also improved by 100 basis points to 43% compared to last year. This increase in profitability is due to the effects of cost saving measures and the related drop in PET prices.
The integration of Capri Sun has been successful, with production and distribution commencing on schedule in late March 2009. The market acceptance and response has been favorable, and the plant is almost running at full capacity.
New production lines for the Capri Sun juice and bottled water are expected to come on stream in the first quarter of 2010. This will allow continued growth in production capacity to meet demands from the domestic and export markets for both bottled water and Capri Sun juice.
Al Ain Vegetable has a leading position in the UAE tomato paste segment and a growing presence in the increasingly important frozen vegetable sector. This new business segment was integrated into the Company in early 2008. At the end of 2009, it contributed 5% to total group sales.
The division’s sales grew by 8% to Dhs46m against the backdrop of a challenging global tomato paste market. The division’s gross margin, at 23%, declined by 5% points as a result of a fall in global tomato paste prices and the inflow of cheaper and poorer quality tomato paste from China. This development has created intense competition in the domestic and export markets. The management has adjusted its strategy to improve the margin and drive volumes for this business.
This new division has focused on enhancing its brand. A range of new, higher margin products, including olive oil, tomato paste products in tetra packs and sachets, and tomato sauces was introduced during 2009. Management is encouraged by the take up of these new products. Looking ahead, other new product launches are in the pipeline.
The Company’s new tomato paste factory in Egypt commenced shipment in August 2009. Most of the volume was shipped to the Company’s UAE factory with a small quantity directly exported to international markets. The factory is expanding its production line to include fruit puree, french fries and frozen vegetables.
We remain optimistic about the prospects for future revenue and profit growth as the Company pursues its strategy of introducing new and value added products, continued geographical expansion and high operating efficiencies. However, from a macroeconomic perspective, the Company remains cautious of the uncertainties surrounding the current economic & financial environment in the UAE, regionally and globally.
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