Agenda. Evolution of SADAFCO

Transcription

1 Corporate Presentation July 2018

2 Agenda Evolution of SADAFCO Key Milestones Shareholding Structure Management Team Strategy Product Portfolio Manufacturing Facilities Distribution & Supply Chain Network Financial Overview Product Profile Regional Peer Benchmarking Saudi Arabia Dairy Market Q Review 2

3 Agenda Evolution of SADAFCO 3

4 Evolution of SADAFCO Established in 1976 with the formation of Saudi Danish Dairy Company, a joint venture between Saudi businessmen (48%), Kuwaiti businessmen (48%) and Danish Turnkey Dairies (4%) Commercial production of Ultra High Treatment (UHT) Milk at the Jeddah factory commenced in 1977 The Company acquired the Saudi Danish Dairy Company of Riyadh in 1987 Merged with Gulf Danish Dairy Company and Medina Danish Dairy Company, and formed SADAFCO in 1991 Since the early 1990's, in addition to milk-related products including ice cream, the Company has expanded its product range with the introduction of tomato paste, cheese and snacks Since its incorporation, the Company has expanded its product range to become a significant player in the Saudi food and dairy market The Company currently holds the highest market share in UHT milk, tomato paste carton & is the market leader in ice cream in Saudi Arabia. It also has a growing presence in the snacks market 4

5 Agenda Key Milestones 5

6 Key Milestones Estab. as a pioneering venture in dairy sector; commissioned UHT milk plant in Jeddah; completed 40 years Acquired Saudi Danish Dairy factory in Riyadh Merged with Gulf Danish Dairy Company and Medina Danish Dairy Company to form SADAFCO Estab. of regional distribution centre in Jeddah; 1st to launch long-life Hommos in Tetra Pack Completion of rationalisation and consolidation of mfg. facilities from five to two as a part of Project Omega-I Consolidation of manufacturing infrastructure with closure of Dammam factory Sold 51% stake in SNZMP to MPH Riyadh RDC Operationalized Shake Factor boutique opening Plant in Dammam commissioned First company in Saudi Arabia to launch tomato paste in Tetra Pack packaging Acquisition of Sara Snack Food Factory (Jeddah) & set up SNZMP 1 for manufacturing cheese Converted to closed joint stock company with introduction of new investors Listed on Saudi Stock Exchange through an IPO Sale of Sara Snack Food Factory Reopened Dammam factory and announced plans for RDC in Riyadh Achieves SAR2bn gross revenue milestone. Acquired 76% in Mlekoma sp Z.o.o, a Poland based dairy company at an enterprise value of PLN120mn 1. Saudi New Zealand Milk Products Limited a JV with Milk Products Holdings (MPH), a subsidiary of New Zealand Dairy Board (NZDB) 6

7 Agenda Shareholding Structure 7

8 Shareholding Structure Shareholding (as of 30 June 2018) Qurain Petrochemicals Industries (QPIC) is the largest shareholder of SADAFCO Public & Others 59.9% 40.1% QPIC, incorporated in 2004, is a private sector holding company in the energy, petrochemical, food and related sectors QPIC is an associate of KIPCO group, which is one of the biggest diversified holding companies in the Middle East and North Africa. KIPCO Group has assets of around USD 32 billion under management or control KIPCO and QPIC both are listed on the Kuwait Stock Exchange Source: Tadawul Stock Exchange 8

9 Agenda Management Team 9

10 Directors and Management Team Board of Directors HH Sheikh Hamad Sabah Al-Ahmad Chairman Faisal Hamad Mubarak Al-Ayyar Vice Chairman Saied Ahmed Saied Basamh Director Abdullah Yaqoob Bishara Director Suleiman Saud Al-Jarrallah Director Mussad Abdullah Al-Nassar Director Ahmed Mohamed Hamed al Marzouki Director Management Team Wout Matthijs Chief Executive Officer Ian Gowlett Chief Financial Officer Raffael Reinders Director, Supply Chain Marek Mierzejewski Director, Sales & Distribution Paul van Schaik Director, Organizational Development Shehzad Altaf Director, Marketing 10

11 Agenda Strategy 11

12 Our Vision, Mission & Values VISION To be the Brand of Choice MISSION Develop, produce and market a range of nutritious food propositions for all age groups and create maximum shareholder value through teamwork 12

13 Business Strategy Limit double handling to achieve efficiencies Reduce time to market with mid haul operation between depots Supply Chain Strategy Growth Strategy Drive market share growth across categories and countries Expand production capacity Pursue inorganic growth opportunities Develop sustainability and ability to retain and attract talent Deliver success with a sustainable high performing team Reward and recognition to foster growth and drive meritocracy Organization & People Product Strategy Expand target market with new products, derived from existing product line Enhance value creation with new propositions Grow Saudia UHT milk usage within fresh milk users (by innovations) Marketing Strategy Enhance brand image Establish connection with consumers through advertising, activation & sampling (360 o Communication) Build Saudia brand outside KSA by extending the marketing activities to the Gulf and other Middle East 13

14 Agenda Product Portfolio 14

15 Product Portfolio: Evolution/ Expansion UHT Milk Tomato Paste Snacks, Juices Hommos/ Mutabal Flavored milk, carbonated energy drink Tomato Ketchup, Cheese Triangles Growing Up drinks, French Fries, Butter Laban, Arabic Coffee, Laban flavored Drink (Twist) Laban Fruit Drink (Jump!) Ice Cream Cheese Bottled water Fresh Product Value added milk, probiotic drinks Sterilized Cream Milk Powder, Jar Cheese, Tinned Cheese Evaporated milk, Thick Cream h Majestique, Soy Drink, Date Milk Still Water, Organic Tomato Paste Discontinued products 15

16 Product Portfolio UHT Milk Ice cream Frozen French Fries UHT Milk Whole, Low Fat, Skimmed, Gold Milk Flavored Milk Date Milk Feta Cheese Cheese Products Processed Cheese Triangles Butter Milk Powder Milk Powder Instant Tomato Products Tomato Paste Ketchup Organic Tomato paste Fiery Ketchup Tomato Paste Sachet Arabic Coffee Laban Jump Crispy Others Cream Juices Growing-up EVAP Majestique Soy Drink Still Water 16

17 Product Portfolio: Contribution in 2017/18 Revenue Contribution By Category 3% 2% Cheese Powdered Milk 11% Tomato Products 5% Others 14% Ice Cream 66% RTD Milk Ready to Drink (RTD) Milk is the single largest contributor to company s revenue (66% share) SADAFCO has the 2 nd highest market share in KSA s Plain milk market of 31.6% as of Mar 18 Ice cream and Tomato products are other major contributors; Ice Cream contributes 14% to revenue, and Tomato products contributes 11% to revenue 17

18 SADAFCO s Market Share Key Categories Development in SADAFCO s Market (in Value terms) Current Market Share (MAT*) (in Value terms) 30% 31% 32% 27% 27% 27% 28% 2011/ / / / / /17 MAT Al Safi 8.5% Nadec 7.5% Al Marai 44.1% Others 8.3% Plain Milk SADAFCO 31.6% SADAFCO s Liquid Milk share: 26.5% Others 22.3% 33% 38% 38% 44% 46% 49% 45% Waha 4.3% Al Alali 6.1% Tomato Paste SADAFCO 45.3% 2011/ / / / / /17 MAT Nada 6.8% Luna 15.2% 25% 22% 20% 20% 19% 19% 20% 2011/ / / / / /17 MAT Baskin Robbins 4.8% MasterFoods 6.4% Others 19.0% Al Amal 12.4% Ice Cream Kwality 15.7% SADAFCO 24.5% Iffco 17.2% Source: Nielsen Data *MAT is MAT Mar 18 for Milk, Tomato Paste and IC 18

19 Agenda Manufacturing Facilities 19

20 Manufacturing Facilities Establishment 1976 Area 21,713 sq. mt Production Capacity 507,000 MT Product Line Liquid dairy products Staff 229 (161 Permanent, 68 casual) Establishment 2004 Area 7,608 sq. mt Production Capacity 40,000 MT Product Line Ice-Cream Staff 167 (101 Permanent [of which 22 are females], 66 casuals) Establishment 1980 & closed Re-opened Area 22,500 sq. mt Production Capacity 105,000 MT Product Line Snacks, Tomato Paste, Feta Cheese, Arabic Coffee & Juice, CSD, Water Staff 216 (143 Permanent [of which 54 are females], 73 casuals) Jeddah Factory Jeddah Ice Cream Factory Dammam Factory 20

21 Agenda Distribution & Supply Chain Network 21

22 Distribution Network From the factories in Jeddah and Dammam, finished products are shipped to the regional distribution centre, Jeddah and to 23 distribution warehouses in Saudi Arabia, Gulf and Jordan. Jordan SADAFCO Distribution network List of distribution depots Al Jouf Kuwait Distribution centres have ambient & frozen storage infrastructure along with requisite transportation and distribution facilities More than 509 routes delivering to a regional retail network of over 32,540 outlets across Arabian peninsula, monitored via hand held technology Tabuk Hafr al Baten Hail Buraida Madinah Dammam Yanbu Riyadh Hofuf Dawadmy Makkah Jeddah Al Alaya Taif Abha Sahil Najran Bahrain Qatar Jizan Distribution warehouses in Saudi Arabia and the Gulf 22

23 Established Distribution Network Fleet Sales fleet of 860 delivery trucks and vans Fleet Productivity: 15,500 km per truck in Mar 18 In order to enhance the distribution efficiency, the company has replaced 71 Sales trucks and added new 17 Sales trucks in 2017/18 23

24 Strong Retail Presence Distribution Format % of Net Sales 2017/ % Modern Trade 36.9% Traditional Trade RETAIL WHOLESALERS OTHERS Traditional Trade & Wholesalers continue to dominate with organised formats gaining importance Regional retail network of over 32,450 outlets across Arabian peninsula 24

25 Agenda Financial Overview 25

26 % 23% 18% 13% 8% 3% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sales & Profitability Sales SAR mn Gross Profit SAR mn 1,553 1,807 1,983 1,787 1,693 32% 31% 36% 39% 37% /14 14/15 15/16 16/17 17/18 13/14 14/15 15/16 16/17 17/18 As % of Net Sales Net Profit SAR mn 11% 8% % % 15% /14 14/15 15/16 16/17 17/18 As % of Net Sales 26

27 % 35% 30% 25% 20% 15% 10% 5% 0% Strong Balance Sheet Steady Asset Base SAR mn build by Internally generated funds SAR mn 1,138 1,209 1,391 1,642 1,736 1,138 1,209 1,391 1,642 1, ,081 1,263 1,321 13/14 14/15 15/16 16/17 17/18 13/14 14/15 15/16 16/17 17/18 Shareholders' Equity Non Interest bearing Liabilities Working Capital* SAR mn 25% 21% 19% 13% 13% /14 14/15 15/16 16/17 17/18 Working Capital As % of Net Sales** Note: *Working Capital calculated as Current Assets net of Current Liabilities. Current Assets: Accounts receivable + Inventories + Deposits, prepayments & other current assets Current Liabilities: Accounts payable + Due to related parties + Accrued zakat + Dividend payable + Accruals & other current liabilities **Rolling 12-months net sales 27

28 Cash Flow Summary Cash Flow Bridge for rolling 12-months as of 31 March, 2018 SAR mn Free Cash Flow = SAR 211mn -50 Cash and Cash Equivalents (31 Mar 2017) Net cash from operating activities Purchase of Property, Plant and Equipment (PP&E) Dividends Paid Cash and Cash Equivalents (31 Mar 2018) Total proposed and paid dividend of SAR 4 per share Distributed Interim Dividend of SAR 2 per share for FY2017/18 in Q3 17/18 Note: Does not depict other cash outflow of ~SAR1mn which includes non-controlling interest and effect of exchange rate fluctuations 28

29 Historical Trends Revenue SAR mn ,023 1,134 1,336 1,549 1,553 1,807 1,983 1,787 1, /01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/ /18 Net Income & Margin SAR mn 17% 15% 12% 12% 9% 10% 11% 11% 13% 11% 11% 9% 7% 8% 7% 304 4% % /01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/ /18-3% Total Assets SAR mn 1,642 1, ,074 1,096 1,103 1,138 1,209 1, SADAFCO has shown consistent growth in its revenues and margins. However, shrinking consumer base with less disposable income and irrational competitor discounting, led to slight decline in the revenues in past two years. 2000/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/ /18 Source: 2000/ /05 : SADAFCO Prospectus; 2005/ /18: SADAFCO Annual FS 29

30 Share Price Performance Since IPO Annotations Share price (30 Jun 18): SAR April, 2006: 5 for 1 stock split for all companies was applied. Nominal value per share became SAR10 instead of SAR50 June, 2009: Management expected 200% increase in Q1 10 net profit as compared to Q4 09 May, 2012: Announced partial reopening of its Dammam factory Oct, 2013: QPIC purchased 29% stake of SADAFCO from UIC No of Shares Outstanding: 32.5 Mn Market Cap: SAR 3,062 Mn PE LTM: 11.7x % 5 6 Jul, 2014: QPIC purchased another 11% stake in SADAFCO from UIC; increasing QPIC s total stake to 40% Apr, 2016: Announced 84% increase in Y-o-Y net profit for FY2015/ A 3 (34)% A Dec, 2009: Decided to sell 51% stake in Saudi New Zealand Dairy products. (Deal value: USD32.7mn) 0 SASE Index SADAFCO Source: Bloomberg Note: Price rebased to 100 for SADAFCO and SASE Index on 23May05 30

31 P/E ratio P/B ratio Market Performance Market Cap SAR mn 1, ,469 1,398 1,853 2,121 3,104 3,922 4,027 4,298 3,831 3,062 SADAFCO s market cap has grown at a CAGR of 10.8% from FY 2008 till 30Jun 18 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY2016 FY2017 FY Jun-18 Price to Earnings and Price to Book Ratio SADAFCO s P/E and P/B ratio has been in the range of x and x respectively in recent times 0 - P/E Ratio P/B Ratio Source: Bloomberg 31

32 Complemented by Exports SADAFCO s Revenue Breakdown (2017/18) SADAFCO s Exports Breakdown (2017/18) Bahrain, 45.5% Jordan, 21.3% 95% Domestic Sales Exports 5% Kuwait, 12.0% Others, 10.6% Qatar, 10.5% SADAFCO continues to diversify geographically currently 5% of SADAFCO s sales are outside KSA The key markets outside KSA are Bahrain, Jordan and Kuwait 32

33 Key Raw Material Skimmed Milk Powder (SMP) Butter Milk Powder (BMP) 4,291 2,208 3,250 3,490 3,315 4,158 3,956 2,031 2,353 2,524 3,224 1,499 2,900 3,202 3,046 3,632 4,541 2,281 1,778 2,125 14,582 14,209 15,668 17,545 19,800 18,056 23,425 22,848 21,402 17, / / / / / / / / / /18 1, ,203 1,223 5,231 2,118 1, / / / / / / / / / /18 Volume (MT) Price (USD/ MT) Volume (MT) Price (USD/ MT) Anhydrous Milk Fat (AMF) Tomato Paste 4,081 2,496 4,700 5,346 3,969 4,232 4,865 3,583 3,876 6,235 1,312 1,236 1,210 1,102 1,105 1,279 1,388 1,073 1,203 1,182 4,120 4,602 5,137 6,044 6,100 5,498 6,032 7,030 6,810 5, / / / / / / / / / /18 7,337 6,361 8,715 14,601 11,980 14,717 16,924 19,334 20,515 21, / / / / / / / / / /18 Volume (MT) Price (USD/ MT) Volume (MT) Price (USD/ MT) 33

34 Agenda Product Profile Analysis 34

35 Plain Milk Overview Plain milk is SADAFCO s primary product comprising items like whole milk, low-fat milk, skimmed milk and gold milk Market Position (Mar 18) SADAFCO commenced operations with the production of UHT (Ultra High Temperature pasteurized) Milk in 1977 Al Safi 8.5% Nadec 7.5% Others 8.3% SADAFCO 31.6% These products are marketed primarily under the flagship brand "SAUDIA" Plain Milk Al Marai 44.1% Source: Nielsen SKUs SKUs SKUs SKUs 125ml, 200ml, 500ml, 900ml, 1-liter and 2-liter 200ml, 900ml, 1-liter and 2-liter 200ml and 1-liter 1-liter 35

36 Plain Milk Overview Cont d Product Pricing Premium Pricing Advantage Product Package Price (SAR) Whole Milk 1x12 Ctn x12 Ctn x12 Ctn x12 Ctn The company s products command a significant premium vis-à-vis other players in the market SADAFCO has a strong brand due to which it has been able to maintain premium pricing of products, despite increased competition from global and local players Source: Company Sources, prices mentioned are as of June 2018 Product Innovation Sales growth in milk through product innovation and increased focus on quality SADAFCO was the first company to launch skimmed milk specially formulated for children 36

37 Flavored Milk Overview SADAFCO expanded its product range of milk in 2004 with the launch of flavored milk. Date milk was launched in 2016 Flavored milk is offered in 4 choices Banana and Strawberry are available in 200ml packs while Chocolate milk and Date milk in 200ml and 1000ml packs These products are also marketed under the flagship brand "SAUDIA" SKUs SKUs SKUs SKUs 200ml and 1-liter 200ml 200ml 200ml and 1-liter 37

38 Tomato Products Overview Tomato Products include Tomato Paste and Tomato Ketchup Market Position (Mar 18) SADAFCO was the first company in Saudi Arabia to launch tomato paste in Tetra Pak in 1989 Others 22.3% The range was further expanded with the introduction of tomato ketchup in 2008 Waha 4.3% Al Alali 6.1% Tomato Paste Carton SADAFCO 45.3% SADAFCO has 45.3% market share (as of Mar 18) in Saudi Arabia s tomato paste carton market Nada 6.8% Luna 15.2% Source: Nielsen These products are marketed primarily under the "SAUDIA" brand SKUs 135g packs 70g Pouches SKUs Organic 135g packs SKUs 340g glass bottles 510g and 825g plastic & squeeze bottles SKUs 510g plastic & squeeze bottle 38

39 Ice Cream Overview Ice cream product line was launched in 1979 Market Position (Mar 18) Over the years, SADAFCO has launched variety of new products to establish itself and increase sales in this segment Others 19.0% SADAFCO 24.5% Baskin Robbins 4.8% Ice cream s are available in tubs, cones, push-ups, sandwich, cups, bars and sticks These products are marketed under SAUDIA and BABOO brands MasterFoods 6.4% Al Amal 12.4% Kwality 15.7% Iffco 17.2% Source: Nielsen Mix of chocolate biscuit and vanilla/chocolate Vanilla, Chocolate and Strawberry Dark & White Chocolate Blend of vanilla, peanut and caramel Orange and Raspberry Chocolate, Vanilla, Mango, Strawberry, Blackberry, Caramelita, Macadamia, Sesame, Choco chip, Waffle cone mix, Coconut, Pistachio, Black & White, and Cookies & Cream Sesame, Macadamia, Blackberry, Black & White, Pistachio, Vanilla and Chocolate 39

40 Cheese Overview SADAFCO launched cheese product line in 1991 Product Package Price (SAR) Range of products include Feta cheese, Feta Tubs and Triangles SADAFCO Feta Cheese 450 gm 9.00 Almarai Feta Cheese 400 gm The company is a leading domestic producer of feta cheese SADAFCO Triangle Cheese 2X16 Portion These products are marketed primarily under the "SAUDIA" brand Regal Picon Cheese 2X16 Portion Source: Company Sources, prices mentioned are as of June kg and 16kg tins 250g and 450g tubs 120g packs 40

41 Milk Powder Overview SADAFCO launched instant milk powder in Kg Milk powder contribution to total sales has increased from 1% in 2009/10 to 2% in 2017/18 900g tins 1.8Kg IMP products are marketed primarily under the "SAUDIA" brand SADAFCO s key competitor brands for milk powder products are Almarai, Nido and Anchor Product Package Price (SAR) SADAFCO Milk Powder 1.8 KG Almarai 1.8 KG Anchor 1.8 KG Nido 1.8 KG Source: Company Sources, prices mentioned are as of June

42 Other Products: Snacks, Cream, Butter & Drinks SADAFCO also offers range of other products including cream, butter, french fries, snacks, growing-up juices etc. Gross Sales by Product FY2017/18 % In 2017/18, crispy snacks contributed 3% to the total revenue New products included in this category are expected to contribute to the growth of the company Most of these products are sold under SAUDIA brand The company plans to widen its product portfolio through constant product innovation Junior RTD Milk 10.1% Cream 10.4% Butter 4.4% French Fries 11.8% Others 9.8% SAR mn Snacks 53.5% Launch 2007 Launch 2010 Launch 2010 Launch 2014 Launch 2017 Launch 2018 SKUs 200 ml pack and 155g tins SKUs 100g and 200g packs SKUs 2.5kg and 1kg packs SKUs 200ml and 1-liter SKUs 200 ml and 900ml SKUs 500 ml Launch 2008 SKUs 11g and 90g packs Launch 2014 SKUs 1-liter Launch 2016 SKUs 330ml and 1-liter Launch 2016 SKUs 1-liter 42

43 Agenda Benchmarking: Regional Peers 43

44 Return to Investors and Financial Strength ROA (LTM ending 31 st Mar, 2018) ROE (LTM ending 31 st Mar, 2018) 15.3% 20.2% 7.0% 15.6% 6.6% 12.8% 4.0% 9.5% 0.7% 2.2% Dividend Yield # (LTM ending 31 st Mar, 2018) Leverage (As of 31 st Mar, 2018) 5.1% 0.0% 1.3% 78.0% 4.3% 69.6% 1.3% 69.7% 0.0% 136.5% Note: # Dividend Yield is calculated by adding the gross dividends that have gone ex over the past 12 months and dividing it by the closing share price as of 31 st Mar,

45 Trading Multiples P/E (As of 30 th Jun, 2018) P/B (As of 30 th Jun, 2018) 11.7x 2.3x 31.0x 4.1x 22.5x 3.0x 51.4x 5.0x 99.3x 2.1x EV/Sales (As of 30 th Jun, 2018) EV/EBITDA (As of 30 th Jun, 2018) 1.9x 9.6x 5.2x 15.4x 2.2x 13.7x 1.9x 12.7x 2.6x 13.5x 45

46 Margins Gross Profit Margin Operating Profit Margin 39% 39% 35% 41% 40% 37% 37% 34% 35% 18% 18% 12% 19% 19% 16% 16% 12% 11% LTM LTM EBITDA Margin Net Income Margin 30% 21% 21% 32% 34% 21% 21% 20% 20% 17% 15% 15% 15% 6% 7% 16% 15% 7% LTM LTM SADAFCO Almarai Regional Peers Avg Despite adverse macro-economic environment, SADAFCO has been able to maintain its margin. Note: 1. SADAFCO has March ending financial years, hence 2017 means FY ending Mar Regional Peers Average includes the average of the margins of Almarai, Halwani Brothers, Juhayna and NADEC 3. LTM refers to margins of last 4 quarters i.e. Apr 17 to Mar18 for Almarai, Halwani Brothers, Juhayna and Nadec 46

47 Agenda Saudi Arabia Dairy Market 47

48 Saudi Arabia Dairy Market Saudi Arabia is the dairy market in the GCC region. Despite macro-economic challenges, demand for dairy products in Saudi Arabia is expected to grow Increasing population and health awareness levels are the major factors that are driving growth of dairy market in Saudi Arabia Sales of Dairy Products in Saudi Arabia* 19,932 20,807 18,508 19,159 17,406 21,785 SAR mn 22,874 Packaging improvements, social media presence, and aggressive advertising through various channels are a few other factors supporting growth The total sales of dairy products is expected to reach SAR23bn in 2022 from SAR17bn in 2016 Drinking milk products, cheese products and Yoghurt & Sour milk products are the major contributors to the overall sales in dairy market Sales Breakup by Product % (2017) Butter, 3% Ice Cream & Frozen Desserts, 9%, Other Dairy, 15% Drinking Milk Products, 32% Yoghurt & Sour Milk Products, 19% Cheese, 21% Source: Euromonitor Statistics

49 5,962 6,203 6,452 6,753 7,085 7,453 Saudi Arabia Dairy Market Cont d Drinking milk products include milk, flavored milk drinks, powder milk and milk alternatives like soy drinks, soy milk etc. Sales of Drinking Milk Products in Saudi Arabia SAR mn The category registered slight decline in growth in 2017 on account of reduced expenditure by consumers on various food and drinks products o Manufacturers of fresh flavoured milk drinks resorted to pack downsizing and price hikes o In contrast, manufacturers of shelf stable milk ran heavy price discounting on their products for most of the year Drinking milk products category is expected to grow at a steadily at a CAGR 4.6% ( ) inspite of recent turbulent times o Growing health awareness and improving per capita income as more Saudis gain employment will be the key drivers for the category growth The sub-category of drinking milk products are expected to grow at a varied rate o Plain milk is expected to expand at a high CAGR of 5.9% ( ) o Flavored milk is expected to grow meekly at a CAGR of 1.3% ( ) o Powdered Milk and milk alternatives are expected to expand at a CAGR of 3.4% and 4.5% respectively ( ) Sales Breakup by Drinking Milk Components % (2017) Powder Milk, 28% Flavoured Milk Drinks, 15% Milk, 57% Source: Euromonitor Statistics

50 3,508 3,609 3,714 3,830 3,953 4,088 3,942 3,936 4,010 4,079 4,165 4,265 1,750 1,885 2,040 2,211 2,407 2,625 Saudi Arabia Dairy Market Cont d Ice Cream & Frozen Deserts Sales (SAR mn) The extremely hot climatic conditions in Saudi Arabia, the high proportion of children and young adults in the overall population, longer summer holidays, coupled with hotter Ramadan and Hajj seasons, increasing variety and availability of products are the key factors driving demand of Ice Cream Ice cream and frozen desserts is expected to grow at a CAGR of 8.5% from to reach SAR2,625 mn in 2022 Cheese Sales (SAR mn) Soft cheese registered the strongest growth in 2017 particularly white and feta cheese. Cheese recorded a much lower retail value growth rate of 2% in 2017 due to consumers shift towards healthier cheese alternatives. As a result, heavy discounts were offered by processed cheese manufacturers Unpackaged cheese recorded robust growth in 2017 over packaged and processed cheese as it is perceived to be healthier by the public Yoghurt & Sour Milk Products Sales (SAR mn) Sales of Yoghurt & Sour Milk Products is expected to grow at a CAGR of 3.1% during increasing from SAR3,508 mn to SAR4,088 mn Due to declines in overall consumer expenditure, retail volume growth remained stable inspite of aggressive pace of new product developments. Presently, Sour Milk products are loosing their charm and these are considered to be less healthy by modern, young Saudis. Source: Euromonitor Statistics

51 Agenda Q Review 51

52 Business Highlights Business Environment Inspite of the challenging environment, SADAFCO has been able to consolidate its position in a shrinking market, while continuing to deliver healthy returns The total Plain Milk market as well as UHT market continues to decline in value and volume terms (value declining at a higher pace than volume), yet SADAFCO market share in value terms has been resilient. However, market share of SADFACO in volume terms has decreased vis-a-vis last year due to aggressive pricing and promotions from competitors For the first time in many years, Plain UHT milk volumes have surpassed those of fresh milk, with 50.8% market share (as of May 18)* The Tomato Product market also continues to decline and SADAFCO s market share has also slightly declined vis-à-vis last year. However, in recent months SADAFCO s decline has slowed Ice Cream market is witnessing continued slowdown but SADAFCO is outperforming the category and is improving on both value and volume terms New Product Launches Crispy Salt & Vinegar New flavor variant to bring excitement to the category in the flagship format (letters) Flavored Milk Chocolate 1Ltr Introducing a different format targeting home consumption Organic Tomato Paste To upgrade consumers to a more premium offering and to satisfy growing consumer interest in organic products Tomato Paste Sachet Drive affordability with added benefits of more convenience and less wastage Recent Developments Acquisition of Mlekoma sp Z.o.o (POLAND) SADAFCO acquires 76% in Mlekoma sp Z.o.o, a Poland based dairy company at an enterprise value of PLN 120mn through SADAFCO Poland, a newly formed 100% owned subsidiary of SADAFCO *Source: Neilson Retail Audit May 18 52

53 % 23% 18% 13% 8% 3% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sales & Profitability Sales SAR mn Gross Profit SAR mn % 39% 36% 36% 33% Q1'17/18 Q2'17/18 Q3'17/18 Q4'17/18 Q1'18/19 Q1'17/18 Q2'17/18 Q3'17/18 Q4'17/18 Q1'18/19 As % of Net Sales Net Profit SAR mn 17% 17% 14% 13% 12% Q1'17/18 Q2'17/18 Q3'17/18 Q4'17/18 Q1'18/19 As % of Net Sales * Income Statement from FY 16/17 has been stated as per IFRS 53

54 % 35% 30% 25% 20% 15% 10% 5% 0% Balance Sheet Steady Asset Base SAR mn build by Internally generated funds SAR mn 1,644 1,713 1,712 1,763 1,835 1,209 1,284 1,277 1,321 1,372 Q1'17/18 Q2'17/18 Q3'17/18 Q4'17/18 Q1'18/19 Working Capital* Q1'17/18 Q2'17/18 Q3'17/18 Q4'17/18 Q1'18/19 SAR mn Shareholders' Equity 11% 14% 15% 13% 11% Q1'17/18 Q2'17/18 Q3'17/18 FY'17/18 Q1'18/19 Working Capital As % of Net Sales** Note: *Working Capital calculated as Current Assets net of Current Liabilities. Current Assets: Accounts receivable + Inventories + Deposits, prepayments & other current assets Current Liabilities: Accounts payable + Due to related parties + Accrued zakat + Dividend payable + Accruals & other current liabilities **Rolling 12-months net sales 54

55 Cash Flow Summary Cash Flow Bridge for rolling 12-months as of 30 Jun, 2018 SAR mn Free Cash Flow = SAR 172mn -50 Cash and Cash Equivalents (30 Jun 2017) Net cash from operating activities Purchase of Property, Plant and Equipment (PP&E) Dividends Paid Cash and Cash Equivalents (30 Jun 2018) Annual General Meeting approved SAR 2 as final dividend to be paid in July 18 Note: Does not depict other cash outflow of ~SAR1mn which includes non-controlling interest and effect of exchange rate fluctuations 55

56 Acquisition of Mlekoma sp Z.o.o (POLAND) SADAFCO acquires 76% in Mlekoma sp Z.o.o, a Poland based dairy company at an enterprise value of PLN 120mn through SADAFCO Poland, a newly formed 100% owned subsidiary of SADAFCO. Mlekoma Group is engaged in production and trade of powdered, condensed and fluid products such as whole milk, cream, butter milk and owns 2 manufacturing plants in Poland KEY HIGHLIGHTS: The purchase price has been agreed at an enterprise value of PLN 120Mln (Polish Zloty), equivalent to approximately SAR 120Mln to be settled by cash The results of Melkoma Sp z.o.o will be consolidated in SADAFCO s results fromquarter ending 30 September

57 Capital Expenditure Jeddah Central Warehouse provides an opportunity to manage the production growth efficiently through effective warehouse management. It would enable: Seamless flow of raw materials and finished goods Enhanced efficiency with improved rotation of stock Cost Savings and reduction in dependency on rented warehouses Jeddah Central Warehouse Estimated Capex: SAR 145 mn Construction in progress and completion expected during the year 57

58 Going Forward The previously flagged headwinds which have impacted across most FMCG categories, in addition to those mainly driven by the glut of fresh milk in Saudi Arabia, continue to frustrate efforts to return to sales growth. We remain committed to striving to deliver profitable sales, ensuring our market share metrics remain strong and investing behind our Saudia brand, so it continues to retain its position in a very competitive environment. We continue to deliver industry leading returns, albeit lower than those that we previously signalled were unsustainable. Looking forward, as the domestic fresh milk glut is consumed, we believe that the actions we have taken, will ensure both our brand and our organization are well positioned to deliver growth of both top and bottom lines. The company maintains a healthy cash position of SAR 612 million with zero leveraging. As ever, we remain active in scouring through various M&A opportunities, to utilize some or all of this cash, in order to drive enhanced future shareholder returns, on top of those delivered organically. 58

59 P.O.Box 5043, Jeddah 21422, Kingdom of Saudi Arabia sadafco@sadafco.com Tel : (+966) Fax : (+966)