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Savola Group posts profit in Q1

Saudi Arabia's leading food products company Savola Group reported a net profit of SR6.5 million ($1.73 million) for first quarter (Q1) of 2019, compared to a loss of SR84.3 million ($22.47 million) in Q1 2018.

The results beat the estimate of a profit of SR3 million ($799,950) by Al Rajhi Capital and the consensus estimate of a loss of SR120 million, said an Al Rajhi report.

The net profit was mainly driven by the higher margins obtained in the food segment business. Despite 6 per cent year-on-year drop in revenue, the EBITDA margin of the food business improved by 270bps to 8.6 per cent, said the report.

The retail business achieved operating efficiency as a result of which net loss from retail segment reduced to SR193 million ($51.4 million) compared to SR223 million ($59.4 million) in Q4 2018.

The consolidated revenue for the company grew 5.5 per cent y-o-y to SR5.3 billion ($1.41 billion) driven by 18 per cent like for like growth, increase in customer count and higher basket size.

Gross profit improved 17 per cent y-o-y on the back of higher margins (+200bps y-o-y) which was achieved likely due to lower commodity prices in the food segment.

The EBITDA margin improved significantly (+460bps) due to operating efficiency as a result of which the EBITDA almost doubled to SR505 million ($134.6 million) in Q1 2019 from SR246 million ($65.61 million) in Q1 2018, it stated.

"In 2019 as a turnaround strategy the company might shut down a few more stores which will help it in achieving higher operating efficiency and a positive EBITDA in their retail segment. Going forward we expect the revenue from retail business to shrink due to a significant number of store closures in the past," added the report.

"Due to cost optimisation initiatives and turnaround strategy we do believe the EBITDA to breakeven in the medium term. For food business we expect the volume growth to remain weak and the structural headwinds from volatile commodity and currency price to remain a key concern for the segment," the report said.  – TradeArabia News Service

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