How did SADAFCO realize highest quarterly profit in almost 13 years?

SADAFCO building

Saudia Dairy and Foodstuff Co.’s (SADAFCO) financial results were higher than average expectations during the second quarter  ended Sept. 30, 2022, after rising to its highest level in nearly 13 years to reach about SAR 85.6 million, a surge of more than 57% from the same and previous quarter. 

This was mainly driven by the collective growth in the operational revenues, an increase in sales of all types of products amid improved market share and seasonality of demand for products, return to schools, opening new outlets and addition of new products, the company stated. 

The profit of the beverage segment – SADAFCO’s core business division – more than doubled from the same and previous, reaching SAR 69.3 million, thanks to a 27% sales growth. 

The segment benefited from the higher market share of dairy products, rising to 61.3% in Q2 2022/23, compared to 61.1% for the same quarter a year earlier. This came despite higher depreciation and amortization expenses of about SAR 20.8 million, compared to SAR 16.3 million for the year-earlier period. 

Sales revenue from the non-beverage segment extended its uptrend for the third consecutive quarter, rising 36% year-on-year (YoY) and 12% quarter-on-quarter (QoQ) to SAR 314.5 million, backed by a 25% growth in ice cream sales and a 28% rise in tomato paste. 

The segment’s sales benefited positively from the market share gains, as tomato paste surged to 54.2% from 51.6%, while ice cream products improved to 29.1% from 27.1%. 

However, the segment’s quarterly profits declined 32% to SAR 18.2 million, affected by the significant rise in financing costs by SAR 29.5 million year-on-year (YoY). 

This was due to a rise in the fair value of the put option, driven by the positive operating performance of the Mlekoma Group, amounting to SAR 17 million and the currency exchange losses on the depreciation of the Polish currency and lease liabilities valued at SAR 12.5 million, the company said. 

SADAFCO’s profit margins improved by 1.7% to 32.2% by the end of Q2 2022/23, compared to 30.5% for the same period a year earlier. 

Other income of SAR 5.4 million also contributed to the rise in net profit, as the company reported a finance income of SAR 4.5 million. 

On the other hand, the operating expenses increased due to higher administrative costs related to employees, rise in selling expenses on higher sales activities and depreciation expenses on new assets. 

*Includes additional financing costs of SAR 26 million resulting from the net change in the fair value of the put option of non-controlling interests 

**Includes additional financing costs of SAR 23.7 million resulting from the net change in the fair value of theput  option of non-controlling interests 

Geographically, sales achieved a collective increase, led by Poland at 90% and sales in other countries at 81%. 

SADAFCO's sales in the Saudi market rose 25%, followed by the GCC at 22%. 

The company indicated that a new warehouse was opened in Al-Kharj, bringing the total number of warehouses to 22 across Saudi Arabia.

In addition, five new products were launched in the dairy and ice cream categories, the firm highlighted, noting that work is still ongoing on the Makkah warehouse project, which is estimated to cost SAR 27 million. The project is likely to be completed in the current fiscal year.