Agthia expects to make one acquisition this year and introduce its bottled water in Saudi Arabia as the Abu Dhabi-listed food and beverage company reported an 18.5 per cent jump in second-quarter net profit, thanks to water and animal feed sales.
Agthia will go ahead with one acquisition in the water or dairy division this year, said Iqbal Hamzah, the company’s chief executive. The company had identified this year Dh250 million for expenditures, acquisitions, the launch of new products and capacity increases. At the end of the first half, Agthia had Dh559m in cash and cash deposits.
“There is a slowdown in the market, the business environment is challenging, but we are going ahead with the expansion and acquisition,” said Mr Hamzah. “We don’t expect the market to improve this year because of the oil prices, and unless the cash liquidity in the market and consumer confidence improves.”
Net profit attributable to equity holders in the three months ending June 30 rose to Dh77.8m, up from Dh65.7m a year earlier. The results were in line with estimates from Egyptian investment bank EFG-Hermes.
The company, which receives subsidies for its flour and animal feed businesses in Abu Dhabi and the Northern Emirates, has been notified of changes in the subsidy regime in the capital, and talks are under way about the new pricing system.
“There won’t be a 100 per cent withdrawal of subsidies but there will be a rationalisation of the subsidies, but things are not yet clear,” Mr Hamzah said. “From the subsidy side in the flour and the feed, if we lose the volume it will impact the bottom line but we have taken several mitigating steps to minimise the scale through new products and regional expansion.”
The subsidy rates have been constant since August 2007, when the subsidies came into action to check food inflation. Globally, wheat prices shot up by 136 per cent between 2005 and 2008 due to high oil prices, among other reasons.
Wheat closed at US$409 a bushel last week, down from $723 a bushel five years ago.
“While the lack of or a lesser subsidy would imply a higher selling price for Agthia’s flour and feed products, this could affect volumes temporarily as it would lose its edge allowing other players to push their sales efforts in Abu Dhabi,” according to a note from EFG Hermes.
Second-quarter revenue rose 17.4 per cent to Dh558.7m from Dh475.9m.
Agthia, in which state-owned industrial conglomerate Senaat has a 51 per cent stake, will enter Saudi Arabia with bottled water this year.
Six-month revenue of the water division, which markets bottled water under the Al Ain, Al Bayan, Alpin and Ice Crystal brands, and fruit juices under Capri Sun and Al Ain brands, grew by 26 per cent to Dh362m. Agthia entered Pakistan in April with Al Ain bottled water.
The animal feed division’s six- month revenue rose 7 per cent year-on-year to Dh360m.
Six-month revenue for the flour division, which Agthia introduced in Saudi Arabia in the first quarter, posted 3 per cent year-on-year increase to Dh230m. Agthia expects to enter Bahrain and Oman in the current quarter.
The dairy division’s six-month revenue grew 37 per cent year-on-year to Dh16m.
During the second half, it expects to launch new products in the water, juice and bakery categories.
Agthia shares closed on Monday at Dh7.77, down 2.7 per cent. They are up from Dh7.58 a year ago.