Saudi food company Savola Group will seek acquisitions of cooking oil firms in Asia and push into real estate at home after its fourth-quarter profit fell 24% as high commodity prices slashed margins.
The world’s largest producer of branded cooking oil wants to take stakes in cooking oil firms in India, Indonesia and Pakistan, as well as firms producing oilseeds, such as corn and sunflower, chief executive Sami Baroum said on Saturday.
“We are looking for vertical expansion opportunities, going upstream, to have better control over margins,” Baroum told newswire Reuters in an interview.
“We are heading to some countries with strong potential, namely India, Indonesia and Pakistan for edible oil in particular,” he said.
Savola – which produces 1.4 million tonnes per year of cooking oil which it sells in markets including Morocco, Turkey and Iran – had not yet identified investments, Baroum said.
Shares of Savola dropped as much as 6.6% after the firm reported profit of 177 million riyals ($47.2 million) in the three months to December 31 after a global surge in commodity prices slashed its margins and it spent more on marketing.
“The fourth quarter reflected the worst impact on our earnings from the rise in raw material prices, which hit unprecedented levels,” Baroum said.
Savola is constrained in its ability to pass along commodity price rises to consumers and has to shoulder a lot of the increases.
King Abdullah last month orderered subsidies on some food products to ease the impact of inflation on ordinary Saudis after inflation hit 16-year highs of 6% and 6.5% in November and December, respectively.
“Instead of selling low-margin products we focused on high-margin products, through re-branding, which required investment in marketing and sales,” Baroum said.
Savola, also the second-largest sugar refiner and owner of the largest retail chain in the Middle East, has earmarked 18 billion riyals for expansion in North Africa and Central Asia, Baroum said in June.
Some 60% of the funds would go toward expanding existing activities such as edible oils, sugar refining and supermarket retailing, Baroum had said.
The firm expects to start production at its new $140 million edible oil plant in Algeria by end-May at the latest, Baroum said.
The conglomerate also plans to push into the Saudi real estate sector and wants to make more acquisitions of packaging and plastics companies, he said. Savola’s real estate portfolio is valued at about 800 million riyals, he said.
“We plan to forge partnerships this year to develop property projects in Saudi Arabia,” Baroum said, without giving details.
Savola announced earlier this month that it has raised to 95 from 70% its stake in an Egyptian plastics company.
“The Egyptian transaction is a prelude to more acquisition in the packaging industry. It promises to be profitable,” he said, without being more specific.
In Egypt, where the Saudi conglomerate plans to start a 750,000 tonnes a year sugar refinery in May, Savola is planning acquisitions of food companies, Baroum said.
He denied that Savola was eyeing acquisitions of Egyptian edible oil firms as an Egyptian newspaper reported earlier this month, citing a Savola executive.
“We are not targeting edible oil firms in Egypt. He [the executive] meant to say other food products,” Baroum said. (Reuters)
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