SADAFCO - Investment Club

23 min read

Saudi Dairy and Food Company (SADAFCO) is one of the leading companies in the dairy and food industry. It was founded on April 21, 1976, as a joint venture of Saudi, Kuwaiti and European shareholders to produce high-temperature milk, a "Saudi milk" product. Subsequently, European partners sold their stakes to Saudi and Kuwaiti shareholders. Three dairy production companies merged in 1990 into one company, SADAFCO. The company was listed on the Saudi market "Tadawul" in 2005. SADAFCO products include a wide range of milk, dairy, cheese, ice cream, and snacks. The company successfully retained its position in the market through premium products such as long-term milk and tomato paste through its brand known as "Saudia".

Based on the provided pie chart, the product sales share for SADAFCO in 2023/2022 is as follows:

Milk is the dominant product category, accounting for a significant portion of SADAFCO's overall sales.

Ice Cream holds the second-largest share, indicating strong consumer demand for this product.

Tomato Paste, Powdered Milk, and Cheese each contribute a notable share to the company's revenue.

The "Other" category encompasses a variety of products, suggesting a diversified product portfolio.

After gaining a general understanding of the company, let's delve into the specifics of SADAFCO. The following timeline outlines the remarkable journey of the Saudi Dairy and Foodstuff Company.

Overview of the Food Industry sector globally and in Saudi Arabia:

The food industry sector includes several companies whose work focuses on the processing of foodstuffs from raw materials to canning and distribution, which includes not only canned foods, but also fresh foods. The food industry is equipped with all specialized products for human consumption except medicines, with its role attributed to its own sector. The size of the food sector varies from country to country, but we will generally address the overall global figures and specifically the food industry sector in Saudi Arabia.

The Saudi dairy market enjoys moderate market unification, which means a relative balance in the distribution of quotas between different companies in the sector. In this context, the five major companies own 51.94% of the market, including pastures, Arla Food, Danone SA, Saudi Dairy and Food Products Company (SADAFCO), and National Agricultural Development Company (NADC). This situation reflects the presence of several companies competing in a balanced manner in the market without clearly outperforming one another, which promotes healthy competition and contributes to maintaining market stability.

Globally, recent statistics indicate huge growth in the global food industries sector, rising from $6756.96 billion in 2023 to $7000.88 billion in 2024. It is expected to reach $7464.2 billion by 2027 and $12.97 trillion by 2028. Given the sector in Saudi Arabia, the market is very competitive, with many large and well-known companies in the sector. These companies are accelerating the development of state-of-the-art products that keep pace with renewed consumer needs to gain a competitive advantage and win customer loyalty. Saudi Arabia's food industries are expected to be worth $23.48 billion by 2024 and $27.83 billion by 2029.

As for the Gulf markets, Sumit Mathur, Managing Director of Friesland Campina, stated that the dairy and cheese sector grew in the Gulf Cooperation Council (GCC) countries by 50% between 2007 and 2017, reaching $8.6 billion by the end of 2017. He added that Saudi Arabia holds 60% of the market share.

The important external factors likely to impact SADAFCO can be identified and assessed using the strategic framework known as PESTEL analysis:

Sector Developments:

The food production sector in the Saudi market has witnessed remarkable developments in recent years, thanks to Saudi Arabia's Vision 2030 aimed at achieving economic diversification and enhancing private sector opportunities. Localization of the food industry is one of the major developments in the sector, within the National Industry Development and Logistics Programmed. More food factories were invested in the Kingdom, reaching more than 1,183 in 2023.

In addition, the Public Investment Fund launched Salic in 2021 to be its investment arm in the food and agriculture sector, where its investments vary between domestic and foreign companies intending to develop the sector and achieve food security in the Kingdom. With Saudi Arabia achieving self-sufficiency in many food commodities such as milk products and dates, Saudi food exports to international markets have been boosted through the signing of several trade agreements with different countries, to promote trade in the food sector. Many dairy products have reached foreign markets through competition with higher quality and lower prices.

SWOT Analysis:

The following diagram represents the SWOT analysis for SADAFCO, outlining the strengths, weaknesses, opportunities, and potential threats.

SADAFCO competes with prominent companies such as Almarai, Nadec, and Halwani Bros in the dairy and food sector in Saudi Arabia. Choosing these companies as competitors illustrates the challenges and opportunities facing SADAFCO in the market.

This table provides an overview of the financial performance of the Saudi Dairy and Foodstuff Company SADAFCO during the period from 2019 to 2023.

Overall, the financial data for SADAFCO from 2019 to 2023 presents a positive picture of the company. It has shown steady revenue growth, maintained strong profit margins, and upheld a healthy financial position. However, fluctuations in net income indicate the need for the company to continue managing its risks effectively and enhancing its efficiency to achieve sustainable long-term growth.

Viewing competitors:

National Agricultural Development Company - NADEC:

NADEC one of the largest agricultural companies contributing to the Middle East and North Africa, providing integrated dairy products. The company owns six farms with about 60 thousand cows to produce milk and has two processing plants that produce more than 1.5 million liters of milk per day. The company also has 200 distribution trucks of up to 50 thousand warehouses and distributors, as well as 800 small sales trucks operated by a sales team of 200 individuals.
In an interview with NADC CEO, it was reported that the company's revenue increased by 18.6% in 2023 on an annual basis. NADEC is expected to invest approximately SAR 500 million in the dairy sector through the rehabilitation of distribution centers and the addition of new pathways, the application of technology in sales management, and improved product access for consumers and points of sale.

Financial indicators showed that NADEC's market value was 8.777 billion riyals, the number of shares was 301.64 million, and the earnings per share over the last 12 months was 1 riyal.

Almarai Company:

Founded in 1977, Almarai is the world's largest vertically integrated dairy company, with a sector orientation or specific industry, focusing on providing specialized products or services that meet the needs of this sector in particular. Based in Riyadh, it ranks first in the field of fast-moving consumer goods in the Middle East and North Africa region. Its products range includes juices, baked goods and poultry under 7 brands.

In 2005, it transformed from a limited liability company into a public joint stock company in the Saudi stock market, with a market share in the milk sector of 40.3%, and in the pasteurized milk sector of 15.2%.

Almarai has now entered the world of the ice cream industry, using high-quality milk and cream with natural ingredients, creating a variety of ice cream, including classic sandwiches, coons, sticks, mini bates and sharing cans.

Halwani Bros:

Halwani Bros was founded in 1937 in Egypt by brothers Hassan and Ibrahim Halwani and has since grown into one of the leading food industry companies in Egypt and the Middle East. The company produces various food products, including pastries, pastries, dairy, confectionery, baked goods, ice cream, processed meat, and ready-to-eat food. The company is known for its product quality and diversity, making it a familiar and reliable name on the market. In 2023, the company's revenue amounted to SAR 233 million, reflecting its continued success and ability to meet market needs and achieve sustainable growth.

Finally, we will show a comparison between some of the financial ratios of Saudi Dairy and Food Company "SADAFCO" and its competitors:

Profitability ratios:

Profitability ratios are financial indicators used to assess a company's ability to generate profits relative to its revenues, assets, or shareholders' equity. These ratios help investors and analysts understand the company's profitability and financial performance analysis. To measure profitability, we used several indicators including Return on assets (ROA), operating profit margin and Net profit margin.

Operating profit margin ratio:

is a financial measure showing the percentage of the company's revenue that turns into operating profit.

Looking at the chart, we note the convergence of changes between most companies, except NADEC, which was different. In 2021, SADAFCO's profits rose by 0.13% compared to the rest of the sector, with all other companies seeing declines of varying proportions. NADEC especially saw a sharp drop in its profits. Then in 2022, NADEC's profits came back up while the profits of the rest of the companies fell. In 2023, most companies' profits increased similarly, except Halwani Bros, which saw a decline in profits. The decline was attributed to the decline in the exchange rate of the Egyptian pound against the Saudi riyal.

Net profit margin:

is a financial ratio that reveals a company's profitability by calculating the percentage of its revenue that turns into net profit. This ratio is essentially a measure of how much net profit a company makes per SR of its sales revenue.

Both SADAFCO and pastures have maintained high net profit margins ranging from 9% to 16% in recent years. This indicates their ability to manage their operations efficiently and convert much of their sales into net profits. On the other hand, Halwani Bros and NADEC have experienced more volatility in profit margins over the four years. However, NADEC margins improved after 2021 as its net income recovered, but Halwani Bros continued to struggle with a decline in its net profits, reflected in a sharp decline in its net profit margins.

Return On Assets (ROA):

Return on assets reflects the company's ability to generate profits relative to its total assets. The ratio measures the effectiveness of companies in using their assets to create net income.

Both SADAFCO and pasture maintained a high return on assets, but SADAFCO consistently exceeded the pasture ratio. This demonstrates their high efficiency in using their assets compared to Halwani Bros and NADEC. Although NADEC saw a decrease in the ratio of return on assets in 2021 due to negative net income, the company was able to recover its levels of return on its previous assets and continue the following year. Halwani Bros, on the other hand, has recorded a sharp decline in the return on assets since 2020, as the company's net income has not yet recovered. This shows that Halwani Bros has had difficulty effectively using its assets to generate sufficient profits, indicating potential challenges in operational or financial operations

Debt ratio:

Debt ratio is a financial measure used to assess a company's reliance on debt to finance its operations against total assets. High debt ratio means that the company relies heavily on borrowing to finance its operations and growth, which can be an indicator of higher financial risk.

The graph shows SADAFCO's debt ratio between 30.26% and 32.1%, indicating good debt management and a balanced use of financial lifting. In contrast, NADEC experienced very high debt ratios between 2020 and 2022, and then dropped dramatically in 2023. While the debt ratio of Halwani Brothers increased markedly in 2022. The debt ratio of AL Marai ranges from 47.05% to 50.80%, indicating a high reliance on the debt. Overall, the chart shows a balanced performance of SADAFCO compared to its competitors in terms of debt management.

Asset Turnover ratio:

An asset turnover ratio is an indicator that measures a company's efficiency in using its assets to generate revenue. This indicator reflects the number of times assets are rotated over a given period of time, as higher values are preferred for this ratio because they indicate that the company's assets are used more efficiently to generate more revenue.

SADAFCO's asset turnover ratio has been medium to high over the past four years, ranging from 0.76 to 0.95. In comparison, NADEC's asset turnover ratio ranged from 0.57 to 0.71, while pasture's asset turnover ratio ranged from 0.47 to 0.58. Halawani recorded a volatile turnover of assets between 0.93 and 1.12, with a slight decline in 2023. Overall, the analysis shows that SADAFCO shows stable performance in asset turnover relative to competitors, indicating its effective use of assets to generate revenue.

Current ratio:

Current ratio is a measure of companies' ability to meet their short-term obligations by comparing total current assets with total current liabilities. This ratio provides an overview of the company's liquidity, indicating its ability to use current assets to cover future debt.

Compared with its competitors, SADAFCO recorded the highest liquidity over the entire analysis period, reflecting its strong financial stability in maintaining short-term liabilities. The pastures and two brothers' However, both companies maintain healthy ratios. For NADEC, the company improved its financial position in 2023 by increasing current assets, which was reflected in a 150% increase in its liquidity rate, indicating that NADEC is now better placed to meet its short-term financial obligations than in previous years.

Click here for the full analysis!

Prepared by:

Alhanouf Alotaibi

Jawaher Alqahtani

Layan Alhomaidhi

Lyan Alotaibi

Amani Aldamegh

Hessa almulifi

Ghaida Alshammari

Resourses:

https://magazine.fip.edu.sa/the-success-of-the-food-security-strategy-in-the-kingdom-of-saudi-arabia/

https://www.pif.gov.sa/ar/news-and-insights/press-releases/2021/salic/