Saudi Almarai's $1.76bln poultry expansion is credit positive: Moody's

The investment could increase revenue by 15% over next five years

A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

A Moody's sign on the 7 World Trade Center tower is photographed in New York. Image used for illustrative purpose

REUTERS/Mike Segar

Saudi Arabia’s Almarai Company announced plans on Monday to spend 6.6 billion riyals ($1.76 billion) on an expansion that aims to double its share of the country’s poultry market over the next five years. The spending will be funded through internally generated cash flow, the dairy and food producer said.

Moody’s Investors Service on Tuesday said the plan is credit positive for Almarai “because the investments will increase its scale, improve product diversification and strengthen its credit profile over the next five years.”

Almarai will implement its expansion plan in several phases. It aims to enable full vertical integration of the poultry supply, from the development of grandparent farming to production facilities. The investment will be in different parts of the country and will play a key role in enhancing food security in Saudi Arabia, in line with the government’s 2030 vision.

The 6.6 billion riyals investment will more than double Almarai's poultry segment assets from 5.5 billion riyals as of year-end 2020. “Assuming that those investments will double poultry segment revenue, they will increase Almarai’s revenue by 15 percent over the next five years, all else equal, from 15.4 billion riyals ($4.3 billion) in 2020. They will also improve product diversification with the share of the poultry segment increasing to around 25 percent from the 15 percent as of December 2020, Moody’s said.

The investments will also improve Almarai’s concentration of plants, given that the expansion will be spread across the country. As of December 2020, five of Almarai’s seven farms were within 30 kilometers of each other in Saudi Arabia.

The rating agency expects that Almarai will have sufficient internally generated cash flows to fund the planned investments without having to increase debt.

“Over the past two years, Almarai has generated average free cash flows of 1 billion riyals ($0.27 billion), which, combined with the additional cash flow from operations generated by its new investments, will be sufficient to cover the investment plan without needing to raise debt,” it said.

(Writing by Brinda Darasha; editing by Seban Scaria)

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