Hello everyone, welcome to Almarai Earnings Call. My name is Abdulhadi Alamri, I'm the Head of Investor Relations at Almarai. I want to thank EFG Hermes for hosting our call. If you haven't downloaded our presentation, please visit Almarai website and download the latest earnings presentation. And please have a look at the disclaimer at page three. Thank you for joining the call, and now I'll pass it to our CFO, Mr. Danko Maras.
Yes, good morning, good afternoon, good evening to everyone who's listening here, and hopefully we will have one or two more new investors, given that we have increased our shareholder base recently, so most welcome to all of you into our earnings call. I will conclude the '24 results, but also talk a little bit about our fourth quarter. With that, as I have as normal practice, I'll go through the earnings presentation showing you a little bit about market dynamics, business performance, and our financial performance. I'm also here with Ikram Ul Haq, our Head of Finance, who will support in the presentation, so if we just look at the market dynamics, we continue to introduce new brands, new extensions of existing brands. The Tortilla wrap is something I recommend to all of you. It tastes really good, and it's perfect to use in all sorts of variants.
No disruptive innovation coming at this point in time, but a lot of good extensions that you see in our existing portfolio have been launched in the fourth quarter. All of that leads to our market shares, and again, when we look at our market share position, it's moving a little bit up and down, but overall you can see that we continue to have the number one rank in all of our categories that we operate in, so we feel good about that, and of course, we want to grow that market share over time in line with our strategy, and some of them are going up, and one or two have gone down, but overall, we have a very strong number one market share position in KSA.
If I summarize the fourth quarter in the regular highlight that you tend to see here, you can see that we had 5% revenue growth in the quarter. I'll come back a little bit to that on the composition of the revenue so that you can also see where it's coming from. Our operating profit increased further with another 12%. The fourth quarter has an 11% EBIT margin, which tends to be normal with the seasonality that we have in our business, where you probably have seen that we've been having higher EBIT in the first three quarters in 2024. This is just something that is normal for us to have in the fourth quarter. Our net income grew even further with another 16%, landing at about 8% in the quarter.
That is related to both our debt and Zakat and tax lines, whereby the interest line is a bit better than what we were expecting due to our ability to generate quite a good component of cash in the quarter. And also you'll see that on the full year. But if we then look at balance sheet and cash flow highlights, the working capital, a tremendous reduction that we see in the fourth quarter compared to last year. So SAR 500 million of current assets that we have released in the balance sheet by doing good working capital management. We continue to spend more in our capital investments to promote the strategy on expanding our poultry category and all the other categories. So it's completely according to plan, the SAR 268 million that you see there.
Our free cash flow, given the cash flow from our business and also from our balance sheet, is generating SAR 555 million in the quarter. Now, coming back to looking at the composition of our growth, different ways of looking at it. If we look at the countries, you'll see that the 5% growth is across the board. With lion's share of the delivery lies in KSA, it's 6% growth of SAR 195 million. Good growth in all countries. You have a slight decline in Oman, but overall we are at plus 8% full year. It's just something that is quarterly movement. Egypt is a little bit different because there we also have a devaluation impact. If we look at the results for the fourth quarter, about 1% on the growth is impacted by the devaluation in Egypt.
So underlying the 5% could have been higher up to about 6%. But as you all know, Egypt is part of the family, and we deliver good profit from Egypt. And the currency component is something that we just have to work with and make sure that we drive value in terms of the overall profitability in that country. If we look at product categories, also across the board, all categories growing very well with the exceptional long life dairy and slight miss of SAR 11 million. But there again, if we look at it full year, we got 12% full year growth on long life dairy. So very content with the delivery of our long life dairy. So across the board, good delivery of the SAR 238 million. And then last but not least, also in our channels, good growth in all of those channels.
Traditional trade in absolute terms is higher, even if the percentage is a little bit lower, given our large share of traditional trade in our portfolio. But it's pleasing to see that we managed to grow well in all of the channels and also food service picking up with a 6% growth in the quarter from what was a little bit less in the previous quarters. And if we just look at the P&L and make an overall assessment of the 16% growth that you saw in net income, you don't see a lot of pricing, about SAR 15 million. That tends to be around that level. Now we are holding pricing. We are not increasing it, and we are not decreasing it significantly. I come back to that on the full year.
You see benefits coming through in the cost of goods sold that we have stabilized commodity costs, but we also have a good mix, and we also have a good component of driving efficiencies in the supply chain. Volume mix and others is compositions coming from our top line growth. Then operational costs might appear a little bit high on the 124, but we are preparing for Ramadan, so we are doing a lot of activities pre-Ramadan. All of you probably know that you have the full first quarter with Ramadan. This time there's a shift of nine or 10 days that is moving every year, so we are actually preparing early on to make sure that we make a very successful Ramadan, so it's all within our plans to do the spend that you're seeing there. Then funding and others versus last year's essentially flat to say.
Now, breaking it down a little bit, I'll give the word to Ikram.
Thanks very much, Danko, and if you look at the three pillars of the Q4 results, the revenue growth, the operating profit growth, and net income growth, it's ideally placed where revenue is growing by 5%, operating profit by 12%, and net income by even more healthier, 16%. I think revenue Danko has discussed in more detail in previous slides. Let me focus on operating profit. The operating profit growth of 12%, that's driven mainly by a gross profit percentage. We have been reporting more than 30% gross profit ratio consistently throughout the year. And again, in Q4, we had a very healthy 30% plus gross profit result, mainly driven by higher revenue growth and stabilized commodity costs. And that has resulted in much decent operating profit growth year on year. The stabilized commodity cost, along with overall overhead control, that's the main stimulus giving us the profit growth rate.
When I look at net income growth, we have 16%, although the total impact is very minimal, only SAR 2 million, as Danko talked, but it's the tale of two cities. The funding cost was lower, and that's mainly because of interest cost capitalization, mainly driven by a poultry initiative. As we are spending more and more CapEx on our poultry enhancements, this is resulting in us capitalizing more interest, driven purely by higher CapEx. The second part is Zakat and income tax. Zakat expenses are pretty much in line. It's mainly tax where we're having a higher expense, but that's mainly driven by higher operating performance of Egypt and Teeba. Both are now reporting profit growth rates year on year, and we are starting to pay tax in those countries as a result of improved performance. So that's the story of net income.
If I go on to my segment, a lot of numbers on the slide, but let me focus on the three or six key numbers. Let me address dairy and juice first. Dairy and juice, the biggest segment, reported a top line revenue of 6%. You can see the number in the middle of the screen and a profit growth of 14%. Please keep in mind the 6% growth rate is achieved even considering the devaluation in Egypt. So that's a very healthy return rate, and if you look at GCC, it's like more 8% or 9% growth rate coming through, and the profit growth of 14%, that's driven purely by economies of scale, and as we talked earlier, by stabilized commodity costs and overhead control rates. Bakery grew by 4% on top line year on year and 8% on the bottom line.
The key part is to look at the net income percentage of the business. Bakery for Q4 reported 14% net income, again, a very healthy rate and 100 basis points higher than last year. Lastly is poultry. Poultry growth looks lowest, 3%, but that's again, you have to keep in mind the Q4 last year was a very healthy return, and we are reaching full capacity. On top of it, so our comparison was a very healthy comparison. And given that we are still running at full capacity, the growth of 3% was driven by channel mix and pricing that has come through. And the poultry net profit growth rate, again, because of full optimization, it's running at 9% net income percentage for the Q4. I'll discuss the net income percentage by segment in the full year scenario later on. Thank you. Over to you.
Yeah, thank you, Ikram. I'm particularly pleased to see the gross margin development in the quarter where we have increased it from 28% to 31%. And more importantly, also you see the full year numbers, we are increasing at about 100 points. A lot of good components provided us with a good gross margin in the quarter. Perhaps you should not see it as a significant increase that is going to come in the future as well. We have to remember, as you all know, we also have to deal with the impact that has been announced in terms of the diesel. So let me talk a little bit about that later on. But if I then move to the full year numbers and maybe make a summary of the performance in 2024 for Almarai, we're pleased to see 7% growth in 2024, very close to SAR 21 billion.
Most of it, or essentially all of it, is coming from volume and mix, not from price. We are holding the price component that I mentioned before, but we are driving our underlying growth through our volume, and this is very important for us. We're also pleased to see the operating profit growing 11% to just around SAR 3 billion of EBIT. That represents 14.3% of an EBIT margin, which is also an improvement from last year where we had 13.8%. The same goes with net income where we're growing even a little bit more with 13%, and we are landing at SAR 2.313 billion in our net income. That has a margin of about 11%.
We have come back from what I would say was a challenging period in 2021, 2022 with tremendous inflation and price activities to restore, let's say, the value creation that you get from our line of business into the 14% on EBIT. Working capital, as I mentioned, very good delivery. Our CapEx, SAR 3.6 billion we spent in 2024. It's part of our expansion plan. It's part of the strategic announcement we did on the SAR 18 billion that's going to be spent over the next five years. All of it is there to ensure, obviously, we have replacement CapEx, but the incremental that you see there, it's all part to support continuous growth on the top line in the future. All according to plan. A very good delivery on free cash flow with SAR 1.5 billion.
I think the cash flow in the full year is extraordinary, and I'll come back to that when we talk about that a little bit more in detail. Again, when I refer to the source of revenue, you go back and you look at where it's coming from. Let's just go through those charts. Again, on country basis, very strong delivery across the board. KSA in absolute terms, SAR 716 million. But you can also see for yourself, also Egypt growing 30%, as I was mentioning before. Qatar coming into play with the products that we can sell, growing 28%. And we continue to make sure that we can grow in Qatar going forward as well. So overall, good delivery in all countries. And then if I go in and look at categories, the same story on the category delivery, all of them delivering very well.
1.4 billion again. Composition is fresh dairy, had a very good year with SAR 445 million in absolute 6% growth. But overall, you also see good delivery in foods with 11% growth, long life dairy, as I mentioned before, 12%, also very good growth in poultry and so on. So pleasing to see all categories growing in 2024. And then again on channels, same thing, well balanced, good growth in traditional trade, our lion's share, as I mentioned before. Modern trade also growing 8%, food service 5%, and export and business that we do outside another 4%. So growth in all countries, categories, and channels, a good delivery on the top line. If we look at the financials, again, here is a little bit more the fair reflection of the growth and the profit coming from the growth. You see on a full year basis, we've been holding the pricing.
When I say pricing, we are not changing price lists. We are doing support activities to drive volume. So the slight decline you see there is mostly in trade support activities that we do. You see the benefit. It's not as big as people might expect. The cost of goods sold, SAR 223 million, the raw material. Unfortunately, when we have a broad category, you get a mix of components. Some of them go up, some of them go down. But for sure, everyone knows that on corn and soy, etc., we have tremendous benefits. But then on ingredients, we have increases that we need to manage. So in total, SAR 223 million. And then the majority of the profit is coming from the volume growth and the mixed growth that you have in our business with almost SAR 500 million or a little bit more than that.
And to drive that, we need to support the business. So we have operational costs of about SAR 311 million and SAR 36 million in funding costs and others. And one- off items is just simply to make a comparison for you that we got one- off subsidies last year and this year. And the net impact of that is SAR 88 million. So essentially, had we not had that last year, the profit would have been increasing even further versus prior year. But then going back into Ikram, if you can please just talk it through a little bit more detail.
Sure, thanks very much, Danko. And again, the full year numbers are also showing a very healthy result in terms of revenue growth of 7%, operating profit growth higher than revenue growth of 11%, and net income growth of 13%, which is even higher than 11%. But this means that our margin percentages in all three areas, gross profit, operating profit, net profit, all three have increased by between 80 to 50 basis points. For the full year of 2024, Almarai is reporting a gross profit percentage of 32%, an operating profit of 14%, and net income profit of 11%. Let me now go through these numbers in detail. Revenues, I think Danko have discussed in all three dimensions, and it was very pleasing to see that it grew in all three dimensions.
As a result of this, even despite having one off subsidy received last year, our operating profit grew by 11%. That's mainly driven by very strong operational controls and cost controls across the board, including supply chain as well. We have a particular program on operational efficiencies, which is giving us benefits and dividends year after year. And as a result of this, our operating profit remains very resilient and grew by 11% year on year. The net income growth of 13% is mainly driven on two issues, funding costs and Zakat and tax. Funding costs in totality has remained virtually the same as all the higher CapEx related interest cost capitalization is offsetting the higher interest rate that we're paying year on year.
Zakat and tax, as explained before in Q4, that's mainly coming from being in a taxable position in overseas subsidiaries where we are now starting to show very positive results. And it's a good problem to have that we are contributing more to the economies of those countries by making more profit. That's on the income side. Let me go through segment by segment, and I'll focus more on the income percentage. I think that's more relevant for this is a full year number. If you look at the bottom left-hand side, and I'll go through dairy and juice. For the full year of 2024, dairy and juice segment has a net income percentage of 11%.
This was driven by 9% revenue growth and 15% income growth despite facing inflation issues in Egypt, but a very strong Ramadan earlier in the year and followed by long life dairy growth that Danko talked about earlier. This is the main stimulus that helped us achieve a higher income percentage year over year. Bakery remains the most profitable segment. Bakery is reporting 15% net income as a business model. The top line growth was 3%, but again, the operating of the net income percentage was higher, mainly due to fixed cost leverage. Poultry net income percentage increased even further. Last year, we reported 12% net income. Now for the year 2024, I'm very pleased to announce that poultry is recording 13% net income percentage.
This is driven by 8% revenue growth and 14% net income growth, again, due to fixed cost leverage and better utilization of our farms and our factories. With that, I'll pass on to Danko to take us through on the balance sheet of that.
Oh, thank you, Ikram. Overall, if we then look at our capital investments, I refer back to; you can see it's the highest we've had for a long period of time. It's going to continue to be high. So the cash flow that we are generating, we are using for the business to support future growth and expansion CapEx. And most of it, I'm sure you are aware of in our announcement of the SAR 18 billion. So please expect that to continue. We are investing for the future, and we are doing that with excellence. Very pleased to see the results, for instance, in poultry where we see the margin and the fixed cost leverage being able to be produced while at the same time building a capacity up to 450 million birds. It's impressive. If I look at working capital, we continue to bring that down.
We have activities that we feel at this point in time, with all the inflation and the safety stock that we needed to build around this particular challenge we had in the previous year, we can now move back to more optimization of our working capital, in particular in inventory. Trade receivables are very good, and payables are also standard. But there's a lot we still continue to work on to make sure that we can release cash from our working capital. So that is a continuous effort that we need to do, but very pleased to see a SAR 500 million reduction in 2024.
And then if we look at the cash flow, you'll see the results that actually it has by taking the improved cash flow from our EBITDA or from our P&L and then adding the benefits of the movements in our working capital, we are up to SAR 6 billion. And at this point in time, it's as high as we ever had. SAR 6 billion generated by the business shows the scrutiny, I think, our business is having in being firm on the cost control and spending wisely and then being able to convert, let's say, the business into the cash that we are so, that's so important to us. And therefore, you see here the SAR 5.8 billion plus SAR 2 billion working capital movement and the rolling 12. You can see also that we are spending a lot on the plant and the equipment, property and equipment that we have.
And we're spending it on biological assets, leaving a net number that essentially allows for us to pay the interest cost and the dividend that has been proposed, as you probably have seen in Tadawul for the AGM in April. So it essentially means that whatever we generated today, we have invested in the business, and it leaves our net debt position in the next page into the same level, essentially the same level. We are not borrowing anything more despite the heavy investments we do in capital. We are basically flat, but because we are increasing our EBITDA, our net debt EBITDA is coming down even further to 2.07 versus what we should be around 2.5, we are saying. But this is the reality of where we are, and it's a very positive problem to be in.
Looking at the margin enhancement, now we don't have any roundings here, but you can see that we recovered. Last year was 13.8% on EBIT, and now we are at 14.2% on EBIT. The EBITDA margin is a rounding again that we are holding this particular level, and that's also very pleasing to see. Our debt maturity, not too much to add. It's fairly constant. We have refinancing that we need to do in our ongoing long-term debt structure. But overall, it has a very healthy maturity profile. We continue to look at opportunities for refinancing to see if we can tap into benefits in the market. But who knows what happens to the interest following what is happening in the world, and especially yesterday. We'll see how that all pans out.
But obviously, we are catering for our needs and making sure that we have a healthy debt maturity profile in our business. And finally, you see the proposed dividend is SAR 1 billion. It is the recommendation for the board to our shareholders. I'm not going to say too much about that. But given the need we have on cash within the business, this is the position that has been proposed. And I have every reason to believe that that will be approved in our AGM in April. So hopefully that wasn't too fast for you, but overall, very pleased to see our strategy into action. Having a year where all categories are growing and they are growing profitably, countries are growing and they are growing profitably, and our channels are growing.
It's just a testament to Almarai in the marketplace of its ability to be the, let's say, the indisputable leader in the market. We are not content with that. We have ambitions to continue to grow even further, but that is for another call. So with that, I would open up for any Q&A that you might have, and you're most welcome to do so. Thank you.
Thank you, Danko. To ask a question, you can either type it in the Q&A chat box or you can click on the raise hand button on your line. I'll start taking questions, but we have a long queue. So can I please ask participants to just limit to two brief questions just to get through as much as possible? We'll take the first question from the line of Mohammed Al-Rashid. Mohammed, please unmute yourself.
Mohammed, please go ahead.
Yeah, thank you , for the call. My first question is regarding the long-life dairy revenue. So during the fourth quarter, it declined by 2% on a year-over-year basis, despite the fact that the fourth quarter of 2023 had a negative impact from the production line shutdown. So what was the drivers behind such subdued performance for the long-life dairy revenue? And my second question is regarding the poultry. So you mentioned that you are running at full capacity. Just to confirm, does that mean that the sold volume during the fourth quarter was 66 million, similar to the third quarter of this year? Thank you.
Yes, so on the second question, again, on poultry, we are producing everything we can sell, and you will see in 2025, as the team is completing the investments, we can actually increase the run rate of birds, but it will come in 2025. The demand is there. People feel comfortable and prefer to buy our Alyoum brand in particular because it yields a quality stamp that I think means why we are differentiating ourselves from the market, so we are confident about our ability to continue to sell more as our capacity is increasing in 2025. On the first question, I wasn't really sure.
Yeah, it's for long-life dairy. So I think there are two factors for long-life dairy. Please remember that all the milk sold in Egypt is through long-life dairy. So there is a devaluation, in fact, hitting on the long-life dairy performance for the year, and that's making it subdued. The other factor is you are 100% right. We had some operational issues in Q3 and earlier part of Q4. But as we ramped up the issues in back end of Q4 last year, the year-on-year impact in that respect, it was pretty flattish, so to speak. So at a group level, the numbers look negative, but that's purely because of the devaluation impact coming from Egypt for the long-life dairy.
And I wouldn't, and if I can just add to that, it's a strategic choice for us to drive long life dairy. And I wouldn't spend too much concern about a quarter because if I look at it overall, full year, we've grown 12%. We have strong ambitions to continue to grow our market share in this area. And we have a product offering today that we think will be very appealing to our consumers. So we continue to drive the strategy of getting closer to becoming number one at one point in time in long life dairy in the future.
Okay, just to follow up, what's the expected growth rate of your poultry capacity going into 2025?
It's difficult to hear you, Mohammed, but you're asking for the expected growth rate of.
The poultry capacity.
Of bird capacity? The bird.
Voluntary capacity. So you expect it, yes. You said that.
He's asking about the poultry capacity increase in 2020.
I don't know if we have disclosed the running capacity, but we have said that we will be able to do 450 million birds when we are completed with the investment program. We will have a run rate towards the end of next year that is close to about 300 million. So it will come throughout the year. We will increase that capacity. And.
In the back end of December.
It will come in the back end of the second half of the year, but as with everything, when you're doing so significant investments, it needs to be proof tested both on quality and processing, ensuring that it is accurate, and Almarai does not want to take any risk whatsoever, and that's why we are hurrying slowly and ensuring that we have the capacity to provide to the market, but a run rate of approximately 300 million birds is what we will achieve by the end of 2025, then to continue to ramp it up to the 450 million birds that we announced.
Okay, thank you .
Thank you.
We'll take the next question from the line of Abdulaziz Bawardi. Abdulaziz, please unmute yourself. Abdulaziz, please go ahead.
Hi.
Abdulaziz, please go ahead.
Yes, thank you for taking my question. So the first question is on the selling and distribution cost line. We have seen some acceleration in that OPEX line. Just can you help us understand what drove that investment and how these investments will help grow and improve your overall business? And the second question on impairment, we have also seen quite an increase in 2024. Can you give us insight on what triggered that provisioning and where did it come from? Are you seeing any part of your client base where they are struggling or deteriorating in quality of repayment? And how also we should think beyond this point on these two lines? Thank you.
Abdulaziz, I think there are a little bit more than two questions, but it's fine. On the first question, you were asking about sales and distribution cost. That in itself, as a % of turnover, is not of a concern for us. We have sales and distribution costs that are in line in terms of comparing it to our revenue. But it's very clear that we are having an impact in diesel, and we announced that we would have an impact of about SAR 200 million. We will work on ways to drive efficiencies in our supply chain to mitigate that impact. We were obviously, like everybody else, you need to cater for this. There are solutions in the supply chain that we are looking at that will reduce the need of diesel and look at alternative sources.
So all of that is work that we are doing at the moment. It's also part of our strategy because we have seen an expectation of diesel continually conforming with the world standards. So over a period of five years, it's important for us to also reduce the dependency on diesel. It's not only in sales and distribution. It's also in our farming. It's in our processing. So a lot of work is going on alternative energy sources from a sustainability point of view, etc. We will manage this increase one way or another in our profitability given our size. But if I look at the rest of it, I don't see anything that would be alarming for me in terms of our distribution cost. And in terms of impairment, I actually don't think it is in any way any risk for us.
If we look at the bad debts, we've made sufficient provisions. But if you look at the overall provisions that we are having as trade debtors to our revenue, it's very, very low, and we benefit from the advantage of having a very large share in traditional trade where there are no credits. It's all cash in advance, so a lot of our business is being collected immediately and diminishing the risk for impairments of debtors, so what we've done, we've looked at the revenue growth. We've looked at the composition of the countries that we are in, and we're making sure that we have the sufficient provisions for it, but overall, if we compare Almarai to how it is elsewhere in the world, you have very low provisions and very low write-offs on receivables.
There is no particular large customer that we have any exposure to that we feel is at risk in any way or form. At this point in time, there's nothing that is worth sharing with you.
Perfect. Clear. Thank you so much for answering my question.
We'll take the next question from the line of Duaa Al-Fadda. Duaa, please unmute yourself. Duaa, please go ahead. Yes.
Hi, Salam Alaikum. So my follow-up question on Abdulaziz's question is regarding impairments. Should we expect the SAR 100 million to remain the case into 2025, or should we expect the SAR 25 million average run rate that you had historically? And the second question is on subsidies. Given the poultry capacity expansions coming into Q4, should we expect higher subsidies?
Yeah, so Duaa, on the first one, look, it's a balance sheet item, the impairment. So as Danko talked about, our provision as a percentage of our debtors is very well managed. It's pretty much in check. So we're not expecting any more expansion of that provision. Going forward, of course, future is unknown. So we will see how things develop. But for sure, we're not expecting an increase in the provision at the same pace as you've seen in the current year. This is mainly driven by expansion in food service and different channels. And now all the risk is appropriately provided. So if I'm in your shoes, I will not be doing a SAR 25 million run rate, but I'll leave that up to you to manage that. The second question, Duaa, was about poultry subsidy.
Correct.
Yeah. So, poultry subsidy, we have been receiving subsidy, but it's not in line with historic rates, but we are receiving subsidy. For the current year, you've seen the numbers, and they're disclosed in our financials in detail. For the year 2025, as Danko talked about, the expansion is going to happen in the second half or even Q4 of the year 2025, so we're not expecting an increase in subsidy as it related to the birds process. If it does happen, it will happen in the later part of the year, not before that.
If you can break down the subsidies by segment, dairy versus poultry for 2024, just roughly.
Look, roughly speaking, dairy subsidy, and it's a constant hurt. It varies between SAR 160 million-SAR 200 million every year for the last four or five years, and I expect it to be the same. It's within that range. It keeps on changing depending on the stock that we're importing. But the rest of the subsidy and the balance, you can deduce by looking at our detailed cost of goods sold in our financial statements.
Clear. Thank you.
Thank you, Duaa.
We'll take the next question from the line of Prateek Khandelwal. Prateek, please unmute yourself. Prateek, please go ahead. Okay, I think you dropped off. We'll take the next question from the line of Michel Salameh. Michel, please unmute yourself.
Hi, gentlemen, and thank you for the presentation. First question on the taxation and Pillar Two impact for 2025. What can we expect for Saudi, for your GCC operations, etc.? And the second question is, with all the talks on tariffs, do you expect any impact on your other sales or your alfalfa farms? And if you can remind us what happened in the previous cycle where we had tariffs and how that impacted you.
Michel, in terms of tax, I'm sure you're reading about Pillar Two and what it means for GCC in particular and the announcement that's been done, not in KSA, but more perhaps in Bahrain and UAE, etc. If we look at the incremental impact for Almarai, it's not material at all. It's somewhere around SAR 20-25 million. Of course, we are looking at this with scrutiny. We are preparing ourselves. Should that become a standard item, what it would mean for Almarai? You can do the math yourself in terms of a corporate income tax rate at 15%. We are not there in KSA. We don't see that being announced at this point in time. It's more about preparing ourselves to work on the implications of that going forward. It's a reality that it's being discussed. Of course, we look at it like everybody else.
But SAR 20-25 million is what I see in 2025 as the incremental impact. So it's not materially moving the needle for Almarai in 2025. And the second part. Michel, can you explain the second question again? Sorry.
So with the talks about the introduction of tariffs on potentially agriculture in the U.S., I remember in the first Trump term, there was an impact on your alfalfa sales with China or something. Do you expect any impact there?
No, no, we don't. As you know, we have a business in the U.S. that are exporting, so importing is something different, and we don't do that in the U.S., and there is no tariff levied on Almarai in that regard. Whatever that means, what the political ramifications and the economic ramifications of it might mean implications around the world with suppliers that we might be affected of one way or another, but I don't see any direct impact of this because we don't actually sell to the U.S. in any way or form, and not materially. We do a little bit on export, but it's very, very small, so the tariff is not impacting us because what we do from the U.S. is exporting.
All right, very clear. Thank you.
Thank you, Michel.
We'll take the next question from the line of Taher Safieddine. Taher, please unmute yourself.
Questions from my side. The first one is on the higher diesel costs starting early this year. You mentioned the impact of SAR 200 million. So my question is, how should we think about the margin trajectory moving into 2025? Will this impact the overall margin expansion story, if any, into the year? So that would be my first question. And the second question is just on the M&A story. I mean, we're hearing a lot about Almarai going into the water business. There seems to be a poultry target up for grab, Al-Wataniya, in the press. So I just want to understand your thoughts on the M&A angle going into 2025.
Okay, Taher, on the first question regarding diesel, the SAR 200 million is part of something, again, that I mentioned before. We look at it on a five-year basis. What does it mean for us as a business? Because diesel is a core component in farming, in processing, and in sales and distribution. We drive efficiencies to offset the impact of the SAR 200 million. We will do everything we can to ensure that it avoids impacting us in our profitability going forward. It might have an impact with some lagging, but overall, strategically, as I mentioned before, we have to face a new reality of pricing that is conformed maybe with world standards and therefore alternative sourcing, cost-benefit analysis of rail versus truck. There's a lot of work that we are doing at the moment to ensure that we can get efficiencies out of it.
Ultimately, we'll see what the overall impact would be, but I think there's been references made to almost SAR 2 per liter. If that's the case, what is the impact for Almarai? But in 2025, it's announced and clear. We've made a clarity announcement to you that it means about SAR 200 million for us year on year, and we will work with our team to drive efficiencies as much as possible, and then on the second question, I will refrain from any comments in terms of M&A. The only thing I can say that we are looking at our strategy of growing in core markets, core categories, and adjacent categories to it as a second pillar, and the third pillar is a geographical expansion. That's what we do, and until we have more to say, I'm not going to say more to you.
That's the reality that we are in at the moment, and you know that's the way it works.
Okay. All right, very clear. Thank you.
Thank you, Taher.
We'll take the next question from the line of Harsh Mehta. Harsh, please unmute yourself.
Danko, maybe just to follow up on Taher's question, in another way, we are seeing some consolidation within the poultry segment and not you, but other players acquiring smaller firms. How do you see that impacting the overall space, especially in terms of your own competitive positioning, pricing, if you could shed some light on it?
Yeah, so that's a good question. And it's all about strategy, whereby we feel that we have a brand proposition that supersedes, I would say, a lot of our competition for the reason of quality. And if you are driving your brands, you cannot just do it on a PowerPoint. You have to make sure that it does have the quality that we are announcing. If we're saying that there are no antibiotics ever in our poultry, that's the reality. If we have very low disease rates because we have very good farming capabilities on biosecurity, that's a reality. At the end of the day, it comes down to consumers' willingness to pay. And the offering that we have is the brand equity and the content behind the brand equity that I think is a winning concept. Poultry needs to grow.
As you know, we are promoting in line with the Saudi Vision, and it's a healthy protein, and we need to have self-sufficiency in KSA. We see our capabilities of being able to grow with quality over time. I think the market is not entirely mature, so you see a lot of players in the market. Consolidation is not unexpected, but it would be difficult for us to have a value proposition that is not built on the quality that you can trust. This is very important for us, so as the consolidation happens, some of the poultry players do not have the benefit of a diversified portfolio like Almarai, where we are able to withstand financial difficulties. If you're only in the poultry business, you might be very dependent on subsidies, but in our case, subsidies helps.
But in reality, it would be better to have free pricing and supply and demand. But we are not dependent on subsidies. We are having good delivery on our margins despite that. And that's the way I think any business should be thinking. So overall, it starts with the consumer offering. It starts with the brand equity. And when we started with poultry, we had no market share. Today, we are number one with a brand proposition that promises quality. And quality is the number one priority in Almarai. Nothing is more important than that. So if you buy fresh milk, if you buy our poultry or our bakery product, we do everything we can to ensure that people feel comfortable, safe to take that moment of picking it out of the shelf and buying our product instead of something else. That's the strategy that we are driving going forward.
Got it. Thank you for that elaborate answer. And just one additional question. So you mentioned over the last two quarters, there's no real headline price declines, but there are some trade discounts and supports to drive volumes up. How do you see this year? Should we expect some more investment and promotions and discounts to drive volumes, or that's kind of pretty much likely to be steady?
I wouldn't give guidance on this. But overall, I could say that there should not be any material movements. Our business is about volume and making sure that we are driving profitable growth through volume. If inflation comes and it becomes unsustainable, we will do what we did in 2021 or 2022. We need to compensate what I would call commodity inflation. You need to do the pricing. Then there is strategic pricing or competitive pricing. Strategic pricing is about brand proposition. So if you think about Alyoum, we are priced a little bit more than the mainstream because we provide additional benefits to the consumers, and they are willing to pay for it.
So overall, what I would say is you can look at our pricing components to be fairly stable unless something very material impacts us on the cost side that we want to pass to the consumer at the end of the day. If you look at butter prices in the world, I think they were up to about $7,000 a ton, which is an all-time high. That has implications in terms of commodities. And you have to think about what that means from a competitive point of view, from a profitability point of view, etc. So individual cases might happen. But overall, in the Almarai Group, when you look at our reconciliation on profit, you should not see too many movements of pricing. That's the only guidance I want to give at this point.
That's very helpful. Thank you.
Thank you.
We'll take the next question from the line of Adnan Farooq. Adnan, please unmute yourself. Yes.
My question is on the decline in the subsidy received this year. You mentioned that it was mainly stable around dairy. Could you highlight the decline for poultry? Why it happened? and do you expect that to continue?
Sorry, I'm not sure I heard the question. Decline in subsidy for poultry? Was that the question? Why we have a decline in subsidy in poultry?
Yes.
As you know, we don't decide what the subsidy is. It's coming from the government. So there is a certain rate that we are entitled to receive based on our output production. And that's the way subsidy is calculated. Then how it works from the government, it's not for me to say. But I think there is a budget, and they allocate it out to poultry players around the category. So the broader picture for me is that we receive the subsidy that we are entitled to and what we are receiving from the government. And there's no real view on my end or our end in terms of we are not getting more or less than anyone else. It's just the reality of how it's been allocated out. So whatever happens to subsidy, we will get our fair share given the volume that we have in the market.
There's nothing else to it as far as I know.
Makes sense. I just had a follow-up on the long-life milk. You mentioned that you are very comfortable. I just wanted to understand how is the performance of long-life milk in Saudi? Is it as per your expectations? Is there any stress from a competitive perspective? Or as you mentioned before, you choose to push product in certain quarters, and that's why it seems like so, other than the Egypt part?
I'm not sure I said that we are pushing anything. We are trying to grow our business in a healthy way. And if you look at a quarter rather than a year, you might have swings in the quarter. And I would advise you not to look too seriously into that and maybe think about the strategy around the fact that we have grown long-life dairy with 12% in 2024. And we have an outspoken strategy of driving leadership in the long-life category. It's not cannibalizing on fresh dairy. There are two different propositions. We are seeing very healthy delivery also in our fresh dairy. We are very pleased to see that. And of course, there is a competitive landscape. And because of that, we are looking into not only the brand proposition. We have a new recipe for long-life dairy, but also the channel.
We are spending more time in wholesalers in a way that we maybe didn't do in the past. So we are looking at all the parts that are contributing to the category. There is a place for this category, for sure. And it also has a brand value. If you think about post-COVID, there is a different perception among consumers about fresh and long-life. It's good to have long-life because of the availability that sort of happened to us in the COVID period. And there weren't products available. Long shelf life helps with that. But you need to secure that you have very good quality also on long-life and that the consumer taste preferences are met. And this is the work that we've done. And when you are challenging a market and want to win in that market, you cannot just look at quarters.
You have to look at it strategically over a longer period of time, and there we are unwavering in our support for this category that we want to grow and make sure that it does reach the leadership positions that we want to have. We stem out of fresh dairy, and we had a lot of focus on fresh dairy once upon a time. Now, it's equally important for us to be good in fresh dairy as it is in long-life dairy, and both of these value propositions are important for us to win in.
That's very clear. Thank you so much.
Thank you.
We'll take the next question from the line of Mohammed Saad. Mohammed, please unmute yourself.
Okay. Please go ahead.
Mohammed, please go ahead.
Hello. Am I audible?
Yes.
Yeah, we can hear you.
Yeah. Thank you, Danko. Thank you, Ikram and Hadi and management. So I have a couple of questions. My first question would be I know you have tried to answer this question before as well. So my question is, out of the SAR 200 million impact of diesel for 2025, how much would, in your opinion, impact the bottom line after taking into account the efficiencies that you have mentioned and after taking into account any price increase that you plan on undertaking? So this SAR 200 million is the total impact of diesel. How much of that will impact the bottom line? And if you can quantify, give some numbers on it, that would be very helpful. That's my first question.
I did not say that we would do pricing. That's an assumption that maybe comes naturally to think that we will compensate through pricing. What we have said is, and Ikram alluded to it, we have an operational efficiency program in Almarai that drives value in all areas. The way we look at it, it's not in isolation that diesel goes up and we have a SAR 200 million impact and therefore our net income goes down. Accordingly, we are driving multiple initiatives of efficiencies across the value chain in supply chain, in sales, in finance, in IT, etc., that are efforts to drive enhanced profitability to mitigate these kinds of events that would happen. It could easily be something else with SAR 200 million. It happens to be diesel now.
And we are, I think, rightfully a little bit concerned over a period of time of five years if it continues to increase. So we are structurally addressing it through activities that look for alternative energy. And our efforts would be to minimize the impact of any of those kinds of financial surprises that come to us by simply driving a multitude of initiatives that are very close to us with, I would say, a very established cost control mindset in Almarai. For those of you who have followed us for a long time, you know that we treat cash as if it is our own. We are very prudent in what we do. And if a thing like this happens, we look for alternatives to mitigate that impact. Pricing is the last resort.
We had no choice but to do pricing when we had such an aggregated effect of it in 2021, 2022. It was just massive for Almarai and, I think, most companies in the world. Things had to be done at that point in time. But this one, I'm not sure it qualifies for anything else than driving efficiencies. That's what we will do.
Understood. So my second question is with regards to net margins on poultry. As per the presentation, in the fourth quarter, the net margins were around 9-ish%. For the full year, it is much higher. It's around 13-ish%. So why the decline in the fourth quarter? Or what's happening, if you can elaborate on that?
Hi, Mohammed. Mohammed, it's driven by seasonal factors. During the winter months, we will have higher frozen capability available to us, and that happens every quarter. It happens in Q4 last year. It happened in Q4 the year before as well, and that's the reason it's better to look into this, let's say, the net income or the implied EBIT percentage in the context of a full year. It's driven purely by seasonal factors.
Understood. Very clear. And that leads me to my last question. There have been some concerns over supply or over capacity in poultry in the medium term. Any points or any opinion you can share on that?
No, I can only reiterate what I said before. We sell what we can produce, and I think there is a consumer preference for Almarai products, so the more we can produce, the more we will sell. If I look at the poultry universe in total, it's a very, very large market, and we look at our performance where we are active. You see our lion's share of consumer offerings are in fresh poultry. There is also a frozen segment, so I don't see any issue in the market. On the contrary, protein is a focus area both on seafood and in poultry. You have very healthy proteins. We see this category growing, and if we do it right, there will be space for a multitude of players because we want to have food security in KSA.
So it's important that we have an array of offerings from many colleagues in the poultry industry. We just want to make sure that we have the superior quality and make sure that we are number one. But if I look at the demand currently in the total universe of poultry, I do not see that issue at all going forward.
Thank you. Very clear. Thank you.
I think we are starting to wrap up. So if there are any questions for you now.
Yes. We still have a long queue. I don't know if you want to take one more question or?
You will take the last one.
Yeah.
Yeah. Please go ahead.
Okay. So yeah, from Mohammed Hassan Tarek, please unmute yourself. And this will be the last question. Okay. Dr. Ahmad Al-Maghrabi, please unmute yourself.
I could hear you vaguely. So please.
Yeah. Can you hear me now? Hello?
Yeah, I hear you very well. Thank you.
Yeah, great. So are you able to share guidance for 2025 top-line and bottom-line performance? What I understood from the call that growth might be weak as most of poultry expansion will come in Q4 and on margins. We have a hit from diesel subsidy cuts. And I'm not sure if there is still further benefits from commodity stabilization to be seen. My second question regarding the shift in trend you pointed out from fresh to long-life milk. Do you see it in your favor? Because I see that you have changed your recipe and you aim for a leadership in this sector. But unfortunately, I'm not sure if this plan will ever materialize or not. Thank you.
Thank you, Ahmad. That was straight to the point. I think on the growth question, we don't give any guidance on top and bottom line, as you know. The extraction of the poultry component was more about our ability to grow even more. We will produce more throughout the year. Remember, we used to do 200 million birds. As we started to expand and also delivered efficiencies, I think the.
270 million birds.
Yeah. So 270 million birds is what we said we would do. And we will have a run rate of 300 million birds by the end of 2025. That, if anything, is just delivering more growth. So I don't see that as an inhibitor. It's just we don't want to do it fast and wrong. We need to do it fast and right. And that's what I meant by hurry slowly. We have a quality component that we need to ensure. So total Almarai Group, if I just include not only poultry but all of it, I don't see us slowing down on the ambition to grow significantly in the next coming five years. We have a growth-oriented plan for sure. And maybe one day with the capital markets, they will reveal a bit more. But for the time being, we don't give any forward-looking statements.
Then whether you think we would succeed or not in long-life dairy, that remains with you. We are very clear on what we want to do. And winning in this particular area, we have all the expertise in the world to drive category leadership in long-life dairy. But I'm not saying it's going to be next quarter. It's going to take time. And we are investing for the long run because we don't think with an endpoint in sight. We think about more longer term. It is for us a question of when rather than if. Okay?
Okay. Thank you so much. I think we can conclude the call at this point. I'd like to thank Almarai's management for their time today. I'd like to thank everyone for participating.
Yeah. Thank you very much, everyone, and looking forward to have you on the call on the first quarter that will come back end of April, end of April, so thank you very much for listening in to the call, and please go and buy our products. They are superior quality. Thank you very much, everyone, and have a good afternoon or good morning or good evening.
Thank you. And this concludes today's call. Have a good day, everyone. Thank you.