LFL gross margins for the quarter (as a % of net sales) were 33.2%, -2.4% below last year due to lower sales and higher cost of sales driven by adverse channel sales mix. Selling expenses decreased by SAR 4.4Mln due to lower spend in media advertising following a change in focus towards direct consumer discounting. General and administrative expenses were SAR 2.1Mln higher mainly due to higher costs in Mlekoma due to IFRS translation from Polish GAAP.

LFL Net Profit of SAR 56.0Mln was SAR -2.3Mln below the same quarter last year, and represents a healthy 13.7% of LFL net sales (last year 13.9%). Net profit including Mlekoma was SAR 53.6Mln.

Sales and distribution expenses were lower this quarter by 10.9% due to expense control and lower A&P expenses due to focus on direct consumer activities. General and administrative expenses were marginally higher due to Mlekoma IFRS adjustments.

Selling and distribution expenses were -9.2% lower for the nine months period vs. last year driven by lower sales and cost reduction initiatives. General and administration expenses were SAR 2.1Mln above last year, primarily due to Mlekoma cost inclusion. Consequently LFL Net Profit 12.8% of net sales has been achieved and at a consolidated level of 11.7%. Mlekoma registered a net loss of SAR 2.1Mln since acquisition, mainly due to IFRS adjustments from Polish GAAP.

The External Auditors reviewed the Financial Statements and issued an unmodified report.

Following nearly 2 years of contending with multiple headwinds (smaller population following expat decline, lower disposable consumer income, irrational competitor milk discounting, more cost conscious consumers), the last quarter results represent a continuation of SADAFCO’s gradual improvement of its financial results delivered versus previous quarters. On a LFL sales basis, a reduction of -2.4% vs. the previous year was 0.4% better than Q2, and +7% better than our Q1 delivery (of -9.4% reduction vs. previous year same quarter). From a YTD perspective, our sales are -5% vs. LY (LFL), mainly as a result of the challenging conditions (driven by the abovementioned headwinds) which were at their strongest in Q1.

Our YTD gross margin of +32.9% (LFL) and 31.1% (incl Mlekoma) are still respectable given the economic conditions we face. When compared to unsustainably high prior year margins, driven by relatively low raw material input costs, the margin is down approx. -5%; margin erosion is compounded by the shrinking of more profitable channels as modern trade becomes stronger. Continued growth in our most profitable category, ice cream, remains beneficial but this is not sufficient to fully offset the negative impact of price deflation in our key milk category, driven by irrational competitor discounting.

Our response to the more challenging trading environment has been to become more focused in where we invest and also more critical of our cost base, by looking to implement cost reduction programmes. With respect to our YTD Net sales decline of -5%, in comparison our volume has hardly declined.

Last but not least, with regards to our market value shares of our three key categories (total milk, tomato paste and ice cream) have all improved.

In December, the company held an extraordinary general meeting which approved both the removal of the debt ceiling should the board wish to pursue future investments utilizing borrowings and secondly to engage on a treasury share buyback program.

The company also distributed an interim dividend to its shareholders in December. This reflects the board’s judgment on both the trading performance, and the continuing healthy bank balance, which currently stands at SAR 510Mln with zero leveraging.