Saudi Arabia Raw Material
Resume:
Almarai Co.
Ratings Score Snapshot
Credit Highlights
Overview
Key strengths Key risks
Leading market positions in Saudi Arabia across all business segments, supported by an extensive distribution network generating Saudi riyal (SAR) 3.6 billion (about $1 billion) of EBITDA in 2021.
Concentration in Saudi Arabia and dairy products.
Portfolio of well-known local brands and diversified products. Inflation on key agricultural commodities and transportation is weighing on operating costs.
Declining, but still-higher-than-peer EBITDA margin of 22.6% in 2021 (21.6% in first-half 2022), with positive free operating cash flow (FOCF).
Business model that has high working capital and capital expenditure (capex) needs could lead to low or negative FOCF in 12-24 months.
Prudent financial policy regarding acquisitions and stable shareholder remuneration.
Significant but manageable debt maturities over the next 24 months.
PRIMARY CONTACT
Sapna Jagtiani
Dubai
sapna.jagtiani
@spglobal.com
SECONDARY CONTACTS
Tatjana Lescova
Dubai
tatjana.lescova
@spglobal.com
Maxime Puget
London
33-0-140752577
maxime.puget
@spglobal.com
www.spglobal.com/ratingsdirect September 13, 2022 1 Almarai Co. continues to benefit from its leading position in the domestic market, which is highly supportive of strong credit metrics. Almarai has a dominant position (No. 1 in most segments where it operates) in Saudi Arabia, where it generates about 66% of revenue. The company retained its market share in fresh and long-life dairy (45% of revenue) in first-half 2022 but lost some ground in the poultry (15%) and food segments (15%) due to intense competition. Almarai's S&P Global Ratings-adjusted EBITDA margin of 21.6% in first-half 2022 remains one of the strongest among peers in its food and beverage categories, especially in dairy products. In first-half 2022, Almarai's funds from operation (FFO) to debt stood at 28.3% and its adjusted debt to EBITDA was about 3.1x, which is comfortably in line with the 'BBB-' rating on the company. Despite improved product pricing, S&P Global Ratings expects a squeeze on profitability due to raw material inflation. EBITDA margins while strong declined to 21.6% in first-half 2022 versus 26.8% in 2020 due to higher commodity prices, particularly corn and soy, and lower subsidies. As a result, the company increased dairy prices twice last year, including most recently in December, which is expected to have a positive effect on absolute EBITDA in 2022-2023. We also note that as COVID-19 cases continue to decline and restrictions are being removed, while mobility has improved, resulting in increasing out-of-home consumption. However, as competition in the industry remains intense, we do not expect EBITDA margins to bounce back to historical levels of about 25%-26%. Instead, they should stabilize at about 18%-21% over the next 12-24 months. Despite high upcoming debt maturities, we see Almarai's liquidity as adequate. Debt maturities due in the next 12 months from June 30, 2022, are SAR2.9 billion and 24 months are SAR4.1 billion, which we believe the company will be able to refinance thanks to its strong banking relationships, should capital markets prove difficult to access in the coming months. We understand that the SAR1.6 billion maturity due in September 2022 is in the advanced stages of refinancing but Almarai also has large undrawn committed lines of SAR2.4 billion and flexibility on capex. In addition, we view Almarai as benefiting from sound relationships with local and international banks, and prudent risk management. Outlook
The stable outlook indicates that, over the next two years, we expect Almarai's operating performance to be broadly stable, despite negative external factors, such as increased inflation, lower purchasing power, and cost pressures. We expect Almarai's revenue will benefit from the company's ability to increase prices, which will increase the earnings contribution from poultry, and make changes to the product and channel mix, as well as through its cost-savings plan. Over the next two years, we expect Almarai to maintain FFO to debt of 20%-24% and adjusted debt to EBITDA of 3.4x–3.7x, in line with the current rating. These ratios were 21.6% and 3.1x on June 30, 2022. Downside scenario
We could consider a downgrade if, over the next two years, we see continued cost pressures and a sharp decline in Almarai's EBITDA margin, which would negatively affect FOCF and increase debt. This could stem from a loss of market share in key categories like dairy due to competitors' aggressive pricing, as well as an inability to control operating costs. We would also view negatively a more aggressive stance on large debt-financed acquisitions to offset potential low revenue growth. We would lower the rating if FFO to debt declines to 20% and adjusted debt to EBITDA rises to about 4.0x over the next two years. Upside scenario
Although we consider it remote, an upgrade could be possible over the next 18-24 months if the company reduces its leverage, maintains FFO to debt at 30%-45%, and decreases adjusted debt to EBITDA to well below 3x. This is possible if Almarai substantially increases its EBITDA and FOCF over time through a combination of solid earnings growth in its largest categories, successful geographical expansion into sizable new consumer markets, and successful working capital and capex management. We would also need to see a consistent financial policy toward mergers and acquisitions (M&A) and shareholder remuneration that is compatible with a higher rating. Our Base-Case Scenario
www.spglobal.com/ratingsdirect September 13, 2022 2 Almarai Co.
Assumptions
• Saudi Arabia's real GDP increases 5.8% in 2022 and 2.9% in 2023 and consumer price inflation 3.2% in 2022 and 2.9% in 2023.
• Annual revenue growth of 5%-9% in 2022-2023. This forecast stems from our assumption that, along with moderate volume growth, Almarai can continue to pass down costs to customers as costs and inflation rise.
• EBITDA margin is expected to decline to 18%-21% in 2022-2023. This is mainly due to higher raw materials costs, including feedstock costs, and higher inflation.
• Negative working capital movements continue since the company has increased selling to regulated channels, leading to an increase in receivables, as well as seasonal working capital effects.
• Capex of SAR1.6 billion-SAR1.8 billion (about $430 million-$480 million) in 2022 and SAR2.8 billion-SAR3.0 billion (about
$750 million-$800 million) in 2023.
• Expected annual dividends of SAR1 billion.
• We exclude discretionary spending on opportunistic M&A and new capex. Key metrics
Almarai Co.--Key Metrics*
Mil. SAR 2020a 2021a
RTM
Jun. 2022a
2022e 2023f
Revenue 15,357 15,850 17,313 17,000-18,000 17,500-19,000 EBITDA 4,112 3,588 3,742 3,000-3,500 3,400-3,900
EBITDA margin 26.8 22.6 21.6 18-20 19-21
Debt to EBITDA (x) 2.9 2.9 3.1 3.4-3.7 3.4-3.7
FFO to debt 29.6 30.7 28.3 20-24 20-24
FOCF to debt 16.6 22.8 6.3 (3)-2 (4)-(9)
*All figures adjusted by S&P Global Ratings. a--Actual. e--Estimate. f--Forecast. RTM – Rolling 12 months. FFO--Funds from operations. FOCF--Free operating cash flow. SAR--Saudi riyal. High cost and inflation will keep Almarai's EBITDA margins and credit metrics pressured in the near term. The premium pricing for its strong local and regional brands along with vertical integration enables Almarai to have one of the strongest EBTIDA margins in the food and beverages industry, especially in dairy products. However, we believe that the current geopolitical uncertainty (that has led to supply chain issues), slower economic growth, inflationary environment, and higher agriculture commodity prices, will pressure margins in the medium term, despite the group's ability to increase prices and pass on costs to its customers. We expect S&P Global Ratings-adjusted EBITDA margins will remain at 18%-21% in the next 12-24 months from about 26.8% in 2020 (22.6% in 2021 and 21.6 in first-half 2022). This will lead to S&P Global Ratings-adjusted debt to EBITDA of 3.4x-3.7x in 2022-2023 from 3.1x at first-half 2022 and S&P Global Ratings-adjusted FFO to debt of 18%-25% in 2022-2023 from 28.3% in first-half 2022. Large capex plans will lead to low or negative FOCF. We believe that the group's large capex plans of about SAR4.4 billion- SAR4.8billion over the next 12-24 months, focused on poultry, red meat, and seafood, will put pressure on its FOCF. We exclude M&A or new capex and expect the company will be selective regarding any deals, most likely keeping to bolt-on targets in nearby geographies and adjacent categories. Some recent examples are the acquisitions of Modern Foods Industries Co. Ltd. (now 100% owned, acquired the last 25% for SAR250 million in 2022), Bakemart (SAR 84.6 million in 2022), and Binghatti Beverages (SAR219.4 www.spglobal.com/ratingsdirect September 13, 2022 3 Almarai Co.
million in 2021).That said, we believe that Almarai is committed to maintaining the current rating. Therefore, we expect a consistent shareholder remuneration policy with stable dividends and no share buybacks. Company Description
Founded in 1977 and headquartered in Riyadh, Saudi Arabia, Almarai is a food and beverages manufacturer, with revenue of SAR15.9 billion ($4.2 billion) and reported EBITDA of SAR3.5 billion ($1 billion) in 2021 and SAR9.1 billion ($2.4 billion) of revenue and SAR2.3 billion ($0.6 billion) of reported EBITDA in first-half 2022. The company operates mostly in Saudi Arabia (66% of revenue in first-half 2022) and in other Gulf Cooperation Council (GCC) countries (20%). It also has a joint venture in Egypt and Jordan with PepsiCo (11%). Almarai has been listed on the Saudi stock market, the Tadawul, since 2005, and its biggest shareholders include SAVOLA Group Co.
(34.5%), His Highness Prince Sultan bin Mohammed bin Saud Al Kabeer and a related entity (23.7%), and more recently Saudi Agricultural and Livestock Investment Co. (SALIC, 16.3%) after the Public Investment Fund (PIF) transferred its shares to wholly owned SALIC. We understand the transfer aims to leverage synergies within the PIF's food and agriculture portfolio and enable SALIC to stimulate growth in the sector and will not affect Almarai's strategy. Almarai's main product segments are:
• Dairy food and beverages (60% of revenue in first-half 2022): Fresh dairy milk, long-life dairy, cheese, butter, and cream products The main brand is Almarai.
• Poultry (15%): Fresh and frozen chicken. The main brand is Alyoum.
• Bakery (12%): Pastry, cakes, bread, and bars. The main brands are L'usine and 7Days.
• Fruit Juices (8%). The main brand is Almarai.
• Others (5%).
Other businesses include a joint venture in fruits and juices in Egypt and Jordan under the Teeba, Beyti, and Tropicana brands. Almarai also has a small infant nutrition business. www.spglobal.com/ratingsdirect September 13, 2022 4 Almarai Co.
www.spglobal.com/ratingsdirect September 13, 2022 5 Almarai Co.
Peer Comparison
Almarai Company--Peer Comparisons
Almarai Co. Danone
China Mengniu
Dairy Co. Ltd.
Nomad Foods Ltd.
Foreign currency issuer credit rating BBB-/Stable/A-3 BBB+/Stable/A-2 BBB+/Stable/-- BB-/Stable/-- Local currency issuer credit rating BBB-/Stable/A-3 BBB+/Stable/A-2 BBB+/Stable/-- BB-/Stable/-- Period Annual Annual Annual Annual
www.spglobal.com/ratingsdirect September 13, 2022 6 Almarai Co.
Almarai Company--Peer Comparisons
Period ending 2021-12-31 2021-12-31 2021-12-31 2021-12-31 Mil. SAR SAR SAR SAR
Revenue 15,850 103,672 52,740 11,129
EBITDA 3,588 15,017 5,973 1,798
Funds from operations (FFO) 3,197 11,832 4,852 1,155 Interest 396 1,511 585 307
Cash interest paid 357-***-***-***
Operating cash flow (OCF) 3,736 14,786 6,395 1,072 Capital expenditure 1,364 4,453 4,859 338
Free operating cash flow (FOCF) 2,372 10,333 1,535 734 Discretionary cash flow (DCF) 1,244 1,085 899 306
Cash and short-term investments 628 25,003 8,555 1,085 Gross available cash 628 25,003 15,027 1,085
Debt 10,418 52,846 8,975 9,383
Equity 16,618 71,517 26,632 9,816
EBITDA margin 22.6 14.5 11.3 16.2
Return on capital 5.3 10.0 16.3 8.3
EBITDA interest coverage (x) 9.1 9.9 10.2 5.9
FFO cash interest coverage (x) 10.0 16.7 9.3 5.9
Debt/EBITDA (x) 2.9 3.5 1.5 5.2
FFO/debt 30.7 22.4 54.1 12.3
OCF/debt 35.9 28.0 71.2 11.4
FOCF/debt 22.8 19.6 17.1 7.8
DCF/debt 11.9 2.1 10.0 3.3
Business Risk
In our view, Almarai's key business strengths are its leading market shares in the relatively noncyclical food and beverages industry. The group has strong market positions in Saudi Arabia and the GCC countries (20%-60%, depending on the category). It has managed to maintain its leadership in a challenging market environment where consumer demand is sensitive due to rising inflation. Almarai benefits from a portfolio of local and regional brands with strong consumer recognition through its providing of high-quality products to via a vertically integrated supply chain. This enables the group to maintain strong price premiums and high gross margins in most product categories (dairy, juices, and bakery) as seen in 2021 and early 2022 when it was able to increase prices despite rising costs. We also view positively the wide distribution footprint across Saudi Arabia and the GCC region, with good diversity of suppliers and customers (70% are small retailers with low bargaining power), a well-invested manufacturing base, and good product diversity across its main categories.
We note that Almarai continued to report profitability across the majority of its product segments in 2021. In 2022, profitability from dairy and foods declined due to higher input costs and inflation. However, overall revenue improved as the COVID-19 pandemic waned and schools reopened, and contributions from other GCC regions also increased. We expect Almarai will maintain strong profitability, above that of many industry peers thanks to its vertical integration and ability to increase product prices, despite higher www.spglobal.com/ratingsdirect September 13, 2022 7 Almarai Co.
costs and inflation. We forecast an S&P Global Ratings-adjusted EBITDA margin of 19%-21% in the next 12-24 months compared with 22.6% in 2021 and 26.8% in 2020.
In our view, key business weaknesses are high geographical concentration, with 65% of revenue generated in Saudi Arabia, and high brand concentration, with over 50% of revenue generated under the Almarai brand. In our view, the business has higher working capital and capex intensity (capex of 10%-15% of revenue) than top industry peers, and operating costs are rigid due to its integrated feed supply chain and logistics and distribution infrastructure. Moreover, the group's scale of operations remains limited to one region, unlike global peers such as Danone or Nestlé. There is also some seasonality in the business, with inventory increasing before Ramadan and falling before summer.
In terms of business strategy, Almarai is focused on defending its strong market shares in Saudi Arabia and the GCC region against smaller local competitors and large multinationals. The group is trying to raise product prices to balance cost inflation and operating costs. We understand management has prudent expansion plans, looking mostly at neighboring markets (United Arab Emirates [UAE] and Egypt) and adjacent categories (poultry, red meat, and seafood). Financial Risk
Our view of Almarai's financial risk profile as significant is consistent with the group's financial policy, with a stable dividend payout ratio, sizable growth capex, and a discretionary acquisition policy. We expect S&P Global Ratings-adjusted leverage to increase to 3.4x-3.7x over the next two years compared with 2.9x in 2021 due to cost inflation and growth capex. The company plans heavy investments, mainly in poultry, red meat, and seafood, of about SAR4.4 billion-SAR4.8 billion over the next 12-24 months versus SAR1.4 billion in 2021. At the same time, the group is also open to opportunistic acquisitions, depending on macroeconomic and local barriers to entry, as demonstrated by deals in 2021-2022. Higher M&A spending and heavy capex will pressure FOCF, which we expect to be low or negative over the next 12-24 months. Almarai has high debt maturities over the next 24 months, which we believe it will refinance. However, the company in general maintains diversified debt sources: bank lines, sukuk, and government funding. We note that Almarai also has access to local capital markets as a listed company on the Saudi Stock Exchange (Tadawul) and has previously issued sukuk via private placements. Foreign-exchange risk for Almarai is mitigated by the peg of the Saudi riyal to the U.S. dollar. Almarai maintains a conservative interest-risk coverage policy, with about 60% of net debt fixed or hedged at all times. That said, we observe that local funding costs, as for most corporates in Saudi Arabia, are currently increasing, which should weigh slightly on Almarai's operating cash flows. Debt maturities
• In the 12 months from June 30, 2022: SAR2.9 billion
• Year 2: SAR4.1 billion
• Year 3: SAR0.8 billion
• Thereafter: SAR3.0 billion
Almarai Company--Financial Summary
Period ending Dec-31-2016 Dec-31-2017 Dec-31-2018 Dec-31-2019 Dec-31-2020 Dec-31-2021 Reporting period 2016a 2017a 2018a 2019a 2020a 2021a Display currency (mil.) SAR SAR SAR SAR SAR SAR
Revenues 14,339 13,936 13,723 14,351 15,357 15,850 EBITDA 3,936 4,289 4,296 4,151 4,111 3,588
Funds from operations (FFO) 3,480 3,714 3,766 3,607 3,559 3,197 www.spglobal.com/ratingsdirect September 13, 2022 8 Almarai Co.
Almarai Company--Financial Summary
Interest expense 428-***-***-*** 514 396
Cash interest paid 446-***-***-*** 468 357
Operating cash flow (OCF) 3,502 3,567 2,496 3,578 3,091 3,736 Capital expenditure 4,533 2,850 1,959 1,775 1,089 1,364 Free operating cash flow (FOCF) (1,030) 717 537 1,803 2,002 2,372 Discretionary cash flow (DCF) (1,794) (76) (434) 638 904 1,244 Cash and short-term investments 730 1,892 1,183 1,148 504 628 Gross available cash 730 1,892 1,183 1,148 504 628 Debt 13,569 13,480 13,442 13,179 12,032 10,418
Common equity 11,778 13,181 14,516 15,259 16,234 16,618 Adjusted ratios
EBITDA margin 27.5 30.8 31.3 28.9 26.8 22.6
Return on capital 8.4 8.7 7.7 7.0 7.1 5.3
EBITDA interest coverage (x) 9.2 8.3 8.7 6.6 8.0 9.1 FFO cash interest coverage (x) 8.8 7.6 8.4 7.9 8.6 10.0 Debt/EBITDA (x) 3.4 3.1 3.1 3.2 2.9 2.9
FFO/debt 25.6 27.6 28.0 27.4 29.6 30.7
OCF/debt 25.8 26.5 18.6 27.1 25.7 35.9
FOCF/debt (7.6) 5.3 4.0 13.7 16.6 22.8
DCF/debt (13.2) (0.6) (3.2) 4.8 7.5 11.9
Reconciliation Of Almarai Company Reported Amounts With S&P Global Adjusted Amounts (Mil. SAR) Debt
Shareholder
Equity Revenue EBITDA
Operating
income
Interest
expense
S&PGR
adjusted
EBITDA
Operating
cash flow Dividends
Capital
expenditure
Financial year Dec-31-2021
Company
reported
amounts
9,782 16,119 15,850 3,465 2,015 368 3,588 4,915 978 1,364 Cash taxes paid - - - - - - (35) - - -
Cash interest
paid
- - - - - - (357) - - -
Lease liabilities 441 - - - - - - - - -
Postretirement
benefit
obligations/
deferred
compensation
761 - - 16 16 16 - - - -
Accessible cash
and liquid
investments
(567) - - - - - - - - -
www.spglobal.com/ratingsdirect September 13, 2022 9 Almarai Co.
Reconciliation Of Almarai Company Reported Amounts With S&P Global Adjusted Amounts (Mil. SAR) Debt
Shareholder
Equity Revenue EBITDA
Operating
income
Interest
expense
S&PGR
adjusted
EBITDA
Operating
cash flow Dividends
Capital
expenditure
Capitalized
interest
- - - - - 12 - - - -
Share-based
compensation
expense
- - - 20 - - - - - -
Nonoperating
income
(expense)
- - - - 3 - - - - -
Reclassification
of interest and
dividend cash
flows
- - - - - - - (357) - -
Noncontrolling/
minority interest
- 499 - - - - - - - -
EBITDA -
Gain/(loss)
on disposals
of PP&E
- - - 128 128 - - - - -
EBITDA: Foreign
exchange
gain/(loss)
- - - (42) (42) - - - - -
D&A: Asset
valuation
gains/(losses)
- - - - (688) - - - - -
D&A:
Impairment
charges/
(reversals)
- - - - 20 - - - - -
OCF: other - - - - - - - (822) - -
Total adjustments 636 499 - 123 (562) 28 (392) (1,179) - - S&P Global
Ratings adjusted Debt Equity Revenue EBITDA EBIT
Interest
expense
Funds from
Operations
Operating
cash flow Dividends
Capital
expenditure
10,418 16,618 15,850 3,588 1,453 396 3,197 3,736 978 1,364 Liquidity
We assess Almarai's liquidity as adequate. We estimate the company's liquidity sources will exceed uses by at least 1.2x over the 12 months started July 1, 2022, and net sources will remain positive even if EBITDA declines 15%. Although near-term debt maturities appear high, we see the fact that the SAR1.6 billion maturity due in September 2022 is in advanced stages of refinancing and that Almarai has large undrawn committed lines and flexibility on capex as mitigating factors. We view Almarai as benefiting from sound relationships with local and international banks, and prudent risk management. www.spglobal.com/ratingsdirect September 13, 2022 10 Almarai Co.
Principal liquidity sources
• SAR496 million of cash and cash equivalents on June 30, 2022;
• SAR2.4 billion of undrawn committed credit lines maturing in more than one year; and
• Our forecast of SAR2.5 billion-SAR2.7 billion of cash FFO for the next 12 months.
Principal liquidity uses
• SAR2.9 billion of debt due in the next 12 months as of June 30, 2022; of which the SAR1.6 billion sukuk
matures in September 2022 and is in advanced stages of refinancing;
• SAR700 million-SAR800 million of estimated working capital movements;
• Capex of SAR 2.0 billion–SAR2.5 billion over the next 12 months, of which about SAR1.0 billion is estimated maintenance capex; and
• SAR1.0 billion of cash dividends.
Covenant Analysis
Requirements
Almarai is subject to a minimum equity of SAR6.5 billion, leverage ratio (total liability to total equity) of less than 1.5x, interest coverage ratio of more than 4.0x, gearing ratio (net debt to tangible net worth) of less than 1.5x, and current ratio of 1:1x. The current ratio is under pressure, but it is tested only at the end of the year, when we believe there will be headroom once the sukuk refinancing is concluded.
Compliance expectations
We understand that Almarai had adequate (more than 15%) headroom under its maintenance financial covenants on its bank debt on June 30, 2022.
Environmental, Social, And Governance
Environmental, social, and governance (ESG) factors have no material influence on our credit rating analysis of Almarai. We view ESG credit factors for Almarai as broadly in line with those of food and beverage industry peers. In our view, the main ESG risks include food health and safety, plastic packaging waste, water scarcity, and greenhouse gas emissions (GHG). Large dairy activities in Saudi Arabia expose Almarai to environmental risks like carbon dioxide (CO2)/GHG emissions and water scarcity. Its three main 2025 goals are to increase water efficiency by 15%, decrease energy consumption by 15%, and decrease waste to landfill by 50%. The company's main contributors to CO2 and GHG emissions are its large transportation fleet and herd of 80,000 dairy cows. Positively, we note that the group is investing in solar energy and expects to derive 10% of its electricity consumption in Saudi Arabia from this source (2.3% in 2021 for the GCC). Almarai also mitigates water use in Saudi Arabia by importing 100% of its alfalfa supplies for its dairy cows from other countries. In our view, social risks include food safety. Deficient product quality controls can have an immediate, high impact on consumer demand that can tarnish a brand in a country. Consumers and governments are also pushing for healthier product reformulations that lower intake of sugar or fat content. The move to healthier products is ongoing, and Almarai's products are already free of www.spglobal.com/ratingsdirect September 13, 2022 11 Almarai Co.
artificial colors and trans fats. Furthermore, governments could enforce more stringent recycling rules for packaging waste, which would mean higher operating costs if Almarai has to pay to collect and recycle waste. We assess Almarai's management and governance as satisfactory, reflecting the consistency of the business strategy and its ability to adapt to changing market conditions. We also assess that the board maintains sufficient independence from management to provide effective oversight of its actions. That said, we note that independent directors constitute only one-third of the board members.
Government Influence
We consider Almarai a government-related entity. We view the likelihood of timely and extraordinary support from the Saudi Arabian government as low.
Our assessment is based on two main considerations:
• The limited importance of its role to the government. Almarai is a profit-seeking company operating in a competitive environment. Its activity is relatively important for Saudi government policy, given it participates in the country's ability to secure a stable food and beverage supply for the local population, and in the economy's diversification as a national champion in the sector. That said, rather than support its financial position, we believe the Saudi government would likely support the takeover of Almarai's activities by another private-sector entity if it ceased to exist to ensure stability of food distribution in the country.
• Its limited link with the government. We understand the Saudi government has no direct influence in the management of Almarai. The government is a minority shareholder, holding 16% of common shares (through the PIF; now under SALIC) with two seats currently on the board of directors. We do not believe the Saudi government controls Almarai's cash flows, nor does it participate in the business strategy. Furthermore, we see no tangible evidence of a willingness to provide Almarai financial support on a timely basis.
Issue Ratings--Subordination Risk Analysis
Capital structure
Almarai's capital structure comprises mostly Islamic banking facilities (67% of total debt as of June 30, 2022) and sukuk (33%). We understand there is limited secured debt or debt held at operating subsidiaries (4%). Analytical conclusions
The $2 billion sukuk program and the $500 million sukuk maturing in March 2024 are rated 'BBB-'. This reflects that the transaction fulfils the five conditions of our criteria for rating sukuk (see "General Criteria: Methodology For Rating Sukuk," published Jan. 19, 2015, on RatingsDirect). Due to the lack of subordination risk, we equalize our rating on the trust certificates with our foreign currency long-term issuer credit rating on Almarai. www.spglobal.com/ratingsdirect September 13, 2022 12 Almarai Co.
Rating Component Scores
Foreign currency issuer credit rating BBB-/Stable/A-3 Local currency issuer credit rating BBB-/Stable/A-3 Business risk Satisfactory
Country risk Moderately High
Industry risk Low
Competitive position Satisfactory
Financial risk Significant
Cash flow/leverage Significant
Anchor bbb-
Diversification/portfolio effect Neutral (no impact) Capital structure Neutral (no impact)
Financial policy Neutral (no impact)
Liquidity Adequate (no impact)
Management and governance Satisfactory (no impact) Comparable rating analysis Neutral (no impact)
Stand-alone credit profile bbb-
Related Criteria
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria Corporates General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria Corporates General: Reflecting Subordination Risk In Corporate Issue Ratings, March 28, 2018
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- Criteria Corporates Industrials: Key Credit Factors For The Branded Nondurables Industry, May 7, 2015
- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
- General Criteria: Methodology For Rating Sukuk, Jan. 19, 2015
- Criteria Corporates General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
- Criteria Corporates General: Corporate Methodology, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
- General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 Related Research
• Consumer Goods: Unrelenting Inflation Puts Pricing And Brand Power To A Grueling Test, July 13, 2022
• Research Update: Outlook On Saudi Arabia Revised To Positive On Improving Fiscal And Economic Growth Dynamics, 'A-
/A-2' Ratings Affirmed, March 25, 2022
• Industry Top Trends 2022: Consumer Products, Jan. 25, 2022 www.spglobal.com/ratingsdirect September 13, 2022 13 Almarai Co.
Ratings Detail (as of September 13, 2022)*
Almarai Co.
Issuer Credit Rating BBB-/Stable/A-3
Issuer Credit Ratings History
14-Feb-2019 BBB-/Stable/A-3
*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings credit ratings on the global scale are comparable across countries. S&P Global Ratings credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees. www.spglobal.com/ratingsdirect September 13, 2022 14 Almarai Co.
www.spglobal.com/ratingsdirect September 13, 2022 15 Almarai Co.
STANDARD & POOR’S, S&P
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