Almarai Initial 032009

Global Research
Equities
Saudi Arabia
Almarai Company - Almarai

Nurturing Success
March 2009
Global Investment House KSCC

Global Tower, P.O. Box 28807 Safat 13149 Kuwait Tel: (965) 22951000 Fax: (965) 22951299 Email: research@global.com.kw http://www.globalinv.net Global Investment House stock market indices can be accessed from the Bloomberg page GLOH and from Reuters Page GLOB
Faisal Hasan, CFA

Head of Research
fhasan@global.com.kw Phone No:(965) 22951270
Syed Taimure Akhtar

Financial Analyst
sakhtar@global.com.kw Phone No:(965) 22951278
Umar Faruqui
Financial Analyst
ufaruqui@global.com.kw Phone No:(965) 22951438
Global Research - Saudi Arabia
Global Investment House

Tickers: ALMARAI AB Equity (Bloomberg) 2280.SE (Reuters) Listing: Saudi Stock Exchange (Tadawul) Current Price: SR144.2 (As on 10th March, 2009) March 2009
Buy
Investment Summary
Almarai Company (Almarai) was converted in to a Saudi Joint Stock Company in August 2005. The operating sphere of the Company is mainly based on the wide-range of dairy foodstuff, pastes, juices and other integrated value added products. The Company has a dominant position in the local market as well as in regional markets and a strong inuence on the Middle East region as a whole. The Companys milk processing facilities are located in Saudi Arabia and UAE, while distribution activities are carried by its longhaul distribution eet. The growth story of Almarai is mainly associated with (i) the efforts of the Company to further strengthen its existing position, which will lead to an improvement in the market shares in local as well as in regional market and (ii) expected growth in the local and regional population. This will cause the Company to post a strong growth in the bottom line, which is expected to increase at a CAGR of 15.9% during 2008-12. Under the expansion program, Almarai has recently acquired majority stakes in Teeba Investment and Food Industries Company in Jordan and also acquired Western Bakery, which has added bakery products in the production line of Almarai. Moreover, the Company is under negotiation with the acquisition of major shares in Hail Agricultural Development Company (HADCO). This will help the Company to expand its product line to Chicken and other crops like dates, olives and grapes. The Company core business is itself a major strength as the dairy foodstuff sector is much inelastic and has minimal and limited exposure to the global recession and nancial crisis. Saudi Arabias Almarai has signed an agreement with PepsiCo Inc. (PEP) to set up a company to invest the dairy and juices sector. Moreover, as per the press release, this joint venture will have focus on the investments in South East Asia, Africa and the Middle East, excluding the Gulf. The new joint venture will be 52%-owned by PepsiCo, while remainder is owned by Almarai. The Middle East milk & dairy product market is expected to increase at a CAGR of 2.6% during 2008-12 to 7.4mn tons. The growth is mainly based on the forecasted growth in regional population at a CAGR of 2.5% during 2008-12. The population growth in the regional market (GCC) is expected to increase at a CAGR of 2.3% during 2008-12, while the milk and dairy market in this region is expected to reach 6.5mn tons 2012.
March 2009
The prices of raw milk are expected to remain in the range of US$330.0-375.7 per ton (US$0.15-0.17 per lb) during 2009-12. While the average per ton prices, during 2009-12, of Class 1 milk, Class 2 milk, Class 3 milk, Class 4a milk and Class 4b milk is expected to range at an average level of US$355-360, US$325-330, US$320-325, US$305-310and US$303-309 respectively. We have valued Almarai using the weighted average valuation approach, with an 80% weight to the discounted cash ow methodology and 20% to value derived from the relative valuation technique. Based on the weighted average valuation approach, our fair value for Almarai arrived at SR161.3 which offers a potential upside of 11.8% over the current market price of SR144.2 as of 10th March 2009. We, therefore, initiate our coverage of Almarai with a BUY recommendation.
Table 01: Investment Indicators

Price as on 10th March 2009 (SR) 144.2 Revenues (SR Mn) 2010E 5,443.3 2009E 5,191.8 2008A 5,029.9 2007A 3,769.8 Shares in issue Market Capitalization (mn) (SR mn) 109 15,718 Net Prot EPS BVPS ROAE (SR Mn) (SR) (SR) (%) 1,178.2 10.8 45.9 25.1 1,037.2 9.5 40.2 25.9 910.3 8.4 33.2 27.3 667.3 6.1 28.0 27.0 52-Week Price (High / Low) 183.0 / 113.0 P/E P/BV (x) (x) 13.3 3.1 15.1 3.6 16.2 4.1 19.3 4.2
Source: Annual Reports and Global Research Historical P/E & P/E multiple pertain to respective year-end prices, while those for future years are based on closing price as at 10th March 2009
Chart 01: Share Price Performance

11,000.0 10,000.0 9,000.0
Index
180.0 170.0 160.0

SR
8,000.0 7,000.0 6,000.0 5,000.0

Oct-08 Mar-08 May-08 Dec-08 Jan-08 Feb-08 Jul-08 Sep-08 Jan-09 Feb-09 Aug-08 Nov-08 Mar-09 Apr-08 Jun-08
150.0 140.0 130.0 120.0 110.0 100.0
4,000.0
Tadawul
Almarai
Source: Reuters, Global Research
March 2009
Company Overview
Almarai Company (Almarai) was converted in to a Saudi Joint Stock Company in August 2005. However, the origins of the Company date back to 1977, when HH Prince Sultan bin Mohammed bin Saud Al-Kabeer recognized the potential to transform traditional dairy farming in Saudi Arabia to meet the needs of a rapidly growing country. In the same context, HH Prince Al Kabeer developed a number of agricultural projects which began with the processing of fresh milk and laban and soon thereafter, expanded into dairy farms, fresh processing plants and cheese processing plants. In 1991, the restructuring and reinvestment phase started with the establishment of Almarai Company Trading Limited. Moreover, during that time the Almarai brand had already achieved market leadership and was well positioned to benet from the economic upturn in the region during that period. Recognizing the longterm strategic competitive advantages that would accrue to low cost fresh dairy producers, the Company undertook a major investment program involving a total capital expenditure in excess of SR 1.1bn in ve years from 1993 to 1997. A single large fresh processing plant, CPP, was commissioned with a capacity for both existing and new products for 10 years forward, and allowance for further expansion Four large dairy farms, each with a capacity for 10,000 cattle, were built incorporating the latest technology. Moreover, the Company had built four large dairy farms incorporated with the latest technology, while each dairy farm having a capacity for 10,000 cattle. The Company markets a range of food and beverage products under the Almarai brand, principally through retail outlets. The product range includes fresh and long-life dairy products, which are made primarily from fresh milk, as well as fruit juices, cheese, butter and some nondairy products. Furthermore, Almarai is an integrated organization spanning the food supply chain from dairy farms through to retail stores. Table 02: Product Line of Almarai
Tons Fresh Dairy Long Life Dairy Fruit Juice Cheese & Butter Bakery Products Others Non Dairy Total 2006A* 195,262 35,665 42,647 70,653 13,769 357,966 2007A* 199,146 36,374 43,495 72,058 70,215 16,851 438,139 2008E* 241,808 44,517 44,360 88,189 83,555 20,053 522,483 2009F 246,644 45,407 45,247 89,953 99,431 23,863 550,546 2010F 251,577 46,315 46,152 91,752 118,323 28,397 582,517 2011F 256,609 47,242 47,075 93,587 140,804 33,793 619,109 2012F 261,741 48,186 48,017 95,459 167,557 40,214 661,173
Source: Almarai Prospectus, Annual Report & Global Research * We have calculated the production of Almarai based on the information given in Almarai Board Report 2008.
All the milk processing units of Almarai are located in Saudi Arabia and UAE from where the end products are taken through the companys own designated distributors. Moreover, the distribution centers of the Company are located in every GCC country, which are liable to deliver the nal products at retail outlets.
March 2009
Figure 01: Almarai Distribution Network
Source: Almarai Company Prospectus
Management The board of directors of the company is led by HH Prince Sultan bin Mohammad bin Saud Al Kabir. HH Prince Sultan is acting chairman of the Companys board. Table 03: Board of Directors
Names HH Prince Sultan bin Mohammad bin Saud Al Kabir Sami Mohsin Baroum HH Naif Bin Sultan Bin Mohammed Bin Saud Al Kabir Abdulrahman Abdulaziz Ibrahim Al Muhanna Dr Majed Abdullah Al Gassabi Ibrahim Mohammed Al Issa Mohammed Abdulrahman Al Damer Nasser Mohammed Al Mutawwa Moussa Omran Al Omran
Source: Zawya
Position in Almarai Chairman Director Director Director Director Director Director Director Director
The senior management of the company is headed by Mr. Abdulrahman Al Fadely. Mr. Al Fadley rst joined Almarai Company in 1996 as the General Manager of the Central Processing Plant. Before joining Almarai, he was the Vice President of Mahmood Saeed Collective Company in Jeddah. Table 04: Senior Management
Names Abdulrahaman Al Fadley George Schorderet Alan van der Nagel Malcom Jordan Andrew Mackie Abdulrahaman Abdulkareem Hussam Abdulkader Majed Nofal Nicolas Jay Dr. Abdulrahman Al Turaigy Tom Trimble
Source: Zawya
Position in Almarai Chief Executive Ofcer Chief Financial Ofcer General Manager, Operation General Manager, Quality and Product Development General Manager, Farming General Manager, Administration General Manager, Marketing General Manager, Bakery General Manager, Sales General Manager, Human Resources Head of Strategic Business
March 2009
Shareholding and Liquidity The Company has ended the year 2007 with the paid up capital of SR1.09bn (109mn shares @ SR10 each). Majority of the shares are in the hands of general public, while on an individual basis, HH Prince Sultan Mohammad Saud Al Kabir Al Saud holds largest portion of the Companys shares. Almarai is among the few companies in Saudi Arabia, in which the foreign investors who reside in Saudi Arabia can own 100.0% shares. Table 05: Almarai Shareholders
Shareholder HH Prince Sultan Mohammad Saud Al Kabir Al Saud Savola Group Omran Mohammad Al Omran & Company General Public
Source: Zawya
Holding 30.2% 27.9% 5.7% 36.2%
Over the period of last three years we have seen an improvement in the market capitalization of the Company. However, there is signicant decline in average volume traded, which could be mainly because of the recent growth in non-food sector i.e. banking, industries, insurance and so on. The trading volume has increased in 2009 as the investors are more interested to go for defensive investments due to recent nancial crisis and fall in crude oil price, which has left the related sectors in disastrous situation. Table 06: Stock Liquidity
Year 2006 2007 2008 2009* Volume 1,642,641 459,663 262,514 165,575 Market Price (Year End) 74.5 118.0 135.0 144.2 Market Cap (SR mn)** 8,120 12,862 14,715 15,717
Source: TADAWUL, Global Research * Market price as on 10th March 2009 ** at present outstanding shares
March 2009
Milk & Dairy Product Market Overview

Raw milk is the sole, major component of milk and dairy industry, and the ability to generate revenues since the composition of nutrients in raw milk varies from different producer. is varying from producer to producer. Typically higher butterfat levels offer higher returns. The perishable nature of raw milk (in liquid form) has lead the trade in international market to focus on long life dairy commodities such as milk powder, frozen butter and hard cheese. This allows for the storage of more milk and dairy products for long period during the time of excess supply of milk. The ability to produce raw milk at low cost is a natural competitive advantage in this industry and helps the producer to sustain lower input costs and remain most active in the market. However, a constant supply of milk is much needed to carry out the production of fresh perishable dairy products such as short-life liquid milk. The milk must be produced relatively close to the market place and be of consistently high quality and appropriate composition, otherwise costs could therefore higher. Figure 02: Milk Products
Source: Wikipedia
Classes of Milk Generally, raw milk is classied into ve classes based on the end products obtained from raw milk. The immediate outcomes of milk are (i) uid milk, (ii) butter, (iii) cheese and (iv) yoghurt. However, the importance of milk is mainly based on the natural composition of nutrients i.e. fat, non-solid-fat and uid carrier, which also determines the protability, as the prices of each type of milk are different and rely on the composition of nutrients.
March 2009
Chart 02: Classes of Milk & Usage
Raw Milk
Class 1 Milk
Class 2 Milk Used in heavy cream, cottage cheese, yoghurt & sterilized products
Class 3 Milk Used in ice cream, & other forzen products
Class 4a Milk Used in butter & dry milk i.e. nonfat dry milk
Class 4b Milk Used in cheese, & other than cottage cheese
Used in uid products

Source: CDFA
Pricing Procedures of Different Classes of Milk The pricing procedures of different classes of milk were rst introduced by Californias Department of Food & Agriculture (CDFA), with the intention to (i) promote the stability in the dairy sector and (ii) establish minimum prices that dairy farmers should get from the processors for uid milk. The most important components for the pricing of each class of milk are butter (fat), solidsnot-fat (SNF) and uid carriers. However, the pricing of Class 1 milk is entirely based in these three components, while the pricing of Class 2, 3, 4a and 4b milks are based on only fat and SNF. Furthermore, the prices of class 2 and 3 are adjusted bimonthly and the prices of remaining classes are required to have monthly adjustments. - Class 4a Milk Pricing Based on CDFA pricing procedures the price of Class 4a milk is a summation of Class 4a fat prices and Class 4a SNF prices. However, the prices of Class 4a fat and SNF are mainly relying on the commercial market prices of butter, NFDM & Cheddar Cheese, which are subjected to have adjustment with manufacturing cost allowance. The following steps are presented by CDFA: Step 01 Class 4a fat = ((butter price - US$0.0285) - (butter manufacturing cost allowance) x butter yield factor Class 4a SNF = (NFDM price - NFDM manufacturing cost allowance) x NFDM yield factor Class 4a milk price per cwt (100 lbs) = (Class 4a fat price x 3.5) + (Class 4a SNF price x 8.7)
Step 02
Step 03
Where; Butter Price Butter Manufacturing Cost Allowance Butter Yield Factor NFDM Price
= Bulk butter price at CME = US$0.1560 per lb of butter = 1.2 lbs of butter per pound of fat = California weighted average price for NFDM
March 2009
NFDM Manufacturing Cost Allowance NFDM Yield Factor CME CRP CA NFDM SNF Class 4a Milk
= US$0.1520 per lb of butter = 1.0 lbs of NFDM per pound of SNF = California Mercantile Exchange = Commodity Reference Price = California Weighted Average Price = Nonfat Dry Milk = Solid Non-Fat = 3.5% fat, 8.7% of SNF and 87.8% uid carrier
- Class 4b Milk Pricing Similar to the 4a milk prices the price of 4b milk is the combination of fat and SNF components prices. However, the price of SNF in Class 4b is arrived by using the monthly average prices of cheese while pricing mechanism for 4b fat is equal to the 4a fat prices. In addition, for the price of cheese, CDFA uses average CME prices for 40lbs block of Cheddar cheese to set a base price. The base price is subjected to have adjusted with the difference in the CME price and the price actually received by California Cheddar cheese processor. Moreover, the derived commodity prices for class 4b formula are implemented for the period of 26th of the previous month and 25th of the current month. CDFA denes the following steps to arrive at the per cwt (100 lbs) price of milk class 4b: Step 01: Cheese price per cwt (100lbs) = (((Cheddar cheese price - US$0.0290) - Cheese manufacturing cost allowance) x (Cheddar Cheese Yield) + (((CME AA butter US$0.10 - butter manufacturing cost allowance) x whey butter yield) + ((dry skim whey price - dry skim whey manufacturing cost) x (dry whey yield)) Class 4b fat price = Class 4a fat price Class 4b SNF = ((Cheese price per cwt) - (3.72 x Class 4b fat)) / 8.80 Class 4b milk price per cwt (100 lbs) = (Class 4b fat price x 3.5) + (Class 4b SNF price x 8.7) = 40lbs block CME price = US$0.1710 per lb of product = 10.2lbs of cheese per cwt of milk = US$0.1560 per lb of product = 0.27 lbs of butter per cwt of milk = Monthly average of the dry whey price = US$0.20 per lb of dry skim whey = 5.87 lbs of whey per cwt of milk = Bulk butter price at CME = US$0.1560 per lb of butter = 1.2 lbs of butter per pound of fat = California Mercantile Exchange = Commodity Reference Price = California Weighted Average Price
Step 02: Step 03: Step 04
Where; Cheddar cheese price Cheese manufacturing cost allowance Cheese yield factor Whey butter manufacturing cost allowance Whey butter yield factor Dry skim whey price Dry skim whey manufacturing cost Whey butter yield factor Butter Price Butter Manufacturing Cost Allowance Butter Yield Factor CME CRP CA
March 2009
NFDM SNF Class 4a Milk
= Nonfat Dry Milk = Solid Non-Fat = 3.5% fat, 8.7% of SNF and 87.8% uid carrier
- Class 1 Milk Pricing The pricing of Class 1 milk is the combination of the prices of (i) Class 1 fat, (ii) Class 1 SNF and (iii) Class 1 uid carrier. However, the end price of Class 1 milk could be varying based on the composition of all these components. The following are the procedures set by CDFA to determine the prices of each component of Class 1 milk: Step 01 Step 02 Price of Class 1 fat = (CME butter - US$0.10) x 1.2 CRP is the higher of: (CME Cheddar) x 9.8 + (CME AA butter - US$0.10) x 0.27 OR (CME butter x 1.2) x 3.5 + (CA NFDM x 0.99) x 8.7 Step 03 Step 04 Price of Class 1 SNF = (((CRP+US$0.464)-(Class 1 fat price x 3.5)) x 0.76) / 8.7 Price of Class 1 carrier = (((CRP+US$0.464)-(Class 1 fat price x 0.24)) x 0.76) / 87.8 Price of Class 1 milk per cwt (100 lbs) = (3.5 x Class 1 fat) + (8.7 x Class 1 SNF) + (87.8 x Class 1 carrier)
Step 05
Where; CME CRP CA NFDM SNF Class 1 Milk

Source: CDFA
= California Mercantile Exchange = Commodity Reference Price = California Weighted Average Price = Nonfat Dry Milk = Solid Non-Fat = 3.5% fat, 8.7% of SNF and 87.8% uid carrier
- Class 3 Milk Pricing Class 3 milk pricing mechanism is mainly based on the average prices of Class 4a fat prices and SNF prices. However, these pre-determine prices are subjected to have adjusted with the charges of the milk Producer Security Trust Fund. Step 01: Step 02: Class 3 fat prices = Average Class 4a fat price + (US$0.0370 OR US$0.0393) Class 3 SNF prices = Average Class 4a SNF price + (US$0.0586)
Step 03: Class 3 Milk price per cwt (100 lbs) = (3.5 x Class 3 fat) + (8.7 x Class 3 SNF)
March 2009
- Class 2 Milk Pricing Class 2 milk pricing mechanism is similar to the class 3 milk pricing procedure. However, the only difference is in the adjusting factor in class 2 SNF prices. Step 01: Step 02: Class 2 fat prices = Average Class 4a fat price + (US$0.0370 OR US$0.0393) Class 2 SNF prices = Average Class 4a SNF price + (US$0.0643 OR US$0.0901)
Step 03: Class 2 Milk price per cwt (100 lbs) = (3.5 x Class 2 fat) + (8.7 x Class 2 SNF) Where; CME CRP CA NFDM SNF Class 1 Milk
Source: CDFA
= California Mercantile Exchange = Commodity Reference Price = California Weighted Average Price = Nonfat Dry Milk = Solid Non-Fat = 3.5% fat, 8.7% of SNF and 87.8% uid carrier
10
March 2009
World Milk & Dairy Products Industry

Milk Supply According to Food & Agriculture Policy Research Institution (FAPRI) and Food & Agriculture Organization (FAO), the milk supply has increased at 2004-08 CAGR of 3.1% to 696.6mn tons. In addition, based on the FAPRI, the average dairy products to milk ratio remained at an average level of 5.9% during 2004-07, while the ratio is expected to remain at the same level of 5.8% in 2008. Chart 03: Milk Production (000 tons) & Dairy Products to Milk Ratio
710,000 700,000 690,000 680,000 670,000 660,000 650,000 640,000 630,000 620,000 2005A 2006A 2007A 2008E 5.8% 6.1% 5.8% 6.20% 5.8% 6.10% 6.00% 5.90% 5.80% 5.70% 5.60%
Total Milk Production
Dairy Product to Milk Ratio
Source: FAPRI, FAO & Global Research
The production of milk during 2004-07 was mainly concentrated from the area of European Union (EU), which has an average contribution of 21.1% of total milk produced in the world. However, on a country basis, the contribution from India remained dominant throughout 2004-07 with an average contribution of 14.4% followed by US with the world market share of 12.5%. Furthermore, the contribution from major milk producing locations in the global market remained the same in 2008, except for Brazil and China, where the market shares is expected to increase on account of a decline in shares from other countries. Chart 04: Major Milk Producers 2007A
Canada 1% Brazil 4% Production From Other Countreis 32% China 6% European Union 20%
Chart 05: Major Milk Producers 2008E

Canada 1% Brazil 4% Production From Other Countreis 32% China 6% European Union 20%
United States 12%
Ukraine 2%
India 15% Mexico 2% New Zealand Russia 1% 5%
United States 12%
Ukraine 2%
India 15% Mexico 2% New Zealand Russia 1% 5%
March 2009
11
Dairy Product Supply According to FAPRI and our estimates, the world production of basic dairy items i.e. butter, cheese, whole milk powder and skim milk powder during 2004-08 registered an increase at a CAGR of 2.4% to reach 40.4mn tons in 2007. We believe that the past growth in the production of dairy products is mainly due to (i) the growth in world population, which has widened the demand - supply gap (ii) the increasing trend of conversion traditional dairy farming to advanced dairy farming (iii) the lling up demand - supply gap, occurred due rising population and (iv) undisrupted supply of milk to processor. Chart 06: Historical World Dairy Production (000 tons)
41,000 40,500 40,000 39,500 39,000 38,500 38,000 37,500 2005A 2006A 2007A 2008E -2.4% 7.7% 2.7% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00%
1.6%
Dairy Products
Growth
Source: FAPRI & Global Research
Since EU is the leading supplier of milk to the global market, as per FAPRI, which has made the continent to also remain dominant throughout 2004-08 in the world dairy product supply with an average contribution of 28.5%. However, we saw a decline in the market share of EU to 27.1% on 2007 from 29.1% in 2004. The decline was mainly due to an increase in the market share of India, China and Brazil to 9.1%, 3.9% and 3.3% respectively in 2007. Unlike milk production US remained the largest producing country of dairy commodities, followed by India during 2004-07. Furthermore, the market share of EU is estimated to further relax down in 2008 with an improvement in production contribution from India, China and Brazil. Chart 07: Major Dairy Producers 2007A
Brazil 3% Australia 2% China 4% European Union 27%
Chart 08: Major Dairy Producers 2008E

Brazil 3% Australia 2% China 4% European Union 27%
Production From Other Countreis 33% United States 15%
India 9% New Zealand 5% Russia 2%
Production From Other Countreis 33% United States 15%
India 9% New Zealand Russia 5% 2%
12
March 2009
Per Capita Consumption of Milk & Dairy Products The consumption of milk & dairy products in any country is much dependent on (i) taste preference, (ii) income level in the country (iii) weather and (iv) demographic characteristics of the population. According to FAPRI, in 2007, the highest per capita consumption of milk & dairy products was recorded at 153.4kg in Uruguay followed by 125.1 kg in Switzerland. Table 07: Milk & Dairy Product Consumption per Capita (kg)
Argentine Australia Brazil Canada China Colombia Egypt European Union India Indonesia Japan Malaysia Mexico New Zealand Peru Philippine Russia South Korea Switzerland Thailand Ukraine United States Uruguay Venezuela Vietnam 2005A 60.9 120.5 76.8 104.1 8.0 96.7 26.0 98.5 37.7 2.0 42.0 8.3 48.8 103.9 25.1 2.6 95.5 33.7 119.4 14.7 98.1 111.7 114.6 16.6 2.9 2006A 62.2 119.0 76.9 103.1 6.7 101.9 25.3 94.9 39.6 2.2 40.9 8.6 46.8 103.0 25.5 2.7 96.4 34.5 128.7 16.2 136.6 111.9 158.8 17.5 4.3 2007A 63.9 124.5 83.4 107.3 9.2 101.6 25.6 88.9 41.2 2.3 39.7 8.7 46.3 102.0 26.0 1.8 94.5 34.4 125.1 16.3 116.3 112.2 153.4 15.6 2.2 2008E* 65.9 124.6 89.0 105.3 9.0 102.8 26.7 88.6 44.2 2.4 7.9 8.9 45.7 103.4 26.3 2.0 95.9 34.1 125.8 16.8 117.8 110.6 155.3 15.9 2.5
Source: FAPRI, per capita consumption is based on FAPRI estimations
Outlook of World Milk & Dairy Market Based on the FAPRI and our forecast, the world milk & dairy product supply is expected to increase at a CAGR of 1.9% during 2008-12. The expected growth in the market is mainly attributed towards (i) the rising population, which increases the demand of these products, (ii) expansion of operations by existing companies, through acquisition and (iii) being a relatively low capital intensive industry, there is an increase in trend of conversion from traditional farming.
March 2009
13
Chart 09: Forecasted World Milk & Dairy Market Supply (000 tons)
820,000 800,000 780,000 760,000 740,000 720,000 700,000 680,000 660,000 2007A 2008E 2009E 2010E
Growth
2.7% 2.3% 2.4% 2.2% 1.6% 1.4%
3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2011E 2012E

Total Milk & Dairy Product
On other hand, the per capita consumption of milk and dairy products is expected to show some improvement and increase at an average CAGR of 2.1% during 2007-12, while the per capita consumption in Uruguay remained on the higher side at 166.9kg per head in 2012. However, India is expected to register the highest growth in per capita consumption at a CAGR of 5.0%, during 2007-12, followed by Brazil. Milk & Dairy Product Prices The price of milk as a whole is expected to remain in the range of US$330.0-375.7 per ton (US$0.15-0.17 per lb) during 2009-12. Chart 10: Prices of Whole Milk (US$ per ton)
500.0 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 1Q11E 2Q11E 1Q05A 2Q05A 4Q05A 1Q06A 3Q06A 4Q06A 1Q07A 2Q07A 4Q07A 2Q08A 3Q08A 3Q05A 2Q06A 3Q07A 1Q08A 4Q08A 1Q09E 2Q10E 3Q11E 4Q11E 2Q09E 3Q09E 4Q09E 1Q10E 3Q10E 4Q10E 1Q12E 2Q12E 3Q12E 4Q12E
Source: Bloomberg, Agriculture & Applied Economics (aae) & Global Research
Moreover, we have calculated the prices of different classes of milk on the basis of pricing procedures and mechanism given by CDFA. The average per ton prices of Class 1 milk, Class 2 milk, Class 3 milk, Class 4a milk and Class 4b milk is expected to range between the levels of US$355-60, US$325-330, US$320-325, US$305-310 and US$303-309 respectively.
14
March 2009
Chart 11: Prices of Milk Classes (US$ per ton)

800.0 700.0 600.0 500.0 400.0 300.0 200.0
3Q11E 1Q11E 1Q09E 2Q09E 3Q09E 4Q09E 1Q10E 2Q10E 3Q10E 4Q10E 2Q11E 4Q11E 1Q12E 2Q12E 3Q12E 1Q05A 3Q05A 4Q05A 1Q06A 2Q06A 4Q06A 1Q07A 2Q07A 3Q07A 2Q08A 3Q08A 2Q05A 3Q06A 4Q07A 1Q08A 4Q08A 4Q12E
Class 1 Milk
Class 2 Milk
Class 3 Milk
Class 4a Milk
Class 4b Milk
Source: Agriculture & Applied Economics (AAE), CDFA & Global Research
We have derived the future prices of butter, cheese, uid milk (skim milk), powder (dry) milk and dry whey from the price of whole milk (raw), which is the basic input for these products. In addition, the processor has to pay a price to farmers / suppliers, based on the class of milk. Chart 12: Prices of Dairy Products (US$ per ton)
5,900.0 5,400.0 4,900.0 4,400.0 3,900.0 3,400.0 2,900.0 2,400.0 1,900.0 1,400.0 900.0 400.0
1Q11E
2Q11E
3Q11E
1Q05A
2Q06A
4Q06A
1Q08A
2Q05A
3Q05A
4Q05A
1Q06A
3Q06A
1Q07A
2Q07A
3Q07A
4Q07A
2Q08A
3Q08A
4Q08A
4Q11E
1Q12E
2Q12E
2Q09E
4Q09E
2Q10E
3Q10E
1Q09E
3Q09E
1Q10E
Butter
Cheese
Skim Milk
Dry Whey
Milk Powder (Dry)
Source: Agriculture & Applied Economics (AAE) & Global Research
Feed Stock Prices The main feedstock price in dairy food industry is the price of corn and grains, which are used to feed the cow. Moreover, prices of these products have a major impact on the cost of producing raw milk, which consequently have an impact of the prices of end of products. In addition, the price of corns is correlated with the price of crude oil, since corn is also use to make ethanol fuel an (alternative fuel). Hence, higher the price of crude oil the higher will it leads to an increase in the demand for ethanol, which requires corn as a feedstock. Consequently, this creates shortage of corns for cow feeding thus leading to an increase in prices.
March 2009
4Q10E
3Q12E
4Q12E
15
Chart 13: Prices of Feedstock (US$ per ton)

120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
Source: USDA & Global Research
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March 2009
GCC Milk & Dairy Product Industry

Milk & Dairy Product Market Most of the countries in GCC are relying on imports of milk and dairy products, which are mostly composed of inter-regional trades. However, most of the raw milk in the GCC region is imported from outside i.e. Australia, New Zealand, Europe and South Asia. According to the data given in Almarai Prospectus, Investors Presentation 2009 and our estimates, the regional milk & dairy market increased at a CAGR of 2.1% during 200407, while the market is estimated to expand further by 2.3% in 2008. The major factor of recent growth during 2004-07 in the market is mainly associated with an annual regional growth rate of 2.0%-2.5%, which is expected to further increase at 2007-12 CAGR of 2.3%. Furthermore, the secondary factors are (i) conversion from traditional farming and (ii) effort to reduce dependence on imports outside the region. Chart 14: GCC Milk & Dairy Product Market
6,000 5,900 5,800 5,700 5,600 5,500 5,400 5,300 2005A 2006A
Milk & Dairy Products
40.2 39.3 38.3 37.4
40.5 40.0 39.5 39.0 38.5 38.0 37.5 37.0 36.5 36.0
2007A
Population (mn)
2008E
Source: Almarai Prospectus and Investors Presentation 2009 & Global Research
Country-Wise Composition of Milk & Dairy Market Being the most populated regional country, Saudi Arabia is the largest milk & dairy market in GCC and constituted 64.0% of the regional market at the end of 2007. Moreover, the domination of the Saudi Arabian market is estimated to remain in 2008 with a contribution 63.8%. Furthermore, in 2008, based on our estimations, UAE is the 2nd largest market with the regional market share of 13.6% followed by Kuwait with 9.4% of the regional market in 2008. However, the per capita consumption in Bahrain is expected at the level of 208.4kg followed by 190.7liters in Qatar and 171.8 liters in Kuwait. Table 08: Regional Population and Milk & Dairy Market
Country Saudi Arabia UAE Kuwait Oman Qatar Bahrain Total 2007A Population Milk & dairy Market (mn) (000 tons) 27.6 3,885.8 4.4 704.4 2.5 425.6 3.2 469.4 0.8 155.6 0.7 147.7 39.2 5,788.4 2008E Population Milk & dairy Market (mn) (000 tons) 28.1 3,963.0 4.6 732.5 2.6 441.5 3.3 484.8 0.8 157.3 0.7 149.7 40.1 5,928.8
Source: Almarai Prospectus & Global Research
March 2009
17
Product-Wise Composition of Milk & Dairy Market The major chunk of the GCC milk & dairy market is based on the milk i.e. short life fresh milk, long life milk, dry milk, avored milk, cheese and butter. While, cheese and butter are the two main products of the GCC dairy milk and product market, going forward, we do not expect any major shift in the consumption pattern of milk & dairy products. Chart 15: Product Wise Composition 2007A
Other Cheese 11% Milk - Short Life 6% Milk - Long Life 20%
Butter Chee 13%

Evaporated Milk
7%
Natural Cheese
Laban 9%
25%
Yoghurt 4% Cream 5%
GCC Milk & Dairy Market Outlook We expect the regional population to increase at a CAGR of 2.3% during 2007-12 to 43.9mn tons from 40.2mn in 2008. While keeping the per capita consumption at the same level, the forecasted increase in population will lead to a proportionate increase in the regional dairy milk and product market to6.5mn tons in 2012 from 5.8mn tons in 2007. Chart 16: Forecasted GCC Milk & Dairy Market (000 tons) & Population
6,600 6,400 6,200 6,000 5,800 5,600 5,400 2007A 2008E 2009E 2010E 2011E 2012E 40.2 39.3 41.1 42.0 43.0 44.0 45.0 44.0 43.0 42.0 41.0 40.0 39.0 38.0 37.0 36.0
Milk & Dairy Pruducts
Pupulation (mn)
Regional Dairy Milk & Products Market As change in taste preference and demographic is rigid to change, so we are expecting constant product-wise market composition throughout our forecasted period of 2008-12.
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March 2009
Chart 17: Saudi Arabian Dairy Market Composition

Chart 18: Saudi Arabia Product Wise Growth (000 tons)

1,400.0 1,200.0 1,000.0 800.0 600.0
Butter Chee 11%

Evaporated Milk
6%
Natural Cheese
Laban 11%
400.0 200.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E Cream Labneh Yoghurt Milk - Short Milk - Long & Short Laban Evaporated Milk Condensed Milk Butter Ghee Other Cheese Dairy Desert Natural Cheese
27%
Yoghurt 3% Cream 5%
Chart 19: UAE Dairy Market Composition

Chart 20: UAE Product Wise Growth (000 tons)

160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E Milk - Short Milk - Long & Short Laban Yoghurt Labneh Dairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee 2012E Cream Other Cheese
Butter Chee 16%
Evaporated Milk
12%
Natural Cheese
18%
Laban 4% Yoghurt 7% Cream 3%
Chart 21: Kuwait Dairy Market Composition Chart 22: Kuwait Product Wise Growth (000 tons)
140.0 120.0 100.0 80.0 60.0 40.0 20.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E Milk - Short Milk - Long & Short Laban Yoghurt Labneh Cream Dairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Butter Chee 12%

Evaporated Milk
5%
Natural Cheese
24%
Laban 5% Yoghurt 3% Labneh 1% Cream 8%
Chart 23: Oman Dairy Market Composition Chart 24: Oman Product Wise Growth (000 tons)
Other Cheese 4% Milk - Short Life 8% Milk - Long Life 18% Laban 3% Yoghurt 5% Cream 2%
Natural Cheese
160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E Cream Labneh Yoghurt Milk - Short Milk - Long & Short Laban Evaporated Milk Condensed Milk Butter Ghee Other Cheese Dairy Desert Natural Cheese
Butter Chee 28%
Evaporated Milk
10%
22%
March 2009
19
Chart 25: Bahrain Dairy Market Composition Chart 26: Bahrain Product Wise Growth (000 tons)
60.0 50.0 40.0 30.0 20.0 10.0 2005A 2006A 2007A 2008E 2009E 2010E 2011E 2012E
Cream Other Cheese
Butter Chee 12%

Evaporated Milk
Laban 4% Yoghurt 3% Labneh 1%
7%
Natural Cheese
33%
Cream 5%
Milk - Short Dairy Desert
Milk - Long & Short Natural Cheese
Laban Yoghurt Labneh Evaporated Milk Condensed Milk Butter Ghee
Chart 27: Qatar Dairy Market Composition

Chart 28: Qatar Product Wise Growth (000 tons)

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 2005A 2006A 2007A Milk - Short Milk - Long & Short Dairy Desert Natural Cheese 2008E 2009E 2010E 2011E 2012E Laban Yoghurt Labneh Cream Evaporated Milk Condensed Milk Butter Ghee Other Cheese
Butter Chee 14%
Laban 4% Yoghurt 5% Cream 5%

Natural Cheese
Evaporated Milk
15% 20%
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March 2009
Saudi Milk & Dairy Product Industry

Leading Position in the Regional Market Being the largest regional dairy milk & products market, Saudi Arabia has the largest production facilities in the region, which has enabled the regional leader to make exports to its neighboring countries. Most of the regional dairy products are produced by the manufacturers of Saudi Arabia. However, Saudi Arabian manufacturers are also relying on the imports of raw milk to carry out their operations, which is expected to come down further due to the efforts of the big local players to increase their cattle head. Chart 29: Saudi Share in GCC 2008E
Oman 8%
Chart 30: Saudi Share in GCC 2012E

Oman 8%
Qatar 3% Bahrain 3%
Qatar 3% Bahrain 3%
Kuwait 7%
Saudi Arabia 67%
Kuwait 7%
Saudi Arabia 66%
Source: Al Marai Prospectus & Global Research
Source: Global Research
Product - Wise Market Share of Saudi Arabia in GCC Market Saudi Arabian dairy products are widely used among the GCC member countries and act as a market leader. In some dairy product range KSA has very strong hold i.e. laban and condensed milk. Table 09: Product Wise Regional Market Share.
Milk - Short Milk - Long & Short Laban Yoghurt Labneh Cream Dairy Desert Natural Cheese Evaporated Milk Condensed Milk Butter Ghee Other Cheese Total Milk & Dairy Products 2005 52.6% 70.9% 85.6% 58.1% 67.4% 74.3% 68.1% 72.2% 54.5% 74.0% 56.1% 66.8% 67.7% 2006 52.3% 70.7% 85.4% 57.7% 67.2% 74.1% 67.9% 71.9% 54.2% 73.8% 55.7% 66.4% 67.4% 2007 52.0% 70.4% 85.3% 57.4% 66.9% 73.8% 67.6% 71.7% 53.9% 73.6% 55.4% 66.1% 67.1% 2008E 51.7% 70.1% 85.1% 57.1% 66.6% 73.6% 67.3% 71.4% 53.6% 73.3% 55.1% 65.8% 66.8% 2009E 51.4% 69.9% 85.0% 56.8% 66.4% 73.4% 67.1% 71.3% 53.4% 73.2% 54.9% 65.6% 66.6% 2010E 51.2% 69.8% 84.9% 56.6% 66.2% 73.2% 66.8% 71.1% 53.1% 73.0% 54.7% 65.4% 66.4% 2011E 50.9% 69.6% 84.8% 56.3% 66.0% 73.1% 66.6% 70.9% 52.9% 72.8% 54.4% 65.1% 66.2% 2012E 50.7% 69.4% 84.6% 56.1% 65.8% 72.9% 66.4% 70.8% 52.6% 72.6% 54.2% 64.9% 66.0%
Source: Almarai Prospectus and Investors Presentation 2009 & Global Research
March 2009
21
The domination of Saudi Arabian products in regional market is expected to prevail in future, which is mainly due to the presence of largest producer in Saudi Arabia i.e. Almarai, SADAFCO, NADEC, Al Sa and so on. Increase Raw Milk Production According to Almarai prospectus, the number of cows in Saudi Arabia was recorded at 81,710 in 2003 which had increased 112,432 in 2007, as per FAPRI 2008 Agriculture Outlook, which has further jacked up to 135,000 (excluding young stocks) in 2008. Meanwhile, per cow milk production in Saudi Arabia is estimated to drop from10.5tons in 2003, as mentioned in Almarai prospectus, to 8.0tons in 2008 as per our calculation and FAPRI 2008 agriculture outlook, this is mainly due to increase in number of old cows. The decline in per cow milk production rate, due to the natural factor, will cause the local industry to increase the number of cattle in local market. We believe that the number of cattle in Saudi Arabia is expected to increase at a CAGR of 3.7% to 147,000 150,000 in 2012 with the domination of Almarai dairy herd, where the Company is handling 100,000 cows of which 55,000 are milking cows. This will help the local market in two ways (i) increase actual production, (ii) maintain the production per cow rate and (iii) gradual reduction in the dependence on the imported raw milk, which is expected to come down at 71.7% in 2012 as compared to 74.6% calculated in 2007. Chart 31: Number of Cows & Production per Cow
160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 2005A 2006A 2007A 2008E
Number of Cows
10.0
9.0
8.9
7.9
8.0
8.1
8.1
8.2
12.0 10.0 8.0 6.0 4.0 2.0 -
2009E
2010E
2011E
2012E
Milk Production per Cow (tons)
Source: Almarai Prospectus and Investors Presentation 2009, FAPRI & Global Research
Saudi Arabian Dairy Milk & Product Market Outlook Saudi Arabian population is expected to increase at a CAGR of 2.0% during 2007-12 to 30.4mn. Consequently, since population is a key growth factor of dairy market, the Saudi Arabian dairy milk and product market is expected to increase to 4.3mn tons in 2012 as compared to estimated 3.9mn tons in 2008.
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March 2009
Chart 32: Saudi Population (mn) & Dairy Milk & Product Market (000 tons)
4,400 4,300 4,200 4,100 4,000 3,900 3,800 3,700 3,600 3,500 3,400 29.9 28.1 28.7 29.3 30.5 31.0 30.0 29.0 28.0 27.0 26.0 25.0 24.0 2005 2006 2007 2008E 2009E 2010E
Population - RHS
27.6 26.5 27.1
2011E
2012E
Dairy Milk & Product Market - LHS
Source: Almarai Prospectus, CIA Fact Book 2008, Almarai Investors Presentation 2009 & Global Research
Saudi Dairy Market Composition A major portion of Saudi dairy market is associated with fat rich dairy products i.e. butter and cheese, which is mainly due to the geographical demographic factor, while the high consumption of milk-long life and laban is mainly due to the weather factor. Since the demographic changes are rigid and responding slowly, so we do not believe a signicant change in the consumption pattern, going forward. Table 10: Saudi Dairy Milk & Product Market Composition 000 tons 2005 2006 2007 2008E 2009E 2010E 2011E 2012E Milk - Short Life 164.5 167.8 171.1 174.5 178.0 181.6 185.2 188.9 Milk-Long 772.1 787.4 803.1 819.1 835.4 852.2 869.2 886.6 Laban 421.9 430.2 438.8 447.5 456.5 465.6 474.9 484.4 Yoghurt 122.0 124.5 126.9 129.5 132.1 134.7 137.4 140.1 Labneh 18.6 18.9 19.3 19.7 20.1 20.5 20.9 21.3 Cream 217.6 221.9 226.3 230.8 235.4 240.1 244.9 249.8 Dairy Desert 10.6 10.8 11.0 11.3 11.5 11.7 11.9 12.2 Natural Cheese 997.6 1,017.4 1,037.7 1,058.3 1,079.5 1,101.1 1,123.1 1,145.6 Evaporated Milk 209.6 213.8 218.0 222.4 226.8 231.3 236.0 240.7 Condensed Milk 10.6 10.8 11.0 11.3 11.5 11.7 11.9 12.2 Butter Ghee 395.3 403.2 411.2 419.4 427.8 436.3 445.1 454.0 Other Cheese 395.3 403.2 411.2 419.4 427.8 436.3 445.1 454.0 Total 3,736 3,810 3,886 3,963 4,042 4,123 4,206 4,290
Source: Almarai Prospectus and Investors Presentation 2009 & Global Research *Figures are based on our estimations
March 2009
23
Almarai Competitors Prole

We have identied the following potential competitors in the local and regional market. 1 Nestle 2 Al Sa Danone Company (Alsa) 3 National Agricultural Development Company (NADEC) 4 Al Othman Dairy (NADA) 5 Al Rabie Food Company (Alrabie) 6 Saudia Dairy Foodstuff Company (SADAFCO) Nestle Nestle was founded in 1866 and has headquarter in Vevey, Switzerland. Today the company is the worlds leading nutrition, health and wellness company. Nestle has employed around 276,050 people and has factories or operations in almost every country in the world. The existing products of Nestle grow through innovation and renovation while maintaining a balance in geographic activities and product lines. During the recent time period, the company has expanded its operation through various acquisitions. Nestle started its acquisition process from the rst half of the 1990s, when the trade barriers were eased down and world markets developed into more or less integrated trading areas. During the last two decades, the company has made numerous acquisitions that include (i) San Pellegrino in 1997, (ii) Spillers Petfoods in 1998 and (iii) Ralston Purina in 2002. Moreover, the company has made two major acquisitions in North America and merged its US ice cream business into Dreyers, while announced US$2.6bn acquisition of Chef America, Inc. Furthermore, the company started the year 2003 with the acquisition of Movenpick Ice Cream, which enhanced the companys position as one of the world market leaders in ice cream. In 2006, the companys portfolio had increased with the acquisition of Jenny Craig and Uncle Tobys and by the end of 2007, Novartis Medical Nutrition, Gerber and Henniez were acquired by the company. Al Sa Danone Company (Alsa) Al Sa project was initiated by Royal Prince Mohammad Bin Abdullah Al Faysal in 1979 and he established the farm in Sahbaa valley, Kharj region. The company was basically involved in the entire range of the dairy foods industry, which included rearing cattle and yielding raw milk. In addition, the farm had also established an integrated private factory, which processed and packed fresh milk, long life milk, as well as its various subsidiaries. At present, the company has approximately 3,500 hectares of land and has 1,400 employees. In 2001, the company entered into an agreement with Al-Faisaliah Holding Group and International Danone Group has formed a joint venture between Alsa and French dairy. The joint-venture has allowed Alsa to produce 165mn liters of milk per annum.
24
March 2009
National Agricultural Development Company (NADEC) The company was established in 1981 and has been engaged to present the nest and healthiest nutritional products. NADEC is 20% held by the Government, while the balance of equity is in the hands of the local public. This makes the company one of the very few widely held Saudi companies. The company has a contribution to supply around 1,200tons of dried dates per year and 30mn liters of milk. The company has 4 cow farms that contain 24,000 cattle heads. NADEC has aimed to (i) reduce the dependence of Saudi Arabia on imports, (ii) increase dependability on national economy and (iii) encourage the contribution of the agricultural sector in the national product. Al Othman Dairy (NADA) NADA has the capability to produce 200,000 liters milk per day and principally engaged in the production of milk, juices, cheese spreads and tomato paste. The company was rst established in 1982 in the Eastern Province and has a workforce of 2,000 people. Al Rabie Food Company (Alrabie) The company was formed in 1980 and was formerly known as The Saudi Irish Dairy Company till 1983. It is the largest juice and beverage manufacturing company in the Middle East region. The companys product includes juices, milk, iced coffee, chocolate drinks, tomato pastes, chick peas and beans. Moreover, the processing facilities of the company are located in Riyadh and have 22 storage areas. Saudia Dairy & Foodstuff Company (SADAFCO) SADAFCO stared its operation in mid 1970 as a local milk producer but started expanding, vertically and geographically, in 1987 to become leading regional company. The company was formed as a Danish Saudi dairy Company, a joint venture between several Kuwaiti and Saudi businessmen, with Danish Turnkey Dairies as a minority shareholder and the partner responsible for building and managing the Jeddah factory. At present, the company is one of the leading dairy and food processing companies in Saudi Arabia, with ve plants producing a range of 100 different products. In 1987, the company acquired one of its main competitors in Riyadh and in 1991, merged with two sister companies, Gulf Danish Dairy and Medina Danish Dairy. Following the mergers, SADAFCO embarked on a strategy to extend its limited product range of milk and ice creams, to include tomato paste, cheeses, dips, bottled water and snacks. The companys geographical expansion into neighboring countries was mainly associated with the acquisition of several well established companies in the dairy, juice and foodstuff business in key countries in the Middle East.
March 2009
25
Almarai Financial Overview

Key Milestones in 2007 Almarai had diversied and expanded its operation and focus in the year 2007. During the year Almarai has nalized diversication and expansion steps, which benetted the Companys growth. Under the expansion plan, Almarai made the acquisition of major stakes in Western Bakery during 2007, which pulled the sales revenue of the Company by 13.3%, while rest of the growth was associated with the traditional business of farming. However, under the diversication plan, the Company has acquired 5.0% stakes in Zain Kuwait, the shareholding of Almarai has diluted to 2.5% after the IPO in February 2008. Figure 03: Key Milestones in 2007
Acquisition of Wstern Bakeries i) Launched New 2ltr bottel packaging for Milk & Laban (ii) Acquisition of 5% stakes Launch of Green Apple from Zain KSA Juice with Pulp Launch of Vetal Launch of 1ltr Juice Bottle
Feburary
March
May
June
July
August
Septemberv
October
November
December
Launch of Alphonoso Mango (i) Launch of Jucie in Carafe Bottle (ii)Launch Juice with Pulp of'Maher the Adventurer UHT Milk
Introduction of Lower Cholestrol Feta
Launch of 300ml Single Serve Juice
Introduction of Fortied Cheese Triangles
Source: Almarai Annual Report 2007
The acquisition of Western Bakery expanded the product line of Almarai from dairy products to bakery products. Figure 04: Almarai Company Dairy & Food Products Figure 05: Almarai Company Bakery Products
Source: Almarai Investors Presentation 2009
Source: Almarai Investors Presentation 2009
Sales Revenue The Companys sales revnue witnessed a robust performance and increased at a CAGR of 32.8% during 2005-08, which is mainly associated with the (i) estimated increase in population at a CAGR of 2.2% during 2005-08 and (ii) increase in prices of dairy product, which include prices of butter, cheese, skim milk, powder (dry) milk, and yoghurt increased at a CAGR of 25.2%, 17.9%, 12.4%, 20.5% and 12.4% respectively during 2005-08. Almarai Company - Almarai
26
March 2009
Chart 33: Historical Sales Revenue (SR mn) Growth

6,000 5,000 4,000 3,000 2,000 1,000 2005 2006
Sales Revenue
36.7% 28.5% 13.8%
40.0% 33.4% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
2007
Growth
2008
Source: Almarai Annual Reports & Global Research
Sales Revenue Composition Sales revenue of the Company is mainly concentrated on the revenues generated from the sales of fresh dairy products. By the end of 2008, revenue generated from fresh dairy products accounted for 49.2%, while the next big chunk is coming from cheese & butter. Moreover, the non dairy revenues i.e. bakery products and other has contributed 11.0% in the Companys overall sales revenue. Chart 34: Sales Revenue Contribution 2008A
Bakery Products 10% Chesse & Butter 20% Others 1%
Fresh Dairy 49%
Fruit Juice 10% Long Life Dairy 10%

Source: Company Annual Report
Maintaining Gross Margins The increase in the prices of dairy products during 2005-08 was mainly due to the increase in raw material prices. This indicates that both prices had increased in proportion and resulted in maintaining the gross prot margins of the Company at an average level of 39.0%. In 2008, the Company has registered its gross margin at 39.7%.
March 2009
27
Chart 35: Gross Prot (SR mn) & Gross Margins

2,500.0 2,000.0 1,500.0 1,000.0 500.0 2005 2006 2007 2008 39.46% 38.98% 39.61% 39.74% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
Gross Prot
Source: Company Reports & Global Research
Gross Prot Margins
Core Revenue Generating Assets Core revenue generating assets of the Company constitute the total number of usable cows. Almarai ended the year 2008 with the number of cows ranging from 55,000 milking cows and 45,000 young stocks. In our valuation, we have kept the number of cattle at 55,000 milking cows. During 2004-08, milk production per cow in Almarai remained on higher than the country average. By the end of 2008, the average production per cow in Almarai was recorded at 12.5 tons against the country average of 8.0 tons. Chart 36: Core Revenue Generating Assets (Number of Cows)
60,000 50,000 40,000 30,000 20,000 10,000 2004 2005 2006 2007
Per Cow Production (tons)
13.4
13.0
12.7
12.9
12.5
14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
2008
Core Revenue Generation Assets

Source: Almarai Prospectus, FAPRI & Global Research *2008 cattle stock is based Almarai investor presentation 2009
Major Concerns Almarai has a benet of being involved in the entire supply chain of the milk & dairy market. This has ensured the undisrupted supply of raw milk to carry out its process of making uid milk and dairy products. Moreover, the cost of purchasing raw milk is low due to the existence of synergy among the processes. At present, the Company has 6 farms, which are handling 100,000 cattle (including young stock). Another benet to the Company is related to its strong presence in local as well as regional market through its strong marketing network which is mainly based on the regional and local retail outlets. In addition, the core business of the Company is itself a biggest benet due to its inelastic nature. The prime concern of the Company is associated with core revenue generation assets, i.e. cows. Though the risk is 28 Almarai Company - Almarai March 2009
mainly based on natural factors, which is uncontrollable and any negative event could lead to a massive impact on the Companys growth. Milk Production Growth We believe that future production is based on the number of cattle held by the Company, which will help the Company to overcome the problem of natural decline in per cow production rate. We believe that the large young stock held by the Company in 2008 will help the Company to efciently replace old cattle with the new one, and lead to maintain per cow production ratio at 13.0tons till 2012. Chart 37: Forecasted Milk Production (tons) & Per Cow Production Rate
800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 2004 2005 2006 2007
Milk Production
13.4
13.0
12.7
12.9
12.5
12.9
12.9
12.9
12.9
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
2008
2009E
2010E
2011E
2012E
Per Cow Production (tons)
Source: Almarai Prospectus and Investors Presentation 2009, Annual Reports & Global Research
Sale Revenues Growth We believe that the Company sales revenue will maintain the high growth trajectory, though at a slower pace and expected to increase at a CAGR of 5.9% during 2008-12, which is mainly due to lower prices in 2009 and onwards. We expect a decline in prices will lead the Company to show a slow growth of 3.2% in 2009. However, the future growth in the sales revenue is mainly due to expected improvement in the local market share of the Company, which is based on (i) the commitment of the Company to make valuable acquisitions on continuous basis in future and (ii) adding value in the recent acquired companies through introducing value added products. Chart 38: Sales Revenues (SR mn)
7,000 6,000 5,000 4,000 3,000 2,000 1,000 2008 2009E 2010E Sales Revenue 2011E
Growth
33.4% 3.2% 4.8%
7.0%
8.7%
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
2012E
Source: Company Annual Reports & Global Research
March 2009
29
Going forward, we are not expecting any major changes in the sales revenue composition and the domination of revenues contribution from fresh dairy products and cheese & butter will remain till 2012. Chart 39: Sales Revenue Mix 2008A
Bakery Products 10% Chesse & Butter 20% Others 1%
Chart 40: Sales Revenue Mix 2012E

Bakery Products 9% Others 1%
Fresh Dairy 49%
Chesse & Butter 31%
Fresh Dairy 44%
Fruit Juice 10% Long Life Dairy 10%
Fruit Juice 7%
Long Life Dairy 8%
Source: Annual Report & Global Research
Maintaining Gross Prot & EBITDA Margins We believe the expectations of stable feed stock prices at lower levels will enable the Company to reduce its cost of producing raw-milk. The Company is expected to maintain its gross prot margins at an average level of 43.7% during 2009-12 against the previous levels of 39.4% during 2005-08. This is mainly due to the expected lower prices of feed stock. Furthermore, we expect the EBITDA margin of the Company to remain in the average range of 36.1% during 2009-12 against the historical average range of 30.4% during 2005-08. More interestingly, the spread between GP margins and EBITDA margins are expected to shrink gradually, which is a positive for the Company, as it indicates the effective management of operating costs and other non-cash income and costs. Chart 41: Gross Prot (SR mn), Gross Prot & EBITDA Margin
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 2004 2005 2006 2007 2008 2009E 2010E 2011E Gross Prot Gross Prot Margin EBITDA Margin 2012E 31.0% 30.4% 29.8% 30.4% 30.7% 33.4% 30.0% 25.0% 38.5% 39.5% 39.0% 39.6% 41.8% 39.7% 36.4% 35.4% 35.0% 42.8% 43.6% 39.3% 46.5% 45.0% 40.0% 50.0%
Source: Company Annual Reports & Global Research
Improving Protability We expect the Company will register, after tax prot of SR1,037.2mn (translating into EPS of SR9.5) in 2009 as compared to SR910.3mn in 2008. Based on our calculations the protability of the Company is expected to increase at a CAGR of 15.9% during 2008-12. The expected growth in protability is mainly attributed to the improvement in gross prot and EBITDA margins. On other hand, Almarai is expected to maintain its ROAA and ROAE in at an average level of 13.7% and 26.0% respectively, during 2008-12. 30 Almarai Company - Almarai March 2009
Chart 42: Protability & ROAA

1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 2005 2006 2007 2008 Protability 2009E ROAA 2010E 2011E 2012E 14.4% 13.8% 13.2% 12.5% 12.2% 13.0% 14.1% 18.0% 16.7% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0%
Source: Company Reports, Global Research
Chart 43: Protability & ROAE

1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 2005 2006 2007 2008
Protability
28.4%
27.9%
30.0% 27.0% 27.3% 27.0% 25.9% 25.1% 24.9% 28.0% 26.0% 24.0% 22.0% 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 2009E
ROAE
2010E
2011E
2012E
Source: Company Reports, Global Research
March 2009
31
Valuation and Recommendation

Discounted Cash Flows Methodology Our DCF model is based on a 4-year (FY2009-FY2012) explicit forecast period for the Free Cash Flow (FCF). The terminal value is estimated using the constant growth rate. The forecasted cash ow and the terminal value is then discounted at the company Weighted Average Cost of Capital (WACC). In our DCF valuation, we have used the following assumptions: 1. 2. 3. 4. 5. Risk Free Rate (RFR) of 5.5%. Equity risk premium of 5.75%. Beta of 1. A terminal growth rate of 3.5%. A target cost of debt of 7%.
Using the above assumptions, we have derived a cost of equity for the Company at 11.3%, by using Capital Assets Pricing Model, and a WACC of 8.7%, resulting in a fair value of SR171.1 per share. Table 11: DCF Calculations
(SR Mn) FCF Discounted Cash Flow Terminal Value Primary Value Terminal Value (discounted) Total Enterprise Value Debt Add: Investments & cash equivalents Total Equity Value Shares Outstanding (000) Fair Value Per Share
2009 (E) 2010 (E) 2011 (E) 2012 (E) 649.4 785.8 1,048.5 1,139.2 607.6 676.6 830.7 830.6 22,806 2,946 17,772 20,717 (2,976) 911 18,651 109,000 171.1
Sensitivity Analysis We provide below a sensitivity analysis table, which shows the probable value given different growth rate assumption and WACC. The shaded area represents the most probable outcomes. Table 12: Sensitivity Analysis
Terminal Growth Rates 1.50% 2.50% 3.50% 178.4 221.0 290.5 146.4 174.7 216.5 123.4 143.4 171.1 105.9 120.7 140.4 92.2 103.6 118.2 3.50% 290.5 216.5 171.1 140.4 118.2 4.50% 424.0 284.7 212.2 167.6 137.5
6.67% 7.67% 8.67% 9.67% 10.67%
WACC
32
March 2009
Relative Valuation For relative valuation, we have made a comparison of Almarai with selected regional and international players. Table 13: Relative Comparison
Company Name COCA-COLA AMATIL METRO INC-A SAPUTO INC LUZHOU LAOJIAO-A TSINGTAO BREW-H HENGAN INTL COCA-COLA ENTER SARA LEE CORP ESTEE LAUDER HORMEL FOODS CRP JM SMUCKER CO MCCORMICK-N/V PEPSI BOTTLING CHURCH & DWIGHT HANSEN NATURAL DEAN FOODS CO SUPERVALU INC RALCORP HLDGS EASTERN TOBACCO DELTA SUGAR SULTAN CENTER FD SAVOLA NADEC SADAFCO
Source: Bloomberg * As on 10th March 2009
Country AUSTRALIA CANADA CANADA CHINA CHINA HONG KONG UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES EGYPT EGYPT KUWAIT SAUDI ARABIA SAUDI ARABIA SAUDI ARABIA
Price in Local Currency 8.3 39.39 20.49 18.99 14.58 27.45 10.42 7.12 21.02 30.65 34.58 30.81 17.92 46.82 36.31 19.96 14.49 54.23 135.19 15.62 186 17.65 31 18.35
Market Cap in USD mn 4,012 3,488 3,371 3,955 3,181 4,160 5,195 5,061 4,225 4,206 4,185 4,096 3,875 3,356 3,354 3,148 3,135 3,135 609 348 372 2,405 488 157
P/E Current Year 14.212 13.606 14.956 18.914 23.772 24.619 8.756 8.9 15.287 13.751 10.722 13.32 8.186 14.279 16.849 12.39 5.188 13.077 4.277 7.733 6.643 7.862 23.15 11.88
EV/EBITDA 8.776 7.665 9.292 13.759 12.757 17.32 5.544 4.982 6.684 6.73 8.724 9.37 5.813 8.258 9.633 8.022 4.362 7.475 3.392 4.644 10.906 12.193 8.06 10.3
The comparison is made on sector EV/EBITDA of 2009, which is calculated at 9.0. By employing the sector EV/EBITDA on the Companys EBITDA, our fair value of the Company arrives at SR127.7. Weighted Average Fair Value In order to arrive at a consolidated fair value for the Company, we have assigned 80% weightage to the value arrived from DCF base valuation and 20% to the relative value. On the basis of this, our consolidated value for the Company comes at SR161.3
March 2009
33
Table 14: Weighted Average Value

Valuation Techniques DCF Method Relative Valuation Weighted Average Fair Value
Value per Share (SR) 171.1 122.2
Weights 80% 20%
Weighted Value per share (SR) 136.9 24.4 161.3
The weighted average fair value of the Company offers a potential upside of 11.8% from the current market value per share of SR144.2 (as on 10th March 2009). We, therefore, initiate our coverage on Almarai with a BUY recommendation.
34
March 2009
Balance Sheet
2006 68,026 5,690 221,100 431,283 726,099 3,045,810 3,045,810 3,771,909 110,781 403,378 514,159 1,277,425 82,102 1,359,527 1,873,686 3,282,049 2,409,428 104,903 2,514,331 3,132,956 128,041 3,260,997 4,549,792 182,348 575,337 10,033 767,718 511,165 669,558 108,072 1,288,795 383,374 840,286 118,879 1,342,539 2,976,308 147,247 3,123,555 4,466,094 6,335,830 8,181,284 8,865,925 471,074 4,041,132 548,636 34,692 5,095,534 9,303,933 287,530 867,931 130,767 1,286,229 2,827,493 169,334 2,996,827 4,283,056 489,337 5,343,308 548,636 40,270 6,421,551 538,271 5,513,191 603,500 44,297 6,699,258 592,098 5,700,062 663,850 48,727 7,004,736 651,308 5,739,386 730,235 53,599 7,174,528 9,570,457 215,648 917,111 143,844 1,276,602 2,403,369 194,734 2,598,103 3,874,705 137,975 938 367,810 733,573 1,240,296 246,585 6,648 409,777 1,096,723 1,759,733 365,255 6,980 588,036 1,206,395 2,166,667 404,868 7,329 559,965 1,327,035 2,299,197 389,279 7,696 539,216 1,459,738 2,395,929 2007 Almarai Company - Almarai 2008 2009E 2010E 2011E 2012E 413,475 8,081 579,068 1,605,712 2,606,336 716,438 5,871,623 803,258 58,959 7,450,278 10,056,615 161,736 948,832 158,228 1,268,796 2,042,864 223,945 2,266,808 3,535,604
March 2009
1,000,000 258,936 4,759 634,336 1,898,031 192 3,771,909 1,090,000 612,000 325,663 (9,095) 1,034,878 3,053,446 335 6,335,830 1,090,000 612,000 416,689 (83,161) 1,581,614 3,617,142 14,350 8,181,284 1,090,000 612,000 520,409 (41,581) 2,203,934 4,384,763 15,068 8,865,925 1,090,000 612,000 520,409 (10,395) 2,793,042 5,005,057 15,821 9,303,933 1,090,000 612,000 520,409 (1,040) 3,457,769 5,679,139 16,612 9,570,457
SR 000 Current Assets Cash & Bank Balances Derivates Financial Instruments Receivable & Prepayments Inventories Total Current Assets
Non-Current Assets Investment & Financial Assets Property, Plant & Equipment Intangible Assets-Goodwill Deffered Charges Total Non-Current Assets
Total Assets
Current Liabilities Short-Term Loans Payables & Accruals Derivative Financial instruments Total Current Liabilities
Non-Current Liabilities Long-Term Loans Employees Termination Benets Total Non-Current Liabilities
Total Liabilities
35
Share Capital Share Premium Statutory Reserves Other Reserves Retained Earnings Total Shareholders Equity Minority Interest Total Liabilities & Shareholders Equity
1,090,000 612,000 520,409 2,079 4,279,080 6,503,568 17,443 10,056,615
Source: Annual Reports and Global Research
36
2006 2,756,935 (1,682,262) 1,074,673 (423,181) (116,760) 534,732 (55,915) 478,817 (13,687) 465,130 (402) 464,728 667,269 667,799 (530) 910,820 (558) 910,262 685,878 (18,079) 935,482 (24,662) 780,738 (94,860) 1,060,971 (125,489) 1,165,651 (100,790) 1,064,861 (26,622) 1,038,239 (1,038) 1,037,201 (570,149) (142,451) (750,878) (187,108) (778,770) (228,021) (816,500) (211,283) 1,303,087 (93,451) 1,209,636 (30,241) 1,179,395 (1,179) 1,178,216 1,493,338 1,998,957 2,172,441 2,330,870 2,541,888 (873,943) (224,467) 1,443,478 (78,570) 1,364,907 (34,123) 1,330,785 (1,331) 1,329,454 2007 3,769,833 (2,276,495) Almarai Company - Almarai 2008 2009E 2010E 5,029,904 5,191,797 5,443,333 (3,030,947) (3,019,355) (3,112,463) 2011E 5,826,287 (3,284,399) 216,081 (46,473) 634,336 634,336 (66,727) (200,000) 1,034,878 1,034,878 (91,026) (272,500) 1,581,614 1,581,614 (103,720) (311,160) 2,203,934 2,203,934 (589,108) 2,793,042 2,793,042 (664,727) 3,457,769
Income Statement
2012E 6,334,886 (3,390,655) 2,944,231 (950,233) (241,435) 1,752,564 (66,138) 1,686,426 (42,161) 1,644,265 (1,644) 1,642,621
SR 000 Sales Cost of Sales
Gross Prot
Selling & Distribution Expenses General & Administrative Expenses
Income Before Bank Charges, Zakat & Minority Interest Bank Charges
Income Before Bank Zakat & Minority Interest Zakat
Income Before Minority Interest Minority Interests
Net Income
Appropriation Account Opening Balance Transfer to Share Capital Transfer to Statutory Reserves Dividend Paid
3,457,769 (821,310) 4,279,080
March 2009
Retained Earnings
Cash Flow Statement

2006 464,728 173,762 55,915 (80,976) 16,303 629,732 2007 667,269 315,528 (114,810) 26,966 94,860 (269,543) 20,039 740,309 2008 910,262 378,968 (165,142) 56,086 125,489 (313,223) 23,696 1,016,136 2009E 1,037,201 568,738 (248,711) (12,798) 60,038 100,790 (117,203) 1,388,056 2010E 1,178,216 625,612 (286,017) (14,078) 66,042 93,451 (64,924) 1,598,302 2011E 1,329,454 675,661 (314,619) (15,486) 72,646 78,570 (62,775) 1,763,452 2012E 1,642,621 736,471 (346,081) (17,034) 79,911 66,138 (154,105) 2,007,920
March 2009
(877,517) 53,272 (824,245) (1,099,196) (389,007) (1,488,203) (1,655,619) 83,531 (1,572,088) (738,621) 164,159 (574,462) (812,483) 193,027 (619,456) (714,985) 212,347 (502,638) (868,707) 233,600 (635,107) 277,141 (55,915) (362) 220,864 26,351 41,675 68,026 69,949 68,026 137,975 1,127,596 (94,860) (199,396) (15,497) 817,843 1,052,345 (125,489) (270,173) 7,879 664,562 108,610 137,975 246,585 (284,439) (100,790) (311,160) 1,466 (694,924) 118,670 246,585 365,255 (244,659) (93,451) (589,108) (12,016) (939,234) 39,612 365,255 404,868 (496,006) (78,570) (664,727) (37,099) (1,276,403) (15,589) 404,868 389,279 (414,417) (66,138) (821,310) (46,751) (1,348,617) 24,197 389,279 413,475
000 SR Prot for the year Depreciation & Amortization Other Non-Cash Income Other Income Other Non-Cash Expenses Interest Expense Change in Working Capital Cash Flows from Other Operating Activities Net Cash from operating activities
INVESTING ACTIVITIES Plant & Property Other Investment Activities Cash Flows from Investing Activities
FINANCING ACTIVITIES Increase in Loan Financial Charges Dividend Paid Other Financing Activities Cash Flows from Financing Activities
Increase/Decrease in Cash Cash Beginning Balance Cash Ending Balance
37
38
2006 1.41 0.13 39.0 29.8 17.4 16.9 27.9 13.8 0.40 36.8 0.50 28.5 20.4 32.8 26.7 36.7 43.6 60.9 68.0 33.4 36.4 18.5 29.1 0.44 40.9 0.52 0.46 44.5 0.56 0.40 37.9 0.50 3.2 13.9 21.2 8.4 39.6 30.4 18.2 17.7 27.0 13.2 39.7 30.7 18.6 18.1 27.3 12.5 41.8 33.4 20.5 20.0 25.9 12.2 42.8 35.4 22.2 21.6 25.1 13.0 0.36 33.5 0.46 4.8 13.6 14.1 4.9 1.62 0.18 1.37 0.19 1.61 0.27 1.79 0.31 1.88 0.30 43.6 36.4 23.4 22.8 24.9 14.1 0.30 27.4 0.40 7.0 12.8 13.5 2.9 2007 2008 2009E 2010E 2011E 109 10 17.4 4.3 74.5 8,121 9,329 11.34 17.47 4.28 109 10 28.0 6.1 118 12,862 15,133 13.19 19.28 4.21 109 10 33.2 8.4 135 14,715 17,601 11.38 16.17 4.07 109 10 40.2 9.5 144.25 15,723 18,334 10.57 15.16 3.59 109 10 45.9 10.8 144.25 15,723 18,145 9.41 13.34 3.14 109 10 52.1 12.2 144.25 15,723 17,737 8.37 11.83 2.77
Fact Sheet
2012E 2.05 0.33 46.5 39.3 26.6 25.9 27.0 16.7 0.24 21.9 0.35 8.7 23.6 14.5 5.1
Liquidity Ratios Current Ratio Cash Ratio
Protability Ratios Gross Margin % EBITDA Margin % EBIT Margin % Net Prot Margin % ROAE% ROAA%
Leverage Ratios Debt to Equity Debt to Asset % Liabilities/Total Assets (x)
Growth Rates Revenue Growth Rate % Net Income Growth Rate % Equity Growth Rate % Total Asset Growth Rate %
March 2009
Ratios Use for Valuation Number of Shares (mn) Par value per share (SR) BV per share (SR) EPS (SR) Market Price Market Cap in (SR Mn) EV (SR Mn) EV/EBITDA P/E Ratio P/BV Ratio
109 10 59.7 15.1 144.25 15,723 17,352 6.97 9.57 2.42
Source: Annual Reports and Global Research Historical P/E & P/E multiple pertain to respective year-end prices, while those for future years are based on closing price as at 10th March 2009
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The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.
Disclosure Checklist Company Recommendation

Almarai Company Almarai
1.
Tickers
Price (SR) Disclosure 1,10
Buy
ALMARAI AB Equity (Bloomberg) 144.2 2280.SE (Reuters)
Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year , Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three months. 10. Please see special footnote below for other relevant disclosures.
Global Research: Equity Ratings Definitions

Global Rating
Buy Hold Reduce Sell
Definition
Fair value of the stock is >10% from the current market price Fair value of the stock is between +10% and -10% from the current market price Fair value of the stock is between -10% and -20% from the current market price Fair value of the stock is < -20% from the current market price
This material was produced by Global Investment House KSCC (Global),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (securities), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inac curacy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice.Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment what so ever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.
Global Research
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Global Research

Almarai Company - Almarai

Global Investment House KSCC

Faisal Hasan, CFA

Syed Taimure Akhtar

Global Research - Saudi Arabia

Global Investment House

Almarai Company - Almarai

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Table 01: Investment Indicators

Chart 01: Share Price Performance

180.0 170.0 160.0

8,000.0 7,000.0 6,000.0 5,000.0

150.0 140.0 130.0 120.0 110.0 100.0

Source: Reuters, Global Research

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Figure 01: Almarai Distribution Network

Source: Almarai Company Prospectus

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Holding 30.2% 27.9% 5.7% 36.2%

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Milk & Dairy Product Market Overview

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Chart 02: Classes of Milk & Usage

Class 3 Milk Used in ice cream, & other forzen products

Class 4b Milk Used in cheese, & other than cottage cheese

Used in uid products

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Step 02: Step 03: Step 04

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

NFDM SNF Class 4a Milk

Where; CME CRP CA NFDM SNF Class 1 Milk

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

Almarai Company - Almarai

Global Research - Saudi Arabia

Global Investment House

World Milk & Dairy Products Industry

Total Milk Production

Dairy Product to Milk Ratio

Source: FAPRI, FAO & Global Research

Chart 05: Major Milk Producers 2008E

United States 12%

India 15% Mexico 2% New Zealand Russia 1% 5%

United States 12%

India 15% Mexico 2% New Zealand Russia 1% 5%