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MENAFN - Arab News - 21/01/2013

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(MENAFN - Arab News) Saudia Dairy and Foodstaff Company (SADAFCO), which is committed to working toward realizing the aspirations of the local Saudi community, is also adhering to the governments' mandate of creating employment opportunities for Saudi nationals and economic diversification.

"We see Saudization as a huge challenge not only for private companies but also for all levels of society," Wout Matthijs, CEO, SADAFCO, told Khalil Hanware of Arab News in an exclusive interview in Jeddah.

"SADAFCO is therefore involved in a number of initiatives to constantly improve on the effectiveness of our investments in this area to achieve the improved Saudization levels desired by our organization and expected by the community," he said.

"SADAFCO has already achieved 'green' status on the Department of Labor's Nitaqat program," Matthijs said.

Following are excerpts from the interview:

SADAFCO has been producing high-quality dairy and foodstuff items under the Saudia brand name since 1977. How has been the journey so far, especially with regards to the development of new products?

Established in 1976, Saudia Dairy and Foodstuff Company (SADAFCO) is a leading manufacturer of an extensive range of nutritious dairy and foodstuff items for consumers of all age groups. Based in Saudi Arabia and with operations across the Middle East, SADAFCO is a publicly-listed company that is committed to generate optimum short- and long-term value for its shareholders and also to contribute toward the realization of Saudi government's economic and community objectives. We are the market leaders in Saudi Arabia in UHT milk, tomato paste and ice cream and with our products being marketed under the flagship brand Saudia, a brand that is a household name and part of the Saudi heritage. Our product portfolio comprises around 85 items across a range of categories including milk, tomato paste/ketchup, ice cream, cheese, milk powder, breakfast cream, fruit nectar, butter and French Fries.

After the company's formative years of joint ventures and mergers between the GCC and international businessmen and businesses, SADAFCO's ownership had by 1990 transferred to GCC interests and in 2005 SADAFCO became a public-listed company in Saudi Arabia. SADAFCO factories currently produce more than 34 million cases (or close to 700 million units) of product per annum and our long-distance transportation trucks travel 12 million kilometers each year delivering product to depots across the GCC and Jordan. Our manufacturing facilities are located in Jeddah (two factories) and Dammam (one factory) and we operate over 400 sales routes throughout the region to distribute our products to around 30,000 customers. We have an established sales and distribution network of 19 depots in Saudi Arabia, one in Qatar, one in Bahrain and one in Jordan providing the company with wide geographical sales penetration. In addition, we access Kuwait and the UAE through external distributors. As the company develops, we focus on consistently high quality. Over the years that has become one of our core strengths and an attribute which has let Saudia become one of the most trusted brands in the region.

SADAFCO operates two factories in Jeddah and one in Dammam. Are you planning to set up more factories in other parts of the Kingdom?
SADAFCO is one of the oldest dairy companies to have established operations in the Kingdom and we currently operate two factories in Jeddah (which includes a dedicated ice cream factory) and one in Dammam. The Dammam facility was re-opened earlier this year after previously having been closed in 2006 as part of a company-wide manufacturing consolidation. Sales growth has necessitated the reopening of the factory.

Crispy snacks and Saudia tomato paste are produced in Dammam and other products will be added in a phased roll-out. Some of the other products to be produced in Dammam will be products that were previously manufactured by third-party contractors. Increasing consumer demand means having to ensure that production capabilities keep pace with the demand. Considering the company's growth over the past few years, new factory locations may well be a consideration in the near future. However, for now, the recently re-opened Dammam Factory is offering additional capacity capabilities.

How many distribution centers SADAFCO has in the Kingdom and abroad?
How does the distribution process work?

As mentioned earlier, SADAFCO has 19 depots in Saudi Arabia, one in Qatar, one in Bahrain and one in Jordan. This provides the company with a high level of sales penetration and ensures that we call on each of our customers on average once a week. In addition, SADAFCO currently accesses Kuwait and the UAE through external distributors.

Demand for food products is continuously growing as the Saudi population is rising very fast. What is SADAFCO's strategy to meet the rising demand for dairy products?

SADAFCO is committed to continue satisfying its consumers' needs. Today we supply 34 million cases more as compared to 27 million 5 years ago. This 26 percent increase in volume has been achieved through organic growth and increase in our portfolio through new product development. We operate as a sustainable non-subsidized business model, which does not put an unreasonable strain on the Kingdom's scarce water resources in meeting consumers' demands. Due to SADAFCO's size, we are in a position of strength to secure a reliable supply of raw materials via global markets. Keeping on top of this function helps us to ensure continued supply to meet the needs of Saudia's consumers into the future.

What is SADAFCO's share of the market for dairy products in the Kingdom?

SADAFCO is by far the leader in the long-life milk market in Saudi Arabia,
with the Saudia brand capturing more than half of the long-life milk market and a third of total drinking milk market. Another position of strength is in the tomato paste market where we are the market leader, a position which has continually been strengthened since we became the first Saudi company to offer tomato paste in a carton pack. In ice cream, SADAFCO is one of the leaders, currently enjoying the highest value share in Saudi Arabia. We continue to work on extending our lead in this very competitive market. These achievements have come from SADAFCO's focus on keeping in touch with its consumers to ensure that we are addressing their needs. This ongoing effort means that we ensure we offer our products in the right packs, develop new concepts to fill gaps in our portfolio through an active consumer-led new product development program and introduce pioneering products, which may not yet be available in the market that add value to the choice available in the local market.

This approach has helped SADAFCO build a strong heritage and loyalty among Saudi consumers, meeting their daily nutritional needs by offering the highest quality, best tasting and convenient products under the brand name Saudia.

How does the company support the objectives of the Saudization program in Saudi Arabia?

At SADAFCO, we are committed to work toward realizing the aspirations of the local Saudi community while also adhering to the governments' mandate of creating employment opportunities for Saudi nationals and economic diversification. We see Saudization as a huge challenge not only for private companies but also for all levels of society.

SADAFCO is therefore involved in a number of initiatives to constantly improve on the effectiveness of our investments in this area to achieve the improved Saudization levels desired by our organization and expected by the community. You will be pleased to know that SADAFCO has already achieved green status on the Department of Labor's Nitaqat program, which encourages and monitors compliance with Saudization targets. Furthermore, our recently reopened factory in Dammam has a very high percentage of Saudization on reopening. When the factory started operating, Saudi men and women made up 84 percent of the workforce at that location. As the operation expands, focus will remain on maintaining these high Saudization levels. Besides providing employment opportunities, we are also at the forefront of organizing innovative training programs for Saudi nationals that would empower them to undertake jobs across diverse career streams.

In Jeddah, SADAFCO collaborates with Bab Rizk Jameel (BRJ), an NGO that works toward promoting Saudization. Over the last few years, we have provided training opportunities to Saudi women across SADAFCO's manufacturing facilities. Another initiative saw our involvement in organizing training programs in work skills orientation and English language for over 200 Saudi students last year. We are also actively engaged with Human Resource Development Fund and Taqat that are aimed at working with the Department of Labor to identify suitable career and job opportunities for Saudi nationals in the private sector. At SADAFCO, we are keen on collaborating with educational institutions in Saudi Arabia to identify suitable Saudi nationals for relevant opportunities and also for raising awareness about available career streams.

How is SADAFCO faring in the stock market? What is the performance of the stock over the last three years? How is the financial performance of the company?

Over the past three years, SADAFCO has delivered consistent sales growth. The company's Market Cap has increased in value from SR 783.3 million (March 31, 2009) to SR 2,104.4 million (Dec. 31, 2012) and earnings per share have risen from SR 0.87 (2008/09) to SR 4.69 (2011/12). The current price earnings (PE) ratio is 13.8 percent (based on price of SR 64.75 on Dec. 31, 2012). Since 2010, SADAFCO has made an annual SR 3.00 dividend distribution giving the shares a yield of 4.63 percent (again based on price of SR 64.75 on Dec. 31, 2012).

SADAFCO shares have been an attractive addition to the portfolios of investors looking for capital gain and to those seeking income and the shares have been on an upward trend since 2009, reaching a high of SR 68.75 during September 2012, up from SR 23.75 in April 2009. The company's performance has attracted the interest of many international and local institutional investors.

Is SADAFCO working on expansion plans or any acquisition?

As a company listed on Tadawul, we cannot make any speculative forward-looking statements. However, in order to continuously provide high-quality dairy and food products to our valued consumers across the Middle East region and continuously generate optimum shareholder value, we constantly explore new growth and expansion avenues.

What is the market for sugar-free and low-fat SADAFCO products?

At SADAFCO, the low-fat milk has been a vital component of our offering and the product has witnessed a sustained upward trend in consumer preference. Saudia Low Fat 1-liter and 200 ml packs have been gaining constant popularity and to provide more options to consumers, we have recently launched a 500 ml pack for this milk variety.

The half-liter pack is considered to be a light-usage, multi-purpose package as it has strong support from the many bachelor expatriates in the Kingdom. This extended range will be available across all outlets in Saudi Arabia. Every pack of Saudia low-fat milk contains 27 vitamins and minerals that ensure wholesome nutrition for the entire family.

Saudia Milk has raised standards of milk production in Saudi Arabia and the Middle East region by guaranteeing high quality milk that is free of preservatives. SADAFCO also offers Skimmed Milk in 1-liter and 200ml packs. It contains 24 vitamins and minerals. More recently SADAFCO also launched low-fat, no sugar-added vanilla and chocolate flavors to the Saudia ice cream range.

These products are available in 500ml tubs. We continue to look at product offerings which recognize and support the general trend toward more nutritious and healthy food propositions through our active new product development program.


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