Almarai, the Saudi Arabian dairy processor, said the combination of a number of macroeconomic challenges in the Gulf States, including the introduction of VAT in Saudi Arabia for the first time, negatively impacted second-quarter profits.

Saudi Arabia introduced VAT for the first time in January 2018 with a starting rate of 5% on all goods sold. Almarai said the introduction of VAT had negatively impacted consumer purchasing power in the country.

The dairy company reported second-quarter operating profits of just over €173,000, which was down 4% compared to the same period last year. Profit margins in the business tightened slightly from 21% last year to a still very strong 20% in 2018.

Almarai said second-quarter sales were back 1% to just over €850,000, with sales of fresh dairy products (fresh milk) declining in double-digit figures. Fresh dairy accounts for 40% of Almarai’s overall business.

Net debt in the business continues to climb in 2018, reaching €2.6bn at the end of the quarter. However, Almarai’s borrowings are manageable at 2.9 times earnings. The overall market capitalisation of the company is almost €14bn.

Almarai was founded in 1977 as a joint venture between Prince Sultan bin Mohammed bin Saud Al Kabeer and Masstock Group Holdings, an Irish farming systems company owned by Paddy and Alistair McGuckian. The group produces one billion litres of fresh milk every year from 75,000 dairy cows in the Saudi Arabian desert.

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