January 22, 2008

 

Saudi Arabia's Savola eyes acquisitions of Asian oilseed companies

 

 

Saudi food company Savola Group will seek acquisitions of Asian cooking oil firms after its fourth-quarter profits fell by 24 percent as high commodity prices slashed margins.

 

Savola chief executive Sami Baroum said Savola wants to take stakes in cooking oil firms in India, Indonesia and Pakisatan, as well as firms producing oilseeds such as corn and sunflower.

 

Savola is looking for upstream expansion opportunities to have better control over margins and are heading to countries with strong potential, namely India, Indonesia and Pakistan for edible oil in particular, he said.

 

However, Baroum admitted that the company had not yet identified investments.

 

Despite a profit of 177 million riyals, Savola's shares suffered a fall of 6.6 percent (US$47.3 million) as global increase in commodity prices had slashed its margins. 

 

The company said fourth-quarter reflected the worst impact on their earnings from the rise in raw material prices which hit unprecedented levels. Savola is restricted from passing commodity price rises to consumers and thus, has to shoulder much of the increases.

 

Last month, King Abdullah had ordered subsidies on some food products to ease the impact of inflation on consumers after inflation hit 16-year highs of 6 percent and 6.5 percent in November and December respectively.

 

In June 2007, Savola set aside 18 billion riyals (US$4.8 billion) for expansion in North Africa and Central Asia. Some 60 percent of the funds would go towards expanding existing activities such as edible oils, sugar refining and supermarket retailing, Baroum had said.

 

The firm expects to start production at its new US$140 million edible oil plant in Algeria by end-May at the latest, Baroum said. 

 

Early this month, an Egyptian newspaper cited a Savola executive and reported that Savola was eyeing acquisitions of Egyptian edible oil firms.

 

However, Baroum had denied it. Savola was not targeting edible oil firms in Egypt and that the executive had meant other food products, Baroum said.

 

Savola Group is one of Saudi Arabia's leading industrial companies. Its first business was in Saudi Arabia's edible oil industry, producing 1.4 million tonnes per year of cooking oil which it sells in markets including Morocco, Turkey and Iran. Savola's business portfolio includes edible oil, sugar, noodles/pasta, packaging, real estate and franchising.