Almarai

1. Introduction

Almarai is asking for a SR 7.5 million line-of-credits for a period of one year. It is promising to repay the loan based on an assumption of a strong base of assets, inventory and sales for the coming 3 years and an efficient management of non-interest expenses –due to an increased demand on its products which will reflect in increased sales and revenues.

In addition, Almarai has an outstanding loan with another bank = SR3 million. The loan remaining maturity is one year from today. The company must pay back SR 850,000 of its long-term debt (interest payments) and it also owes SR 3 million (the principal amount) at the end of the coming year. However, Almarai is unhappy with its present banking relationship.

The purpose of this paper is to determine Almarai creditworthiness to receive SR 7.5 million line-of-credits through a careful and thorough examination of its financial statements by the loan officer of the bank. Based on the analysis, the bank will decide whether to lend Almarai the loan it asked for or not. In addition, the loan officer must figure out the reason behind Almarai's unhappiness with its current banking relationship. Sometimes, unhappiness banking relationship springs from poor or inadequate service provided by the company current financial service provider; on other occasion, however, unhappiness arises because the company is in trouble and its current lender is simply trying to work its way out of a bad situation.

This paper will first give a brief overview about what kind of company Almarai is; then a detailed examination of the financial statements will take place. Based on the analysis, the loan officer will provide her/his decision and recommendations.

2. Food and Agriculture sector of Saudi Arabia

Food and agriculture sector of Saudi Arabia is large and active; the country remains the Middle East's largest market for food and agricultural products. With a rising population and high GDP/capita in Saudi Arabia, the sector is expected to grow highly in the future. Actually, a significant number of Saudis consume a large percentage of food annually, and they prefer shopping in supermarkets and hypermarkets to purchase goods. The Saudi government continues to heavily subsidize the food and agricultural sector due to the vital role the sector plays in boosting sustained economic development and achieving food security. The government's agricultural policy is starting to bear fruit, as the sector, recently, has made some major strides and has begun to export both crops and agricultural products, and Saudi Arabia has become self-sufficient in the production of eggs, poultry, and some fruits and vegetables. The food and agriculture sector in Tadawul (Saudi stock exchange market) can be classified as second tier, and it has 15 listed companies. Most of these companies have been stable and performing very well.

3. Almarai Overview

Almarai is the largest integrated dairy company in the world and the leading producer of the fresh dairy in the GCC, and it is based in Riyadh.The company was established in the Kingdom of Saudi Arabia in 1976 as a partnership between the Irish agri-foods pioneer Alastair McGuckian, his brother Paddy, and HH Prince Sultan bin Mohammed bin Saud Al Kabeer. The prince, who continues to lead the company, recognized the potential to transform traditional methods of dairy farming to serve the needs of the rapidly expanding Saudi Arabian market.

With 28% market share of the GCC dairy market, Almarai clearly dominates the industry, as its share is almost three times the size of its closest rival. Since the early 90s, Almarai has undergone a series of acquisitions and restructuring projects moving away from a decentralized to a centralized structure to become the lowest cost producer of the dairy products in the GCC. In addition to fresh and long-life dairy products, Almarai markets a range of food and beverage products that includes fruit juice, cheese, and butter, pre-packaged bakery goods, and some other non-dairy products from various brands such as Alyoum, Lusine, and 7 Days. Almarai's products mix is set to expand following the company recent acquisition of HADCO (which specializes in poultry products) and the company's plan to expand organically into the infant formula market.

One of Almarai's major competitive advantages lies in the strong and well-recognized brand and its reputation for producing high-quality product in the GCC. Almarai's farms are the cornerstone behind the success of the company‘s dairy business as they ensure the quality of the most ingredient, fresh raw milk .in addition, the farms reduce Almarai's reliance on third-party suppliers. Another inherent strength