WE DELIVER Annual Report 2020 Almarai Annual Report 2020 In 2020, Almarai® reaffirmed its Our purpose commitment to customers and Our purpose is simple: to deliver on consumers. This commitment is our promise of ‘Quality you can trust’. embodied by one concept. Our commitment to the people and We Deliver. consumers of the Middle East is unwavering. We will continue to deliver In a year that will be remembered for nutritious and high-quality food and challenges the world has never seen beverages across the markets in which before, Almarai remained committed to we operate and grow. one ideal: Delivery. The last 12 months have demonstrated how Almarai has come to embody this concept at its core, reflected in its strategy and operating model. Our Annual Report explains what this means for the Company of today and Read our 2020 Annual Report on tomorrow. https://annualreport.almarai.com/ 2 Contents MANAGEMENT REVIEW Chairman’s statement 14 Preparation of the Financial 80 Statements Managing Director’s message 16 Dividend policy 81 01 We Deliver 20 Statutory payments, penalties and 84 Strategic Priorities 2020 22 sanctions CFO’s review 24 Corporate Governance Code 85 COVID-19 impact and response 28 Rights of Shareholders and the 86 General Assembly Board of Directors formation and 87 functions Regular Meetings of the Board 89 STRATEGIC REVIEW during 2020 Ownership of Board members, 90 Business model 32 spouses and minors Strategy: Almarai 2025 34 Ownership of Senior Managers 91 02 Key performance indicators 36 Details of paid remuneration 92 Operating environment 38 Company Committees 96 Managing risk 40 Executive Committee 98 Sustainability 46 Investment Committee 100 People and culture 50 Remuneration and Nomination 102 Committee Audit Committee 104 Results of annual internal audit 106 procedures Risk Committee 108 OPERATING REVIEW Related party transactions 109 Disclosure and transparency 111 Dairy 56 policy Juice 58 Board of Directors Certification 112 03 Financial performance for 2020 113 Bakery 60 Poultry 62 FINANCIAL STATEMENTS GOVERNANCE Independent auditors’ report 118 Consolidated Statement of 124 Board of Directors 66 05 Financial Position Executive Management 70 Consolidated Statement of 125 Profit or Loss 04 Almarai Organizational chart 72 Consolidated Statement of 126 Tadawul announcements 73 Comprehensive Income Almarai and its subsidiaries 74 Consolidated Statement of 127 Share price and shareholder 76 Changes in Equity information Consolidated Statement of 128 Main transactions, investments, 78 Cash Flows and other events Notes to the Consolidated 129 Important events in 2020 79 Financial Statements 3 Almarai Annual Report 2020 Almarai® in 2020 Founded in 1977, Almarai Company is the world’s largest vertically integrated dairy company and the Highlights region’s largest food and beverage manufacturing and distribution company. Headquartered in the Kingdom of Saudi Arabia, Almarai is ranked as the number one Total sales FMCG (Fast Moving Consumer Goods) brand in the (SAR million) MENA (Middle East & North Africa) region and is the market leader in most of its categories across the Gulf 15,357 Cooperation Council (GCC). 2020 After more than 40 years of sustainable growth, Almarai 14,351 continues to provide nutritious and healthy products to 2019 consumers of all ages, with success derived from the 13,558 bedrock principle of ‘Quality you can trust’. In addition to 2018 its high-quality dairy products, Almarai has diversified its product portfolio to include juices, bakery, and poultry under the brand names Almarai, L’usine, 7DAYS, Albashayer and Alyoum. Meanwhile, the Company Net profit* operates successful joint ventures with Chipita and (SAR million) PepsiCo. 1,984 As at 31 December 2020, Almarai’s paid up share capital 2020 amounted to SAR 10 billion, consisting of one billion fully 1,812 paid and issued shares of SAR 10.00 each. 2019 2,012 2018 Operating cash flow (SAR million) 4,203 2020 4,732 2019 3,669 2018 *Profit attributable to the Shareholders of the Group 4 Free cash flow (SAR million) 2,830 2020 2,601 2019 1,332 2018 CAPEX (SAR million) 969 2020 Revenue 1,650 Segmentation 2019 Sales by product 1,959 (SAR billion) 2018 Fresh Dairy 5.5 Foods 2.5 Poultry 2.3 Bakery 1.7 Total headcount Long Life Dairy 1.5 Fruit Juice 1.5 (‘000) Other Sales 0.4 41,222 2020 42,382 Sales by geography 2019 (SAR billion) KSA 10.3 42,971 UAE 1.4 2018 Egypt 1.0 Kuwait 0.8 Oman 0.7 Bahrain 0.3 Jordan 0.4 Others 0.5 5 Almarai Annual Report 2020 Year in review 66 Management Review Strategic Review Operating Review Governance Financial Statements March The Board of Directors appointed HH Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer as Chairman and HH Prince Saud bin Sultan bin Mohammed as a 20 non-executive member of the Board of Directors Almarai announced the complete redemption of its SAR 787 million Sukuk – Series II 20 April Approval of the recommendation of the Board of Directors to pay a dividend, for the fiscal year ending 31 December 2019, of SAR 0.85 per share totalling SAR 850 million (this cash dividend represents 8.5% of the share capital, based on 1,000 million shares) Almarai announced the appointment of Mr. Danko Maras as Chief Financial Officer The Board of Directors approved ambitious plans to expand the poultry segment through a SAR 275 million investment to expand processing facilities and the approval for grandparent farming September The Company supported King Khalid Hospital in Al-Kharj with a SAR 2 million endowment to contribute to the development of the hospital’s intensive care department October AIB International awarded Almarai the first ever Pandemic Prepared Certification as a result of excellence in applying best practices for Employee Health and Safety, Food Safety, and Supplier Management during the pandemic Almarai contributed 300,000 trees, equivalent to SAR 8 million, to the National Center for Vegetation for the Combating Desertification to demonstrate the company’s support of MEWA‘s ‘Let’s Make It Green’ initiative November Almarai announced the appointment of Mr. Bader Abdullah Al Issa as its new Managing Director December Recommendation of cash dividend of SAR 1.00 per share (SAR 1 billion) for the Financial Year 2020 by the Board of Directors of Almarai Company 7 Almarai Annual Report 2020 Where we are Romania USA Argentina What we do Dairy Juice Dairy is the founding cornerstone of Almarai leads the GCC in the Almarai’s product range and includes production of fresh juice, providing Fresh Dairy, Long Life Dairy and consumers with a wide range of Dairy Foods. For over 40 years we juices, nectars, and drinks, as well as have endeavoured to earn the trust of products for children. our consumers and are the regional market leader in a wide range of sub- Over the last year, Almarai has categories. New product segments prioritized growth in existing SKUs launched in 2020 included Hummus, across GCC markets while taking Milkshakes, Drinkable Greek Yoghurt measures to improve production and Honey. We also successfully nutrition to meet increased demand altered our pricing strategy for for healthier products, including the fresh dairy and dairy foods to meet No Added Sugar (NAS) range across increased production costs with the Juice portfolio. minimal impact to sales volumes. 8 Arable Jordan farms Kuwait Dairy farms • Hail Egypt Bahrain • Riyadh UAE • Al Kharj Saudi Arabia Oman Poultry farms • Jeddah Manufacturing Sales depots Head Office Bakery Poultry Using the highest quality ingredients Our Poultry brand, Alyoum, continues and world class facilities, we deliver to enjoy the number one spot as a wide range of bakery products brand of choice for over 34% of Saudi to consumers across the GCC, Arabia’s fresh poultry consumers. marketed under the L’usine and It is a brand that symbolizes quality 7DAYS brands. and innovation, representing our core values in the marketplace. The From bread and snacks to cakes, product range includes a Almarai provides consumers with comprehensive selection of whole, exciting and innovative treats. In part and value-added SKUs under the 2020, our bakery portfolio achieved Alyoum and Albashayer brands. promising success as we prioritized access to products across our markets. 9 Almarai Annual Report 2020 To grow our leading position as the trusted choice for food and beverages in the region, delighting VALUES consumers with quality nutrition every day. Adaptable VISION Sharing Passionate nnovative MISSION I To provide quality and nutritious food espect and beverages that R enrich consumers’ lives every day. Excellence 10 Awards and recognition World’s 1st Pandemic Saudi Brand with the Most Middle East’s Top 100 Prepared Certification – Loyal Customers - YouGov Companies – Forbes, 2020 AIB International, 2020 Customer Loyalty Rankings, 2020 Best Employee Health Initiative Ministry of Health – Middle East’s Best in Class Leading Corporate for Saudi Arabia, 2020 Treasury Solutions – Adam Investor Relations, Saudi Smith Awards, 2020 Arabia – MEIRA Most Valuable FMCG Brand – Saudi Arabia Most Influential 3rd Place Best Annual Report, KANTAR BRANDZ Awards, 2020 Brands – Ipsos, 2020 Middle East – Digital Category – MEIRA Best New Sukuk - ASSET ASIAN Saudi Arabia Most Chosen 3rd Place Best Digital IR, AWARDS 2020 FMCG Brand – KANTAR, 2020 Middle East - MEIRA 11 MANAGEMENT REVIEW 12 Chairman’s statement 14 Managing Director’s message 16 We Deliver 20 Strategic Priorities 2020 22 CFO’s review 24 COVID-19 impact and response 28 13 Almarai Annual Report 2020 Chairman’s statement On behalf of the Board of Directors, it is my pleasure to introduce Almarai’s 2020 Annual Report. This was a year that tested our fortitude as a cornerstone of the food and beverage sector in the Kingdom of Saudi Arabia. It has been a year full of challenges, market headwinds and economic volatility, but every employee played their part to ensure the safe delivery of our products to our loyal consumers.