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    GCC Food Industry | February 22, 2017

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    GCC Food Industry | February 22, 2017

    Alpen Capital was awarded the Best Research House at the Banker Middle East

    Industry Awards 2011, 2013, and 2014

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    GCC Food Industry | February 22, 2017

    Table of Contents

    1. EXECUTIVE SUMMARY ..................................................................................................... 7

    1.1 Scope of the Report ................................................................................................................. 7

    1.2 Industry Outlook ....................................................................................................................... 7

    1.3 Key Growth Drivers .................................................................................................................. 7

    1.4 Key Challenges ........................................................................................................................ 8

    1.5 Key Trends .............................................................................................................................. 8

    2. THE GCC FOOD INDUSTRY OVERVIEW .......................................................................... 9

    2.1 Country-wise Market Overview ............................................................................................... 15

    2.2 Demand and Supply of Major Food Categories ....................................................................... 21

    2.3 Food Security Initiatives ......................................................................................................... 27

    3. THE GCC FOOD INDUSTRY OUTLOOK ......................................................................... 34

    3.1 Forecasting Methodology ....................................................................................................... 34

    3.2 The GCC Food Consumption Forecast ................................................................................... 34

    3.3 Country-wise Market Size Forecast ........................................................................................ 36

    4. GROWTH DRIVERS ......................................................................................................... 41

    5. CHALLENGES ................................................................................................................. 46

    6. TRENDS ........................................................................................................................... 49

    7. MERGER AND ACQUISITION (M&A) ACTIVITIES .......................................................... 55

    8. FINANCIAL AND VALUATION ANALYSIS ...................................................................... 57

    8.1 Financial Performance ........................................................................................................... 57

    8.2 Valuation Analysis .................................................................................................................. 63

    COUNTRY PROFILES...................................................................................................................... 66

    COMPANY PROFILES ..................................................................................................................... 73

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    GCC Food Industry | February 22, 2017

    Overall consumption will continue to rise, given population growth and demographics. Trends

    that are expected to emerge include healthy and organic, but the scale of those categories is

    still small. Whilst theres a lot of concern regarding diabetes and sugar consumption, numbers

    show that categories such as confectionary, bakery and sweets continue to see robust growth.

    We saw Saudi Arabia impose a tax to fizzy drinks in the budget. Convenience and value will be

    the big drivers of category selection in the medium term especially in urban centres.

    However, the biggest challenge is probably embedded in the supply chain on the FMCG side,

    with large costs associated with distribution and no reliable independent provider of scale. The

    best networks are captive today. The dependence on imports further augments this challenge

    and limits the ability to expand price offering. Easier regulatory pathways to set up local

    manufacturing bases, access to third party logistics that is reliable and especially labour

    regulation, can help support local manufacturers. Easier and more importantly reliable custom

    procedures and timelines would support importers.

    Looking at avenues to boost local production up the value chain within the climate restrictions,

    is going to be important in the long term. There is a focus on cost management emanating from

    the general slowdown and rising costs in places like Saudi Arabia. Although we do not have a

    "search for growth" like the developed market players, we are witnessing deceleration and to

    compensate companies are looking at costs, new categories and even consolidation. Having

    said that, we are also seeing a lot of focus on food, from investors.

    Huda Al Lawati

    Chief Investment Officer

    Savola Group Co. SJSC, Saudi Arabia

    The GCC food market will likely see continued growth despite the recent slowdown in the

    overall economy. The changing demographics in the region, driven by a youthful population and

    a growing middle class, have resulted in a preference for quick and easy meal options, giving

    an impetus to the packaged foods market. On the other hand, we have noticed that the demand

    for healthy and international foods is rising due to high health awareness and a developing taste

    for a westernized diet. However, the challenge of heavy reliance on imports to meet the growing

    demand for food continues to remain a matter of concern. With regional governments efforts on

    ensuring food security through various means, this challenge can be alleviated in the long term.

    The favourable demographics with a higher urbanization rate, upcoming global events in the

    GCC like the EXPO 2020 and FIFA 2022, government measures, hypermarkets and

    supermarkets gaining popularity, and introduction of newer distribution channels, are some of

    the factors that will drive the growth of this industry in the coming years.

    Suresh Subberwal

    Chairman

    Al Kabeer Group of Companies, UAE

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    GCC Food Industry | February 22, 2017

    Despite weaker commodity prices, the food and beverage sector in the Gulf has remained

    robust and we expect this to continue notwithstanding continued regional and global economic

    challenges. Population growth paired with upward economic mobility is already changing the

    face of the food sector in the region, with a greater number of consumers seeking organic,

    locally grown and produced, healthy and nutritious products.

    As one the pioneers of food manufacturing and importers in the Gulf, Al Islami Foods has built

    its brand of providing halal food based on the core pillars of quality and trust. Today this now

    applies for the diverse people that now reside in the Gulf and call this region their home.

    Whilst we remain confident in the dynamics and growth of the regional markets, as a local brand

    the global halal food industry provides outstanding opportunities to companies such as ours -

    not only the first trusted providers of halal food, but only providing halal food is part of our DNA.

    We therefore see the tables turning somewhat. It is now for the regional producers and

    manufacturers to show the world our expertise and quality. A challenge that us all in the Gulf

    should be proud to embrace.

    Brent Pearson

    Chief Financial Officer

    Al Islami Foods, UAE

    The market conditions last year have been challenging and are likely to remain so in the next

    couple of years. This has been further dampened by increasing commodity costs, regional

    governments measures such as reduction in public wages, removal of subsidies on food

    commodities, and subsidies on water and electricity. Having said that there are certain pockets

    of opportunities like growth in every day consumables, non-discretionary food products and agri

    products that are produced in the region as consumers shift their behavior to reflect the new

    reality.

    The biggest factor impacting the sector is population, the growth of which has slowed down

    considerably in last few years. Not just that, the population mix has changed considerably

    affecting the consumption of certain commodities, particularly premium products. The regional

    legislation changes like KSA introducing an increase in visa fees for dependents thereby

    impacting the family size, reducing public sector salaries, etc. will impact the overall

    consumption. With daily expenses growing, the consumers have become cost conscious and

    are always looking for better deals. We also see a fall in the trend of spontaneous shopping.

    The tourist arrival numbers have also softened a bit due to the slowdown in the economy in

    Europe and Russia. All these factors coupled with reduction in government spending will make

    the coming years challenging for the industry. However, those with strong balance sheets and

    well managed working capital and cash flows, will sustain and eventually grow. Those with

    expensive distribution channels will start looking for alternatives.

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