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Highlights at a Glance:

SAR 8 Billion
Sales up by 15%

SAR 1.1 Billion Net Income

SAR 1.9 Billion
Cash flow from operations

SAR 6.8 Billion Equity

SAR 23 Billion
Market Capitalization

SAR 4.95 EPS

SAR 15.7 Billion Total Assets

Jordan

Kuwait

Almarai facilities: Saudi Arabia, UAE, Oman, Kuwait, Qatar, Bahrain.
Bahrain Egypt Qatar

Presence through joint ventures: Egypt and Jordan.

Saudi Arabia

UAE Oman

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Table of contents
Chairman’s Statement Mission, Vision & Values Company Overview Board of Directors Report Board of Directors Profile Our Brands Our People Corporate Social Responsibilities Detailed Review of Principal Activities for 2011 Operating Costs Share of Results of Associates and Joint Ventures Statutory Payments Net Income Cash Flows Distribution Policy Board Meetings and Directors Disclosure Senior Management Disclosure Related Party Transactions Segmental Reporting and Geographical Analysis Subsidiaries Risk Management Corporate Governance Audit and Risk Committee Nomination and Remuneration Committee Key Financial Highlights of the Last Five Years - Results, Assets, Liabilities and Key Indicators General Assembly Meeting Certification Auditors’ Report 52 53 53 55 5 7 9 11 12 14 23 25 28 32 34 35 36 36 41 42 43 45 46 48 49 49 49 51

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Chairman’s Statement
Another year of record operating results and continued commitment to long term investment strategy - despite the significant challenges faced.
Dear Shareholders, On behalf of the Board of Directors, I am delighted to be able to present Almarai’s Annual Report, covering the year ended 31 December 2011. 2011 was a challenging 12 months for Almarai. Worldwide, the food and beverage industry was impacted by commodity price inflation, whilst political unrest in the region also impacted operating performance. However, with the blessings of Almighty Allah, 2011 proved to be another record year. Sales increased by 14.7% to SAR 7,951.0 million (2010: SAR 6,930.9 million), yielding Net Operating Income of SAR 1,517.6 million (2010: SAR 1,460.7 million). 2011 saw significant milestones achieved across all major categories: • Dairy: Our core business delivered robust growth to achieve Sales of over SAR 4,236.9 million • Juice: Continued consumer focus, including new flavours, drove year on year Sales growth of 19.2% • Cheese & Butter: Almarai’s second largest product group by value grew 12.8% to deliver SAR 1,446.6 million in Sales • Bakery: The improving distribution of bakery products across the GCC, together with product innovation, contributed to Sales growth of 17.6% • Poultry: Innovation in packaging and in-store presentation, together with a focus on the Almarai commitment to quality, resulted in sales growth of 81.2% Putting in place the platform for future growth was a key focus of 2011 as Almarai invested in excess of SAR 3 billion in capital projects. The major projects were the poultry expansion, the region’s first infant nutrition facility, continued investment in our dairy and juice production facilities and distribution capabilities and a downstream investment in securing supplies of feed, with the acquisition of an Argentinian agriculture company. It is this level of investment, combined with Almarai’s core strengths – state of the art production facilities, unrivalled distribution network, dedicated workforce and the consistently high quality of our products and services to customers and consumers that will see the Group continue to grow from strength to strength. In addition to Almarai’s capital expenditure programme, we continued to invest in local talent with the company a proud employer of over 4,100 Saudi nationals. In addition, Almarai’s Dairy and Food Polytechnic, established in 2011 and located in Al Kharj, is currently training and developing in excess of 200 local students. I would like to highlight two strategically important initiatives which Almarai undertook in 2011. Firstly, Almarai imported 100% of the alfalfa required to produce the dairy products exported outside of the Kingdom, compared to a government mandated amount of only 20%. Secondly, we purchased a company that owns and operates three farms in Argentina. This investment forms part of Almarai’s continuous efforts to improve our supply chain and ensure access to the highest quality feed for both our dairy herd and poultry business. We are extremely proud of both of these initiatives as they support the conservation of local resources and are in line with the Saudi government’s direction on these issues. The deterioration in value of Zain KSA’s share price has resulted in an impairment of the original investment, which has been recognised in the 2011 Income Statement. The impairment loss of SAR 160.2 million resulted in Net Income of SAR 1,139.5 million (2010: SAR 1,285.4 million). Consequently, Earnings per Share was SAR 4.95 (2010: SAR 5.59). Based on these results, the Almarai Board recommends a Dividend of SAR 2.25 per share, amounting to SAR 517.5 million and representing a Dividend Payout Ratio of 45.4%. I would like to express my thanks to my fellow Directors, to the executive leadership team and to all Almarai’s employees for their outstanding contribution over the last 12 months. Finally, I thank our Shareholders, who have continued to support Almarai in delivering upon its Mission of providing quality and nutritious food and beverages that enrich our consumers’ lives every day.

HH Prince Sultan bin Mohammed bin Saud Al Kabeer Chairman

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Mission, Vision & Values

Mission
To provide quality and nutritious food & beverages that enrich our consumers’ lives every day.

Values
Adaptable: We are agile and flexible in our work, confidently taking bold decisions that benefit our stakeholders. Sharing: We work together as one, openly collaborating and sharing skills & knowledge to enable our people to be the best. Passionate: We are proud of the work we do, and strive for exceptional results. Innovative: We are driven to improve our business everyday and to maximize the creative potential of our people. Respect: We earn respect by embracing fairness, trust and integrity in all our relationships. Excellence: We are diligent in our work and consistently deliver the best quality in everything we do.

Vision
To be the consumers’ preferred choice by leading in chosen markets with superior food & beverage products.

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Company Overview
A Remarkable Story of Quality-built Achievement
Almarai Company was established in 1977 by the Chairman, HH Prince Sultan bin Mohammed bin Saud Al Kabeer who realized the potential in transforming the traditional dairy farming in Saudi Arabia in order to meet the needs of the local market. Today, Almarai is the world’s largest vertically integrated dairy company and the leading company in food manufacturing and distribution in the region. It employs over 22,000 professionals and reaches over 48,000 outlets across the region daily with an unmatched variety of quality food and beverages. Throughout its history, Almarai went into different phases of development, restructuring and reinvestment. In the early nineties the company moved away from a decentralized manufacturing structure to a centralized one by establishing the Central Processing Plant replacing 5 decentralized plants. Expanding from its dairy products offering, Almarai introduced its range of fresh juices in 1999. In 2005, Almarai transformed from a privately owned company to a publicly listed company. The market capitalization of Almarai at the end of 2011 was SAR 23 billion. To fuel its growth, Almarai’s focus was to expand horizontally and vertically by developing its existing product range and adding more categories. In 2007 the company entered the bakery business through the acquisition of Western bakeries. In 2009, Almarai acquired Hail Agricultural Development Company (HADCO) adding poultry to its portfolio. Today, Alyoum is Almarai’s premium poultry brand. Pooling expertise with PepsiCo formed the International Dairy and Juice Company (IDJ) in 2009 through a joint venture to enable geographic expansion beyond the GCC. In 2010, Almarai signed a joint venture with Mead Johnson Nutrition forming the International Paediatric Nutrition Company (IPNC) which has represented the entry of Almarai into the world of infant nutrition. Almarai keeps, with all the planned developments, its commitment to producing only the best and holding true to its bedrock principle – “Quality you can trust”.

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Board of Directors Report
We are pleased to present the Board Report for the year 2011, encompassing a review of Almarai’s operating and financial performance. We hope that, with the blessings of Almighty Allah, we will succeed in 2012 and beyond with the continued progression of our growth and expansionary plans.

Overview: Record Results Despite a Challenging Year
Almarai achieved sales of SAR 7,951.0 million in 2011 – a record for the company, representing an increase of 14.7% over the previous year. Net Operating Income also reached record levels at SAR 1,517.6 million. Cash flow from operating activities amounted to SAR 1,924.0 million, representing 24.2% of sales. Significant sales growth was recorded across all product categories. Fresh dairy grew by 9.7%, longlife dairy by 15.5%, cheese and butter by 12.8%, fruit juice by 19.2% and bakery by 17.7%. Poultry delivered the strongest growth during the 12 months with a near doubling of sales versus 2010. Almarai’s largest product group, fresh and long-life dairy, had another successful year with combined growth of 10.7%. Almarai branded dairy products remain the consumer’s preferred choice throughout the GCC. Almarai fruit juice continued to deliver strong growth with Sales of SAR 888.1 million representing an increase of 19.2% over 2010. Driven by innovation, an unwavering commitment to quality and superior distribution in the marketplace, Almarai’s juice portfolio is the market leader in five out of six GCC countries. 2011 bakery sales growth of 17.7% resulted in total Sales of SAR 966.4 million. In 2010, Almarai distributed bakery products in the Kingdom and Kuwait only. Expanded distribution throughout the GCC, coupled with the leveraging of our new production facility in Al Kharj, ensures that Almarai’s bakery brands are well positioned for future growth. The establishment of the Alyoum brand, innovation with the introduction of industry leading packaging and a continual commitment to quality, all helped poultry sales grow by 81.2% to SAR 319.2 million. The ongoing focus for Almarai’s poultry business will be the delivery of the significant investment announced by the Board in June 2011. 2011 saw many commodities reach record price levels which impacted local and global players in the food and beverage industry. The raw materials price increase across feed, packaging and ingredients requirements negatively affected margins. The company’s commitment to its profitable growth is materialised through its ongoing investment in capital projects which amounted to SAR 3.0 Billion in 2011 in line with its strategic plan. This investment positions Almarai to be able to serve the GCC consumers quality products across an ever increasing diversified product offering. In that respect and in line with its long term strategy, the company is continuously looking into new business opportunities that will complement its product portfolio and geographic span. Our continued commitment to protection of the environment was evidenced by our use of leading edge technology and processes throughout our supply chain to ensure water conservation. In addition, Almarai imported 100% of the alfalfa feed necessary to produce the dairy products exported outside of the Kingdom, whereas the statutory requirement was 20%. In light of our commitment to staff, the Company has approved an employee stock participation Program for a number of non-executive employees granting the right to purchase shares worth 97.8 million SR. We would like to express our thanks to Almarai’s investors, for placing your trust in the Board of Directors. We would also like to extend our appreciation to Almarai’s management team and over 22,000 employees who have demonstrated whole-hearted commitment to the Company’s continuing development and exemplary performance. Finally, we should not forget our loyal consumers, who have ensured that, yet again, Almarai remains the most successful food and beverage company in the GCC. The Board of Directors 25 February 2012

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Board of Directors’ Profile

Qualification: Holds a bachelors degree in Economics and Political Science from King Saud University, Saudi Arabia. Major Investments:
Almarai Company: A Joint Stock Company established in 1976 in the Dairy Industry sector. Al Yamama Cement Company: A Joint Stock Company established in 1961 in the cement industry, Arabian Shield Insurance Company, Al Tayyar Travel Group, one of the founders of the Saudi Yamani Cement Company (Yemen), one of the founders of Al Farabi Chemicals Co. Ltd., one of the founders of Zain Saudi Telecom, one of the Founders of Jusour Petro Chemicals Co., one of the founders of ARASCO, one of the founders of Al Salam Bank (Bahrain), Arcapita Bank (Bahrain), one of the founders of Dana Gas (UAE), one of the founders of Tatweer Construction (Qatar), one of the founders of Ras Al Khaima Petroleum (UAE), one of the founders of IBC Co. Lebanon, one of the founders of the Kuwaiti Chinese Holding Co. (Kuwait), one of the founders of the Kuwaiti Sudanese Holding Co. (Kuwait), one of the founders of the Kuwaiti Jordanian Holding Co. (Kuwait), one of the founders of the First Education Co. (Kuwait) and one of the founders of the Kingdom Schools Co.

HH Prince Sultan bin Mohammed bin Saud Al Kabeer Chairman of the Board

Holds a bachelor degree in Civil Engineering from Marquette University, USA. He worked in the Government sector and in the private sector from 1980 to present. He has major business interests in various companies in the Middle East. Member of the Board of Directors of the Al Tayyar Travel Group, Member of the Board of Directors of the Technical Investments Co, Member of the Board of Directors of the Arabian Shield Cooperative Insurance Co. He is also an active member, founder, and chairman of the Assembly of Mobility of Disabilities for Adults as well as an active member and founder of 13 charities.

Engr. Nasser bin Mohammed Humoud Al Muttawa Director

Key Positions:

Chairman of the Arab Union for Cement & Buildings Materials Co. Managing Director of Al Yamama Cement Co. Chairman of Al Tayyar Travel Group, the Arabian Shield Cooperative Insurance Co. Owner of Nova Al Jezera Establishment, the Arab Cubs Establishment and the Technical Projects & Contracting Establishment.

Social and Humanitarian Positions:

Member of the Board of Trustees of King Abdul Aziz and His Men for the Care of Talents, the Equestrian Club, the Graduates Association in the Capital Model Institute and the Piety Charity Society. Honorary Chairman of the Saudi Heart Association, the Saudi Chest Medication & Surgery Association, Saudi Hearing Disability Association and the Saudi Hypertension Association.

PHD in Civil Engineering - University of Arizona – USA. Member of the Boards of Directors of the Red Sea Housing Services Company, Herfy Company, Fitaihi Company and Al Obeikan Investment Group.

Dr. Ibrahim bin Hassan Mohammed Al Madhoun Director

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Holds a degree in Business Administration from Chapman University, California, USA. He is Chairman of the Taiba Holding Company. Member of the Board of Directors of the Banque Saudi Fransi, The Savola Group, Yanbu Cement Company, Jeddah Company for Development, Civil Aviation Authority and previously a member of the Municipal Council of Jeddah.

Ibrahim bin Mohammed Bin Ibrahim Alissa Director

Dr. Abdulraouf bin Mohammed Abdullah Mana’a Director
BSc. In Mechanical Engineering – King Fahad Petroleum & Minerals University. Master degree in Engineering. Master degree in Engineering Science – Mechanical Engineering – California University – Berkley, USA. PHD in Mechanical Engineering – Washington University – Seattle, USA in 1982. Savola Group Managing Director. Member of the Board of Directors of the Saudi Investment Bank. Member of the Board of Directors of the Herfy Food Services Co. Member of the board of General Organization for Social Insurance. Member of many Boards and branch committees of Savola Group.

Chairman of the Boards of Directors of Al Muhaideb Group, Savola Group, Amwal Al Khaleej for commercial Investments Co, Joussour Swicorp Co. and Aloula for Real estate Development Co. Member of the Boards of Directors of Saudi British Bank (SABB), National Industrialization Co., Arabian Pipes Co., Yamama Steel Industries and Arabian Company for Water & Energy Development. Further, he has been appointed by the Government as a Board Member of Social Responsibility Board and Centennial Fund.

Suliman bin Abdulgader Al Muhaideb Director

Joined Almarai in 1979 on graduating from King Saud University, Saudi Arabia with a degree in Agricultural Economics. He was appointed Managing Director in 1997. Board member of the Arcapita Bank of Bahrain, Arabian Agricultural Services Company (ARASCO), and the Al Jazeerah Press, Printing and Publication Company. He is also a member of the National Committee for Biodiversity.

Abdulrahman bin Abdulaziz Al Muhanna Managing Director

Holds a Bachelor Degree in Industrial Engineering from King Saud University, Saudi Arabia, Master’s degree in Business Administration from St. Edward University, USA in 1994 and Diploma in science and technical bread from Pittsburgh Institute, USA. Board member of The Savola Group, United Sugar Company, Banque Saudi Fransi, Chamber of Commerce and Industry in Jeddah and Jeddah Company for Development. Active member of the Young Managers, Member of the Board of the General Investment Authority and a member of the Makkah region.

Engr. Musa bin Omran Al Omran Director

A business administration graduate of King Saud University, Saudi Arabia, is Chairman of Projects and Technical Contracting Company and Ashbal Al Arab Corporation. He is also a member of the board of the Faraby Al Khaleej Petrochemical Company, Zain Company, Kuwaiti-Sudanese Company, Kuwaiti-Chinese Company, Integrated Transport Company and Jassour Company.

Prince Naif Bin Sultan bin Mohammed Al Kabeer Director

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Our Brands
At Almarai, we stand by our slogan “Quality You Can Trust”; four words that exemplify our commitment to quality and ensure that the satisfaction of our consumers is always achieved. We are especially proud to own some of the region’s best loved brands Almarai, L’usine, Alyoum and 7Days; brands that have become a valuable part of our consumers’ lives. Our consumers’ trust drives our efforts to continue to innovate and expand. Almarai strives to provide consumers with a wide selection of products that cater to their daily needs. Under Almarai brand, Almarai Company offers a delicious and nutritious collection of foods and beverages. From fresh and long life dairy liquids, to a spectrum of fresh yoghurt and desserts, to a variety of tasty and nutritious processed and natural cheeses and to a selection of refreshing and healthy juices, each product carries Almarai’s signature quality and delicious taste. L’usine and 7Days brands offer the most delicious and nutritious bakery products from breads to puffs, croissants and cakes to name a few. Alyoum is Almarai Company’s premium poultry brand that provides consumers with a wide selection of whole chickens and portion packs.

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Almarai
Dairy Liquids
Almarai’s Dairy Liquids portfolio offers a wide range of fresh and long-life products that the whole family enjoys. From Fresh Laban and Fresh Milk to delicious Flavoured Milk and more advanced dairy products such as Lacto-free, Vetal Milk and Vetal Laban, Almarai Dairy Liquids products can be found in almost every retail outlet across the GCC. Made to the highest quality standards and always deliciously fresh, Almarai Dairy Liquids are quite simply the best.

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Yoghurts and Desserts
Made from 100% natural, fresh cow’s milk and rich in calcium, our tasty and nutritious Yoghurt and Desserts are perfect for the whole family. Choose from a wide and delicious selection ranging from traditional favourites such as Zabadi, Gishta and Labneh to Fruit Yoghurt and Crème Caramel, to name just a few.

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Foods
Almarai’s Foods range offers a nutritious, delicious choice of premier quality products that are always nutritious, tasty and irresistible. From Cream Cheese to Feta and Mozzarella, our selection includes the Middle East’s most popular favourites produced to the very highest standards. Our Butter, Cream and Ghee products are equally irresistible. So, whether it’s snacking, cooking or simply indulgence, Almarai has a treat to satisfy all tastes.

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Juices
With their refreshing and cooling qualities, Fruit Juices have always held a place at the heart of Arab culture. Firm family favourites across the region, these drinks are particularly popular at social occasions and traditionally served to welcome guests. What’s more, they are a rich source of vitamins and minerals. We introduced our first Fruit Juices to the market in 1999. Their outstanding quality, freshness and innovative flavours soon captured the public’s imagination and they quickly became as popular as our established dairy products.

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L’usine
L’usine is a leading baked foods brand in Saudi Arabia. Its diverse range of quality baked products includes breads, ready-to-eat pastries and biscuits. The L’usine brand is built around four core strengths: freshness, quality, consistency and wholesome nutrition for everyone, everyday.

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7Days
The 7Days brand was launched in 2009. Immediately, the demand for its products has taken off. A joint venture between Almarai and Chipita, the internationally celebrated fine food makers, the secret to 7Days’ success lies in the enduring popularity of its time-honoured recipes and the fresh goodness of its ingredients.

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Alyoum
The new instantly recognised Alyoum brand has become progressively available across the entire Kingdom with its wide range of delicious offerings. From fresh whole chickens to a tasty selection of portion packs (mixed parts, breast fillets, wings, and drumsticks), the Alyoum brand epitomizes premium quality and taste.

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Our People
In 2011, the total number of employees in Almarai Company was about 22,000. This number grew 27% from 2010 as a result of local and regional growth.

Talent Retention and Development
Our talent strategy is based on providing meaningful learning and development opportunities to our employees in all segments. Attraction and retention of talent has been a critical component and a key driver for sustaining market leadership and business growth. Moreover, we continue to invest in our people to develop the leaders of tomorrow. The company’s growth over the last years drove its workforce to grow by two folds compared to 2006.

17,000 15,000 13,000

Number of Employees
16,042

17,391

22,224

11,998

11,000
9,506

9,000
7,500

7,000 5,000 2006 2007 2008 2009 2010 2011

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Corporate Social Responsibilities
Almarai’s commitment to enriching people’s lives goes beyond our core business to embrace the wider community. We believe in investing in the communities we operate in. As a responsible corporate citizen, we play an active role in supporting social causes through a mix of charitable donations and event sponsorships. Among other areas, our community investment program covers health, science, education and sport. We place a particular emphasis on building links with philanthropic, social and cultural groups that share our support for national values and future development. Our belief in the importance of serving our communities goes to the very top of our organization and our people-first philosophy is enshrined in our management systems and processes.

Almarai Company Grants a Number of Prestigious Awards Including:
The Arab Bureau of Education Scholastic Excellence Award for Public Education Students In the GCC
Almarai signed an agreement with the Arab Bureau of Education in the GCC in 2004 enabling it to honour students from member states who display academic excellence. The prestigious award ceremony takes place in a different GCC country every year and is sponsored by a renowned figure hailing from the host nation.

Almarai Award of Scientific Innovation
This award aims to support the scientific and research community in the Kingdom. In accordance with an agreement between the award organizers and the King Abdullah University for Science and Technology (a process that began in 1999).

Almarai Award for Veterinary Excellence
In collaboration with the Saudi Committee of Veterinary Medicine, the yearly prize seeks to honour the individual who best exemplifies veterinary excellence in the Kingdom. The award also aims to spark a competitive spirit between Veterinarians.

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Supporting Charity Organizations:
Almarai actively contributes to various social and humanitarian causes, which further endorses its role in serving the community on a local and regional level. Moreover, Almarai supports the “National Association for Prisoner Care” in its aim to support prisoners and their families as well as assisting them in reintegrating into society after their release. In addition, an agreement with the National Committee for fostering the prisoners and their families specifies that Almarai would donate products on a yearly basis to the committee correlating to the number of families the committee fosters. The committee also promotes training and hiring programs for recently released prisoners (and their families) as well as enrolling them in the Technical Institute for Dairy Products and foods in Al Kharj, which will allow them to benefit from the direct employment program. Almarai also sponsors several other charitable organizations including: The Riyadh Orphans Charitable Society (ENSAN), The Down Syndrome Charitable Association (DSCA), Saudi Autism Organization, Saudi Breast Cancer Society (Zahra), Saudi Association for the Blind, Disabled Children’s Association, ADHD Hyperactivity Disorder Support Group, Charitable Health Society for Patient Care (ENAYA) and the Saudi Cancer Society.

Supporting National Festivals & Touristic Development:
With the goal of achieving positive impact on the national economy, Almarai supports a number of national festivals including the Jeddah Summer festival, The Eneza International Dates Festival, as well a various touristic endeavours including the Janadria Heritage & Cultural Festival in Riyadh.

Supporting the Saudi National Committee for Narcotics Control & Sponsoring the National Day for Drug-Use prevention:
Almarai assumes an active role in protecting the society from the dangers and hazardous effects of drug abuse by raising the public awareness of this issue in the kingdom.

Mass Wedding Ceremony Program 2011
Almarai initiated the group marriage of 200 men and women in the first ever group wedding ceremony in the eastern province. Moreover, Almarai also assumed an active social role by initiating the first ever group wedding ceremony for people with special needs; the first of its kind in the history of the Kingdom.

Supporting Sports Initiatives:
Almarai has supported a number of events in its endeavour to encourage sports programs in the Kingdom including the yearly Riyadh Equestrian event as well as a yearly equestrian race in Jeddah. In addition, Almarai has sponsored the international Hail Rally Championship since 2006, a prolific event that has significant impact on promoting sports in the Kingdom as well as touristic sites such as the Hail Museum and the Hail Traditional Market.

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Detailed Review of Principal Activities for 2011
Continued Growth Whilst Building our Future
A review of the financial performance demonstrates once again our ability to consistently deliver robust growth. The compound annual sales growth rate since 2006 of 23.6% is a reflection of the superior quality of the Company’s products supported by our ongoing programme of intensive investment in production infrastructure, distribution capabilities and marketing, as well as entry into new categories and acquisitions. As a result, in 2011, sales and net operating income amounted to SAR 7,951.0 million and SAR 1,517.6 million respectively. The chart below illustrates the continuous growth in sales and EBIT margin.

Sales by Product Group (SAR Million)
Fresh Dairy Long-Life Dairy Fruit Juice Cheese and Butter Bakery Other Sales Sub-Total Poultry Arable and Horticulture

Year ended 31 December 2011 2010
3,475.7 761.1 888.1 1,446.6 966.4 21.2 7,559.2 319.2 72.6 3,168.7 658.9 745.1 1,282.4 821.2 30.7 6,707.1 176.1 47.7

Sales and EBIT* Margin %
% change
9.7%
7,000 9,000 8,000 20% 19.4% 20.7% 21.1% 21.8% 21.1% 19.1% 25%

15.5% 19.2% 12.8% 17.7% (30.9%) 12.7% 81.3% 52.2%

SAR Million

6,930.9

7,951.0

6,000 5,000

15%

5,029.9

4,000

5,868.8

10%

1,000 0

2, 757.0

2,000

3,769.8

3,000

5%

0% 2007 2008 Sales 2009 2010 EBIT Margin % 2011

2006

Total Sales

7,951.0

6,930.9

14.7%

*Earning before bank charges and Zakat

All major categories delivered robust growth, contributing to the Company’s overall sales growth of 14.7%.

Annual Report 2011 | 29

The following chart gives a breakdown of sales by product group:
Sales by Product Group
Cheese & Butter 18.2% Bakery 12.2% Poultry 4.0%

Fruit Juice 11.2%

Arable & Horticulture 0.9%

Long-Life Dairy 9.6%

Other Sales 0.3%

Fresh Dairy 43.7%

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Almarai
Fresh Dairy
Almarai’s flagship product group includes locally-produced fresh milk and laban, zabadi (plain yoghurt), fruit yoghurt and cream and dairy desserts. Fresh Dairy sales grew by 9.7% year-on-year to reach SAR 3,475.7 million, representing 43.7% of total sales. Catering to increasing health and wellness demands from the GCC consumer, the Almarai Vetal advanced nutrition offer was extended and now encompasses fresh laban, milk, zabadi and fruit yoghurt. A new offering to the flavoured milk range, mango, was also successfully introduced to the market. The success of these products has surpassed our most optimistic projections and exceeded initial market share targets.

Almarai product development in this product group saw the introduction of the Nabatiyah butter range (vegetable oil based butter) and an innovative jar design for Almarai’s spreadable cheeses. Robust sales performance was achieved with growth of 12.8% delivering sales of SAR 1,446.6 million.

Bakery
Almarai bakery products are marketed under the L’usine brand (pastry, cakes, biscuits, bread, buns, waffle, maamoul and sambosa leaves) and the 7Days brand (pastry and cakes). Distribution of both L’usine and 7Days products was expanded during 2011 and now covers the whole GCC. This increased distribution and leveraging of the new state of the art bakery in Al Kharj has seen bakery sales grow to SAR 966.4 million, up 17.7% on the previous year.

Long-Life Dairy
This category comprises of UHT milk, evaporated milk, whipping cream, cooking cream and sterilised cream. The combination of product improvement, marketing and focused distribution strategies resulted in sales growth from 2010 of 15.5% to SAR 761.1 million for 2011.

Poultry
2011 was the second full year of Almarai’s presence in the poultry segment since the acquisition of HADCO in October 2009. The poultry range, under the Alyoum brand, comprises fresh whole chickens and portion packs (including wings, drumsticks, whole legs, thighs, mixed parts and breast fillets). The portions portfolio was moved to modern packaging, based on sealed, leak-proof, plastic trays, in July 2011. This was the most significant upgrade in consumer presentation, in the local industry for several years. The focus on consistently delivering better product quality, effective communication, attractive packaging and unmatched distribution and sales reach, have combined to see Revenues grow 81.2% to SAR 319.2 million.

Fruit Juice
Focussed distribution supported by product innovation, with the introduction of two new flavours (Pomegranate and Kiwi & Lime) to complement the existing 12 flavours across four different pack sizes, resulted in Almarai’s juice segment reaching record highs in 2011. An unwavering commitment to product quality was rewarded with annual sales growth of 19.2% to SAR 888.1 million, reinforcing the brand’s strong market leadership.

Arable & Horticulture
Sales from arable and horticultural operations, including dates, olive oil, grapes and wheat, grew to SAR 72.6 million. In July 2011, under the Almira brand, dates from our farms in the Hail region were launched in the Kingdom.

Cheese and Butter
This product group is made up of spreadable cheese in jars, cheese triangles, slices, blocks, tins and squares, halloumi, feta and mozzarella cheese, butter and butter ghee.

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Operating Costs
During 2011, commodity price inflation negatively impacted the ratio of Direct Material Costs to Sales, with an increase from 41.7% in 2010 to 43.2%. This phenomenon impacted all of Almarai’s key input categories, including feed costs, packaging, juice concentrates and dairy ingredients. Selling & Distribution Expenses and General & Administration Expenses, increased by 16.0%. Among the key contributing factors to this increase were: distribution expansion of bakery products throughout the entire GCC; portfolio changes resulting from Almarai’s diversification into new categories; enhancing the infrastructure of the organisation to address the increasing complexity of the business and preparing the foundation for future growth. Within operating costs, including Other Cost of Sales, and in line with other organisations in the region in 2011, Almarai made significant changes to its remuneration policies in the first half of the year, including the granting of a one-off special bonus to its staff.

Depreciation and Disposal of Assets
Biological assets include the dairy herd, poultry flocks and horticultural crops. Net biological asset appreciation represents the growth in such assets, capitalised in accordance with our accounting policy and in line with SOCPA standards. The accounting policy is outlined in the Financial Statements. Depreciation and disposal of assets increased by SAR 87.8 million due to the ongoing investment in our farming, production and distribution facilities.

Annual Report 2011 | 33

Operating Costs (SAR Million)
Direct Material Costs Other Costs of Sales Selling & Distribution Expenses General & Administration Expenses

2011
3,433.4 1,521.0 1,213.2 265.7

Year ended 31 December % of Sales 2010
43.2% 19.1% 15.3% 3.3% 2,891.3 1,303.7 1,046.0 229.2

% of Sales
41.7% 18.8% 15.1% 3.3%

Change in %
18.7% 16.7% 16.0% 15.9%

Total Operating Costs

6,433.4

80.9%

5,470.2

78.9%

17.6%

Operating Costs may also be viewed by the nature of the expenditure incurred: Operating Costs (SAR Million)
Direct Material Costs Employee Costs Operating Overheads Marketing Expenses Insurance Depreciation & Disposal of Assets

2011
3,433.4 1,383.4 623.8 397.3 22.6 572.8

Year ended 31 December % of Sales 2010
43.2% 17.4% 7.8% 5.0% 0.3% 7.2% 2,891.3 1,078.8 640.1 351.7 23.4 485.0

% of Sales
41.7% 15.6% 9.2% 5.1% 0.3% 7.0%

Change in %
18.7% 28.2% (2.5%) 13.0% (3.6%) 18.1%

Total Operating Costs

6,433.4

80.9%

5,470.2

78.9%

17.6%

34 | Annual Report 2011

Share of Results of Associates and Joint Ventures
Investments in Associated Companies include International Dairy & Juice (a venture with PepsiCo), International Paediatric Nutrition Company (a venture with Mead Johnson Nutrition) and Pure Breed Company (an Associate Company).

Associate & Joint Venture (SAR Million)

Opening Balance

Capital Introduced

Share of Results for the Year

Distributions

Closing Balance

International Dairy & Juice Limited

513.5

-

(24.0)

-

489.5

Pure Breed Company

32.8

-

5.1

(3.1)

34.7

International Paediatric Nutrition Co.

16.2

17.5

(23.4)

-

10.3

Almarai Company WLL

0.2

-

-

-

0.2

Total

562.7

17.5

(42.3)

(3.1)

534.7

Impairment Loss
The Zain equity investment of 35 million shares at a par value of SAR 10 per share is measured at fair value based on a quoted market price for the shares on the Saudi Arabian (Tadawul) stock exchange at 31 December 2011 of SAR 5.55. The founding shareholders have extended the repayment date of the Shareholders’ loans to Zain KSA and have agreed to pledge their Zain shares for and on behalf of the preferred creditors until 27 July 2012 in order to enable Zain KSA to refinance its existing debts. The fair value of the Zain equity investment has been significantly below cost for a prolonged period of time and management now consider the investment impaired. The unrealised loss recognised to date within other reserves in shareholders’ equity has been reversed and the difference between the original cost and the current fair value has been recognised as an impairment loss (SAR 160.2 million) in the consolidated statement of income.

Annual Report 2011 | 35

Statutory Payments
Statutory payments during the year were:

Statutory Payments (SAR Million)

2011

Year ended 31 December

2010

Customs duty Zakat and Income Tax G.O.S.I. Ministry Fees Others

92.6 33.2 25.5 38.7

57.6 21.3 20.9 30.5

3.7

4.2

Total Payments

193.8

134.5

Zakat
Zakat is calculated at the higher of net adjusted income or Zakat base as required by the Department of Zakat and Income Tax (DZIT). In 2011, the Zakat charge is based on the net adjusted income method. The Company has filed its Zakat returns for all the years up to 2010 and settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the DZIT for all the years up to 2006 while 2007, 2008, 2009 and 2010 Zakat returns are still under review by DZIT. HADCO has filed its Zakat returns for all years up to 31 December 2008 and has settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the DZIT for all years up to 31 December 2002. From 2009 onwards HADCO is not required to file a return as results are consolidated into the Almarai Group return.

36 | Annual Report 2011

Net Income
Net income decreased to SAR 1,139.5 million in 2011 from SAR 1,285.4 million in 2010, representing 14.3% and 18.5% of sales respectively. The impairment loss of SAR 160.2 million plus the rise in Cost of Sales, resulting from commodity price inflation, are the main drivers for the reduction in the Net Income.

2,500

Cash Flows from Operating Activities SAR Million

Cash Flows
Cash flows from operating activities reached SAR 1,924.0 million, compared to SAR 1,965.0 million in 2010 and equating to 24.2% of total sales. Operating cash flow and increased borrowings funded Almarai’s SAR 3,237.5 million investment programme for the year, as well as paying shareholder dividends. Continued heavy investment will enable Almarai to satisfy growth in consumer demand and maintain/grow market share in the GCC, while also financing diversification into new business areas, by product category and geographically. Improved management of working capital in relation to receivables and payables was offset by increased investment in inventory. The value of inventory increased due to continued sales growth across the business and commodity inflation. As a percentage of sales, operating net working capital grew from 9.5% to 10.1%.

2,000

1,500

1,000

1,965.0

0

2007

740.3

500

2008

2009

2010

Cash Flows from Operating Activities (SAR Million)
Net Income

Year ended 31 December 2011 2010

1,924.0
2011
1,139.5 572.8 160.2 135.0 42.3 38.4 7.4 (171.6) 1,285.4 485.0 120.6 5.9 40.3 21.5 6.3

Cash Flow Statement (SAR Million)
From Operating Activities Used in Investing Activities From/(Used in) Financing Activities Increase/(Decrease) in Cash Cash at beginning of period

Year ended 31 December 2011 2010
1,924.0 (3,237.5) 1,344.7 31.2 240.8 1,965.0 (2,188.7) (43.3) (266.9) 507.7

Depreciation & Disposal of Assets Impairment Loss Bank Charges Share of Results of Associates and Joint Ventures Change in Employees’ Termination Benefits Share of Minority Interest in Net Income of a Consolidated Subsidiary Changes in Net Operating Working Capital

Cash at end of period

272.0

240.8

Cash Flows from Operating Activities

1,802.2

1,016.1

1,924.0

1,965.0

Annual Report 2011 | 37

Cash Flows used in Investing Activities (SAR Million)

Year ended 31 December
2011 2010

Capital Expenditure

(3,054.7)

(2,237.2)

Proceeds from disposals

147.2

133.0

Investments in Associates and Joint Ventures

(17.5)

(85.5)

Acquisition of Subsidiaries, Net of Cash Acquired

(315.6)

Dividend received from an Associate

3.1

1.0

Cash Flows Used in Investing Activities

(3,237.5)

(2,188.7)

Capital Expenditure (SAR Million)

2011
Dairy and Juice (61.2) (1,156.9) Bakery Poultry Arable and Horticulture (6.2) (92.1) Other Activities 0.0 (296.2) Total

2010
Total

Replacement New Capex

(3.1) (221.0)

(2.5) (1,215.4)

(73.1) (2,981.6)

(121.0) (2,116.2)

Total Capital Commitments

(1,218.1) (610.3)

(224.1) (56.1)

(1,218.0) (1,181.9)

(98.4) (21.5)

(296.2) (60.7)

(3,054.7) (1,930.6)

(2,237.2) (1,547.1)

38 | Annual Report 2011

Annual Report 2011 | 39

Building Our Future
In 2011, Almarai invested over SAR 3 billion in continuing the process of putting the platforms for future growth in place. This investment is spread across Almarai’s diversified operations:

Cash Flows from Financing Activities (SAR Million) Increase in Loans Borrowings from government financial institutions Repayments Receipts Borrowings from Islamic banking facilities (Murabaha) Repayments Receipts Dividends Paid Distribution to Minority Interest Bank Charges Purchase of Treasury Shares Deferred Charges Minority Interest Share in Modern Food Industries Limited Cash Flows from Financing Activities

Year ended 31 December 2011 2010

2,077.5 (127.9) 475.6 (418.0) 2,147.8 (515.6) (89.2) (97.8) (30.3) 1,344.7

470.5 (116.1) 94.5 (433.6) 925.7 (454.9) (0.9) (80.3) 8.2 14.0 (43.3)

Poultry
• The capital investment is focused on the development of integrated facilities for the production of high-quality poultry. • These facilities will be commissioned in the second half of 2012.

Infant Nutrition/ IPNC (International Paediatric Nutrition Company, venture with Mead Johnson Nutrition)
• The capital investment in infant nutrition will result in the region’s first infant formula facility, located in Al Kharj, Riyadh, • Commercial production from this plant will commence in 2012.

Farming, Manufacturing and Distribution
• Continued robust growth in our core product groups (dairy, juice, cheese & butter and bakery) requires investment in our supply chain to serve consumer demand. • Our farming, manufacturing and distribution capabilities were all improved with increased capacity to satisfy this growth. 2012 will be a key year for Almarai’s new ventures as the poultry facilities and infant nutrition are commissioned and these new businesses continue to gain momentum. We have obtained financing in respect of our major investment programmes from Government financial institutions in Saudi Arabia, namely the Saudi Industrial Development Fund (SIDF) and the Agricultural Development Fund (ADF). This financing is not commission-bearing and, in the case of SIDF, carries an initial evaluation cost and ongoing follow-up costs. The effective cost of borrowings from SIDF is typically lower than commercial banks and is not subject to commission rate risk. Recognising the need for further financing to fund our future plans, the Company secured an additional SAR 1,800.0 million of Islamic banking facilities (Murabaha) with a maturity of three to five years and an additional SAR 238.0 million of SIDF facilities with a maturity of more than five years. As at 31 December 2011, SAR 2,435.5 million and SAR 398.4 million of Islamic banking facilities and SIDF facilities respectively were unutilised and available for draw down. Bank charges increased from SAR 120.6 million to SAR 135.0 million primarily due to higher loan utilization, offset by an overall favourable movement in financing rates.

Financing
The strong cash flow generating capability of Almarai has enabled the company to obtain additional credit facilities to finance the investments mentioned above.

40 | Annual Report 2011

3,500 3,000 2,500

Facilities and Utilisation
3,191.8 3,019.1

2,425.9

2,373.2

SAR Million

2,000 1,500 1,000 500 0 2011 2012
545.9

1,924.7

184.5 3.5

2013-2015

2016>

Maturity Year
Facilities Utilisation

The Extraordinary General Assembly Meeting held on November 19th 2011 saw Almarai’s shareholders approve the issuance of sukuk as a potential source of future funding. As of December 31st 2011, no sukuk has been issued.

Annual Report 2011 | 41

Distribution Policy
As per Article 44 of Almarai’s by-laws, after deducting all general expenses and other costs, the Company’s annual net profits shall be allocated as follows: (a) Ten percent (10%) of the annual net profits shall be set aside to form a statutory reserve. Such setting aside may be discontinued by the Ordinary General Assembly when said reserve totals one-half (1/2) of the Company’s capital. (b) These shall be paid to the holders of preferred shares the specified percentage pertaining to such shares. (c) The Ordinary General Assembly may, upon request of the Board of Directors, set aside a percentage of the annual net profits to form an additional reserve to be allocated for the purpose or purposes decided by the Ordinary General Assembly. (d) Out of the balance of the profits, if any, there shall be paid to the Shareholders an initial payment of not less than five percent (5%) percent of the paid-up capital. (e) No more than five percent (5%) of the remaining amount shall be paid as compensation to the members of the Board of Directors. (f) The balance shall be distributed among the Shareholders as an additional share of the profits or transferred to retained profits account. The Company may distribute semi-annual and quarterly profits after it has completed the necessary procedures put in place by the competent authorities. At the General Assembly of 03 April 2011, Almarai shareholders approved a dividend distribution for 2010 of SAR 2.25 per share (based on 230 million shares), amounting to SAR 517.5 million. For 2011, the Board of Directors proposes a dividend of SAR 2.25 per share (based on 230 million shares), amounting to SAR 517.5 million. The high level of investment which has underpinned Almarai’s performance and is integral to the Company’s five-year plan may inhibit the ability to pay high annual dividends to shareholders. The Board of Directors have also proposed an increase in the share capital of Almarai from SAR 2,300 million to SAR 4,000 million through the distribution of one bonus share for each outstanding 1.3529 shares and financed through the company reserves. An Extraordinary General Assembly Meeting will be convened at which approval of the bonus share will be sought from shareholders. The date of this meeting will be determined after obtaining the formal approval from the related government agencies. Shareholders registered at the end of the day of the Extraordinary General Assembly Meeting for 2012 will be eligible.

42 | Annual Report 2011

Board Meetings and Directors Disclosure
During the year we held five board meetings and attendance was as per the table below:

Directors’ Name and other Public Company Directorships

Classification

1st Meeting (25/01/2011)

2nd Meeting (03/04/2011)

3rd Meeting (21/06/2011)

4th Meeting (27/09/2011)

5th Meeting (06/12/2011)

Total

HH Prince Sultan bin Mohammed bin Saud Al Kabeer (Chairman of the Board of Almarai Company) Yamama Cement Company, Arabian Shield Insurance Company Abdulrahman bin Abdulaziz Al Muhanna (Managing Director of Almarai Company) Engr. Nasser Mohammed Al Muttawa Arabian Shield Insurance Company HH Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer Zain KSA Ibrahim Mohammed Al Issa Banque Saudi Fransi, The Savola Group, Taibah for Investments, Yanbu Cement Company Mosa Omran Mohammed Al Omran The Savola Group, Arabian Cement Company, Banque Saudi Fransi Dr. Abdulraof Mohammed Mana’a The Savola Group, The Saudi Investment Bank, Herfy Food Services Company Suliman Abdulqader Al Muhaideb The Saudi British Bank, Arabian Pipes Company, The Savola Group, National Industrialization Company Ibrahim Hassan Al Madhon Red Sea Company, Herfy Food Services Company, Fitaihi Holding Group

Non Executive

3

3

3

3

3

5

Executive

3

3

3

3

3

5

(Independent)

3

3

-

3

3

4

Non Executive

3

3

3

3

3

5

Non Executive

-

3

3

3

3

4

(Independent)

3

3

3

-

3

4

Non Executive

3

-

3

3

3

4

Non Executive

3

3

3

-

3

4

(Independent)

3

3

3

3

3

5

The Company’s By-Laws stipulate that the election of Board members is by cumulative vote at the General Assembly Meeting.

Annual Report 2011 | 43

Directors Disclosure
Board of Directors
HH Prince Sultan bin Mohammed bin Saud Al Kabeer Abdulrahman bin Abdulaziz Al Muhanna Engr. Nasser Mohammed Al Muttawa HH Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer Ibrahim Mohammed Al Issa Mosa Omran Mohammed Al Omran Dr. Abdulraof Mohammed Mana’a Suliman Abdulqader Al Muhaideb Ibrahim Hassan Al Madhon Number of Shares 01.01.2011 66,000,000 970,000 363,612 2,000,000 2,000 2,296,508 2,000 2,000 2,000 Net Change (159,000) (33,069) 1,000 (286,234) 31.12.2011 66,000,000 811,000 330,543 2,000,000 3,000 2,010,274 2,000 2,000 2,000 % Change (16.4%) (9.1%) 50.0% (12.5%) 01.01.2010 Debt Instruments (SAR) Net Change 31.12.2010 % Change -

Total

71,638,120

(477,303)

71,160,817

(0.7%)

-

-

-

-

Spouses and Minor Children
Wife of HH Prince Sultan bin Mohammed bin Saud Al Kabeer Wife of Abdulrahman bin Abdulaziz Al Muhanna Lama Abdulrahman bin Abdulaziz Al Muhanna Wife of Mosa Omran Mohammed Al Omran

Number of Shares 01.01.2011 1,423,280 11,000 5,000 106,000 Net Change 23,525 31.12.2011 1,446,805 11,000 5,000 106,000 % Change 1.7% 01.01.2011 -

Debt Instruments (SAR) Net Change 31.12.2011 % Change -

Total

1,545,280

23,525

1,568,805

1.5%

-

-

-

-

Senior Management Disclosure
Senior Management
Abdulrahman A. Al Fadley Abdullah M. Abdulkarim Georges P Schorderet Andrew Mackie Abdullah N. Al Bader Number of Shares 01.01.2011 2,000 100 45,000 32,158 60 Net Change 10,000 (24,819) 31.12.2011 2,000 100 55,000 7,339 60 % Change 22.2% (77.2%) 01.01.2011 Debt Instruments (SAR) Net Change 31.12.2011 % Change -

Total

79,318

(14,819)

64,499

(18.7%)

-

-

-

-

44 | Annual Report 2011

Annual Report 2011 | 45

Related Party Transactions
During the normal course of its operations, the Group had the following significant transactions with related parties during the years ended 31 December 2011 and 31 December 2010 along with their balances:

Nature of Transaction (SAR Million)
Sales to Savola Group International Dairy & Juice Ltd. International Paediatric Nutrition Co. Total Sales Purchases From Savola Group Savola Packaging Systems Co. Ltd. United Sugar Co.

2011

2010

Entity

Relationship

Savola Group 349,557 88,017 6,936 444,510 317,550 57,226 374,776 Arabian Shield Cooperative Insurance Company Managed Arable Farms International Dairy and Juice Limited Pure Breed Company 54,777 117,143 171,920 46,708 56,758 103,466 International Paediatric Nutrition Company Sharjah Depot

Major Shareholder Common Ownership Common Ownership Investment in Associate Investment in Associate Investment in Joint Venture Common Ownership

Managed Arable Farm Arable Farms - Forage Thodia Arable Farm Rental Thodia Farm - Dairy 49,762 2,927 813 53,502 Arabian Shield Insurance Co. Pure Breed Co. Sharjah Depot (Land Rent) 45,648 5,765 168 51,581 43,715 8,757 750 53,222 37,011 2,349 157 39,517

Total Purchases

277,003

196,205

Pricing and terms of payment for these transactions are at arm’s length and are reviewed annually at Board Meetings and the Annual General Meeting.

46 | Annual Report 2011

Segmental Reporting and Geographical Analysis
The Group’s principal business activities involve manufacturing and trading of dairy and juice products under the Almarai brand, bakery products under the brands L’usine and 7Days, and poultry products under the Alyoum brand. The investment in infant nutrition and Zain are included under other activities. Selected financial information for the years ended 31 December 2011 and 2010, categorised by segments, are as follows:

Segmental Reporting (SAR Million)

Dairy and Juice

Bakery

Poultry

Arable and Horticulture

Other Activities

Almarai Group

2011 Sales Third Party Sales Depreciation Share of Results of Associates and Joint Ventures Impairment Loss Income before Minority Interest Share of Net Assets in Associates and Joints Ventures Additions to Non-Current Assets Non-Current Assets Total Assets Total Liabilities Return on Net Operating Assets Return on Net Assets 6,606.2 6,592.8 (331.1) (24.0) 1,204.7 489.7 1,562.0 7,050.7 9,064.8 (7,676.4) 20.3% 18.8% 1,037.0 966.4 (90.3) 118.0 242.5 1,741.7 1,920.1 (281.5) 15.0% 7.6% 319.2 319.2 (39.0) 5.1 (33.5) 34.7 1,184.3 1,770.0 1,938.0 (187.1) -4.4% -2.9% 321.5 72.6 (58.7) 52.7 502.2 1,475.0 1,697.0 (202.7) 4.1% 3.9% (23.4) (160.2) (195.0) 10.3 313.7 1,030.2 1,034.0 (528.5) n/a n/a 8,284.0 7,951.0 (519.1) (42.3) (160.2) 1,146.9 534.7 3,804.6 13,067.5 15,653.8 (8,876.2) 12.7% 10.5%

Annual Report 2011 | 47

Segmental Reporting (SAR Million)
2010 Sales Third Party Sales Depreciation Share of Results of Associates and Joint Ventures Income before Minority Interest Share of Net Assets in Associates and Joint Ventures Additions to Non-Current Assets Non-Current Assets Total Assets Total Liabilities Return on Net Operating Assets Return on Net Assets

Dairy and Juice

Bakery

Poultry

Arable and Horticulture

Other Activities

Almarai Group

5,910.1 5,885.9 (278.9) (6.4) 1,198.7 513.7 1,633.3 6,304.3 8,070.4 (5,395.4) 21.8% 20.2%

873.0 821.2 (76.5) 116.9 411.0 1,620.2 1,787.0 (273.4) 13.5% 8.5%

176.1 176.1 (23.7) 4.7 (10.5) 32.8 261.5 621.8 688.7 (69.6) -4.4% -2.0%

245.3 47.7 (45.9) 17.3 1,047.6 1,204.1 (121.7) 1.8% 1.7%

(4.2) (15.3) 16.2 344.7 817.0 821.0 (525.7) -

7,204.5 6,930.9 (425.0) (5.9) 1,307.0 562.7 2,650.5 10,410.8 12,571.2 (6,385.8) 17.1% 14.1%

The business activities and operating assets of the Group are mainly concentrated in the GCC. Selected financial information as at 31 December 2011 and 2010, categorised by geographic segments are as follows:
Geographical Analysis (SAR Million) Sales 2011 5,656.4 2,198.5 96.1 7,951.0 2010 4,935.3 1,932.0 63.6 6,930.9 2011 12,003.3 169.9 894.3 13,067.5 Non-Current Assets 2010 9,763.9 126.5 520.4 10,410.8

Saudi Arabia Other GCC Countries Other Countries Total

48 | Annual Report 2011

Subsidiaries
Name of Subsidiary Country of Incorporation Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Argentina Argentina Argentina Argentina Bahrain Bahrain Bahrain Jersey Luxembourg Oman Oman Spain Country of Operation n/a Saudi Arabia Saudi Arabia Saudi Arabia n/a Saudi Arabia Saudi Arabia Argentina Argentina Argentina n/a Bahrain n/a n/a Jersey n/a Oman Oman n/a Business Activity Direct and Beneficial Ownership Interest 2011 Holding Company Manufacturing and Trading Company Poultry / Agricultural Company Bakery Company Holding Company Bakery Company Agricultural Company Agricultural Company Agricultural Company Agricultural Company Dormant Sales Company Holding Company Holding Company Dormant Holding Company Sales Company Sales Company Holding Company 100% 100% 100% 100% 100% 60% 52% 100% 100% 100% 100% 100% 100% 99% 100% 100% 90% 100% 100% 2010 100% 100% 100% 100% 100% 60% 52% 100% 100% 99% 100% 90% 100% Capital SAR 1,000,000 SAR 200,000,000 SAR 300,000,000 SAR 200,000,000 SAR 500,000 SAR 70,000,000 SAR 25,000,000 ARG 27,475,914 ARG 17,849,997 ARG 4,383,432 ARG 475,875 BHD 100,000 BHD 250,000 BHD 250,000 USD 55,190,353 OMR 150,000 OMR 20,000 EUR 10,970,317 Shares Issued 100,000 20,000,000 30,000,000 200,000 500 70,00 250 27,475,914 17,849,997 4,383,432 475,875 1,000 2,500 2,500 55,190,353 150,00 20,00 10,970,317 Almarai Investment Company Limited Almarai Baby Food Company Limited Hail Agricultural Development Company Western Bakeries Company Limited International Baking Services Company Limited Modern Food Industries Limited Agricultural Input Company Limited (Mudkhalat) Fondomonte El Descanso S.A. Fondomonte Inversiones Argentina S.A. Fondomonte Sandoval S.A. Agro Terra S.A. Almarai Company Bahrain S.P.C. Almarai International Holding W.L.L. Almarai Investment Company Holding W.L.L. Markley Holdings Limited Blue Yulan S.A. Arabian Planets for Trade and Marketing L.L.C. Alyoum for Food Products Company L.L.C. Fondomonte Inversiones S.L.

Annual Report 2011 | 49

Risk Management
Risk taking is an integral part of doing business. Risks are managed in our operational processes where risks are identified, probability of occurrence assessed and potential consequences estimated. Actions are then taken to reduce or mitigate the risk exposures and limit potential unfavourable consequences. We broadly categorise risks into operational risks and financial risks. Our approach to risk management leverages the scale and diversity of our business activities and balances central co-ordination with well defined risk management responsibilities within each operational unit. Risk management tools such as reviews, policies, procedures and reports are in place on all major categories of risk including, but not limited to, overall business risk in the Company’s operations, treasury risk (including currency and borrowing risks), procurement, insurance and litigation. Further details on financial risk management can be seen in note 23 of the Consolidated Financial Statements.

The Committee members are: a) Dr. Abdulrahman Al Turaigi, Chairman b) Dr. Muhammad A. H. Ikhwan c) Mr. Farraj Abo Thenian Mr. Sulaiman N. Alhatlan d) The Committee maintains a close oversight of financial, governance and risk related matters in the Company, and monitors audit activities in order to gain sufficient comfort in the adequacy of internal control systems, the safeguards over the assets of the Company and the integrity of the Company’s financial statements. Almarai has a modern professional Internal Audit department that review controls and activities established by the Company to manage the risks that it has identified to its business objectives as set out in the Internal Audit Plan dated 1 January 2011, approved by the Audit and Risk Committee. The Internal Audit Plan is aligned to the three key themes of Corporate Governance, Risk Management and Internal Control. The Head of Internal Audit provides an annual statement on the adequacy and effectiveness of the Company’s Corporate Governance, Risk Management and Internal Control processes. In 2011 the statement confirmed that subject to the satisfactory progression of agreed action plans those activities and controls examined were suitably designed to achieve the objectives required by management and that those controls reviewed were operating with sufficient effectiveness to provide reasonable but not absolute assurance that the related objectives were achieved during 2011. The Head of Internal Audit reports directly to the Audit and Risk Committee and formally presents the results of the Annual Plan of internal control reviews at least four times a year, with a summary audit opinion for the year at the first Audit and Risk Committee for the preceding year in the January meeting. The Audit and Risk Committee fully discharge its responsibilities as required in Article 14 of the Corporate Governance Regulations and in particular supervise the internal audit function in relation to the annual review of internal controls to ensure its effectiveness in executing activities and duties as specified by the Board. The effectiveness of Internal Audit is also monitored through the monthly reporting of the departments Balanced Scorecard that details 13 Key Performance Indicators. All internal control reports contain actions plans that are monitored for implementation by Internal Audit and the Audit and Risk Committee. The Internal Audit Annual Report is reviewed by the Audit and Risk Committee and is made available to the Board of Directors following the first Audit and Risk Committee of each calendar year.

Corporate Governance
Almarai is dedicated to maintaining the highest standards of quality and performance in all of its activities. This applies equally to the area of Corporate Governance, where the Company is committed to best practice principles in all of its dealings. The Company has a comprehensive Corporate Governance Manual setting out rules for directors and officers to adhere to, in order to protect and further the interests of the Company and its stakeholders. The Board of Directors, with the assistance of sub-committees like the Audit and Risk Committee, continually support strong corporate governance practices and regularly review the Company’s governance and control practices.

Audit and Risk Committee
The Audit and Risk Committee is a vital part of Almarai’s commitment to strong Corporate Governance. The Committee is comprised of a Chairman with over a decade of related industry experience and three experienced non-executives. The Committee reports to the Almarai Board of Directors, formally submitting Committee minutes and detailed quarterly reports. The Committee has an annual plan of activity and met five times during 2011.

50 | Annual Report 2011

Annual Report 2011 | 51

Nomination and Remuneration Committee
In accordance with Capital Market Authority (CMA) requirements, Almarai has constituted a Nomination and Remuneration Committee, in line with the recommendations of the Board of Directors and the approval of the General Assembly. This committee met twice during the year 2011. The committee members are: a) HH Prince Sultan bin Mohammed bin Saud Al Kabeer, Chairman b) Abdulrahman bin Abdulaziz Al Muhanna c) Mosa Omran Mohammed Al-Omran d) Abdulrahman Al Fadley The Nomination and Remuneration Committee looks at the appointment, composition, capacity and remuneration of the Board of Directors and the senior management of the Company. The purpose of the committee is to ensure that the directors of the Company are able to oversee the affairs of the Company in the interests of all shareholders and that the remuneration paid to directors and senior management is appropriate for the roles performed.

Description

Executive Board Member

Non Executive / Independent Board Member

Highest Paid Five Executives*

Salaries and Compensation

1,386,000

-

6,416,971

Allowances

546,000

288,000

882,000

Annual and Periodic Bonuses

1,200,000

1,600,000

10,689,042

Incentive Schemes

-

-

-

Other Annual and Periodic Remuneration

260,000

1,360,000

490,000

Total

3,392,000

3,248,000

18,478,013

*Including CEO and CFO

52 | Annual Report 2011

Key Financial Highlights of the Last Five Years – Results, Assets, Liabilities and Key Indicators
Key Financial Highlights (SAR Million)
Operational Performance Total sales Cost of sales Gross profit Selling and distribution expenses General and administration expenses Share of Results of Associates and Joint Ventures Impairment Loss Financing cost and bank charges Income before Zakat Zakat Minority Interest Net Income Balance Sheet Net operating working capital Property, Plant and Equipment Biological Assets Net operating assets Intangible Assets - Goodwill Investment and Financial Assets Net Assets Net debt Employee termination benefits Deferred Tax (Net) Total Equity Net Capital Employed Total Assets Total Liabilities 801 10,508 818 12,127 827 907 13,860 6,749 243 89 6,778 13,860 15,654 8,876 660 7,867 770 9,296 793 981 11,071 4,679 206 6,185 11,071 12,571 6,386 711 6,282 735 7,728 793 995 9,517 3,951 166 5,400 9,517 10,987 5,587 837 4,704 639 6,180 549 529 7,258 3,499 128 3,631 7,258 8,181 4,550 561 3,553 488 4,602 549 471 5,622 2,463 105 3,054 5,622 6,336 3,282 7,951 (4,954) 2,997 (1,213) (266) (42) (160) (135) 1,180 (33) (7) 1,140 6,931 (4,195) 2,736 (1,046) (230) (6) (121) 1,333 (26) (22) 1,285 5,869 (3,503) 2,366 (887) (200) (2) (148) 1,129 (29) (3) 1,097 5,030 (3,031) 1,999 (751) (187) (125) 936 (25) (1) 910 3,770 (2,276) 1,494 (570) (143) (95) 686 (18) (1) 667 Year ended 31 December 2011 2010 2009 2008 2007

Annual Report 2011 | 53

Key Financial Highlights (SAR Million)
Cash Flow Cash Flow from Operating Activities Cash Flow used in Investing Activities Dividends paid Key Indicators Return on sales Return on equity* Return on Net Operating Assets* Return on Net Assets* Net debt to equity ratio Current ratio Revenue growth rate Dividends payout ratio** Shares issued (in millions)*** Earnings per share (SAR) Dividends proposed

Year ended 31 Decembar 2011 2010 2009 2008 2007

1,924 3,237 516

1,965 2,189 455

1,802 1,711 380

1,016 1,572 270

740 1,488 199

14.3% 17.7% 14.2% 10.5% 99.6% 91.8% 14.7% 45.4% 230 4.95 516

18.5% 22.6% 17.1% 14.1% 75.6% 115.0% 18.1% 40.3% 230 5.59 518

18.7% 26.9% 18.7% 15.8% 73.2% 151.5% 16.7% 41.9% 115 4.97 -

18.1% 27.3% 19.7% 16.5% 96.4% 136.5% 33.4% 41.7% 109 4.18 -

17.7% 24.0% 19.8% 17.5% 80.6% 161.6% 36.7% 40.5% 109 3.06 -

* 2009 calculated on quarterly average as a result of the HADCO acquisition. All other years based on average of opening and closing balances. ** Calculated on previous year’s net income and for 2011 based on the proposed dividend. *** Based on 230 million shares.

General Assembly Meeting
The General Assembly Meeting will take place on April 2nd 2012 at the Riyadh Holiday Inn Al Izdehar Hotel - Al Lula’ah Hall at 7:00 p.m.

Certification
We certify that:
• proper books of account have been maintained; • the system of internal control is sound in design and has been effectively implemented; and there are no significant doubts concerning the Company’s ability to continue as a going concern. The Board of Directors 25 February 2012

54 | Annual Report 2011

Annual Report 2011 | 55

Auditors’ Report

AUDITORS’ REPORT TO THE SHAREHOLDERS OF ALMARAI COMPANY (A SAUDI JOINT STOCK COMPANY)

SCOPE OF AUDIT:
We have audited the accompanying consolidated balance sheet of Almarai Company, a Saudi Joint Stock Company (the “Company”), and its subsidiaries (the “Group”) as of 31 December 2011 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These consolidated financial statements are the responsibility of the Group’s management and have been prepared by them in accordance with the provisions of article 123 of the Regulations for Companies and submitted to us together with all the information and explanations which we required. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the Kingdom of Saudi Arabia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable degree of assurance to enable us to express an opinion on the consolidated financial statements.

UNQUALIFIED OPINION:
In our opinion, the consolidated financial statements taken as a whole: i) present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2011 and the results of its operations and its cash flows for the year then ended in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. ii) comply with the requirements of the Regulations for Companies and the Company’s By-laws in so far as they affect the preparation and presentation of the consolidated financial statements. for Ernst & Young

Rashid S. Al-Rashoud Certified Public Accountant Registration No. 366 Riyadh: 2 Rabi Awal 1433H (25 January 2012)

56 | Annual Report 2011

Consolidated Balance Sheet

Consolidated Balance Sheet ASSETS Current Assets Cash and Cash Equivalents Derivative Financial Instruments Receivables and Prepayments Inventories Total Current Assets Non Current Assets Investments and Financial Assets Property, Plant and Equipment Biological Assets Intangible Assets - Goodwill Deferred Charges Deferred Tax Asset Total Non Current Assets TOTAL ASSETS LIABILITIES AND EQUITY Liabilities Current Liabilities Short Term Loans Payables and Accruals Derivative Financial Instruments Total Current Liabilities Non Current Liabilities Long Term Loans Employees' Termination Benefits Deferred Tax Liability Total Non Current Liabilities Total Liabilities EQUITY Shareholders' Equity Share Capital Share Premium Statutory Reserve Other Reserves Treasury Shares Retained Earnings Total Shareholders' Equity Minority Interest TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

Notes

2011 SAR '000

2010 SAR '000

5 24 6 7 8 9 10 11 4

271,979 109 617,431 1,696,785 2,586,304 852,746 10,508,107 817,618 826,576 53,836 8,630 13,067,513 15,653,817

240,750 6,529 613,756 1,299,337 2,160,372 957,683 7,866,639 769,505 793,468 23,550 10,410,845 12,571,217

12 13 24 12 4

1,208,501 1,513,163 96,374 2,818,038 5,716,663 243,481 97,983 6,058,127 8,876,165 2,300,000 1,600,500 768,854 (95,238) (97,757) 2,242,102 6,718,461 59,191 6,777,652 15,653,817

545,902 1,253,424 79,120 1,878,446 4,301,301 206,088 4,507,389 6,385,835 2,300,000 1,600,500 654,903 (155,828) 1,734,039 6,133,614 51,768 6,185,382 12,571,217

14

19

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2011 | 57

Consolidated Statement of Income

Consolidated Statement of Income Sales Cost of Sales Gross Profit Selling and Distribution Expenses General and Administration Expenses Net Operating Income Share of Results of Associates & Joint Ventures Bank Charges Income from Main and Operations Impairment Loss Income Before Zakat, Income Tax and Minority Interest Zakat & Income Tax Income before Minority Interest Minority Interest Net Income for the Year Earnings Per Share (SAR) Attributable to Income from Main Operations Attributable to Net Income for the Year

Notes 15 16

2011 SAR '000 7,950,989 (4,954,469) 2,996,520

2010 SAR '000 6,930,910 (4,194,989) 2,735,921 (1,045,973) (229,241) 1,460,707 (5,913) (120,621) 1,334,173 1,334,173 (27,203) 1,306,970 (21,553) 1,285,417

17 18

(1,213,232) (265,678) 1,517,610

8

(42,298) (134,965) 1,340,347

8

(160,237) 1,180,110

20

(33,173) 1,146,937 (7,423) 1,139,514

21 5.83 4.95 5.80 5.59

The accompanying notes form an integral part of these consolidated financial statements.

58 | Annual Report 2011

Consolidated Statement of Cash Flows

Consolidated Statement of Cash Flows

Notes

2011 SAR '000 1,139,514

2010 SAR '000 1,285,417 635,320 (210,358) (11,251) 71,248 120,621 5,913 40,274 21,553 (158,264) (80,762) 245,327 1,965,038 (2,230,332) (6,880) 21,832 111,174 (85,460) 995 (2,188,671) 470,476 (454,850) (866) (80,259) 8,216 14,000 (43,283 ) (266,916) 507,666 240,750

Operating Activities Net Income for the Year Adjustments for: Depreciation of Property, Plant and Equipment Net Appreciation of Biological Assets Profit on Sale of Property, Plant and Equipment Loss on Sale of Biological Assets Impairment Loss Bank Charges Accrued Share of Results of Associates & Joint Ventures Change in Employees' Termination Benefits Share Based Payment Expense Share of Minority Interest in Net Income of Consolidated Subsidiaries Changes in: Receivables and Prepayments Inventories Payables and Accruals Cash Flows from Operating Activities Investing Activities Additions to Property, Plant and Equipment Additions to Biological Assets Proceeds from the Sale of Property, Plant and Equipment Proceeds from the Sale of Biological Assets Acquisition of Investments and Financial Assets Acquisition of Subsidiaries, Net of Cash Acquired Dividend Received from an Associate Cash Flows Used in Investing Activities Financing Activities Increase in Loans Dividends Paid Distribution to Minority Interests Bank Charges Paid Purchase of Treasury Shares Change in Deferred Charges Minority Interest Share in Modern Food Industries Limited Cash Flows from / (used in) Financing Activities Increase / (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at 1 January Cash and Cash Equivalents at 31 December

22 22 22 22 8

732,730 (213,636) (8,471) 62,151 160,237 134,965 42,298 37,393 1,027 7,423 9,595 (386,107) 204,898 1,924,017

9 10 22 22 8 4

(3,035,332) (19,358) 23,528 123,646 (17,500) (315,580) 3,139 (3,237,457) 2,077,529 (515,640) (89,177) (97,757) (30,286) 1,344,669 31,229 240,750 271,979

5

The accompanying notes form an integral part of these consolidated financial statements.

Annual Report 2011 | 59

Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity for the Year Ended 31 December 2011

Share Capital SAR '000 1,150,000 1,150,000 2,300,000 2,300,000

Attributable to equity holders of the parent Share Statutory Other Treasury Premium Reserve Reserves Shares SAR '000 SAR '000 SAR '000 SAR '000 1,600,500 1,600,500 1,600,500 526,361 128,542 654,903 113,951 768,854 (81,390) (84,000) 9,562 (155,828) 1,027 83,237 (23,674) (95,238) (97,757) (97,757)

Retained Earnings SAR ‘000 2,187,164 1,285,417 (128,542) (460,000) (1,150,000) 1,734,039 1,139,514 (113,951) (517,500) 2,242,102

Total Shareholders’ Equity

SAR ‘000 5,382,635 1,285,417 (84,000) (460,000) 9,562 6,133,614 1,139,514 (97,757) 1,027 83,237 (517,500) (23,674) 6,718,461

Minority Interest SAR '000 17,081 21,553 (866) 14,000 51,768 7,423 59,191

Total Equity SAR '000 5,399,716 1,306,970 (84,000) (866) (460,000) 9,562 14,000 6,185,382 1,146,937 (97,757) 1,027 83,237 (517,500) (23,674) 6,777,652

Balance at 1 January 2010 Net Income for the Year Transfers from Retained Earnings Net Movement on Financial Investments Distribution to Minority Interests Dividends Approved Net Movement on Cash Flow Hedges Minority interest share in Modern Food Industries Limited Bonus Share Issue Balance at 31 December 2010 Net Income for the Year Transfers from Retained Earnings Purchase of Treasury Shares Share Based Payment Transactions Net Movement on Financial Investments Dividends Approved Net Movement on Cash Flow Hedges Balance at 31 December 2011

The accompanying notes form an integral part of these consolidated financial statements.

60 | Annual Report 2011

Notes to the Consolidated Financial Statements
1. The Company, its Subsidiaries and its Business Description
Almarai Company (the “Company”) is a Saudi Joint Stock Company, which was converted on 2 Rajab 1426 A.H. (8 August 2005). The Company initially commenced trading on 19 Dl’ Hijjah 1411 A.H. (1 July 1991) and operates under Commercial Registration No. 1010084223. Prior to the consolidation of activities in 1991, the core business traded between 1976 and 1991 under the Almarai brand name. The Company and its subsidiaries (together, “the Group”) are a major integrated consumer food group in the Middle East with leading market shares in Saudi Arabia and the neighbouring Gulf Cooperative Council (GCC) countries. The dairy, fruit juices and related food business is operated under the Almarai brand name. All raw milk production and related processing along with dairy food manufacturing activities are undertaken in Saudi Arabia and United Arab Emirates (UAE). Final consumer products are distributed from the manufacturing facilities in Saudi Arabia and UAE to local distribution centres by the Group’s long haul distribution fleet. Bakery products are manufactured and traded by Western Bakeries Company Limited and Modern Food Industries Limited under the brand names L’usine and 7 Days respectively. International Baking Services Company Limited has ceased trading. These are Limited Liability companies registered in Saudi Arabia and based in Jeddah. Poultry products are manufactured and traded by Hail Agricultural Development Company (HADCO) under the Alyoum brand. HADCO is a closed joint stock company registered in Saudi Arabia and based in Hail. The distribution centres in the GCC countries (except for Bahrain and Oman) are managed by the Group and operate within Distributor Agency Agreements as follows: Kuwait Qatar United Arab Emirates - Al Kharafi Brothers Dairy Products Company Limited - Khalid for Foodstuff and Trading Company - Bustan Al Khaleej Establishment The Group operates in Bahrain and Oman through subsidiaries, Almarai Company Bahrain S.P.C and Arabian Planets for Trade and Marketing L.L.C. respectively. The Group’s Head Office is located at the following address: Exit 7, North Circle Road Al Izdihar District P.O. Box 8524 Riyadh 11492 Saudi Arabia On 23 Muharram 1433 A.H. (19 December 2011) the company, through its subsidiary Almarai Investment Holding Company W.L.L., acquired 100% of the outstanding share capital of Blue Yulan S.A. and its five subsidiaries for a cash consideration of SAR 312 million (USD 83 million). Blue Yulan S.A. operates under the name of Fondomonte and owns and operates three farms in Argentina which consist of 12,306 hectares dedicated to the production of corn and soy-bean.

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Details of the subsidiary companies are as follows: Direct and Beneficial Ownership Interest 2011 2010
100% 100% 100% 100% 100% 60% 52% 100% 100% 100% 100% 100% 100% 99% 100% 100% 90% 100% 100% 100% 100% 100% 100% 100% 60% 52% 100% 100% 99% 100% 90% 100% -

Name of Subsidiary

Country of Incorporation
Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Argentina Argentina Argentina Argentina Bahrain Bahrain Bahrain Jersey Luxembourg Oman Oman Spain

Business Activity
Holding Company Manufacturing and Trading Company Poultry / Agricultural Company Bakery Company Holding Company Bakery Company Agricultural Company Agricultural Company Agricultural Company Agricultural Company Dormant Sales Company Holding Company Holding Company Dormant Holding Company Sales Company Sales Company Holding Company

Shares Capital
SAR 1,000,000 SAR 200,000,000 SAR 300,000,000 SAR 200,000,000 SAR 500,000 SAR 70,000,000 SAR 25,000,000 ARG 27,475,914 ARG 17,849,997 ARG 4,383,432 ARG 475,875 BHD 100,000 BHD 250,000 BHD 250,000 USD 55,190,353 OMR 150,000 OMR 20,000 EUR 10,970,317

Issued
100,000 20,000,000 30,000,000 200,000 500 70,000 250 27,475,914 17,849,997 4,383,432 475,875 1,000 2,500 2,500 55,190,353 150,000 20,000 10,970,317

Almarai Investment Company Limited Almarai Baby Food Company Limited Hail Agricultural Development Company Western Bakeries Company Limited International Baking Services Company Limited Modern Food Industries Limited Agricultural Input Company Limited (Mudkhalat) Fondomonte El Descanso S.A. Fondomonte Inversiones Argentina S.A. Fondomonte Sandoval S.A. Agro Terra S.A. Almarai Company Bahrain S.P.C. Almarai International Holding W.L.L. Almarai Investment Holding Company W.L.L. Markley Holdings Limited Blue Yulan S.A. Arabian Planets for Trade and Marketing L.L.C. Alyoum for Food Products Company L.L.C. Fondomonte Inversiones S.L.

62 | Annual Report 2011

2. Basis Of Accounting, Preparation, Consolidation & Presentation Of Consolidated Financial Statements
(a) The consolidated financial statements have been prepared on the accrual basis under the historical cost convention (except for derivative financial instruments and investments that have been measured at fair value) and in compliance with the accounting standards issued by the Saudi Organisation for Certified Public Accountants (SOCPA). (b) When necessary, prior year comparatives have been regrouped or adjusted on a basis consistent with current year classification. (c) These consolidated financial statements include assets, liabilities and the results of the operations of Almarai Company (“the Company”) and its subsidiaries (“the Group”) as set out in note (1) above. A subsidiary company is that in which the Company has, directly or indirectly, long term investment comprising an interest of more than 50% in the voting capital or over which it exerts practical control. A subsidiary company is consolidated from the date on which the Company obtains control until the date that control ceases. The consolidated financial statements are prepared on the basis of the individual financial statements of the Company and the financial statements of its subsidiaries, as adjusted by the elimination of all significant inter group balances and transactions. The Company and its Subsidiaries have identical reporting periods except for Blue Yulan S.A. and Fondomonte Inversiones S.L. which have reporting periods ending 30 June. Subsidiaries that have different reporting periods are adjusted for the effects of significant transactions or events that occur between that date and the date of the Company›s financial statements. Minority interests represent the portion of profit or loss and net assets not controlled by the Group and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet. (d) The figures in these consolidated financial statements are rounded to the nearest thousand Saudi Riyals, which is the functional currency of the Group.

for certain assets and liabilities as well as the disclosure of certain contingent assets and liabilities as at the balance sheet date. Any estimates or assumptions affecting assets and liabilities may also affect the reported revenues and expenses for the same reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. B. Cash and Cash Equivalents For the purposes of the consolidated statement of cash flows, cash and cash equivalents consists of cash at bank, cash on hand, and short-term deposits that are readily convertible into known amounts of cash and have a maturity of three months or less when purchased. C. Accounts Receivable Accounts receivable are carried at the original invoiced amount less any provision made for doubtful debts. Provision is made for all debts for which the collection is considered doubtful or more than three months due. Bad debts are written off as incurred. D. Inventory Valuation Inventory is stated at the lower of cost and net realisable value. In general, cost is determined on a weighted average basis and includes transport and handling costs. In the case of manufactured products, cost includes all direct expenditure based on the normal level of activity. Net realisable value comprises estimated selling price less further production costs to completion and appropriate selling and distribution costs. Provision is made, where necessary, for obsolete, slow moving and defective stocks. E. Investments in Securities Investments in securities are measured and carried in the consolidated balance sheet at fair value with unrealised gains or losses recognised directly in equity. When the investment is disposed of or impaired the cumulative gain or loss previously recorded in equity is recognised in the consolidated statement of income as per management evaluation. Where there is no market for the investments, cost is taken as the most appropriate, objective and reliable measurement of fair value of the investments. F. Investment in Associates and Joint Ventures The investments in associates and joint ventures are accounted for under the

3. Significant Accounting Policies
A. Use of Estimates The preparation of consolidated financial statements, in conformity with accounting standards generally accepted in Saudi Arabia, requires the use of estimates and assumptions. Such estimates and assumptions may affect the balances reported

Annual Report 2011 | 63

equity method of accounting when the Company exercises significant influence over the entity and where the entity is not a subsidiary. Investments in associates and joint ventures are carried in the consolidated balance sheet at cost, plus postacquisition changes in the Company’s share of net assets of the associates and joint ventures less any impairment in value. The consolidated income statement reflects the Company’s share of the results of its associates and joint ventures. Unrealized gains and losses resulting from transactions between the Company, its associates and joint ventures are eliminated to the extent of the Company’s interest in the associates and joint ventures. G. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and depreciated on a straight line basis according to the following useful economic lives: 5 – 33 years Buildings Plant, Machinery & Equipment 1 – 20 years Motor Vehicles 6 – 8 years Land and Capital Work in Progress are not depreciated H. Biological Assets Biological assets are stated at cost of purchase or at the cost of rearing or growing to the point of commercial production, less accumulated depreciation. The costs of immature biological assets are determined by the cost of rearing or growing to their respective age. Biological assets are depreciated on a straight line basis to their estimated residual value based on commercial production periods ranging from 36 weeks to 50 years summarized below: Dairy Herd 4 years Plantations 12 – 50 years Poultry Flock 36 weeks I. Impairment The carrying values of property, plant and equipment, biological assets and investments and financial assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Impairment losses are expensed in the consolidated statement of income.

Except for goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately in the consolidated statement of income. J. Intangibles-Goodwill Goodwill represents the difference between the cost of businesses acquired and the Group’s share in the net fair value of the acquiree’s assets, liabilities and contingent liabilities at the date of acquisition. Goodwill arising on acquisitions is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. K. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. L. Zakat and Income Tax Zakat is provided for in the consolidated financial statements on the basis of an estimated Zakat assessment carried out in accordance with Saudi Department of Zakat and Income Tax (DZIT) regulations. Income tax for foreign entities is provided for in the consolidated financial statements on the basis of an estimated income tax assessment carried out in accordance with the relevant income tax regulations of the countries in which they operate. Adjustments arising from final Zakat and income tax assessments are recorded in the period in which such assessments are made. M. Deferred Tax Deferred income tax is provided for foreign subsidiaries, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on laws that have been enacted in the respective countries at the reporting date. Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carryforward of unused tax assets and unused tax losses can be utilised.

64 | Annual Report 2011

The carrying amount of deferred income tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. N. Derivative Financial Instruments and Hedging Forward foreign exchange contracts are entered into to hedge exposure to changes in currency rates on purchases and other expenditures of the Group. Commission rate swap agreements are entered into to hedge the exposure to commission rate changes of the Group’s borrowings. Forward purchase commodity contracts are entered into to hedge exposure to changes in price of commodities used by the Group. All hedges are expected to be in the range of 80 – 125% effective and are assessed on an ongoing basis. All hedges are treated as cash flow hedges and gains / losses at market valuation are recorded as derivative financial instruments in the consolidated balance sheet and taken to other reserves in Shareholders’ Equity. When the hedging instrument matures or expires any associated gain or loss in Other Reserves is reclassified to the consolidated statement of income, or the underlying asset purchased that was subjected to the hedge. The Group policy is to use financial instruments which are compliant with Shari’a. O. Employees’ Termination Benefits Employees’ termination benefits are payable as a lump sum to all employees employed under the terms and conditions of the respective GCC Labour and Workman Laws on termination of their employment contracts. The liability is calculated as the current value of the vested benefits to which the employee is entitled, should the employee leave at the balance sheet date. Termination payments are based on the employees’ final salaries and allowances and their cumulative years of service, in compliance with the conditions stated in the laws of the respective GCC countries. P. Statutory Reserve In accordance with its by-laws and the Regulations for Companies in Saudi Arabia, the Company is required each year to transfer 10% of its net income to a Statutory

Reserve until such reserve equals 50% of its share capital. This Statutory Reserve is not available for distribution to Shareholders. Q. Treasury Shares Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the consolidated statement of income on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in share premium. Share options, as contemplated in the following paragraph that were exercised during the reporting period, were satisfied with treasury shares. R. Share Based Payment Transactions Employees of the Company receive remuneration in the form of share based payment transactions under the Employee Stock Participation Program, whereby employees render services as consideration for the option to purchase equity instruments at a predetermined price (equity settled transactions). The cost of equity settled transactions is recognised, together with a corresponding increase in other capital reserves, in equity, over the period in which the service conditions are fulfilled. The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The consolidated income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in Employee Costs. When the terms of an equity settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share based payment transaction, or is otherwise beneficial to the employee as measured at the date of the modification. When an equity settled award is terminated, it is treated as if it vested on the date of termination, and any expense not yet recognised for the award is recognised immediately. This includes any award where non vesting conditions within the control of either the entity or the employee are not met.

Annual Report 2011 | 65

However, if a new award is substituted for the terminated award, and designated as a replacement award on the date that it is granted, the terminated and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. S. Conversion of Foreign Currency Transactions During the financial period foreign currency transactions are converted and booked in Saudi Riyals at standard exchange rates which are periodically set to reflect average market rates or forward rates if the transactions were so covered. At the balance sheet date, assets and liabilities denominated in foreign currencies are converted into Saudi Riyals at the exchange rates ruling on such date or at the forward purchase rates if so covered. Any resulting exchange variances are charged or credited to the consolidated statement of income as appropriate. The functional currency of Bahrain operations for Almarai Company Bahrain S.P.C., Almarai Investment Holding Company W.L.L. and Almarai International Holding W.L.L. is the Bahraini Dinar. The functional currency of Oman operations for Arabian Planets for Trade and Marketing L.L.C. and Alyoum for Food Products Company L.L.C. is the Omani Riyal. The functional currency of Argentina operations for Fondomonte Inversiones Argentina S.A., Fondomonte El Descanso S.A. and Fondomonte Sandoval S.A. is the Argentine Peso. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of the Group (SAR) at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. T. Revenue Recognition Products are sold principally on a sale or return basis. Revenue is recognised on delivery of products to customers by the Group or its distributors, at which time risk and reward passes, subject to the physical return of expired products. Adjustment is made in respect of known actual returns. Revenue from the sale of wheat guaranteed to be sold to the Government is recognised upon completion of harvest but the profit on any undelivered quantities is deferred until delivered to the Government.

U. Government Grants Government grants are recognized when there is a reasonable assurance that they will be received from the state authority. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. V. Selling, Distribution, General & Administration Expenses Selling, Distribution, General & Administration Expenses include direct and indirect costs not specifically part of Cost of Sales as required under accounting standards generally accepted in Saudi Arabia. Allocations between Cost of Sales and Selling, Distribution, General and Administration Expenses, when required, are made on a consistent basis. The Group charges payments in respect of long term agreements with customers and distributors to Selling and Distribution Expenses. W. Management Fees The fees charged in respect of the management of Arable Farms are credited to General and Administration Expenses. X. Operating Leases Rentals in respect of operating leases are charged to the consolidated statement of income over the terms of the leases. Y. Segmental Reporting A segment is a distinguishable component of the group that is engaged either in selling/providing products or services (a business segment) or in selling/providing products or services within a particular economic environment (a geographic segment), which is subject to risks and rewards that are different from those of other segments.

66 | Annual Report 2011

4. Business Combination
On 23 Muharram 1433 A.H. (19 December 2011) the company, through its subsidiary Almarai Investment Holding Company W.L.L., acquired 100% of the outstanding share capital of Blue Yulan S.A. for a cash consideration of SAR 312 million (USD 83 million). Blue Yulan S.A. operates under the name of Fondomonte and owns and operates three farms in Argentina which consist of 12,306 hectares dedicated to the production of corn and soybean. The assets and liabilities of Blue Yulan S.A. as at acquisition date are consolidated by the Group. The post acquisition operating results for Blue Yulan S.A. are immaterial and have therefore not been accounted for in these consolidated financial statements. If the combination had taken place at the beginning of the year, the net operating income would have been higher by SAR 0.9 million and the net income of the Group would have been higher by SAR 0.3 million. Due to the proximity of the acquisition to the year end, the Group is currently in the process of allocating the purchase consideration to the identifiable assets, liabilities and contingent liabilities acquired. However, the Group has provisionally accounted for the transaction based on the carrying values of the assets and liabilities (with the exception of land) as of the acquisition date which is summarised below:

Fair Value Recognized on Acquisition SAR ‘000
ASSETS Land and Buildings (refer note below) Other Property Plant and Equipment Biological Assets Deferred Tax Asset Inventories Receivables and Prepayments Bank Balances and Cash Liabilities Payables and Accruals Short term Loans Deferred Tax Liability 352,518 1,405 916 8,630 11,341 13,270 5,913 393,993 7,193 432 97,983 105,608 288,385 33,108 321,493

Total Identifiable Net Assets at Fair Value Goodwill Arising on Acquisition Purchase Consideration Transferred Total Acquisition Cost Cash Consideration Costs Associated with the Acquisition Total Cash Outflow on Acquisition Net Cash Acquired with the Subsidiaries Cash Paid Net Cash Outflow

312,080 9,413 321,493

5,913 (321,493) (315,580)

The only fair value adjustment to Blue Yulan’s assets and liabilities was in respect of Land and Buildings which was fair valued based on third party valuations.

Annual Report 2011 | 67

5. Cash and Cash Equivalents
(a) The Group’s policy is to provide 100% impairment provision for all trade receivables due over three months. As at 31 December 2011, trade receivables more than three months due and impaired were SAR 23.8 million (2010: SAR 38.1 million). Movement in the group provision for impairment of trade receivables was as follows:

2011 SAR '000 Cash at Bank Cash in Hand Total 178,607 93,372 271,979

2010 SAR '000 139,547 101,203 240,750

Provision For Impairment Of Trade Accounts Receivable Balance at 1 January

2011 SAR '000 38,135 (14,349) 23,786

2010 SAR '000 56,728 (18,593) 38,135

6. Receivables and Prepayments
2011 SAR '000 Trade Accounts Receivable: - Third Parties - Related Parties (Refer to note 27) 499,912 37,781 537,693 Less: Provision for Impairment of Trade Receivables Less: Provision for Sales Returns Net Accounts Receivable Prepayments Total (23,786) (24,315) 489,592 127,839 617,431 414,223 81,146 495,369 (38,135) (13,795) 443,439 170,317 613,756 2010 SAR '000

Provisions released during the year Balance at 31 December

Trade Accounts Receivable Up to 3 months More than 3 months Total

2011 SAR '000 513,907 23,786 537,693

2010 SAR '000 457,234 38,135 495,369

(b) Unimpaired receivables are expected on the basis of past experience, to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables. (c) Provision for sales returns is calculated based on the forecasted return of expired products in line with the Group’s product return policy.

68 | Annual Report 2011

7. Inventories
2011 SAR '000 1,312,655 194,421 114,175 75,534 1,696,785 2010 SAR '000 958,245 178,137 101,107 61,848 1,299,337

31 December International Dairy & Juice Limited

2011 SAR ‘000

2010 SAR ‘000

Inventories Raw Materials Finished Goods Spares Work in Progress Total

Opening Balance Add: Capital Introduced Less: Share of Results for the year Closing Balance Pure Breed Company Opening Balance Add: Share of Results for the year Less: Distributions Closing Balance

513,485 (23,985) 489,500

455,080 64,756 (6,351) 513,485

32,764 5,098 (3,139) 34,723

29,050 4,709 (995) 32,764

8. Investments and Financial Assets
The investments in associated companies and joint ventures comprises the following: 2011 2010

International Paediatric Nutrition Company Opening Balance Add: Capital Introduced Less: Share of Results for the year 16,229 17,500 (23,411) 10,318 20,500 (4,271) 16,229

Investments and Financial assets

Closing Balance Almarai Company WLL Opening Balance Add: Capital Introduced

SAR '000 SAR '000

Investments In Associates And Joint Ventures International Dairy and Juice Limited 48.0% 489,500 (IDJ Limited) Pure Breed Company (PB Company) 21.5% 34,723 International Paediatric Nutrition Company 50.0% 10,318 Almarai Company WLL 50.0% 204 534,745 Investments In Securities Zain Equity Investment 2.5% 194,250 Zain Subordinated Founding Shareholders’ - 109,587 Loan Jannat for Agricultural Investment Company 10.0% 7,000 National Company for Tourism 1.1% 4,500 National Seeds and Agricultural Services 7.0% 2,064 Company United Dairy Farms Company 8.3% 600 318,001 Total 852,746

204 204

204 204

513,485 32,764 16,229 204 562,682 271,250 109,587 7,000 4,500 2,064 600 395,001 957,683

Closing Balance

(a) The Zain equity investment of 35 million shares at a par value of SAR 10 per share is measured at fair value based on a quoted market price for the shares on the Saudi Arabian (Tadawul) stock exchange at 31 December 2011 of SAR 5.55. The founding shareholders have extended the repayment date of the Shareholders’ loans to Zain KSA and have agreed to pledge their Zain shares for and on behalf of the preferred creditors until 27 July 2012 in order to enable Zain KSA to refinance its existing debts. The fair value of the Zain equity investment has been significantly below cost for a prolonged period of time and management now consider the investment impaired. The unrealised loss recognised to date within other reserves in shareholders’ equity has been reversed and the difference between the original cost and the current fair value has been recognised as an impairment loss (SAR 160.2 million) in the consolidated statement of income. (b) All other investments in securities are stated at cost less impairment.

Annual Report 2011 | 69

9. Property, Plant and Equipment
Land and Buildings (a) SAR '000 Cost At the beginning of the year On Acquisition of Subsidiaries Additions during the year Transfers during the year Disposals during the year Reclassification At the end the year Accumulated Depreciation At the beginning of the year On Acquisition of Subsidiaries Depreciation for the year Disposals during the year Reclassification At the end of the year Net Book Value At 31 December 2011 At 31 December 2010 3,659,859 2,975,327 3,062,430 2,582,601 596,974 531,678 3,188,844 1,777,033 10,508,107 7,866,639 662,362 7,281 115,092 (14,835) (21) 769,879 2,130,856 1,784 472,454 (127,345) 795 2,478,544 481,349 442 145,184 (45,502) 58,700 640,173 3,274,567 9,507 732,730 (187,682) 59,474 3,888,596 2,960,003 635,320 (320,756) 3,274,567 3,637,689 359,799 448,889 (15,256) (1,383) 4,429,738 4,713,457 2,798 960,606 (139,118) 3,231 5,540,974 1,013,027 761 211,774 (48,365) (59,950) 1,237,147 1,777,033 72 3,035,332 (1,621,269) (2,324) 3,188,844 11,141,206 363,430 3,035,332 (202,739) (59,474) 14,396,703 9,242,211 2,230,332 (331,337) 11,141,206 Plant, Machinery and Equipment SAR '000
Capital Motor Vehicles Work-in Progress (b)

Total 2011 SAR '000

Total 2010 SAR '000

SAR '000

SAR '000

(a) Land & Buildings include land granted to a subsidiary of the company at a historic fair value of SAR 61.0 million (b) Capital Work-in-Progress includes SAR 56.7 million of borrowing costs capitalised during the year (2010: SAR 9.6 million).

70 | Annual Report 2011

10. Biological Assets

Mature Dairy SAR '000 Cost At the beginning of the year On Acquisition of Subsidiaries Additions / (Purchase Price Rebates) during the year Appreciation Transfers during the year Disposals during the year Reclassification At the end the year Accumulated Depreciation At the beginning of the year Depreciation for the year Disposals during the year Reclassification At the end of the year Net Book Value At 31 December 2011 At 31 December 2010 453,382 413,424 240,165 108,811 (88,555) 2,328 262,749 653,589 916 256,001 (194,370) (5) 716,131

Immature Dairy SAR '000

Mature Poultry SAR '000

Immature Poultry SAR '000

Mature Plantations SAR '000

Immature Plantations SAR '000

Total 2011 SAR '000

Total 2010 SAR '000

311,598 337,047 (256,001) (78,780) (3) 313,861

20,288 18,955 (28,913) 10,330

3,539 18,220 (18,955) (1,202) 2,357 3,959

15,576 20,000 1 35,577

28,566 1,138 (20,000) 9,704

1,033,156 916 19,358 337,047 (303,265) 2,350 1,089,562

962,566 6,880 327,800 (264,090) 1,033,156

313,861 311,598

19,147 13,906 (28,913) 4,140 6,190 1,141

3,959 3,539

4,339 694 22 5,055 30,522 11,237

9,704 28,566

263,651 123,411 (117,468) 2,350 271,944 817,618

227,877 117,442 (81,668) 263,651

769,505

Annual Report 2011 | 71

11. Intangible Assets - Goodwill

Key Assumptions Used in Value in Use Calculations
Management determined forecast sales growth and gross margin based on past performance and its expectations of market development. The discount rates reflect management’s estimate of the specific risks relating to the segment. 2011 SAR '000 2010 SAR '000 548,636 244,832 793,468 Estimates for raw material price inflation have been made based on the publicly available information in Saudi Arabia and past actual raw material price movements, which have been used as an indicator of future price movements. Growth rates are based on the industry averages. The calculation of value in use is most sensitive to the assumptions on sales growth rate and cost of sales inflation used to extrapolate cash flows beyond the budget period as well as the earnings multiple applied to the net income for the final year of the forecast period.

Western Bakeries and International Baking Services HADCO Blue Yulan Total

548,636 244,832 33,108 826,576

The goodwill noted above arises from the acquisition of Western Bakeries Limited and International Baking Services Limited in 2007, HADCO in 2009 and Blue Yulan in 2011 (“the Subsidiaries”). Goodwill is subject to impairment testing. Western Bakeries and International Baking Services Limited form part of the Bakery Products reporting segment, HADCO represents part of both the Arable and Horticulture reporting segment and the Poultry reporting segment while Blue Yulan forms part of both the Arable and Horticulture reporting segment. Assets are tested for impairment by comparing the residual carrying amount of each cash-generating unit to the recoverable amount which has been determined based on a value in use calculation using cash flow projections based on financial forecasts approved by senior management covering a five-year period. The discount rate applied to cash flow projections is 10% and the residual value at the end of the forecast period has been calculated by applying an earnings multiple to the net income for the final year in the forecast period. The recoverable amount for Blue Yulan has been determined based on a fair value less costs to sell calculation.

72 | Annual Report 2011

Sensitivity to Changes in Assumptions – Western Bakeries and International Baking Services
With regard to the assessment of the value in use, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of the unit to materially exceed its recoverable amount. The implications of the key assumptions are discussed below. (a) Sales Growth Assumption The current sales growth in 2011 is 39% and in the forecast period has been estimated to be a compound annual growth of 14%. All other assumptions kept the same; a reduction of this growth rate to 13% would give a value in use equal to the current carrying amount. (b) Cost of Sales Inflation The current cost of sales in 2011 is 52% and in the forecast period has been estimated at an average of 52%. All other assumptions kept the same; an increase in the rate to an average of 56% would give a value in use equal to the current carrying amount. (c) Terminal Value Multiple The multiple applied to net income for the final year of the forecast period to determine the terminal value is 14.7. All other assumptions kept the same; a reduction of this multiple to 9.4 would give a value in use equal to the current carrying amount.

(b) Cost of Sales Inflation The current cost of sales in 2011 is 42% and in the forecast period has been estimated at an average of 39%. All other assumptions kept the same; an increase in the rate to an average of 44% would give a value in use equal to the current carrying amount. (c) Terminal Value Multiple The multiple applied to net income for the final year of the forecast period to determine the terminal value is 10.0. All other assumptions kept the same; a reduction of this multiple to 6.7 would give a value in use equal to the current carrying amount.

Key Assumptions Used in Fair Value Calculations
The recoverable amount for Blue Yulan is measured on the basis of fair value less costs to sell. Fair value less costs to sell is defined as “the amount obtainable from the sale of an asset or cash generating unit in an arms length transaction between knowledgeable, willing parties, less the costs of disposal”. The recent best evidence of Blue Yulan’s fair value less costs to sell is the arms length price paid to acquire Blue Yulan adjusted for disposal costs. The cost of disposal has been determined to be insignificant, therefore, fair value less costs to sell is the same as the purchase price paid by the Group.

Sensitivity to Changes in Assumptions – HADCO
With regard to the assessment of the value in use, management believes that no reasonably possible change in any of the key assumptions above would cause the carrying value of the unit to materially exceed its recoverable amount. The implications of the key assumptions are discussed below. (a) Sales Growth Assumption The current sales growth in 2011 is 61% and in the forecast period has been estimated to be a compound annual growth of 30%. All other assumptions kept the same; a reduction of this growth rate to 29% would give a value in use equal to the current carrying amount.

12. Term Loans

2011 SAR '000 Islamic Banking Facilities (Murabaha) Saudi Industrial Development Fund Agricultural Development Fund 5,980,116 941,048 4,000

2010 SAR '000 4,248,815 593,388 5,000

Total

6,925,164 4,847,203

Annual Report 2011 | 73

A. The borrowings from Islamic banking facilities (Murabaha) are secured by promissory notes given by the Group. B. The borrowings of the Group from the Saudi Industrial Development Fund are secured by a mortgage on specific assets amounting to SAR 941.0 million as at 31 December 2011 (SAR 593.4 million as at 31 December 2010). C. Maturity of Financial Liabilities:

13. Payables and Accruals
2011 2010

SAR '000 SAR '000 Trade Accounts Payable - Third Parties - Related Parties (Refer note 27) Other Payables Zakat & Income Tax Provision (Refer note 20) 809,166 55,917 582,188 65,892 645,885 30,944 511,359 65,236

Facilities available at 31 December

SAR '000 Less than one year One to two years Two to five years Greater than five years Total 1,214,569 5,011,095 3,313,731 219,200 9,758,595

Outstanding Term Loans 2011 2010 SAR '000 SAR '000 1,208,501 2,844,583 2,838,080 34,000 6,925,164 545,902 2,373,155 1,924,659 3,487 4,847,203

Total

1,513,163 1,253,424

14. Share Capital
The Company’s share capital at 31 December 2011 and 31 December 2010 amounted to SAR 2,300.0 million, consisting of 230 million fully paid and issued shares of SAR 10 each. The Board of Directors proposes for approval at the Extraordinary Shareholders Meeting an increase in the share capital from SAR 2,300.0 million to SAR 4,000.0 million through the distribution of 1 bonus share for each 1.353 outstanding shares. The date of this meeting will be determined after obtaining the formal approval from the related government agencies.

The Islamic banking facilities (Murabaha) with a maturity period of less than two years are predominantly of a revolving nature. During 2011 the group secured an additional SAR 1,800.0 million of Islamic Banking Facilities (Murabaha) with maturities between three to five years (2010: SAR 750.0 million). As at 31 December 2011 SAR 2,435.5 million Islamic Banking Facilities (Murabaha) were unutilized and available for draw-down (2010: SAR 3,295.3 million). As at 31 December 2011 the Group had SAR 398.4 million of unutilized SIDF facilities available for draw down with maturities predominantly greater than five years (2010: SAR 678.9 million).

74 | Annual Report 2011

15. Segmental Reporting
The Group’s principal business activities involve manufacturing and trading of dairy and juice products under the Almarai brand, bakery products under the brands L’usine and 7 Days, poultry products under the Alyoum brand, arable and horticultural products as well as other activities. Other activities include the investments in Zain and infant nutrition. Selected financial information as of 31 December 2011 and 2010 and for the years then ended categorized by these business segments, are as follows: Dairy and Juice Arable and Horticulture Other Activities

SAR '000 31 December 2011 Sales Third Party Sales Depreciation Share of Results of Associates & Joint Ventures Impairment Loss Income before Minority Interest Share of Net Assets in Associates and Joint Ventures Additions to Non-Current Assets Non-Current Assets Total Assets Total Liabilities 31 December 2010 Sales Third Party Sales Depreciation Share of Results of Associates & Joint Ventures Income before Minority Interest Share of Net Assets in Associates and Joint Ventures Additions to Non-Current Assets Non-Current Assets Total Assets Total Liabilities

Bakery

Poultry

Total

6,606,206 6,592,805 (331,114) (23,985) 1,204,680 489,704 1,561,970 7,050,651 9,064,765 (7,676,394) 5,910,086 5,885,867 (278,916) (6,351) 1,198,658 513,689 1,633,303 6,304,313 8,070,426 (5,395,390)

1,037,019 966,374 (90,278) 118,032 242,548 1,741,696 1,920,117 (281,452) 873,045 821,211 (76,488) 116,912 411,004 1,620,194 1,787,018 (273,440)

319,210 319,210 (39,006) 5,098 (33,478) 34,723 1,184,266 1,769,980 1,937,961 (187,144) 176,135 176,135 (23,708) 4,709 (10,530) 32,764 261,487 621,783 688,706 (69,604)

321,531 72,600 (58,696) 52,658 502,171 1,474,993 1,696,964 (202,708) 245,274 47,697 (45,850) 17,279 1,047,601 1,204,056 (121,740)

(23,411) (160,237) (194,955) 10,318 313,661 1,030,193 1,034,010 (528,467) (4,271) (15,349) 16,229 344,678 816,954 821,011 (525,661)

8,283,966 7,950,989 (519,094) (42,298) (160,237) 1,146,937 534,745 3,804,616 13,067,513 15,653,817 (8,876,165) 7,204,540 6,930,910 (424,962) (5,913) 1,306,970 562,682 2,650,472 10,410,845 12,571,217 (6,385,835)

Annual Report 2011 | 75

The business activities and operating assets of the Group are mainly concentrated in GCC countries, and selected financial information as at 31 December 2011 and 2010 and for the years then ended, categorized by these geographic segments are as follows: Sales SAR '000 2011 Saudi Arabia Other GCC Countries Other Countries Total 2010 Saudi Arabia Other GCC Countries Other Countries Total 4,935,258 1,931,954 63,698 6,930,910 9,763,889 126,471 520,485 10,410,845 5,656,415 2,198,470 96,104 7,950,989 12,003,293 169,940 894,280 13,067,513 Non-Current Assets SAR '000

Analysis of sales is given by product group as shown below. 2011 SAR '000 Fresh Dairy Long Life Dairy Fruit Juice Cheese and Butter Bakery Poultry Arable and Horticulture Other Dairy Total 3,475,719 761,135 888,110 1,446,635 966,374 319,210 72,600 21,206 7,950,989 2010 SAR '000 3,168,709 658,911 745,143 1,282,423 821,211 176,135 47,697 30,681 6,930,910

76 | Annual Report 2011

16. Cost of Sales
2011 SAR '000 Direct Material Costs Government Grants Employee Costs Share Based Payment Transaction Expense Depreciation of Property, Plant and Equipment Depreciation of Biological Assets Biological Asset Appreciation Loss on Sale of Biological Assets Other Expenses Total 3,515,647 (82,212) 557,932 504 572,413 123,411 (337,047) 62,151 541,670 4,954,469 2010 SAR '000 2,991,477 (100,151) 468,028 490,928 117,442 (327,800) 71,248 483,817 4,194,989

18. General and Administration Expenses
2011 SAR '000 Employee Costs Share Based Payment Transaction Expense Insurance Depreciation of Property, Plant and Equipment Profit on Sale of Property, Plant and Equipment Other Expenses Total 211,089 217 22,566 22,570 (8,467) 17,703 265,678 2010 SAR '000 158,646 23,416 20,955 (11,251) 37,475 229,241

19. Employee Stock Participation Program
The Company will offer certain employees (the “Eligible Employees”) the option (the “Option”) for equity ownership (“Restricted Shares”) opportunities and performance based incentives which will result in more alignment between the interest of both shareholders and these employees.

17. Selling and Distribution Expenses
2011 SAR '000 Employee Costs Share Based Payment Transaction Expense Marketing Expenses Depreciation of Property, Plant and Equipment Other Expenses Total 583,209 306 397,345 137,747 94,625 1,213,232 2010 SAR '000 452,077 351,690 123,437 118,769 1,045,973

The number of Restricted Shares shall not exceed 1,100,000 shares. If Restricted Shares have not been granted to Eligible Employees in the reporting period for which it was earmarked, it shall carry over to the next reporting period. The program is effective after adoption by the Board of Directors (the “Effective Date”), on 4 Thul Quada 1432 A.H. (1 October 2011). The program shall continue for a period of three years from the date of its adoption by a resolution of the Board and shall automatically renew in successive three year periods unless otherwise terminated by a resolution of the Board. As the Eligible Employees have the option to purchase the Restricted Shares on their respective award dates in exchange for cash at a predetermined price, provided vesting conditions are met, this is regarded as an equity settled share based payment transaction.

Annual Report 2011 | 77

The vesting of the Option is dependent on meeting or exceeding the requisite annual performance targets set by the Company in accordance with its five year plan. The exercise of the Option is contingent upon the shares of the Company continuing to be listed on the Saudi Stock Exchange. In the event of a capital increase, share split or dividend distribution (in the form of shares), the number of Restricted Shares and the exercise price subject to the Option will be adjusted accordingly. The fair value of the Option is estimated at the grant date using the Black Scholes Merton pricing model, taking into account the terms and conditions upon which the share options were granted. The following table illustrates the number of, and movements in, share options during the year: 2011 Outstanding at 1 January Granted during the year Outstanding at 31 December 1,061,000 1,061,000 2010 -

20. Zakat and Income Tax
A. Zakat is charged at the higher of net adjusted income or Zakat base as required by the Department of Zakat and Income Tax (DZIT). In the current year, the Zakat charge is based on the net adjusted income method. 2011 SAR '000 Zakat Charge Income Tax Expenses for Foreign Subsidiaries Charged to Consolidated Statement of Income 28,993 4,180 33,173 2010 SAR '000 26,021 1,182 27,203

B. Zakat and Income Tax Provisions. 2011 SAR '000 65,236 33,173 (32,517) 65,892 2010 SAR '000 60,516 27,203 (22,483) 65,236

Exercise price is SAR 88.25 in the program The weighted average remaining contractual life for the Options outstanding at 31 December 2011 is 2.2 years. The weighted average fair value of options granted during the year was SAR 12.5 million. The following table list the input to the model used for the determination of the fair value of the Options for the year ended 31 December 2011: 2011 Dividend yield (%) Expected volatility (%) Risk free interest rate (%) Expected life of share options (years) Weighted average share price (SAR) Model used 2.5% 20.9% 5.0% 2.3 88.25 Black Scholes Merton

Zakat and Income Tax provisions Balance at 1 January Charged to Consolidated Statement of Income Payments Balance at 31 December

C. The Company has filed its Zakat returns for all the years up to 2010 and settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the DZIT for all the years up to 2006 while the 2007 to 2010 Zakat returns are still under review by the DZIT. HADCO has filed its Zakat returns for all years up to 31 December 2008 and has settled its Zakat liabilities accordingly. The Zakat assessments have been agreed with the DZIT for all years up to 31 December 2002 while the 2003 to 2008 Zakat returns are still under review by the DZIT. From 2009 onwards HADCO is not required to file a return as results are consolidated in to the Group’s return

The expected life of the share options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the Options is indicative of future trends, which may also not necessarily be the actual outcome.

78 | Annual Report 2011

21. Earnings Per Share
Earnings per Share are calculated on the weighted average number of issued shares for the years ended 31 December 2011 and 31 December 2010 amounting to 230 million shares respectively.

23. Financial Risk Management Objectives and Policies
Financial instruments carried on the consolidated balance sheet include cash and cash equivalents, trade and other accounts receivable, derivative financial instruments, investments in securities, loan, short term bank borrowings, accounts payable, accrued expenses and other liabilities and long term debt. Commission Rate Risk is the exposure associated with the effect of fluctuations in the prevailing commission rates on the Group’s financial position and cash flows. Islamic banking facilities (Murabaha) amounting to SAR 5,980.1 million at 31 December 2011 (2010: SAR 4,248.8 million) bear financing commission charges at the prevailing market rates. The Group’s policy is to manage its financing charges using a mix of fixed and variable commission rate debts. The policy is to keep between 50% to 60% of its borrowings at fixed commission. The following table demonstrates the sensitivity of the income to reasonably possible changes in commission rates, with all other variables held constant. There is no impact on the Company’s equity.

22. Depreciation and Disposal of Assets
2011 SAR '000 A. Depreciation Property, Plant and Equipment Depreciation Biological Assets Depreciation of Biological Assets Biological Assets Appreciation Net Biological Assets Appreciation Total B. (Profit)/Loss on the Sale of Assets Property, Plant & Equipment Proceeds from the Sale of Property, Plant and Equipment Net Book Value of Property, Plant and Equipment Sold Profit on the Sale of Property, Plant and Equipment Biological Assets Proceeds from Sale of Biological Assets Net Book Value of Biological Assets Sold Loss on the Sale of Biological Assets Total (123,646) 185,797 62,151 53,680 (111,174) 182,422 71,248 59,997 (23,528) 15,057 (8,471) (21,832) 10,581 123,411 (337,047) (213,636) 519,094 117,442 (327,800) (210,358) 424,962 732,730 635,320 2010 SAR '000

Increase / decrease in basis Effect on income for the points of commission rates year SAR '000 2011

(11,251)

SAR SAR 2010 SAR SAR

+ 30 - 30

(17,910) 17,910

+ 30 - 30

(12,727) 12,727

Annual Report 2011 | 79

Foreign Currency Risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has transactional currency exposure principally in United States Dollars, Euros and Great British Pounds. Other transactions in foreign currencies are not material. The outstanding foreign currency forward purchase agreements were as follows:

The following analysis calculates the sensitivity of income to reasonably possible movements of the SAR currency rate against the Euro, with all other variables held constant, on the fair value of currency sensitive monetary assets and liabilities as at the reporting date.

2011 SAR '000 United States Dollar Euro Great British Pound Other Total 1,320,478 993,670 61,437 46,249 2,421,834

2010 SAR '000 1,675,240 1,005,085 69,454 20,482 2,770,261 2010 2011

Increase / decrease Effect on income for the in Euro rate to SAR year SAR '000

+ 10% - 10% + 10% - 10%

(14,369) 14,369 (7,852) 7,852

The Group uses forward currency contracts to eliminate significant currency exposures. Management believe that the currency risk for inventory and capital expenditure purchases is adequately managed primarily through entering into foreign currency forward purchase agreements. It is the Group’s policy to enter into forward contracts based on the underlying exposure available from the group’s business plan/commitment with the suppliers. The forward purchase agreements are secured by promissory notes given by the Group. As the Saudi Riyal is pegged to the United States Dollar any exposure to fluctuations in the exchange rate are deemed to be insignificant.

Credit Risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The Group limits its credit risk by trading only with recognized, creditworthy third parties. The Group’s policy is that all customers who wish to trade on credit terms are subject to credit verification procedures. Trade and other account receivables are mainly due from local customers and related parties and are stated at their estimated realizable values. The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and by monitoring outstanding receivables on an ongoing basis. The receivable balances are monitored with the result that the Group’s exposure to bad debts is not significant. The five largest customers account approximately for 22% of outstanding accounts receivable at 31 December 2011 (2010: 31%). With respect to credit risk arising from other financial assets of the Group comprising of cash and cash equivalents, investments in securities and loan, the Group’s exposure to credit risk arises from default of the counter-party, with maximum exposure equal to the carrying amount of these instruments. Cash and bank balances are placed with national and international banks with sound credit ratings.

80 | Annual Report 2011

Liquidity Risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from the inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds and bank facilities are available to meet the Group’s future commitments. The Group’s terms of sales require amounts to be paid either on a cash on delivery or on a terms basis. The average days of sales outstanding for 2011 were 24 days (2010: 25 days). Trade payables are typically settled on a terms basis, the average payables outstanding for 2011 were 54 days (2010: 50 days).

All derivative financial instruments are being used as cash flow hedges and are carried in the consolidated balance sheet at fair value. All cash flow hedges are either against transactions with either firm commitments, or forecast transactions that are highly probable. The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 15 months. All 2011 hedges were considered highly effective and the net loss on cash flow hedges during the year recognised in Other Reserves within equity was SAR 23.7 million (2010: net gain of SAR 9.6 million).

25. Commitments And Contingencies
A. The contingent liabilities against letters of credit are SAR 342.2 million at 31 December 2011 (2010: SAR 144.5 million). B. The contingent liabilities against letters of guarantee are SAR 183.0 million at 31 December 2011 (2010: SAR 70.2 million). C. The Company had capital commitments amounting to SAR 1,930.6 million at 31 December 2011 in respect of ongoing projects (2010: SAR 1,547.1 million). The majority of the capital commitments are for new production facilities, sales depot development, distribution fleet, fridges and information technology. D. Commitments under operating leases expire as follows:

24. Financial Instruments
Fair Value Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. As the Group’s consolidated financial statements are prepared under the historical cost method, differences can arise between the carrying values and the fair value. The fair values of financial instruments are not materially different from their carrying values. Hedging Activities At 31 December 2011 the Group had 15 commission rate swap agreements in place covering total notional amounts of SAR 800 million and US$ 210 million. At 31 December 2010 the Group had 10 commission rate swap agreements in place covering total notional amounts of SAR 300 million and US$ 210 million. The swaps result in the Group receiving floating 3 month SIBOR/ 3 month US$ LIBOR rates while paying fixed rates of commission or floating 3 month US$ LIBOR rates under certain conditions. Five had a deferred start of one year from trade date with total exposure of SAR 500 million One of the contracts has the option of increasing the notional amount by SAR 50 million on starting date. The swaps are being used to hedge the exposure to commission rate changes of the Group’s Islamic borrowings. At 31 December 2011 and 2010 the Group had various forward foreign exchange contracts that were designated as hedges to cover purchases and other expenditures in a variety of foreign currencies.

2011 SAR '000 Within one year Two to five years After five years Total 72,581 78,137 45,183 195,901

2010 SAR '000 63,095 94,533 41,156 198,784

Annual Report 2011 | 81

26. Directors Remuneration
The Directors› remuneration paid to the Board of Directors for year ended 31 December 2011 amounted to SAR 6.6 million (2010: SAR 6.6 million).

28. Dividends Approved And Paid
On 29 Rabi Thani 1432 A.H. (3 April 2011) the General Assembly Meeting approved a dividend of SAR 517.5 million (SAR 2.25 per share based on 230 million shares) for the year ended 31 December 2010, which was paid on 7 Jamad Al Awal 1432 A.H. (11 April 2011).

27. Related Party Transactions And Balances
During the normal course of its operations, the Group had the following significant transactions with related parties during the year ended 31 December 2011 and 31 December 2010 along with their balances: Nature of Transaction 2011 Sales Purchases 2010 Sales Purchases (374,776) 193,699 81,146 (30,944) (444,510) 276,022 37,781 (55,917) Amount Balance at 31 December SAR '000 SAR '000

29. Dividends Proposed
The Board of Directors proposes for approval at the General Assembly Meeting a dividend for the year ended 31 December 2011 of SAR 517.5 million (SAR 2.25 per share based on 230 million shares).

30. Subsequent Events
In the opinion of the Management, there have been no significant subsequent events since the year end that would have a material impact on the financial position of the Group as reflected in these consolidated financial statements.

31. Approval Of Consolidated Financial Statements
The consolidated financial statements were approved by the Board of Directors on 2 Rabi Awal 1433 A.H. (25 January 2012).

Contact Details

Pricing and terms for these transactions are at arm’s length. The related parties noted above include the following: Entity Savola Group Arabian Shield Cooperative Insurance Company Managed Arable Farms International Dairy and Juice Limited Pure Breed Company International Paediatric Nutrition Company Relationship Major Shareholder Common Ownership Common Ownership Investment in Associate Investment in Associate Investment in Joint Venture

Almarai welcomes your feedback, suggestions and queries. For investor relations matters, please contact: Khalid M. Al Nasser +966 (1) 470 0005 Ext. 1280 investor.relations@almarai.com For product related matters, please contact: 800 124 6688 (KSA) +966 (1) 453 6688 (International) info@almarai.com www.almarai.com

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