"Saudi's Savola says to stay in Iran despite diplomatic rift." (January 5, 2016).
"A Saudi-based food company that has done well for itself in sanctions-era Iran experienced the downside of investments there this week, when Iran’s double-digit inflation ate into Savola Group’s earnings. Savola, which makes cooking oil and other staple foods in markets around the Middle East and North Africa, reported a $150 million net profit for the quarter ended December 31, missing most analyst expectations of around $170 million. The company generates about 15% of total revenue from its business in Iran, pointed out NCB Capital’s Farouk Miah, making that country one of its most important overseas market…Savola, one of the Middle East’s largest food groups, has quietly prospered in Iran, despite the tensions. Regional economists cite a long history of business between key trading families of Iran and Saudi Arabia. Starting in 2004, Savola bought what today stands as an 80% stake in a holding company, Savola Behshahr, which manages two food plants in Iran. Savola Behshahr is said to hold more than a 50% share of the Iranian edible-oil market. Savola’s Saudi executives are largely hands-off, letting local managers in Iran deal with operations, analysts say. Iran’s government helps Savola Behshahr and other producers of key food items with subsidies, to control rises in costs of staples for Iranian families, Mr. Miah noted. The Saudi government itself is the second-largest single shareholder in Savola, through a 10% stake held by a social-insurance board, according to data on the Saudi stock exchange website. Savola’s gross profit in the fourth-quarter fell 20% on year – in part due to Iran’s sharp devaluation of its currency in 2013, some analysts say. Iran in July cut the rial’s value to deal with inflation brought on partly by international sanctions targeting Iran’s nuclear program. The Saudi company’s fourth-quarter report this week was acknowledgment ‘it has taken some of the hit’ of the currency devalution in Iran, Mr. Miah said. Additionally, re-classification of Iran’s economy as 'hyper-inflationary' – Iran’s central bank this month put the country’s official annual inflation rate at 40% – also required a procedural book-keeping change, and the financial impact of that piled up in the fourth quarter, EFG Hermes said in a note to clients. Lower prices overall for commodities and a one-off $27 million impairment charge related to another investment also contributed to Savola missing fourth-quarter earnings expectations, analysts said. The Saudi food company draws what NCB Capital estimates is 40% of its revenue in non-dollar-linked currencies. Expanding out of Saudi Arabia helps its food companies expand revenue despite price controls in the kingdom, but also increases their exposure to regional political troubles, as in Egypt, Iran and Sudan…Analysts say Iran remains a strong market for Savola, despite the complexities of operating in an economy under international sanctions. Food is exempted from the sanctions.” (Wall Street Journal, “Saudi Food Company Battles Iran Currency Weakness,” 1/21/14)
“Iran is having to pay a premium for basic foodstuffs such as cooking oil, highlighting the increasing strain on Tehran from Western sanctions aimed at its disputed nuclear programme, even though the sanctions don't cover food. Wilmar International, the world's largest listed planter, and Mewah International, a $570 million edible oils processor - both listed in Singapore - are driving sales to Iran on long-term contracts, with Middle Eastern trading sources reporting premiums of up to $30 a tonne to the cash benchmark…Wilmar and Mewah dominate the trade with Iran where demand for high-value refined palm olein, used in cooking oil, can reach 500,000-700,000 tonnes a year. Wilmar sells to Saudi Arabian food company Savola, which buys palm oil to feed its edible oil processors in Iran, three Middle Eastern trading sources told Reuters. They said Wilmar demands a premium of $20-$30 per tonne to cover potential payment delays and interest charges. Wilmar said it does not comment on specific contracts. Savola did not respond to requests for comment.’ Savola is a one woman man. It sticks to one palm oil company to supply its refineries and it's Wilmar for the past few years,’ said a Dubai trading source close to Savola. "Payments can be slow, but there are ways around it. The money will be banked in (Saudi) riyals, euros and U.S. dollars from Turkish banks. Sometimes, the money will come via India…’Wilmar doesn't do high stakes gambling. So it has taken a corporate guarantee from Savola's head office in Saudi Arabia,’ said a Southeast Asian trading source who has done deals with Savola. ‘It's become standard practice.’ Savola has 832,000 tonnes of annual capacity in Iran, giving it nearly 40 percent market share in a country of over 74 million people. The firm's revenues from Iran increased by almost a third last year to 4.4 billion riyals ($1.17 billion), about 42 percent of its global edible oil sales.” (Reuters, “Beyond sanctions, Iran squeezed by higher edible oil costs,” 4/29/13)