Fujairah Cement faces challenging future

Fujairah Cement faces challenging future
Published: 19 May 2011

UAE-based Fujairah Cement Industries Company (FCI) has declared its 1Q11 results recording net loss of AED2.6m (US$437,874) in 1Q11 compared to a profit of AED0.2m in the same period last year. Sales volumes rose during the period which resulted in an increase in the gross margins, but with a increase in financial charges, profits fell-back and the company reported a loss. Cost of sales rose to AED116.6m in 1Q11 as compared to AED91.7m in 1Q10. But its percentage to sales was lower during the period which gave rise to gross margins of 6.3% in 1Q11 as compared to 4.4% during the same period last year – Reports the Global Investment House, Kuwait.

During 2010, FCI increased its clinker capacity to 3.75Mta and further augmented it to 4.2Mta more recently. But the cement grinding capacity still remains at 2.2Mta. Company is able to sell of most of its production but with limited cement capacity it is presently constrained to operate its clinker plant below 60% levels. surprisingly, there is, so far, no plans to increase the grinding capacity of the plant – according to latest management pronouncements.

With 1Q11 ending in the red because of higher financial charges and now with higher costs filtering through, at a time of falling local cement prices, FCI faces a challenging outlook. Not surprisingly,  analysts are recommending a sell on the stock. Whether the company is a potential acquisition target by a major, with Italcementi for example, said to have regional ambitions, remains another story.