The Gulf Cooperation Council (GCC) cement industry witnessed a mixed performance following the credit crisis wave that halted major real estate activity and construction projects affecting cement and building materials companies, according to the latest Global investment House Report.
Although GCC cement companies recorded 13.1 per cent decline in top line but witnessed quite an increase in the bottom line with the support of non-core income. Net income increased from US$353.9m in 1Q09 to US$421.5m in 1Q10.
Net margins witnessed a 1038.8bps increase during the period as earlier other income segment witnessed a US$30.4m loss in 1Q09 which later converted to a US$65.2m profit by in 1Q10. However, gross margins witnessed a 436.6bps decrease in 1Q10 as compared to 1Q09 to reach 39.1 per cent, this was due to a lower sales revenue.
Non-core income which has historically remained the life saver of cement producers in the GCC, achieved the same this time round as well as non-core income contribution to the bottom line remained at 15.5 per cent in 1Q10 as compared to last year non-core loss of US$30.3m in 1Q09.
The financial position of cement companies became much stronger as assets and equity increased 3.9 per cent and 7.9 per cent respectively during 1Q10. On the other hand, debt and liabilities decreased by 12.3 per cent and 5.7 per cent to reach US$2.1bn and US$3.6bn respectively. Debt to equity which became a very important ratio during the crisis witnessed a 500bps decrease in 1Q10 to reach 21.6 per cent. Companies benefited from the latest development in economic activity and governmental policies, which in turn enhanced profitability and reduced debts.
During 1Q10, the financial performance of GCC cement companies witnessed a decline when compared on a YoY basis. Sales revenue witnessed a 13.1 per cent decline to reach US$1.09bn as compared to US$1.26bn recorded in 1Q-2009. Costs declined 12 per cent to reach US$667.3m in 1Q10, bringing the gross margin down to 39.1 per cent as compared to 43.5 per cent witnessed in 1Q09.
The largest cement producer in the GCC, Saudi Arabia, witnessed the slightest decrease in cement prices by 2.3 per cent in 1Q10 to reach US$61.3/t. In addition to low realisation prices, local cement players, which were granted the right to export, are waging local prices war on cement prices.
As for Qatar, the fastest growing economy in the GCC, prices witnessed a 3.8 per cent decrease in 1Q10 to reach US$68.7/t.
During the past year project activity witnessed a 14.6 per cent decrease to reach US$2.3t in 1Q10, of which 27.3 per cent were on hold. Finally, as long as the economic environment is not improving, the global crisis will still be cutting short major developments in the GCC.
Strong domestic demand continued to mitigate the impact of over-supply. Domestic dispatches were up 22.7 per cent in 1Q10 to 10.99Mt compared to 8.96Mt in 1Q09 reflecting the effects of counter-cyclical measures taken by the government to stimulate and maintain economic activity.
The total number of projects planned and underway as of 31 March 2010 in Saudi Arabia is US$622.6bn as per the MEED database. The value of projects on hold is US$71.5bn accounting for 11.5 per cent of the total projects which is less than the proportion of combined projects on-hold in rest of the GCC countries of 33.3 per cent.
However, capacity expansion in tandem with the selective export ban is putting pressure on cement prices as traditional cement exporters are being forced to sell in the domestic market while other major cement players are extending their reach to other regions to increase their sales. Total Saudi cement sector capacity is expected to cross 52Mt in 2010 leading to an estimated excess supply of 5-7Mt in 2010.
Total sales revenue of Omani Cement companies for 1Q10 was US$82.9m while the same during 1Q-2009 was US$109.5m, decline of 24.2 per cent. Top line decline for Omani cement companies in 1Q10 was because of lesser sales volume as well as decline in the realisation prices.
Cement price in Oman declined when compared to their average prices in 1Q09. In 1Q10 average cement prices was US$75.8/t as compared to an average price of US$81.5/t during 1Q09. Cement prices in Oman have been relatively stable over the years but declined during the current quarter due to influx of cement from region cement players at lesser and competitive prices.
Oman project value at the end of 1Q10 is US$104.9bn, 4.6 per cent of the project value in GCC.
Decline in the cement demand in the UAE, construction projects on hold, price wars among the players and gas curtailment issues marred the financials of the sector. The operational performance during 1Q10 was the worst ever recorded by UAE cement manufacturers. Never in their interim results, gross margins below 20 per cent were ever recorded since 2003, but this time round the sector as whole witnessed gross margins of merely 12.5 per cent.
The UAE project value of March 2010 is US$966.7bn, 42.5 per cent of the project value announced in GCC. However, the majority of the projects amounting to 49.5 per cent (US$479bn) have been put on hold making it second biggest projects market in the GCC after Saudi Arabia.
Consolidated revenues of the sector were down by 37.1 per cent to US$240.5m during 1Q10 as compared to US$382.3m at the end of 1Q09. Reason for the decline in revenue was because of decline in cement sales volume as well as a sharp decline in cement realization prices.
The Qatar cement sector is expected to remain quite productive and to remain in a supply gap of 1-1.5Mta which will continue to benefit the local cement players.
The cement capacity in Qatar has hit its maximum at 6.2Mta. The Qatar National Cement Company (QNCC) is the major producer at 4.4Mta followed by Gulf Holding Company at 1.5Mta and Al Jaboor cement industries with 0.3Mta of cement production.
Qatar project value of March 2010 is US$221.4bn, 9.7 per cent of the project value announced in GCC. The majority of the projects amounting to 88.6 per cent (US$196.1bn) are continuing as planned because of the persistent gas prices in the country.
Consolidated revenues of the sector declined by 25.7 per cent to US$91.3m during 1Q10 as compared to US$122.9m at the end of 1Q09. The reason for the decline in revenue was because of a decline in cement sales volume as well as fall in cement prices.