Oman Cement Company (OCC) – Investment Update

Oman Cement Company  (OCC) – Investment Update
Published: 16 April 2008

Total revenue of the Oman Cement Company (OCC) was RO50.01mn for the year ended December 2007, an increase of 1% from RO49.71m in the previous year. A modest growth in revenue can be attributed to 2% decline in the sales volume of the company. However, average realisations firmed up to RO26.63/t from RO26.0/t in the previous year. The net profit of the company declined by 15% to RO17.6m in 2007 from RO20.6m in 2006. The net profit margin simultaneously declined from 41% in 2006 to 35% in 2007. As a result, the EPS declined to RO0.53 in 2007 from RO0.62 reported in the previous year.

Financial Performance
The consolidated total revenue of the company was RO50.01m for the year ended December 2007, an increase of 1% from RO49.71m in the previous year. A modest growth in revenue can be attributed to 2% decline in the sales volume of the company. Average realizations firmed up to RO26.81/t from RO26.0/t in the previous year. Over 95% of sales were in the domestic market in 2007, the same as in 2006.

The total cost of sales of the company was RO29.73m during 2007, 11% higher than in the previous year. The increase in cost of sales can be attributed to the increase in input cost of clinker purchased from outside and also because of increase in energy consumption.

The gross profit declined by 12% to RO20.27m in 2007. As a result of a steeper increase in the cost of sales as compared to that in the sales revenue, the gross profit margin decreased to 41% in 2007 from 46% in 2006.

The net profit of the company declined by 15% to RO17.27m in 2007 from RO20.43mn in 2006. The net profit margin simultaneously declined from 41% in 2006 to 35% in 2007. As a result, the EPS declined to RO0.53 in 2007 from RO0.62 reported in the previous year.

Taking into account the rising demand scenario in Oman and the GCC, OCC has entered into an agreement with M/s CBMEC, China- to build its 3rd production line with a clinker production capacity of 4000tpd. The project cost is estimated at approximately US$162m or RO62.3m. The company has been given gas supply assurance from the government. The project is expected to be completed by FY2009 and the additional impact of this should reflect in the books by FY2010. OCC will be able to reach a cement capacity of approximately 2.6
Mta by end of 2009 which currently stands at 1.87Mta. The project is expected to be financed by way of debt (50%) and remaining by liquidating fixed deposits and also through cash flow from operations. The capacity expansion full effect would come by 2010, till then we believe the company has to take proactive measures in the coming years control its cost and increase its margins.

Abstracted from: Global Investment House, Kuwait, Investment Update Report.