Egypt: SCG reports 18% drop in 3Q revenue

Egypt: SCG reports 18% drop in 3Q revenue
Published: 03 November 2015


Suez Cement Group of Companies (SCGC) reported an 18 per cent decrease in revenues for the third quarter of the year versus the same period in 2014 and 12 per cent for the first nine months.

The company said that during this period the market demand experienced a limited growth (2.1 per cent for the quarter, 1.6 per cent for the nine months). Combined with a steep reduction in exports, a marked oversupply was witnessed in the domestic market, causing prices to decline. This overall trend was even more pronounced in the third quarter as demand slowed, in part due to the Eid holidays. Prices fell by almost 10 per cent  to the first semester of 2015, and were down 20 per cent compared to 3Q14.

Production boost
Simultaneously traditional energy prices have been increasing sharply (30 per cent), with as the government's removal of subsidies.

However, the company said that thanks to the increasing use of coal and a more steady supply of heavy fuel oil, the Egyptian cement industry was able to boost output by 29 per cent YoY in the third quarter and by driven by 23 per cent over the first nine months of the year.

SCGC volumes decline
SCGC was able to maintain its market leadership but saw sales volumes decline slightly as it tried to defend its pricing. Exports to regional markets, such as such as Libya and Yemen, remained limited because of political and economic instability.

The company continued to implement its action plan to improve internal efficiencies and modify its energy mix, with two plants now fully converted to coal and waste, both fuels representing 29 per cent of the total needs. However, the resulting EGP70 /t cost improvement from the prior year proved insufficient to offset the impact from pricing, energy price and cost of labour increases.

Outlook
Egypt's supply-demand imbalance and lower cement prices are likely to remain negative trends for the rest of 2015, as compared to 2014, but we expect to see market demand to improve and price to start rebounding, while the magnitude and speed of the price recovery is still difficult to assess.

SCGC maintains its optimistic outlook on cement production and sales in 2016 and onwards as the fundamentals are still good for the construction sector.

The company added that Egypt will move forward with the implementation of several large national projects under government stimulation initiatives designed to boost demand for cement across the country.

In terms of operating improvements, SCGC is currently preparing for the implementation of coal conversion projects at the Helwan and Tourah Plants over the next two years similar to those already completed at the Kattameya and Suez Plants. SCGC's energy diversification program is focused on increasing the use of waste-derived fuels, petcoke, coal and renewable energy to prevent fluctuating natural gas and heavy fuel oil prices negatively impacting the company's bottom line.