GCC cement firms' profits fall by 35% in 2008

Cement companies in Kuwait saw the biggest drop in earnings at 105%, followed by the UAE at 73%.

Earnings of cement companies in the GCC slid by 35% in 2008 from the previous year’s earnings as the economic slowdown and a slump in equity and real estate markets took their toll on the industry, according to a sector report.

Total earnings for the sector fell to US $1.4 billion (AED5.1 billion) in 2008, compared to $2.2 billion in 2007, the report released by Global Investment House said.

Although the boom in the cement sector continued in the first half of the year, costs heaped pressure on companies, pushing down profit margins.

The sector witnessed a loss of $42 million in the fourth quarter, compared to a profit of $469 million a year earlier, according to the Kuwait investment bank.

Cement companies in Kuwait saw the biggest drop in earnings at 105%, followed by the UAE at 73%.

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Qatar was the only country which reported an earnings growth, rising10%, the report said.

Cement players of Oman and Saudi Arabia were able to close the year with a nominal drop in profits.

According to recent reports, Saudi Arabia is being pressured by industry insiders to lift its cement export ban.

In 2008, the sector earned revenue of $5 billion, up by 16% from $4.4 billion in 2007, with Saudi Arabia and the UAE, where most of the cement companies are based, the major earners.

A combination of the increasing price of imported clinker and fuel, especially coal, contributed to a 36% rise in the cost of sales to $3.1 billion, up from $2.3 billion in 2007.  Gross margins dropped from 47% to 38% in 2008.

Declines in the equity and real estate markets, in which most of the cement firms were diversified, was another major reason for a drop in earnings.

Regional manufacturers experienced losses of $153 million in 2008 through investments in real estate and equities, poor returns on foreign exchange and reduced profit from associates.

Only four of the total 24 companies in the industry managed to end the year with a growth in profitability, with the rest reporting a decline in profitability or ending the year with losses.

The UAE’s RAK Cement Company was the major gainer during 2008 at 46% to AED80 million ($21.7million), compared to AED55 million ($14.9 million) in 2007.

Saudi Arabia

The Kingdom has recorded an increase in cement sales in the first two months of this year, spurred on by infrastructure projects, reported Business Intelligence Middle East.

The news website cited an HSBC Holdings report that said sales had risen 15% to 5.6 million tonnes, compared with the same results the previous year.