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Zamil Industrial sees half-year profits fall 28%

Ongoing price wars and charges drive down earnings for conglomerate

Price competition has squeezed profits for the last year.
Price competition has squeezed profits for the last year.

RELATED ARTICLES: Zamil Industrial issues Q1 profit warningZamil completes insulation merger with GIG | Saudi's Al Zamil, Sharjah firm in JV

Zamil Industrial Investment Company, the manufacturing conglomerate with business lines in the construction sector, said net profits for the second quarter and half-year fell 24% and more than 28% respectively, as price competitiveness squeezed margins.

The company, which has businesses producing steel, glass, mirrors, insulation and air conditioners, reported after-tax profits for the last three months of SAR48m ($12.8m), against SAR63m ($16.8m) the previous year, though this was up 30% against the first quarter of 2011. Gross and operating profits rose by 15.8% and 6.3%, respectively.

Six-month profits fell 28.3% to SAR84.7m ($22.58m) against SAR118.1m ($31.49m) for the same period last year, though gross profits rose 8.1% to SAR501.9m ($133.8m). The company stated the disparity between gross and net earnings were due to higher sales volumes with their values declining.

“Gross profits increase was a result of growth in sales by 14.3% and growth in sales volumes in all the company sectors. On the other hand, net profits decline during the second quarter and six months in 2011 compared to the same period in 2010 was due to continued pressure on selling prices although it considerably improved compared to the first quarter of 2011,” it told shareholders through the kingdom’s Tadawul stock exchange.

The company added this morning that the fall in net profits for the two periods was also attributable to an increase in financial charges and “minority interests” on the back of the consolidation of RANCO Zamil Concrete Industries Company and Gulf Insulation Group Company as of 1st January 2011 since Zamil Industrial has management rights.

Zamil agreed to merge its insulation division with Gulf Insulation Group last August in a deal that would create a new entity worth SAR830m ($221.32m), excluding foreign stakeholders. Zamil said it would invest SAR150m ($40m) in the new company and take a 51% controlling stake.

Zamil Industrial is the listed entity within Zamil Group that contains diversified companies such as Zamil Steel. The company has in the last year been expanding some of its production lines in this subsidiary, such as Zamil Steel & Galvanizing Division, which has seen SAR40m ($10.66m)invested in a new plant that would increase capacity by half, from 50,000 tonnes per year to 75,000 tonnes per year.

The company had previously reported the increase in regional competition for its products in a profits warning for the first quarter. After-tax profits fell 33% to SAR36.8m ($9.81m) for the period against the first quarter last year.

The company has also announced this week a cash dividend of SAR0.75 per share. Zamil Industrial’s share price fell 0.984% yesterday to close at SAR30.2.

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