Saudi Arabian cement companies see drop in income
Saudi Cement and Southern Cement reported decrease in net income in Q1
Southern Cement and Saudi Cement both reported a decrease in net income for the first quarter of 2014.
However, while Saudi Cement’s earnings were impacted by the construction sector’s slowdown, Southern Cement’s sales were not.
Southern Cement witnessed an 18% decrease in net income y-o-y to $58.9mn (SR221mn). Compared to the first quarter of 2013, net income witnessed a decrease of 8.7%. NCB Capital attributed the drop to an increase in costs mainly from imported clinker.
Gross profit dropped by 15.3% y-o-y to SR240mn, while operating profit stood at $60mn (SR225mn), down by 17.5% year on year.
“In summary, Southern Cement reported a weak set of 1Q14 results, with all profit lines declining 15-18% y-o-y. Net income came in 14% lower than NCBC estimates and 16% lower than consensus estimates,” NCB Capital said.
The report notes that sales were not impacted by the slowdown “like peers in the sectors” as they grew by 2% y-o-y compared to a sector decline of 5.4%.
On the other hand, Saudi Cement reported a 16.5% y-o-y drop in net income as a result of lower volumes.
“Net income was 11.6% above the NCBC estimates but in-line with consensus. This is the second consecutive y-o-y decline in net income in a quarter since 3Q09 which reflects the demand weakness.”
The company saw a decrease in sales, which resulted in an increase in the company’s clinker inventory to reach a four-year high level of 2.6mn tons in March 2014. This is the highest inventory level in the sector and is around four times the inventory levels a year ago.
“We believe this will enable the company to increase sales once demand picks up, although it may lead to an increase in costs from current levels,” experts wrote.