GCC cement firms rebound into profit in 2011

Cement companies in Gulf oil producers rebounded into profits in 2011 after suffering from lower earnings in the wake of the 2008 global fiscal distress that halted many construction projects in the region.

Sales revenue swelled by 14.2 per cent to $4.57 billion last year from around $4bn in 2010 while net profits edged up by 2.7 per cent to $1.47bn from about $1.44bn, Kuwaiti-based Global Investment House (GIH) said.

The combined assets of the companies in the six-nation Gulf Cooperation Council (GCC) also rise by around 4.4 per cent to $14.85bn from about $14.22bn in the same period, GIH said in a study.

“The GCC cement sector witnessed a turnaround after two years of decline in top line following the credit crisis wave that halted major real estate activity and construction projects affecting cement and building materials companies.”

The report showed the UAE , Saudi Arabia, Oman, and Kuwait overturned the declining revenues in 2010 and all four countries reported increasing sales for 2011 except Qatar. The UAE which has seen lower sales revenue since 2008, enjoyed a 5.9 per cent increase in sales to reach $940 million.

Oman also witnessed a 12.8 per cent rise in sales revenue, which reached $342.3m, the second highest revenue in Oman’s cement history. However Oman reported a 39.4 per cent decrease in net profits in 2011.

Kuwait reported a 5.4 per cent increase in revenue to reach $66.9m and posted a 47.1 per cent drop in net profits as compared to 2010.

Qatar was the only GCC country reporting lower sales and profits while Saudi Arabia posted a healthy 22.6 per cent increase in sales revenue and a 25.2 per cent growth in net profits, according to the report.

“The financial strength of the GCC cement companies continued to remain strong to weather any problem in the cement market as assets and equity increased by 4.5 and 4.4 per cent respectively last year,” GIH said.

“On the other hand, debt grew by 2.7 per cent to $2,497m… but debt to equity ratio fell to 22.5 per cent in 2011 from 22.8 per cent in 2010 .”

The report noted that the UAE, the second largest cement producer in the GCC, witnessed a 5.3 per cent decline in cement prices to reach $49 per tonne. It said the fall was a result of the excess supply and low demand due to slowdown in real estate and construction projects.

“In addition, new cement companies have flooded the UAE market, bringing more pressure to cement sector. The UAE continues to face pressure on its cement industry which is shown in the stifled profits,” the report said.

“The UAE is a strong economy backed by higher oil prices and strong development plans….time will heal the cement industry slowdown as the real estate activity picks up and more liquidity flows into the economy.”