GCC cement firm earnings slump by 35%

Economic slowdown takes its toll on cement industry, according to new report.
GCC cement firm earnings slump by 35%
By Tom Arnold
Wed 08 Apr 2009 06:56 AM

Earnings of cement companies in the GCC slid by 35 percent in 2008 from a year earlier 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 $1.4bn in 2008, compared to $2.2bn 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 $42m in quarter four, compared to a profit of $469m a year earlier, according to the Kuwait investment bank.

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

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

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

In 2008, the sector was able to earn revenue of $5bn, up by 16 percent from $4.4bn in 2007, with Saudi Arabia and the UAE, where most of the cement companies are based, the major revenue earners.

A combination of the increasing price of imported clinker and fuel, especially coal, contributed to a 36 percent rise in the cost of sales to $3.1bn, up from $2.3bn in 2007.  Gross margins dropped from 47 percent to 38 percent 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 $153m 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 percent to AED80m ($21.7m), compared to AED55mn ($14.9m) in 2007.

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