Profits of the GCC cement sector increased by 21.2 percent in Q1, 2012. Net profits increased from $359.5 million in Q1, 2011 to $435.6 million in Q1, 2012, according to a report by Global Investment House (Global) on the GCC cement sector quarterly (Q1, 2012).
However, net margins witnessed a fall of 90.4 bps. Revenue on the other hand increased 24.3 percent to reach $ 1.26 billion, the report said.
Gross margins witnessed a 233.6 bps increase in Q1, 2012 to reach 43.7 percent as compared to 41.4 percent, which was due to increase in selling price along with drop in prices of fuel, it said.
Country-wise, the UAE and Oman, which used to report declining sales revenue, reported higher revenues due to the better operating environment in both countries. The UAE top line increased, more indication that it could reach the bottom, sales revenue of the UAE increased 7.7 percent to reach $ 258.1 million bringing gross margin back to double digit of 10.5 percent, the report said.
Oman, which is currently facing a stressed situation due to the UAE companies dumping its excess cement at cost in Omani market, is thus igniting price wars and pressuring Omani cement companies' profits. Omani companies witnessed a 16.7 percent increase in sales revenue reaching $ 100.3 million. However, cost increased 27.5 percent to reach $ 65.5 million thus pressuring gross margins, which declined to 35.2 percent in Q1, 2012 as compared to 40.7 percent in Q1, 2011. Net profits of the sector increased 39.4 percent to reach $ 31.1 million and bringing net margins back at 31 percent in Q1, 2012 as compared to 21.1 percent the previous quarter.
Qatar also witnessed increasing sales revenue posting a 7.3 percent increase in sales revenues and managed to post a 16.6 percent increase in net profits.
Saudi market, which is considered the largest in the GCC region, witnessed strong 34.7 percent increase in revenue during Q1, 2012, outperforming the UAE, Qatar and Oman. Gross margins increased to 55.5 percent. In addition net profits increased 23.6 percent to reach $ 364.5 million. The increase is purely organic due to higher cement dispatches because of the strong demand in the Kingdom in addition to higher cement prices.
Cement prices in the GCC averaged around $ 66.7/ton in Q1 as compared to $ 66.0/ton enjoyed in Q1, 2011, a 1.1 percent increase mainly due to price increase in Saudi Arabia.
The Kingdom's cement prices increased 11.3 percent in Q1 as compared to the previous year. The UAE, Oman and Kuwait witnessed declining prices because companies slashed prices to win contracts, according to the report.
All cement prices in the GCC witnessed a decrease except the Kingdom and Qatar. Kuwait marked the largest decline of prices by 4.5 percent to reach $ 75.8/ton in Q1 as compared to $ 79.4/ton during the same period a year ago. Kuwait continued to sell the highest average of cement prices as compared to other GCC countries, the report said.