GCC profits rise 27.1 per cent in 1H12

Profits of the Gulf Cooperation Council (GCC) cement sector increased 27.1 per cent YoY in the first half of 2012 to US$971.5m from US$764m in the same period of 2011, the latest report from Global Investment House (GIH) shows.

According to the report, the GCC cement sector grew 17 per cent in the first six months of the year mainly due to a huge pipeline of projects in Saudi Arabia helping to generate significant demand. Oman was in second place with growth of 13.8 per cent while Qatar and the UAE reported roughly the same growth of 11.5 per cent.

However, in 2Q12 alone,  companies reported a fall of 15.7 per cent YoY.  Cement companies in the UAE registered the highest income growth, reporting an increase of 175 per cent. Net profit of the GCC during 2Q12 was 15.8 per cent less on a quarterly basis but up 4.8 per cent on a YoY basis.

Saudi Arabia witnessed an increase of 21 per cent in the sales thanks to a 12.6 per cent rise in cement consumption  and prices which were up three per cent. Sector margins, however, dropped slightly when compared with 1Q2 to 54.5 per cent, the reason for which was the influx of cement from regional countries, according to the report.

The UAE and Oman reported higher revenues due to the better operating environments in both countries. UAE growth increased, an indication that the sector has reached the bottom and is now poised to rebound.
UAE sales revenue increased 11.6 per cent to reach US$518m, bringing gross margins back to double digit growth of 11.8 per cent, higher than the gross margins reported in 1Q12.

In Oman, cement companies witnessed a 13.8 per cent rise in sales revenue, reaching US$201.7m in 1H12. The companies did well when compared to the previous period due to the increase in cement demand and the diversion of UAE exports to other markets, the report said. Costs, on the other hand, rose more than the increase in growth, which dragged the gross margins of the sector to 34.3 per cent in H1, 2012 compared to 38.2 percent earlier. The sector’s net profits increased by 52.2 percent to reach US$ 58.9m, bringing net margins back into the 30-40 per cent range, previously being in the 20-30 range.

Qatar also witnessed increasing sales revenue, posting an 11.9 per cent increase in sales revenues and a 17.4 percent increase in net profits. However, on a quarterly basis, both revenue and net profit declined by 1.3 percent and 9.7 per cent, respectively, according to the report.

Overall, GCC companies have witnessed better demand in 2012 compared to 2011. However, due to the slow pace of awarding new contracts and comparably a lower project activity, most of the countries witnessed a drop in revenue and income during the second quarter of 2012 compared to 1Q12. The report expects GCC companies to do well in 2012, as the demand is relatively higher and the prices have rebounded in most of the countries.

Meanwhile, cement prices in the GCC averaged US$65.8/t in H1, 2012 compared to US$65.9/t in 1Q11, a 0.1 per cent decrease due to the price cap in Saudi Arabia and the slow in demand in Kuwait and the UAE, the report said.