Arabian Cement Company has reported its consolidated results for the first nine months of 2014. Revenues in the period rose 17 per cent to EGP1788.5m (US$250m) as compared to EGP1532.1m in 9M13, on the back of the early signs of economic and security improvements in Egypt.

Net profit dropped 35 per cent YoY to EGP200.4m, while net profit margin was down nine percentage points to 11 per cent on the combined impact of the expiration of the company’s tax-exempt status – ACC is now taxed at the newly-increased corporate rate of 30 per cent – and non-recurring expenses associated with ACC’s listing earlier this year on the Egyptian Stock Exchange.

Chief executive officer, Jose Maria Magrina, commented: “Despite the impact of challenges including fuel scarcity, I am pleased with both our operational and financial performances in the first nine months of the year, even as we suffered some erosion of our bottom line due to the planned expiration of our tax-exempt status and of charges related to our IPO. The greatest challenge we have faced in the first nine months of the year has been that of energy availability. Our production and utilisation rates have been adversely impacted by the ongoing fuel shortage, although both are now on the rise following our successful conversion of our facilities to run on alternative fuels.”

“Fuel shortages in the first nine months of the year led to a 20 per cent YoY drop in clinker production and a 62 per cent utilisation rate of those facilities as compared to 9M13. Similarly, we are reporting today a two per cent drop in bulk cement production (with a 78 per cent utilisation rate). Despite these challenges, rising market demand and our aggressive marketing efforts combined to allow us to pass along many of the price rises to consumers; revenues per tonne have accordingly risen 19 per cent YoY,” he added.

“This has, of course, had an impact on our gross margins, as COGS have risen with our need to import clinker to meet market demand. Gross margins accordingly eased three percentage points to 42 per cent compared with 9M13. The top-line increases have yet to filter down to the EBITDA and net profit levels, unfortunately, as increased expenses, FX pressures and a new national tax regime put downward pressure on those line items,” he concluded.

Outlook
The management is confident that the Egyptian market offers significant growth potential and is guardedly optimistic that the country is on course for a continuation of economic growth, political stability and a steady security environment. Stability of this form, coupled with ongoing GCC-backed infrastructure spending and early signs of a return of corporate investment, sees management anticipating improved performance in 2015, particularly as its conversion to alternative energy is nearing completion.

ACC’s energy mix at time of disclosure was 70 per cent coal, 21 per cent natural gas, four per cent refuse-derived fuel (RDF), four per cent petcoke and one per cent diesel. The management is targeting a mix of 30 per cent RDF and 70 per cent coal for FY15.