Mar 30, 2011
Global Research Sector - Cement March 2011
GCC Cement Sector Quarterly
Incessant support by the non-core income sources Raw material prices on the rise UAE underperformer by all aspects `Neutral to Positive' stance on Saudi Arabia & Oman
GCC Cement
Introduction of additional measures to boost cement demand in GCC
The ongoing political turmoil happening in the Middle East has forced some governments to introduce additional measures on top of huge development plans already in place to pacify an agitated population. Saudi Arabia announced 21 Royal Orders in March 2011 which includes building of 500,000 housing units worth SAR250bn. Bahrain also announced plans to build 50,000 homes at a cost of USD5.3bn in response to the protests taking place in the country. In addition, most of the GCC countries announced one-time generous handouts and increased unemployment allowances for their citizens. All these measures are likely to trickle down into improved demand for cement.
Sector profitability improved marginally
GCC cement companies reported 11.7% decline in top line revenue, however it recorded a mere 0.4% increase in profits for the 2010. Net profits increased from USD1,440mn in 2009 to USD1,446mn in 2010. Net margins witnessed an 450.6bps increase during the period due to the fact, other income segment grew strongly by 55% to reach USD224.9mn, attributed to better capital markets performance as compared to last year.
Positioning Gross Margins & ROE 20.0% 16.0% Kuwait 12.0%
Net Margin
Non-Core Income as % of Net Inc. & Net Margins
KSA Oman
GCC Qatar
50.0%
KSA 40.0% 30.0% 20.0% 10.0% UAE GCC Qatar Oman
Return on Equity
Kuwait
8.0%
4.0% 0.0% 0.0% 20.0% 40.0% Gross Margin 60.0% UAE
0.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%
Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel: (965) 2295-1270 Hettish Karmani Senior Financial Analyst hkumar@global.com.kw Tel: (965) 2295-1281 Umar Faruqui Financial Analyst ufaruqui@global.com.kw Tel: (965) 2295-1438 Turki O. AlYaqout Financial Analyst tyaqout@global.com.kw Tel: (965) 2295-1295 Global Investment House www.globalinv.net
Non-Core Income as % of Net Income
Source: Company Reports & Global Research * Performance of 23 Listed Companies as of 2010
Realization prices prolong their tumult
Cement prices in the GCC averaged around USD68.3/ton in 2010, as compared to USD73.8/ton enjoyed in 2009, a 7.5% decrease due to the fact that demand went down considerably, and companies started to slash prices to win contracts. On a 2005-2010 CAGR basis, average cement prices in GCC increased 1.5%. All cement prices in the GCC witnessed a decrease, however UAE marked the largest decline of prices by 26.9%. Kuwait average realization prices reached USD80.2/ton in 2010 as compared to USD83.3/ton in 2009, while Qatar realization prices decreased from USD71.4/ton in 2009 to USD68.7/ton in 2010.
Recommendation
Within GCC, we are POSITIVE on Oman & Saudi Arabian cement sector due to better demand supply situation as compared to other countries in GCC. Global Research outlook is Neutral for Qatar and Negative for UAE.
Global Research GCC
Global Research Cement Universe - 2011e
Yamama Cement
Code/Symbol
GCC Cement Quarterly Report
Saudi Cement SCC KSA 3030.SE SACCO AB 53.00 2,162.4 12.7% 13.8% 18.6% 49.7% 43.6% 43.3% 8.0% 25.0% 75.0% 20.4% 15.1% 8.2 262.0 15.7% 7.5% 5.2 11.5 11.6 2.3
Eastern Province EPCC KSA 3080.SE EACCO AB 47.90 1,098.5 13.0% 12.0% 2.8% 46.7% 42.0% 42.0% 1.0% 9.1% 90.9% 15.9% 14.3% 7.3 293.5 17.5% 7.3% 4.8 11.3 12.2 2.2
Qassim Cement QCC KSA 3040.SE QACCO AB 60.75 1,458.0 12.4% 2.0% -13.2% 56.2% 52.6% 51.8% 0.0% 8.8% 91.2% 26.4% 24.1% 2.9 392.0 31.9% 8.2% 5.7 10.6 11.0 2.9
Yanbu Cement YNCC KSA 3060.SE YNCCO AB 45.90 1,285.2 19.2% 11.9% 0.3% 51.9% 48.8% 45.6% 28.2% 40.3% 59.1% 16.0% 9.6% 11.8 333.2 9.5% 4.4% 6.5 13.6 11.5 1.8
Arabian Cement ACC KSA 3010.SE ARCCO AB 31.60 674.1 8.6% -8.4% -24.8% 42.0% 36.0% 35.0% 25.5% 35.3% 64.7% 10.8% 6.7% 14.0 164.9 6.9% 3.2% 4.5 12.3 9.0 0.9
Oman Cement OCC Oman OCCO.OM OCOI OM 0.56 482.8 9.5% -5.7% -11.3% 44.6% 38.6% 40.0% 3.7% 11.7% 88.3% 14.0% 12.2% 1.4 188.6 17.9% 8.0% 3.6 6.8 8.7 1.2
Raysut Cement RCC Oman RAYC.OM RCCI OM 1.19 620.0 7.3% -4.2% -27.1% U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R U/R
Arkan Build. Material ARKAN UAE ARKAN.AD ARKAN UH 1.70 810.0 40.2% -5.8% -24.8% 42.4% 20.9% 27.7% 31.1% 33.2% 66.8% 4.9% 3.1% 0.4 183.4 7.5% 0.0% 13.0 29.1 37.2 1.7
Gulf Cement GCEM UAE GCEM.AD GCEM KK 1.29 288.4 -5.3% -12.9% -35.0% 14.0% 12.0% 14.4% 1.3% 6.1% 93.9% 5.3% 4.9% 0.5 99.1 5.5% 6.8% 1.8 12.1 13.6 0.7
Fujairah Cement FCI UAE FCEM.KW FCEM KK 0.83 80.7 -9.9% -26.4% -48.1% 15.0% 10.8% 10.0% 32.5% 39.1% 60.9% 4.5% 2.6% 1.3 52.0 4.9% 5.5% 2.0 17.6 6.6 0.3
RAK Cement RAKCC UAE RAKCC.AD RAKCC UH 0.74 97.5 21.3% -12.9% -23.7% 12.0% 5.8% 7.4% 0.0% 6.0% 94.0% 2.0% 1.9% 0.5 84.1 5.2% 5.7% 1.7 8.7 27.8 0.6
Qatar Cement QNCC Qatar QANC.QA QNCD QD 101.80 1,372.5 5.9% 0.2% 54.3% 45.0% 40.1% 43.0% 3.1% 7.8% 92.2% 19.1% 17.6% 16.4 260.8 24.0% 5.4% 4.6 8.5 11.4 2.2
Symbol Country Reuters Bloomberg Price (Local Currency)
YSCC KSA 3020.SE YACCO AB 54.00 1,944.0 12.5% 8.2% 12.6% 56.3% 52.2% 52.5% 2.6% 10.0% 90.0% 20.8% 18.4% 7.2 282.0 18.2% 7.4% 5.2 10.0 10.9 2.2
Price Data Profitability Ratios Valuation Ratios
Market Capitalization (USDmn) 1-m Performance 3-m Performance 12-m Performance Gross Margins (%) Operating Margins (%) Net Margins (%) Debt as % of Assets Liabilities as % of Assets Equity as % of Assets Return on Equity (%) Return on Assets (%) Asset / Share (USD) EV/Ton (USD) Cash Return On Capital Invested (%) Dividend Yield (%) EV / Revenues (x) EV / EBITDA (x) P / E Ratio (x) P / BV Ratio (x)
Source: Global Research , U/R - Under Review Market Price, Market Capitalization & Enterprise Value as of 28 March 2011 FCEM Price has been taken from Kuwait Stock Exchange and converted to AED
March 2011
2
Global Research GCC
GCC Cement Quarterly Report
GCC Development Plans & Economic/Political Reforms to benefit the Sector
Introduction of additional measures to boost cement demand in GCC The ongoing political turmoil happening in the Middle East has forced some governments to introduce additional measures on top of huge development plans already in place to pacify an agitated population. Saudi Arabia announced 21 Royal Orders in March 2011 which includes building of 500,000 housing units worth SAR250bn. In addition, most of the GCC countries announced one-time generous handouts and increased unemployment allowances for their citizens. All these measures are likely to trickle down into improved demand for cement. Bahrain has announced plans to build 50,000 homes at a cost of USD5.3bn in response to the protests taking place in the country. USD20.0bn announced for Oman and Bahrain Meanwhile the GCC countries launched an USD20bn aid program for Bahrain and Oman in a show of regional solidarity. Both the countries will get USD10bn each to upgrade their housing and infrastructure over ten years. GCC economy expected to grow by 5.9% in 2011 Based on IMF projections, the region is forecasted to post a strong growth in 2011. The real GDP growth for the GCC in 2011 is projected to reach 5.9%, with Qatar leading the way yet again at 20.0%. With a continued focus on diversification and infrastructure building, the demand is likely to remain strong for the foreseeable future. Saudi Arabia- Five year plan focuses on infrastructure development The expansionary 2011 budget of more than USD154.7bn, an increase of 7.4%YoY, shows the intention of the GCC's largest consumer market to focus on infrastructure development. This follows the announcement of the Ninth Development Plan (201014) which witnessed an increase of 67.2% to USD385.2bn from USD230.3bn in the Eighth Development Plan with focus on infrastructure development. We expect Saudi Arabia to be the vanguard of cement demand growth with demand expected to grow at a 3-year CAGR of 5.5% to 52.1mn tons by 2013. Oman announces eight five year plan The government of Oman announced the eight five-year plan in January 2011. The plan is underpinned by the objective to diversify the economy. The total expenditure under the plan amounts to OMR43bn (USD112bn) which is more than double the OMR20.9bn (USD54.3bn) for the seventh five-year plan. Development projects related to infrastructure projects will take the major chunk of the plan of around OMR12bn (USD31.2bn) which bodes well for the cement demand. Kuwait development plan In February 2010, the Parliament approved the proposed economic plan, called the Kuwait Development Plan (KDP), which allows the government to spend an estimated KWD37bn (USD125bn). A development plan has been called for from almost all sections of the society (the last development plan was approved in 1986) in order to revive Kuwait's economy. A major portion of KWD25bn (USD87bn) has been allocated to the construction of Silk city.
Country Saudi Qatar Bahrain UAE Kuwait Oman Development plans Ninth Development Plan (2010-14) World Cup 2022 Spending 50,000 homes Abudhabi Five Year Plan (2008-12) Kuwait Development Plan (2010-14) Eight Five Year Plan (2011-15) Amount USD385.2bn USD50.0 USD5.3bn USD275 USD125.0bn USD112.0bn Additional measures Housing and Social Security Benefits GCC Aid Program for Housing and Infrastructure One-off Handouts for Citizens GCC Aid Program for Housing and Infrastructure Amount USD100.0bn USD10.0bn USD4.0bn USD10.0bn
Source: Media reports & Global Research
FIFA World Cup 2022 to drive development in Qatar Qatar has promised to spend USD50.0bn on infrastructure upgrades and USD4.0bn to build nine stadiums to host the FIFA World Cup 2022. An expected USD6.0bn will be spent on construction related projects which will generate an additional 3-4mn tons of demand in Qatar. To bring the plans to fruition, construction activity in Qatar is expected to witness a significant surge. This will catalyze many infrastructure projects that have been progressing slowly or waiting to take off. Commercial and mixed use projects construction activity is likely to see the highest increase ahead of 2022 in order to meet the expected demand. UAE development plan Abu Dhabi in its five year plan which was unveiled in 2008 planned to spend USD275bn in the period up to 2012. Abu Dhabi is expected to drive growth in the UAE as it contains around 90.0% of the oil reserves of UAE. Meanwhile, Dubai is in the process of slow recovery after the financial crisis which took a heavy toll on the emirate. The slowdown in construction and real estate activity is being reflected in the cement dispatches.
March 2011
3
Global Research - GCC
GCC Cement Quarterly Report
GCC Cement Sector Profitability
GCC Cement sector continued to witness a top line decline two years following the credit crisis wave that halted major real estate activity and construction projects affecting cement and building materials companies. GCC cement companies came out with weak 11.7% decline in top line revenue, however it announced a mere 0.4% increase in profits for the 2010. Net profits increased from USD1,440mn in 2009 to USD1,446mn in 2010. Net margins witnessed an 450.6bps increase during the period due to the fact, other income segment grew strongly by 55% to reach USD224.9mn, attributed to better capital markets which witnessed the S&P GCC index increase of 17%. However, gross margins witnessed a 62bps increase in 2010 to reach 40.7% as compared to 40.1%, this was due to a lower cost of sale which decreased by 12.6% in 2010 to reach USD2,286mn.
GCC Cement Sector Consolidated Financials (USD 000) Sales Revenue Cost of Sales Gross Profit Opt. Expense Non-Core Income Operating Profit Financial Charges Net Profit Assets Equity Debt Liabilities
2009 4,367,070 2,616,015 1,751,057 275,205 145,149 1,475,853 57,244 1,440,862 12,992,784 9,851,455 1,890,919 3,141,329 2009 40.1% 2.1% 10.1% 33.8% 33.0% 3.0% 14.6% 24.2% 75.8% 14.6% 11.1%
2010 3,856,982 2,286,534 1,570,448 243,605 224,918 1,326,843 38,642 1,446,351 13,841,349 10,291,651 2,437,659 3,549,698 2010 40.7% 1.8% 15.6% 34.4% 37.5% 1.6% 17.6% 25.6% 74.4% 14.1% 10.4%
Chg (%) -11.7% -12.6% -10.3% -11.5% 55.0% -10.1% -32.5% 0.4% 6.5% 4.5% 28.9% 13.0% Chg 62.0bps -35.8bps 547.7bps 60.6bps 450.6bps -144.2bps 305.8bps 146.8bps -146.8bps -57.2bps -64.0bps
Financial Performance Ratio Analysis
Gross Margins (%) Operating Exp as % of Assets Non-Core Income as % of PAT Operating Margins (%) Net Margins (%) Financial Charges as % of Debt Debt as % of Assets Liabilities as % of Assets Equity as % of Assets Return on Equity (%) Return on Assets (%)
Source: Company Reports & Global Research * Consolidated Financials of 24 Listed Companies, Result of UCC has not been announced
Country wise, UAE, Oman, Kuwait and Qatar continue to be pressured by declining sales revenues. UAE dominated the list and is likely that it hasn't reached the bottom yet. Sales revenue of UAE decreased 28.4% to reach USD736.8mn bringing gross margin to all time low of 10.7%. However Net profit margins are stable at 11.7% as compared to the previous year. Oman as well witnessed a 25.9% decrease in sales revenue reaching USD303.5mn. Qatar and Kuwait witnessed decreasing sales revenue but outperformed Oman, KSA, and UAE in net profits. Kuwait posted a 48.5% increase in net profits while Qatar posted a 10.5% increase. KSA which is considered the most stable cement market throughout the crisis posted a 3.6% increase in sales revenue and a 0.3% increase in net profits. Strong financial strength of cement companies continue to help the sector weather the storm in the cement market as assets and equity increased 6.5% and 4.5% respectively during 2010. On the other hand, debt witnessed a 28.9% increase to reach USD2,437mn, noticeably Raysut Cement finalized a deal to takeover Pioneer Cement of UAE which resulted in Raysut Cement taking a USD250mn debt to finance the deal. Debt to equity which is considered a strong ratio during the crisis witnessed a 450bps increase in FY2010 to reach 23.7%. Cement companies should benefit from the recent measures by the government in the region to stimulate economic activity and provide housing which will help prop up demand, and hence profitability of the cement companies and will allow them to reduce their current debt levels.
March 2011
4
Global Research - GCC
GCC Cement Quarterly Report
Cement Realization Price
Cement prices in the GCC averaged around USD68.3/ton in 2010, as compared to USD73.8/ton enjoyed in 2009, a 7.5% decrease due to the fact that demand went down considerably, and companies started to slash prices to win contracts. On a 2005-2010 CAGR basis, average cement prices in GCC increased 1.5%. All cement prices in the GCC witnessed a decrease, however UAE marked the largest decline of prices by 26.9%. Kuwait average realization prices reached USD80.2/ton in 2010 as compared to USD83.3/ton in 2009, while Qatar realization prices decreased from USD71.4/ton in 2009 to USD68.7/ton in 2010. On a CAGR basis, Kuwait cement prices increased 3.2% during the period 2005-2010. With major projects being implemented in Kuwait as a part of the development plan, cement prices in Kuwait might have reached a bottom and might witness an increase going forward. Also, Qatar cement prices are expected to increase as demand is expected to reach 5-8mn tons per annum during the period 2010-2017.
Average Realization Prices 85.0 80.0 75.0 0.0% -5.0% -10.0% -15.0% 65.0 60.0 -20.0% -25.0%
(USD/Ton)
70.0
55.0 50.0 KSA UAE Oman
2009 2010
-30.0% Kuwait
Change
Qatar
GCC Average
Source: Industry Reports & Global Research
Oman, the country which started to feel the pinch of the crisis by posting lower sales revenue and declining profits for 2010 witnessed a mere 1.4% decrease in cement prices in 2010, the lowest among other GCC peers. But on a CAGR basis, Oman witnessed a 4.7% increase during the period 2005-2010, which is considered the highest among the GCC. Oman average realization cement prices reached USD79.4/ton in 2010, the highest in the GCC. Cement prices decreased from USD80.5/ton in 2009. As for the second largest cement producer in the GCC, UAE witnessed a 26.9% decrease in cement prices because of the excess supply and low demand due to halted real estate and construction projects. Value of projects planned in UAE decreased 15.8% reaching USD815.3bn, of which USD403.9bn are on hold. In addition, new cement companies have flooded the market bringing more pressure to cement companies. As per Fujairah Cement, demand of cement in UAE dropped to merely 19mn in 2010. UAE continues to face pressure on its cement industry which is proved by decline sales, demand, profits and higher inventories. However 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. However, the largest cement producer in the GCC, KSA, witnessed a decrease in cement prices by 2.4% in 2010 to reach USD61.3/ton. The continuation of cement export ban and additional cement capacity has kept pressure on cement prices. On a CAGR basis, KSA cement prices achieved a 0.8% increase during the period 2005-2010.
March 2011
5
Global Research - GCC
GCC Cement Quarterly Report
Country Performance Saudi Arabia
Domestic demand increased by 10.0%YoY to 10.9mn tons in 4Q10 reflecting the increased pace of economic and construction activity. The increase came as demand seemed to have cooled in the previous quarter to 5.0%YoY to 8.9mn tons compared to 14.5%YoY growth in 2Q10 to 11.4mn tons. We will have to wait for the next few quarters to determine whether the slowdown in 3Q10 points to an imminent trend or is just an aberration. On a QoQ basis, the sales dispatches increased by 22.5% in 4Q10. The increase can be partly attributed to seasonal factors with the Ramadan season falling in the 3Q10 which usually sees a slowdown in construction activity. Most of the increase in total cement demand in 4Q10 has been accounted for by unlisted players Riyad Cement and Najran Cement which increased their total local dispatches by 98.7%YoY to 0.47mn tons in 4Q10 absorbing 48.1% of the total growth in total cement and clinker dispatches during 4Q10 compared to the corresponding quarter last year. The newly listed player Al-Jouf Cement also managed to dispatch 227,000 tons in the first year of its operations. Among the listed players, Saudi Cement Company witnessed the largest increase in dispatches by 221,000 tons to 1.64mn tons as the efficiency of the two new production lines launched in April 2009 with a capacity of 7.0mn tons allowed it to follow a more aggressive sales strategy. On the other hand, Yamama Cement and Tabuk Cement saw a decline in their total dispatches by 4.5%YoY and 2.9%YoY respectively to 1.35mn and 0.3mn tons respectively. The pace of decline in average realized prices slowed down to 1.1%YoY to USD61.3 per ton in 4Q10 after a 2.1%YoY decline to USD61.6 per ton in 3Q10. Strong domestic demand is mitigating the impact of cement export ban and increase in domestic cement capacity. We expect realization prices to remain flat or even show a slight increase in 1Q11 as construction activity picks up. Saudi Arabia listed cement companies excluding Al-Jouf Cement posted an increase of 5.4% in sales revenue to USD508.7mn in 4Q10 from USD482.7mn in 4Q09. Net profits also witnessed an increase of 12.1% to USD214.8mn in 4Q10 as compared to USD191.7mn during 4Q09.
KSA Cement Price KSA Projects Value
70.0 68.0
(USD/Ton)
1,000.0
800.0
(USD Bn)
66.0
64.0 62.0 60.0
600.0 400.0
200.0 2008
1H-09 2009 Sep-10
2008
2009
1H-09
1H-10
2010
1Q-10
9M-09
1Q-10
Source: Company Reports, MEED & Global Research
The increase in sales and profitability has been driven increase in volumes sold. However the increase in volume sales has been accompanied by a small decline in 4Q10 gross margins to 49.8% as compared to 50.7% in 4Q09. Intensification of competition in the aftermath of export ban is putting pressure on gross and net margins as traditional cement exporters are being forced to sell in the domestic market while other major cement players are extending their reach to other regions to increase their sales. The clinker and cement stocks have increased to 10.8mn tons at the end of 4Q10 from 10.4mn tons at the end of 3Q10. This is the second consecutive quarterly increase in clinker and cement stocks after witnessing a decline since 4Q09. Arrival of Al-Jouf cement along with increase in Yamama cement stocks by 45.7% to 1.5mn tons has led to the increase in stocks.
March 2011
Apr-10
9M-09
9M-10
2010
6
Global Research - GCC
Saudi Arabia Cement Sector
60.0% 58.0% 56.0%
GCC Cement Quarterly Report
6.0%
5.0% 4.0%
54.0%
52.0% 50.0% 2009
Gross Margins (%)
3.0%
2.0%
1.0%
2010 2009 2010
Non-Core Income as % of PAT
50.0% 49.0%
50.0% 49.0%
48.0%
47.0% 46.0% 45.0% 2009
Operating Margins (%)
48.0%
47.0% 46.0% 45.0% 2010 2009
Net Margins (%)
2010
2.0%
15.0%
1.8%
1.6% 1.4% 1.2% 1.0%
14.0%
13.0% 12.0% 11.0% 10.0%
2009
2010
2009
Debt as % of Assets
2010
Financial Charges as % of Debt
24.0%
23.9% 23.8% 23.7% 23.6%
76.5%
76.4% 76.3% 76.2% 76.1%
23.5%
2009
Liabilities as % of Assets
76.0%
2010 2009
Equity as % of Assets
2010
20.0% 19.0% 18.0% 17.0%
15.2% 15.0% 14.8% 14.6%
16.0%
15.0% 2009
Return on Equity (%) Source: Company Reports & Global Research * Combined Financials of Eight Listed Companies
14.4%
14.2% 2010 2009
Return on Assets (%)
2010
March 2011
7
Global Research - GCC
GCC Cement Quarterly Report
Oman
Net income for Omani cement companies for 2010 was USD118.8mn while the same during 2009 was USD137.4mn, decline of 13.5%. Reason for the decline in the bottom line was because of more than 25% decline in the top line. Sales revenue of the sector in 2010 witnessed a decline of 25.9% to USD303.5mn as compared to USD409.4mn during the corresponding period of last year. Out of the two, least drop in the top line was posted by Oman Cement at 24.0% while the same reported by Raysut Cement was 27.3%. In terms of quarterly performance, 4Q10 reported lowest revenue at USD68.4mn while the most was recorded in 2Q10 at USD85.4mn. Both the companies were able to roll out 3.8mn tons of cement in 2010 as compared to 4.9mn tons in 2009, decline of 22.1%. Sales of Oman Cement went down by 17.6% as compared to 25.5% decline by Raysut Cement. Cement price in Oman declined when compared to their average prices in 2009. In 2010 average cement prices was USD79.4/ton (OMR30.6/ton) as compared to an average price of USD80.5/ton (OMR31/ton) during 2009. Gross margins of the sector witnessed an increase as the players discontinued the import of high priced clinker/cement and were also able to import cement at very cheap prices. Gross margins went up to 49.5% in 2010 as compared to 45.6% in 2009. Non-core income portion continued to add to the bottom line of the sector. Non-core income as percentage of net income grew from 15.1% in 2009 to 25.4% in 2010. Higher contribution is because of better cash management by the Companies along with better performance of their subsidiaries.
Oman Cement Price 85.0 81.0 Oman Projects Value 120.0 100.0
(USD/Ton)
77.0
73.0 69.0
(USD Bn)
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010
80.0
60.0 40.0
65.0
20.0
1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010
Source: Company Reports, MEED & Global Research
During 2010, debt of the Omani cement sector rose due to an increase in the leverage by Oman Cement Company due to its upcoming expansion and a huge debt piled up by Raysut Cement over its acquisition of UAE's Pioneer Cement. Overall sector debt rose from USD18.0mn (2.5% of assets) to USD197.0mn (20.8% of assets) in 2010. Oman projects market value at the end of December 2010 stood at USD101.9bn, 4.7% of the project value in GCC. Of the total projects, 6.6% amounting to USD6.7bn have either been postponed or being put on hold. Country holds 5th rank in terms of projects market.
March 2011
8
Global Research - GCC
Oman Cement Sector
50.0% 49.0% 48.0% 30.0% 24.0% 18.0%
GCC Cement Quarterly Report
47.0%
46.0% 45.0% 2009
Gross Margins (%)
12.0%
6.0% 0.0% 2010 2009 2010
Non-Core Income as % of PAT
35.0% 33.0%
40.0% 38.0%
31.0%
29.0% 27.0% 25.0% 2009
Operating Margins (%)
36.0%
34.0% 32.0% 30.0% 2010 2009
Net Margins (%)
2010
1.5%
1.2%
25.0%
20.0%
15.0% 10.0% 5.0% 0.0% 2009 2010
0.9%
0.6% 0.3% 0.0%
2009
Debt as % of Assets
2010
Financial Charges as % of Debt
35.0%
28.0% 21.0% 14.0% 7.0%
100.0%
80.0% 60.0% 40.0% 20.0%
0.0%
2009
Liabilities as % of Assets
0.0%
2010 2009
Equity as % of Assets
2010
25.0% 20.0% 15.0% 10.0%
25.0% 20.0% 15.0% 10.0%
5.0%
0.0% 2009
Return on Equity (%) Source: Company Reports & Global Research * Combined Financials of Two Listed Omani Companies
5.0%
0.0% 2010 2009
Return on Assets (%)
2010
March 2011
9
Global Research - GCC
GCC Cement Quarterly Report
United Arab Emirates
UAE cement sector continued its poor performance. During 2010 consolidated revenues of the sector went down by 28.4% to USD736.8mn as compared to USD1.0bn in 2009. Reason for the decline in revenue was because of decline in cement sales volume as well as a sharp decline in cement realization prices. Cement price in UAE were down by 26.9% to USD51.8/ton in 2010 as compared to an average price of USD70.8/ton in 2009. Recently the players gathered to stop further decline in the prices, however, that has not been seen in the financials yet. Consolidated net income of listed cement companies in UAE for 2010 declined by 28.3% to USD86.1mn as compared to USD120.1mn in 2009. During 4Q10, the sector managed to add only USD4.7mn as compared to USD37.0mn in 3Q10. Gross margins of the sector were also hit significantly as the prices as well as volume went down significantly. Gross margins went down to 10.7% in 2010 as compared to 22.3% in 2009. Debt levels of the sector rose by 7.1% to USD521.4mn in 2010 as compared to USD486.9mn in 2009. Debt as percentage of assets increased from 14.7% earlier to 15.9% in 2010 .
UAE Cement Price UAE Projects Value
100.0
90.0
1,100.0
1,000.0
(USD/Ton)
(USD Bn)
80.0 70.0
900.0
800.0
60.0 50.0
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010
Source: Company Reports, MEED & Global Research
700.0
600.0 1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010
UAE project value of December 2010 is USD815.3bn, 37.5% of the project value announced in GCC. However majority of the projects amounting to 49.5% (USD403.9bn) have been put on hold making it second biggest projects market in the GCC after Saudi Arabia. Unlike other countries, UAE witnessed an equity wipe out as well as the overall equity balance of the sector went down by 2% to USD2.53bn as compared to USD2.59bn in 2009. Equity as percentage of assets dropped to 77.3% in 2010 as compared to 78.4% in 2009.
March 2011
10
Global Research - GCC
UAE Cement Sector
35.0% 28.0% 21.0% 50.0% 40.0%
GCC Cement Quarterly Report
30.0%
20.0% 10.0%
14.0%
7.0% 0.0% 1H-09
Gross Margins (%)
0.0%
1H-10 1H-09 1H-10
Non-Core Income as % of PAT
30.0% 24.0%
25.0%
20.0% 15.0%
18.0%
12.0% 6.0% 0.0% 1H-09
Operating Margins (%)
10.0%
5.0% 0.0% 1H-10
1H-09
Net Margins (%)
1H-10
3.0%
15.7%
2.4%
1.8% 1.2% 0.6% 0.0%
15.6%
15.5% 15.4%
15.3%
15.2%
1H-09
1H-10
1H-09
Debt as % of Assets
1H-10
Financial Charges as % of Debt
25.0%
24.0% 23.0% 22.0% 21.0%
80.0% 79.0%
78.0%
77.0% 76.0% 75.0% 1H-09
Liabilities as % of Assets
20.0%
1H-10
1H-09
Equity as % of Assets
1H-10
5.0% 4.0% 3.0% 2.0%
5.0%
4.0% 3.0% 2.0%
1.0%
0.0% 1H-09
Return on Equity (%) Source: Company Reports & Global Research * Combined Financials of Nine Listed UAE Companies
1.0%
0.0% 1H-10
1H-09
Return on Assets (%)
1H-10
March 2011
11
Global Research - GCC
GCC Cement Quarterly Report
Qatar
Qatar cement sector continued to witness low demand during the period. Country was also hurt by influx of cheaper cement from neighboring countries. Sector witnessed a bottom line growth of 10.5%. Out of the two listed cement companies, Qatar Cement out performed with a bottom line growth of 12% while Al Khalij Holding Company reported an increase of 1.7% during 2010. Qatar project value of December 2010 was USD245.1bn, 11.3% of the project value announced in GCC. Majority of the projects amounting to 88.6% (USD217.2bn) are continuing as planned because of the persistent gas based liquidity in the country. Consolidated revenues of the sector declined by 22.8% to USD343.1mn during 2010 as compared to USD424.6mn at the end of 2009. Reason for the decline in revenue was because of decline in cement sales volume as well as fall in cement prices . Cement price in Qatar have remained mostly constant since last couple of years. In 2010, average cement prices in Qatar declined by 3.8% to USD68.7/ton as compared to an average price of USD71.4/ton in 2009. We believe cement prices to remain flat in Qatar because of lesser local players and government control over prices.
Qatar Cement Price Qatar Projects Value
80.0
76.0
255.0
235.0
(USDTon)
72.0 68.0
(USD Bn)
1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010
215.0 195.0 175.0
64.0 60.0
155.0 1H-09 9M-09 2009 1Q-10 Apr-10 Sep-10 2010
Source: Company Reports & Global Research
Consolidated net income of the two listed cement companies in Qatar for 2010 increased to USD147.8mn as compared to USD133.7mn in 2009, up by 10.5%. This increase in the net income resulted from increase in the gross margins to 43.5% in 2010 as against 27.6% in 2009. Non-core income segment continued to add to the bottom line but it was significantly lesser than the contribution in the same period last year. Contribution during 2010 was 16.4% as compared to 51.6% in 2009. Debt levels of the sector rose by 44.6% to USD468.8mn in 2010 as compared to USD324.3mn in 2009. As a result debt as percentage of assets increased from 22.7% earlier to 28.0% in 2010. Increase in the debt levels can be attributed to increase in the leverage taken by Al Khalij Holding Company. Assets of the sector increased by 17.4% to USD1.67bn in 2010 as compared to USD1.42bn in 2009. Increase in assets was because of the increase in debt of the sector by 44.6% along with an 8.3% increase in the equity in 2010.
March 2011
12
Global Research - GCC
Qatar Cement Sector in Charts
50.0% 40.0% 30.0%
GCC Cement Quarterly Report
60.0%
50.0% 40.0%
20.0%
10.0% 0.0% 2009
Gross Margins (%)
30.0%
20.0%
10.0%
2010 2009
Non-Core Income as % of PAT
2010
40.0% 34.0%
45.0% 42.0%
28.0%
22.0% 16.0% 10.0% 2009
Operating Margins (%)
39.0%
36.0% 33.0% 30.0% 2010 2009
Net Margins (%)
2010
5.0%
30.0%
4.0%
3.0% 2.0% 1.0% 0.0%
28.0%
26.0% 24.0% 22.0% 20.0%
2009
2010
2009
Debt as % of Assets (%)
2010
Financial Charges as % of Debt (%)
35.0%
33.0% 31.0% 29.0% 27.0%
75.0%
71.0% 67.0% 63.0% 59.0%
25.0%
2009 2010
55.0%
2009
Equity as % of Assets (%)
2010
Liabilities as % of Assets (%)
13.2% 13.1% 13.0% 12.9%
10.0% 9.6% 9.2% 8.8%
12.8%
12.7% 2009
Return on Equity (%) Source: Company Reports & Global Research * Combined Financials of Two Listed Qatari Companies
8.4%
8.0% 2010 2009
Return on Assets (%)
2010
March 2011
13
Global Research - GCC
GCC Cement Quarterly Report
APPENDIX
GCC Cement Sector Current & Future Capacity
(mtpa) 2007 2008 2009 2010 2011e 2012e 2013e
UAE Listed Companies Unlisted Companies Total UAE 17.7 6.1 23.7 17.7 11.8 29.5 20.0 14.3 34.3 24.5 16.3 40.8 24.5 16.3 40.8 24.5 16.3 40.8 24.5 16.3 40.8
KSA Listed Companies Unlisted Companies Total KSA 33.0 33.0 38.0 5.8 43.8 38.0 8.0 46.0 41.2 11.6 52.8 41.2 12.6 53.8 43.6 12.6 56.2 45.4 13.6 59.0
Kuwait Listed Companies Unlisted Companies Total Kuwait 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 5.4 5.4 5.4 5.4 5.4 5.4
Oman Listed Companies Unlisted Companies Total Oman 4.5 4.5 5.4 5.4 5.4 5.4 5.4 0.8 6.2 5.4 0.8 6.2 5.4 0.8 6.2 5.4 0.8 6.2
Qatar Listed Companies Unlisted Companies Total Qatar 2.8 0.3 3.1 2.8 0.3 3.1 5.9 0.3 6.2 5.9 0.3 6.2 5.9 0.3 6.2 5.9 0.3 6.2 5.9 0.3 6.2
Bahrain Listed Companies Unlisted Companies Total Bahrain 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
GCC Listed Companies Unlisted Companies Total GCC 60.3 6.9 67.2 66.3 18.4 84.7 71.8 23.1 94.9 79.5 29.5 109.0 82.3 30.5 112.9 84.8 30.5 115.3 86.6 31.5 118.1
Listed Companies (% of Total) Un-Listed Companies (% of Total)
Source: Company Reports & Global Research
89.8% 10.2%
78.2% 21.8%
75.6% 24.4%
72.9% 27.1%
73.0% 27.0%
73.5% 26.5%
73.3% 26.7%
March 2011
14
March 2011
107.5 70.0 82.0 88.0 94.0 120.0 100.0
132.5
95.0
70.0
82.5
76.0
180.0 1,500.0 2,100.0 2,700.0 3,300.0 3,900.0
210.0
240.0
270.0
150.0
300.0
4,500.0
Dec-09 Jan-10 Feb-10
Mar-10 Apr-10 Apr-10 May-10 May-10 May-10 Apr-10 Mar-10 Mar-10 Feb-10
Dec-09 Jan-10 Feb-10
Jan-10 Dec-09
Dec-09
Global Research - GCC
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Source: World Bank Pink Sheets & Bloomberg
Jun-10 Jul-10 Aug-10
Sep-10 Oct-10 Nov-10 Dec-10 Dec-10 Nov-10 Oct-10 Sep-10
Jun-10 Jul-10 Aug-10
Jun-10
Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10
Baltic Dry Index (x)
Crude Oil, Avg, Spot (USD/bbl)
Coal South Africa (USD/ton)
Factors Influencing Cement Prices
Raw Material Index (x)
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
4.0
5.0
6.0
2.0
3.0
7.0
74.0 70.0
78.0
82.0
86.0
100.0
100.0
110.0
120.0
70.0 76.0
Dec-09
90.0
82.0
88.0
94.0
70.0
90.0
80.0
Dec-09
Dec-09
Jan-10 Feb-10
Dec-09
Jan-10 Feb-10
Mar-10
Jan-10
Jan-10 Feb-10 Mar-10
Feb-10
Mar-10
Mar-10
Apr-10
Apr-10 May-10
Jun-10
Apr-10
Apr-10
May-10
May-10
Jun-10
May-10 Jun-10
Jun-10
Jul-10 Aug-10
Sep-10
Jul-10
Jul-10
Aug-10
Jul-10
Crude Oil, Brent (USD/bbl)
Natural Gas, US (USD/mmbtu)
Crude Oil, WTI (USD/bbl)
Coal, Australia (USD/ton)
Aug-10
Aug-10 Sep-10
Oct-10
Sep-10
Sep-10 Oct-10 Nov-10
Dec-10 Nov-10 Dec-10
Oct-10 Nov-10
Dec-10
Oct-10
Nov-10
GCC Cement Quarterly Report
Dec-10
15
Global Research - GCC
GCC Cement Quarterly Report
Country Ratios
(Unit / Country) Gross Margins (%) Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC Non-Core Income as % of PAT Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC ROE (%) Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC ROA (%) Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC Debt as % of Assets Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC Liabilities as % of Assets Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC Equity as % of Assets Saudi Arabia Oman UAE Kuwait Qatar Weighted Average of GCC 2008 1Q-09 1H-09 9M-09 2009 1Q-10 1H-10 9M-10 2010
56.9% 40.0% 27.5% 21.0% 20.2% 38.9%
65.0% 40.7% 29.2% 23.3% 19.2% 43.5%
56.0% 44.9% 29.4% 25.2% 22.7% 41.0%
55.2% 45.4% 26.0% 19.5% 22.9% 38.9%
54.1% 45.6% 22.3% 26.3% 27.6% 40.1%
52.5% 52.6% 12.5% 33.2% 34.5% 40.2%
52.7% 52.5% 11.9% 29.8% 41.6% 40.5%
52.6% 50.5% 11.6% 30.5% 43.8% 40.4%
51.9% 49.5% 10.7% 28.2% 43.5% 40.7%
6.5% 3.0% 8.0% 8.3% -149.2% -72.7% 561.3% 136.5% 48.9% 56.0% -10.8% -8.6%
3.6% 9.4% 3.6% 54.0% 43.8% 11.8%
3.5% 8.3% 13.3% 52.0% 46.6% 12.7%
5.2% 15.1% -8.8% 18.2% 51.6% 10.1%
2.2% 13.6% 70.7% 41.5% 33.4% 16.4%
3.1% 26.7% 71.5% 47.2% 22.8% 14.8%
3.1% 25.2% 83.6% 44.4% 16.3% 15.7%
3.0% 25.4% 91.7% 49.6% 16.4% 15.6%
23.2% 18.4% 4.4% -2.0% 17.8% 14.5%
6.1% 6.2% 1.3% -4.7% 5.8% 3.9%
11.9% 13.0% 4.8% 9.5% 8.9% 9.4%
16.5% 17.6% 5.7% 12.1% 10.7% 12.4%
19.8% 21.8% 4.6% 11.8% 12.9% 14.6%
5.8% 6.2% 1.5% 4.7% 3.4% 4.2%
11.2% 13.2% 1.6% 9.5% 7.6% 8.1%
15.4% 16.6% 2.8% 11.5% 10.5% 11.1%
19.0% 17.9% 3.4% 14.5% 13.2% 14.1%
17.7% 15.8% 3.5% -1.2% 9.9% 10.8%
4.4% 5.0% 1.0% -2.7% 2.9% 2.7%
9.0% 11.5% 3.8% 6.4% 5.5% 7.0%
12.5% 15.7% 4.6% 8.5% 7.6% 9.5%
15.1% 19.1% 3.6% 7.4% 9.4% 11.1%
4.2% 5.0% 1.2% 3.2% 2.4% 3.1%
8.4% 11.6% 1.2% 6.1% 5.6% 6.1%
11.7% 14.6% 2.2% 7.9% 6.8% 8.3%
14.5% 12.6% 2.6% 9.9% 8.8% 10.4%
14.1% 2.3% 8.0% 31.8% 31.9% 14.9%
15.8% 2.2% 15.8% 35.6% 37.0% 18.8%
15.8% 2.1% 15.2% 28.2% 32.5% 18.0%
15.7% 1.7% 13.5% 22.8% 23.4% 15.8%
12.0% 2.5% 14.7% 25.8% 22.7% 14.6%
16.2% 3.7% 13.4% 21.5% 21.7% 15.8%
16.5% 3.5% 15.6% 23.2% 20.6% 16.6%
16.1% 3.2% 15.3% 19.6% 30.5% 17.2%
14.1% 20.8% 15.9% 24.2% 28.0% 17.6%
23.7% 13.8% 20.9% 37.7% 44.4% 25.6%
27.2% 19.1% 23.8% 42.4% 50.6% 29.3%
24.6% 11.6% 21.7% 32.4% 38.7% 25.5%
24.4% 10.7% 19.7% 30.4% 28.8% 23.3%
23.7% 12.3% 21.6% 37.4% 27.3% 24.2%
27.8% 19.1% 22.0% 33.4% 29.9% 26.5%
24.7% 12.4% 23.0% 35.3% 27.0% 24.7%
24.3% 12.0% 22.4% 31.1% 35.2% 25.1%
23.5% 29.6% 22.7% 31.8% 32.9% 25.6%
76.3% 86.2% 79.1% 62.3% 55.6% 74.4%
72.8% 80.9% 76.2% 57.6% 49.4% 70.7%
75.4% 88.4% 78.3% 67.6% 61.3% 74.5%
75.6% 89.3% 80.3% 69.6% 71.2% 76.7%
76.3% 87.7% 78.4% 62.6% 72.7% 75.8%
72.2% 80.9% 78.0% 66.6% 70.1% 73.5%
75.3% 87.6% 77.0% 64.7% 73.0% 75.3%
75.7% 88.0% 77.6% 68.9% 64.8% 74.9%
76.5% 70.4% 77.3% 68.2% 67.1% 74.4%
Source: Company Reports & Global Research
March 2011
16
Global Research - GCC
GCC Cement Quarterly Report
Disclaimer
This material was also produced by Global Investment House KSCC (`Global'),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (`securities'), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.
March 2011
17
Global Investment House Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait
Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw
Index Rasha Al-Huneidi (965) 2295-1285 huneidi@global.com.kw
Brokerage Fouad Fahmi Darwish (965) 2295-1700 fdarwish@global.com.kw
Wealth Management Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw
Wealth Management International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw
Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait Global Abu Dhabi Tel: (971) 2 6744446 Fax: (971) 2 6725263/4 P.O.Box 127373 Abu Dhabi, UAE
Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan
Global Dubai Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE Global Qatar Tel: (974) 4967305 Fax: (974) 4967307 P.O.Box 18126 Doha, Qatar
Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Heliopolis, Cairo
Global Wealth Manager E-mail: contactus@global.com.kw Tel: (965) 1-804-242
