MEPCO expects potential price change soon, says CEO

Saudi Arabia’s Middle East Paper Company (MEPCO) is expecting paper prices to reverse direction over the coming period, as they are still lower compared to last year, CEO Mohammed Saleh Ali Darwish told Argaam.

“The prices of paperboard raw materials dropped at a lower rate compared to the end-product prices due to soft demand,” Darwish stated.

The company has been reporting lower financial figures year-to-date (YTD), which was mainly driven by lower global prices of packaging paper, Darwish said. He added that the packaging paper prices are impacted by supply/demand, in addition to some price differences due to storage and transportation.

“We cannot dominate selling prices, we just apply global prices,” Darwish noted.

MEPCO set aside SAR 7.83 million in bad debt provisions, representing 3.6 percent of the company’s leverage.

“These provisions do not represent realized loss, but rather a mere hedging practice,” Darwish explained.

MEPCO’s debt-to-equity (D/E) ratio stood at 0.90x, which is considered outstanding if compared to global peers, on domestic liquidity, he said. “The paper industry is based on huge capital investments, which requires securing bank loans to finance investments and operations.”

“We are managing cash flows well, and we seek to reschedule our loans to reduce debt burdens. Debt expenses dropped by around SAR 270,000 for 2017-2018, as we regularly renewed our loan facilities,” Darwish continued.

MEPCO’s Q2 2019 financial statements included fair value losses from derivatives, as the company fixed murabaha rate with banks for medium- and long-term loans, he added.

MEPCO reported SAR 1.75 million earnings in H1 2019, compared to SAR 57 million in year-earlier period. In Q2 the firm posted a net loss of SAR 4 million, Argaam reported.