SVCP publishes circular on 69.7% capital cut to offset losses

SVCP aims to offset accumulated losses of SAR 104.57 million through the proposed capital reduction.

Saudi Vitrified Clay Pipes Co. (SVCP) announced the publication of its first shareholders’ circular regarding a 69.71% capital reduction to SAR 45.43 million from SAR 150 million, as part of a capital restructuring to offset accumulated losses.

SVCP accumulated losses resulted from a number of operational and market factors, most notably lower sales volumes during certain periods, higher cost of revenue and operating costs, underutilization of production capacity relative to targeted levels, and substantial impairment losses on property, plant and equipment. These factors contributed to accumulated losses reaching SAR 104.6 million as of June 30, 2026.

The company capital reduction is an accounting measure aimed at offsetting accumulated losses and restructuring shareholders’ equity. It will not result in any cash inflow to the company and, in itself, will have no direct impact on total shareholders’ equity, liquidity or liabilities. The reduction will help present the company’s financial position more appropriately and prepare it to implement its future financing and operational plans.

SVCP noted that the capital reduction will have no adverse impact on the company’s obligations or shareholders’ rights.

Following completion of the capital reduction, the company plans to increase its capital through a SAR 90 million rights issue. The proposed increase remains subject to approval by the Capital Market Authority (CMA) and the EGM, as well as the completion of all related regulatory requirements and procedures.

Additionally, the proposed capital increase aims to strengthen its financial position and available liquidity and support the implementation of its corrective, operational and expansion plans. These include developing and upgrading existing production lines, purchasing and installing modern machinery and equipment, improving operational efficiency and production capacity, completing and equipping additional production lines and manufacturing areas, and supporting expansion into concrete and plastic pipe activities through its subsidiaries.

The plan also includes supporting working capital requirements and financing purchases of raw materials and production supplies, improving logistics operations and storage and distribution facilities, repaying part of existing financial obligations, and financing growth, expansion and investment opportunities related to the activities of the company and its subsidiaries.

Through the plan, the company aims to diversify its products and revenue sources, improve production capacity utilization, enhance operational efficiency, reduce production and transportation costs, and strengthen its ability to meet demand and participate in infrastructure, water and wastewater projects across the Kingdom.

The detailed uses of the rights issue proceeds, the amounts allocated to each use and the expected implementation timelines will be set out in the rights issue prospectus after the necessary studies are completed and the relevant regulatory approvals are obtained.

Improving Gross Profit & Production Efficiency

The company said it is working to address the increase in cost of revenue and improve its gross profit margin through the following measures:

Reviewing raw material and production supply procurement costs and seeking alternative suppliers and sources offering more competitive terms and prices.

Strengthening controls over raw material consumption and reducing waste, losses and scrap throughout the production process.

Improving the planning and scheduling of production orders in line with actual demand to increase production capacity utilization and limit fixed costs associated with idle capacity.

Reviewing the efficiency of production lines and carrying out the necessary maintenance and upgrades to reduce breakdowns and improve productivity and product quality.

Monitoring profit margins by product, customer and project, with a focus on products and projects generating stronger margins and returns.

Rationalizing General and Administrative Expenses

The company said it is working to control general and administrative expenses by setting detailed budgets and monitoring actual variances against approved amounts, reviewing contracts and recurring expenses, implementing appropriate expenditure approval levels, and linking departmental performance to measurable key performance indicators.

Diversifying Products and Revenue Sources

SVCP further aims to reduce its reliance solely on the vitrified clay pipe business by expanding into the concrete and plastic pipe segments through its two subsidiaries, allowing it to offer a broader range of products used in water, wastewater, stormwater drainage and infrastructure projects.

Revenue growth measures include strengthening commercial relationships with key customers and contractors, increasing the company’s participation in tendered projects, seeking to have its products included in specifications for new projects, expanding its distribution network, and exploring opportunities to expand in domestic and international markets, with a focus on projects and products offering appropriate profit margins and cash flows.

Restructuring Assets and Liabilities

In 2025, the company sold the assets of its second plant, which produces vitrified clay pipes and fittings, and assigned the lease agreement for the land on which the plant is located for SAR 45 million. The transaction formed part of its efforts to restructure assets, improve liquidity and reduce costs associated with assets that were not being utilized at the required efficiency levels. The company will continue to periodically assess its assets and evaluate whether to retain, sell or redeploy them based on their operational and financial feasibility.

In parallel, it is working to restructure certain credit facilities and negotiate repayment terms with financing institutions. It also plans to allocate part of the proceeds from the future capital increase to repay financial obligations and reduce financing costs.

Management believes that combining the capital reduction to offset accumulated losses with support for liquidity and the financial position through the future capital increase, subject to obtaining the necessary approvals, as well as implementing operational measures to improve production efficiency, reduce costs and diversify revenue sources, would support the company’s ability to curb losses and improve its financial and operational performance.

However, the company noted there are no guarantees that these measures will achieve the targeted results within the expected timeframes. The plan’s success depends on several factors, including obtaining regulatory approvals, completing the proposed financing, market conditions, demand levels and raw material prices, as well as the company’s ability to execute its operational and investment plans in accordance with approved timelines and budgets.