MEPCO eyes higher production, cost-cutting in 2018: CFO

Tadawul-listed Middle East Paper Co. (MEPCO) is looking to sustain its growth from the previous two quarters throughout the rest of this year by further improving operational efficiency and production capacity, which in turn will lead to higher sales, Chief Financial Officer Mohamed Saleh Darweesh told Argaam in an exclusive interview.

Q: MEPCO’s financial performance over the past two quarters has seen significant improvement. What are your expectations for Q2 2018?

A: Over the past 15 years, MEPCO has realized above 700 percent sales growth and has expanded its geographical reach in the GCC market to representation in over 40 countries.

As a listed company, we are rather conservative with regards to communicating forward-looking projections; however, we do expect continued positive and steady growth throughout 2018.

Q: What were the key drivers for MEPCO’s positive performance in Q4 2017, and Q1 2018?

A: On a quarterly basis, the main reasons for improvements in net profit, gross profit and operating profits were the increase in sales value and average selling prices partially due to more sales of niche products as compared to previous periods, along with a decrease in cost of goods for some items and finance cost due to the reduction in average borrowing levels and average borrowing rates.

Our sales revenue in 2017 increased by 21.5 percent from 2016 to SAR 771 million and volume increased by 5.8 percent – reflecting positively on our first full year of reporting, in accordance with IFRS.

Share of sales for niche products increased during 2017, representing a greater share than in previous years – a result of hard work within the company, not only to align with international best practice standards, but to overhaul the business’ infrastructure and processes in such a way as to guarantee efficiency and cost competitiveness.

Q: What new changes can be expected at MEPCO in 2018 to support the company’s bottom line?

A: In 2017, MEPCO made a number of important structural adjustments, from systems updates to overall compliance. We are already seeing the fruits of investment in revamping production lines as well as refinement of operating processes. These efforts have led to overall improvements to efficiency cost optimization, and will support our future sustainable growth, which will be a key focus of ours in the foreseeable future.

Q: What are the key areas that require more effort to boost efficiency?

A: Currently we are looking into various avenues through which we can improve operational efficiency, which will in turn improve our production capacity, resulting in higher sales.

To improve operational efficiency, we are looking to fine tune our sales processes, and will look at further ways to rationalize costs of sales mix paired with further cost rationalization.

Q: Do you have any future projects to improve productivity at WASCO plants? Are there any plans to set up new facilities?

A: Environmental and economic sustainability is at the heart of MEPCO’s operating model. WASCO establishes long-term contracts with government bodies on landfills, which is a major source of supply locally. In addition, direct contracts with major suppliers like supermarket chains and other major producers across Saudi Arabia provide long-term private sector relationships for WASCO.

Since WASCO is a well-organized business operating in an unorganized industry, it has a major competitive advantage, which MEPCO benefits from directly and indirectly. WASCO management is always working on increasing its capacity as well as the level of efficiency in waste sorting. The implementation of optical sorting solutions in its recent Ahsa project evidences these efforts.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com