FIPCO eyes new markets in 2019: chairman

Filling & Packing Materials Manufacturing Co. (FIPCO) is planning to tap new markets through its subsidiary, FPC Industries Co. ltd, chairman Ahmed Al-Barrak told Argaam in an exclusive on Wednesday.

FPC is the world's first of its kind factory by production technology and the fifth by capacity.

The company is aiming to maintain a balanced client mix and export a minimum of 60 percent of its products so as to remain insulated from a potential drop in demand.

FIPCO seeks to cut costs through using solar power. It also aims to replace the existing equipment with more advanced ones to cut workforce, Al-Barrak added.

The company produces nearly 3 million jumbo bags annually and holds a 60 percent market share in Saudi Arabia. It also garners a 15 percent market share of small bags.

Here's the full interview:

Q: Is FIPCO planning to enter new markets in 2019?

A: The company targets to tap new markets through its subsidiary FPC Industries. It participated in eight international exhibitions last year in various countries, mainly the United States, China and Germany.

It received a strong turnout for its products and aims to close supply agreements with distributors in those countries.

Q: FIPCO swung to a net loss of SAR 2.5 million for Q1 2019, what is your comment on its financial results?

A: Increased pre-operating expenses of FPC are the main reason behind Q1 losses. FPC was in the final stage of trial operation, while commercial production was announced at the end of Q1 2019. The Saudi-listed company is required to issue consolidated financial statements as it owns 80 percent of FPC. Accordingly, FIPCO was hit by increased expenses.

Excluding FPC, FIPCO reported net profit of SAR 838,000 in Q1 2019.

Q: Why did FIPCO incur higher cost of sales? How can it cut these costs?

A: A change in the sales mix and growing demand for high-cost products amid subdued demand for low-cost products were the key reasons for higher costs. In addition, the company incurred higher costs of labor visas in the first quarter, when compared to Q1 2018.

The company also saw an increase in the number of workforce to meet client demand and deliver its products on time.

To reduce costs, FIPCO aims to save power. Accordingly, it started using 0.5 solar megawatt power cells. It also seeks to reengineer the existing equipment to reduce power consumption and enhance efficiency.

FIPCO is also planning to use advanced equipment to cut reliance on workforce.

Q: What was the value of doubtful loans collected in Q1? What about FIPCO's related provisions?

A: FIPCO collected almost SAR 959,000 loans, which represent just 2.6 percent of the first-quarter sales.

Q: What about FIPCO's provision for zakat claims in Q4 2018? And what are the tax claims set by the General Authority of Zakat and Tax for the company in 2018?

A: The zakat claims were valued by GAZT at SAR 708,000 for the period from 2013 to 2016.

Q: What was the amount paid by FIPCO for expat fees and what about the refunds received in Q1 2019?

A: The company in July paid SAR 1.604 million for 2018. The refunds stood at SAR 1.271 million and were received in March 2019.

Q: How can you estimate the company's market share across the Kingdom?

A: FIPCO's market share of jumbo bags stand at almost 60 percent in Saudi Arabia, with small bags accounting for 15 percent.

Q: What is FIPCO's production capacity?

A: The company produces almost 3 million jumbo bags annually, along with 140 million meters of small bags and 28 million valve bags.

Q: Can you give us more details about FPC Industries' production capacity and type of products?

A: FPC's capacity exceeds 40 million meters of all products that target various sectors, such as construction, playgrounds, transportation, tenting and military fabrics.

FPC is the world's first of its kind factory by production technology and the fifth by capacity.

The company is aiming to maintain a balanced client mix and export a minimum of 60 percent of its products so as to hedge against any potential drop in demand.

Q: FIPCO targets to export a minimum of 60 percent of products through FPC. Do you believe the Saudi market is saturated with such products?

A: We expect higher profit margins from exports, thanks to FPC's high-quality products.

The company also aims to help the Kingdom attain self-sufficiency in the projects of the Two Holy Mosques. These projects include, Mina city tents, military industries and other investments held by the Public Investment Fund (PIF), including NEOM and Qiddiya.

Q: How far has FIPCO been impacted by dumping? Did the company take any procedures to solve this issue?

A: FIPCO clients include major petrochemical producers, food, chemicals, and cement firms. Exports target clients that do not focus mainly on quality, such as the contracting, sand, cracker sectors.

Therefore, FIPCO does not target this category of clients due to the fierce price competition with other countries, such as India and China.

Some petrochemical firms, where the government own a majority stake, unfortunately import their needs of plastic bags at prices similar to those of local products.