Al Jouf Cement resets priorities by enhancing ops

Abdulkarim Al Nuhayer, CEO of Al Jouf Cement Co.

Al Jouf Cement Co.'s board of directors decided to withdraw its previous recommendation to increase capital, which entailed earmarking a portion of proceeds for a dividend payout, as the move’s drivers are no longer relevant, CEO and Managing Director Abdulkarim Al Nuhayer told Argaam.

After reviewing the board’s proposal, the capital top-up reasons included the repayment of credit obligations, but the company had recently agreed to reschedule. This is in addition to distributing dividends by collecting money from shareholders to increase capital and then redistributing part of the proceeds to them as dividends, which was deemed an unacceptable procedure.

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He added that Al Jouf Cement’s management is working on rearranging priorities by supporting operations and enhancing production efficiency to help meet the needs of current and prospective customers. Therefore, the cement producer rescheduled pending loan repayments to allocate funds for this plan over the next two years.

The loan reschedule with Saudi Awwal Bank (SAB) and Alinma Bank aims to reduce cash flow pressure for two years, as the company seeks to focus on supporting operations, improving sales, and continuing to implement initiatives related to production and operational efficiency, ultimately enhancing profit margins.

It is also aimed at improving the cement producer’s relationship with banks, as the loan rescheduling agreements helped defer principal repayment for two years.

This is in addition to lowering Islamic financing margins, given banks' confidence in the company's performance and leadership in the upcoming periods. Accordingly, this shall reflect positively on financing commissions (interest rates).

As for loans owed to the Saudi Industrial Development Fund (SIDF), Al Nuhayer clarified there are two loans with the fund, the first is a direct loan to Al Jouf Cement, with a remaining balance of SAR 54 million. Currently, the company is in talks with the fund to roll over this loan, with the former’s response expected in the coming days.

The CEO added that the cement firm fully repaid Bank AlJazira loan, amounting to approximately SAR 41 million, including the bank's financing profits, which Al Jouf Cement paid as a guarantor for the Eastern Industrial Co. (EICO).

He added that the remaining portion of EICO loan guarantee reaches nearly SAR 35 million, which was transferred to EICO bankruptcy trustee to settle the fund's share from EICO’s liquidation, noting that the company was notified of the recognition of a debt of over SAR 50 million owed by EICO.

Al Nuhayer expected a positive impact on Al Jouf Cement's financials upon completion of EICO’s liquidation procedures. SIDF wil receive its remaining dues of around SAR 35 million from the liquidator, thus eliminating this claim from Al Jouf Cement's records.

Additionally, the company may receive the full amount of SAR 50 million or part of it from the dues recorded with EICO liquidator, depending on the liquidation proceedings.

Regarding the lawsuit against EICO, Al Nuhayer said more time is needed to review the auditor's report and violations of three former board members. This is in addition to meeting with several legal consulting firms to study the case file and appoint the respective lawyer. 

The files review by these firms took a long time, but it is in the final stages and any updates will be announced in due course. However, the complaint against the former board members was filed with the Capital Market Authority (CMA), the CEO said, noting that shareholders will be duly updated on the relevant developments. 

Al Nuhayer also affirmed the company's firm commitment to addressing any potential misuse of shareholders' funds. 

Regarding the company's financial performance in the second quarter of this year, the top executive confirmed that the 99% year-on-year (YoY) profit surge was spurred by higher sales volumes. This is despite the increased average cost of sales on rising fuel prices during the quarter, coupled with the elevated financing and Zakat costs. 

The company’s Q2 2024 net profit stood at SAR 8.1 million, compared to SAR 12.5 million for the previous quarter. The bottom line slumped by 35% on a sequential basis due to the quarter-on-quarter (QoQ) drop in sales volumes as the current quarter coincided with the Eid al-Fitr and Eid al-Adha holidays. 

Although the Saudi cement sector saw a 5% YoY decline in sales during the first half of this year, Al Jouf Cement reported a 2% YoY sales growth during the six-month period, driven by exports. 

He pointed out that the Saudi cement sector's Q2 2024 sales plunged by 12% QoQ due to the sector’s seasonality, which typically experiences a noticeable retreat in sales during the Eid and Hajj seasons. However, Al Jouf Cement’s second-quarter sales accounted for only 3% of this decrease, maintaining minimal impact during the three-month period, largely due to export sales. 

According to Argaam’s data, Al Jouf Cement’s net earnings rose to SAR 20.6 million in the first half of 2024, up 43% from SAR 14.4 million in the same period in 2023. The second-quarter net profit soared 99% YoY to SAR 8.1 million.