GCC Cement Sector Overview & Outlook

Hettish Kumar Karmani

Senior Financial Analyst
Global Investment House

GCC Economy Growing at a full swing (Contd)

GCC, a region with a nominal GDP of over USD1.0tn and an average per capita of USD24,000 is
expected to grow exponentially in 2011.
The real GDP growth for the GCC in 2011 is projected to grow by 5.9%.
Political tensions in the region are expected to increase the oil prices above the previous years
average.
Within GCC, Qatar is expected to outperform with nominal GDP growth expectation of more than
20% for 2011.
GCC Nominal GDP
(USD bn)
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
United Arab Emirates
GCC
Source: IMF &Global Research

2006
15.8
101.6
36.8
60.5
356.2
175.2
746.1

2007
18.4
114.7
41.9
80.8
384.7
206.4
846.9

2008
22.1
148.0
60.3
110.7
476.3
254.4
1,071.8

2009
19.3
109.9
46.1
98.3
375.6
249.0
898.2

2010E
21.7
129.0
53.8
108.9
434.8
252.7
1,000.9

CAGR (06-10)

8.2%
6.2%
10.0%
15.8%
5.1%
9.6%
7.6%

GCC Economy Growing at a full swing

Current Account Balances

Population Growth

USD bn

300

40.0%

260

210
190

200
150

50.0
40.0

250

13.0%
6.6%
2009

0
2007

2008

17.5%

15.7%

10.0%
0.0%

2010P

Current Account Balance

45.5

4.2%
3.5%
20.0

50

43.7

42.2

30.0%
20.0%

24.1%
57

40.9

39.8

38.8

37.8

6.0%
5.0%

30.0

133
22.8%

100

2006

185

175

28.7%

36.5

2011P

2012P

3.5%

3.4%

4.0%

3.1%
2.8%

2.6%

2009

2010P

10.0

2.8%

3.0%

0.0

2.0%
2007

2008

(Percent of GDP)

2011P 2012P 2013P 2014P

Population

Nominal GDP

% Growth

Fiscal Balances as % of GDP

USD bn

1,400
1,077

1,200
1,000
800

732

1,021

30.0%

1,210

1,118

25.0%

868

836

26.4%
22.4%

20.0%

17.0%

15.0%

600

10.0%

400
200

5.0%

0.0%
2006

2007

2008

2009

2010P

2011P

2012P

10.3%

10.7%

2011P

2012P

7.0%
2.1%
2006

2007

Nominal GDP

2008

2009

2010P

Central Government Fiscal Balance

Source: IMF, Global Analysis

GCC Cement Sector

GCC cement capacity rose from 55mpta in 2006 to 110.0mtpa in 2010, CAGR of 18.4%
GCC cement capacity is 2.8% of the Worlds total capacity and 32.1% of the MENA region.
Per capita cement consumption in GCC is the highest in the World.
Saudi Arabia leads with a capacity of 52.8mtpa, 48% of the GCC.
Bahrain, Oman, Kuwait & Qatar make upto 14% of the capacity, rest by UAE.
GCC Cement Companies Capacity
(mtpa)
2006
UAE

16.7

2007
23.7

2008
29.5

2009
34.3

2010
40.8

2011e
40.8

2012e
40.8

2013e
43.0

Saudi Arabia
Oman
Bahrain
Qatar
Kuwait

28.7
4.0
0.5
3.1
2.5

33.0
4.5
0.5
3.1
2.5

43.8
5.4
0.5
3.1
2.5

46.0
5.4
0.5
6.2
2.5

52.8
6.2
1.5
6.2
2.5

53.8
6.2
1.5
6.2
5.4

56.2
6.2
2.0
6.2
5.4

58.0
6.2
2.0
6.2
5.4

GCC

55.4

67.2

84.7

94.9

110.0

113.9

116.7

120.7

Source: Company Reports & Industry Sources

* Included both listed and unlisted companies

GCC Projects Markets Picking pace post 2008/09 slowdown

GCC Projects Market Size (Dec - 2010)
2,500.0

(USD bn)

2,000.0
1,500.0
1,000.0
500.0
Bahrain

Kuwait

Oman

Qatar

On Hold

Planned

Saudi
Arabia

UAE

GCC

Source: MEED

Contracts Awarded in MENA

18.0
13.0

Avg .

4Q-10

3Q-10

2Q-10

Avg .

1Q-10

4Q-09

3Q-09

2Q-09

Avg .

1Q-09

4Q-08

3Q-08

2Q-08

4Q-07

3Q-07

2Q-07

1Q-07

3.0

Avg .

8.0

1Q-08

(USD bn)

23.0

Source: MEED

Projects Market Analysis

GCC projects markets has grown from USD360bn in 2004 to USD2.8tn at end of 2008. Hi / Low of
USD2.6tn / USD2.0tn between 2009-10.
Overall 25.5% of the total projects are on hold worth USD621.5bn as of Dec 2010.
Country with most active projects pipeline is Saudi Arabia at USD601.8bn and UAE at
USD411.4bn.
Bahrain & Oman make up around 9.8% of the active projects market.
GCC Cement Demand Expectations
Overall Project Announcements

(USDmn)

2,174,215.0

On Hold Projects
Active Projects

25.5%
74.5%

621,574.0
1,552,641.0

Expected Building & Construction Related Projects

40.0%

621,056.4

Require Cement, Blocks & Others

Cement Revenue as % of Build & Cons Sector in GCC

50.0%
11.7%

310,528.2
36,469.4

(2011-2017)

Cement Price per Ton as of 2010

(USD/Ton)

64.0

Resulting Cement Demand (2010-2017)

Annual Cement Demand

(mn Tons)
(mn Tons)

569.8
81.4

Source: MEED & Global Research

GCC Cement Demand & Supply

Supply has surpassed the demand.
By 2011 end, their will be additional 28mtpa.
UAE has excess supply of around 20-21mtpa.
GCC Demand Supply Gap Scenario (mn tons)
120.0

35.00
30.00

100.0

25.00
80.0

20.00

60.0

15.00
10.00

40.0

5.00
20.0

(5.00)
2006

2007
GCC Supply

2008
GCC Demand

2009

2010

2011F

GCC Surplus / (Gap) - RHS

Source: Global Research

Utilization Rates Dropped significantly

Utilization rates have been on the decline ever since capacity build-up started.
Stability in utilization rates is expected as only few new capacities are coming online.
Mergers & acquisition can help prop up the utilization rates.
GCC Cement Companies - Utilization Rates
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2006
Source: Global Research

2007

2008

2009

2010

2011F

Cement Prices - Under pressure

Post 2008, cement prices have continued to decline.
UAE has the lowest prices at USD51.8/ton.
Kuwait being net importer has a higher price tag at USD75.1/ton
Average Cement Prices (USD/Ton)
90.0

25%

80.0

20%
15%

70.0

10%

60.0

5%

50.0

0%

40.0

-5%

30.0

-10%
2003

2004

2005

2006

2007

2008

1H-09 9M-09

Price (USD/Ton)

2009

1Q-10

1H-10 9M-10

% Chg

Source: Listed Companies of GCC

Factors influencing cement prices

10,000.0

100.0

8,000.0

80.0

6,000.0

60.0

4,000.0

40.0

2,000.0

20.0

Source: World Bank Pink Sheets & Bloomberg

2009

9M-2010

2009

9M-2010

2008

2007

2006

2005

Raw Material Index (x)

2008

2007

2006

2005

2004

9M-2010

2009

50.0

2008

100.0

2.0

2007

150.0

4.0

2006

200.0

6.0

2005

8.0

2004

250.0

2003

10.0

Natural Gas, US (USD/mmbtu)

2004

2003

Crude Oil, Avg, Spot (USD/bbl)

2003

Baltic Dry Index (x)

9M-2010

2009

2008

2007

2006

2005

2004

2003

GCC Cement Sector Financial Performance (Contd)

Sales revenue in GCC rose from USD2.6bn in 2004 to USD3.0bn in 9M-2010. High of USD4.9bn
was made in 2008.
Net income of the listed companies grew from USD1.2bn to USD2.2bn in 2007. Currently standing
at 2003-04 levels of USD1.1bn in 9M-2010.
Debt 17.2% of the total assets of 9M-2010 at USD2.3bn
Ratios
Gross Margins (%)
Operating Exp as % of Assets
Non-Core Income as % of PAT
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt
Debt as % of Assets
Liabilities as % of Assets
Equity as % of Assets
Return on Equity (%)
Return on Assets (%)

2004
45.1%
2.2%
19.0%
39.3%
46.7%
3.2%
5.4%
15.0%
85.0%
20.9%
17.8%

2005
46.1%
2.0%
31.8%
40.4%
54.6%
2.7%
8.1%
17.1%
82.9%
22.7%
18.8%

2006
47.7%
2.0%
11.9%
42.0%
45.3%
2.9%
8.3%
17.3%
82.7%
19.0%
15.7%

2007
46.1%
2.0%
26.1%
40.3%
50.6%
5.8%
7.9%
17.1%
82.9%
21.0%
17.4%

2008
38.9%
2.0%
-10.8%
33.6%
28.5%
3.2%
14.9%
25.6%
74.4%
14.5%
10.8%

2009
39.2%
2.1%
9.6%
32.9%
32.0%
3.1%
14.1%
23.6%
76.4%
14.2%
10.9%

Source: Company Reports & Global Research

* Consolidated Financials of 24 Listed Companies

11

GCC Cement Sector Financial Performance (Contd)

Positioning Gross Margins & ROE

Positioning Operating Margins & ROA

16.0%

18.0%
Oman
KSA

12.0%

Kuwait

GCC
Qatar

10.0%
8.0%
6.0%
4.0%
UAE

2.0%

KSA

10.0%
8.0%

GCC
Qatar

Kuwait

6.0%
4.0%
UAE

0.0%

0.0%

20.0%
40.0%
Gross Margin

0.0%

60.0%

F.Chg as % of Debt & Debt as % of Assets

35.0%

50.0%

GCC

KSA

Net Margin

15.0%

Kuwait
UAE

10.0%
5.0%

60.0%

60.0%

25.0%
20.0%

20.0%
40.0%
Operating Margin

Non-Core Income as % of Net Inc. & Net Margins

Qatar

30.0%
Debt as % of Assets

12.0%

2.0%

0.0%

40.0%
30.0%

KSA

Oman
Qatar
GCC
Kuwait

20.0%
UAE

10.0%
Oman

0.0%

0.0%

0.0%

1.0%

2.0%

3.0%

Financial Charges as % of Debt

Source: Company Reports & Global Research
* Performance of 23 Listed Companies as of 1H-2010

12

Oman

14.0%

14.0%

Return on Assets

Return on Equity

16.0%

4.0%

0.0%

50.0%

Non-Core Income as % of Net Income

100.0%

9M-10
40.4%
1.4%
15.7%
34.2%
38.0%
1.5%
17.2%
25.1%
74.9%
11.1%
8.3%

COUNTRY PROFILE

Oman
Two listed cement players. One new entrant to come online with a new capacity.
Net importer of Cement.
Rich with natural resources and raw materials.
Oman Development Plan (2011-15) and Oman Vision 2020 to fuel government spending.

Ratios
Gross Margins (%)
Operating Expense as % of Assets (%)
Non-Core Income as % of PAT (%)
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)
Source: Company Reports & Global Research

14

2004
50.1%
4.6%
11.7%
38.3%
36.5%
3.8%
10.7%
26.9%
73.1%
19.6%
14.3%

2005
49.8%
4.2%
14.2%
38.8%
39.2%
2.3%
11.9%
26.5%
73.5%
20.2%
14.9%

2006
54.3%
5.4%
12.6%
42.2%
42.2%
4.7%
8.1%
24.0%
76.0%
24.8%
18.8%

2007
52.1%
5.5%
13.9%
40.1%
42.3%
1.2%
3.4%
14.3%
85.7%
22.6%
19.4%

2008
40.0%
7.6%
8.0%
27.5%
26.0%
1.3%
2.3%
13.8%
86.2%
18.4%
15.8%

2009
45.6%
7.4%
15.1%
32.7%
33.6%
2.3%
2.5%
12.3%
87.7%
21.8%
19.1%

9M-10
50.5%
4.0%
25.2%
37.9%
46.2%
0.8%
3.2%
12.0%
88.0%
16.6%
14.6%

Saudi Arabia
Country with 15 cement companies. (8 Listed and 7 Unlisted)
Exporter of Cement but partial export ban in place.
Rich with natural resources and raw materials.
KSA 9th Development plan (2010-14) expects 67.2% spending rise to SAR1.4tn.

Ratios
Gross Margins (%)
Operating Expense as % of Assets (%)
Non-Core Income as % of PAT (%)
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)

2004
55.6%
1.6%
10.4%
51.3%
56.6%
1.1%
2.9%
13.2%
86.8%
24.0%
20.8%

2005
59.1%
1.9%
5.1%
53.8%
54.3%
0.4%
7.6%
19.0%
81.0%
24.4%
19.7%

2006
61.1%
1.8%
4.9%
56.2%
57.1%
0.7%
6.8%
18.6%
81.4%
25.9%
21.1%

2007
60.7%
1.3%
5.0%
57.1%
58.1%
0.4%
9.5%
22.3%
77.7%
27.5%
21.4%

2008
56.9%
1.5%
6.5%
52.4%
54.1%
1.0%
14.1%
23.7%
76.3%
23.2%
17.7%

2009
54.1%
1.7%
5.2%
48.6%
48.0%
1.9%
12.0%
23.7%
76.3%
19.8%
15.1%

9M-10
52.6%
1.0%
3.1%
48.5%
47.8%
0.8%
16.1%
24.3%
75.7%
15.4%
11.7%

2007
31.8%
1.5%
45.7%
27.1%
41.2%
24%
3.9%
10.8%
89.2%
14.7%
13.1%

2008
27.5%
1.9%
-149.2%
22.9%
8.3%
10%
8.0%
20.9%
79.1%
4.4%
3.5%

2009
21.8%
1.9%
-12.0%
16.1%
11.2%
3%
13.2%
19.8%
80.2%
4.6%
3.7%

9M-10
11.6%
1.4%
83.6%
4.0%
12.0%
3%
15.3%
22.4%
77.6%
2.8%
2.2%

Source: Company Reports & Global Research

15

United Arab Emirates (UAE)

More than 18 cement companies. (9 Listed)
Exporter of cement with excess supply of 20mn tons.
Few emirates with natural resources i.e. Ras Al Khaimah
Abu Dhabi supporting the demand well.

Ratios
Gross Margins (%)
Opt. Expense as % of Assets (%)
Non-Core Income as % of PAT (%)
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)
Source: Company Reports & Global Research

16

2004
35.0%
1.9%
29.2%
29.8%
40.1%
5%
5.4%
14.4%
85.6%
17.2%
14.8%

2005
40.5%
1.5%
51.2%
35.6%
69.0%
10%
3.6%
9.3%
90.7%
23.0%
20.8%

2006
39.1%
1.4%
6.4%
34.1%
35.1%
5%
5.3%
12.2%
87.8%
11.5%
10.1%

Kuwait
Three listed cement producers.
Importer of cement.
Lacks natural resources and lesser land granted for industrial expansions.
Kuwait development plan of USD125bn to prop up the demand.
Ratios
Gross Margins (%)
Operating Expense as % of Assets (%)
Non-Core Income as % of PAT (%)
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)

2004
24%
3.5%
52%
17%
29%
4%
18%
24%
76%
18%
14%

2005
20%
2.2%
85%
15%
44%
5%
13%
20%
80%
22%
17%

2006
27%
2.0%
47%
22%
36%
5%
17%
20%
80%
18%
14%

2007
28%
4.2%
83%
13%
57%
6%
12%
15%
85%
18%
15%

2008
21%
3%
561%
15%
-3%
4%
32%
38%
62%
-2%
-1%

2009
26%
3%
18%
20%
17%
4%
26%
37%
63%
12%
7%

9M-10
31%
2%
44%
23%
34%
3%
20%
31%
69%
11%
8%

2008
20.2%
1.3%
48.9%
16.1%
31.4%
1.6%
31.9%
44.4%
55.6%
17.8%
9.9%

2009
27.6%
1.7%
51.6%
21.8%
31.5%
4.6%
22.7%
27.3%
72.7%
12.9%
9.4%

9M-10
43.8%
1.2%
16.3%
36.3%
44.1%
0.7%
30.5%
35.2%
64.8%
10.5%
6.8%

Source: Company Reports & Global Research

17

Qatar
Two listed cement players.
Importer of cement.
Qatar World Cup successful bid to keep the cement demand rolling.
Qatar Vision 2030 and spending plans to maintain demand supply gap.
Ratio Analysis
Gross Margins (%)
Operating Expense as % of Assets (%)
Non-Core Income as % of PAT (%)
Operating Margins (%)
Net Margins (%)
Financial Charges as % of Debt (%)
Debt as % of Assets (%)
Liabilities as % of Assets (%)
Equity as % of Assets (%)
Return on Equity (%)
Return on Assets (%)
Source: Company Reports & Global Research

18

2004
37%
5.1%
39.8%
23%
38%
0%
0%
6%
94%
15%
14%

2005
24.3%
3.0%
49.9%
14.2%
27.7%
0.0%
20.5%
30.4%
69.6%
11.7%
8.2%

2006
23.6%
2.9%
47.7%
14.3%
25.7%
0.8%
16.8%
21.1%
78.9%
10.1%
8.0%

2007
25.9%
1.6%
44.8%
21.4%
36.7%
7.0%
11.6%
16.6%
83.4%
16.2%
13.5%

Outlook
Political tensions fuelling oil prices, favoring GDP and budgets of GCC countries.
Development plans worth billions to keep the demand progressing.
New entrants would continue to take away the market share.
Increase in price of raw materials cannot be ruled out in the short term.
Horizontal and vertical integration would be the way forward.
Depressed realization prices would put pressure on margins of the producers.
Exports from neighboring countries such as Pakistan, Iran and Egypt to continue.
Raw material quarries in Ras Al Khaimah (UAE), Raysut (Oman) and Saudi Arabia to benefit local
producers.
Qatar, Oman and Kuwait to remain in the net importer zone in the short to medium term.

19

Thank You

Hettish Kumar Karmani

Senior Financial Analyst
Global Investment House
hkumar@global.com.kw
00965-94435771
www.globalinv.net
20