What's Down: Revenue for Ras Al Khaimah Cement has dropped again this year, and the cement market has bucked the recent trend among Gulf companies of rewarding investors with generous dividends.
Erosion of profitability lingers at RAK Cement
Revenue for Ras Al Khaimah Cement has dropped again this year, and as the cement market continues to suffer, the firm has bucked the recent trend among Gulf companies of rewarding investors with generous dividends.
Revenue has consistently fallen at RAK Cement since 2008. Back then it was a healthy Dh426 million. But in its full-year results for last year, revenue fell to Dh191.5m as the slowdown in building and development persisted.
The results show a loss for the year of Dh20mversus the Dh3.9m loss RAK Cement reported in 2010. Once again, the company has not paid a dividend, making this year the second in a row its investors have gone without a payout while a slew of other companies have recently rewarded shareholders.
"Its a tough market if you're in the construction business," said Nick Smith, a partner at the global asset consultancy EC Harris.
"Demand is much less than it was. There is pressure on the cost of making cement, but producers cannot get the price for it," Mr Smith said.
"Bad results from this sector are not such a surprise. In the UAE, the market will remain flat. There could be some opportunities in Qatar ahead of the [2022 Fifa] World Cup and a positive knock-on effect from that. "In the meantime, for cement companies, it's all about downsizing to fit demand and paring back operations.
"But getting a reliable forecast on when the market will improve is tricky." In the past year, however, marketing spending at RAK Cement rose to Dh1m from Dh678,612.
It received Dh2m as its share in the profit of Reem Ready Mix, in which it holds a 20 per cent stake, but this is down by more than half on the Dh5.3m earned in 2010. It also received no dividend on the shares.
Another problem RAK Cement has is its receivables. The company's customer base is concentrated among a relatively small number of resellers and distributors. As of December 31, it was still awaiting payments amounting to Dh33m from just six customers. That sum is 61 per cent of the total amount it is owed.
The company hopes that prices in the local market have bottomed out and that its revenue will improve this year.