Aslak CEO says market fundamentals 'back to normal' in 2021, margins pressured by higher costs

Nabil Al-Amir, CEO of United Wire Factories Co. (Aslak)

Nabil Al-Amir, CEO of United Wire Factories Co. (Aslak), said that the market fundamentals were back to normal in 2021, as there was pressure on sales margins due to the unprecedented high cost of raw materials.

This significantly weighed on margins of products related to the sector, which constitute a large part of the company's activity and products, thus impacting the fourth-quarter results, Al-Amir told Argaam in a phone call.

The CEO indicated that the year 2020 was exceptional in many sectors, as demand in the fourth quarter of 2020 was very high and the prices of raw materials were beginning to rebound. Likewise, there was a strong demand momentum from various sales channels to obtain products at the lowest possible cost, which boosted margins in a remarkable way.

Commenting on the construction sector, especially the residential and small projects, Al-Amir said that the sector was significantly impacted by the application of the building code, which led to business stagnation and a decrease in labor due to the departure of a large number of residents. In addition, prices of building materials and iron increased as a result of the disruption in the global supply chain.

Al-Amir noted that prices of iron ore reached their highest level in June 2021 at $230 per ton, which is an unprecedented historical level. In the fourth quarter, prices reached $115-130 per ton and are still moving within this range.

Furthermore, he stated that the company reversed the provisions related to COVID-19 in the first and third quarters, while the results of the fourth quarter did not include provisions.

Regarding expectations for demand, Al-Amir said that the construction sector is experiencing the same conditions and there are some minor breakthroughs, adding, "We hope that demand will move better."

He said that the company is targeting sectors, products and activities that achieve greater returns, and that it has the flexibility to focus on products other than construction and building products.

Aslak is not aiming to rely on a single market, as it seeks to diversify its activities to achieve sales and profit targets, said the CEO, indicating that the company has the energy and ability to benefit from any improvement in the housing and construction sector.

The Tadawul-listed firm reported an estimated net profit after Zakat and tax of SAR 46.2 million for 2021, a drop of 26% from SAR 62.2 million a year earlier. The fourth-quarter net profit fell 54% year-on-year (YoY) to SAR 7.9 million, according to Argaam data.