Al Safwa Cement shelves merger plans, company to focus internally: chairman

Preliminary merger talks between Al Safwa Cement Co. and Arabian Cement Co. failed due to disaccord on valuation and the company elected to temporarily abandon business combination plans, Al Safwa Chairman Mazen Khayyat told Argaam.

Argaam posed the following questions to Mazen Khayyat:

Q: Would you brief us on the company’s last year performance?

A: Al Safwa sold 2.2 million tons of cement in 2017. We are pursuing plans to set up a third production line with output capacity of 1,500-2000 tons per day.

Q: Any reasons behind the company’s decision to remain privately held, and not to pursue public listing?

A: In 2008, the energy ministry urged local cement producers, including Al Safwa, to list 50 percent shareholdings on the stock market to obtain quarry licensing. But given the fact that Lafarge Holcim Company had a considerable stake in the company, the government decided that the Public Pension Agency and General Organization of Social Insurance hold 25 percent each into the company in lieu of public listing.

Now we pursuing our strategic plan thereby seeking to sustain growth, introduce value-added products, access new markets and expand customer base.

Q: You terminated your merger talks with Arabian Cement Co., any clarifications?

A: I emerged that the two companies had different visions on renewable energy. For one part, around 25 percent of our production depends on alternative fuel.

We could not reach agreement on a fair valuation. We insisted that the two companies be evaluated by the discounted cash flow (DCF) method, which did not suit the other party.

Q: Did you receive other merger proposals?

A: Actually we received two other proposals, but we elected to start talks with Arabian Cement.

Q: What is your outlook for local cement market in Q1 2018?

A: Local cement producers sell 70 percent of their production at SAR 180-190 per ton. However, prices in the western province plunged by around 50 percent since early this month, so we expect some producers to incur losses in the first quarter.

Q: To what factors do you attribute this drastic fall in prices?

A: This decline is not justified on any count, and it may have overarching impacts on other regions like Central and Southern provinces. Some companies cut selling prices by 50 percent to discharge inventory, though they had acceptable sales rates.

Q: What about the role of the Saudi ministry of commerce?

A: The ministry sets a price range within which companies can price their product. But this fall is a function of supply an demand, and pricing decisions by producers.

Q: How will the cement producers respond to fuel subsidy phase out?

A: There are cement companies that sell below cost. They will incur further losses with the phase-out of fuel subsidy.