Zahrat Al Waha eyes better growth, North Africa markets: chairman

Zahrat Al Waha for Trading Co. is looking to achieve better growth this year, or at least maintain the 2019 growth rates, board chairman Ahmed Al Theyab told Argaam in an exclusive interview.

This growth could be coupled with boosting the existing production capacity or adding new lines, he added, noting that Al Waha’s market share in the water factories’ production ranges between 35% and 40%.

Al Waha secures over 95% of its raw materials from Saudi Basic Industries Corp. (SABIC).

Al Waha is planning to further reduce long-term debts in 2020, he stressed, noting that potential capital investments could be 70% financed by the company’s internal resources.

The company started targeting exports to MENA markets in 2019 and aims to expand its customer base, Al Theyab also said.

Here is the full interview with Ahmed Al Theyab:

Q: How do you see Al Waha’s financial results after posting a 63% rise year-on-year in the 2019 net profit to SAR 57 million?

A: Al Waha reported higher sales and improved market share locally and overseas, as exports accounted for almost 23% of total sales volume.

In 2019, total sales grew by 6.5% YoY to SAR 520 million. The company’s profitability was driven by optimum utilization of the equipment capacity. In addition, Al Waha sales team expanded the company’s customer base to more than 80 clients in the local and overseas markets.

The company has successfully cut the cost of debt. After listing its shares on the Saudi Stock Exchange (Tadawul), it shifted from bank loans to improve its performance, cut costs and utilize its capacities. Al Waha can currently self-finance its capital expansions.

We are satisfied with the company’s performance amid the current market conditions. We also worked on the optimum utilization of a product with a very limited profitability potential. However, the diversified product basket helped the company gain a solid market share locally and overseas, contributing to improved sales.

Q: What is the market share garnered by Al Waha in the plastic preforms and cap segments?

A: Al Waha secures over 95% of its raw materials from SABIC. The company purchases over 30% of SABIC’s production of polyethylene.

Al Waha’s market share in water factories’ production range between 35% and 40%. Meanwhile, the company’s market share in the plastic bottling segment for water and juice products ranges between 20% and 22%.

Q: How would volatility in polyethylene prices affect Al Waha’s production costs and selling prices?

A: Raw materials account for 70-75% of product pricing. The prices of polyethylene rose 2% in Q1 2010, compared to the fourth quarter of 2019 by 2%. That volatility will have no impact on selling prices, as the company has fixed wages and shipping costs throughout 2019.

When we compare the 2019 financial results to those of 2016, production capacity and profitability was higher in 2016. Pricing in 2019 and 2020 has remained unchanged, due to fixed wages. The rise in sales value was not impacted by increased cost of sales or administrative expenses.

Al Waha’s main strength is reflected by its diversified products, as it manufactures over 27 products of preforms and bottle caps. It is currently studying additional packaging and bottling products to meet our customers’ needs.

Investment in new products depends on market study and profit margins. The company aims to ensure balanced demand and competition. The company aims to sell products with the least cost to outperform rivals.

Q: What are the current export markets of the company? Does the company target new markets?

A: We export products to the Gulf countries, Yemen, Sudan and Iraq. Last year, we eyed the MENA region, being a very promising market. However, to export products to MENA region, we have to set up a new factory near the ports to reduce export costs.

Now, we aim to expand our customer base. Al Waha is evaluating the need for a new factory near ports.

Q: Long-term loans decreased from SAR 113 million in 2018 to SAR 82 million in 2019. What is your plan about securing loans in the next few years, and how will this impact the company’s results?

A: If Al Waha continues to pay off its debts in the next 3 years, and if it incurs zero capital investments or used its own cash to finance capital expansions, the company will be able to fully repay its long-term debts within the next 3-4 years.

We aim to reduce credit risks, but the company’s business profile needs short-term loans. Al Waha is looking this year to further reduce long-term debts. We expect to self-finance 70% of the planned capital expansions.

Q: By the end of Q3 2019, Al Waha commenced operations of the new preform production line. How did the new line impact the company’s 2019 figures?

A: The financial impact of the new line started to show on Q3 and Q4 2019 results. The new line contributed 8%-9% to total sales. It raised capacity by almost 8,000 tons annually. The company consumed 90,000 tons of raw materials in 2019, compared to 77,000 tons a year earlier. Al Waha is likely to consume more raw materials in 2020.

Q: When does seasonal demand impact Al Waha’s results? 

A: The company usually reports the lowest profit in the first quarter of every year, when the January and February weather become cold. Accordingly, water consumption decreases. Meanwhile, the company reports the highest sales in the second and third quarter of every year, due to the onset of summer, as well as the Umrah and Hajj season.

Q: What are Al Waha’s future projects? 

A: In the near future, Al Waha will disclose to Tadawul its future investment plan with regard to packaging, or expansion in the existing production lines, after being approved by the board of directors. Al Waha operates according to the previously-set plans and achieves the best results. We will continue to maintain and grow the company’s profitability.

Al Waha expects to record growth this year similar to that of 2019, amid better production capacity and new lines.

Q: Are there any plans to ensure a minimum cash dividend or to shift to quarterly dividends? 

A: In 2017 and 2018, the company paid annual dividends at SAR 1 per share. Last year, Al Waha delivered strong performance and cut debt costs. Therefore, the company’s board decided to distribute semiannual dividends – a positive move. If the company maintains stable performance and continuous growth, the board will study quarterly dividends.