Aslak CEO says all sectors suffered tough conditions in Q3, sustainable returns eyed

Nabil Alamir, CEO of United Wire Factories Co. (Aslak)

The market conditions were difficult in the third quarter for most industrial sectors, mainly due to the global crises, Nabil Alamir, CEO of United Wire Factories Co. (Aslak), told Argaam in a phone call.

He added that the company managed partially to overcome the negative impacts in the third quarter, due to the diversity of products.

Raw material prices decreased quarter-on-quarter (QoQ) by about 15-20% in the local market during Q3 2022, compared to the previous quarter, and thus pressured the margins of the company's end product and raw material stocks. In addition, weak demand from the market affected selling prices due to seasonality and slow business in July and August, despite a slightly improved demand in September.

The construction sector witnessed weak demand in Q3 2022, which led to competitive prices affecting the margins significantly.

Further, the top executive said the raw material prices increased in Q3 2021 compared to the previous quarter, and the summer vacation did not have a significant effect. However, the opposite took place this year as prices decreased and seasonality had a remarkable impact, Alamir said.

Raw material prices are expected to increase slightly until the end of 2022 and the beginning of next year, the CEO said, indicating that the company is working to quickly cut average costs and purchase low-cost raw materials, as the markets respond directly to low prices of manufactured products and show ability to compete.

Aslak's performance is increasing in terms of revenues and earnings. The firm focuses on products with better returns and seeks to increase their production capacity to mitigate the negative impact on the products related to the construction sector that are highly sensitive to market fluctuations.

Touching on the capital reduction, the CEO said the decision was carefully studied and is considered positive at this stage. He noted that the company's current results bode well and are largely sustainable, and the expectations are also bullish and support this trend.

“This decision, however, does not mean a contraction or inability of the company to expand and diversify its business, as the firm has some expansion projects and fresh investments," Alamir said.

He added that most companies managed to overcome COVID-19 crisis, noting that there are no attractive acquisition opportunities in the same business fields of the company.

The sector suffers from production surpluses, and expansion in this field is currently useless. However, there are promising investment opportunities in the field of metal strip manufacturing, as the gap is large, but investment in this field requires strong capital.

He added that Aslak's financial position is very strong and there are still cash surpluses, hence it is better at this stage to reduce capital in order to maintain appropriate levels, where the company becomes more dynamic to improve performance and profitability indicators.

In addition, the wire manufacturer is still able to seize any investment opportunities in several ways, provided that they are feasible and rewarding.

The top executive said the small and traditional projects witnessed some calm in a number of construction activities at beginning of the fourth quarter. This may extend to the coming period. He indicated that the firm preferred to focus on a qualitative expansion in activities and direct distribution to achieve better returns.

Vision 2030 projects represent a strong support for the sector, but they require certain products that the company does not produce. "We are currently working on providing the appropriate equipment and sites to manufacture what is possible," Alamir said.

He added that Aslak's construction-related products are used in the traditional residential construction activities rather than the residential projects that rely on precast walls. However, the firm seeks to add new products to meet this demand, aiming to secure a strong presence in the areas witnessing this type of construction by opening new branches.

Aslak reported a net profit after Zakat and tax of SAR 45.3 million for the first nine months of 2022, an increase of 18% from SAR 38.3 million in the year-earlier period. Q3 net profit dropped 63% year-on-year (YoY) to SAR 3 million, according to data compiled by Argaam.