MEPCO’s CFO sees better margins next quarter

Amr Masry, CFO of Middle East Paper Co. (MEPCO)

Amr Masry, CFO of Middle East Paper Co. (MEPCO), expected margins to improve next quarter after fully transitioning from diesel to natural gas.

In an interview with Argaam, he noted that the Juthor plant partially operated on natural gas in Q2, which helped reduce energy costs by 60% to 70%.

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Production capacity in the first half of the year was 30,000 tons at the Juthor plant with 80% utilization and 225,000 tons at the MEPCO plant with 92% utilization, surpassing both the market average of 80% and the current average of 74%.

MEPCO aims to reach full production capacity for its tissue plant by year-end and is confident in maintaining the company's current capacity, the CFO added.

The company holds a 30% market share in corrugated cardboard and is increasing its share in tissues, which reached 18% of the Saudi market in the first half of the year.

The shift from a net income loss to profitability, Masry explained, was mainly due to tissue sales rising from 0% in the first half of 2023 to 25% of total sales in the first half of 2024.

Increased sales of other recyclable materials from 2% to 6%, along with better efficiency and margins from switching to natural gas, also boosted profits, highlighting the impact of the company's diversification strategy.

Revenues grew 35% year-on-year (YoY), driven by a 23,000-ton increase in Juthor plant sales and a 14,000-ton rise in sales of other recyclable materials.

Higher corrugated cardboard prices contributed to revenue growth, but the main driver was a significant increase in jumbo tissue roll sales, aligning with the company's diversification strategy.

The additional 23,000 tons of tissue sales were key to boosting net profits and improving margins. The company also increased sales of other recyclable materials by 14,000 tons compared to last year.

Looking ahead, Masry expects better results next quarter with increased tissue production capacity and higher sales of recyclable materials, while container and tissue prices should remain stable in Q3.

The company posted profits of SAR 4 million in Q2 2024, compared to losses of SAR 20.2 million during the same period in 2023, according to Argaam’s data.