Higher prices for energy weigh on Abu Dhabi's Arkan

Abu Dhabi’s Arkan Building Materials reported a decline in profit of more than 65 per cent in the first quarter, weighed down by higher energy prices.

Net profit fell to Dh10.59 million in the first three months of this year compared with Dh30.73m in the same period a year earlier. The company said in its ADX filing that the difference was “mainly due to the significantly higher energy costs” and lower selling prices of cement. The company had also stopped benefiting from a government grant in connection with the acquisition of the pipes company Anabeeb from the second half of last year.

As a result of the higher energy costs, all major contracts for goods and services have been renegotiated.

The Arkan chairman Jamal Al Dhaheri said the company had worked to cut costs, temporarily consolidating the production and sales of cement to a single location at its Al Ain factory, as the price of fuel rose at the start of the year.

“Arkan is leaner and more cost- efficient, which has allowed it to bounce back and remain profitable in this challenging environment as evidenced by the results,” he said.

Yet the Dh45m in annual savings expected from the factory consolidation is only the start in combating the rising prices of natural gas and electricity.

Arkan reported that the price for natural gas, which is used to fire the kilns at its facilities, jumped 73.3 per cent at the start of the year. Additionally, the price for electricity increased for industrial consumers in the UAE that use more than 1 megawatt by 68.75 per cent, with further hikes expected during peak times from June to September.

Arkan’s biggest money maker totalling nearly 70 per cent of its assets, cement, is one of the most energy-intensive materials in the industrial sector to make. A waste heat recovery technology, which collects hot gases to be used in a turbine to produce electricity, will come online next year to help to offset rising electricity prices.

In the first quarter, profit at its cement operations declined almost 40 per cent to Dh14.26m from Dh23.63m a year earlier, amid excess capacity in the UAE construction sector. The region’s building industry has been battered with tightened budgets following the loss of significant oil revenue, but Arkan is setting its sights on expanding into new areas abroad, selling speciality products in the Asian and central African markets. Currently the company has projects worth Dh50m outside the UAE that will be delivered in two phases.

Arkan shares fell 4.3 per cent on the ADX yesterday to 67 fils.


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