The building materials industrial major says that this one-off book loss doesn’t change the fundamentals of its business and is exploring ways to dispose of the plant
Arkan, a leading building materials industrial conglomerate, has announced its decision to permanently close down the company’s cement plant, Emirates Cement Factory (ECF) at Al Ain, UAE as part of its regional strategy.
The announcement from the company board comes following the successful consolidation of Arkan’s cement business wherein it shifted production from ECF to its Al Ain Cement Factory (ACF), which is running at almost full capacity. The move will lead to an annual cost saving of Dh45 million ($12.2 million), the company said.
With the permanent shutdown of ECF, Arkan will write down the full value of the factory that it holds in its accounts in its 2016 statements.
This adjustment is a book entry that does not have any impact on the group’s actual earnings before interest and depreciation (Ebitda) for 2016, which remains healthy at Dh234 million ($64 million) and sufficient to allow Arkan to fulfill its financial commitments, nor on its cash balance going forward, said a top official.
This means the unaudited net profit of Dh75.7 million ($20.6 million) disclosed last month will become an audited net loss of Dh82 million ($22.3 million), remarked its chairman Jamal Al Dhaheri.
Besides ECF, Arkan’s portfolio companies include Emirates Blocks Factories, Anabeeb and Al Ain Cement Factory (ACF).
The company is also developing Arkan Dry Mortar, a high-capacity dry mortar plant located in Al Mafraq, which will produce a range of dry mix products.
“This one-off book loss doesn’t change the fundamentals of Arkan business and we are actively exploring ways to dispose of the plant in the near future and realise the highest value possible,” revealed
Arkan had announced in December that owing to significant gas and electricity price increases from January 1, 2017, it would implement some strong measures such as temporary closure of ECF - which had been in operation for over 43 years - to boost savings and thereby partly mitigate the utility price hike.
“Due to these big steps, it has been able to contain the production and sales from the ECF factory at its state-of-the-art Al Ain Cement Factory (ACF) which is now running at a near 100 per cent utilisation rate,” stated Al Dhaheri.
He pointed out that Arkan’s cement operations achieved the highest scores in the industry from both revenue and operating profit perspective last year despite the loss of business for four months incurred as a result of the storm which hit its new plant in March.
Al Dhaheri said Arkan’s Blocks, GRP, PVC and Bags factories continued generating profits.
“In addition, Arkan Dry Mortar plant which started operations in June last year has reached 60 per cent capacity utilisation,” he added.
According to him, Arkan will maintain its leadership position in 2017 by being the lowest cost producer in the segment.
The consolidation of production and sales at ACF confirmed Arkan as one of the most efficient cement producers in the UAE by reducing operating costs and thereby saving more than Dh45 million ($12.2 million) on an annual basis, starting 2017 to partly mitigate the utility price increase, he noted.
Al Dhaheri pointed out that Arkan had made a solid start in 2017, especially with the penetration of new markets both locally and overseas.
“While strengthening our footprint in Dubai market for the second year the newly innovative launched products allowed further export opportunities to new destinations such as South East Asia and Central Africa,” he added.
The rising energy costs has forced the building materials industrial major to permanently shutdown its cement plant in the UAE and is now actively exploring ways to dispose of the plant in the near future.