Financial performance
Revenue decreased 36% yoy to SAR597mn in FY 22, mainly due to temporary postponement of projects resulting from COVID-19 and supply chain disruptions.
Gross profit decreased 85% yoy to SAR35mn while gross margins contracted significantly to 6% in FY 22 from 25% in FY 21. The decline in gross profits and margins is the result of a significant rise in raw material prices and an increase in shipping costs, in addition to lower sales volumes.
EBITDA decreased 84% yoy to SAR39mn while EBITDA margin dropped to 7% in FY 22 from 26% in FY 21. The drop in EBITDA and margins is mainly due to increased cost of sales and SG&A expenses.
SG&A expense increased 31% yoy to SAR24mn driven by staff costs and the company’s efforts to meet the Saudization requirements.
Net financial costs decreased 48% yoy to SAR17mn, due to successful refinancing of credit facilities with improved terms.
The company reported a net loss of SAR3mn in FY 22 vs a net profit of SAR148mn in FY 21. The net loss in FY 22 was mainly driven by lower volume and margin pressure.
Total borrowings increased 82% yoy to SAR293mn in FY 22 from SAR161mn in FY 21, mainly driven by short-term borrowings to finance working capital requirements.
At the end of FY 22, net debt to equity ratio stood at 0.39x vs 0.18x in FY 21.
Operational performance
Sales volume declined by 25% yoy to 190,250 metric tons in FY 21, vs 253,920 metric tons in FY 21. The decline was mainly due to temporary COVID-19 related project delays.
East Pipes expanded its market share from 27% in 2018 to more than 50%.
The company has strong projects pipeline. It secured projects worth SAR945mn, scheduled for production and delivery in FY 2023.
The order book includes the previously announced two contracts with SWCC and expects better margins profile on these projects.
The company still has spare capacity to bid for new projects going forward.
The management believes the announced water and oil & gas projects (exceeding 2.2mn tonnes of pipes demand) will drive the company’s order book for the next 2-3 years.
The company has a strong order visibility for the next few years with announced projects worth more than SAR10bn (of which cSAR6bn from water projects and cSAR4bn are from oil & gas projects) up to 2025.
Outlook
The management believes that the secured orders and strong pipeline will drive the financial performance in the coming year.
With improved volumes and better material prices, gross margins will expand in the near term.
The company will focus on cost control, and effective working capital management to balance increases in finance costs due to higher interest rates.
HSAW pipes demand is expected to continue rising over the next few years with national initiatives, including Vision 2030 and privatization programs.
Saudi’s HSAW pipes demand is projected to reach 5.0mn tons during 2020-24f, up from 4.3mn tons of 2015-29, with majority of the demand is expected to come from water projects.
The management is targeting to capture up to 60% of market share in the water sector, and 25-30% share in the oil & gas sector.