Corporate Finance Report: Saudi Cement Loan Recommendation, FIN-333

This report presents a critical evaluation of the financial position of Saudi Cement Company, a non-financial corporation listed on the Saudi Arabian main stock exchange, in relation to a credit proposal for a 35 million SR loan. The report begins with an introduction, followed by a discussion section that details the company's background, industry context, current creditors, and market share. A SWOT analysis is conducted to assess internal strengths, weaknesses, opportunities, and threats. The financial position of Saudi Cement is then evaluated using financial ratios, comparing its performance with a competitor, Arabian Cement, over a three-year period. The report concludes with recommendations regarding the credit proposal, based on the analysis, and includes a list of references and bibliography.

Running head: CORPORATE FINANCE
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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Company background and history:............................................................................................2
Background of industry:.............................................................................................................4
Corporate current creditors:.......................................................................................................5
Corporate market share:.............................................................................................................5
Conduct SWOT analysis:...........................................................................................................8
Evaluating the financial position of company using appropriate financial ratios:...................10
Recommendation and conclusion:...........................................................................................17
References and Bibliography list:............................................................................................20

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Introduction:
The report demonstrates the critical assessment and evaluation of overall financial
position of one of the non-financial corporation listed on the main stock exchange of Saudi
Arabia. Such assessment has been carried out to make recommendations for the credit
proposal from the bank to finance the future project. The chosen company seeking and
applying for the loan of amount 35 million SR is Saudi Cement Company operating in
materials sector. Discussion section incorporates the presentation of the history and
background of corporation along with providing the industrial background. In addition to this,
the current creditor of corporate used for financing is discussed and the market share of the
companies is compared with other companies operating in the same sector. Hence, the
objective of preparing this report is to determine the rejection and approval of the financial
proposal. Internal environmental analysis is done identifying the strength, weakness,
opportunities and threats faced by the corporation using SWOT analysis. The later section of
the discussion demonstrates the financial position of Saudi Cement by comparing the
financial performance with its competitor such as Arabian cement for a period of three years.
Discussion:
Company background and history:
In this section, the background and history of Saudi cement is detailed by outlining
the year of establishment, its business model, product and services, market value,
management team and owner. Saudi cement was established in the year 1955 and since that
time, the company is relishing consistent profitability and expansions of capacity. In terms of
profitability, quality and efficiency, the company is the leader operating in the cement and
material industry and is one of the most trusted companies of Gulf Cooperation Council. The
company is located strategically in the eastern province of KSA (Kingdom of Saudi Arabia).

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An important milestone was achieved by the company in its history in year 2008 due to the
installation of new lines of production that has a combined capacity (Saudicement.com.sa
2020). The reason that attributes to the milestone achievement by the company is that such
expansion is considered to be the largest in the world. The available capacity of the Saudi
cement enhanced because of the expansion and positioned the company uniquely in terms of
efficiency in production and economies of scale.
The primary activities of the company is to manufacture cement, make investment in
field related to cement and cement product. Two cement plants in the country is operated by
Saudi cement. The company is engaged in the production of any type of cement which the
market requires as it’s possess the required technologies. Portfolio of primary product
involves sulphate resistant cement, cement clinker and ordinary Portland cement. When it
comes to export clinker and cement, the corporation is highly capable. Competitive edge over
other producers is enjoyed by Saudi cement for export opportunities in the global market.
This is because of reliable infrastructure that helps in transferring the stock promptly because
of the connection of export terminal to Hofuf plant (Saudicement.com.sa 2020).
The business model of the entity is used for the classification of the financial assets
possessed by the entity which helps in the financial asset management. Saudi cement is
strongly interested in regional building material development and this is done by making
strategic investment in the supply chain.
Amongst the manufacturers of cement, the local market share of Saudi cement is the
largest and the market capitalization of the company is 7042 and the enterprise value stood at
9149.73. The owner and the founder of Saudi cement is King Abdulaziz bin Abdulrahman Al
Faisal Al Saud. The board of director comprise of one chairman, vice chairman and nine

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other board members and one board member being the chief executive officer of the company
(Saudicement.com.sa 2020).
Background of industry:
The corporate operates in the cement industry of the material sector and the critical
factor determining the local contractor bottom line is the material sector which also serves as
the barometer of the construction industry. Cement industry is the essential and vital sector to
economy of Saudi Arabia. Cement in the subsector of the material industry that is in the
period of uncertainty. Producers across the country have been challenged due to the
uncertainty surrounding the global oil price and labour market. In year 2018, several
influential difficulties and challenges were encountered by the cement industry due to the
falling local demand and this in turn increased the cost of goods sold for the manufacturers of
cement and resulted in lower efficiency. Companies operating in this particular sector
generated loss because of the price war due to the creation of tremendous pressure. However,
Saudi cement under such circumstances took every possible measures to improve its
operational efficiency by adopting strategies and maintained the highest profitability level.
The higher cost of goods sold was offset by increasing sales by Saudi cement. However,
falling selling price, the increase in the stock level and enormous decline in demand lowered
the net profit and sales revenue generated.
The availability of supplies of natural gas at the subsidized price provides cement
industry of Saudi Arabia with the cost advantage. A stable political climate of the country
offers the industry with stability. The industry is offered with wide range of opportunities
because of investments being backed by the government and it helps in adding the growth if
long term projects of constructions (Hassan et al., 2019). Furthermore, the strategic location

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of the country for exporting cement to the countries in the Gulf cooperation council and its
expansion to other continents provides organization with greater cost advantage.
In year 2019, Saudi cement posted a net profit of US $ 120 million and this marked a year on
year 13% growth. As identified from TASI, all the listed companies operating in the same
industry includes Arabian cement, SABIC, Chemanol, QACCO, Southern cement, EPCCO,
Tabuk cement, Yanbu cement, YSCC, Jouf cement, HCC, Narjan cement, UACC, Northern
cement and City cement.
Corporate current creditors:
The corporate creditors of Saudi cement comprised of trade payables, Islamic
financing, accruals and other payables, dividends payables and provision for Zakat. Amount
of financing received by the corporate from Islamic financing in year 2018 and 2017 stood at
SR 620000 and SR 55000 thousands. Financing by way of dividend payables for the two
consecutive period stood at SAR 219183 thousands and SAR 196601 thousands respectively.
Trade payables on other hand generates financing of the amount of SAR 79811 thousands
and SAR 91744 thousands. Amount of financing received from accruals and other payables
include SAR 130498 thousands and SAR 107558 thousands for two consecutive years.
Lastly, provisions were also make for zakat in year 2018 and 2017 and this is recorded at
amount of SAR 15939 thousands and SAR33079 thousands respectively. It can be observed
from the financial figures of current creditors that the total amount of financing raised
through current creditors have increased in the recent years.
Corporate market share:
The cement market of Saudi Arabia is facing stiff competition and Saudi cement has
tried to maintain its position by developing strategies so that its profitability level is not

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hampered. Saudi cement is the largest producer of cement due to its clinker capacity of 11.2
mtpa and its industrial share stood at 16.8% (User, 2020). Organization is involved in
continuously investing their efforts to maintain their share of market, improve the efficiency
in the operations and along with maintaining the leading position at regional and local levels.
Due to its excessive production capacity, Saudi cement is able to record a level clinker. It
maintained the competitive level by managing the total level of sales at some predetermined
level. In addition to this, there has been significant improvement in the total and overall
demand for cement and also due to the continuous development of the construction project
across the country. In such competitive scenario, Saudi cement was able to maintain its share
of market compared to its competitors and other companies operating in the sector. The
company would be able to increase in total volume of sales in the upcoming years because of
an increase in the demand of cement from the local market (Us-sabc.org, 2020). The
company update their equipment of production, managerial technologies and machineries in
the process and plants and such efforts are taken by adding up the expenditure annually. It is
required by the company to develop and acquire some new technologies for competing with
other companies operating in the industry. A vital role has been played by the company
construction project development for more than half a century across the kingdom. This
makes the company a pioneer in the supply and manufacture of higher quality of cement and
clinker. Capacity of the company has been expanded by taking the additional efforts in the
form of self-sufficiency, greater cost efficiency achievement and aligning the supply chain of
the company with the goal of national transformation program. All these helps in improving
the utilization of fuel in the generation of electricity.
Customers of Saudi cement are provided with the solution of advancements in the
performance from AGP and such advancement is based on the business, operations and needs
of energy market. Various considerable market based benefits have been delivered by Saudi

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cement over the past five eight years and tis has helped in maintain its competitive position.
Installation of technology has been done across various gas turbines fleet in as many as thirty
nine countries. Even in the situation of stiff competition, positive has been generated by the
company by taking efforts to maintain its supremacy in production of higher quality of
cement products along with the expanding capacity of producing other types of cement by
expanding the capacity and its overall flexibility (ArgaamPlus, 2019). Furthermore,
continuous endeavours are taken by Saudi cement along with the preventive maintenance
jobs that is widely scheduled.
Saudi cement is the market leader of the material sector and it also enjoys the largest
market capitalization compared to all its competitors. This implies that it holds a majority of

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the market share and also enjoys competitive position due to its location and other cost
advantage. It is easily identified from the financial report of the company how the company
took all possible measures to maintain its competitive position (Aina et al., 2019).
Analysing the movement of stock for the last eight years:
The chart presented below represents the movement of stock of Saudi cement for over
a period of eight years. The current market value of share as on 15th March, 2020 is recorded
at SR 49.450 with the opening value and the highest value of SR 51 and lowest value is
recorded at 43.4 and the closing value is at SR 44.2. It is clearly identified from the chart
depicted below that there has been volatility in the share price of Saudi cement over the last
eight years. Looking at the initial years of analysis, it is observed that the share price
witnessed an upward trend since year 2012 as depicted by the formation of higher highs
every passing years. It was year 2014, the share price started falling with the lowest value
being recorded at 37 on 21st October, 2018. End of year 2018 marked the rise in price of
shares of Saudi cement when the highest price was recorded at 79.9 on 14th July in year 2019.
However, the current scenario marks a fall in the price of shares.

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Share price movement over the last eight years:
(Source: finance.yahoo.com 2020)
As on current date that is 22nd march, 2020, the price of share is recorded at SR 43.55.
Comparing the market share of Saudi cement for three years:
The market share of Saudi cement is compared over the period of three years using
three method of measurements that is book measure, market measure and competition
measure. Book measure is obtained by dividing share price of company by the net book value
per share. It is observed from the table given below that the market share of Saudi cement has
decreased initially from 13% in year 2016 to 11% in year 2017 and it further increased to
12% in year 2018. Now, looking at the book measure, it is observed that there has been a
continuous fall in the market share as per book value from 9.9 in year 2016 to 5.2 in year
2018.
2018 2017 2016
Market measure 12% 11% 13%
Book measure 5.2 7.5 9.9
Now, the market share of Saudi cement is compared using the competition measure
where the market share of a company is compared with other. It is observed from the table
that market share of Saudi cement in terms of competition measure is highest compared to its
competitors such as Yanbu cement and Arabian cement.
2018 2017 2016
Saudi cement 12% 11% 13%
Arabian cement 7% 7% 8%
Yanbu cement 10% 11% 12%

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Market share of Saudi cement declined from 13% from 2016 to 11% in year 2017 and
then it increased to 12% in year 2018. As against Arabian cement, it is observed that there
has been a decline in the market value from 8% in year 2016 to 7% in year 2017 and 2018
respectively. On other hand, Yanbu cement market share has declined consistently from 12%
in year 2016 to 11% and 10% in year 2017 and 2018 respectively.
Conduct SWOT analysis:
Strength:
 The company is efficient in maintaining its profitability level as it has adequate level
of inventory to meet any sudden rise in demand for cement. Saudi cement takes every
suitable measures under adverse circumstances and develops appropriate strategies so
that their operational efficiency is enhanced.
 In terms of quality, efficiency and profitability, Saudi cement is the leader in the
cement industry of Saud Arabia (Buallay et al., 2017).
 Saudi Cement Company owns majority of the market share in the cement industry at
the value of 14.3%. 40.4% of the share of domestic cement sector is commanded by
the top three players in the industry including Saudi cement.
 Saudi cement has a large production capacity and the location of the company can
also be regarded as its strength. This is so because the location of the company is the
area rich in high grade raw materials. Many Middle East construction project is
supported by the company and they are considered to be a dynamic association in the
supply chain of the industry (Badawi et al., 2019).
 Being one of the trusted companies of the Gulf cooperation council, there is
increasing reliance of the contractors and end users on the quality and consistency.

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Products of the company is utilized by the end users for developing major airports,
bridges, highways, commercial and numerous housing projects.
Weakness:
 In Saudi Arabia, given the heavy fuel subsidy, inefficiency is being experienced by
the cement industry as a whole in terms of the practice of managing the energy.
However, if there is a lift on the subsidy of fuel, company would be impacted
negatively.
 Revenue growth of the Saudi cement company is restricted because of the price cap of
SAR 240 per tonne.
 The average weak sales price of Saudi cement in year 2018 continued to remain
concern as it lowered the overall profitability reported compared with few previous
years. Ongoing pressure on the company due to weakening overall demand of cement
is pressuring the company and causing a weaker sales prices.
 There is increasing co petition amongst the manufacturers of cement in the areas such
as central and western Saudi Arabia is posing a challenge to the producer such as
Saudi cement combined with weakening demand. An increase in the cost of
transportation has further added to the woes of the company due to the reduction in
the subsidies of energy (Alshahri, 2019).
 The main focus of the producers is pricing instead of volume as the current sales
prices are expected to remain firm. The preference of the producers to postpone the
price war and maintaining higher price is weakening the overall production of the
company.
Opportunities: