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Higher energy costs, imports and competition pose risks to Jordan Cement Factories Company

AMMAN -- Jordan Cement Factories Company (JCFC) sees risks from higher energy costs, imports and licensing of other similar firms in a small market.

"The government decision to allow cement imports will affect JCFC 's competitive situation in view of the rising cost of energy resources, including the restriction of using petcoke as an alternative source of fuel," the company said in its 2006 annual report.

Rachid Benyakhlef, chief executive officer since 2005, told the shareholders in a letter that "energy cost is a key factor and JCFC has been deploying its best efforts to reduce its energy bill."

He said: "The company began experimental projects with oil shale in early 2006 which aim at decreasing costs and eliminating any negative effects on the environment."

"In addition to the oil shale project, Jordan Cement had also signed a gas agreement with Al Fajr Company to provide and transport natural gas to Al Rashadiyeh plant," Benyakhlef added.

Noting that the use of gas and oil shale is part of the company's plan to turn to alternative energy resources, he wrote: " JCFC is seeking the support of the government to make such initiatives successful."

About 60,000 tonnes of oil shale was quarried, grounded and burnt in cooperation with the Ministry of Energy and the National Resource Association. The company is planning to use oil shale in 2007 after receiving a permit from the Ministry of Environment.

The annual report highlighted two new products introduced to reduce carbon dioxide emission. The first, called "Tashtibat," is now processed at Al Fuheis plant and the second, Portland Pozzolanic Cement, is produced at Al Rashadiyeh. Consequently, the firm currently produces four types when taking into consideration the ordinary Pozzolanic cement and the sulfate resisting cement.

In 2006, cement production reached 4,235,000 tonnes, of which 4,070,000 tonnes were the output of plants and about 165,000 tonnes were imported, packed and shipped from the Aqaba terminal. The company plans to boost its full production capacity to 4.8 million tones by mid-2007.

At present, JCFC is the only company that produces and sells cement in the local market. It covers all market needs and exports the surplus to neighbouring countries. Output in 2005 totaled 3.89 million tonnes.

Sales in the local market dropped by five per cent in 2006 as demand stabilized in the summer reaching its lowest levels in September and October after a large increase in the first and second quarters.

JCFC increased cement prices twice last year "to cover part of the rising production costs, especially in energy and salaries."

As per disclosure requirements, Jordan Cement indicated that it depends on both the Jordan Petroleum Refinery Company and the National Electricity Company for its main purchases, each of which constitutes more than 10 per cent of JCFC 's total purchases.

It also disclosed that the government received JD53.64 million from the company last year in income tax, sales tax and fees besides JD94 million in dividends. In 2005, the amounts were JD44.43 million and JD125 million respectively.

Financially, gross income from sales amounted to JD91.85 million, a two per cent increase over the JD90.12 million recorded in 2005. Sales totalled JD239.31 million in 2006 compared to JD204.39 million in the previous year.

Of the total sales, the local market accounted for JD236.99 million, while JD0.91 million were exports and JD1.42 million were sold through "Eriterea and Sudan terminal rent." In 2005, the amounts were JD193.11 million, JD9.86 million and JD1.42 million respectively.

Income from operations boiled down to JD78.68 million, two per cent lower than the JD80.46 million in 2005.

A JD14.1 million provision for restructuring cut the net pretax profit further down to JD67.25 million compared to JD80.97 million in 2005. The restructuring is based on an agreement with the Union of Construction Workers under which the company has to compensate employees for terminating their services.

The 2006 net profit reached JD55.17 million, an 18 per cent drop from the 2005 figure of JD67.07 million.

The company's board of directors recommended to the general assembly of shareholders the distribution JD39.29 million in cash dividends at a rate of 65 per cent for the year 2006. JCFC distributed JD90.67 million in cash dividends at a rate of 150 per cent in the previous year.

Besides the JD60.44 million in authorised and paid-up capital, the company's shareholders equity as of December 31, 2006 includes JD27 million in statutory reserves, JD12.4 million in voluntary resources, and JD26.3 million in retained earnings after the proposed dividends of JD39,29 million.

Accordingly, the net shareholders equity totaled JD165.52 million at the end of 2006, compared to JD200.97 million at the end of 2005.

Main balance sheet items include JD122.60 million net fixed assets, JD43.64 million of inventory and spare parts and JD51.45 million in cash on hand and in banks. Current liabilities total JD61.53 million.

JCFC employs 1473 workers at its two plants in Fuheis and Rashadiyeh, its head office in Amman, Aqaba and in Sudan/Eriterea.

Lafarge owns 48.606 per cent of the company, the Social Security Corporation has a 22.976 per cent equity and Maylood Shoaiby enjoys a 10.268 per cent stake, according to the annual report.

By Samir Ghawi

© Jordan Times 2007