|12 May, 2019

Saudi's Shaker Group stock sell-off to continue until Q3 2019 - CEO

Sell-off of stock at discounted levels has put pressure on margins, Azzam Saud Almudaiheem told Zawya

Shaker Group’s headquarters in Riyadh

Shaker Group’s headquarters in Riyadh

Shaker Group/handout via Thomson Reuters Zawya

Saudi Arabia’s Shaker Group, an importer and manufacturer of air conditioners and home appliances, will continue to liquidate stock in the upcoming period in order to improve inventory efficiency and working capital management, its chief executive said.

Listed on the Saudi stock exchange as Al Hassan Ghazi Ibrahim Shaker Co., the group reported widening losses in the first quarter of 2019 last week, with a net loss after zakat and tax of 27.4 million riyals, increasing by 33.2 percent from a loss of 20.6 million riyals in Q1 2018.

But the group said that it will continue to introduce operational efficiencies through its ‘Breakthrough Program’ turnaround strategy.

“We will continue to implement all four of the pillars of the Breakthrough Program. The first pillar, Core Business Turnaround (CBT), focuses on achieving profitable sales while delivering excellence in cost management,” Azzam Saud Almudaiheem, chief executive officer at Shaker Group told Zawya.

“In the coming periods, important aspects of this will be our continued stock liquidation process to improve inventory efficiency, as well as the effective deployment of our channel-focused sales teams,” he added in response to emailed questions.

According to the CEO, the main purpose of its stock liquidation is to comply with new SASO (Saudi Arabian Standards Organization)  regulations on certain air conditioning (AC) products, while at the same time improving working capital management. The liquidation has been ongoing since mid-2018, for both purposes, Almudaiheem said, with the process expected to be completed by the third quarter of this year.

Margin pressure

“Sell-off of stock at discounted levels has put pressure on margins and therefore on profitability of sales,” Almudaiheem said.

The group attributed the wider loss in the first quarter of this year mainly to weaker performance of its Energy Management Services Company (EMS) subsidiary in the UAE.

EMS is working on adding new services including power generation, air conditioning, waste management and IoT (internet of things) products to create sustainable medium-term revenues, according to the CEO.

“The company is also positioned to engage with two major sustainable community projects in the Emirates and Saudi Arabia,” he added.

“We work closely with EMS’s management team to continue to support our efforts to diversify our revenue. EMS has seen revenues increase by an average of 70 percent over the past three years driven by a strategy to lead the energy efficiency market,” Almudaiheem said.

Shaker Group had increased its stake in the UAE’s Emirates Energy Management Services (EMS) to 74 percent, from 20 percent back in 2015.

The second pillar of its transformation programme, Talent Upgrade Plan, seeks to attract and develop talent at the company while improving the organisational structure and rationalising headcount, according to the CEO.

“We have more or less rationalised our FTEs (full time employee roles) to the level that we targeted, and now it is about promoting talent to deliver on the high performance that we aim for,” he said.

The company achieved a 22.6 percent (7 million riyal) saving on employee costs, along with a 10.2 percent (6 million riyal) reduction in total expenses.

First quarter sales reached 197.3 million riyals, an 8.2 percent year-on-year decline on the 214.9 million riyals revenue earned last year.

“The third pillar, Performance Infrastructure, is now in place, with the Transformation Office running smoothly and effectively – its efforts will be sustained throughout the Breakthrough process,” Almudaiheem said.

“For the fourth pillar, Strategic Moves, we are continuing to strengthen our relationships with principals and business partners, while exploring fresh opportunities beyond our core operations,” he added.

The group foresees several sources of growth for the business in the upcoming period. These include the development of the housing strategy in the kingdom as well as government initiatives to support the private sector.

Another initiative is the Saudi Energy Efficiency Center’s high-efficiency AC units, as well as Tarshid initiative by the Saudi government’s National Energy Services Company.

“The Tarshid program is a part of a number of retrofitting projects in both the public and private sectors that the group is bidding for,” the CEO told Zawya.

“The Tarshid program represents a great opportunity for our ESCO (Energy Services Company) business, to exploit efficiency auditing and retrofitting opportunities throughout the Kingdom, as presented by large scale projects,” he said.

Energy Services Company (ESCO), is a subsidiary of Shaker Group that helps to retrofit buildings to make them more energy efficient.

“Tarshid is looking to retrofit assets including 2 million street lights, 110,000 government buildings, 35,000 schools, 100,000 mosques and 2,500 hospitals and clinics. We believe we are well-placed to bid for a healthy portion of these,” he added.

(Reporting by Nada Al Rifai; Editing by Michael Fahy)

(nada.rifai@refinitiv.com)

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© ZAWYA 2019

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