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| 16 August, 2018

Shaker Group streamlines costs after bruising second quarter

Saudi-based supplier of air conditioners has implemented a raft of measures, which analysts say could see it return to profitability in 2020 or 2021

Shaker Group’s headquarters in Riyadh

Shaker Group’s headquarters in Riyadh

Shaker Group/handout via Thomson Reuters Zawya

Saudi Arabia’s Shaker Group has introduced a series of measures to cut costs and reduce debt after recording a net loss of 36.6 million Saudi riyals ($9.8 million) in the second quarter of 2018, which it attributed to the slowdown in the kingdom’s construction industry.

The company, which imports, distributes and services air conditioners, says it has reduced employee costs by 7 million riyals year-on-year during the second quarter of 2018 - to 31 million riyals, but declined to go into further detail of how this had been achieved. 

Graphs released by the company showed that employee costs were at their height in quarter four of 2016, at 44 million riyals.

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Measures have also been put in place to lower its rent bill, reducing the number of warehouses used by the group, from 21 last year, to 13 in 2017, to four in 2018.

The group’s inventory also dropped to 598 million riyals, in Q2 2018, a decrease of 19.6 percent compared to the corresponding period in the previous year, although it was a slight increase from the first quarter of 2018, when the firm’s inventory was at its lowest point of 586 million riyals.

Trade receivables decreased to 559 million riyals, from a high of 770 million riyals in the second quarter of 2017 – a drop of 27.4 percent, which the company attributed to greater emphasis on the collection of outstanding debts before agreeing further sales.

Debts also decreased by 13.6 percent to 717 million riyals year-on-year for the second quarter.

The construction sector in both Saudi Arabia and the UAE had a challenging 2017, but recovery has been predicted for 2018.

Shaker Group declined to be interviewed by Zawya, but in a press release, CEO Eng. Azzam Saud Al Mudaiheem said improving efficiency had been the company’s focus for the past year, and led to a reduction in expenses driven by lower employee costs, and lower rental costs.

He said: “Such reductions are the result of headcount optimisation measures and rationalisation of our outlet footprint, in line with the company’s ongoing efficiency programme. We are pleased to see that our strategy is already proving to be effective, and we are continuing to work on initiatives that will increase efficiency and drive sales.

“In a challenging market environment, we remain focused on improving our margins by operating more efficiently as a business.”

Mohamed Tomalieh, equity research analyst at NCB Capital, the asset management arm of National Commercial Bank, said the measures by Shaker Group were ‘normal optimisation of costs, as part of the restructuring initiatives many companies are going through’.

In an emailed response to questions from Zawya, he said: “We expect the company to return to profitability between 2020-2021,” citing a number of factors in the achievement of that goal, including sales growth, cost optimisation, lower financing expenses and higher associate income.

The company’s share price has fallen by 22 per cent since the start of 2018, closing at 9.10 riyals per share on Wednesday, 15 August. 

Tomalieh said NCB Capital’s target price for Shaker Group was 11.1 riyals, as per its most recent update, published in April.

(Writing by Imogen Lillywhite, Editing by Michael Fahy)

(imogen.lillywhite@thomsonreuters.com)

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