Oman Cables is one of the largest makers of power cables, building wires, instrumentation cables and overhead transmission line conductors in the GCC region. The company is intrinsically tied to growing demand for electricity in Oman, which is expected to increase by 10% per annum over the next several years, thereby boosting the local demand for cables as well. Oman Cables has the capacity to procure and process up to 90,000 tonnes of copper annually.
Oman Cables owns 51% of Oman Aluminium Processing Industries (OAPI), which was established in 2008 as a joint venture between Oman Cables and Takamul Investment Company. The project has been successful since its launch, and its sales and profitability have positively contributed to group results, according to the most recent financial report. There was a management change in January 2013, as Gert Hoefman took over as CEO, joining the company after 21 years with one of the world’s largest cable manufacturers.
Oman Cables’ current strategy is to expand its presence in Oman and the GCC. In 2013 the company’s sales volume was up almost 30% year-on-year, with the higher volumes attributable to greater market share in traditional markets, penetration into new global markets and a larger product portfolio. Although copper prices were under pressure in 2013, the company reported healthy growth in turnover of 24%.
The year 2013 was by far the best on record in terms of profitability, with net profits of OR16.9m ($43.8m), 42% higher than the previous year. Profitability was up on growth in sales volumes, as well as initiatives that were taken to reduce the cost of production. Shareholders of Oman Cables were rewarded for the improved financial performance in 2013, as the share price rose by around 95%, well above the 19% return of the MSM 30. The company has a stable dividend policy with payouts of 40-55% over the last several years. Investors can continue to expect stable annual dividends.
Globally, the cable industry has witnessed overcapacity in some countries, which has led to lower profit margins. Oman Cables faces risk from non-regional competitors that have a presence in the local market and want to benefit from infrastructure growth in the sultanate. Another major risk for the company is price volatility of its key raw material – copper – which accounts for the majority of the cost of sales. The company sells products to clients using a cost-plus markup approach. As such, a rise in copper prices benefits the company, inflating revenues and profits, while the opposite is true in the case of declines in copper prices.
The company also faces the risk of any adverse rulings on its ongoing legal cases. Most recently, Oman Cables had cases pending in Kuwait and the UK regarding payable amounts. In April 2014 Oman Cables filed a case against a UK-based company, claiming due amounts of OR318,000 ($823,429) for electrical cables sold and delivered to that company.
In the first nine months of 2014 company turnover decreased by 3% over 2013, while EBITDA and net profit remained stable. Sales were maintained over 2013, despite the fall in copper prices. This was achieved by selling greater volume compared to the same period of 2013. Management indicated that demand for Oman Cables’ products remained in-line with the long-term, planned growth of infrastructure in Oman and the wider Middle East and North Africa region.
Going forward, Oman Cables’ management is cautiously optimistic about the cable industry outlook.
They plan to enhance the product range offering so the company is better prepared to react to opportunities for new cable and wire requirements. A move to a high-margin product mix has benefitted Oman Cables significantly in terms of profitability.
End demand for cables in Oman and the region should be sustained by infrastructure investments, which will help Oman Cables maintain a healthy capacity utilisation rate and achieve sustainable top- and bottom-line growth. The OAPI subsidiary has contributed positively to group results, with Oman Cables currently evaluating a project that would expand its capacity.
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