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Saudi Arabian Amiantit Co. announces the interim financial results for the period ending on 30-06-2017 (Six Months)

AMIANTIT 2160 -30.41% 25.75 -11.25
Element Current quarter Similar quarter for previous year % Change current Previous quarter % Change previous
Net profit (loss) -14,513 1,555 - -45,753 68.28
Gross profit (loss) 55,057 74,202 -25.8 38,983 41.23
Operational profit (loss) 9,912 30,796 -67.81 -10,280 -
All figures are in (Thousands) Saudi Arabia, Riyals
Element Current period Similar period for previous year % Change
Net profit (loss) -60,266 2,067 -
Gross profit (loss) 94,040 169,687 -44.58
Operational profit (loss) -368 63,653 -
Earning or loss per share, Riyals -0.52 0.02 -
All figures are in (Thousands) Saudi Arabia, Riyals
Element EXPLAINATION
Reasons of increase (decrease) for quarter compared with same quarter last year The main reasons for the current quarter’s net losses compared to the same quarter last year are the following:
a. The heavy decline of domestic sales for the Saudi Arabian subsidiaries is attributable to the postponement and sometimes downsizing or cancellation of projects on the domestic market, and current conditions in the GCC. Indeed, sales of the group in the GCC have decreased from SAR 365.6 million over the second quarter of 2016 to SAR 171.9 million over the second of 2017, i.e. a decrease of 53%.
b. Lower sales prices observed on the market as a consequence of the situation explained in (a) above.
c. Increased financial charges due to higher costs debt capital charged by banks.
Reasons of increase (decrease) for period compared with same period last year The main reasons of the current period’s net losses compared to the same period last year are the following:

a. The heavy decline of domestic sales for the Saudi Arabian subsidiaries is attributable to the postponement and sometimes downsizing or cancellation of projects on the domestic market. Indeed, sales of the group in the GCC have decreased from SAR 781 million over the six-months ended June 2016 to SAR 361.5 million over the six-month period ended June of 2017, i.e. a decrease of 53.7%.
b. Lower sales prices observed on the market as a consequence of the situation explained in (a) above.
c. Increased financial charges due to higher costs debt capital charged by banks.
Reasons of increase (decrease) for quarter compared with previous quarter The reduction of the current quarter’s net losses compared to the prior quarter is attributed to the overall and gradual improvement in market conditions in the Saudi Arabia and the GCC region, the improvement in sales of the Group’s European entities, and the realizations of cost savings programs initiated since the beginning of 2017. In fact, sales of the Group’s European entities increased from SAR 93.2 million over the first quarter of 2017 to SAR 143.7 million over the second quarter of 2017, an increase of 54.2%.
External auditor's report containing reservation Emphasis of a Matter: While the opinion of the independent auditors is unqualified, their report includes an emphasis of a matter paragraph worded as such:

I. Note 7 to the accompanying interim condensed consolidated financial statements. As stated therein, the Group owns a parcel of industrial land in Jeddah which was acquired in 2009 through the acquisition, from a related party, of a subsidiary that owns this land. The ownership of this parcel is being legally challenged by third parties. As of June 30, 2017, the net book value of property, plant and equipment constructed over this parcel of land amounted to SAR 73.1 million. Management of the Group believes that the outcome of the litigation process will not affect the carrying amounts or useful lives of property, plant and equipment constructed over this parcel of land nor will it result in any liabilities.
II. Certain financial ratios of the accompanying interim condensed consolidated financial statements do not comply with some clauses and financial covenants stated in credit facility agreements with commercial banks. Management of the Group believes that the breach will not affect the maturity profile of its debt or the availability of credit.
Reclassifications in quarterly financial results Specific adjustments and reclassifications are linked to the IFRS implementation whereby the net income of the second quarter 2016 was restated from net income of SAR 3.3 million as per SOCPA accounting standards to a net income of 1.6 million, and the income for the six-month period ended June 30, 2016 was restated from net loss of SAR (24.0) million to net income of SAR 2.1, whereas the equity as of June 30, 2016 was restated from an amount of SAR 1,429.8 million to SAR 1,279.4 as of the same date.
Other notes Sales during the current quarter amounted to SAR 321.9 million compared to SAR 508.7 million of the same quarter last year, representing a decrease of SAR 186.8 million or 36.7%.

Total comprehensive income during the current quarter amounted to an income of SAR 14.4 million compared to SAR 2.1 million for the same quarter of last year, representing an increase of SAR 12.3 million, and compared to a loss of SAR (34.0) million for the previous quarter representing an improvement of SAR 48.4 million.

Sales during the current period amounted to SAR 605.6 million compared to SAR 1,063 million for the same period last year, representing a decrease of SAR 457.4 million or 43.0%.

Total comprehensive income during the current period amounted to a loss of SAR (16.4) million compared to income of SAR 10.9 million for the same period last year, representing a decrease of SAR 27.3 million.

Total shareholders’ equity (net of minority interest) during the current period amounted to SAR 958.1 million compared to SAR 1,248.8 million (as restated under IFRS) for the same period last year, representing a decrease of SAR 290.7 million or 23.3%.

Total accumulated deficit at the end of the current quarter was SAR (186.9) million representing 16.2% of the share capital.

The groups consolidated cash flows from operating activities for the second quarter amounted to SAR 31.0, representing an increase of SAR 51.5 million compared to the prior quarter. The improvement in operating cash flows is mainly attributable to the improvements of the Group’s collection of outstanding receivables since the beginning of the current fiscal year 2017.

Joint-venture in Europe:
On February 6, 2017, Saudi Arabian Amiantit Co. signed the joint venture Agreement with the Austrian holding WIG Wietersdorfer Holding GmbH (WIG) (Also known as “Hobas”), whereby it’s European pipe manufacturing and sales companies and its Flowtite technology will be merged with the Hobas AG group of companies in Europe. Both businesses are specialized in the manufacturing and sale of pipe-systems and related accessories. The closing of the deal has been submitted to the approval of the competent merger control authorities in specific jurisdictions, principally of the European Union dedicated Commission. The Group originally expected to the European regulators to approve the merger during the second quarter of 2017. However, legal and procedural delays related to the European Commission responsible for the subject merger could delay the finalization of the merger up to the fourth quarter of this year.
The deal may be rescinded if such approvals are not obtained before January 6, 2018. Until the closing of the deal, the two groups will continue to function independently. The merger may only be accounted for at closure, and its accounting implications will be computed at that time. However, the Group does not expect that the deal would negatively impact its results or its equity, neither would a net cash outflow be expected.

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