MEPCO's 2023 sales dropped 27% to SAR 8.67 million; investing SAR 345 million in new Tissue Machine (TM-6)

MEPCO's 2023 sales dropped 27% to SAR 8.67 million; investing SAR 345 million in new Tissue Machine (TM-6)

- We continue to build on our successes and maximize our contribution to two decades of world-class operations and customer satisfaction
The Pulp and Paper Times

The Middle East Paper Company (MEPCO) is the largest paper manufacturer in the MENA region. Headquartered in Jeddah, MEPCO manufacture and distribute a wide range of high-quality containerboard and specialty paper products for the packaging, construction, and furniture industries across the Kingdom of Saudi Arabia and to over 50 markets globally.

For over 2 decades, MEPCO has been setting new standards of excellence in the Saudi Paper and packaging industry, with an award-winning portfolio of subsidiaries and products, a focus on continuous innovation and corporate sustainability, and a growing footprint and reputation for quality across over 50 countries worldwide.

MEPCO is strategically investing to expand the core containerboard business through the new PM5 production line, while diversifying its portfolio by building exciting new revenue streams. This includes the recently launched Juthor tissue factory and the acquisition of key assets and shares in existing entities involved in manufacturing and supplying corrugated boxes to achieve forward integration.

MEPCO’s total sales revenues of SAR 8.67 million in 2023 represented a drop of 27% compared to the previous year, reflecting slower demand recovery for core containerboard products than anticipated, along with cost inflation that resulted in muted consumer activity and slowness in global destocking.

This decrease in annual revenues driven by lower international selling prices – along with a 7% increase in cost of sales owing to -781.76m resulted in 116% decrease in EBITDA margin and a drop in gross profit to SAR 85 million, compared to SAR 503 million in the previous year.

"2024 is shaping up to be a year of significant progress for MEPCO, as we see a rebound in paperboard and containerboard prices. This recovery is fueling our profitability, with Q2 gross profit margin reaching 21% and marking our return to profitability after five consecutive quarters of losses. Our tissue plant, Juthor, has achieved 80% capacity utilization and is on track for profitability in 2024. This is due to increased production and sales prices, as well as our successful transition from diesel to natural gas, which has significantly boosted profit margins,” Rob Jan Renders, Group President of MEPCO, commented on the Q2Y24 results.

Looking forward to 2024, the company is optimistic about the stabilization of prices and an uptrend in profitability. MEPCO current share of 31% in the Saudi Arabian containerboard market, of roughly 1 million tons, is set to grow above global average rates in the coming year, backed by the strength of the Saudi economy, and position the Company for a solid rebound.

“Our results and operational successes over many years, coupled with that positivity, have encouraged one of the Kingdom’s most significant investors to negotiate a substantial stake in the Company. Not only does this constitute a major contribution to our long-term goals, but it is also an outstanding endorsement of our long-standing success, our contribution to the national economy, and our future prospects. In addition, our investor will drive our core business strategies of financial and environmental sustainability,” Mr. Musaab Al Muhaidib, Chairman of MEPCO Group said in the Annual Report for the year 2023.

MEPCO has announced the approval of a project to expand its tissue production capacity with an additional Tissue Machine (TM-6) to be located in Juthor, King Abdullah Economic City (KAEC). The project, approved by the Board of Directors on the 15th of August 2024, represents a total investment of SAR 345 million.

The expansion aims to increase MEPCO's production capacity by an additional 60,000 tons of Jumbo Tissue Rolls annually. The project will be completed within 24 months and is expected to have a positive impact on the company's results after the commencement of commercial operation in the fourth quarter of 2026.

In line with Saudi Arabia’s position as one of the world’s top 10 tissue importers, Juthor will produce approximately 24% of the Kingdom’s facial tissue, sanitary paper, kitchen towel, and napkin demand.
Eng. Sami Al Safran, Group President of MEPCO said in the annual report, that, While the paper and packaging market faced similar pressures, MEPCO maintained its industry-leading operating rate and retained its market share, locally and internationally. Many of our competitors decreased production due to soft demand, with a global average of 80% utilization/operating rate; however, we were able to sustain our high operating rates owing to strong commercial business of above 90%.

“As we continue with our growth strategy towards PM5, we will double our production capacity, adapting the latest technology to produce recycled containerboard and produce low-GSM products, which are now in high demand from our existing and future customers,” Eng. Sami AI Saran said.

Despite challenging containerboard demand, MEPCO sales volume increased by 4% compared to 2022, underlining not only the quality of its products, but also the success of sales and marketing strategy.

MEPCO’s subsidiary, Waste Collection and Recycling Company (WASCO) is a regional leader in the sector, collecting, recycling, and trading paper and waste materials, including plastic and metal. WASCO collects around 500,000 tons of recyclable materials from a vast range of household, industrial, and business sources.

Currently, the Company is in the process of finalizing agreements with various municipalities to fortify its position, not only in recyclable management, but also in providing integrated waste management solutions. This strategic approach aligns with MEPCO’s commitment to becoming a leader in sustainable waste management practices.

Furthermore, maintaining a dominant position in the market, representing 50% of the waste paper market size in recycling, posed ongoing challenges due to intense competition and market fluctuations. MEPCO’s success in this regard hinged on its ability to adapt to dynamic conditions through continuous monitoring and strategic adjustments.

"As we continue to diversify and broaden our product offerings to fulfil greater demands, and in accordance with our growth strategy towards PM5, we will double our production capacity, adapting the latest technology to produce recycled containerboard and produce high-demand low GSM paper products. Our portfolio covers the entire grade range from the lowest ply to the strongest core board available on the market.” The report said.

On the future of MEPCO, the report said, “We will continue to expand into new international territories while ensuring that our core local clients are provided with the quality and consistency that has become synonymous with our name. In addition, we will continue to diversify and bring new products to new markets. In 2024, we will continue to build on our successes and maximize our contribution to two decades of world-class operations and customer satisfaction,”

NEW TISSUE PLANT- JUTHOR
Juthor is a modern factory producing Jumbo tissue rolls in KAEC (King Abdullah Economic City), featuring Saudi Arabia’s first cuttingedge tissue machine. It produces an extensive range of competitive tissue paper products, all of which are "Saudi Made"-accredited, so businesses benefit from superior Jumbo rolls across a wide range of basis weights, with guaranteed maximum softness.

The Juthor plant, equipped with a pioneering Toscotec-supplied tissue machine in King Abdullah Economic City, is characterized by minimal carbon emissions. Powered by clean, efficient natural gas and featuring dedicated water treatment facilities, Juthor aligns with MEPCO’s commitment to zero effluent water discharge.

MEPCO’s initiative in localizing tissue paper production taps into the robust post-pandemic demand for hygienic paper products, supported by favorable demographics, strong GDP per capita, and growing urbanization and tourism. The high-speed production capabilities at Juthor are pivotal in addressing these increasing demands.

2023 was marked by key operational progress, including the start of a test run in April and the launch of commercial operations in June. The focus remained on achieving targeted performance and volume soon after startup, with ongoing efforts in cost savings, efficiency, quality enhancement, and people development. This approach resulted in Juthor quickly establishing a market reputation as a formidable newcomer in the industry. 

Juthor managed to sell locally and internationally, increasing penetration in both markets, while catering for the local demand. Since commercial launch in June, utilization rate steadily increased to reach an impressive 67% in Q4.
 

Web Title: MEPCO's 2023 sales dropped 27% to SAR 8.67 million; investing SAR 345 million in new Tissue Machine (TM-6)