Takween eyes expansion in plastics sector; to use JOFO deal proceeds to repay debt, finance projects: Chairman

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The strategy of Takween Advanced Industries Co.'s board of directors aims to expand in the plastics sector locally and overseas, as well as diversify its products and focus on value-added products, high profit and foray into new sectors, Chairman Abdulmohsen Al-Othman told Argaam in an exclusive.

 

"We are open to assess acquisition or merging opportunities with local or international companies, as well as enter into partnerships with international firms that would accelerate growth, achieve shareholders' aspirations and maximize their rights. This includes the local market, regional or global markets," the Chairman said.

 

He indicated that the cash proceeds of China-based JOFO Nonwoven Co. Ltd.'s acquisition deal will be used in various purposes, including early repayment of part of the debt, which will reflect on reducing financing expenses and financing the company's expansions and projects.

 

Al-Othman highlighted Takween's history, plants and outlook for the company's operations, as follows:

 

Could you highlight Takween's stages of development and its challenges?

 

Takween started its industrial business in 1993, under Mohammed bin Abdullah Al-Othman Foundation, and established Al-Othman Factory for Plastic Products, which was renamed Al-Othman Plastic Products Co. Ltd. in 2001. The company was converted into a closed joint stock company under the name Takween Advanced Industries Co. in 2010.

 

Takween was listed on the Saudi Stock Exchange (Tadawul) on July 2, 2012. Nearly 30%, or 30 million ordinary shares, of the company's share capital was floated after obtaining the necessary regulatory approvals from the Capital Market Authority (CMA).

 

In 2016, the company obtained the necessary approval to raise its capital to SAR 950 million through a rights issue.

 

Takween secured a leading position in the different market sectors, locally and globally, and gained a prestigious reputation among major clients in the field of plastic industries. This greatly helped the implementation of further expansions, whether through acquiring some additional factories or opening new marketing outlets inside and outside the Kingdom.

 

Moreover, Takween's leading position enhanced its ability to face major challenges, including the breakout of COVID-19 pandemic in early 2020. However, the company managed to proactively take preventive measures and change operating mode to comply with the health and safety guidelines to protect employees, customers and suppliers, as well as secure the supply process to avoid business interruption and benefit from the government's support for the private sector.

 

How many factories and production lines does the company have? How about the annual production capacities?

 

A: Takween is classified among the listed companies under the basic materials sector. Its business is concentrated in two main industrial segments, namely the plastic packaging industry and the nonwoven fabrics. In addition, the company owns stakes in five subsidiaries, four of which are in Saudi Arabia, namely Saudi Plastic Packaging Systems, Al Sharq Plastic Industries Co., Ultrapak Manufacturing Co., and Advanced Fabrics Co. (SAAF). It has one subsidiary outside the Kingdom, namely New Marina Plast located at Borg El Arab Industrial City, Alexandria, Egypt.

 

As for the plastics sector, it includes six factories, two in Al-Ahsa and Riyadh each, in addition to one factory in Jeddah and another one in Alexandria.

 

These factories produce polystyrene sheets, thermoformed polystyrene plastic bottles and caps, high density polyethylene (HDPE) bottles (blow-molded), and injection-molded lids and films. The products of theses factories include cups, packages, caps, bottles, films and rolls of used sheets for packaging dairy products, juices, foods, water, soft drinks and IML containers.

 

The bottles are made of polyethylene terephthalate, with capacities ranging from 180 milliliters to 12 liters. They also produce boxes, profiles, sanitary ware, plastic foil, production of pallets, and waste carts. The company imports and exports all types of plastic products.

 

The annual production capacity of the plastic sector is about 170,000 tons annually.

 

As for the nonwoven fabrics sector, it relates to JOFO Nonwoven Co. Ltd.'s acquisition deal. The sector includes two factories, one in Al-Ahsa and another in Rabigh city in the Western region. Both factories are owned by 100%-owned subsidiary of Takween, SAAF. After the completion of JOFO deal, the factories' ownership will be as follows: 70% by JOFO and 30% by Takween.

 

These factories produce the composite fabrics, which are used in the healthcare, industrial and medical sectors, in addition to alcohol-resistant and anti-static electricity fabrics used for surgical drapes, as well as the medical and protective gowns for health usages, such as children, adult and women’s diapers. The company also produces the raw materials used in the manufacturing of masks. It succeeded in covering the local and global markets during the pandemic.

 

What is your outlook for the plastics product and nonwoven fabrics sectors in Saudi Arabia and other markets?

 

A: Undoubtedly, both sectors are promising in terms of demand, especially as they continue to develop through research and studies. They ensure continuous development, whether in the type of products to go in tandem with end-user demand or in production cost cuts through investing in industrial technology variables and production equipment.

 

What about Takween’s market share in Saudi Arabia, Egypt, and export markets?

 

A: Plastics are Takween’s main product. Therefore, the board of directors focuses on expansion and concentration in this sector inside or outside the Kingdom.

 

Takween is the leading company in Saudi Arabia’s integrated industries market. It also holds the largest market share of most products, but the percentages change from time to time, based on market conditions. Moreover, Takween comes on top in terms of the list of major clients, given its large market share in the Middle East.

 

Takween aims to maintain development and continue expansions in the local and global markets as exporters and producers, to boost its market share inside and outside the Kingdom. For example, future opportunities in the plastics sector include coping with the development in recycling sector, protecting environment and realizing the circular economy objectives.

 

What is the size of Takween's receivables at the end of the current period? What are your expectations for the ratio of collection to default for these clients?

 

A: According to the latest preliminary financial statements published in 2021, the net receivables of the company’s customers amounted to SAR 205.6 million. The nature of Takween’s products determines the quality of customers, represented in factories and large companies (dairy and juice, soft drink, and water factories, as well as healthcare and medical factories and companies). Therefore, the number of customers is limited compared to the figure of sales and the company's real investment is mostly confined to the credit sale of those factories and companies amid the existence of a tranche of small customers. This includes cash or credit sales in exchange for strong guarantees.

 

In general, the large corporate clients repay regularly, which reduces the percentage of doubtful debts compared to sales. We are aware of the difficult market conditions that accompanied the pandemic, which had an impact on delaying the collections. In light of such conditions, the firm rescheduled the debts of the customers who faced difficulties due to the pandemic.

 

Q: What is the amount of provisions made for doubtful debts at the end of the current period?

 

A: According to the latest preliminary financial statements for 2021, the provisions of doubtful debts amounted to SAR 52.1 million, representing 20.2% of the customers’ receivables. This confirms the coverage of all risks towards this item.

 

As stated previously, Takween's client structure and the quality of its limited dealings in large companies helped the firm set a clear credit policy to process all future transactions. Thus, the company does not need to increase its provisions abnormally, due to the existence of sufficient provisions in each fiscal period, which are reviewed as per International Financial Reporting Standards (IFRS).

 

Accordingly, the firm professionally maintains the application of such credit policy.

 

Q: What is the significance of JOFO Nonwoven Co.'s acquisition deal? How will you use the related proceeds?

 

A: The success achieved by the subsidiary, SAAF, through exporting its high-quality products to Europe, the US and China reflected its good reputation, which is centered on the quality of products and the high standards documented by specialized companies, in addition to a stable customer base - locally, regionally and internationally - as per long-term contracts.

 

We received several offers from prestigious foreign companies to acquire SAAF, the most important of which was China's JOFO, especially as the latter specializes in this field. In addition, JOFO has a global reputation and strong desire to invest in the local market, especially amid the incentives included in the Kingdom’s Vision 2030. Accordingly, Takween agreed to sell 70% (129,360 shares) in SAAF to JOFO, after increasing the subsidiary's capital from SAR 131.8 million to SAR 184.8 million.

 

This was the basis of the memorandum of understanding (MoU), which was announced on June 9, 2020. The sale agreement was signed on Dec. 30, 2020, and the deal was

originally expected to be closed by May 31, 2021, but the date was extended to July 15, 2021.

 

Moreover, the deal was approved by the Saudi competent authorities. Accordingly, SAAF will be transformed from a wholly-owned Saudi firm to a Saudi Chinese firm.

 

The deal is important, as it comes in line with Takween’s current strategy that focuses on expansion in the plastics sector, inside or outside the Kingdom, and the formational of global partnerships in the nonwoven fabrics sector.

 

The total transaction cash inflow will be SAR 304.7 million, comprising net purchase price amount of SAR 197.64 million and reimbursement of working capital of SAR 107.06 million.

 

The company recorded capital gains of SAR 62.9 million after the partial write down of Takween’s debts under the purchase agreement.

 

The final financial impact will reflect on Takween’s financial results on July 31, 2021.

 

Takween will also use the cash proceeds for the early repayment of debt, which will in turn, reduce finance costs and finance the company’s expansions.

 

Q: What are Takween’s expansion or acquisition plans?

 

A: The current strategy aims at concentration and expansion in the plastics sector, inside or outside the Kingdom. It also focuses on diversifying the company’s products with a special focus on value-added and high-margin products. We also aim to enter new sectors, based on its proven track record and good reputation.

 

Takween is open to evaluating any promising opportunities, in line with the directives of the board of directors and executive management for merger and acquisition with local or global companies. The company is also open to form consortiums with global firms that can accelerate growth and aggrandize shareholders’ benefits, whether in the local, regional or global markets.