There is a significant push across the Saudi economy to have more localized production and to use locally produced items. Have these policies had an impact on your business?
The impact is not satisfactory. For example, Saudi Chemical used to do a great deal of business with Aramco, though it is no longer at the level it once was. We are currently doing more business with oil companies in Kuwait. We have a contract with Ma'aden, which is our major client in Saudi Arabia. In addition, we have contracts with cement companies to supply them with explosives to excavate raw materials for cement production. Domestic consumption is thus still important for us.
How long has the factory in Egypt been in operations, and do you have further international expansion plans?
Our factory in Egypt started production in 2010 and produces ammonium nitrate for explosives, which has a high concentration of nitrogen. We sell our Egyptian production to Saudi Chemical in Saudi Arabia, Jordan, Sudan, Kenya, and Oman. This is our only overseas plant. The reasoning behind opening a plant in Egypt was to save cost because producing ammonium nitrate from natural gas is expensive. Our factory is adjacent to a fertilizer factory, and we buy some of our feedstock from it to reduce our costs.
Under the Saudi National Transformation Program there is also a localization drive for defense spending. Is Saudi Chemical also looking at possibilities in this area?
Yes, we have three products that we are starting to build the factories for. We are in discussions with providers in different countries to help establish our facilities. We have also had discussions with the Ministry of Defense for its support. We only have one client in this sector, the Ministry of Defense, so if we do not secure production it will not be feasible to start these factories.
What is the main driver of growth for Saudi Chemical?
We have a pharmaceutical factory and are looking to export our expertise. The pharma market in Saudi Arabia is worth SAR21 billion (USD5.6 billion). In comparison, it is worth about USD360 billion in the US and USD200 billion in Europe. Therefore, we are targeting Europe and the US to expand our pharmaceuticals portfolio.
What is the extent of your activities in the pharmaceuticals sector?
We do both manufacturing and distribution in the pharmaceuticals sector. We have a separate distribution company that saw 20% growth in 2017, and we expect to see similar growth in 2018. Our pharmaceuticals manufacturing company, AJA Pharma, handles the pharma products and registration. We have a total of 40 generic pharmaceutical products under registration, with seven new products that were registered in 2017 and more planned for 2018. We also have manufacturing contracts with international companies. For example, we have a contract with Lundbeck, a Danish company, to manufacture four products. We also have a contract with Gedeon Richter, a Hungarian company. In 2018, we will sign contracts with three other international pharmaceutical firms.
What scale will your acquisitions be on and how will they be funded? Are you more interested in acquiring known brands?
We are in talks with the government and international banks to provide finance. We are focusing on a feasible portfolio that can generate greater profit, regardless of whether it is based on generics or branded products. We can manufacture these new products in Saudi Arabia and package them in Europe. If we were to register our pharmaceutical products in Europe or the US, it would take forever. It is better to acquire the European Medicines Agency (EMA) and American FDA approvals for our factory in Hail. We are undergoing this process currently through a German consultant company that we contracted to design, build, and get approvals for our Saudi factory. Our aim is to acquire those by end-2018.