SENAAT CEO: SAR 5.5B backlog, inventory hit clouds 2H outlook

Advanced Building Industries Co. (SENAAT) had a project backlog of SAR 5.5 billion at the end of June, but a SAR 84.7 million inventory adjustment at its air-conditioning unit is drawing investor attention as the company looks to a stronger second half.

CEO Ahmed Zaateri said the first-half profit jump – net income rose to SAR 54.2 million from SAR 37.2 million a year earlier, with SAR 44.4 million of that coming in the second quarter alone – was driven by steel and insulation materials. Both segments posted strong revenue growth on firm demand and favorable pricing in Saudi Arabia and export markets, he said.

The air-conditioning division kept growing revenue, Zaateri said, but profitability was dented by what the company described as a net inventory shortfall. As of June 30, management booked SAR 63.7 million in adjustments from inventory reconciliation and settlement work, plus another SAR 21 million in physical stock-count shortfalls. The SAR 21 million piece went straight into the cost of revenue for the first half, he said, because there is no evidence that the loss originated in an earlier period.

Zaateri said management referred the issue to the board as soon as it was flagged, and the board set up a special committee to oversee an independent investigation and corrective measures. An outside adviser was brought in to review the inventory and confirm the company's findings, he added. The probe is still running, but management does not expect further material adjustments, Zaateri said.