Demand is strong for high quality steel pipes in the Middle East: according to Deloitte’s 2015 Powers of Construction report, Saudi Arabia remains the GCC’s biggest construction market, with more than $1.2 trillion worth of projects either planned or under way. Waleed Bin Hamad Al-Bathe, CEO of the kingdom’s pipe manufacturer par excellence, the Arabian Pipes Company (APC), explains the company’s strategy to further tap this huge market and how it aims to grow.
Could you give us the background of APC, evaluate the current situation of the construction sector, and describe to what extent weaker oil prices can be a challenge for future growth?
Our slogan is “Lifeline to the future”. Since the start of the company, they have used this slogan. When I came, we changed the logo. The pipes are like the artery system in the body. What the body produces, the liquids, they move through arteries, and so it is with industry, agriculture, oil and gas and petrochemicals – pipes are the main mover of any product. From the producer to the source, whether it is an oil field or gas field, you move the energy and products of this country through our pipes.
APC started as an initiative by a collective of business people. They had a vision. At that time, in the late ‘80s/early ‘90s, industrial development was the main ambition of the government.
As I mentioned, a group of businessmen saw and understood the needs of this new industry and decided to start the operations of this company, providing all kinds of specialized piping from water to deep-well pipes.
In the last 25 years of our existence, we have sold around 6 billion riyals of steel pipes. When you talk about steel pipes, it’s worth mentioning that as an application it is a very sophisticated pipe from the acceptance criteria. The quality assurance of it is very complicated. You have to reach various levels approved by international board standards, API, ISO, then to go second level, which is even more complicated, by the companies.
How flexible is APC in terms of production? Everybody is talking about spiral-welded pipes now that the Government is going to invest a lot in water desalinization. Are you looking into the spiral-welded pipes sector? How fast can you adapt to the needs of the market?
Let me just give you a background on the types of pipes. There are two kinds depending on the way they’ve been manufactured: welded and non-welded (called seamless).
We made a big investment in our Jubail factory and in 2006 due to the global crisis the company’s performance went down.
Now things are starting to move again. The prices of raw materials have also decreased; we are buying now 30% or 40% cheaper than the same period last year, which is very beneficial for the company, increasing our margins.
APC has been awarded recently three major contracts by ARAMCO to produce around 570km of welded steel pipes. What is it that makes Arabian Pipes a preferred business partner for ARAMCO and what impact will these contracts have on the company’s performance and growth?
Our qualifications and our quality system are highly appreciated by ARAMCO. They audit us always and we are ready to meet their standards. One of the things that I liked the most when I joined the company is their internal processes and commitment to quality. We have highly qualified people adding value to our products every single day.
When you see the machines automated and everything running smoothly, you see something, which is tangible. The critical point here is how do you define success?
As you mentioned, we have announced the three contracts with ARAMCO and also the demand from other GCC countries is increasing.
How would you evaluate the impact of mega events such as Qatar’s World Cup or Dubai’s World Expo 2020 on the demand and export of your products?
It affects us directly and indirectly. As I mentioned, we are in the steel business. These countries have such a high demand these days that they need to order from anywhere. Even though Chinese products might be cheaper, the cost saving in terms of logistics gives us a competitive edge. At APC, we are ready; we have enough capacity to cater for their needs. We have a production capacity of about 460,000 tons of pipe. We have also several potential customers in Kuwait and Iraq; we can see those two markets coming back and being very promising for our activities.
What are the main business opportunities within the construction sector for international players and especially for UK companies? How can UK companies be part of Arabian Pipes’ journey of growth?
I think there are huge opportunities to start businesses in Saudi. The kingdom has a population of over 30 million people ready to consume. I must say that we are still a bit “unorganized consumers” as I call it. The automotive industry for instance deserves more attention and UK manufacturers could make a good profit here.
For our business, we are open and looking for technology partners. We manufacture; we don’t own the technology, so is vital for us to make attractive alliances with global players, and definitely the UK is a leader in terms of that. We are quite active; we have participated in seminars and conferences, and we are open to discussing any idea or initiative with anybody. Only by making strategic alliances we will be able to make money and protect the future of our company.
This year is going to be a very important one for many reasons, but especially because 2016 is the 25th anniversary of the company. What is your vision for the company and what would you like your legacy to be?
This is a very good question and a very difficult one. I first needed to balance the company, and what I mean is to have a sustainable turnover. It shouldn’t be a big huge number but a convenient and balanced position in terms of cash generation and cash flows. I am expecting this stage to last one or two years, and hopefully in 2016 we’ll be able to break even or turn around.
After balancing I’m looking at complementing our products. We need to add value to our products by complementing them with additional features such as assembly accessories for our main products. Our customers need to be able to meet several of their needs with us at one point.
Meanwhile, and thirdly, eventually you can think about diversification. What else can we do? This questioning will come after our five years plus strategy… What do we want to be? Will we continue solely as a pipe manufacturer? Are we in pipes or are we in steel fabrication? I’m not in a hurry to think it now; the first two stages will demand a lot of time and effort. If we balance and complement ourselves we’ll be ready for all the big orders to come providing a 360º package for our customers. I truly believe this is the right direction for the company and the results are proving this strategy to be valid. I look forward to the future and to take Arabian Pipelines its next frontier.