Grangefold Saudi Holding Company (CGS) announced its financial results for the third quarter of fiscal year 2023, showing a 29% year-on-year decrease in net profit. The company recorded a net profit of SAR 14 million, compared to SAR 19.8 million in the same quarter of the previous year, reflecting the operational challenges the company faces in a changing economic environment.
Analysis of the reasons for the decline in profits
According to the statement published by the company on the Saudi Stock Exchange (Tadawul) website, this decline in profitability is attributed to a combination of factors. Foremost among these is a decrease in the gross profit margin resulting from a shift in the revenue mix towards the fixed cooling business, which appears to have lower profit margins compared to other company activities. This strategic or operational shift in revenue directly impacted overall profitability.
In addition, the company experienced an increase in indirect costs. CGS explained that this increase stemmed from the creation of new regulatory roles following the company's listing on the stock exchange, and the resulting additional governance and oversight requirements, including the costs of expanding the board of directors. Furthermore, an increase in the provision for doubtful debts also contributed to the pressure on net profit; this precautionary measure reflects the expectation of challenges in collecting certain outstanding receivables.
General context and company performance
CGS’s performance comes within a robust local economic context, driven by Saudi Vision 2030, which is stimulating broad industrial and service sectors. Companies like CGS operate in vital sectors such as cooling solutions and industrial services, which are essential to supporting the Kingdom’s mega-projects and expanding infrastructure. However, the post-listing phase is often challenging, as companies strive to balance growth with meeting stringent governance requirements and managing increasing operating costs.
Quarterly comparison and nine-month performance
On a quarterly basis, the results showed improvement, with net profit for the third quarter reaching SAR 14.1 million compared to SAR 9.6 million in the second quarter of the same year. The company attributed this improvement to higher revenues; however, the positive impact of this growth was partially offset by the aforementioned negative factors, such as lower profit margins and increased costs and provisions.
As for the results for the first nine months of the year, net profit reached 33 million riyals, a decrease compared to 49.2 million riyals for the same period of fiscal year 2022. This annual decrease is due to the same main reasons: a decrease in revenues on an annual basis, a decline in gross profit margins, and an increase in indirect costs and debt provisions.
Expected impact and future outlook
These financial results reflect a critical phase in CGS's journey as a publicly traded company. Investors and analysts are closely watching management's ability to improve operational efficiency, optimize the revenue mix for better profit margins, and control administrative costs. Performance in the coming quarters will be a key indicator of the company's success in adapting to market demands and achieving sustainable profit growth.
