Saudi Basic Industries Corp (Sabic), the world's largest petrochemicals firm by market value, on Tuesday posted a 95.5 percent fall in fourth-quarter profit as a global slowdown began to bite. Net profit in the three months to December 31 fell to 311 million riyals (82.9 million dollars) compared with 6.87 billion riyals (1.83 billion dollars) a year earlier, the government-controlled company said in a statement.
The quarterly profit marked a 95.7 percent drop from the previous quarter when Sabic made a net profit of 7.24 billion riyals (1.93 billion dollars), it said. Sabic attributed the result to "the decline in demand for petrochemical products and metals because of the economic recession that has hit the world's major economies." It also blamed the global credit crunch that has "led to difficulties for consumers in obtaining the necessary financial facilities from banks and financial institutions."
"The decline in demand for petrochemical products, particularly specialty plastics, arising from the crisis afflicting the global automotive industry and building and construction sectors, has had a strong impact on the performance of Sabic affiliates outside Saudi Arabia," it added. Sabic's shares, constituting about one-fourth of the Riyadh stock market's capitalisation, were down 9.79 percent at 40.5 riyals (10.80 dollars).
The overall Saudi market also reeled from the report, dropping more than five percent at the opening bell. At 0900 GMT, the Tadawul All-Shares index was 5.2 percent lower at 4,414.49 points. "The results were definitely a bad surprise for many people," Laurent-Patrick Gally, vice president of research at Shuaa Capital in Dubai, told AFP.
Overall net profit for 2008 was 22 billion riyals (5.86 billion dollars), or 7.34 riyals per share (1.95 dollars), 18.5 percent down from 27 billion riyals (7.2 billion dollars) or nine riyals a share (2.40 dollars) a year earlier. Gally said the results were far below nearly all analysts' projections. Shuaa had forecast a quarterly net of about 2.3 billion riyals, he said.
He said the sharp drop probably related to larger-than-expected charges on the company's 11 billion-dollar 2007 acquisition of the US firm GE Plastics. now called SABIC Innovative Plastics. He also expected there was a significant writedown on the value of inventory in the wake of the plunge in the prices of oil and gas, the main feedstocks for petrochemicals production.
Sabic, also a major producer of plastics, metals and fertiliser, was hurt by the steep economic slowdown in China, a key market for the firm, Gally said. But this could be a strongpoint for the company in the upcoming year, with economists forecasting the Chinese economy will still grow while other major economies face recession, he said. "This (will) actually be in their favour," Gally said.