JEDDAH, 17 August 2004 — The Saudi corporate sector appears to be heading toward another year of record profitability growth after reporting a 61.4 percent increase in 2003 profits.
As of July 31, 2004, 53 of the 72 listed companies have reported first-half results, with their profits growing by 42.7 percent over the same period last year, according to the Market Review and Outlook prepared by the National Commercial Bank.
“High profitability growth this year is generally attributed to improved product prices coupled with higher sales volumes and reduced cost of operations. Some of the loss making companies last year have turned positive this year because of their own maneuvering: cutting overheads and personnel costs, and adjusting production to reap the benefits of demand growth,” said NCB Chief Economist Dr. Said Al-Shaikh.
The 53 companies declaring first-half results represented around 96.1 percent of the overall market capitalization of SR832 billion as of July 31. The other 19 companies, which have not declared their first-half results so far, constitutes the other 3.9 percent of market capitalization, the NCB report said.
The 53 listed companies announcing their first-half results include 9 listed banks, 21 out of 25 industrial companies, 8 cement companies, 10 of 18 services firms, 2 of 9 agricultural companies and the Saudi Electricity Company (SEC) and Saudi Telecommunication Company (STC).
Of those firms, 46 declared positive profit totaling SR19,905.1 million while 5 of them made losses amounting to SR28.3 million, thus slashing the combined net earnings to SR19,876.8 million for the first-six months of this year, the report said.
The same listed group of companies made net profit of SR13,930.7 million last year, resulting in a 42.7 percent profitability growth for the six months period of this year.
The report said that by including the previous quarter’s annualized earnings of those that have yet to declare their first-half results, the overall net-profit for the entire listed companies is projected to grow by around 36 percent to SR41,760 million for 2004, from SR30,705 million in 2003.
In addition, ten non-listed joint-stock companies including the NCB have also declared their first-half results. The combined net profit of the non-listed joint stock companies rose by 24.3 percent to SR1,683.3 million in the January-June 2004 period, it added.
Thus, the combined net profit of listed and non-listed 63 companies rose by 41.1 percent to SR21,560 million during the first half of this year, from SR15,285 million in the same period last year. The combined annualized net profit for these companies is expected to reach SR43,120 million in 2004. The first-half performance of those 63 companies points to the fact that nearly 11,000 private firms that constitute the Kingdom’s corporate sector would have made good profits this year as well.
Amongst the 72 listed companies, STC and SABIC together contributed nearly 52.7 percent of the combined net-profit during the first half. Net-profit of SABIC increased by 67.5 percent to SR5.34 billion in the first-six months of this year. STC reported 23.9 percent net-profitability growth to SR5.14 billion in the first six months on the back of cost reduction and revenues expansion.
Amongst the largest capitalized companies, the SEC also reported positive profit for the first six months of this year, amounting to SR56.8 million, compared with a loss of SR334.9 million over the same period of last year.
“In the six years to 2004, listed Saudi corporate sector is expected to show profitability growth of almost three-and-a-half times, from SR12.6 billion in 1999 to SR41.8 billion by the end of this year,” the report said.
Of the 53 companies declaring results, the top fifteen made net-profit of SR18.2 billion, an increase of 40.2 percent over the same period last year, while their combined share within the group has come down form 93.2 percent in January-June 2003 to 91.6 percent this year.
Of the 53 listed companies, sixteen have already announced interim cash dividend payouts amounting to SR11.12 billion.
According to the NCB report, the cash dividend payments for the entire market is expected to reach SR25 billion for the income year of 2004, suggesting an increment of around 16.7 percent on the dividend payments made out last year. More companies are expected to make dividend payments this year and the corresponding payout ratio is expected to reach 72 percent this year compared with 69.3 percent achieved in 2003.
The expected cash dividend payment for the whole market is estimated at SR10.1 per share on the income generated for 2004, compared with the actual SR9.13 per share in 2003. This represents nearly 9.4 percent rise in the expected dividend on the income of 2004.
After making resource allocations for interim cash dividend payments, the combined shareholder’s equity of the 53 listed companies rose by 7.5 percent to SR201.6 billion on June 30, 2004, from SR187.3 billion during the same period last year. This implies a net increment of SR14.3 billion over one year.
Excluding banks, however, shareholders’ equity expanded at an even faster rate of 8.2 percent to SR153.8 billion, with most of the increases seen at STC, SABIC, and cement companies, the report said.
SABIC expanded its shareholders equity base by 14.3 percent, an equivalent of SR5.2 billion to SR42.0 billion in one year to June 2004.
The report added that the combined assets of the 53 listed companies rose by 8 percent to SR752.2 billion at the end of June 2004. However, excluding the 9 listed banks being as assets builders on the back of depositors’ money, the remaining 44 listed companies recorded 4.8 percent growth in their combined assets to SR304.3 billion on 30th June 2004, compared with SR290.4 billion during the same period one year ago. This represents an absolute expansion in total assets of SR13.9 billion in one year.
The combined debt of the 44 listed companies increased by 1.7 percent to SR154.0 billion on June 30, 2004. The cash rich STC reduced its debt obligations by nearly 18.4 percent to SR10.91 billion from SR13.38 billion the year before.
The NCB report added that the industrial sector absorbed around 50.7 percent of the combined total debt outstanding for the 44 listed companies this year, followed by 37.7 percent SEC, 7 percent STC, services sector 3.2 percent, cement sector 1 percent and the least capitalized agricultural sector only 0.25 percent.
The combined net profit of the nine listed banks rose by 31.6 percent to SR6.39 billion during the first-two quarters of 2004.
The industrial sector showed net-profitability growth of 61.9 percent to SR6.1 billion, compared with SR3.9 billion during the same period of last year.
The 10 service sector companies also benefited from the accelerated economic activities this year, with their combined profit rising by around 88 percent to SR450.3 million, the highest figure over the last five years.
The agricultural sector has sustained profitability growth this year too and profits for the first-half of this year are significantly higher than those for the whole of last year.