Oil slide slashes SABIC’s Q1 profit

Oil slide slashes SABIC’s Q1 profit
Updated 19 April 2015

Oil slide slashes SABIC’s Q1 profit

Oil slide slashes SABIC’s Q1 profit

Saudi Basic Industries Corp. (SABIC) faces heavy pressure on its profits due to cheap oil but will keep investing globally to boost capacity in key areas, its acting CEO Yousef Al-Benyan said.
His remarks came as the company reported a 39 plunge in first-quarter profit.
The industry is cyclical and the long-term outlook is good for the company, which has a global presence, Al-Benyan said. “We are optimistic,” he said.
He added: “The government spending is very strong and there is a positive outlook to affirm the country’s economy is strong.”
Al-Benyan said he did not see any effect from the Yemen conflict on SABIC’s operations or the Saudi economy. “Business as usual,” he said.
Company plants are running normally, he said. “Our movement of material supply chain has not been impacted, and I don’t foresee any impact.”
There is zero impact from the Operation Decisive Storm on SABIC’s activities, said the SABIC official.
Al-Benyan also announced the appointment of Mosaed Al-Ohali, the company’s executive vice president for polymers as its chief financial officer. Al-Benyan said that he would take up his new appointment in May 1.
SABIC, one of the world’s largest petrochemicals groups and Saudi Arabia’s biggest listed firm, said net profit sank to SR3.93 billion ($1.05 billion) in the three months to March 31 from SR6.44 billion a year earlier.
Its sales values were slashed by the plunge of oil prices, which has dragged down petrochemical product prices. Revenues in the first quarter shrank 28 percent from a year earlier and 18 percent from the previous quarter to SR35.56 billion.
Al-Benyan, who took over from longtime CEO Mohamed Al-Mady in February, said the fall in oil and petrochemical product prices was “out of control,” and that his company was continuing to look at its cost base with a view toward postponing non-vital spending.
But he also insisted SABIC would not cut back investments in strategic projects around the world, because it was looking ahead to an eventual upturn.
He said areas of opportunity were chemicals in China, shale gas in North America, economic growth in Africa, and gross domestic product growth of about 4 percent expected in Saudi Arabia this year.
“We always don’t change the key strategic projects, because we understand this is a cyclical market. We understand this is not going to stay forever, and we do not want to be left behind when the market bounces — we want to be the first player ready to enjoy the upcycle.”
SABIC’s first-quarter profit was actually higher than the average forecast of analysts polled by Reuters, who had predicted SR3.50 billion.
The company’s shares soared their 10 percent daily limit after the stock market regulator announced that it would open the bourse to direct foreign investment from June 15. As a top blue chip, SABIC is expected to attract a substantial chunk of the new foreign money.
Al-Benyan said he did not expect any policy change that would hurt the petrochemical industry, which authorities had always supported.
“I am pretty sure and confident that the government of Saudi Arabia will continue to provide the policy and regulations that will support this direction,” he was quoted as saying by Reuters.
“It may have a different flavor, a different tweak, but I am confident it will remain with the same spirit. I don’t see any changes at this point.”
Al-Benyan said the company had no plans at present to tap the debt market, and was not planning to refinance a $1 billion loan maturing in June.
The company is not in the business of hedging currencies and that is not on its radar, but it does its best to maintain cash to meet its needs in Europe and minimise its exposure to swings in the euro exchange rate, he said in answer to a question about the impact of the euro’s weakness.