In the fourth quarter net income of listed companies was SR19.2 billion, up by 37 percent in year-on-year terms, but down by 9.7 percent on the previous quarter. Despite the strong year-on-year growth, earnings were lower for six of the 15 sectors. This was because the bulk of the gains were concentrated in the two largest sectors, petrochemicals and banks.
Profits of the banking sector were up by 91 percent year-on-year. Banks generally concentrate their provisioning into the final quarter in order to start a new year on a sounder footing. However, in response to guidance from SAMA (Saudi Arabian Monetary Agency), it seems that the bulk of provisioning occurred in the third quarter of 2010. As a result, bank profits rose in the fourth quarter for the first time since 2005, though the growth was small, at 5 percent, reflecting subdued lending and very low interest rates, the Jadwa report said.
According to Jadwa, petrochemicals posted 64 percent growth in earnings, in large part because of a sharp rise in product prices, but also because of the greater use of new capacity and new players entering production. Thirteen of the 14 petrochemical companies were profitable during the quarter, compared to nine in the corresponding quarter of 2009.
The hotels sector recorded the second largest growth in profits, of 85 percent, though this came from a very low base. Multi-investment rose by 54 percent largely because of the recovery of global stock markets. Earnings from insurance also rose strongly, by 43 percent, though this is down on the growth in the two previous quarters. Earnings of the largest player (Tawuniya) declined, but several others in the sector recorded healthy growth. Nonetheless around half of the listed insurance companies recorded losses in the fourth quarter, reflecting difficulties in ramping-up operations, the report said.
In year-on-year terms, building and construction was the worst performing sector, recording a quarterly loss for the first time in at least seven years, owing to one-time adjustments by two companies in the sector; in addition, tougher competition has impacted across the sector. Electricity also recorded a loss in the fourth quarter, though this is in line with the seasonal norm and reflects lower use during the cooler months of the year. Agricultural earnings fell by 27 percent and were dented by one-time provisions by Savola for asset write-downs and losses on foreign subsidiaries and investments, the Jadwa report said.
In quarter-on-quarter terms, total profits declined by 9.5 percent, with nine of the 15 sectors recording falls. This is consistent with the seasonal trend, with earnings falling in the fourth quarter in each of the last six years. It is caused by companies making one-time adjustments in order to clear their books for the new year, as was the case in 2010. Nonetheless, with the banks taking more of their provisions in the third quarter, the drop in the fourth quarter was the smallest since the fourth quarter of 2004.
The Jadwa report said annual earnings of all listed companies in the Kingdom totaled SR78.2 billion in 2010, the highest since 2006 and 35 percent above that in 2009. All sectors were profitable last year, with profits rising in eleven. The gain is almost entirely due to the petrochemicals sector. Petrochemicals profits rose by 182 percent and accounted for 94 percent of the increase in total listed company profits in 2010. This was the result of higher production and product prices.
