Saturday, 30 August 2008 |
19:01 UAE time
Saudi Basic Industries Corp (SABIC) made record profits in the second-quarter, despite the global economic slowdown thanks to high oil prices and earnings from its latest acquisition, the company said.
Second quarter net profit was 7.54 billion riyals ($2.02 billion), up 16.5 percent from the year-ago period, SABIC said in a statement on the bourse website.
The earnings were near the top of analysts' forecasts who were put profit between 7.16 and 7.63 billion riyals, according to a survey conducted last month by newswire Reuters.
"The second quarter witnessed the highest profit the company achieved in a single quarter since its inception," SABIC said in the statement, quoting its Chief Executive Mohamed al-Mady.
Mady later said in a Reuters interview that a surge in the price of oil has preserved the firm's margins, offsetting the impact of the global economic slowdown on demand from some parts of the world.
As a state controlled company, SABIC has access to cheap energy inputs.
Crude oil prices are used as a benchmark for the pricing of feedstocks including naptha, used to produce petrochemicals.
Compared to the first quarter, annual growth in operating profit almost doubled to 26.7 percent in the second-quarter to reach 12.1 billion riyals, based on Reuters calculations and SABIC's financial data.
Annual turnover growth was 55.8 percent in the second quarter, above the 52 percent of the first quarter of this year, according to Reuters' calculations and data from SABIC.
"This is mainly due to the consolidation of SABIC Innovative Plastics... to an improvement in sale prices of most key products and increases in the volume of production and sales... in spite of a rise in... the prices of oil and a slowdown in the major part of the world's economies," Al-Mady added.
SABIC paid $11.6 billion for GE Plastics last year, renaming it SABIC Innovative Plastics.
SABIC increased sales volumes by 6 percent in the first half against a 5 percent rise in production volumes.
SABIC Innovative boosted SABIC's turnover more than its net profit, said Ibrahim al-Alwan, whose KSB Capital Group investment bank came up with the closest forecast for SABIC's second-quarter earnings.
"SABIC Innovative was a very good strategic buy with its strong presence in the United States, but it is suffering because of the situation there. SABIC Innovative's margins are not as good as SABIC," he said.
The second-quarter performance puts SABIC on track to make at least 30 billion riyals net profit for the whole of 2008, up 11 percent from 2007, he added.
SABIC had reported record profit for five consecutive quarters up to the third quarter of last year on surging global demand for chemicals, steel and fertilisers.
But in the fourth quarter, input costs from a surge in oil prices to record highs weighed on earnings.
Crude has risen from $20 a barrel in January 2002 to a peak of $147.27 last week on growing demand from nations like China and rising cash inflows into commodities from investors seeking to hedge against inflation and the weak dollar.
Analysts have also attributed part of the decline in SABIC's profit growth in the previous two quarters to the financing for the GE Plastics acquisition.
The stock rose 1.7 percent to 137.25 riyals on Saturday. Profit figures were released after the trading session. (Reuters)
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