Saudi's SABIC profits fall, steel business hit by writedowns

[RIYADH] Saudi Basic Industries Corp (SABIC), the world's fourth-biggest petrochemicals company, reported an 18.6 per cent drop in fourth-quarter net profit, missing analysts' forecasts, as sales dropped and its steel business was hit by writedowns.

Last week, SABIC bought a 25 per cent stake in speciality chemicals group Clariant ending the Swiss company's fight with activist investors.

SABIC has said it has no current plans to launch a full takeover of Clariant but the acquisition has prompted uncertainty about Clariant's future as Saudi Arabia seeks to diversify its economy and reduce its reliance on oil.

SABIC CEO Yousef al-Benyan, speaking at a news conference on Sunday, said: "At this point we are going to work with Clariant management on how can we leverage the existing relationship that we have." He said the company could build on an existing 50/50 joint-venture between SABIC and Clariant on scientific design.

"So by leveraging our existing relationship and leveraging our new positions in this company we will see where are the synergies that is going to benefit both parties." He also said SABIC could self-finance the Clariant stake acquisition, but did not rule out the possibility of inviting banks to part-finance the deal, adding "We have our options, we will look into our best one".

Mr Benyan said there were still challenges in the steel market, but he was optimistic about the company's outlook for 2018, saying an increase in oil prices reflected positively on petrochemical prices.

SABIC's results are closely tied to oil prices and global economic growth because its products - plastics, fertilisers and metals - are used extensively in construction, agriculture, industry and the manufacturing of consumer goods.

Mr Benyan said the company expects to cut costs between 5 to 7 per cent in 2018, somewhat similar to 2017.

SABIC booked impairments of 350 million riyals (S$122 million) on its Hadeed steel unit in the fourth quarter, bringing 2017 writedowns on the business to a total of 1.4 billion riyals.

SABIC made a net profit of 3.67 billion riyals in the three months to December 31, down from 4.51 billion riyals in the year-earlier period, the company said in a bourse statement.

SABIC shares were down 2.09 per cent in early trade.

SABIC attributed the profit fall to planned turnarounds at certain plants which hit output, and also noted that 2017's quarterly profit was helped by the recognition of deferred tax assets. A turnaround is a scheduled event where an industrial plant is shut down to be revamped.

Brokerage SICO Bahrain had projected a net profit of 5.34 billion riyals and NCB Capital had a forecast of 5.41 billion riyals for net profit in the fourth quarter.

Mr Benyan said at this point the company does not have any plans to raise debt, but will look at such options in the future if needed.

REUTERS