Sabic reports 86 per cent third quarter profit fall after writing down Clariant stake

Company impaired the value of its 24.99 per cent share in the Swiss chemicals giant by 1.5 billion riyals

Sabic chief executive Yousef Al Benyan  says "capital discipline remains a priority" as the company reported an 86 per cent drop in third quarter profit. Chris Whiteoak / The National.

Saudi Basic Industries reported an 86 per cent decline in third quarter income after writing down the value of its investment in Swiss chemicals giant Clariant.

The company reported a net profit of 830 million riyals (Dh812.8m) for the three months to September 30, down from 6.1 billion riyals in the same period last year. Revenue for the period dropped 23 per cent to 33.69bn riyals as oil prices fell, which had a knock-on effect on petrochemicals prices.

“A challenging environment due to slower global growth coupled with additional new capacities in key product lines coming on-stream together with a decline in oil prices exerted a downward pressure on petrochemical prices in the third quarter of 2019,” said Yousef Abdullah Al-Benyan, vice chairman and chief executive of Sabic, in a statement accompanying the company's third quarter results.

The statement also said the company had "reassessed the carrying value of its investment" in Clariant during the quarter.

Sabic owns a 24.99 per cent share in Clariant, and its fall in price (as well as lower analyst expectations of its future value) led the company to write off 1.51bn riyals from the carrying value of its Clariant stake.

The company said it was "reviewing the carrying value of all of its assets as a part of its annual business plan" during the current quarter.

Sabic's net profit for the first nine months was 65 per cent lower at 6.36bn riyals as revenue fell 17 per cent to 106.93bn riyals, which the company blamed on lower selling prices for its products.

The company said an increase in global refining capacity would continue to affect its results in the short term, but that it is working on making its operations more efficient.

"Recently, we obtained all the relevant regulatory approvals to merge Saudi Petrochemical Company with Arabian Petrochemical Company. This is an important step towards increased efficiency and operational competitiveness," said Mr Al-Benyan.

Sabic reported "a very weak set of numbers" during the third quarter, EFG Hermes petrochemicals analyst Yousef Husseini said in a note, adding that the company missed both his and consensus analysts' estimates by a wide margin.

"The big miss was mainly due to the Clariant impairment, with gross profit and ebitda (earnings before interest, tax, depreciation and amortisation) coming in only slightly below our forecasts," he said.

He added that he expected earnings to remain poor "amid a very weak global environment and more supply additions in the pipeline in 2020".