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03 December 2023

Saudi corporate income soars

The net profits of Saudi Arabia's 11 listed banks edged up by around 0.7% in 2010 (AFP)

By Nadim Kawach

Saudi Arabia’s listed companies reported a massive increase in their net earnings to more than SR78 billion in 2010 and the surge was mainly a result of strong performance by banks and petrochemical firms, according to a key Saudi investment company.

Their net income in the fourth quarter of last year was also nearly 36.7 per cent above the profits in the fourth quarter of 2009 but lower than the income in the third quarter of 2010, the Riyadh-based Jadwa Investments said in an eight-page study.

The report showed profits by the petrochemicals sector jumped by nearly 182 per cent year on year in 2010 and around 64 per cent year on year in the fourth quarter.

The net profits of the Gulf country’s 11 listed banks edged up by around 0.7 per cent in 2010 but rocketed by nearly 90.6 per cent year on year in the fourth quarter of 2010. Their quarterly income was also about 4.5 per cent above the profits in the third quarter of last year.

“Profits of listed companies in the fourth quarter of 2010 were much better than in the same period of 2009, but down on those of the third quarter of last year,” said the study, sent to Emirates 24|7.

“The year-on-year gain was due to an almost doubling of profits by banks and stronger performance from the petrochemicals sector. Profits were generally in line with expectations and as a result the TASI (Saudi bourse index) was broadly flat over the period of earnings releases. Profits for the whole of 2010 were nearly 35.3 percent up on their level in 2009.”

The report sowed the combined net income of listed companies stood at around SR19.2 billion in the fourth quarter of 2010, up by nearly 36.7 per cent in year-on-year terms, but down by about 9.7 per cent on the previous quarter.

Despite the strong year-on-year growth, earnings were lower for six of the 15 sectors, according to Jadwa.

It said this was because the bulk of the gains were concentrated in the two largest sectors, petrochemicals and banks.

Although a detailed breakdown of bank results is not yet available, it is clear that the improvement in net income is due to much lower provisioning for bad debts, the report said.

“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, it seems that the bulk of provisioning occurred in the third quarter of 2010,” it said.

“As a result, bank profits rose in the fourth quarter for the first time since 2005, though the growth was small, at five per cent, reflecting subdued lending and very low interest rates.”

Petrochemicals posted 64 per cent 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 per cent, though this came from a very low base, Jadwa 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, according to the study, which also attributed what it described as tougher competition in 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, the report said.

It showed agricultural earnings fell by 27 per cent and were dented by one- time provisions by Savola for asset write-downs and losses on foreign subsidiaries and investments.

“Annual earnings of all listed companies in the Kingdom totalled around SR78.2 billion in 2010, the highest since 2006 and nearly 35.3 per cent above that in 2009. All sectors were profitable last year, with earnings rising in eleven,” it said.

“The gain is almost entirely due to the petrochemicals sector. Petrochemicals profits rose by 182 per cent 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.”

For energy, the jump by 97 per cent year on year in 2010 was due to an increase in tariffs, the report noted.