SABIC enters European specialities sector as annual profits rise
Thursday, Feb 08, 2018
Saudi Basic Industries Corp. (SABIC) recorded a small growth in annual profits in 2017, despite a fourth-quarter dip, according to results released in late January.

The firm’s income see-sawed throughout 2017, with the fluctuating fortunes of the local construction sector hitting the company’s troubled steel subsidiary.

Nonetheless, the state-run chemicals champion also accomplished several strategic milestones and the trend continued in early 2018, with a landmark move into the European speciality chemicals sector.

SABIC’s net profits in the final three months of the year fell by 18.6% year on year to 3.67 billion riyals (US$980 million). This was blamed chiefly on planned shutdowns of certain plants and a one-off recognition of deferred tax assets in the final quarter of 2016.

Of more concern was the steep quarter-on-quarter downturn of 36.3%. This was blamed on the turnarounds and on further impairments recorded against the assets of the Saudi Iron & Steel Co. (HADEED) and Ibn Sina subsidiaries, of 350 million riyals (US$93 million) and 136 million riyals (US$36 million) respectively.

HADEED’s performance has been suffering ever since the oil price slump of 2014 and corollary downturn in the domestic economy – the latter recording zero growth last year – causing a sharp slowdown in the local construction sector.

A plan to spin off the troubled unit was publicly mooted by executives in late 2016 but nothing further has been heard of the proposal. At a press conference on January 28 marking the results’ release, CEO Yousef al-Benyan highlighted the increased state expenditure envisaged in Riyadh’s 2018 budget and the expected knock-on effects on the steel business.

The scale of the quarterly change continued a trend evident throughout last year – with profits rising strongly in the first and third quarters and plunging in the second.

However, income growth in the final three months of 2016 broke a run of nine consecutive quarters of lower earnings. The tentative recovery setting in the global petrochemicals business – tracking the gradual increase in oil prices – was reflected in an overall rise of 4.5% in full-year net profits to 18.4 billion riyals (US$4.9 billion).

Al-Benyan pointed to the generally positive global economic outlook when predicting a strong performance by the company in the year ahead – noting forecasts of growth in Europe and the US and stability in the key Chinese market.

One of three major new projects announced by SABIC over the past two years calls for the development of a US$3-4 billion coal-to-chemicals (CTC) plant in the north-central Ningxia Hui region of the Asian giant.

Last year also saw a milestone reached in the company’s plans to start shale gas-based production in the US – another long-stated component of the firm’s expansion strategy. An initial joint venture (JV) agreement was signed in May with US heavyweight ExxonMobil to develop a 1.8 million tpy ethane cracker and derivatives complex in Texas, on which a final investment decision (FID) is anticipated by the end of this year.

The third major project, comprising a ground-breaking crude oil-to-chemicals (OTC) plant within the kingdom in JV with state upstream behemoth Saudi Aramco, took a major step forward in November. A memorandum of understanding (MoU) was signed to proceed with the estimated US$20 billion scheme, expected to be developed at Yanbu on the Red Sea coast.

Al-Benyan has been alluding to plans for acquisitions worth several billion dollars in the speciality chemicals and agro-nutrients sectors for several quarters – and the company delivered on the pledge in late January by acquiring a 25% stake in Swiss-based Clariant from existing activist investors, White Tale and 40 North – which had recently blocked a proposed merger with US giant Huntsman.

The value of the SABIC deal was not disclosed but market capitalisation would set the holding’s worth at around US$2.4 billion, and the agreement makes the firm the largest single shareholder.

The Saudi company disavowed immediate plans for a full takeover, but such a move is widely anticipated. A buy-out of the second largest remaining shareholder would take the company’s interest over the 33% threshold which, under Swiss stock exchange rules, obliges an offer for the entirety of the business to be made.

Alongside feedstock diversification, a move towards more specialised products and away from bulk commodity chemicals has been a core element of SABIC strategy for several years. This is a result of an increasing lack of additional low-cost ethane feedstock at home having removed a key historic source of competitive advantage.

The two firms are already partners in US-based Scientific Design – a licensor of chemical process technology licensor and supplier of catalysts.
“Clariant is complementary to SABIC’s existing specialities business and is well in line with SABIC’s strategy of opening up new growth opportunities in speciality chemicals,” Al-Benyan explained in a statement.

Aramco – the expanding chemicals business of which had increasingly threatened to become a competitor to that of SABIC before a high-level order some two years ago to co-operate – made a similar move in 2015 by acquiring the synthetic rubber unit of Germany’s Lanxess.

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