Sabic, the Middle East's largest petrochemicals company, reported a 40 million Saudi riyals ($10.7m) net profit for 2020, down 99.23 per cent from the previous year, due to lower average selling prices in most products in addition to impairment provisions in certain capital and financial assets.
While net profit for the year was markedly down in 2020 from the company's 5.2 billion riyals earnings in 2019, Sabic beat estimates from analysts polled by Bloomberg, who forecast a full-year loss of almost 300m riyals due to the impact of the coronavirus pandemic.
Net profit for the last quarter of the year largely cushioned the impact surging 104 per cent to reach 2.22bn riyals from the year-earlier period, the company said in a regulatory filing to the Tadawul exchange, where its shares trade.
"The fourth quarter benefited from sustained economic recovery, which translated into a healthier demand for our products," said Yousef Abdullah Al Benyan, vice chairman and chief executive of Sabic.
"Our global business model and the strength of our global supply chain continue to demonstrate their resilience and flexibility, positioning us well for long-term growth," he added.
Saudi Aramco, the world's largest oil-exporting company has a 70 per cent stake in Sabic, which it bought for $69.1bn in June.
The petchems company said in its latest results that $1.5bn to $1.8bn of "expected recurring annual value creation and synergy" with Saudi Aramco is expected by 2025.
About 80 per cent of this value will be generated from procurement, sales and marketing, supply chain and stream integration as well as feedstock optimisation and maintenance optimisation, Sabic said.
Longer-term, the company sees fresh opportunities to create value with Aramco through growth projects optimisation, joint venture management as well as through a one-service delivery model.
Sabic's full-year revenues fell 14 per cent to reach 116.96bn riyals. They climbed 12 per cent in the fourth quarter to 32.85bn riyals.
The company drew higher revenues from the rise in crude prices, which increased three per cent for Brent in the third quarter of 2020, compared with the previous quarter.
Prices for Japanese and European naphtha also increased in tandem by around two per cent in the last quarter of the year, compared with the third quarter.
Products such as Japanese propane and butane also surged 30 per cent in the final quarter compared with the three month-period ending September.
The cost of sales between October and December rose nine per cent to 24.73bn riyals compared with the third quarter, due to higher feedstock prices.
Sabic also gave an indication of its expectations for sales for 2021. The chemicals giant estimates sales to average two to five per cent higher than in 2020, supported by global recovery aided by the rollout of Covid-19 vaccines.
The company also sees profit before tax to be "moderately higher" than the previous year. Capital expenditure in 2021 is expected to be "similar" to the last fiscal year.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
UAE currency: the story behind the money in your pockets
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