Business

Sabic extends earnings slump as second-quarter profit down 23%

Sabic, which is 70 per cent state-owned, attributed the profit fall to lower average sales prices, in addition to an impairment on the assets of Ibn Rushd, an affiliate of Sabic.

Reuters

July 27, 2016

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Saudi Basic Industries Corp, one of the world’s largest petrochemicals groups, reported a 23.2 per cent drop in second-quarter net profit on Wednesday, extending a earnings slump as lower sales prices continued to weigh.

Sabic made a net profit of 4.74 billion Saudi riyals in the three months to June 30, down from 6.17bn riyals in the year-earlier period, the company said in a bourse statement.

The result was ahead though of the 3.92bn riyal average estimate of five analysts polled by Reuters.

Sabic, which is 70 per cent state-owned, attributed the profit fall to lower average sales prices, in addition to an impairment on the assets of Ibn Rushd, an affiliate of Sabic.

Lower oil prices have adversely affected Sabic’s earnings, with the company’s profits falling in the seven preceding quarters, Reuters data shows.

The company’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.

Saudi’s petrochemical companies, which for years benefited from subsidised gas feedstock prices versus competitors from non-energy producing countries, are also having to adjust to government energy and gas feedstock reforms which will raise their costs.

From the first quarter of 2016, Sabic’s total annual costs before minority interests will rise by around 5 per cent.

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While you're here
How to get exposure to gold

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MATCH RESULT

Liverpool 4 Brighton and Hove Albion 0
Liverpool: Salah (26'), Lovren (40'), Solanke (53'), Robertson (85')    

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer