Sabic swings to first-quarter loss due to lower revenue and writedowns

The company reported a loss of 950m riyals due largely to impairment provisions on a polymers plant in Spain

FILE PHOTO: A man walks past the headquarters of Saudi Basic Industries Corp (SABIC) in Riyadh, Saudi Arabia October 27, 2013. REUTERS/Faisal Al Nasser/File Photo

Saudi Basic Industries Corporation (Sabic), the Middle East’s biggest petrochemicals producer, swung to a loss in the first quarter on the back of a decline in revenue, lower selling prices of its products and impairment provisions made against certain capital and financial assets.

The company reported a net loss of 950 million riyals (Dh930m) for the three months to the end of March, compared to a profit of 3.41 billion riyals recorded during the same quarter last year, the company said in a statement to the Tadawul stock exchange, where its shares trade. Revenue plunged 18 per cent year-on-year to 30.83bn riyals.

“The net loss in the first quarter of 2020 is mainly attributable to the lower average selling prices, in addition to impairments provisions in certain capital and financial assets in the amount of 1.1bn riyals including what had been announced on February 18 for the impairment provision in the Ultem polymers plant in Cartagena, Spain by 713m riyals,” the company said.

The company earlier this year said it is planning to suspend production of Ultem polymers in Cartagena plant during 2020 as part of its “global operation optimisation”.

Sabic, 70 per cent owned by Saudi Aramco through a $69bn (Dh253.4bn) deal last year, is at the heart of Saudi Arabia’s economic diversification drive. The company, however, has struggled to maintain profitability in recent quarters amid a global economic slowdown that has impacted demand and petrochemical product prices.

In a statement accompanying its first quarter results, the company said it incurred "certain non-recurring charges, a challenging product-pricing environment and lower demand underpinned by Covid-19".

Sales volumes dropped 4 per cent and average sales prices 2 per cent quater-on-quarter. However, it benefitted from lower feedstock prices due to a 20 per cent decline in the price of Brent, which was a steeper decline than its selling prices for naphtha (down 18 per cent) and propane (down 15 per cent).
"Product prices remain challenged with no improvement in the supply / demand balance for key products in the first quarter of 2020 compared to the previous quarter. This was further aggravated by Covid-19 becoming a global pandemic and the significant decline in Brent price towards the end of the quarter," said Yousef Abdullah Al Benyan, vice chairman and chief executive of Sabic.

He said the company "is committed to capital discipline and maintaining a strong balance sheet and has suspended all capex". It will, however, continue non-discretionary capital expenditure aimed at ensuring safe and reliable operations, as well as spending on late stage projects.

"We are confident in the resilience and strength of our operations and supply chain and on opportunities which exist for long term growth,” Mr Al Benyan added.

Sabic said it expects "demand and market sentiment" will be dented during the second quarter and potentially later in the year as much of the world has enforced restrictions to combat the spread of Covid-19.

"This, along with an oversupply in our key products will put further pressure on product prices and margins," the company said.