SABIC to continue cost cutting in FY 2018

Saudi Basic Industries Corp. (SABIC) plans to continue cutting costs by 5-7 percent in fiscal year 2018, CEO Yousef Al-Benyan said at a press conference following the company’s Q4 2017 earnings announcement.

The company is restructuring its business to help offset costs of higher feedstock prices.

Commenting on the performance of SABIC’s Hadeed, or steel segment, Al-Benyan said that the company posted assets impairment loss of SAR 350 million in Q4. SABIC’s share of losses in Hadeed in 2017 reached SAR 1.4 billion, but the segment’s operating performance results improved over 41 percent in H2 2017.

SABIC’s metals segment, mainly steel, sustained losses of almost SAR 677 million in the first nine months of 2017.

“We have a positive outlook in 2018 based on this improvement in addition to the Kingdom’s generous budget 2018 particularly on the building and construction sector,” he said.

Al-Benyan also expected the financial impact from the acquisition of Clariant to reflect on the company’s figures in 2018, adding that the petrochemical producer is finalizing the legal procedures required for the deal.

The Middle East’s largest petrochemical producer reported a net profit of SAR 18.4 billion for fiscal year 2017, a 4.5 percent year-on-year (YoY) increase on higher than average selling prices and lower general and administrative expenses.

Net profit for the fourth quarter, however, fell nearly 19 percent YoY to SAR 3.67 billion, mainly on lower production and sold quantities as a result of planned turnarounds at certain plants. Q4 net profit fell nearly 37 percent compared to the previous quarter as the petrochemical giant saw lower production and sold quantities.

“In Q4 2017, some products prices improved due to oil prices,” Al-Benyan said. “This has led to a rise in some feedstock prices; however, SABIC always tries to adapt to such changes, this time through increasing prices and cutting costs.”

“In 2016 and 2017 SABIC, restructured its specialties business and merged its petrochemicals and polymers business in one unit. This merger resulted in reducing costs by over SAR 600 million in 2017 compared to 2016, over SAR 700 million in 2016 compared to 2015.”

“Aggregate cost saving is about SAR 1.3 million from the merger of petrochemicals and polymers business,” he said.

SABIC has also benefited from the new corporate law in converting The Arabian Industrial Fiber Co. (Ibn Rushd) into a limited liability company, Al-Benyan said. Restructuring the subsidiary contributed to cutting losses from over SAR 1 billion in 2015 to SAR 200 million and SAR 30 million in 2016 and 2017 respectively.

Looking ahead, Al-Benyan said that the company is optimistic on oil price improvements.

SABIC’s shares were last trading down nearly 3 percent at SAR 105.8.