Corporate profits

Profits of GCC companies hit lowest level in 5 years

Muscat: The COVID-19 pandemic has had an unprecedented impact on the GCC economy that has rocked corporate and government coffers, according to a new report.

Profits reported by GCC-listed companies fell to their lowest level in five years, to US $ 91.3 billion in 2020, from US $ 150.5 billion in 2019, Kuwaiti company Kamco Invest said in his report.

The decrease of 39.3% or US $ 59.2 billion is mainly due to lower profits at Saudi Aramco (of US $ 38.9 billion or 44.1% year-on-year, followed by banking sectors , real estate and materials.

All three sectors accounted for 85 percent of the decline in net profits for the year excluding Saudi Aramco’s net profits. Excluding figures from the oil giant, the drop in net profits of the Gulf Cooperation Council (GCC) was relatively less than 32.6%.

The only sectors that posted a noticeable increase in net earnings during the year were the utilities and food, beverage and tobacco sectors which remained resilient during the pandemic due to their defensive nature. Of the 21 sectors of the stock market, 12 sectors saw their profits decline year-over-year while the winners saw only marginal growth.

On the currency front, Abu Dhabi recorded the smallest decline in profits during the year at 7.4%, followed by Oman and Qatar with declines of 18.6% and 20.5%, respectively. .

In terms of quarterly performance, fourth quarter 2020 net profits declined 21.6% year-on-year to US $ 25 billion, from US $ 31.9 billion in the fourth quarter of 2019.

In terms of sequential performance, profits edged down 1.3% from the third quarter of 2020. The year-over-year decline in profits in the fourth quarter of 2020 came as companies on five of the region’s seven exchanges reported lower profits while companies listed in Abu Dhabi and Bahrain reported increases in profits of 28.5% and 9.5%, respectively.

In terms of sectors, the energy sector again recorded the largest decline of US $ 6.2 billion in net profits or 30.8% year-on-year, followed by banks and real estate with declines profit of 23.8% and 94.9%, respectively.
On the other hand, the utilities sector recorded the strongest annual profit growth.

The banking sector was one of the most important sectors to report declining profits in 2020. The sectors’ $ 11.8 billion drop in net profits was driven by higher provisions made by banks. , as bad debts increased during the year due to the pandemic.
Provisions for loan losses (LLP) recorded during the year reached a record high of US $ 20.3 billion, with a widespread increase in all six countries.

UAE banks recorded the largest increase in LLP during the year with an increase of US $ 3.4 billion or 71.6% to reach US $ 8.2 billion.

On the other hand, Saudi banks recorded the smallest LLP percentage increase at 37.6 percent or $ 1.3 billion to reach $ 4.6 billion in the year.
Banks in the region set aside US $ 6.4 billion for bad loans in the quarter of 2020, the highest on record for a quarter in the region.

In the energy sector, Saudi Aramco’s profit decline of 44% was due to the historic drop in crude oil prices during the first half of 2020 in addition to lower volumes sold as well as low margins refining and chemicals.

The trend was similar for most companies in the sector, with 14 of the 21 companies in the GCC energy sector reporting a decline in their net profits in 2020.
Likewise, the two-thirds decline in materials sector profits was led by companies related to the energy industry.

SABIC reported the industry’s biggest profit decline after the company’s profits fell from US $ 1.4 billion to US $ 17.8 million in 2020 due to a drop in revenue. business that was affected by a drop in demand for chemicals.

In the real estate sector, which recorded the third largest drop in profits in 2020, results were mainly affected by the loss of rental income due to COVID-19 restrictions imposed by governments in the region during the year.

Industry profits fell $ 3.1 billion to $ 1.9 billion in 2020 from $ 5.0 billion in 2019, mainly due to a $ 2.1 billion drop in profits UAE-based real estate companies.

The three companies Emaar, Emaar Properties, Emaar Malls and Emaar Development announced a decline in their combined net profit of US $ 1.7 billion while Damac Properties recorded larger losses of US $ 283 million in 2020 compared to at a loss of US $ 10.0 million in 2019.

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