SABIC eyes expansion into African markets, says CEO

Throughout fiscal year 2016, Saudi Basic Industries Corp’s (SABIC) started restructuring its steel segment— which posted SAR 1.1 billion in losses— to reduce costs and cope with higher energy costs in the kingdom, chief executive Yousef Al Benyan said in an exclusive interview with Argaam. The CEO added that the company’s 48 percent-owned affiliate Arabian Industrial Fibers Co. (Ibn Rushd) managed to narrow net losses by 80 percent during the fiscal year. He also elaborated on his optimistic outlook for 2017.

Q: How did the company record 48 percent profit growth in Q4-2016?

A: Despite global challenges, especially oil price volatility and interest rates, SABIC posted positive results through cutting sales costs by 12 percent, despite lower selling prices.

SABIC also boosted output by over 2.2 million tons, of which 800,000 tons were contributed by greenfield plants, which reflected positively on the company’s results.

Q: What was the cost management strategy adopted by SABIC in Q4?

A: In 2015 and 2016, the petrochemical producer announced a restructuring plan to enhance production and operating efficiency at different units, such as manufacturing, sales and supply chain, which helped improving profitability.

The company [also] merged its polymers and chemicals operations in a single strategic business unit to bolster profit in the long term.

SABIC believes that its competitive position will be strengthened by focusing on research and providing innovative solutions for clients, so as to make higher returns compared to peers. The company generated an attractive investment yield through offering 150 new products.

Q: Is SABIC eying new markets in 2017?

A: SABIC is a global company that has presence in all major markets. The company has a positive outlook for the US market in 2017 and aims to supply the European markets with diversified products. Asia also is a key market for the company. Therefore, SABIC announced mega projects in China last year to build a greenfield coal-to-chemicals complex.

In 2017, we will give more focus to the African markets and we will be keen to provide a new supply chain for our products in Africa, therefore a detailed strategy of these markets are being developed by the company.

Q: How was the performance of SABIC’s core segments, especially steel which incurred losses in the third quarter?

A: The steel segment suffered nearly SAR 1.1 billion losses in 2016, however it will see several positive signals in January 2017.

Q: What are Ibn Rushd’s latest developments?

A: Ibn Rushd’s operating losses narrowed by 80 percent for the fiscal year 2016, thanks to SABIC’s focus on increasing its production and marketing activities to reduce losses.

Q: The Saudi government recently lifted a ban on steel exports. Is SABIC planning to export?

A: SABIC is focusing on supporting development in the local market, thanks to its large client base across the kingdom.

Q: You recently said mergers are becoming necessary in the petrochemical sector amid a highly competitive environment. What are SABIC’s plans in this regard?

A: For SABIC, the consolidation of internal business units is only aimed at enhancing productivity and reducing costs. I speak here about facing challenges in the petrochemical industry through mergers, particularly in the kingdom, so as to enhance cost competitiveness, research and development, and allow for global competition.

Q: Why did SABIC cut the 2016 cash dividend to SAR 4 per share from SAR 5.5 per share in 2015? Is there any plan to increase capital over the coming period?

A: The payout ratio-to-profit is higher, when compared to 2015. SABIC had earlier unveiled several investment projects that require a strong financial position. Therefore, retained earnings will be used for future growth, as the company is aiming to aggrandize shareholder returns. As for capital increase, it is currently difficult to define if there is a need for that move. 

Q: What are potential challenges for the industry in 2017?

A: SABIC is developing several plans to mitigate the global economic fallout, as well as the impacts of fluctuations in oil prices, US dollar and Asian economies— especially China.

We believe that 2017 will be a positive year for SABIC. The world’s key economies, especially the US and China, reported growth last year. Though SABIC deems the American petrochemical market promising, there are still many challenges in Europe after Britain’s exit from the European Union. However, we generally expect the European market to maintain the same situation as was the case in 2016. Meanwhile, a hike in US interest rates will reflect positively on global markets.

Q: What are your expectations for oil prices in 2017?

A: Oil prices averaged $51 per barrel last year. We expect oil prices to range between $54 and $55 per barrel in 2017. The main challenge for SABIC is the volatility in oil prices. It is better for us to see prices stabilized at any level, but high levels of course are much better.