Saudi firms cope with aus­ter­ity

Enterprise - - International news -

Saudi Ara­bian com­pa­nies are far­ing bet­ter in an era of aus­ter­ity than many in­vestors feared, but they face more pain in the com­ing months as gains from cost-cut­ting and ef­forts to im­prove ef­fi­ciency be­come more diffi cult.

The world´s largest oil ex­port­ing coun­try is in the grip of a pro­tracted ad­just­ment to low crude prices, which have caused a state bud­get deficit of nearly $100 bil­lion and has forced the govern­ment into spend­ing cuts.

For decades, almost ev­ery cor­ner of the econ­omy has de­pended on lav­ish flows of petrodol­lars, so the aus­ter­ity is bad news for Saudi cor­po­rate earn­ings.

Last De­cem­ber, the govern­ment an­nounced its harsh­est set of mea­sures so far, in the form of sub­sidy cuts that raised do­mes­tic prices of gaso­line, elec­tric­ity, wa­ter and the nat­u­ral gas feed­stock used by the petro­chem­i­cals in­dus­try.

The first-quar­ter earn­ings of listed Saudi com­pa­nies, re­leased over the last few weeks, show that many are man­ag­ing to avoid a steep slide in prof­its.

The com­bined net prof­its of the 50 big­gest com­pa­nies by cap­i­tal­i­sa­tion, which ac­count for the vast bulk of all earn­ings in the stock mar­ket, fell only 3.0 per­cent from a year ago to 19.88 bil­lion riyals ($5.4 bil­lion).

That was much bet­ter than the expectations of many an­a­lysts, who had be­lieved prof­its might drop at least as steeply as they did in full-year 2015, when earn­ings shrank 13.9 per­cent. Nev­er­the­less, there were big dif­fer­ences in first-quar­ter per­for­mance be­tween in­di­vid­ual sec­tors, with in­dus­tries di­rectly ex­posed to con­sumer de­mand, such as re­tail­ing, hit hard.

State­ments by the com­pa­nies at­trib­uted much of their bet­ter-than-ex­pected earn­ings to cost cut­ting and gains in op­er­a­tional ef­fi­ciency - pro­cesses that can­not con­tinue in­def­i­nitely if they want to grow. That sug­gests the de­cline in prof­its could ac­cel­er­ate later this year or next.

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