Can We Classify Petrochemicals as FinTech?
Can We Classify Petrochemicals as FinTech?
No!
But, at the same time, who knows what the future might hold!
While we are on the subject of petrochemicals, let’s dig a little deeper for knowledge sake!
Overview of the petrochemical industry
The petrochemical industry plays a prominent role in our daily lives. Many petrochemical products, which are produced from petroleum, are used these days, such as gasoline and plastics, so we cannot imagine our life without them.
The Kingdom of Saudi Arabia is the primary producer of petrochemicals products. Also, Taxes and Louisiana states in the United States have some petrochemicals manufacturing plants. These days, petrochemical products represent around 45% of the global chemicals market. Many governments these days try to invest more in this industry because it considers one of the low-risk investments with reasonable returns under natural conditions (regardless of what happened during Covid-19).
SABIC Establishment
SABIC stands for Saudi Basics Industries Corporation. It is one of the giant petrochemical corporations in the world. The organization was founded in 1976 by royal decree to lead the petrochemical industry and convert the oil products to more valuable products such as polymers, plastics, and fertilizers. The first CEO of the company was Gazi Al Gosaibi, who is a University of Southern California alumni. Mr. Gazi Al Gosaibi was the minister of Labor beforehand, and he did many labor rights reforms. During the first board meeting, Mr. Gazi stated that their vision is to be the biggest company in the petrochemical industry in 2026. SABIC is considered the second largest corporation in the Middle East. Since 2010, Saudi Armco has owned 72% of SABIC’s shares. The headquarter of SABIC is based in Riyadh, which is the capital city of Saudi Arabia. The company is planning to move to the kingdom’s eastern region because most of its manufacturing plants are located in Jubail City.
SABIC is the petrochemical leading company
In 2013, the company was one of the top five-largest petrochemical producers. In addition, in the last quarter of 2018, the company was the world’s 281st-largest organization. The following table shows the corporation’s rank in each type of petrochemical product:
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A Financial Analysis Study for SABIC
| Product | The rank of SABIC among the other petrochemical companies |
| Ethylene glycol | Second |
| Polyethylene | Third |
| Polyolefins | Fourth |
| Polypropylene | Fourth |
| Polyetherimide | First |
| Granular urea | First |
SABIC products
SABIC worked hard to have a deep understanding of their customers’ needs. So, there are five main categories of SABIC products, which are in the following
| No. | Category | Description |
| 1 | Polymers | It is the main product of the company. It is primarily organized into automotive, foam/lightweight, and pipe segments. Examples of polymer products are Polybutylene terephthalate and Polyethylene, the most common plastic used today |
| 2 | Chemicals | The company produces the chemical building blocks for a different variety of plastics and materials consumed today worldwide. Examples of chemicals products are ethanolamines and ethyleneamines |
| 3 | Agri Nutrients | The orginzation is one of the leading players in the fertilizers industry. It supplies many different Agri-nutrient products, such as anhydrous ammonia and urea |
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A Financial Analysis Study for SABIC
| 4 | Metals | SABIC owns Hadeed company. So, SABIC supplies metals products through Hadeed. The company is the main supplier of metals for Arabian Gulf countries such as Qatar, Bahrain, and the United Arab Emirates |
| 5 | Specialties | The company produces different specialties products such as specialty engineering thermoplastic resins and compounds |
SABIC going public
As we mentioned earlier that Saudi Aramco owns around 72% of Saud Bascies Industries Corporation (SABIC). In 1984, the corporation went public to raise the capital of the organization, increase its market share in the global market, and focus on short and long terms growth. SABIC was the second-largest public company in the Saudi Stocks Exchange.
Financial Statement Analysis
SABIC Performance in 2020
The company performance was lower than the previous year (2019) due to many reasons. One of the main reasons is Covid-19 when the global economy locked down. In 2020, the company’s net income was about $ 17.82 million, and its sales were $ 31,178.68 million. The company performance in the Saudi Stocks Market was hovering between $ 19 and $ 30. Also, the book value per share was $ 14.90
Income Statement
| Period | 2018 | 2018 % Sales | 2019 | 2019 % Sales | 2020 | 2020 % Sales |
| Sales | 45,089.62 | 100% | 36,096.57 | 100% | 31,178.68 | 100% |
| Cost of Sales | (29,669.12) | 66% | (28,257.28) | 78% | (24,936.40) | 80% |
| Gross Income | 15,420.50 | 34% | 7,839.30 | 22% | 6,242.28 | 20% |
| Operating Expenses | (5,748.15) | 13% | (5,229.52) | 14% | (5,147.10) | 17% |
| Employee costs | (1,753.28) | 4% | (1,421.18) | 4% | (1,396.25) | 4% |
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A Financial Analysis Study for SABIC
| Selling and distribution expenses | (2,351.80) | 5% | (1,582.81) | 4% | (2,115.28) | 7% |
| Administrative expenses | (1,643.07) | 4% | (2,225.53) | 6% | (1,635.57) | 5% |
| Operating Income | 9,672.35 | 21% | 2,609.78 | 7% | 1,095.18 | 4% |
| Investments and other | 266.32 | 1% | 396.88 | 1% | 631.89 | 2% |
| Earnings on time deposits | 379.30 | 1% | 281.85 | 1% | 650.87 | 2% |
| Others | (112.97) | 0% | 115.04 | 0% | (18.98) | 0% |
| Financing Expense | (705.45) | 2% | (591.23) | 2% | (995.20) | 3% |
| Income from Affiliate | 647.80 | 1% | 786.12 | 2% | 479.36 | 2% |
| Minority Interest | (2,763.24) | 6% | (374.77) | 1% | (317.10) | 1% |
| Zakat & Tax | (1,012.46) | 2% | (691.81) | 2% | (538.81) | 2% |
| Net Profit Before Unusual Items | 6,105.32 | 14% | 2,134.96 | 6% | 355.33 | 1% |
| Extraordinary income/expense | (367.91) | 1% | (749.15) | 2% | (337.52) | 1% |
| Net Income | 5,737.41 | 13% | 1,385.82 | 4% | 17.82 | 0% |
| Shares Outstanding1(Million) | 3,000.00 | 7% | 3,000.00 | 8% | 3,000.00 | 10% |
*All values in million
Sales
$50,000.00
$45,000.00
$40,000.00
$35,000.00
$30,000.00
$25,000.00
$20,000.00
$15,000.00
$10,000.00
$5,000.00
$-
Sales
2018 2019 2020
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A Financial Analysis Study for SABIC
As we have seen in the company’s income statement, the sales have decreased in 2020 by more than 15%, which is from $ 36,096.57 million in 2019 to $ 31,178.68 million in 2020. The main reasons behind this decrease are Covid-19, and the Saudi government has enforced many environmental regulations. In addition, the cost of sales has increased from $ 28,257.28 million to $ 24,936.40 million. Furthermore, the company’s net income has fallen from $ 1,385.82 million in 2019 to $ 17.82 million in 2020.
2020 SALES BY GEOGRAPHY (%)
| Country | Sales |
| KSA | 17% |
| China | 19% |
| Rest of Asia | 23% |
| Europe | 23% |
| Americas | 9% |
| Others | 9% |
KSA China Rest of Asia Europe Americas Others
Since SABIC has around 60 manufacturing plants in different locations across the Middle East, Europe, Asia and the Americas, the above pie chart shows us the percentage of sales by geography. The Kingdom of Saudi Arabia has 17% while China has the majority of sales.
In the income statement, there is a word mentioned called Zakat. The deformation of Zakat is an Islamic term referring to the company has to pay 2.5% annually to charitable causes. Zakat is mandatory in Saudi Arabia and most of Islamic countries and considered as a form of worship.
Balance Sheet
The following table shows the company balance sheet to understand how SABIC was doing financially in the last three years
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A Financial Analysis Study for SABIC
| 2018 | 2019 | 2020 | |
| Cash & Cash Equivalents | 11,354.71 | 9,768.04 | 8,839.45 |
| Receivables, Net | 5,817.70 | 4,464.50 | 4,512.93 |
| Inventory | 7,530.06 | 6,015.86 | 5,148.37 |
| Short-term Investments | 2,616.81 | 1,481.91 | 1,561.19 |
| Other | 1,363.62 | 1,603.16 | 1,637.35 |
| Total Current Assets | 28,682.91 | 23,333.46 | 21,699.28 |
| Fixed Assets | 43,674.33 | 36,368.55 | 36,305.51 |
| Investment | 7,828.59 | 10,972.40 | 11,298.54 |
| property Real estate Investment | 0.00 | 0.00 | 0.00 |
| Right-of-use asset | – | 6,440.51 | 5,623.85 |
| Intangibles | 3,451.73 | 5,463.05 | 5,508.54 |
| Other | 1,597.36 | 2,253.63 | 2,460.72 |
| Total Non-Current Assets | 56,552.00 | 56,774.67 | 57,072.63 |
| Total Assets | 85,234.92 | 80,108.13 | 78,771.92 |
| Payable | 3,990.83 | 4,070.50 | 4,665.83 |
| Short-term Debt | 1,311.10 | 1,872.11 | 1,841.45 |
| Short-term lease liabilities | – | 1,194.63 | 1,082.39 |
| Other | 4,797.02 | 3,747.93 | 3,199.76 |
| Total Current liabilities | 10,098.94 | 10,009.02 | 9,995.61 |
| Long-Term Debt | 11,289.28 | 8,231.21 | 8,893.46 |
| Long-term lease liabilities | – | 5,253.59 | 4,637.65 |
| Other | 4,811.73 | 5,331.04 | 6,862.83 |
| Total Non-Current Liabilities | 16,101.01 | 14,962.85 | 16,992.69 |
| Total Liabilities | 26,199.95 | 24,971.88 | 26,988.30 |
| Capital | 7,998.00 | 7,998.00 | 7,998.00 |
| Reserves | 38,146.30 | 39,649.16 | 36,691.19 |
| Change in Fair Value | 0.00 | 0.00 | 0.00 |
| Total Shareholders’ Equity | 46,144.30 | 47,647.16 | 44,689.19 |
| Minority Interest | 12,890.67 | 7,489.10 | 7,094.43 |
| Total Owners Equity | 59,034.96 | 55,136.26 | 51,783.62 |
*All values in million
Assets
The total assets decreased in 2020 from $ 80,108.13 million to $ 78,771.92 million. According to Saudi Basics Industries Corporation annual report 2020, the primary reason behind the decreasing in total assets was the decrease in cash and bank balance by $ 928.8 million, and
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A Financial Analysis Study for SABIC
the inventory by $ 867.73 million. The following graph shows us the amount of decreasing in total assets from 2018 to 2020
Total Assets
$86,000.00
$84,000.00
$82,000.00
$80,000.00
$78,000.00
$76,000.00
$74,000.00
Total Assets
2018 2019 2020
The following graph shows us the company’s total assets for the last ten years. The highest amount of total assets was in 2014, and it was around $ 90.52 billion. This is because the oil prices were above $100 per barrel.
A Financial Analysis Study for SABIC
Liabilities
The total liabilities had increased from $ 24,971.88 million in 2019 to $ 26,988.30 million in 2020. This is because the total non-current has increased in 2020 by 13.56%. On the other hand, the total current liabilities had decreased in 2020, and this is because of the decrease in short-term debt. The following graph shows us the company’s total liabilities for the last three years.
Total Liabilities
$27,500.00
$27,000.00
$26,500.00
$26,000.00
$25,500.00
$25,000.00
$24,500.00
$24,000.00
$23,500.00
Total Liabilities
2018 2019 2020
Equity
The total owners’ equity for 2020 reached $ 51,783.62 million, a decrease of 6.3% compared to the last year. This is because there was a decrease in total shareholder’s equity and reserves. The total owners’ equity of the company has decreased constantly over time.
Total Owners Equity
$60,000.00
$58,000.00
$56,000.00
$54,000.00
$52,000.00
$50,000.00
$48,000.00
Total Owners Equity
2018 2019 2020
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A Financial Analysis Study for SABIC
Cash flow statement
The following table shows us the company’s cash flow from 2018 to 2020. Regarding the free cash flow, the amount has decreased from $ 4,089.16 million in 2019 to $ 2,422.85 million, and this is because there is an increase in the amount of working capital
| 2018 | 2019 | 2020 | |
| Net Income | 9,513.11 | 2,452.40 | 873.72 |
| Depreciation and Amortization | 4,035.28 | 3,876.58 | 3,787.81 |
| Others | 545.29 | 1,932.71 | 872.88 |
| Net (increase) decrease in operating assets | 123.93 | 2,228.24 | 1,244.96 |
| Net increase (decrease) in operating liabilities | (2,281.63) | (1,471.04) | (901.96) |
| Operating Cash Flow | 11,935.97 | 9,018.91 | 5,877.41 |
| (Inc) dec in property & plant | (3,782.42) | (4,929.75) | (3,454.56) |
| (Inc) dec in investment | (4,109.89) | 1,634.82 | (268.15) |
| Other cash inflow (outflow) | 0.00 | 0.00 | 0.00 |
| Investing Cash Flow | (7,892.31) | (3,294.93) | (3,722.71) |
| Issuances (purchases) of equity shares | 0.00 | 0.00 | 0.00 |
| Inc (dec) in debt | (2,900.86) | (790.34) | (194.74) |
| Dividends | (5,544.16) | (5,652.33) | (2,988.63) |
| Other | 0.00 | 299.93 | (688.95) |
| Financing Cash Flow | (8,445.01) | (6,142.75) | (3,872.33) |
| Net change cash & cash equivalents | (4,401.35) | (418.77) | (1,717.63) |
| Cash & cash equiv at start of period | 15,444.78 | 9,827.70 | 9,405.93 |
| Cash & cash equiv at period end | 11,043.43 | 9,408.93 | 7,688.30 |
| Free Cash Flow | 8,153.55 | 4,089.16 | 2,422.85 |
*All values in million
The following graph shows us the company’s cash flow from its operating activities for 2020 reached $ 5,877.41 million, a decrease of $ 3141.5 million, compared to 2019. The decrease was essential referred to the reduction in margins by 55% although there was an increment in sales volume by 1.1%
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A Financial Analysis Study for SABIC
$14,000.00
$12,000.00
$10,000.00
$8,000.00
$6,000.00
$4,000.00
$2,000.00
$-
SABIC Ratios
Cash Flows from Operating Activities
Cash Flows from Operating Activities
2018 2019 2020
In this section, we are going to calculate the Return on equity (ROE) to measure the profitability of the company & Return of asset (ROA) to show that how the profitable SABIC is relative to its assets.
| Return on equity | 2018 6.7313% | 2019 1.7299% | 2020 0.0226% |
| Return of asset | 9.7187% | 2.5134% | 0.0344% |
As shown in the graph that the ROA is decreasing over the time, and this led us to say that SABIC is not able to make the optimal use of its assets. This is obviously because the demand was low during Covid-19 in 2020. Also, the ROE is very low if we compare it with 2019 when the ratio was 2.51%, and this means the SABIC earned little compared to its shareholder’s equity. The first reason behind that the government enforced many regulations related to the environment and the second one is because the global economy was locked down in 2020.
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A Financial Analysis Study for SABIC
% 313
7.
6
% 781
7.
9
ROA & ROE ROA ROE
%
4
%
3
9
1
9
5
2
.
7
2
.
1
% 622
0.
0
% 443
0.
0
2018 2019 2020
DuPont Analysis
This following table shows us that total asset turnover in 2020 was 0.4, which is lower than 2019, and that is means the company are not using their assets efficiently, because the average ratio in petrochemical industry is 0.60. In addition, the equity multiplier had increased from 1.45 in 2019 to 1.52 in 2020.
| Total Asset Turnover | 2018 53% | 2019 45% | 2020 40% |
| Equity Multiplier | 1.443804 | 1.452912083 | 1.521174 |
| Net Profit Margin (ROS) | 21% | 7% | 4% |
| Current Ratio | 2.84 | 2.33 | 2.17 |
The current Ratio in 2020 was 2.17, that means it has more current assets than current liabilities. According to the balance sheet table in page.6, the total current assets in 2020 was $ 21,699.28 million, while the total liabilities was $ 9,995.61 million. Generally, the current ratio is in the acceptable level although there was a decrease in 2020 compared to 2019
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A Financial Analysis Study for SABIC
Current Ratio
3.00
2.50
2.00
1.50
1.00
2018 2019 2020
SABIC in Saudi’s Stocks Exchange
The following graph is the company’s performance in Saudi Stock Exchange. In March 2020 was the lowest price within last three year. This is because Covid-19 when the global economy locked down. The highest price for SABIC within three year was in October 2021, and it was around $ 36.45
Price ($)
$40.00
$30.00
$20.00
$10.00
$-
Oct-18 May-19 Dec-19 Jun-20 Jan-21 Jul-21 Feb-22
SABIC Beta
The following table, I used MS excel to calculate the beta of SABIC. As we can see that the beta greater than 1 in 1-Year, 2-Year, and 3-Year in both levered and unlevered. So, that is means the company’s stock swings more wildly than the overalls in the Saudi Stocks Market. The reasons behind that there were many events happened lately like Covid-19 and the environmental regulations that had been enforced by Saudi government. The company should work on to get the beta below one because it is one of the biggest companies in the petrochemical industry. Many
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A Financial Analysis Study for SABIC
startups or technology companies has a beta greater than 1 but the gigantic originations should have beta below 1
Levered beta Unlevered beta
1-Year 1.41 1.39
2-Year 1.16 1.14
3-Year 1.11 1.09
Comparable market analysis
Dow Chemical Corporation
It is a multinational company and based on Michigan state in the United States of America. The company founded in 1897 and it is among three largest petrochemical producers in the world. Its main products are plastics, and catalysts. Recently, the organization has a vision to reduce carbon footprint by 30% by the fourth quarter of 2030. In order to reached to this vision, the company invested around $1 billion annually to decarbonize its footprint. The following table shows us the financial facts about the organization:
| Dow | 2018 | 2019 | 2020 |
| Net Income | 1,294 | (1,272) | 4,775 |
| Total Assets | 77,378 | 60,524 | 61,470 |
| Total Liabilities | 49,409 | 46,430 | 48,465 |
| Total Equity | 27,969 | 14,094 | 13,005 |
*All values in million
ExxonMobil Chemical Corporation
It is a multinational company and based on Taxes state in the United States of America. The company founded in 1999 and currently, the number of employees around 72 thousand. The company owns four brands: Exxon, Mobil, ExxonMobil, and Esso. The company has an objective to reduce the emissions to zero in its plants by 2030 in Permian Basin in Taxes and New Mexico states. The following table shows us the financial facts about the organization:
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A Financial Analysis Study for SABIC
| ExxonMobil | 2018 | 2019 | 2020 |
| Net Income | 20,840 | 14,340 | (22,440) |
| Total Assets | 346,196 | 362,597 | 332,750 |
| Total Liabilities | 147,668 | 163,659 | 168,659 |
| Total Equity | 198,528 | 198,938 | 164,130 |
*All values in million
DuPont Corporation
It is an American company and based on Delaware state in the United States of America. The company founded in 1802 and it considered one of the oldest companies in the petrochemical industry. The following table shows us the financial facts about the organization:
| DuPont | 2018 | 2019 | 2020 |
| Net Income | 3,827 | 497 | (2,951) |
| Total Assets | 188,030 | 69,396 | 70,904 |
| Total Liabilities | 91,851 | 27,840 | 31,834 |
| Total Equity | 96,179 | 41,556 | 39,070 |
*All values in million
Overall & Summary
The following table shows us the SABIC performance among its competitors in 2020
| 2020 Performance | SABIC | DOW | ExxonMobil | DuPont |
| Net Income | 17.82 | 4,775 | (22,440) | (2,951) |
| Total Assets | 78,772 | 61,470 | 332,750 | 70,904 |
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A Financial Analysis Study for SABIC
| Total Liabilities | 26,988 | 48,465 | 168,659 | 31,834 |
| Total Equity | 51,784 | 13,005 | 164,130 | 39,070 |
*All values in million
Regarding the net income for each company, in 2020, ExxonMobil and DuPont are losing by -$22,440 million and -$2,951 million respectively. Both of them believes that the lose because of Covid-19 and when the federal government decided to give non-employment compensations. As a consequence, many manufacturing plants are closed due to labor shortage. On the other hand, SABIC and DOW made a reasonable income, but it was lower than 2019.
Net Income in 2020
7000
2000
-3000 -8000 -13000 -18000 -23000
Net Income
SABIC DOW ExxonMobil DuPont
In 2020, ExxonMobil has the highest total assets which was around $ 332,750 million. SABIC comes as the second highest total assets and it was around $ 78,772 million. Although Dow had a reasonable net income in 2020, its total asset was lower than ExxonMobil and SABIC.
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A Financial Analysis Study for SABIC
350,000 300,000 250,000 200,000 150,000 100,000
50,000 0
Total Assets in 2020
Total Assets
SABIC DOW ExxonMobil DuPont
The total liabilities of SABIC in 2020 was the lowest among its competitors and it was around $ 26,998 million, an increase of $ 2016.42 million compared to 2019. As we mentioned earlier that was because the total non-current has increased in 2020 by 13.56%. In addition, the total liabilities of ExxonMobil in 2020 was the highest among its competitors.
Total Liabilities in 2020
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Total Liabilities
SABIC DOW ExxonMobil DuPont
Because of ExxonMobil has the highest total assets and equity, the company has the highest amount of total equity among the others, and it was around $ 164,130 million. SABIC was the second highest a mount of total equity, and it reached $ 51,783.62 million, a decrease of 6.3% compared to 2019. As we mentioned in the balance sheet section that this is because there was a
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A Financial Analysis Study for SABIC
decrease in total shareholder’s equity and reserves. Dupont’s total equity in 2020 was lower than 2019, and it was around $39,070 million. Lastly, in spite of Dow Chemical Corporation one of the oldest companies in petrochemical industry, its total equity was the lowest among its competitors in 2020, and it was approximately $13,005 million.
Total Equity in 2020
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Total Equity
SABIC DOW ExxonMobil DuPont
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A Financial Analysis Study for SABIC
References
Dow Chemical Corporation. (2021, April 02). Dow Annual Report 2020. Retrieved from https://s23.q4cdn.com/981382065/files/doc_financials/2020/ar/2020_Dow_Inc_Annual_ Report.pdf
DuPont Corporation. (2021, April 13). DuPont Annual Report 2020. Retrieved from https://www.sabic.com/assets/en/Images/SABIC_Annual_Report_2020_ENG_tcm1010- 26526.pdf
ExxonMobil Chemical Corporation. (2021, March 07). ExxonMobil Annual Report 2020. Retrieved from https://corporate.exxonmobil.com/-/media/Global/Files/investor relations/annual-meeting-materials/annual-report-summaries/2020-Annual-Report.pdf
Saudi Basics Industries Corporation. (2021, March 22). SABIC Annual Report 2020. Retrieved from
https://www.sabic.com/assets/en/Images/SABIC_Annual_Report_2020_ENG_tcm1010- 26526.pdf
Statista. (2021, December 10). Financial Statistics about the petrochemical companies. Retrieved from https://www.statista.com/
Tadawul. (2021, December 10). Saudi Stocks Exchange. Retrieved from https: https://www.saudiexchange.sa/wps/portal/tadawul/home/
Yahoo! Finance. (2021, December 10). Financial Reports for the petrochemical companies. Retrieved from https://finance.yahoo.com/
Can We Classify Petrochemicals as FinTech?
