ON SOUND FOOTING

OER presents its 14th annual presentation on Oman’s Top 20 leading listed companies for the year 2012 .

The Global economy is yet to recover four years after the beginning of the global financial crisis. During 2012, global economic growth has weakened further. Global growth dropped to almost 3 per cent in 2012. A growing number of developed economies have fallen into a double-dip recession. Those in severe sovereign debt distress moved even deeper into recession, caught in the downward spiraling dynamics from high unemployment, weak aggregate demand compounded by fiscal austerity, high public debt burdens, and financial sector fragility. Growth in the major developing countries and economies in transition has also decelerated notably, reflecting both external vulnerabilities and domestic challenges. Mature economies are still healing from the scars of the 2008-2009 crises. But unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and won’t do so in 2013. Most low-income countries have held up relatively well so far, but now face intensified adverse spillover effects from the slowdown in both developed and major middle-income countries. The prospects for the next two years continue to be challenging, fraught with major uncertainties and risks slanted towards the downside. Uncertainty across the regions – from the post-election ‘fiscal debate’ question in the US to the Chinese leadership transition and reforms in the Euro area – will continue to have global impacts in sluggish trade and tepid foreign direct investment.

The Omani economy saw another good year in 2012, with high levels of growth on the back of increased oil production and good results from the private sector. GDP at current prices registered a growth rate of 13.1 per cent until the end of September 2012 compared to the same period of 2011, where it increased from RO19,469.1mn until the end of September 2011 to RO22,023.3mn in the same period of 2012.

The government was expecting to close 2012 with an average oil price of around $109 per barrel compared with an average price of $102.95 in 2011 and the budgeted price of $80 for 2012.

For the year 2012, the MSM Index increased by 1.15 per cent. This is compared to a decrease of 15.69 per cent in the previous year. The industrial sector was the largest gainer at 24.4 per cent for the year 2012. The services sector was next which increased by 14.57 per cent for the year. The financial sector closed the year with a gain of 3.73 per cent. A total of 4.3bn shares got traded during the year amounting to an aggregate turnover of RO1.066bn, which was up by about 7.5 per cent compared to last year. The MSM 30 Index hit a low of 5,357 points during the year while the high for the year was 6,045 points closing the year at 5,760.84 points. With a return of 1.15 per cent for the year, the MSM was the fifth best performing market in the GCC region behind UAE (DFM), which advanced 19.89 per cent, followed by UAE (AD) at 9.52 per cent for the year. Saudi Arabia was third with an advance of 5.98 per cent followed by Kuwait at 2.07 per cent. Qatar at 4.79 per cent and Bahrain at 6.83 per cent were down for the year.

On balance, global stock market performance was surprisingly good. Despite being in the EuroZone, Germany (Frankfurt) led the way in 2012 with an impressive 29 per cent gain. India (Mumbai) rebounded strongly, up 26 per cent, followed closely by Hong Kong with a gain of 23 per cent. In 2012, the global market capitalisation recovered with a 15.1 per cent growth rate to $54.57 trn. WTI oil price during the year ranged from $100 per barrel reducing to around $80 and closing the year at about $95. Gold remained in the $ 1,600 –1,700 per ounce range.

The substantial increase in oil prices during the year was supported by increased oil production and increased non-oil exports which resulted in a real GDP growth rate for 2012 of 8 per cent. Oil production in 2012 increased again by about 3 per cent to 915,000 barrels per day. The government’s continued emphasis on diversifying the economy away from dependence on oil continued to gain further momentum during 2012. Non-oil exports grew by about 19 per cent.

During the year 2012, the revenues of Oman’s 20 largest companies showed an increase of RO246mn. Total revenues for the OER Top 20 companies increased by 6.69 per cent to RO3,932mn. Corporate performance for the year 2012, overall, also increased. The profits for the year 2012 increased by 15 per cent to RO530mn from RO460mn last year. The total market cap of the OER Top 20 companies on December 31, 2012 was RO5,394 mn, which increased by 15 per cent compared to 2011. On March 31, 2013, the market cap of the Top 20 increased by a further 28 per cent to RO5,534mn. The OER Top 20 companies represent 69 per cent to the total market cap of the MSM of RO7,804mn at the end of 2012. The average P/E ratio of the OER Top 20 based on the profits of the year 2011 and the share price on March 31, 2012 is 12.3 times earnings.

Who is out and who is in

We have one new comer on the list this year. HSBC Bank Oman, a newcomer in the market by virtue of a merger with OIB in 2012 comes in at number 19.

HSBC Oman has made it to the OER Top Twenty this year at the expense of Al Hassan Engineering.

The ranking of Oman’s twenty largest companies in order of revenue produces a list, which includes the eight companies from the services sector, six companies from the financial sector, and six from the industrial sector.

Omantel continues to be the largest public company in Oman with a growth in revenue of 1.39 per cent compared to last year. Bank Muscat, Shell and Galfar retain their respective positions from last year of number two, three and four respectively. Al Maha jumps up to the number five position from being number eight last year. Renaissance which was number five last year has slipped to number seven.
The chairman of Omantel Eng. Sultan Bin Hamdoon Al Harthi in his report to the shareholders explains that the total revenue increased by 1.4 per cent. The increase is contributed by service, wholesale and mobile business segments. He further explains that the total operating expenses increased by 1.3 per cent. Al Harthi states that the group has achieved a net profit after tax of RO116.2mn compared to the net profit of RO111.6mn in 2011, an increase of 4.1 per cent. Al Harthi adds that the total subscriber base has recorded a growth of 8.5 per cent. The total number of subscribers has increased to 3.8 million compared to 3.5 million in 2011.

Al Harthi states the telecom sector in Oman is likely to experience further intense competition in Year 2013. The company has already withstood the competition successfully and with integrated operating structure, it is well positioned to face evolving competition. Al Harthi is hopeful that Omantel would continue this performance in spite of increasing competitive pressure.

Four of the top five most profitable companies in Oman are the same as last year with one newcomer in the list being BankDhofar at the expense of Ominvest. Bank Muscat retains the number one position as the most profitable company in 2012. Omantel continues at the number two position. NBO has moved up one place to the number three slot. BankDhofar comes in at the number four position. Oman Qatari Telecom slips two places to the number five position from being number three last year.

BankMuscat is the most profitable company in Oman as well as the second largest company in Oman based on turnover for the year 2012. Bank Muscat continues to retain this position from last year, and has recorded a growth in profit for the year of about 18.4 per cent.
Its chairman Khalid bin Mustahail Al Mashani states in his year-end report to the shareholders that the results achieved have been encouraging despite the challenging global economic and financial situation. The key business lines of the bank recorded healthy performance on expected lines. He explains that the bank achieved a net profit of RO139.2mn as against a net profit of RO117.5mn in 2011, an increase of 18.4 percent over the year 2011.

Mashani adds that during 2012, the return on average assets marginally improved to 1.84 per cent compared to 1.79 per cent in 2011. The return on average equity was 15.42 per cent in 2012 compared to 15.37 per cent in 2011 and the basic earnings per share was RO0.072 as against RO0.065 in 2011.

Mashani goes on to say that the board has proposed a dividend of 40 per cent, 25 per cent in the form of cash and 15 per cent in the form of mandatory convertible bonds. Mashani advises that the overall economic outlook for 2013 remains positive with the government announcing a 29 per cent increase in spending. Indications are that infrastructure projects will continue to give a fillip to the economy in 2013.

BankDhofar has shown the highest growth in profits by an enormous 170.07 per cent and comes in straight at the number one spot. Four of the five top companies showing the highest growth of profit from last year-BankDhofar, Oman Cables, Galfar and Raysut Cement-are new on the list. SMN Power has slipped three places to the fourth position. Oman Refreshment, Al Jazeera, Bank Sohar and Al Maha Petroleum, which were on this list last year, have all dropped off.
The chairman of BankDhofar, Eng. Abdul Hafidh Salim Rajab Al Aujaili in his annual report to the shareholders states that the bank continued to grow in 2012 in all key areas with total asset sustaining a growth of 9.18 per cent, improving from RO1.96bn at the end of December 2011 to reach RO2.14bn at the end of December 2012. The net loans and advances extended to customers achieved a growth of 12.08 per cent from RO1.49bn at the end of 2011 to reach RO1.67bn at the end of December 2012. Further, the customer deposits mobilized by the bank achieved a growth of 7.24 per cent from RO1.52bn at the end of 2011 to reach RO1.63bn at the end of 2012.

Al Aujaili explains that the net profit for the year 2012 achieved by the bank is RO37.75mn as against RO13.98mn, due to the effect of the legal case loss of RO26.1mn, in 2011. The board of directors recommends a cash dividend of 15 per cent amounting to RO16.5mn and a bonus share issue of 10 per cent, aggregating to 110.01mn shares of RO0.100 each, of the share capital of the bank.

Four of the top five companies that have the highest amount of equity employed are banks. Four of the five of the companies in this category remain the same as last year. The newcomer on the list at number four is HSBC Oman which has replaced Oman Qatari Telecom.

 

The chairman of NBO Omar Al Fardan in his report to the shareholders states that the bank achieved a net profit of RO40.7mn for the year compared to RO34.2mn for 2011, an increase of 19 per cent. Al Fardan remarks that the net spreads were 3.09 per cent in 2012. He states that the bank was in the process of exiting from Egypt; bringing down the number of branches from five in 2010, to one in 2012. Al Fardan adds that the board has recommended a cash dividend of RO0.0175 per share this year based on the dividend policy approved by the board of directors.
Al Fardan states that the outlook for Oman’s economy in 2013 is positive, with the increase in government spending and the focus on infrastructure projects expected to boost economic growth. The launch of Islamic banking operations also opens up new opportunities for banks in the coming years.

This year again, two of the top five companies that have the highest market capitalisation on the MSM are not banks. Bank Muscat and Omantel have once again swapped places this year making Bank Muscat the number one company on the MSM in terms of market cap. Omantel has slipped to the number two slot in this category. BankDhofar, at number three, remains unchanged. HSBC Oman is the newcomer at the fourth position and Oman Qatari Telecom has slipped one place to number five.
The chairman of HSBC Bank Oman Simon Cooper in his report to the shareholders states that the first full year report for HSBC Bank Oman (HBON), covers seven months since the operations of Oman International Bank (OIB) and HSBC Bank Middle East Limited’s Oman branch (HSBC Oman) combined. He explains that this period has therefore been one of integration, and of building the foundation for future sustainable success for the bank and all its stakeholders. Cooper states that during the year, the bank recorded a 62.7 per cent decrease in net profit to RO5.8mn compared with RO15.5mn for 2011. Earnings per share were RO0.004 for the year ended on December 31, 2012 compared to RO0.016 in the previous year. He explains that while total operating expenses rose to RO48.7mn, the increase is primarily due to integration expenses of RO13.9m.

Cooper explains that HBON’s immediate strategy is dedicated to the completion of the integration and transition processes. This will drive the investment in branches, people and systems, in order to support the customers’ needs and deliver on their strategic priorities. Looking further into 2013, the bank will shift their focus to the growth plan for the business, developing existing relationships, connecting their customers to more opportunities and delivering an increasingly consistent and superior customer experience.

Interestingly, none of the top five companies showing the best return on equity employed come from the banking sector. Four of the companies in the top five are unchanged in the list from last year. Oman Refreshment has swapped places with Shell to jump to the number one spot. Shell slips to number two. Al Maha moves up two places to the number three spot. Oman Oil remains unchanged in the fourth position. Areej Vegetable is the new comer in the fifth place. Oman Qatari Telecom is knocked out of this list.

Buti Obaid al Mulla, chairman of Oman Refreshment, in his report to the shareholders states that while the food and beverages market in Oman continues to grow with the growth of local population and influx of expatriate manpower required for the growing economy, the operational environment poses some challenges such as the changing consumption habits, stiff competition in juice, water and snacks product segments in a highly price sensitive local market. Also, the operating margins are subject to tremendous pressure due to rising cost of input materials and employment.

Al Mulla explains that the company has achieved a net profit after tax of RO10mn on a total turnover of RO67mn for the year 2012 compared to net profit after tax of RO7mn on a turnover of RO56mn in 2011. The overall revenue has increased by 19 per cent as the company’s efforts to improve sales realisation have succeeded during the year, which together with the efficiencies resulting out of various cost control and cost optimisation measures have contributed to the overall growth in the topline as well as bottomline respectively, despite the challenge of rising cost of employment and high staff turnover due to the recent changes in the employment market. Al Mulla adds that in view of good performance of the company during 2012, the board is pleased to recommend a cash dividend of 100 per cent (being 100 bzs for each paid up share) of the issued share capital for the year 2012.

Al Mulla is optimistic about the future prospects with the product expansion and diversification plans and renewed impetus on achieving higher production efficiencies. However, the volatile global market of commodities and the rising prices of key input raw materials, packing materials and volatile employment market may impact profitability of the company in the near future.

Four of the top five earnings per share growth companies are newcomers on this list. BankDhofar jumps straight into the number one spot. SMN Power, the only survivor from last year, comes in at the number two position. Oman Cables at number three, Galfar at number four and Raysut Cement at number five complete the list. Oman Refreshment, Al Jazeera Steel, Bank Sohar and NBO who were on this list last year have all disappeared from the list.

The chairman of SMN Power Holding, Mario Savastano in his report to the shareholders for the year ended on December 31, 2012 explained that the achievements in 2012 were numerous. In particular the amicable settlement of the dispute with the EPC contractor was a major milestone for the company. He adds that the company generated a consolidated net profit of 6.5mn for 2012 compared to 3.8mn for 2011. With net earnings of 329 bzs per share in 2012, the board was recommending a final dividend of 236 bzs per share.

Three of the five companies on this list are newcomers. Raysut Cement comes straight into the number one position with a massive share price growth of 85.39 per cent. Oman Refreshment slips to the second position from first position last year. Oman Cables, another newcomer is at third place. Al Maha Petroleum moves down one place to number four. SMN Power, the third newcomer is in fifth position. Oman Oil, Shell and Omantel who were on the list last year have all dropped out.

Sheikh Ahmed bin Alawi bin Abdulla Al Ibrahim, chairman of Raysut Cement, in his report to the shareholders states that the government public expenditure initiatives did provide some opportunities in the construction sector, hence the performance during the year has to be seen in the light of global uncertainties, regional as well as industrial imbalances in growth.

The total production for the group increased to 3.78mn tonnes of cement compared to 3.1mn last year and 3.54mn tonnes of clinker compared to 3.39mn tonnes last year. The revenue for the group increased to RO93mn compared to RO84mn last year, an increase of 10.7 per cent. The profit for the group increased by 58 per cent to RO27mn. Al Ibrahim stated that in the light of the good performance, the board was recommending a dividend of 75 per cent.

In the light of the growth prospects of the construction industry in Oman and the GCC, Al Ibrahim was quite hopeful for better performance in the future.

Three new companies have entered the ranking of the best five dividend yield companies. Areej Vegetable Oils continues to remain in the number one spot as last year, OHI moves up to the second position from number five last year. Oman Qatar Telecom, Oman Cables and NBO are the three newcomers in the number three, four and five places. Omantel, Raysut Cement and Al Maha Petroleum have dropped out of this list.
Nasser Bin Muhammed bin Nasser Al Hadhramy, chairman of Areej Vegetable Oils in his report to the shareholders for the year ended on December 31, 2012 states that the company has recorded a sales turnover of RO92mn in 2012. The company adapted itself to the significant changes in its operating environment in 2011 and the increase in manpower costs. International vegetable oil prices continued to be volatile in 2012. Areej has managed the environmental factors and the price fluctuations in international vegetable oil market very well to earn a record net profit after tax of RO2.31mn in 2012. The company follows a prudent dividend policy to enhance shareholder value and returns. Accordingly, the board of directors has recommended a cash dividend of RO1,380,000, i.e. 300 bzs per share, for 2012.

Al Hadhramy explains that the company carries out its responsibilities as a good corporate citizen. The company meets all the standards of the Ministry of Regional Municipalities, Environment and Water Resources for disposal of solid, liquid and gaseous effluents, and continuously works towards further improvements. The company holds the ISO9001 certificate for quality management, the ISO14001 certificate for environment management and the ISO 22000 certificate for food safety management.

METHODOLOGY

The rankings for the OER Top 20 and the introductory write-up were done by Mukhtar Hasan who is a Fellow of the Institute of Chartered Accountants in England and Wales and holds a corporate finance qualification issued jointly by this institute together with the Securities Investment Institute and the Chartered Accountants Institute of Canada.

Hasan has been based in Oman for about 30 years. He has local and international experience in banking, finance, senior management, private equity, corporate finance and investments. Hasan is the managing partner of Al Barij International, which is a corporate finance firm specialising in corporate turnarounds. He has served on the board of several companies including Omani public companies such as United Power, Renaissance Services, Renaissance Hospitality, National Hospitality, Muscat Finance, Oman Textiles, Gulf Investment Services and First Mazoon Fund. Hasan also served as the chairman of the American British Academy, an IB World School in Muscat for a number of years.

He is currently the chairman of Muscat Thread Mills, managing director of Gulf Mushroom Products Company and vice chairman of Oman Dental College.

KPMG is a global network of independent firms providing audit, tax and advisory services and has more than 152,000 outstanding professionals working together in 156 countries worldwide. Combined revenues for KPMG member firms totalled $23bn in the 2012 fiscal year. KPMG in Oman is a part of KPMG Lower Gulf that was established in 1974. KPMG in Oman employs more than 130 people who include four partners, five directors and 20 managers, including Omani nationals, and is a member of the KPMG network of independent firms affiliated with KPMG International Co-operative. KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies (SAOGs). KPMG Oman has been successfully training accountants and auditors in the Sultanate since 1992.

DEFINITIONS AND EXPLANATIONS

Revenues: All companies on the list are derived from the published accounts submitted to the Muscat Securities Market (MSM). Therefore, closed joint stock companies and private companies and establishments are excluded from this list. These companies are, in the first instance, ranked by revenues. All the other rankings shown on the table do not consider any other companies that do not make the list on the basis of revenue. In the case of banks and investment sector, the gross interest income as well as other operating income together is considered as their revenue for this purpose. In the case of insurance companies, the gross premium written as well as investment income together is considered as their revenue for this purpose. All figures are for the year ended on December 31, 2012 or the end of financial year of the company in year 2012, unless otherwise stated.

Profits: Profits are shown after taxes and all charges including extra-ordinary charges. Figures in brackets indicate a loss. All losses and negative growth are also ranked where possible.

Assets: Assets shown are as per the balance sheet at the end of the year. It is the total of fixed as well as the current assets.

Shareholders’ equity: Shareholders Equity is the paid up capital of the company, retained earnings, and statutory and all other reserves as well as share premium.

Market cap: Market Capitalisation figure has been arrived at by multiplying the total number of outstanding shares of the company by the price per share as of close of business on 31st March 2013 or as the last trading of stock of the company.

Earnings per share: The earnings per share are as declared by the company in its published financial statements.

Dividend yield: The dividend yield figure is calculated on the basis of dividend declared in the financial statements for 2012 against the share price at close of business on 31 December 2012 or as per the end of financial year of the company.

Price earnings ratio: This ratio has been calculated by dividing the price per share by the earnings per share as at 31 Dec 2012.

NOTES:

The following institutions have declared bonus shares dividend for the year 2012, which has not been taken into account in the calculation of dividend yield.

Bank Muscat
(Mandatory –convertible bonds) 15.00%

Bank Dhofar 10.00%

Bank Sohar
(Mandatory –convertible bonds) 06.50%

OMINVEST 10.00%

The financial statements of OHI are as at 31 March 2012, which is their financial year-end.

The following companies are having share price/par value of share @ RO1/- each;

Al-Maha Petroleum Company SAOG

Areej Vegetable Oil & Derivative Company SAOG

SMN Power Holding SAOG.


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