OER presents its annual Oman's Top 20 leading listed companies for the year 2011
The year 2011 was an eventful year of enormous proportions. The volatility during the year continued unabated due to several factors including natural disasters, political upheaval and financial turmoil. For the first time in history, we saw a credit downgrade for the US as well as the deficit ceiling fiasco, which brought the US to almost a financial standstill. The earthquake and tsunami in Japan, took a devastating human and economic toll. The debt crisis in Europe created fears of sovereign defaults, resulting in major financing strains on banks with fears of a breakup of the euro zone. With this background, almost $6.3tn was wiped out from global stock markets in 2011 with the global stock market capitalisation dropping 12.1 per cent to $45.7trn according to Bloomberg data, primarily in the European and the emerging markets. Oil prices shot up to $114 a barrel before plunging to $76 and rising again to $100 in reaction to the Arab spring in the Middle East and North Africa. Gold broke through $1,890 an ounce, and the price of Treasuries soared, with the yields on 10-year notes falling nearly 40 per cent in the third quarter, to 1.9 per cent from 3.16 percent, despite the downgrade in America's debt.
As stated by HE Darwish bin Ismail Al Balushi, Minister Responsible for Financial Affairs, in his budget speech, the national economy continued, in the year 2011, its good performance in spite of the severity of the international financial and economic crisis that affected most of the advanced economies. This strong performance is attributed to the increase in the rates of the oil production, the remarkable improvement in its prices and the expansionary fiscal and monetary policies adopted by the government.
The price of Oman crude oil continued to increase substantially during the year 2011. Oman crude realised an average price of $102.95 per barrel, compared with an average price of $76.64 for 2010 and the budgeted price of $58 per barrel for 2011. This has resulted in Oman's budget balance turning into a huge surplus of RO964.8mn in 2011.
For the year 2011, the MSM Index declined by 15.69 per cent, compared to an increase of 6.06 per cent in the previous year. The financial sector was the largest loser at 23.25 per cent for the year 2011. The industrial sector was next which depreciated by 18.45 per cent for the year. The services sector closed the year with a total loss of 5.12 per cent. A total of 2.4 billion shares got traded during the year amounting to an aggregate turnover of RO992mn, which was down by 25 per cent compared to 2010. The MSM 30 Index hit a low of 5,419 points during the year while the high of the year was 7,027 points closing the year at 5,695.12. With a return of 15.69 per cent for the year, the MSM has been the fourth best performing market in the GCC region behind Qatar, which advanced by 1.1 per cent and Saudi Arabia, which declined by 3.1 per cent for the year. Abu Dhabi ended third with a decline of 11.7 per cent, Kuwait 16.4 per cent, Dubai 17 per cent, and Bahrain ended the year down by 22.2 per cent.
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 2011 of 7 per cent. Oil production increased in 2011 again by about 3 per cent to 890,000 barrels per day. The government's continued emphasis on diversifying the economy away from dependence on oil gained further momentum during 2011. Non-oil exports grew by about 20 per cent. 'MEED Projects' estimates that there are currently projects worth over RO5bn planned for Oman in a broad range of sectors that include transport, petrochemicals and utilities. The government launched several major projects for construction of roads. Other major projects will be awarded in the course of the year 2012.
Performance of world financial markets was mixed. The S&P 500 was flat in 2011 while the FTSE 100 only dropped by 5.5 per cent. Eurofirst 300 gauge of blue-chip European companies lost by 11 per cent, led by the French and Italian exchanges. The MSCI Emerging Markets index has shed 20 per cent of its value despite strong growth in China and other emerging markets. Japan's Nikkei index lost by 17.3 per cent this year, Hong Kong's Hang Seng index by 20 per cent and the Shanghai Composite by 22 per cent.
During the year 2011, the revenues of Oman's 20 largest companies showed an increase of RO365mn. Total revenues for the OER Top 20 companies increased by 10.79 per cent to RO3,751mn. Corporate performance for the year 2011, overall, however decreased. The profits for the year 2011 decreased by 5 per cent to RO447mn from RO471mn last year. The total market cap of the OER Top 20 companies on December 31, 2011 was RO4,684mn, with a decrease of 16 per cent compared to 2010. On March 31, 2011, the market cap of the Top 20 has gone down by a further 7 per cent to RO4,339 mn. The OER Top 2o companies represent 69.75 per cent of the total market cap of the MSM-RO6,221mn at the end of 2011. The average P/E ratio of the OER Top 20 based on the profits of the year 2010 and the share price on 31 March 2011 is 9.7 times earnings.
Who is out and who is in
We have two new comers on the list this year. SMN Power, a newcomer in the market by virtue of an IPO in 2011 comes in at number 16 and Oman Refreshment at number 20.
These companies have made it to the OER Top 20 this year at the expense of Dhofar Power, which was delisted in 2011, and Salalah Port.
The ranking of Oman's 20 largest companies in order of revenue produces a list, which includes the six companies from the financial sector, seven from the services sector and seven from the industrial sector.
Largest Revenue
Omantel continues to be the largest public company in Oman with a growth in revenue of 8.64 per cent compared to 2010. Bank Muscat has moved up one notch to number two with a growth in revenue of 4.41 per cent. Shell has also moved up from four to three with a growth of 10.88 per cent. Galfar Engineering has fallen two places from being number two last year to number four this year with a drop of revenue by 17.31 per cent. Renaissance remains in the number five slot with an impressive growth in revenue of 14.4 per cent.
The chairman of Omantel HE Sultan bin Hamdoon Al Harthi in his report to the shareholders explains that the total revenue increased by 8.6 per cent. The increase is contributed by all business segments--fixed, mobile and wholesale-- as well as revenues from submarine capacity sales. He further explains that the total operating expenses increased by 11.1 per cent. Major reasons for the increase were costs related to capacity sale from EIG / Falcon cable systems, increase in depreciation and employee costs. Al Harthi states that the group has achieved a net profit after tax of RO112.9mn compared to the net profit of RO110.3mn in 2010, with an increase of 2.3 per cent. HE Al Harthi adds that the total subscriber base has recorded a growth of 6 per cent. The total number of subscribers has increased to 3.53mn compared to 3.33mn last year.
HE Al Harthi states the telecom sector in Oman is likely to experience intense competition in Year 2012. The company has already withstood the competition successfully and with integrated operating structure, it is well positioned to face evolving competition. HE Al Harthi is hopeful that Omantel would continue this performance in spite of increasing competitive pressure.
Most profitable
Three of the top five most profitable companies in Oman are the same as last year with two newcomers on the list being National Bank of Oman and Ominvest at the expense of BankDhofar and Renaissance Services. BankMuscat has overtaken Omantel as the most profitable company in 2011. Omantel has dropped one place to the number two position. Oman Qatari Telecom retains its third position as last year. The two newcomers on the list, NBO and Ominvest, take the fourth and fifth positions.
BankMuscat is the most profitable company in Oman as well as the second largest company in Oman based on turnover for the year 2011. BankMuscat which was number two last year and has improved this position from last year, has recorded a growth in profit for the year of about 15.7 per cent.
Chairman Khalid bin Mustahail Al Mashani states in his yearend 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 RO117.5mn as against a net profit of RO101.6mn in 2010, an increase of 15.6 per cent over the year 2010.
Mashani adds that during 2011, the return on average assets was at 1.8 per cent compared to 1.7 per cent in 2010. The return on average equity was 15.4 per cent in 2011 compared to 14.6 per cent in 2010 and the basic earnings per share was RO0.076 as against RO0.075 in 2010.
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 stock.
Mashani observes that the overall economic outlook for 2012 remains positive with the government announcing a 12 per cent increase in spending. Indications are that infrastructure projects will continue to give a fillip to the economy in 2012.
Profit growth
SMN Power Holding has shown the highest growth in profits by an enormous 222.35 per cent and comes in straight at the number one spot. All the five top companies showing the highest growth of profit - SMN Power, Oman Refreshment, Al Jazeera Steel, Bank Sohar and Al Maha Petroleum - are new in the list. OHI, Galfar, BankMuscat, BankDhofar and NBO which were in this list last year have all dropped off.
The chairman of SMN Power Holding Mahinder Nath in his report to the shareholders for the year ended on December 31, 2011 has explained that the company and its affiliates cater to around 35 per cent of the total power capacity and 20 per cent of the water capacity of Oman. He adds that in 2011 the company reached an important milestone by successfully listing 35 per cent of its issued share capital on the Muscat Securities Market. He explains that the technical performances of the plants over 2011 were in line with expectations. Nath adds that the technical performance of the plants is reflected in the financial statements with net earnings per share increasing to RO0.192 compared to RO0.060 in 2010 in line with forecast.
Highest capitalised
Three of the top five companies that have the highest amount of equity employed are banks. Four of the five companies in this category remain the same as last year and in exactly the same positions. The newcomer in the list at number five is Oman Qatari Telecom who has replaced Renaissance Services.
The chairman of NBO, Omar Al Fardan, in his report to the shareholders states that the bank achieved a net profit of RO34.2mn for the year compared to RO27.2mn for 2010, an increase of 26 per cent. Al Fardan remarks that the net spreads went to 3.18 per cent in 2011. The cost to income ratio improved from 51 per cent to 47 per cent on a year on year basis due to higher levels of income. The bank continues to reduce non-performing loans, with the non-performing loan ratio standing at 2.9 per cent at the end of December 2011 as compared to 3.5 per cent in 2010. Al Fardan adds that the board has recommended a cash dividend of RO0.0175 per share as well as a stock dividend of 0.0025 per share this year based on the dividend policy approved by the board of directors.
Al Fardan states that the bank looks at 2012 with optimism as continued government spending is expected to maintain the growth momentum. Participation in major domestic transactions and cross border activity in conjunction with its strategic alliance partner, Commercial Bank of Qatar, continues to be the key to driving efficiencies by sharing best practices. He also adds that the bank plans to offer Islamic banking in 2012 as part of their franchise following the recent approval by the Central Bank of Oman for introducing Islamic banking in Oman.
Market capitalisation
This year again, two of the top five companies that have the highest market capitalisation on the MSM are not banks. Omantel and Bank Muscat have once again swapped places this year with the former emerging as the number one company on the MSM in terms of market cap. Bank Dhofar, Oman Qatari Telecom and NBO retain their same positions as last year.
The chairman of Bank Dhofar, Abdul Hafidh Salim Rajab Al Aujaili in his annual report to the shareholders states that the bank's winning streak continued in 2011 as it was awarded 'Best Bank in Oman' twice in a row by the OER-GBCM Best Banks in Oman Survey and therefore it seeks to concentrate on development from all aspects.
Al Aujaili explains that the profit before tax for the year 2011 achieved by the bank, after the legal case loss charge off and other recoveries, was RO15.9mn in the year 2011, and the same, excluding the effect of legal case loss of RO26.1mn, would have been RO42mn as compared to RO37.9mn achieved in the previous year 2010 recording a growth of 10.8 per cent. The net profit after tax is RO14mn for the year 2011 as compared to RO33.3mn achieved during 2010, showing a decline of 58 per cent. In the light of these results, the board of directors has proposed a cash dividend of 7 per cent and a bonus share issue of 20.2 per cent.
Al Aujaili explains that a lawsuit was filed by Oman International Bank against Ali Redha Al Lawati and his companies (Ali Redha Trading and Muttrah Holding) and Bank Dhofar as per the Enforcement Court's order which instructed BankDhofar to transfer an amount of RO26.1mn to the Court's account. The case relates back to a dispute between Oman International Bank and Ali Redha Group, who purported to have owned and pledged 1,925,000 shares of BankDhofar in favour of Oman International Bank, and the same is disputed by BankDhofar.
Al Aujaili states that in its continuous efforts to improve the performance of the bank, the board of directors has appointed a consultancy firm, Boston Consulting group, to formulate a five-year strategic plan for the bank and supervise its implementation.
Returns on equity
Interestingly, none of the top five companies showing the best return on equity employed come from the banking sector. Three of the companies in the top five are newcomers to the list. Shell remains at the number one spot as last year. Oman Refreshment, a newcomer to the list, comes straight in at the number two spot. Oman Qatari Telecom slips to the number three positions. Newcomers Oman Oil and Al Maha Petroleum take the number four and five positions. Ominvest, Omantel and OHI are knocked out of this list.
Amjad Mohamed Al Busaidi, Chairman of Oman Qatari Telecommunications Company (Nawras) in his annual report to the shareholders for the year ended 2011 states that in the first full year as a public company, revenue increased by 4.2 per cent to RO196.9mn yielding a net profit of RO47.5mn. Earnings per share equated to RO0.073. Al Busaidi explains that taking the year's achievements into account, Nawras has maintained compound annual growth rate of 54 per cent in revenue since its formation. This enables the board to recommend to the shareholders a dividend of RO0.38 per share representing a yield of 5.8 per cent.
Al Busaidi adds that their investment in technology and physical assets has been completed by corresponding emphasis on developing human capital. Nawras has always been a 'people company' and this outstanding feature becomes more evident by the year, he adds.
Earnings per share growth
Four of the top five earnings per share growth companies are newcomers in this list. SMN Power jumps straight into number one spot. Oman Refreshment comes in at the number two position, Al Jazeera Steel at number three, Bank Sohar at number four and NBO, which was number four last year, at number five. OHI, Galfar, BankDhofar, and Salalah Port who were on this list in 2010 have all disappeared.
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. The commodity prices in the international markets are on continuous rise on account of a series of natural calamities resulting in food shortages in many parts of the world. Al Mulla explains that the company has achieved a net profit after tax of RO7.04mn on a total turnover of RO56.04mn for the year 2011 compared to a net profit after tax of RO3.35mn on a turnover of RO45.11mn in 2010. The overall revenue has increased by 24 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 costs optimisation measures, despite the challenges of rising costs of employment and high staff turnover due to the recent changes in the employment market, have contributed to overall growth in the top line as well as bottom line. Al Mulla adds that in view of good performance of the company during 2011, the board is pleased to recommend a cash dividend of 70 per cent (70 Baizas for each paid up share) of the issued share capital for the year 2011.
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.
Share price growth
Three of the five companies in this list are new comers. Oman Refreshment comes in straight into the number one position with a massive share price growth of 71.88 per cent. Oman Oil Marketing retains its second position same as 2010. Newcomer Al Maha Petroleum comes in at number three. Shell moves up one place to number four and newcomer Omantel comes in at the number five position. Renaissance, Al Hassan engineering and BankMuscat who were on the list last year have all dropped out.
Salim Abdullah Al Rawas, chairman of Oman Oil Marketing in his report to the shareholders states that in 2011, the company committed itself to pursuing an aggressive growth target, with the ultimate intention of leading the domestic market in all its business sectors. The company recorded its highest total sales in history of approximately RO278.2mn, with an increase of 29 per cent compared to RO216.2mn in 2010. The pre-tax profit increased by 18 per cent to RO9.2mn from RO7.8mn. After providing for corporate tax, the company's net profit amounted to RO8.1mn, the highest ever net profit in the company's history, a 17 per cent increase from that of 2012. Earnings per share stood at 126 baizas. Al Rawas adds that the board of directors is recommending a final dividend of approximately 62 baisas per share which represents 62 per cent of nominal value per share. Al Rawas explains that the company has continued to increase its presence nationwide with a network of 132 stations offering the company's full array of petroleum products. The retail business continues to be the back bone of the company.
Al Rawas is positive on the outlook for the coming year with the demand for petroleum products expected to grow in line with Oman's projected economic growth of approximately 7 per cent in 2012. He explains that the company is gearing itself for intense competition particularly in retail and commercial businesses. Current market share is to be defended while new ones are to be created and the margins to be managed.
Dividend yield
One new company has entered the ranking of the best five dividend yield companies. Areej Vegetable Oils continues to remain in the number one spot as 2010; Omantel moves up to the second position from number three in 2010; Raysut Cement drops to number three from being second; Al Maha retains its number four positions and OHI, a new comer, comes in the number five slot. Shell has 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, 2011 states that the company has posted a record sales turnover of RO96mn in 2011. The year also witnessed changes in its operating environment. Price regulation has been introduced in Oman through the newly formed Public Authority for Consumer Protection. The social unrest witnessed in the first quarter and subsequent events led to an increase in labour costs. International vegetable oils prices continued to be very volatile in 2011. The company has managed the environmental factors and the price fluctuations in international vegetable oil market very well to improve sales and to earn a net profit after tax of RO1,501,664.
Based on the good results achieved, the board has recommended a dividend of 0.250 baiza per share for the year. 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 ISO 9001 certificate for quality management, the ISO 14001 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. He graduated as a Bachelor of Commerce in 1970 and qualified as a Chartered Accountant in 1974. He is also a member of the Corporate Finance Faculty of the Institute of Chartered Accountants in England & Wales.
Hasan has local and international experience in banking, finance, senior management, private equity, corporate finance and investments. He 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 United Power, Renaissance Services, Renaissance Hospitality, National Hospitality, Muscat Finance and Oman Textiles. He also served as the chairman of the American British Academy, an IB World School in Muscat for a number of years. He is currently chairman of Muscat Thread Mills, managing director of Gulf Mushroom Products Company and vice chairman of Oman Dental College as well as several other local and foreign private companies.
He may be contacted by email at mukhtar@albarij.com
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. KPMG reported Financial Year 2011 revenues of $22.7bn, employs 145,000 people in member firms around the world and operates in 152 countries. In the lower Gulf, comprising Oman and UAE, KPMG employs more than 700 professionals and operates from five offices in Muscat, Dubai, Abu Dhabi, Sharjah and Jebel Ali. KPMG Oman currently has a staff compliment of approximately 100 in audit, tax and financial advisory services, including four partners, five directors and 19 managers. KPMG Oman has been successfully training accountants and auditors in the Sultanate for many years.
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 December 31, 2011 or the end of financial year of the company in year 2011, 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 March 31, 2012 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 2011 against the share price at close of business on December 31, 2011 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 December 31, 2011.
NOTES:
The following institutions have declared bonus shares dividend for the year 2011, which has not been taken into account in the calculation of dividend yield.
BankMuscat 15.00 per cent
National Bank of Oman 02.50 per cent
BankDhofar 20.20 per cent
OMINVEST 10.00 per cent
The financial statements of OHI are as at March 31, 2011, which is their financial year-end.
The following companies are having share price/par value of share @ RO1/- each;
Al-Maha Petroleum Company
Areej Vegetable Oil & Derivative Company
SMN Power Holding
© Oman Economic Review 2012
