After a positive first quarter, we were happily waving goodbye to two downbeat years of Covid, with a general improvement in Y-o-Y SAOG profitability.
While many companies have continued the trend into the second quarter, we see that our prediction of headwinds from the fallout from the outbreak of war between Russia and the Ukraine, which is putting huge pressure on the supply side, have materialised for manufacturing sector.
In the financial sector, we see the banks and leasing companies have shrugged off the high ECL impairment charges of 2021 and, with asset portfolios that have remained high due to the lack of repayments (due in a big part to the CBO mandated loan deferrals arrangements), have continued to post increased profits this year.
However, in many cases, restructuring (of problem loans) has been delayed, so the impact on ECL provisions will not be known until later in the year, since it is unlikely that all restructures will all be successful.
In the first quarter, the insurance companies benefitted from increased values of their investment portfolios.
This benefit was absent in the second quarter, so the struggle to return to pre-Covid levels of profitability, as premium pricing in a smaller market is challenging, has become apparent.
The industrial sector, comprises of construction and manufacturing companies and two real estate funds. The construction sector is the hardest to fathom, as three of the nine companies (Al Hassan Engineering, Aluminium Production and Raysut Cement) posted combined losses of RO 5.9 million, which continues to hold back the sector.
The manufacturing sector, continues to face external challenges, with many companies struggling as they are unable to pass on the higher cost of imported raw materials and shipping to customers, either within the Sultanate of Oman or in the overseas markets they export to.
A situation that has been aggravated by the ongoing conflict between Russia and the Ukraine.
Finally, as we look at the service sector, the major story is the continued rebound of Omantel.
Within the oil and gas sector, the three petrol station owners continue to reap the benefits from the ending of lockdowns and drivers returning to the highways.
Although not a major sector for listed companies, the six hotels within the tourism sector are still waiting to see the return of mass tourism and the future of business demand is still not clear as some online meetings are probably here to stay. The sector quarter performance of energy sector is dominated by the turnaround of fortunes of five of the eleven power companies who posted combined profits of RO 25.2 million compared to RO 10.1 million of losses in the first quarter, which is due primarily to the seasonal nature of power usage, with higher usage in the hottest months.
(Karl Jackson is an Audit and Assurance Partner with Crowe Oman
(Email: [email protected]).
This article is based on financial data published by the Muscat Stock Exchange)
