Companies with chronic losses .. for how long?

Obaid Al Ghoul Al Salami

August 19, 2020

The period of announcements of financial results for the first quarter of the year has ended, with the second quarter disclosures, after the period was extended due to the Corona pandemic. Most of the companies announced expected losses, as these companies were announcing successive losses even in the years of prosperity, so what about the year of "Corona"?

It is true that investors understand the brunt of economic pressures this year, but what if these losses continue after the end of the epidemic, and the return of economic life to its previous state? Despite the positive results achieved by companies listed in our financial markets at the end of 2019, whoever takes a quick look at these The results, it will be noted that most of the profits achieved for the current year are due to the banking sector, which has maintained its performance for several years, as the net profits of companies listed in our financial markets reached 78.4 billion dirhams during 2019, with a growth of approximately 8.6%, compared to the previous year, which is It exceeded analysts' expectations.

However, it should be noted that these profits accrue to only about 32 companies, which constitute a quarter of the companies listed in our financial markets, totaling 131 companies, in addition to the increase in the number of troubled companies compared to the previous year. And the reader can imagine the impact of these facts on tens of thousands of investors and the strength of the local stock market, despite the apparently positive results achieved.

Despite the investor’s awareness of the sudden fluctuations in the financial markets, he is also aware that most of these losses are chronic, which has affected and continues to negatively affect the volume of stock trading in our local markets, compared to the size of the monetary base of the state’s economy.

Also, despite the decisions taken by the Securities and Commodities Authority and the committees formed to follow up on modifying the course of these companies, they are still going the same way until some losses reached five times the company's capital.

There is a gap between the economy and financial markets, and this gap between the markets and the macroeconomic indicators that is characterized by strength and rigidity must be bridged, as it is clear that there are a number of companies moving in a negative direction, some of them very negative, and others weakening, and even starting to stagger. It is clear that it will catch up with companies with accumulated losses.

How are these companies managed? Will its losses be reviewed? And how long will its chronic streak of losses last?

Perhaps the boards of directors and executive departments of these companies are monopolized by certain names that refuse to acknowledge failure and hand over the task to new blood that corrects the path, and return the shares of these companies to the green index, or are there hidden benefits that force boards of directors and executive management to be arrogant and insist on continuing failure, and enjoy the repetition Negative results and that the shares of these companies remain within the red index.

The listed companies are considered economic units, and they are part of the economic window in various economic sectors, and failure to address the issue will leave negative and dire effects that are difficult to get rid of for years. Therefore, why does the authority not have a supervisory apparatus capable of analyzing the financial statements, and intervening to request clarifications or proactive measures before the flaw worsens and develops? With an investigation of these companies that incur large quarterly losses, the investigation of the losing projects of the companies and the accountability of the members of the boards of directors.

In this context, we must especially thank the companies with outstanding performance, whose boards of directors and executive departments work with all honesty and transparency, and make every effort to achieve the desired positive results annually, and thus distribute generous profits to the investors who trusted these companies, which enhances the shares of their companies. It also enhances the circulation of the state’s financial markets.

What is our duty as investors to protect our money that is gradually eroding from the losses of these companies, and what is our duty as citizens jealous of this country to preserve the reputation of our financial markets from the consequences of the chronic losses of these companies?

Is there an adequate answer to these questions that reassures investors and restores confidence in our financial markets? .. Who knows? Perhaps one of the board members of these chronic loss companies will answer us!

The net profit of companies listed on our financial markets amounted to 78.4 billion dirhams during 2019.

Member of the Federal National Council