Aluminium Bahrain B.S.C. (ALBH) Earnings Call Transcript & Summary

This is Aluminium Bahrain conference call for the third quarter and the 9 months results. Without further ado, we welcome you one by one for today's conference call. And this conference call will be chaired by Alba's CEO, Mr. Ali Al Baqali, the Chief Financial Officer, Mr. Bryan Harris; and myself, Eline Hilal. I'm sure you have -- you are now aware with the structure of our presentation but I still give you some hints, who will be doing what. So if you go all check the content page, which is Page 3, I will be taking you through the industry highlights, which is the first section, Alba's highlights for the third quarter of 2020. And post that, our Chief Financial Officer will take you through the results of Alba within the third quarter and in the last 2 sections for the industry highlights -- or sorry, industry perspective as well as Alba's priorities for the remainder of the year. Both sections will be done by our Chief Executive Officer, Ali Baqali. And without further ado, we will start in the first section with the industry highlights. I wanted to bring to your kind attention that we refer in our industry highlights on CRU market intelligence. So whatever you see in this section is actually extracted from CRU. So moving on to Page 5. In the third quarter, which was not a major difference from the second quarter of this year, we note that the global market demand continues to be under pressure. What we have seen differently versus the previous year is that there was a massive response from the economies worldwide in connection to COVID-19, raising the importance of the environment, social and governance issues as we are all aware, specifically from the fund managers. We know that this particular matter was gaining momentum but in this quarter we have seen more emphasis on it from government as well as fund managers, and that has given voice for further stimulus packages to be green. In terms of what has happened in the world, the global recovery with respect to COVID-19 was actually quite different from one country to another country, and that's based with respect to the easing of the lockdown restriction. With that in mind, we note that the world consumption has dropped by 4% year-over-year. And as stated when saying that the global recovery was affected from one country to another, we note that the outbreak has continued by taking toll -- it's toll on the aluminum demand worldwide. For instance, at the world, excluding China, has seen a decline in its consumption by about 12% year-over-year while aluminum demand dropped by 14% year-over-year in MENA and 6% year-over-year in North America. In respect to Europe, we note that the challenges relating to the pandemic, the impact of failure from -- in Brexit negotiation, the U.S. elections, coupled with the U.S.-China trade war, continue to weigh on the business sentiment in Europe, and that has led to a further contraction in the aluminum demand of about 13% year-over-year. And this is the first time in Europe's history that we see a double-digit decline in the aluminum consumption. We note in China that the aluminum demand has started to pace gradually with the demand increasing by 3% year-over-year, this growth was due or was thanks to the government's stimulus packages, specifically in terms of rebound in the construction and the auto sectors. Moving on into Page 6 for the production. The production grew by about 10%, which is a very modest growth. More in details, we're giving you in this couple of pollings. The primary aluminum production in the MENA region was down by about 3% year-over-year and this is mainly due to the supply cuts in UAE by about 6%. When it comes to Alba, our production year-over-year was almost the same. In the U.S., the manufacturing activity continued, and that has seen an increase in the supply in the North American market by about 4% year-over-year. For China's supply, it went up by 5% year-over-year, and that was based -- boosted, sorry, by the start-up of new projects, mainly in some of the Chinese provinces. And that has led the world market to be in surplus with China of about 610,000 metric tonne. And without China, about 850,000 metric tonne. Moving on into the LME price and the premium slide. In this quarter, what was interesting is that the LME price was down by about 3% year-over-year. It averaged about $1,706 per ton versus about $1,761 per tonne in the Q3 of 2019. In terms of the inventories, the inventories exceeded 1.4 million metric tonne as of the end of September, and that was up by about 56% year-over-year. In terms of premium, we put a very nice title. We note that the premiums have been on a roller ride within this quarter. So if we look, for instance, at the major Japanese ports for the third quarter, the premium went down from $82 in Q2 to $79, almost the same. With respect to Midwest, we have seen a jump in the premium of about $100 versus Q2 2020. As for the DDP Rotterdam, it has increased modestly from $102 per tonne to $122 per tonne. With regards to the Alumina Price Index, so the Alumina Price Index for this quarter was $274. If we compare it to the LME price of $1,706, we get about 16%. So 16% -- alumina was 16% out of the LME price. And as you see that this trend was consistent between Q2 and Q3, and it went down by 1% from Q3 2019 to 16% this quarter. And by that, we finished from giving you some insights on the aluminum industry. And in this section -- all inputs in these sections are exclusively from Alba's official news. All informations were -- have been made previously public with the exception of the sales volume and the production volume. Moving on into Slide #10. We wanted to reemphasize that we believe specifically in line with our CEO motto that safety and productivity are mutually inclusive, and there is no other priority but the safety of our employees as of today. And with that in mind, what we have done in the last couple of months with respect to safety, we have launched our first virtual summer safety campaign, which was called Our Safety is in Our Hands. This campaign was launched over a period of about 10 days, virtually, of course, through Microsoft Teams and Zoom was in July 2020, and it was very well received. We have achieved for the first time in our history on August 2, 2020, a 24.5 million safe working hours without LTI. And on 3rd August 2020, we have had an unfortunate LTI was one of the contractors, and that has set our clock back 0. Today, we have slightly above 3 million working hours without LTI. With respect to COVID-19, our medical team on the frontline are continuously releasing with the national task force for combating COVID-19 and that is to ensure the safety of our people, whether it is from the employees and the contractors' workers on site. We have been very lucky as the company has allowed to -- the remote work from home for many of the soft department employees, whether it is for men and women in last quarter. We have restricted the travels completely. We have embraced social distancing in everything we do in Alba from meeting online, using social platforms, virtual platforms, conducting meetings with guests and the visitors as well virtually, and that applied inside Alba and to external guests coming to visit the company. With that, we move to the operational highlights and milestones for this quarter. During the CRU Conference in September, Alba has hosted a virtual market update fashion. So for those who do not know, we participate in conferences all over the world every year. And given COVID-19, many of the conferences now have been held virtually, and our team in the marketing has participated in this virtual conference. And we have had virtual meetings with some of our key customers by giving them some updates on the market fundamental as well as how Alba is doing or navigating within the COVID-19 circumstances. We have been very lucky as for the last 9 years in the row. We've been the recipient of 2 major awards from the Middle East Investor Relations Association in Middle East. We have inked an MOU with one of the universities in Bahrain, University of Bahrain to enhance scientific and research cooperation. Our sales volume topped 393,000 metric tonnes for the quarter, which was up by about 5% year-over-year. In terms of production, it was almost flat of about 385,000 metric tonne. In terms of value-added sales, it averaged 58% -- 48% of our total shipments. And with regards to our Spent Pot Lining Plant, we have spoken a lot about it and our CEO touched a lot about Alba's plans with respect to waste management. In terms of the overall progress, this has exceeded 40% in the second -- in the third quarter of this year. Moving on into the safety highlights. As stated in earlier slides, we have unluckily -- unfortunately registered 1 LTI because one of our contractors had it on the 3rd August, so that has brought our LTI for the year from 0 into 1 versus 0 in 2019. In terms of recordable injuries, we had registered 10 injuries for the first 9 months of the year versus 12 recordable injuries for the year 2019. Moving on into the financial KPIs. So I will be talking very briefly on this performance. Since our Chief Financial Officer will provide you with more exciting details in the third section. For our EBITDA, and as we all know, the EBITDA is mainly driven by an overall higher sales volume, and it was partially offset by lower LME prices. For the third quarter, the LME price went down by about 3% year-over-year. And for the 9 months of 2019 -- 2020, the LME price dropped by about 11% year-over-year. And that, of course, has affected our EBITDA performance. Moving on into our profitability. Unfortunately, we have had a net loss. This is mainly due to higher depreciation and the financial charges in connection to Line 6 Expansion Project. As we know, we have stopped capitalizing the financial charges and the depreciation, and now we are taking the hit directly in our financial statement. In terms of the free cash flow, the free cash flows were impacted by the changes in the working capital. We have $125 million in terms of the free cash flow for the quarter and $187 million free cash flow for the first 9 of 2020 -- for the first 9 months of 2020. Moving on into the last slide in this section, it's about our Titan. As you are aware, the Titan-Phase IV was kicked off last year in the beginning of 2019. It's a 2-year program with the intention to save by the end of 2020, $100 million. And as of end of September, we have successfully exceeded the target by $21 million. This is a cumulative savings. And we trust, we hope -- we remain hopeful actually to maintain the savings from now until the end of the year. And by that, I finish from the first 2 section from the presentation, and I will leave the floor to our Chief Financial Officer, Mr. Bryan Harris.

Thank you, Eline. So pleasure to speak with all of you today. We'll begin by looking at the revenue side. So picking up from Eline on Slide #16 on the metal sales' bridge analysis. So this is comparing Q3 2020 to the same quarter for 2019. So for Q3 2019, we had metal sales volume of $725 million. We had an increase in volume, which contributed $33 million. This was offset by the drop in LME. So cash average LME dropped from $1,761 to $1,706 for the period, which had an impact of $55 million. Our product mix, which is our bet, had a positive change of $7 million, that reflected the increase of that percentage to 48% in Q3. Pricing power, which is the premiums droid in line with a reduction in premiums across the globe in most markets. And that then left us with the increase in volume of metal sales for Q3 2020 of $699 million. Looking at the volume by products -- product line. We -- Q3 2019 was 376 million. Value-added increased by 39 million. Liquid metal reduced by 3 million and commodities was standard ingots reduced by 19 million, giving us sales for the quarter of 393,000 metric tonnes. On the premium side, on the right-hand side, you can see a drop in premiums from $162 million to $149 million, and that's despite the increase in VAP. And this was because premiums basically fell across all regions across the globe through the industry compared with the same period of 2019. Moving on to the cost bridge. Our costs actually, in spite of an increase in volume of -- sales volume of 5%, our costs actually reduced by $10 million overall. So an increase in sales volume but a decrease in costs, thanks to favorable spending. This was mainly due to benefits in the -- on the raw material side. So alumina landed cost reduced significantly and the impact of the price difference of that was $81 million. Consumption, obviously, with the increased sales volume of 5%. Consumption went up by $7 million. Energy price, this increased with an impact of $11 million, and this was due to the $0.25 increase in the gas price that came into effect 1st of April. Other raw materials also reduced in price. And so despite the increase in sales volume, other raw materials decreased with an impact of $21 million. Alumina sales cost, a positive impact of $10 million. And our plant spending increased by $50 million in line with the increase in sales volume compared with the prior year comparative. So then looking at the overall effect on our EBITDA. We reduced from $107 million down to $75 million for the period. Metal sales, again, this was mainly positive impacts on the volume side, offset by negative impacts on the LME and the premium side. Other sales reduced by $11 million. Our direct costs overall reduced despite the increase in sales volume by $11 million positive impact. Selling expenses went up slightly by $5 million, leaving us with the $75 million EBITDA for the quarter. Looking at our cash flow bridge. So this takes us from second quarter 2020 through to third quarter. We opened the quarter with a cash balance of $173 million. We had $75 million cash from operations, $74 million additional cash from working capital changes. We spent $24 million on non-Line 6 CapEx, additional $48 million on Line 6 CapEx. And then loans, in fact, these are loans repaid of $5 million, leaving us with a cash balance at the end of Q3 2020 of $245 million, so a very robust and healthy cash balance for the quarter. So looking at our financial performance, overall, despite reductions in LME prices across the globe and premiums across the globe, we had a strong EBITDA of $75 million and net loss for the quarter of $31 million. So when one looks at the LME prices and the trends, particularly in the latter half of the quarter and even now as we're in October, this steps us up very well for a very strong recovery in Q4. And with that, I'll hand back over -- I'll hand over to our CEO, Mr. Ali Al Baqali.

Thank you, Bryan. I will be taking the industry perspective in 2020, Page 23. As you are aware, due to COVID-19, all the world economy is disturb, however, we are seeing improvements across the globe, including China grow by around 3%. However, in terms of LME, if you look at the LME for now, it's almost rose by $200 between the quarters. And hopefully, this increase will continue. Typically this will improve our result in quarter 4, since the LME today stand at around about $1,800 per metric tonnes. If we look at the supply side, in the short period, definitely the aluminium will be oversupply. This is due to COVID-19 as expected. But I think if COVID get over, then the market for aluminium fundamentals will work, and there will be a balance between the supply and demand. If we look at where the oversupply will come from, it will be the 2 countries, Russia and China, they are the main contributor for this oversupply now. If we look at the physical premium, when you COVID start, the premium dropped to the lowest level since the historical -- history of the premium. But now if you look at the quarter 3 and even the expected for the quarter 4, the MJP, for example, the Main Japanese Port premium, it's between -- around -- expected between $80 to $100 per metric tonnes. If we look at the LME, in the slide, you see the range between $70 to $100 per metric tonne. But if we notice for the last 3 weeks, actually the LME was above 1,800. And hopefully, if this continues, this definitely will be improving our result or bottom line inshallah in the quarter 4. Moving to Slide #24. The raw materials -- if we notice, the raw material for the last quarter become stable compared to quarter 2. And if we look at the alumina price today, it's around $275 per metric tonnes. If we link it to the LME price, as a percentage of LME, it represent almost 15%. The rest of the major raw material, like aluminium fluoride, ALF3, and Green Petroleum Coke, GPC, there is sample pricing actually in the market. And we noticed also in the quarter 3, the price little bit dropped than the forecasting. Moving to Section #5, Alba priorities in 2020. We always believe in Alba. If we keep our employees safe, definitely, we are going to achieve that target production for this year, which is 1,540,000 metric tonnes. Despite the COVID-19, Alba take many initiatives to protect their employees. We did a lot of safety awareness. The COVID-19 restricted us in terms of having a large gathering with the employees. However, with the new technology like the virtuals and doing meeting in small batches, we managed to have a lot of safety initiative like, Safety Globe, which is the main initiative for Alba and inshallah by next week, we are going to have or launch our mini safety campaign. We call it Safety Voice. We allow all Alba employees to raise voice if they have any constrain to participate in our safety momentum in order to achieve, inshallah, more than 24 million, what we achieved in the last, as Eline has said. Unfortunately, in August, we had a minor accident, it's resulted in LTI in the company. However, this accident actually make us more stronger, and we are going, inshallah, to achieve what we have achieved in the past and exceed in our safety. As Eline said that, we are -- in terms of the project Titan in Phase IV, we achieved more than $121 million, and definitely, this we are going to maintain same or more, inshallah, by the end of the year for the coming 2 months. In terms of the upstream opportunities, we are still looking for a proper opportunity to pick our strategic vision in terms of securing at least 1 million tonne of our requirement on a yearly basis, either by having a minor joint venture or -- and a longer offtake agreement. Definitely, we already announced this, we already got a lot of marketing certificate and the quality certificate like ASI. This definitely helps us a lot now for qualifying our customers for the value-added products because we are aiming to increase our value-added product, inshallah, by 2022 to 70%. In terms of our initiatives to develop and support marketing sigma, we are recently open or established a new branch in Singapore. This will serve our Asia market in addition to the Hong Kong office, and it will be more likely targeting the Japanese market and other Asian, which is near to the Japan area. As you are aware, also, we have an SPL Plant, Spent Pot Lining. This plant is to create -- the hazard materials comes from the pot lines and as per the planned completion date and/or the operation date for this plant, inshallah, it will be in the second half of 2021, inshallah. Definitely, every year, we have our own objective for the next year. And we are already finalizing our objective for 2021, and it will be launched, inshallah, to all our Alba employees in my annual Majlis, during January, inshallah. By this, we are ending the presentation, and I will leave the floor for any question from your side. Thank you for your listening.

Thank you, Ali. For everyone, please ahead of asking the question, unmute yourself, this is first; and second, introduce yourself ahead of asking us the question. The floor is yours.

Can I go ahead?

Yes, please.

My name is Riyad Yousif from NBB. I have actually 3 questions. All of them pertaining to the P&L statement, income statement. First question. Actually, the gross margin, it witnessed a good improvement year-over-year. Last year, it was around 6%. This year, it is around 10%-something. What's the standard gross margin in the global market? The second question is relating to the general and administrative expenses. Actually, the figure is surged by around [ $37 million ] year-on-year. How does it compare with the budgeted figures? And will it increase at the same pace for the remaining of the year? Or it is just a one-off increase? The third question is -- it diluted, actually, the bottom line of Alba, it's very clear is the finance cost, which increased threefolds year-on-year. Does Alba has any plan to refinance the -- I mean, did start actually has a higher cost? Or there is no plan, and you will leave it just as it is?

Okay. Riyad, for the first question, we haven't really understood your question because the line is not very clear. Can you please repeat the question?

Yes. I will repeat. Actually, the gross margin of Alba has improved from 6% to 10% year-on-year. What's the standard gross margin in the market right now, just to compare with?

If you may allow me just for my understanding, you mean -- you've meant the gross margin as in the gross profit?

Yes, it's revenue. Actually, it's the gross profit over the revenue.

Yes. Okay. So if you know, the gross profit for the third quarter was actually down versus last quarter. But if you look at the percentage, [ $25,676 million over $262,661 million. ]

Sorry, Eline, I'm referring to the year -- I mean year-to-date, yes, exactly.

Okay. So then, yes, the gross profit has increased from $45 million to $80 million, which is a gross of 7.7%.

Yes. That's what improved actually, the gross margin of Alba.

Yes.

Yes. But what's the market standard for this item, I mean, globally?

I don't think that there's a market standard. I haven't seen any industry figures for the gross margin. What I can say is there are a couple of reasons for the improvement that we've seen. One is, as we indicated during the presentation, there's a significant cost reduction, both through our cost-saving initiatives, but also because we have seen a significant decrease in raw material prices during the period. And then -- and those things we can hopefully seek to continue to focus on the cost reduction, planned in project Titan. And hopefully, the raw material prices stay low. Also included in the year-to-date cost of sales is we have included there the government subsidy that was provided in Bahrain. So that's being net [indiscernible] against the cost of sales. So that's part of the reason for the good gross profit. Moving on to your second question, that was around general and admin expenses and the reason for the increase in the year-to-date versus the prior year. And this was mainly because of a donation that we made to the Bahrain COVID fund of $9.2 million or BHD 3.5 million, and that -- we detailed in the financial statements.

Sorry to disturb you, what was the figure? Can you repeat, please?

BHD 3.5 million.

BHD 3.5 million.

For the donation to the COVID team, Feena Khair.

Feena Khair initiative. It was disclosed, Riyad, in our Q1 IR presentation in April. We have done payments...

And if I remember correctly, NBB, also made a very generous donation.

Yes. We got jealous of you, Riyad. So we had to also...

And then the second main reason for the increase in general and admin is insurance costs. This is because, obviously, we built a plant that's 50% larger. And as a consequence, our insurance cost increased. Looking at your third question then on the finance costs, the reason for the big jump since last year is the first -- the loans that we took for Line 6 was capitalized during the project's construction process. So in our comparative year, most of that was capitalized. Whereas for 2020, now we're taking the full expense cost as an expense. You mentioned refinancing. Yes, in fact, in Q4 2019, we took the opportunity of refinancing our corporate loan such that was up $1.5 billion corporate loan, and we managed to get that at slightly reduced interest rates. So you'll actually see our interest rates [indiscernible], and I think...

This is Anoop from SICO. My first question is on your revenue. You mentioned that the average price LME during the quarter was $1,706. What was the average realized price for Alba during the quarter?

Yes. Thanks for the question. Yes, the average achieved price was $1,627.

$1,627?

Yes. And has sort of been [indiscernible] achieved prices is what we get from the customers, most of our sales are based on the 5-year -- sorry, 5-month LME price. So there is a little bit of a delay as we own and the price increases.

Just to give a little bit of substance, Anoop. So we have seen that the LME started to appreciate in September. So Alba would not benefit from this appreciation until the month of October. So whatever we sold in the month September was actually based on August LME average.

Okay. That's clear. Understood. The next question is on your fuel consumption actually. There seems to be a very big increase in the fuel cost in this quarter. I think the increase on a per tonne basis is roughly about 47% quarter-on-quarter whereas your production is almost flat. So what is happening there? Why was there such a big increase in your fuel expenses? Even the gas prices are flat, I'm assuming that the 2Q gas prices and the 3Q gas price would be pretty much the same. So what has really changed during the quarter?

There is no increase. I don't -- I can...

See, yes, it's in the notes...

[indiscernible] energy cost, energy price, $11 million is just mainly due to the higher [indiscernible].

Yes, Anoop, if you may allow us effective April 1 of this year, we were paying $0.25 additional compared to last year. So what -- you see the difference, yes. Yes. Okay, so...

This is the delta between both the quarters, last year and this year. That's why you will see $11 million, it's related purely to later part of $0.25 mainly and because of the higher also production, some contribution also from the higher production side.

Okay. But if I look at this quarter-on-quarter, like 2Q '20, your cost was $59 million, right? And this quarter, it is $88 million. But the production hasn't really gone on up much. And even the gas price, I would assume is flattish at $3.75. So what explains the Q-o-Q jump in the cost? The $59 million to $88 million is a very big jump, right?

Is it a specific slide that you're talking about? Or the actual...

No, this is from the notes to your accounts. This is -- let me give you the -- it is under Note 10, related party transactions, where you give the breakdown, under cost of sales and expenses. So purchase of natural gas and electricity, natural gas and diesel was $88.3 million during the 3 months ended 30th September. And in the 3 months ended 30th June, this was, if I remember, about $59 million. So just trying to understand what is the big difference because your production hasn't really changed much?

So you're comparing the $88 million with the $78 million or...

No, I'm comparing to $88 million with the $59 million of previous quarter.

Quarter-over-quarter.

Yes. Quarter-over-quarter, yes.

Okay. So basically...

There is an increase in our production quarter-over-quarter, Anoop. We have -- our production for the third quarter was 386,000 tonnes versus 378,000 tonnes in Q2 2020, which is an increase of 8,000 metric tonnes.

Yes. But percentage-wise, that shouldn't -- see percentage-wise, 8,000 is not much, right? But if you look at the percentage increase in the cost from $59 million to $88 million, that is a substantial increase. It's a double-digit increase in cost quarter-on-quarter. So maybe we can take this offline later...

We shall get back to you on this.

I don't have last quarter's accounts, so we'll get back to you on that.

Yes. No, no. No problem. Just one thing, a follow-up on the SG&A expenses. If I look at this on a per tonne basis, there is a substantial increase Y-o-Y. So one would assume that -- especially selling, one would assume that since your volumes have grown up by 50%, maybe on a per tonne basis, you absorb some of those costs and per tonne cost should fall. But why has there been an increase Y-o-Y in terms of per tonne selling costs?

Selling and distribution costs?

Yes. Yes, if I look at it on a per tonne basis. Even on an absolute basis, it's a big increase. But if I look at it on a per tonne, so that has standardized the thing with volumes, there's still a pretty big increase -- 14% increase.

It's increased from -- for the year-to-date from 21.5 to 22.8, which is a 5% increase.

No. I'm talking about the quarter, this quarter versus the quarter last year.

Yes. So if you look at the year-to-date figure, it's 5% raise, which is in line with the sales volume increase. Look, the quarter -- yes, the quarter was slightly higher. So that could have just been...

Maybe -- sorry, Bryan. Maybe if we share the screen, so it will be easier for you to see and for all of us to see. If you have it, you can share it. If you don't, I can share it for you, guys. I have it ready.

No, no. We have the financials printed in front of us.

If you put it on the screen, it will be easy. You can -- and you can make a circle on what he's talking about, what Anoop is talking about, and you can answer it.

Yes. Well, if you want...

Ali, just I -- see, your sales to the U.S. market have increased substantially Q-o-Q and Y-o-Y. Is it because of higher freight costs? So when you ship higher quantities to the U.S., do you incur higher freight? And is it booked under selling expenses?

Yes. Distance is more. It is one part of our increase in costs. We ship to the U.S., normally that cost of the shipping would be more compared to the other region.

Okay. Okay. Okay. Maybe we'll take this again offline later. Your ForEx costs are up significantly. Is it because of the euro strengthening and the translation losses on your debt? Is it that?

Yes, exactly. Yes, it's the strengthening of the euro against the dollar. We had -- part of our Line 6 loan is euro-denominated. And with the strengthening of euro, we've had that exchange last period. You'll note we -- on the other side, 2018, 2019, we made gains when the dollar strengthened against the euro. Obviously, this is -- at the moment, it's a noncash loss. So hopefully, we see a reversal of that. On the other hand, when the dollar does weaken, we do get the benefit of generally an increase in LME price because LME is denominated in dollars. So yes, we lose some on the exchange rate that we gain on the increase in the LME.

Okay. Yes, just last one, Bryan. And this is, again, regarding the losses from cash flow hedges in your equity statement. There's a $9 million loss. I think most of the loss was incurred during the first quarter. I just want to understand where is this cash flow hedge -- I mean, what hedges are these? And if you could just give us some color on where these losses are coming from?

Sure. So this is really a single hedge. I mentioned the $1.5 billion corporate loan for Line 6. And we hedged 50% of that from an interest rate perspective, so $750 million. We obviously saw interest rates, LIBOR rates come down so far in the year. And we basically classified the movements on that. So again, it's an unrealized loss, and we've testified that as -- hedge accounting for that. So that shows in the consolidated statement of comprehensive income.

Correct.

Okay. That's clear.

And you can see it, Anoop, in Note #4 under derivatives of financial instruments, and you have further details on the interest rate swaps.

This is Nitin from SICO. My first question is -- actually, I missed that number. What was the realized price for the third quarter? It was $1,600?

$1,627.

$1,627. Okay. And my second question is, is this a reasonable assumption that going forward and right now also with lower rates, Alba is not going to benefit despite huge debt to pay because the $1.5 billion loan facility, partly it is hedged? So you are not going to benefit from lower rates -- lower LIBOR.

No. We'll benefit from the 50% because we'll have 50% taxed, 50% floating.

Okay. 50% is hedged and 50% is floating, okay.

So if you ask -- this is Eline. What we have done, we have hedged the interest rate on only 50% of the commercial syndicated loan. So as of today, Alba has about $2.5 billion loan and interest rate hedge is only on $750 million of the commercial loan. So you have the remaining of the commercial loan $750 million based upon floating. And the ECAs, the $1 billion in connection to export credit agencies is all floating.

Okay. So when are you going to benefit because the rates are already low since March?

[indiscernible] because out of the $2.5 billion, only $750 million is hedged and fixed. The rest are floating.

We will [indiscernible] on the $1.75 billion.

Okay. But if I see your net interest expense, it was around BHD 15 million in second quarter. And in third quarter, it is BHD 19 million. So where is the benefit in terms of lower interest cost?

Are you comparing to the prior quarter or the same quarter for last year?

I'm comparing it to prior quarter, so that wouldn't be a fair comparison, prior quarter. I don't have the 1Q number in front of me.

Yes. The reason for the increase compared with the same quarter last year is because during that quarter, we were still capitalizing [indiscernible] because we still had the construction going.

Yes, that's fine. But how is this cost compared to the first quarter? I mean, first quarter versus the third quarter, the net interest expense. Because it still looks very high, BHD 19 million, on a quarterly basis.

It has obviously -- during the last couple of quarters, we still have been making the final payments towards our vendors for the Line 6. So we have been drawing down from the facilities to make those final payments. So in terms of the amount or the volume of currency that we're paying interest on, that has increased. But interest rates have reduced slightly because of the competitive rate that we got when we refinanced as well as the reduction in LIBOR.

Okay. If I may ask in another form, what would be the annual interest expense or a quarterly number? What would be, I mean, a reasonable assumption?

Sorry, a reasonable assumption for?

For annual interest expense.

It's about BHD 33 million.

How much? BHD 3 million?

No, no. The finance cost, interest charges on the loan, it's going to be -- if you look at how much we have at the finance cost on the -- for the first 9 months, it's about...

BHD 30.9 million.

Yes -- sorry.

BHD 30.9 million, almost BHD 40 million. BHD 40 million.

Around BHD 40 million.

It's close to BHD 40 million.

BHD 40 million annually -- on an annual basis?

Yes. Yes. BHD 40 million, not dollar, 4-0.

If you take the last quarter...

Sorry, not annually. Cumulative for 9 months -- BHD 30.9 million, cumulative for 9 months. So If you want to annualize, it's BHD 40 million, BHD 10 million per month -- BHD 10 per quarter.

Okay. So BHD 19 million for this quarter is basically due to the ForEx, right, because the ForEx loss is pretty high due to the appreciation of euro?

Yes. Correct.

This is Divye from Daman Investments. Just to go back to the finance cost. So your finance cost is not equally split, right, between the quarters. So the payment happens -- some payments happen over 3 months, some payment happen over 6 months. Because -- if you look at from Q4 of 2019, in Q4 you paid BHD 14.7 million. Then in Q1 of 2020, it was BHD 12.2 million. Q2 of 2020, it was BHD 8.8 million. Q3 of 2020, it went up again to BHD 9.9 million. So is there...

The jump in Q4 2019 is because of the expenses related to refinancing that we did in Q4 last year. So those additional expenses relating to the refinancing were included in those costs. So the last quarter, I'd say, is more typical. So from this point in time, you would expect that to be pretty stable at that level and moving in line with LIBOR rates to the extent that we're not hedged.

So if the LIBOR remains the same, in Q4 we should expect you to have around BHD 10 million in the interest cost?

Yes, BHD 9.9 million, in line with Q3.

Okay. All right. A question on the -- so you explained to us what was the average aluminium price of $1,627 that you achieved in Q3. What was the average alumina price? Is there a lag also over there in alumina prices?

Yes. There is also a lag in the alumina prices. So you're asking for Q3?

Yes, Q3, what was the average alumina price?

$260.

$260, okay. Because when we look at Bloomberg, the average was $270. So it looks like there was a lag of around 15 days to a month in that, if it is $260.

This is the landed cost, landed, which is well achieved. So on the alumina, you will -- it's like what we have explained earlier. You say the LME achieved cost which is based upon the month's minus 1. Also the same apply to alumina. So it's also -- we call the alumina landed cost, which is alumina plus freight also from -- for the full 1 month -- month's minus 1.

Month minus 1.

Yes.

Okay. All right. And how about the...

I just want to highlight one thing for you. In the presentation, we -- what we have provided in the first section is actually the Alumina Price Index, $274, which is equivalent to 16% of the LME price. This is on the industry fundamentals or this wasn't applying to Alba. What we have provided you now is the landed price that Alba has paid when buying alumina.

Okay. Okay. That's fine. The second question is how about the premium. So you have shown that the average premium in Q3 was $149. So this is what you have achieved exactly?

Landed -- this is the landed premium.

This is for Alba, not for the -- this is for Alba based on your markets -- different markets.

Yes. Correct. $149 per metric tonne.

Okay. Got it. Just a question on the selling and distribution expenses. I just want to repeat this again. Let me just mention the number. So we have seen selling and distribution expense increase to BHD 8.6 million in third quarter of 2020 versus BHD 6.5 million in third quarter of 2019. So this is a significant increase. So one of the reasons you said was more sales were done to U.S. and that led to higher transportation costs. Are there any other reasons other than this for this increase in around BHD 2 million on a year-on-year basis for the third quarter?

Yes. If you may allow me, I want to -- if you have the chance to look at our financials, Note #6 on the operating segment information, we have stated that earlier, but it might be easier to do the comparison. If you look at our sales by geographic footprint, we note that our sales in the Americas have almost doubled in terms of value in the last -- in the third quarter of 2020. So this is -- yes, the shipping costs to the U.S. are more expensive than shipping to the -- to Europe. That's for your information. So yes, there is an increase in freight costs because we have shipped more metal and the freight cost per metric tonne to the U.S. is higher than selling to MENA, to Asia and to Europe.

And again, I'd point you to the year-to-date figures there because I think year-to-date, the increase is only 5%, which is in line with the increase in sales volume. To be honest, if we look at 2019, I think Q3 was unusually low. So if you look at the average quarterly for 2019, it was 7.2. So I'm not sure why 2019 was a little bit lower than usual, but that's one of the reasons why it seems to show us a big difference in just looking at the quarter versus last year.

Okay. So for the full year, we should expect Q3 as a benchmark. So for Q4, we should be having a similar number. If the sales to the U.S. are still high in Q4, we should expect around BHD 8.6 million in the selling and distribution expense?

I don't think you should look at it from this perspective because last year what we have done is we sold about 11% of our total sales, [indiscernible]. So we have sold yesterday about 150,000 metric tonnes to the U.S. This year, also aim to have a similar distribution in terms of our sales. So what -- in my opinion, what you should be looking at is look at the volume which we have sold in the U.S. last year, and you're going to be having a similar classification.

Okay. How about the general and administrative expenses? So 9 months for 2020, 35.4. And 9 months for 2019 is 25.8. So you said there was a one-off donation cost that was here or...

I'll take this. I'll give Bryan a break. So I'm handling as well insurance, so I can give you some more insight. So previously -- and I know that you have recently -- Daman is now recently a shareholder, but you've been following up for the last couple of years. So I'll give you this particular information. So prior to 2017, we used to pay a very low premium when it comes to the insurance. Further to the power outage that we had had in 2017, that has changed the equation. So we have had a jump in our premium, and this information was actually shared with our shareholders and investors at the time in 2018. We have had a jump in our premium by about 4x. So we used to pay about $6.5 million. This premium has jumped from about $6.5 million to $22 million in less than a year on the back of the power outage. So this is one of the major increase in our insurance cost. On top of that, last year, as you know, we have finished the construction of $3 billion -- the Line 6 Expansion Project, which has the Line 6 Power Station 5 Block 1, Block 2, Block 3. So that has increased the value of our assets from $7 billion to about $10 billion. So -- hence, we have seen another increase in our premium because the values of Alba, the values of our assets have increased from $7 billion to $3 billion (sic) [ $10 billion ]. So that has also seen a jump in our insurance costs. So -- from as far as you -- I mean, if you want to look from now, what will happen in the foreseeable 1 year or 2 years, you will have to look at a couple of factors. First, today, irrespective of what Alba had previously, the power is no longer with the clients. So we see many insurers are consolidating. The insurance is tight. There is no power for us, corporate, in terms of where we should be going for -- where we should be placing our risk. So we see massive crisis in the market. But what we can tell you is that you will not be seeing a jump by 4x in our insurances premium year-over-year because at the moment, those are going to be the values of the company. So you might see plus or minus maybe 2%, 3% year-over-year, but you're not going to see a major jump like what you have seen between 2019 till 2020. And our Chief Financial Officer has stated, and this has also been explicitly stated or disclosed in our IR presentation for the first quarter of this year, Alba has donated BHD 3.5 million to the Government of Bahrain for Feena Khair initiatives. So -- hence, if you look at this particular item in our financial statement, the major factors behind this increase are the $3.5 million -- sorry, BHD 3.5 million on the donation towards Feena Khair and about BHD 3 million increase in the insurance premium on the back of higher values with the completion of Line 6 Expansion Project. Those are the major 2 factors.

So if you're obviously looking to forecast, then you can take out the donation because that was a one-off item.

Yes. Any other question?

Sorry. I was on mute, sorry. So are you comfortable in terms of achieving the similar sales that you have achieved in Q3 -- in Q4 given the market conditions?

No. We won't be comfortable achieving that, so we'd be hoping for much higher levels.

Okay. Because it is just a bit surprising that the market is dropping, but you guys have been able to increase your sales. So what is the key reason behind that?

Maybe we have a good management.

Sorry, brother, which sales increase. They did not increase their sales. You are looking at 9 months. Look at only 3 months. Three-month sales declined, not increase, please. Can I share the screen?

Go ahead, Ali. Go ahead.

You need to disable me, please, so I can share the screen. I think we should have -- because all the questions are not about your PowerPoint presentation. They are all about the financials. So better, I suggest next time to...

Ali, we have to stick with our presentation. That's why we are giving -- I mean, more of -- I mean, to discuss our financial while we have to stick with our presentation.

Sorry, when we are looking at your sales, as per your presentation, it says sales volume is up 5% year-on-year. So that is what we are referring to. And the global markets are down 4% -- the global demand is down 4% year-on-year or consumption is down. So that's what we are trying to understand that you are outgrowing the market.

Yes.

No. One second, I'll show you now. Can you hold on. Can you please enable me to share because I'm disable to share.

We're working on it, Ali. But meanwhile, appreciate -- you go ahead with your explanation or your question.

I'm talking about the volumes, not the revenue. I'm talking about the sales volume.

Okay. If you're talking about the volume, you've got a point there. But the sales, no. Sales, no.

Depends on the price.

Ali, we said the LME price in this quarter have dropped by about 3% versus Q3 2019. So you have...

Yes. I got it. I got it.

Yes. So we have an increase in our volumes, but the LME have dropped down. And this is very clear in the IR presentation, which I don't know why you are saying that -- why you are saying it's not clear in the presentation. It's very clear, actually, in the presentation.

No, no. I never said it is not clear. I'm saying when we are discussing now, all the questions are towards the income statement and your balance sheet. So it is advisable to the company to reconsider to put the balance sheet and income statement or the financials. You have only 13 pages. So you can share with us. Anybody talking from SICO or whatever, we can have the screen and we can make circles and answer them because they have paper, you are looking at something else, which is not consistent. Anyways, I will stop now. Anybody has got any questions, let them go ahead.

I want to actually answer your question, Ali, if you may allow me. As you know, this is the first time -- I mean, this is the first year Alba and any other company do conference call via virtual platforms. And we share with all analysts, shareholders, investors. I share with you myself -- actually, the e-mail goes from my e-mail. I share the official press release, the IR presentation and the financial statements. So we assume you guys have the financial statements in front of you. So it's up to me and to the management to decide what to put on the screen. This is our, not your...

No, no. I'm not giving you a decision. I'm recommending only.

Yes. No problem.

On the contrary, actually, I would like to praise you for -- and one comment, you have changed completely what you've been doing since 2017. And others in the market, they are still having baby steps towards you. Like, for example, now I don't know if Mr. Riyad is still available, he gave you 3 questions. Until now, they did not do this conference call, okay? But anyways, I think what you guys are doing is fantastic. It's only small fine-tuning. You will not lose anything if you have balance sheet and income statement. It will add [indiscernible] and you can answer quickly. And also, there's another small thing. You're using a cursor. In Zoom, there is a pen. You can use a pen. You can make circles. There are some things you can do. It will easily solve the problem. I know what he was asking. Actually...

I'm going to actually have everything with you ahead of our weekly conference call.

Yes, yes.

And I want you to teach me.

Yes. I'll do...

I'm telling you, we are not yet fully equipped. And [indiscernible] I can tell you we advanced because for us, we do not usually use Zoom, we use Microsoft Teams. But because we wanted to actually go with your recommendation because that's why we had -- it was not easy. We are going into Zoom because we allow more participants versus other platforms. But anyway, your tips, inshallah, will be taken into consideration. And please go ahead with your question.

Okay. First of all, I would like to thank you for having this third quarter results. I know it is very tough for you. Just about the financials, again, your balance sheet has not only 1 note. Only 1 note. You should give us more notes in your balance sheet, so we can read them, okay? Now Note #4 is distracting to me, okay, and to many others. I think they asked you about it, but I'm asking you from a different point of view. Note #4 made a hole in your total equity or in our total equity, I can say as a shareholder. So this thing, we need to find a solution for. Plus, our liquidity has been deteriorating, okay? The liquidity -- there are certain ratios we measure the liquidity upon. It has been deteriorating. I have alarmed you earlier in Q2. And now I would like to repeat this alarm. Number two, it is relating to our dividend distribution. I saw in Bryan's presentation, there are 0 for shareholders. We are used to interim dividends. And I think now the leverage component, you have increased the leverage to $1.3 billion compared to our reduction in equity of $1 billion almost. This will not allow you -- will not be working in our favor to get dividends end of the year, okay, because banks will impose no dividends policy on you. And -- so that's why we need to think again about this kind of leverage, okay? I think your leverage policy -- nobody told me, but I think, it's 1:1. Now it is 1.3:1. We like it to be below 1:1, okay? And also about your profitability. Yes, this quarter you have incurred $22 million loss. But last quarter, you have incurred $5 million loss. So this quarter, you have incurred more losses. And I have a feeling you have certain things in your control. You can control them, and you are doing very well. Like Titan, you have achieved more than your 2 years' budget. But the way we are going, we are creating another Gulf Air here, okay. This is like -- I feel if we don't put proper pressure and fix it quickly, it will be again. Every time we talk, you will tell me, look, it's not in my hand. It is with the market. It is with external forces. I'm sure there are external forces. But also, internally, you can do a lot of things. You guys, you can do a lot of things. What...

Ali, just to [indiscernible] something. This question should be asked by [indiscernible] in the Board and we are -- as a management, there are a lot of things we have to control, and we don't -- and we have something we cannot control. We see it from beginning. Aluminium price, premium, demand and supply, we cannot control. We are doing -- if you look at our performance, even if you wish to come 1 day to Eline, she will show you all the initiatives, whatever we've done internally in order to improve our position. In terms of management, in terms of what we control, we are doing more than necessary to protect the company and to protect the shareholders in terms of profitability. In terms of dividends, you know that since the company is losing money, this is not Alba only. All the aluminium industry is losing money. I agree with you, with your comments, if we are the only company losing money and the rest of the world's aluminium company, they are making the profit. And you should not forget also now just we're [indiscernible] a big project, $3 billion. And definitely, if you look at our EBITDA, our EBITDA is always positive quarter-by-quarter. That means that on the operational side, we are doing more than necessary to raise the company on the higher level. Some thing like COVID, it is not expected. I can assure you that. If there's no COVID impact in our budget or in our situation, today you will be -- nobody will ask us any questions. I'm sure. Because you will be impressed with our results and our figures. This -- to some extent, this also -- we are also -- I mean, comply with the regulators in terms of reporting our data, how to report, what to report. Even the presentation which we are showing, this is presenting the financial intelligence. It's not our -- it's not up to us to do what. We have to be constant in reporting the figures quarter-by-quarter. We cannot do any major change without informing the regulators and to update all the shareholders. I think -- just we have to be careful and some -- we're not talking some domicile.

And on your comment with respect that we can do more, please allow us to state, this is not a bank affiliate. We do not accept deposits and we do not provide loans to customers. Here, we are producing aluminium, as you are aware, Ali. So unfortunately, this -- our revenues are directly linked to the LME price. If the LME price is high, you generate more revenues. If the LME price is depressed, you generate less revenue. Also, I want to draw your attention that Alba today is paying $3.75 for the gas price. When you compare us with the GCC smelters, we are paying almost $2.5 more than what other GCC smelters are paying for the gas price. If you compare us to the international smelters, I will not compare ourselves with the hydropower because we do not have hydropower in Bahrain. But if you look at the Henry Hub, it's less than $2 per MBTU, while Alba is paying $3.75. So again, when you claim that Alba -- that we have control, we have no control over the gas price. So the gas price is set by the government and we have to pay, just like everyone else. The LME price, we have no control over the LME price. It's a function of the market. It's a function of demand and supply. So we also have no control of the LME price, no control on the gas price. What we can control is how much we can produce. This is within the company's control what -- how...

Inshallah, we'll achieve.

Of course. And what we can do, squeezing the envelope to produce more at an optimum price without incurring further costs. But we hope, we wish. We would love to be in a different position, Ali, because we do have a very active management. And I'm sure you know that. And I don't think, Ali, you meant really what you have mentioned in your claim because when other companies are not making money, and we don't want to talk about the names, but this COVID-19 has changed the rules for all companies around the globe. We are not Netflix. We are not Disney. We are -- we do not provide entertainment. And we are not the telecommunication over here. Here, we are selling aluminium and the commodities prices have been on a roller coaster in the last couple of months. So it's outside the boundary of the management. And as Ali has stated, we were capitalizing the depreciation and the interest rate in connection to the Line 6 Expansion Project because we started our construction from 2018. We only ended towards July of 2019. So whatever we had, we were capitalizing the cost. Today, the project is fully operational. The company is no longer capitalizing these expenses. So whether we like it or not, the depreciation has increased and the finance cost, we have to pay for the finance cost. This -- the expansion project didn't come for free, Ali. And in terms of the net debt to EBITDA, just to tell you, before we started or we embarked on Line 6 Expansion Project, our leverage actually was negative. We wouldn't have embarked on Line 6 Expansion Project if we were not sure we are capable of doing it. As you know and as stated, revenues are directly connected to the LME price. The higher is the LME price, the better is our EBITDA. So if the LME price is depressed, our EBITDA will be depressed. And there's nothing we can do about it. So if we are -- if it is in our hand, definitely, the management will not be -- will not take an idle seat. And you know that very well.

Yes. I respect you guys, and I have all the, I mean, good feelings about you guys. That's why I'm here. I waited for everybody to ask. I could have asked the first one and gone. But what I want to say, see, when I talk to you, I'm not against a person or against the team. I am against the numbers, okay, the numbers. For example, all what you told me now is things that I know. I want you to look at Page #2 and Note #4. See this -- what has got this to do with aluminium and all what things that you cannot control. This thing that you can control, you took this decision, which made a hole of $9 million, okay? This is one thing that you can control. Tell me now about this Note #4, Page #2. How does this happen? Which aluminium is this? This is something...

Cash flow hedge reserve. They have a loss of $9 million there.

Yes. You took that decision, okay? Now about Page #3, okay, you don't need to answer me everything. I wanted just to have a true feeling. We have how many shareholders. Nobody is talking to you. They are just selling the share, okay? I am sticking with you guys. Not only me, me and my entire family, we never sold a share. And we'll continue with you. I'm sure there will be light end of the tunnel. I'll bang, bang until we get that light end of the tunnel. Now Page #3, you see this -- your revenue, it dropped, okay, from Q3 2019 to Q3 2020. This drop is a significant drop. Every time, SICO or whoever friends are asking, Bryan jumps to cumulative 9 months. Look, there is increase. We can see that increase. We -- actually, Ali, I don't care about this increase. I want you to talk about Q3. Here, Q3, we have 5 areas. We are down in Asia. We are down in Bahrain. We are down in Europe. We are down everywhere. Okay. We doubled in the U.S. How much the double? How much? How much was it? How much income? A small amount. It's [ 30 to 60 ], small amount. Okay, you double, but the smallest amount. The U.S., the only positive area. The rest, all negative. Who will pay attention to this. We need somebody to pay attention to this, okay? Number two, also here, you see that in the foreign currency, 4.6, 9.8. I'm still on Page #3, in Q3. This -- which aluminium? This is FX. You guys took wrong decisions in FX, okay? This -- imagine this was not 9.8...

Ali, I'm not taking wrong decisions there. It takes -- as you are aware of that, we have a Board. Board [indiscernible] a good knowledge in the industry, okay? And this FX, we don't have a control on it. You know that. We have many ECAs with the project and ECAs price on euro. And even -- I can make it [indiscernible] to convert everything to dollar, but this -- it will be increasing our cost because the LIBOR -- okay, compared to the euro, LIBOR is -- there is a big difference. This is a management decision and Board decision. We are here now for our presentation, to highlight our performance just you -- for your information how we are going to do and what is our expectation. But we are not taking any instructions or advise, Ali, without the Board approval. Even our shareholders, if you have a voice, there's an AGM. You can raise your voice there. Why the management, they do that? Why the Board, they are taking this decision not to convert the ECA's euro to the U.S. dollar? You can raise your voice there. But here, we are just highlighting our performance for quarter 3 and for the last 9-month results, and what we are doing and what is our expectation. This is norm with all listed companies not only in Bahrain, the whole worldwide. If you go to Alcoa, our presentation, you will see the similar slides, similar talk, similar approach across the globe. We are so advance in Bahrain. And as a listed company, we are sharing all this information. As you said, we have some companies still in Bahrain that are listed, but they are not to cope with our standard in transparency and sharing all the details and data. And I think the rest of the -- all members or participants in this call, I think they will agree with me because this is -- because they are -- majority, they are from financial institutions, and they have their big technology how the world is working on -- in this regard. I think...

I agree with what you said, and I'm not against you. Are you happy with [indiscernible] on foreign currency. Just tell me that. If you are happy, cut off. There's no more -- I cannot tell you anything. Anything I tell you is not an instruction. Even it's not...

[indiscernible]. No. It is a question to you. 9.8 and Q3 2020 loss in foreign currency. Are you happy about it, Mr. Ali? CEO of Alba, are you happy about it? You can tell me yes or no, yes or no. Yes. For the time being, I am happy because this is part of our Board decisions not to compare the rest of our loans to the U.S. dollar. This is part of our -- we created risk and mitigated risk in the market. Today, you're talking this. But if I compare everything to U.S. dollars and the market reverse, then you will come to me, why, Ali, you changed the strategy, everything this year in euro. Why you do that in U.S. dollar. This is Board decisions, Ali. You should understand, Ali. We are here highlighting our...

Board decisions affect us negatively. This Board decision affected us -- why it's not [indiscernible].

The Board is representing 100%. There is a member representing the individual shareholders also.

Yes. Ali, thank you very much for your comments. We understand that you have been venting today. It's okay. We were listening to you. But as our CEO stated, the purpose of the IR presentation is to talk about our presentation. We always state that you can always refer to the financial statements. We welcome any question, and we answer all questions with respect to 2 questions from SICO, which we will get back to them later on by an e-mail. One of the questions is about the gas price, which we have noted and we will get back to that. And another question is about the selling and distribution expense. So we will get back to them with these 2 questions. I thank you very much. And I think for such comments, we urge you to take it forward in the upcoming Annual General Meeting. And by that, I would like to end the IR presentation. I thank you very much for all -- for everyone's time today. And please excuse us if we provided lots of comments. Thank you very much until another time we meet for the Q4 2020 financial results and the full year. Thank you.