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

Good day, and thank you for standing by. Welcome to Aluminium Bahrain First Quarter 2024 Webcast and Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Eline Hilal, Director of Investor Relations. Please go ahead.

Thank you, Nadia. Good afternoon, everyone. Hope you are keeping well. This is Aluminium Bahrain Q1 2024 financial results. This call will be chaired by the CEO, Ali Baqali, our acting CFO, Ahmed Abdulqader, and myself. If we can please move into Page #3. As always, we do have the same content, and nothing has changed so far. I will be covering the first sections for the industry highlights as well as Alba highlights. Then our active CFO, Ahmed Abdulqader, will give us some more insights about Alba performance for this quarter. And in the last 2 sections, the CEO will provide us with the insight on industry perspective as well as Alba's priorities for the remainder of 2024. And without further ado, I will jump into Slide #4. This is for the industry highlights. This is a quick note to notify you that the insights that you see in these sections are extracted from CRU market intelligence. Moving forward with Slide #5. It is about the consumption of LME. So, as the global economy bounces back, we have seen the global demand going up by 5% year-over-year. And recently, in the last couple of months, we know that the global economy is holding up better than expected despite the rising interest rates. Industrial production is pulled full combo with the key indicators pointing towards a positive outlook. While inflation, as we have seen, is on a downward trend, the progress is slower than anticipated, due to persistent energy price risk and volatile shipping costs. China is taking release this quarter with the demand growth fueled by robust growth in renewable and electric vehicle. And because of that, the consumption has surged by 9% year-over-year. With regards to the Middle East region, it has bolstered a positive picture with demand climbing 7% year-over-year, driven by higher consumption in the UAE and KSA respectively, 14% and 8%, respectively. As for the Eurozone, it's still presenting a stark contrast. Its economy stagnated in Q4 2023 and it continues to struggle for the first quarter of this year. This was reflected in a 2% year-over-year drop in the aluminum demand. As for the U.S., we have seen a sluggish consumption and this sluggish consumption is mainly due to inflationary pressures, which has driven the consumption down 2% year-over-year. Moving further into the supply side, which is Slide #6. So, the global aluminum supply was up by 3% year-over-year despite mixed signals and net geopolitical tensions. Again, China has led as well in terms of production within this quarter. The growth in China was muted by hydropower shortage. And despite the restart of Yunnan smelters, the supply plan only by 4% year-over-year. With respect to the supply in the Middle East, it has also seen a good increase in supply, 4% year-over-year, and that was mainly bolstered by 29% surge from Saudi Arabia. As for the European production, it has edged higher by 2% year-over-year, largely fueled by increased output from Russian smelters. North America has also experienced a modest 1% year-over-year increased primarily due to 5% year-over-year increase from Canadian smelters and partially offset by the closure of the New Madrid smelter in the U.S. In respect to the global market, it's currently sitting in surplus of about 50,000 metric tonnes, including China. And if we exclude China, the global market is in deficit of about 220,000 metric tonnes. This dynamic is further complicated by the risk function imposed by the United States and the U.K. on Russia. These functions include an import ban on the Russian aluminum as well as restriction on activity at the London Metal Exchange, where a significant portion of Russian aluminum is in the store. And LME stocks of Russian origin have reached 91% of the process. Moving further into the LME price as well as premiums, which is Slide 7. The one is our substance surrounding the inflation and the quality support measures have pushed the LME price down for Q1 2024, representing a drop of 8% year-over-year. The Q1 2024 LME price averaged $ 2,200. With respect to the inventory, as we stated previously on Slide 6 that the main investors in the LME registered warehouses are actually from the Russian origin. And the inventory remained at low level at about 0.5 million metric tonnes. With respect to the premium prices, as you see in the bottom chart, the premium prices have diverged regionally. So, we've got the DDP Rotterdam premiums was up, as you see between Q4 of 2023 and Q1 2024. And while the Major Japanese Port and the U.S. Midwest have this. And as we all know; the recent Baltimore bridge collapse has occurred in the last couple of weeks as is expected to elevate the U.S. sales premium in the short-term. Moving further into the alumina price. So, in this slide, we are providing you with the alumina price index, which is the chart in the bottom of the slide. The alumina price index on average $360 per tonne, which is representing 16% of the LME price. I stated previously, they had a price averaged $1,200 for the first quarter of this year. And with that, we finished from the first section about the investment highlights for Q1 2024. And now we will dive into Alba's '25 or Alba major highlights for the first quarter of the year. As always, we start with safety. So, safety in numbers as you see in the chart on the left. So, over the first quarter of 2024, we had more portable injury and 0 LTI. And for the image on the right side from this slide, we still -- we have placed actually the outlook that we have designed for reaching 18 million safe working hours without LTI. This safety milestone was recorded on 10 May of this year. Moving further into our ESG achievements and our plans for the future. So, in this slide, I would like to highlight that everything you have -- you see over here is actually based on public information. So, we're just reiterating, for further information you will need to allow it will ask us for any questions that we have at a later stage. So, we always think safety-first and safety-always. And with that in mind, Alba has launched a plant-wide safe and Healthy Ramadan campaign during the holy month of Ramadan. In terms of empowering people by that, we're looking at the associated within the ESG. We have 9 employees who have earned a professional Diploma in the waste management from the Arabian Gulf University, and 12 exceptional employees, including 6 women were recognized with the Inspirational Employee of the Year award. In terms of what we have done with regard to environment, so we have had 2 major events. The first one is inking associate center partnership agreement under the advanced manufacturing industries clusters with the World Economic Forum. So, cementing Alba's position as net sustainable and innovative manufacturing. We are also in the process to -- or actually, we have started the installation of the solar Photovoltaic power generation ships, et cetera. And this hopefully is expected to be completed within the end of the third quarter of this year. With regards to Alba's 2024 objectives, our CEO has announced during the CEO annual event in January of this year, 4 major objectives. The first one is the safety mirror. And he explained it as everything we do in terms of continuous improvement in our safety practices. Safety strategy refresh. This is the strategy we cover of the company, specifically with regards to our short-term strategy initiatives, strategic initiatives, and I'm going to talk about this in few slides. This is about embracing digital technologies to unlock further efficiencies. And the last strategic objective is upscaling and rescaling, empowering our employees to training program. In terms of what we are doing for the future, as we all know, Alba is in the process of contracting is the Block 4 of Power Station 5. I'm sure maybe you have read recently that we have had the first 5 Block 4. And we're pleased to say that our Power station 5 Block 4 final lock for project is in progress as per schedule to be completed in Q4 of this year. Moving further into Slide 11 -- actually, Slide 12. These are ARPU. If you have the chance to visit the company or maybe if you are on the way to Alba, you'll see the outlook that we have had for the CEO 2024 objectives. Moving further into Slide 13, which is Alba ESG. I kept the slide on purpose because we -- this is a road map. And as you see today, we are in the year of 2024. We have provided an update about Alba solar farm, which is still -- which is underway today, and hoping to have to install all the solar panels in our -- in the rooftop of our car part as well as on the rooftop of some of our buildings by Q3 of 2024. I want to mention over the years under the efficiency upgrade, yesterday, during our Board meeting, we have changed or placed the name of Line 7. So, Line 7 is no longer called Line 7, but it will because the easement time. For one reason, we will be building Line 7 because we will be replacing Line 1 to 3. So, it cannot be called Line 7. Nonetheless, it will be called the replacement line. Otherwise, everything else in the slide remains the same. In terms of our major operational highlights for Slide #14. As we all know, if you have managed to lead our financial vessels yesterday, our sales volume has stopped about 364,000 tonnes, up by about 1% year-over-year, while our production rose by about 2% year-over-year to sit at about 406,000 metric tonnes. Our value-added sales have averaged 70% of total sales corresponding to plus 10% year-over-year increase versus the last quarter of 2023. We want to reiterate, if you remember, back in January, Alba has secured a strategic 10-year gas supply deal with Bapco Energy, featuring a fixed price structure for the initial years at a competitive price of $4 per million British thermal units. We've also signed a comprehensive technology service agreement with Emory Global Aluminum for the reduction on Line 6. As you know, the technology for Line 6 is based on EGA technology. And that agreement will secure for our technical support services, as well as monitoring services and operational consultation for reduction Line 6. Moving now into Slide 15. This is e-Al Hassalah. If you remember, a couple of minutes ago, I stated that the CEO has launched in the 2024 objectives when one of the objectives on about e-Al Hassalah program. If you look at the footprint on this slide, if you remember, we have sustained e-Al Hassalah savings for the need of 2023 at $158.34 million. And e-Al Hassalah added -- the formal e-Al Hassalah program ended back in December 2022. And the achieved saving for e-Al Hassalah program in 2022 have been sustained throughout the year of 2023. However, in the wake of Industry 4.0, and as the company aims to abort digital technologies, we have launched the e-Al Hassalah program. This is a 3-year program that started in Q4 of 2024 and will be completed by the last quarter of 2026. The aim of this program is to achieve $150 million cumulate savings over the 3 years. The first year, which is this year 2024, we're planning to -- we're targeting to achieve a $60 million savings. And the same as for 2025, while for 2026, it's going to be $30 million savings. For Q1 of this year, we have achieved $29 million savings versus 60 million savings standards of 2024. What I would like to mention over the years, if a couple of slides ago, I mentioned that we have this agreement with the World Economic Forum. And our plan is to actually be part of the Global Lighthouse network for this reason. And we have this quarter, the chart that you see and the discussion that you see in front of June are actually have been reviewed by a consultant because we want to apply to be part of the Global Lighthouse network. This program will have -- will save from different millions from the sales and cash half, the plant operation, glancing, supply chain, as well as energy. So, we will be tackling this 3 million to be able to achieve the $150 million by the end of this program in 2026. Moving forward with the last slide in this section, which is the financial KPIs, I would like to mention that our EBITDA performance was driven primarily by a drop in the LME price of 8% year-over-year as well as about 28% drop in the premium. Of course, a lower EBITDA and lower net profit in terms of our free cash flow, and the free cash flow was impacted by working capital sales and have seen a good growth of about 21% year-over-year. And with that finished, I'll be happy to give the floor to the acting CFO, Ahmed Abdulqader, to take us through Section #3 and give us more insight about the rationale behind the performance of Alba within the first quarter of this year.

Thank you, Eline, and good afternoon to all. I'm pleased to have the opportunity to provide you an overview of our financial highlights for the first quarter of the year 2024. So, if we start at Slide 18, and looking at our sales bridge for the first quarter and the year 2023 in comparison to quarter 1, 2024. We have seen that our turnover has dropped by approximately $100 million, and this is mainly due to a decline in the LME price overall in the around $200 per tonnes. As well as we have witnessed a decrease in the market premium prices by our interact. So however, the negative impact were partially offset with our high sales volume in the quarter by 3,000 metric tonnes. So, if we move to Slide 19, and looking to us as the chart on the left-hand side, we can see that our sales volume has increased to 363,000 metric tonnes, and this is mainly driven by a high sales volume and our value-added product. And as Eline explained in the slide, the year-to-date value-added percentage of sales is now 70%. Now despite with our strong VAP sales volume, we could see the chart on the right shows down our average premium drop to $206 per metric tonnes, and this is generally because of the market premium prices has dropped in the market. So, if we move on to Slide 20 on the direct cost approach. We have seen an improvement comparing to the same quarter of the last year. And this is mainly due to the drop in the raw material prices, especially on our GPC material and even on the other raw material. But however, this price reduction, this program has been offset mainly due to our higher production in this quarter when compared to the last quarter in the year 2023. So, this would bring us to our EBITDA rechart, Slide 21. And this shows that our EBITDA for the quarter is $180 million, and the EBITDA percentage is 20%. Moving to Slide 22. Turning to our working capital and cash flow, we close the quarter with a cash balance of $215 million. And when it comes to our capital spending record at $42 million, we have Alba group working capital changes around $33 million. The spending on Block 4, the project of Block 4 is $8 million, and our dividend payment in the year has been $60 million. So, this brings us to the final slide and the financial highlights section. And this would be our overall summary of our key financial highlight in this quarter of the year. So, in conclusion, when we paid some headwinds from a lower LME price and the market prices were made to have a high strong sales volume. It will remain to be disciplined in our cost spending. So, this makes our net profit for the year to $65 million and our EBITDA of $180 million. And we remain in compliance with our covenant, the financial covenant. And this brings to the end in my section, and I will now hand it over to our CEO, Chief Ali Baqali, to cover the rest of the slide. Thank you, all.

Thank you, Ahmed. Thank you, Eline. Good morning, good afternoon, everybody. I will take you for the last 2 sections, the industry perspective, and other priorities. Page 25, which is related to that retrospective market influenced by several factors, such as demand and supply. And we can see that the net demand is likely to be pushed and increased by the construction factors mainly in Europe. And in the North America, it will be backed up by quarter 3 and quarter 4 in order to cover the market demand here. There is good news, maybe for the aluminum maybe in terms for us. Yesterday, President Biden, he imposed a new tariff on certain goods, mainly steel and aluminum, which is 25% on goods imported from China. This definitely it will impact the aluminum market, and maybe it will push the price little bit up and the premium also to be going up a little bit. Also from the industry perspective, what we can see that the issues still continue for Alba. At the beginning, we are having our own plan B in order to deliver our metals to our customers safely and on the right time, within our own exercise if we look to the customer in order to put the plan in place. We managed to shift a lot of cargoes ahead of our plan by drag pulp in order to make sure that we have sufficient inventory to meet the customer demand. However, in terms of the forecast based on the CRU podcast production, they are estimating they will be within the range of $2,250 per visit tonnes to THB 2,350 per metric tonnes. But if you look at the price today, the price is above 2,400, from day-to-day is different. But personally, I think that maybe the price will be standard in 2,400 by the end of the year. Moving to the next slide. Slide 36, which is about raw material prices. Unfortunately, in the beginning of the year, Alcoa, they announced their plan to shut down the Kwinana refinery. The Kwinana refinery, it is located in Australia, and debt capacity is around 2.1 million tonnes. Once they announced that closure, the LME price increase and reached above $400 per average tonnes. And just for your information in order to produce 1 tonnes of aluminum, we needed 2 tonnes of LME. For the rest of undrawn materials like the aluminum chloride, we noticed that there's also a slight increase in the price, but this is almost it will be maintained or there's no big issue in terms of increase enterprise for the coming few months. However, the GPC, CPC, and all the supply is still under pressure because of shortage of the main raw material in China. However, the liquid pitch, we see there is some single indication that the price is reducing a little bit. Moving to the last section in the IR presentation, which is our priority by the end of the year or 2024. Definitely, safety is a top priority for us. We achieved 18 million hours without lost time injuries on last weekend. And this is an indication that we are moving on the right track in terms of getting awareness to our employees. The big challenge now for us is the coming summer. We know that behind and the GCC in summer, especially in June, July, August will be a tough somewhat similar to last year, but we did all our preparation to make our employees and the plans safe by having our own plan to mitigate the summer challenges. Also, one of our targets or objectives we have to achieve it in terms of operational side. We are towards achieving our finished production by the end of the year. We would like to target more than 1.6 million tonnes, which is our always a challenge to exceed the previous year projection. And as Eline mentioned also in the beginning of the presentation, we introduced this year, e-Al Hassalah. It is a 3-year program, targeting 150 million. And so far, I think we are doing good. And we are going to continue on a quarterly basis to update you with the progress of e-Al Hassalah. However, from other perspectives, we are pushing to achieve completion of Block 4, which adding capacity to our power station by 680 megawatts. This will enable us once we complete the project fine quarter for this year. We will be more efficient in terms of utilizing the natural gas as well as reduce our carbon imaging opportunity by maybe 0.5 copper intensity percentage. Regarding the certifications, we are very proud also to announce that we get a Listenium certificate in Covet this time. This is -- I think we are the first maybe smelter in the region because this recognition, however, also maybe just before 1 week, we announced also our new product called EternAl, as Eline mentioned. EternAl is a low-carbon product 15%, and terminal 30%. And this will be helping us to have a new project in the market with low carbon emissions. So far, regarding the new line, the new replacement line, which is the previously line 7, we discussed this, and the fact I submit the Class 3 is steady. However, based on the discussion during the Board and we request Bechtel to run the numbers in different spend of requirement, and we are going to update everybody and later on, on the renewal business Line 7. By this, I end the presentation, and I will leave the floor now to Eline to get any questions and we are willing to answer.

Thank you. Back to you, Nadia.

Thank you so much. [Operator Instructions]. And now we're going to take our first question over the phone line, and it comes from the line of Aakarsh Tomar from SICO.

I have one question on the financial costs. Can you comment and give some more color, what led to the reduction in interest expense, so they almost half if we look quarter-on-quarter, and debt hasn't changed much. So, if you can give some more color there. Thank you.

Thank you for the question. So, to me, to get your question very clearly. So, you're referring on the finance costs only and the interest costs and compare to last year?

Yes, yes. Compared to quarter 4.

Yes, yes. So generally, our interest cost on the financing cost of the need to be consistent, although you might see there is a bit difference when compared to the last quarter. And this is mainly due to the recognition of the transaction costs. So, the amortized portion of transaction costs, we have to recognize it since we have settled some of our ACA facility. But overall, the market fell high when it comes to the interest rate and the sulfur rate. But the good thing that we have an IRS position, which going to hedge our corporate loan facility at 30%. So overall, the market too to be high interest costs, but we managed to offset that due to our IR position.

Okay. So just to be clear, should we be expecting the same levels as seen in this quarter or the previous quarter? What would be the normalized level for interest costs?

Of course. So, the majority should remain consistent because most of those specialty, their interest, the offers has been taxed. But anyhow, we have to see the volatility. So, depending of the federal reserve has made an announcement of cut in the federal rate, so that will have also some implication. But overall, we expect it to be consistent, and even our working capital to be consistent throughout this period.

Now we're going to take the next question. And the question comes from the line of Nour Sherif from Arqaam Capital.

Thank you the opportunity to ask questions. Just a couple of questions for me, if I may. We can take it one by one. We have seen in Q1 a drop in volumes compared to last quarter. Can you explain if that's just seasonal or due to some of the delays regarding Red Sea conflict?

Okay. Thank you for the question. If you allow me, I will take you into the slide where we have mentioned along our volume. It was also clearly explained by our acting CFO. So, if you look at this slide, you note that our sales for Q1 2023, they set at 360,000 metric tonnes. We had an additional 22,000 metric tonnes for value-added sales, 2,000 metric tonnes for liquid muscle, and we had a drop of about 21,000 metric tonnes in our commodities. That will take us to an addition of 3,000 metric tonnes year-over-year.

The value in terms of dollar, yes, it's lower the revenue. But in terms of spending, we're higher, it all depends on the LME prices. Volumes are higher.

The volumes were up by 3,000 tonnes versus Q1 2023.

I'm just comparing it to last quarter, Q4.

Yes. Okay. If that is the case, then I tell you usually, every quarter, if you check our performance for the last -- as far as I remember, for more than years, if you check every Q1, usually, our sales volume is slightly less, but we will be able to catch up starting from Q2 onwards. So, it's like Q1 is like the cooling season for so usually, sales are slightly less than other quarters.

Okay. And regarding the Red Sea conflict, do you see any risk regarding the security of raw materials?

No. Actually, we don't have this issue because when we are actually receiving or importing of alumina, it doesn't come through the Red Sea. We usually, the Red Sea is mainly -- I mean, when we export from Bahrain to elsewhere in the world, we use this route or we take also all of the route.