Borouge plc (BOROUGE) Earnings Call Transcript & Summary

Good afternoon to everyone. And thank you for joining us today for Borouge's First Quarter 2025 Results Call. My name is Samar Khan, Vice President of Investor Relations at Borouge. I'm pleased to be joined today by our senior management team: Chief Executive Officer Hazeem Sultan Al Suwaidi; Chief Marketing Officer Roland Janssen; Chief Operating Officer, Dr. Hasan Karam; and Chief Financial Officer Jan-Martin Nufer. We'll begin today's session with a presentation by the management team in respect to performance for the first quarter as well as our outlook for the year. We'll then open the call to your questions. As a reminder: Today's presentation is available on our investor relations website. And with that, I'd like to hand over to our CEO to present the highlights.

Thank you, Samar. And thank you all for joining us today. I'm pleased to share that Borouge has delivered a strong performance in the first quarter of 2025 despite the ongoing global macro uncertainty and recent volatility in the markets. Borouge achieved a net profit of $281 million in Q1, representing an increase of 3% on a year-on-year basis driven by higher sales volumes, strong production and continued cost discipline. We recorded an adjusted EBITDA of $564 million, delivering a minimum 40% EBITDA margin consistently over the last 7 quarters as we sustain the efficiencies from the value enhancement program. We also paid the 2024 final dividends of $650 million on the 28th of April, enabled by our strong cash flow generation. At our recent AGM, we increased our dividends guidance for the year 2025 to 16.2 fils per share, representing an aggregate dividends of $1.33 billion. Looking ahead, we are excited about the proposed formation of Borouge Group International, bringing together Borouge, Borealis, Nova Chemicals into one integrated platform. This transaction is on track to close in Q1 2026, subject to regulatory and antitrust approvals; and will position the combined company for global growth, innovation and long-term value creation. I will speak more about this later, but first, let me hand over to Roland Janssen, who has taken over as Chief Marketing Officer from Rainer. Roland will provide an overview of pricing and commercial performance.

Thank you, Hazeem. And good afternoon, everyone. To briefly introduce myself. I had the privilege of rejoining Borouge in March this year, succeeding Rainer Hoefling as Chief Marketing Officer. With over 25 years of global experience in the chemicals industry, including 16 years with the Borealis and Borouge family, I'm honored and deeply committed to lead the marketing organization at such an important time. Now let's take a look at the business. From a pricing perspective, quarter 1 saw some encouraging trends despite underlying benchmark flatness. Average selling prices improved, plus 2%, quarter-on-quarter, supported by stronger pricing in February and March. We saw consistent improvement in premia. Both metrics remained above our through-the-cycle guidance, demonstrating the strength of our premium product mix and pricing resilience we retained in targeted applications such as infrastructure and advanced packaging. The market remained relatively subdued, but our pricing execution was well supported by product mix optimization and active regional management of netbacks, particularly in Asia and the Middle East. In terms of sales volumes, we delivered 1,252 kilotons in quarter 1, representing a plus 10% increase year-on-year. Compared to quarter 4, volumes declined 15%, which aligns with typical seasonality primarily due to Chinese New Year and this year, Ramadan, along with a higher base at Q4. Our ability to tactically allocate volumes to the most attractive markets remained key. 59% of our sales volumes were directed to Asia Pacific, where infrastructure demand remained resilient; and 31% to the Middle East, which continues to offer strong logistics and pricing advantages. We also continued to prioritize high-value applications, with over 38% of our volumes in quarter 1 coming from value-added energy and infrastructure. Overall, we are seeing strong customer retention and continued preference for Borouge's differentiated solutions. We are also proactively looking to support our customers in regions that have been impacted by tariffs, which we see in the near term as an opportunity for Borouge. With that, I'll hand over to Dr. Hasan for an update on operational performance.

Thank you, Ronald (sic) [ Roland ]. And good afternoon, everyone. Operationally, Borouge delivered another quarter of strong performance and reliability. Utilization rate remained high at 101% for PE and 98% for PP during the quarter. We produced a total of 1.3 million tonne, up to -- 7% year-on-year, driven by [ 23% ] increase in PP production. Importantly, March marked our highest-ever monthly production on record, which is testament to the quality and resilience of our asset base. I would like to emphasize the central role of our operational excellence program and maximizing production volume while maintaining the highest safety standards. In relation to our ongoing maintenance planning, we are progressing on schedule with the planned Borouge 3 turnaround in Q2. This turnaround is the largest and most complex turnaround project ever undertaken in Borouge. The key strategic objective of this mega event includes major overhauling of all B3 critical assets; 88 debottlenecking modification to enhance asset performance; and more than 400 tie-ins related to our growth project for Borouge 4, PE4/PE5 revamp and hydrogen extraction project. We are fully prepared to manage with minimal commercial disruptions as we coordinate our turnaround's timing proactively to optimize our production and in full alignment with our sales and logistics teams. With that, I will now pass over to Jan-Martin to take you through the financial performance.

Thank you, Hasan. Good afternoon, everyone. Turning to the financials. Total revenue for quarter 1 came in at $1.42 billion, reflecting a 9% year-on-year increase supported primarily by higher sales volumes. On a sequential basis, revenue declined 12%, consistent with the seasonality we've discussed and lower sales volumes relative to Q4. Adjusted EBITDA was $564 million, on the same level as Q1 last year. Importantly, we sustained our 40% EBITDA margin, demonstrating continued pricing discipline and sustained positive benefits of our value enhancement program, which structurally improved our cost base. Net income increased by 3% year-on-year to $281 million, with our strong cost control and commercial focus helping to offset macro softness. We continue to generate high-quality earnings and the business remains well positioned to maintain profitability across cycles. On to the next slide. Let me now turn to our cost performance. Cost of sales increased 20% year-on-year, reflecting higher production and sales volumes. However, as a percentage of revenue, cost of sales remained relatively stable. Selling and distribution expenses were down 38% quarter-on-quarter due to a one-off item. On a year-on-year basis, S&D was down 6%, which we view as a strong result given the volume increase. G&A expenses increased 19% year-on-year and 87% quarter-on-quarter, largely due to timing of certain expenses. That said, our structural cost base remains lean, and we continue to look for new avenues to drive efficiencies. On to CapEx and cash flow. On capital expenditure, we spent $41 million in Q1, mostly related to the B3 turnaround and planned upgrades. Our overall CapEx management is very efficient and we continue to maintain flexibility to deploy capital in a disciplined and return-focused manner. Adjusted operating free cash flow was $523 million in Q1, translating to a very strong 93% cash conversion ratio. Following approval at the AGM, we have successfully commenced our share buyback. This reflects our strong confidence in the compelling value of our shares, supported by tangible growth prospects. Our net debt-to-EBITDA as of the 31st of March 2025 stood at 0.9x. And we have ample liquidity to support our dividend, share buyback and future investment needs. We remain committed to preserving a strong balance sheet while enhancing shareholder returns. With that, I'll hand back to Hazeem to walk through our outlook and strategic direction.

Thank you, Jan-Martin. Looking ahead, we remain optimistic, while macroeconomic conditions remain uncertain. The fundamentals in our core markets remain supportive, particularly in Asia and the Middle East. We expect continued resilience in infrastructure demand driven by global mega trends and are actively managing our volume allocation in response to regional pricing signals and logistics costs. Our cost base remains lean. Our margin profile is strong and our high-value product strategy continues to deliver. We have increased our full year 2025 dividends guidance to 16.2 fils per share, which represent an attractive yield of over 6% at the current share price. To conclude. Q1 2025 was a strong quarter for Borouge demonstrating once again the resilience of our business model and the consistency of our execution. Since its IPO, Borouge has distributed $3.6 billion in dividends, offering one of the highest dividend yields on the ADX. Further, we have successfully commenced a share buyback on April 8, demonstrating our strong confidence in the value of our business, our tangible growth agenda and our proactive approach to shareholder returns. With the creation of Borouge Group International, shareholders are expected to benefit from significant earnings growth and attractive new dividends policy. ADNOC and OMV, the main shareholders in Borouge Group International, have announced their intention to offer a minimum of 16.2 fils per share annually from 2026 to 2030. I would like to reiterate that BGI brings not only global scale but also enhances our cost advantage through integrated access to global feedstock and creating a globally efficient platform, allowing us to achieve the best netbacks: our product leadership expanding beyond infrastructure, into automotive, energy and sustainable packaging; our technology and R&D depth through proprietary technology and innovation across all 3 companies; and our sustainability impact through global ESG leadership and circularity platforms. The combined entity will have through-the-cycle EBITDA of $7 billion, which represents substantial growth coming from near-term completed projects, efficiency programs, derisked synergies of at least $500 million per annum and market normalization. We remain focused on delivering this transition smoothly and continuing to execute at the highest level along the way, as you can see from our strong performance this quarter. Thank you. And we welcome your questions.

[Operator Instructions] Our first question comes from the line of Ricardo Rezende of Morgan Stanley.

Just going back on one of the points you mentioned on the resilience of offshore demand. Would you say that, given your product exposure and the segments that [ you're more selling to ], you would be a little more isolated from any potential impacts from tariffs on petchems? And then the second question is on the CapEx. As we have the turnaround on the second quarter, would you mind commenting on how should we think about the CapEx breakdown for the year? And how much would the second quarter represent on total CapEx for the year?

Thank you for the question. Roland, do you want to -- I think the first part, if I got it correct, was on the product mix we have. And then the second half of that question is on the impact on tariffs. Go ahead, Roland.

Yes. So thank you for the question. So regarding the product mix: So we have a very robust mix which is fairly resilient in the market and, let's say, less exposed to the fluctuations. When it comes to the -- let's say, the tariff situation, I mean, we are monitoring those developments across the world very closely. We continue to support our customers around the world. And yes, as you know, this situation is evolving very rapidly, so we're very close onto that. We ourselves have a very minimal sales into the United States, so we are not that much exposed as a company. While we saw some impact from the situation, we also see actually opportunities coming our way that are created as a result of these, let's say, the tariffs. And despite any short-term market changes, and I believe this is important, we remain focused on the long-term picture, which we believe continues to be very robust. And we continue to position ourselves for the long-term growth and are optimistic about the long-term fundamental demands in the polyolefin market.

Perhaps Dr. Hasan can answer. Maybe give update, Dr. Hasan, on how -- the progress we make on the turnaround. And then Jan-Martin can also complement it with the CapEx execution. Go ahead, Dr. Hasan.

Thank you, [ Sultan ]. First of all, we did a great sort of -- the preparation ahead of time in order to have this -- sort of the readiness toward the mega turnaround. And so far, with a great sort of collaboration with the contractors, we are progressing in an advanced stage. We're comfortable that, inshallah, we'll be on plan with the around.

Yes. And Ricardo, thanks for the question on the CapEx. Let me also reiterate on that one. So first of all, CapEx execution is going very well and according to plan. As I said in our last call, with the turnaround year, we're going to be above the guidance that we have been giving in terms of the CapEx for the normal periods. So expect that to accelerate now for the rest of the year, but as said by Dr. Hasan, we are well on track with the execution.

We have a question coming from the line of Afaq Nathani of International Securities.

Just a couple of things from my side, please. Firstly, on the general and admin, I noticed something mentioned about the one-off. And I just wanted to understand the nature and magnitude of this, if you could, please. Secondly, impressive product premiums in the first quarter, but just wondering how the overall market has been impacted following the tariffs and the lower oil prices. Also, if you could give some color on how we should expect the ethane prices to change for you following the sharp decline in oil prices recently.

Sorry. Could you repeat the first question?

Yes. So the first was just on the general and admin expenses. And you mentioned there was some onetime adjustment. And I just was wondering what was the magnitude of this one and the nature of the adjustment in it.

Okay, let me try to take that. It was acoustically hard to understand, but let me give it a shot. So first of all, I think the one-off item that we have been mentioning was on S&D expenses, right, where we have a one-off effect, a one-off positive effect, about an incentive payment, yes. On the G&A side, the increase that we have been seeing were mainly related to service cost and personnel costs.

Okay, all right. And just for the second question, please.

Go ahead. I think this -- yes, go ahead, Roland.

Yes. So for the second question, if I understand it correctly. So we see, of course, at the moment -- with the oil price coming down, we see, let's say, the market following that direction, but if I look at, let's say, our portfolio -- and again, we are very resilient. And we are operating in segments that are from a pricing perspective more resilient. And we -- and it allows us also to focused on, let's say, the higher-value or higher pricing type of applications, so we continue to see a robust performance both in terms of pricing and in terms of volumes. I hope that answers your question.

Yes. And if you could give some color on how we should expect the ethane price to change. Because it gets difficult for analysts to have some visibility on that. So given the decline in oil prices, should we expect the cost side of things to materially come down as well?

Sorry. Did we understand the question correct, that you have been investigating around the ethane price impact?

Yes, that's correct.

Okay. So let me answer on the ethane. So we have, as you know, a long-term contract with ADNOC on the feedstock provision. And there is no change in the ethane price, except for the price reset that we have been communicating at the IPO that will come into place end of '27, but there is no change to the ethane price otherwise.

We have a question from Alex Comer of JPMorgan.

So a couple of quick questions from my side. Firstly, in terms of the tariffs and what looks like a potential lockout from the Chinese market from -- of U.S. exports, would you be in a position to benefit from higher premia, in that situation, for your sort of specialty products? So in other words, do you think your premia are likely to go up over the next couple of quarters? That's the first question. And then look just in terms of the buyback and the dividend. It seems to me that the buyback is probably going to be, I don't know, maybe 400 million. You've got $1.3 billion dividend last year, $1.3 billion this year. And then you're going to $2.2 billion, so that means that you're paying out about $5.2 billion. And then you're going to ask for most of it back with a 4.7 billion, I think, equity issue, so first of all, kind of what's the thinking there? And then when I look at this number for $2.2 billion of the new dividend going forward, assuming that the 16.2 fils payout is locked as well, that seems to employ -- imply a sort of very significant discount to any rights issue you do, so just maybe you could just talk me through the thinking and my maths on that.

So first of all, thank you for the questions. And I will try to address the first question. So to be very short, the answer is yes. You are asking for opportunities, particularly in China. I just want to come back to the comment I made earlier on that we are monitoring these developments on a very daily basis or hourly basis almost. That's how fast it changes. And of course, what we see is -- and I'll give you an example here. If shipments from the U.S., into China, are impacted by tariffs, that creates an immediate opportunity for Borouge to take over and position and help our customers in those kind of situations. So that's a specific example and -- let's say, that we see with the tariffs coming up.

So -- and let me take the question on the share buyback. Or if you -- do you have another question on the tariff, to follow up?

No. That's fine.

Okay, very good. So on the share buyback, look. I think the general trajectory is very clear. We have a clear view on the value of the shares, which here we see an opportunity. 2.5% is the total that we have been communicating. It's reflecting clearly our confidence in the long-term growth prospects. And we think that this is underpinning our delivery of superior returns to the shareholders, so we think it's the right time to do so. The share buyback, so far, has been very successfully and -- executed. Obviously we reserve the right to look at the magnitude. What we're doing, 2.5%, is the maximum that we have been communicating. On the dividend proposal, you rightfully pointed out the 16.2 fils as an increased dividend. We think that this is a very good proposition in terms of further putting a minimum commitment in there as an intention for the dividend going forward. Now if it comes to the $2.2 billion that you have been mentioning as a dividend upside: This is obviously based on the future growth prospects which we are seeing as a potential for the Borouge Group International. And that is a peg in terms of giving a 90% payout ratio that we're having communicated versus the net profit. Everything forward looking on BGI, we will then further communicate on that. But it gives you a strong profile in terms of a minimum dividend line as an intention plus an upside potential for the shareholders in respect to generating additional shareholder value.

Okay. So to be clear: The $2.2 billion is more of an aspirational number than a fixed number.

So the -- what we have been communicating as a very good peg for our shareholders in terms of the intended minimum dividend as a floor is the 16.2 fils per share.

Right, okay. And then the logic of paying out big dividends and then asking for it back in an equity issue...

Well, that's essentially then for the Borouge Group International progress to conclude. We wanted to make sure that we have a clear messaging out to the market in terms of the dividend accretion. That's why we have been putting together, a, an increase of the dividend from 15.8 fils to 16.2 fils on a Borouge intention basis. And secondly, we have been putting that forward as the floor for Borouge Group International.

[Operator Instructions] We have a question from Prateek Bhatnagar of HSBC.

I have 2. The first one is on your shutdown, the B3 shutdown. So during the shutdown, how will the feedstock supply to you change? So do you continue to get the same quantity of ethane from ADNOC which will allow you to run your B1 and B2 plant at high operating rates? Would it happen? Or the ethane supply also kind of reduces. That's question number one. Question number two is on the Chinese polypropylene market. So in the last few weeks, due to tariffs, are you seeing lower domestic Chinese polypropylene production because of lower propane availability? So needed your color on that.

Okay. If I can answer the first question. From the Borouge 1 and Borouge 2, we are assuring that it is running at a maximum utilization, sweating asset at a maximum, so there is no any sort of the shortage of this ethane towards Borouge 1 and 2. Having said that, with Borouge 3, we are having a clear -- sort of the synchronized plan in order that, if we are going also to optimize and came back with the Borouge 3, we will have a great coordination with the ADNOC guys to supply as soon as possible the ethane to the Borouge 3.

The second question I had was on Chinese polypropylene market. In the last few weeks, are you seeing lower Chinese domestic polypropylene production due to lower propane availability in the country?

Okay, maybe perhaps you can talk a bit on PP on China.

Yes. So maybe if again -- so the sound quality was relatively poor, so I hope I understood the question correctly and I'm going to address it correctly as well. So if you were asking for the local polypropylene situation in China and how it is impacted by the tariffs -- is that a correct understanding?

Yes.

So again. So this is hypothetical because it doesn't really affect us, but if you, let's say, follow the tariff situation and the products that are affected -- and again I have to reiterate that this change is almost on a daily basis. It is very likely to assume that the -- let's say, the production cost for producing polypropylene in China is going to increase because most of the feedstock, to our knowledge, that let's say the Chinese polypropylene producers will utilize will come from the United States and as such will be subject to the tariffs. So yes, that again might then find its way into the overall polypropylene market, which then again creates an opportunity for different pricing positions moving forward. But again I have to say we are not affected by that. This is us speculating or trying to explain what we know about the market. And we are monitoring, again, this on a daily basis. And we are helping our customers here where we can, but we also, let's say, utilize it as an opportunity, of course, where we can. And I hope this answers your question.

Yes, it does.

We have a question from Alexander Estefanous of UBS. "Congratulations on the results, team. Just one for me. How do you see the pricing environment changing in Q2? With the potential pickup in domestic and Asian demand, do you see that a potential tailwind?"

Go ahead.

Yes. Let me take this question as well. So it's difficult to say because there is so much -- or so many elements and so much fluctuation right here. So overall there's a few underlying drivers. So we all see that oil prices are down. So that has an immediate impact also on our markets, but secondly and just coming back to the example I was just referring to in what we see in China, we also see drivers that actually would imply an increase in price. We see at the moment a market that is wait and see. So it's relatively soft, but we also see that -- again, that there is a robust and continued demand in the segments that we operate, so overall a very volatile market but a market with opportunities; and if I, if we look at our own portfolio and, let's say, the segments that we serve, a strong market for us moving forward.

We have a question from Harsh Kadam of ABI Analytics. "When do you plan to consolidate Borealis into your financials?"

Yes. Thanks. Let me take that question. So this is a question that relates to the formation of Borouge Group International. And the current time line that has been communicated in the framework of the transaction is around Q1 2026, subject to regulatory approvals.

We currently have no further questions, so I will hand back to Mr. Hazeem Sultan Al Suwaidi, CEO, for closing remarks.

I would like to thank you for being with us in these excellent and great results in Q1. We are looking forward really an excellent year of 2025. And hopefully, we see you in reality soon, or we get together also in Q2 results. Thank you for being with us. Take care.