Borouge plc (BOROUGE) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us today for Borouge's First Quarter 2026 Results Call. My name is Chris Bucknall, Vice President of Investor Relations. I'm pleased to be joined today by our senior management team, Chief Executive Officer, Hazeem Sultan Al Suwaidi; Chief Operating Officer, Dr. Hasan Karam; Chief Marketing Officer, Roland Janssen; and Chief Financial Officer, Jan-Martin Nufer. Today's call will begin with a presentation from the management team covering our first quarter performance, the operating environment and our outlook. We'll then open the line for questions. A copy of today's presentation is available on the Investor Relations section of our website. With that, I'll hand over to our CEO, Hazeem.

Thank you all for joining us today. Q1 was delivered in a very challenging environment, and our performance underscores the resilience of the business and the strength of our execution. Safety is always our first priority, and this was a key focus for us. I'm pleased to report that all our people were kept safe, and we delivered an exceptional safety performance overall. We achieved a strong production result of 1.2 million tonnes with asset utilization close to nameplate capacity. Our operation business continuity plans were tested and proven. Sales volumes in Q1 remained resilient at 1.1 million tonnes. In these difficult circumstances, Borouge delivered a robust EBITDA margin of 29% and net profit of $156 million despite cost increase and reduced sales volumes. As a consequence of the regional disruption, the balance in the polyethylene market has changed quickly from oversupply to a global shortage, increasing prices significantly. This will support our financial performance in 2026. Logistics disruption was one of the key challenges we faced in Q1. As the situation emerged, we activated contingency plans, which enabled us to successfully reroute 61% of March production through alternative logistics channels with remaining volumes placed into storage for shipment in the second quarter. Throughout this period, we remain focused on maintaining reliable supply to customers and our logistics flexibility and planning capabilities continue to support delivery across our markets. Turning to financial results for Q1. Comparing Q1 2026 to Q1 2025, production and sales volumes were stronger and pricing was at a higher level last year. Average selling prices in January and February 2026 were weak as benchmark pricing passed through a low point. Q4 2025 was also an exceptional quarter for production and sales volumes, which both reached record levels as the plant was able to operate above nameplate capacity. Sales volumes were disrupted in March 2026 as a result of the regional events and logistic cost increase. Unsold products were placed in storage for sales in Q2 in a higher price environment. Despite all of these challenges, the business continued to generate strong cash flow and profitability with adjusted EBITDA of $343 million and operating free cash flow of $295 million. In April, shareholders approved a final dividend of 8.1 fils per share for the second half of 2025, delivering on our full year commitment of 16.2 fils per share. With that, I'll hand over to Dr. Hasan to take you through the operational performance in more details.

Thank you, Hazeem, and good afternoon, everyone. I'm very pleased to report a very strong operational performance in challenging conditions during the quarter. This is, thanks to the hard work and dedication of our people who demonstrated their commitment, determination and creativity to resolving operational challenges. Across both polyethylene and polypropylene utilization rate remained close to the nameplate capacity through Q1, reaching 99% and 98%, respectively, reflecting strong operational discipline and reliability across the portfolio. This supported robust production of 1.2 million tonnes during the quarter. Importantly, despite a challenging geopolitical environment in March, operational performance remains strong with the assets running reliably and flexibly in support of customer demand. Looking ahead to quarter 2 utilization is expected to be lower than Q1 following the incident at Borouge on 5th of April, which resulted in some damage to production equipment. Following additional repairs to some of our affected lines and a phased restart of the plant, most production units are available and utilization is ramping up. Turning to an update on Borouge 4. I'm pleased to confirm the first production from the XLPE 2 unit which produce high-margin cross-linked polyethylene was achieved in early April. The remaining Borouge 4 units are scheduled for commissioning to 2026 and work is ongoing at site to finalize the installation. On the commercial side, on 19th March, Borouge announced a new asset usage agreement with ADNOC and OMV, the current owners of Borouge 4. Under this agreement, Borouge has been granted full operational control of all Borouge 4 units, including the exclusive right to market the associated product volume. In return, Borouge will pay a utilization-based fee with no upfront capital investment requirement. The asset usage agreement is expected to be value accretive for Borouge over the 3 years and following the ramp-up of the project. It is projected to generate around USD 400 million of cumulative net profit and 10% earnings accretion. We are looking forward to ramp-up phase, and we are excited about the new capability and advanced products that Borouge 4 will be adding to our portfolio of the world-class assets. Looking forward to potential future growth opportunities, we issued a disclosure to the market on 17th of April that we have now signed a 50-50 joint venture agreement with Wanrong New Materials relating to the proposed 1.6 million tonnes cracker and polyethylene project in Fujian, China. This agreement is based on the project collaboration agreement that was announced in July 2024. The JV agreement established the governance and financing framework for the next phase of the project and is subject to regulatory approval. China remains the largest and fastest-growing polyethylene market globally and the project will leverage Borstar technology alongside Borouge's existing sales network in the region. With that, I will now pass over to Roland to walk you through the commercial performance and market outlook.

Thank you, Dr. Hasan, and good afternoon, everyone. We have all seen the very dynamic conditions in the polyolefins market since the beginning of March, which have been evident in published benchmark pricing, although we caution that this data does not always reflect real-time pricing dynamics accurately in today's highly volatile market. The market has shifted rapidly from a surplus in January and February to an acute global supply shortage following disruption to both feedstock supplies and finished goods exports from the Middle East. In particular, naphtha feedstock constraints in Asia have forced many producers to curtail production, immediately tightening supply. Worldwide, all nonintegrated polyolefin producers face higher feedstock costs if they can obtain supplies, which are then directly passed on to customers in the form of higher finished goods pricing. This has translated into a sharp uplift in prices throughout March and into April, as you can see here in the top right-hand chart. Our customers are well aware of the acute global supply shortage at present and are increasingly willing to pay higher prices to secure their supplies. Looking ahead, we expect dynamic market conditions to persist in the near term with benchmark pricing forecast to remain elevated through the second quarter and potentially beyond, depending on how the regional situation evolves. Importantly, we continue to see strong underlying demand for our products and Borouge is positioned to benefit from higher realized selling prices on the volumes we ship to the market. Over the long term, demand remains structurally strong with growth in Borouge's core markets expected to outpace GDP, supported by global megatrends. Looking at the results for the quarter, average selling prices are weighted towards January and February due to the higher sales volumes in those months. We saw quite weak benchmark pricing. Even so, the sharp increase in pricing in March has lifted the average for the quarter by USD 40 per tonne for polyethylene and USD 57 per tonne for polypropylene versus the fourth quarter in 2025. During March, prices increased by 62% based on the average of orders received in the last week of March versus the average realized prices in February, reflecting the global supply shortage and disruption to regional trade flows. Measuring quarterly premia against benchmark prices can be inaccurate during a period of such sharp price movements. But according to our normal methodology, Borouge continued to deliver a strong premium of USD 196 per tonne for polyethylene and USD 107 per tonne for polypropylene, well above benchmark markets. Looking ahead, the higher pricing environment has continued into April and current market indicators suggest this trend is expected to continue at least throughout the second quarter. Turning now to sales volumes. In the first quarter, we delivered sales of 1.1 million tonnes, down 13% year-on-year, mainly due to the logistics disruption in March. Production of 1.2 million tonnes exceeded sales by 123 kilotons. Using alternative logistic routes, we were able to ship 61% of March production with the surplus held in storage for sale in the second quarter. As part of our alternative logistics strategy, we increased sales via additional land freight into the Middle East and Africa region, which accounted for 39% of total sales volumes, up 7 percentage points quarter-on-quarter. Sales into Asia Pacific, our largest market, accounted for 52% of total volumes during the quarter. We maintained our strategic focus on higher value-added segments, including Infrastructure Solutions, which represented 39% of total sales volumes, broadly stable quarter-on-quarter. As part of our ongoing optimization strategy, we continue to prioritize markets that offer the most attractive netbacks. This is increasingly important during this period of volatility as realized pricing can vary substantially between different geographic markets at the moment. Across the portfolio, customer relationships remain strong with continued preference for Borouge's differentiated solutions, reinforcing our competitive position. With that, I'll hand over to Jan-Martin to take you through the financial performance.

Good afternoon, everyone. Turning to revenue. We delivered a resilient top line performance in the first quarter despite the challenges that emerged in March and relatively high pricing in the prior year comparative period. Revenue of $1.2 billion reduced by 30% quarter-on-quarter and 17% year-on-year, reflecting both lower average pricing in January and February and reduced sales volumes in March as a result of the logistics disruption. This was partially offset by strong operational execution and the recovery in pricing in March. Overall, the revenue performance highlights the underlying resilience of the business and the effectiveness of our commercial strategy in a dynamic market environment. Turning now to EBITDA and net profit. Borouge continues to be one of the most profitable polyolefins producers globally on a margin basis. In the first quarter, we delivered a robust EBITDA margin of 29% and a net profit margin of 13%, both of which remain well above the global peer group. Adjusted EBITDA for the quarter was $343 million, reflecting the impact of lower sales volumes, particularly in March following the logistics disruption. Compared with prior periods, this represents a 43% decline quarter-on-quarter and a 39% decline year-on-year. Net profit for the quarter was $156 million, similarly impacted by the March disruption and weak pricing in January and February. A key driver of this resilient performance is our industry-leading cost position and the ongoing operating cost efficiencies Borouge has been delivering, which I'll come back to in more detail shortly. Turning now to cost performance. Borouge continues to maintain an excellent cost position, ranking in the first quartile of the global polyolefins industry. This advantage is underpinned by our long-term feedstock supply, economies of scale and the use of modern technologies and AI-enabled tools to enhance production efficiency. We also continue to execute strongly under our Accelerate for Growth program launched at the end of 2022 to respond proactively to evolving market conditions. The program combines revenue enhancement and cost improvement initiatives across 3 levers: operational excellence, sales and marketing excellence and cost excellence and is expected to deliver meaningful contributions again in 2026. As a result, our overall operating cost base remained tightly managed throughout the quarter. Cost of sales decreased by 28% quarter-on-quarter and 6% year-on-year, broadly in line with the reduction in sales volumes. Selling and distribution expenses increased by 39% year-on-year and 9% quarter-on-quarter, reflecting higher shipping and freight costs following the logistics disruptions in March. General and administrative expenses declined by 26% year-on-year, driven by a change in allocation methodology. On a sequential basis, G&A increased by 3%. Turning now to cash generation and the strength of the balance sheet. Borouge retains significant financial resilience to navigate the short-term disruptions we are facing. For the quarter, adjusted operating free cash flow reached $295 million with free cash flow of approximately $145 million, representing a solid outcome in a challenging market environment and a cash conversion of 86%. Available liquidity of approximately $1.2 billion consists of $686 million of cash and cash equivalents, plus $500 million of undrawn credit facilities. This places us in a strong position to absorb any additional working capital requirements due to logistics delays or higher production costs. Net debt at the 31st of March stood at $2.6 billion, and we closed the quarter with a net debt-to-EBITDA ratio of 1.3x. As part of Borouge International since 31st of March 2026, Borouge plc enjoys the ongoing backing of its major shareholders, XRG and OMV. The strong investment-grade credit rating of Borouge International was confirmed by the 3 rating agencies shown here on 19th of March in a joint announcement by the owners of Borouge International. Our strong financial position continues to support our dividend policy, high dividend yield, ongoing share buyback and potential future growth investments. Since IPO, we have returned $4.9 billion in total dividends with the second half year 2025 dividend of 8.1 fils per share scheduled to be paid to the shareholders on May 5. Since April 2025, we have been actively executing our share buyback program, reflecting our confidence in Borouge's long-term prospects. As at the 31st of March 2026, we had repurchased approximately 257 million shares. With that, I'll hand back to Hazeem to take you through the outlook.

Thank you, Jan-Martin. To summarize, we remain strongly positioned for the remainder of 2026, thanks to the efforts of our people and facing significant challenges in Q1. We are now happy to take your questions.

[Operator Instructions] Our first question today comes from the line of Sylvia Richards from Morgan Stanley.

I just have two. What would you say is the main challenge in exporting via alternative routes? And how do you see this developing going forward? And could you please quantify the specific costs associated with these rerouted exports?

I can take this question. So the main challenge actually occurred at the moment of the closure of the Strait of Hormuz, was to try and find alternative routes, which we, I think, have done very successfully throughout the month of March and that we were also then able to be able to ship more than 60% of our produced volume towards the end of the month. We believe that looking forward that we have stabilized our ability, and we will continue to further, let's say, develop those abilities to ship the product out of the region. And the costs, they are evolving on a daily basis. So it's very difficult to put, let's say, a fixed number on it. But I think it's our priority first time is make sure that we have the ability to ship the products out of the region that we are able to serve our customers, let's say, with the products they require. And as we continue these efforts, we will also to continue to optimize the costs that are associated with that.

Our next question comes from Scott Darling from Cantor Fitzgerald.

Well done on the results. It's great to see repaired all the damage and that's very positive. Are you allowed to say you said most production units are available. I mean sort of which ones are and when we're thinking about volumes this quarter, is it fair to assume that with the rerouting what you did in March, extra sort of few days of repairs this month, you're sort of doing a similar rerouting, 60% or so of volumes. And obviously, you've got the inventory to sell. So if you can just -- any sort of guidance around potential volume, should we assume the same as last quarter? Or any sort of views on that would really help us. That's the first question. And then the second question is just go through pricing strategy. You've obviously done very well in terms of pricing, particularly in the higher price periods. Do I take it when I look at Slide 13 that potentially giving your customers at least a 60% hike for pricing this quarter. How should I sort of read that? And any comments around pricing for this quarter? Because obviously, April has gone up in terms of polyolefin prices.

I take the first question regarding the volume. Definitely that looking into the sort of the utilization that we did in Q1 2026, which resulted in a good sort of the financial performance. At the same time, with this news of the damage that happened on Borouge, the good news that we restored majority of this plant and we are running the PO based on the feed availability on the maximum utilization. And based on that also, we are evaluating further we could also increase our capacity to the maximum utilization. [indiscernible] we are running it and we are going towards the maximum utilization of the above plant.

So when it comes to the rerouting of the volumes, so we continue to develop those routes. We will continue also to develop the capacities through these routes. We feel, at this point, very comfortable that we will also be able to increase that percentage compared to what we did in March. So looking forward, we don't expect to see any major deviations or disruptions by utilizing these alternative routes. Regarding your pricing question, yes, you're absolutely correct. Prices are continue to increase. The 60% or more than 60% as highlighted in the graph that is what we are able to achieve. And moving forward or looking forward, I mean, I think we need to put it into perspective. We estimate that between 25% and 30% of the total polyolefin capacity is out of service right now. But it has a massive impact on the total market in terms of shortage of products in the market, but also in terms of, let's say, the cost to produce. So that's why these increases are also necessary. And looking ahead, as long as this situation lasts so the closure of Strait of Hormuz, we do foresee an ongoing pressure on these prices or an increase on prices. How this is going to further evolve precisely, of course, that is difficult to predict. But we definitely don't see any relief in the short term as long as the Strait of Hormuz...

Our next question comes from Alex Comer from JPMorgan.

Just in terms of the -- your product supply and getting stuff out, maybe you could quantify this a little bit. So you said you sold 61% of product in March. If things remain as they stand, so the Strait of Hormuz is shut, how much product would you expect to be able to sell and get out in May, assuming the plant is working properly? And maybe you could elaborate a little bit in terms of land routes, how much is going through [indiscernible] and how much is going out through other routes? So how much of the total can you sell? And what is the distribution route? That's the first question. And then just in terms of the decision to build a plant in China, looking at where we've been recently in terms of overcapacity, the lack of cost advantage that is likely to have. Maybe you could just explain the thinking there, bearing in mind that obviously, your balance sheet is pretty stretched. You put off the purchase of before and you're going to have an equity issue at some point in the future. So just maybe you could just talk me through what the logic for that decision is.

I'll take the first question. So again, product supply, we ended up in March, 61% of what we produced in March to be able to supply through the alternative routes. As stated, we are continuing to develop those alternative routes to accommodate larger quantities, larger volumes. And we feel comfortable moving forward that whatever we produce is going to be -- find its route to the market through these alternative channels. And it's true in March, we were able to significantly more than double also our sales volumes over land as an alternative towards selling products through vessel or via ocean. And that is also something that we will continue to explore and continue to develop.

So just to confirm that...

That's correct.

And the second question?

Yes. Thank you. I can take the one for China. We have been communicating in the past our project collaboration agreement with Wanrong was already -- was it 24 July, I think, around that time. So time passes very quickly. And there has been a lot of great collaborations and evaluation really very extensively a market that we understand very well, a market that we have established, I would say, partnership across different applications in China. And we have developed a lot of also key applications together jointly with our Chinese partners in China. So a market also we have been really on the ground with a great also organization that understand the market very well for the last 25 years now. Moving forward with this project, as we have announced, we announced a JV joint venture 50-50 with -- and we go for FEED study now with a company, of course, Wanrong in Fujian, very much focused on polyethylene with also a technology of Borstar for first time, we start producing it in China. So we will also really support our China market now from the Borstar technology in China. The attractiveness of this project really giving also the premium that we achieve in China with our polyethylene market or business. We are very strongly believing in the long run on polyethylene in China. We see the attractiveness of this project, and it will definitely be an accretive on the long run for our investors and partners.

Our next question comes from Faisal Azmeh from Goldman Sachs.

I just wanted to kind of follow up on Alex's question in terms of kind of how we think about numbers in the near term. So obviously, you've had the attack, which probably disrupted a bit the supply. But then you're saying also in May, assuming everything is fixed, you'd be able to sell everything. So effectively, should the closure remain there for the entire Q2, given where prices are, should we expect generally higher numbers versus what we saw in Q1? Or does the disruption that took place from the attack actually offset some of that? Maybe if you can shed some color there. And then how do you kind of view the unwind should the Strait reopens in terms of global product prices? Are you of the view that it's going to be higher for longer? Or do you think the unwind is likely to -- as we think about things 12 months from now, do you see things going back to where they were back in January?

Yes. So let me try and answer the first question. So yes, we have -- again, these routes developed. They are actually performing very well. The prices are up in the market as a result of the situation. But I think you also need to be aware that the costs have gone up substantially. But it's the cost of the feedstock, it's the cost of supply chain, it's the cost of insurance, so all that. Now we have been able to pass on these additional costs to the market, which I think is the most important thing. But you have to take that into account when you look into the long-term projection of the profitability. When it comes to unwinding, should the Strait of Hormuz open up, we believe the impact of the market is quite substantial. As I was already mentioning, we believe that the market today is impacted by 25% to 30% of its total capacity that is out of service right now. But that is partially out of service because assets are damaged or out of service because assets are not being supplied with feedstock. So it will take some time. And we believe the longer it will last, the longer time it will take for this market to recover. So we do believe that there is a substantial or longer period of time that the prices will continue to be elevated in 2026.

I just want to add also on what just Ronald mentioned for us, we are really managing the situation very well. Of course, the safety of our people has been really at the heart of everything we do since the whole thing started. So -- and despite the destruction of the assets that we have been confronted with, I can confirm the team has been doing great job in ramping up volume in our assets. As you are fully aware, we don't have only a few assets. We have many assets in Borouge, and we have fully been ramping up our production back towards our optimum. So -- and additionally, also, we are managing our inventory. We have, I would say, a good month in April, but we're looking forward also to achieve another also good month in May. So with the great prices we have. So overall, managing all these vulnerables together all these, I would say, variables and so on, we are managing it quite well, and we will be coming up with more materials if we see there is something that the market need to be updated with, we will definitely come up with more details into the market. But so far, so good.

Our next question today comes from Prateek Bhatnagar from Jefferies.

I have two. So first one is regarding the damage, which have occurred to your facilities. Do you have a preliminary estimate of how much it might add to the maintenance CapEx? And is it fair to assume that the insurance might cover that? That's question number one. And the question number two is, again, back to the capability of the company to ship the product. So you said that you were able to ship 61% of the production in March. So could you tell us what was the plant operating rate in March so we can quantify?

I can take the first question. So we can say that today ongoing repair work some of the routine maintenance as we are planning to undertake this in 2026. Based on our initial assessment, we expect that to be able to keep this maintenance CapEx for the full year 2026, including the cost of repair below the USD 300 million. So we'd like to note that this excludes the $85 million of the growth CapEx for the debottleneck [indiscernible]. And at the same time, we have the insurance in line with the industry standard of this nature exclude. So this is a nutshell about the first part of your question. The second part -- so what's your second part of the question?

The second question is what were the plant operating rates in March?

Okay. As mentioned by -- we mentioned before that most of our assets and the POs, they are ready for the maximum ramping up and maximum utilization. Having said that, the majority of the plant has been completed. And for Q2, we are ready to ramp up to the maximum utilization.

Our next question comes from James Hooper from Bernstein Societe Generale Group.

I have two, please. The first is about the premia. Does this disruption impact your ability to premia kind of over the benchmark longer term? Just thinking about possibly structurally higher pricing and also the kind of disruption that you're going to see in perhaps volumes looking to source volumes away from the Middle East. And then the second question is a little bit about supply expectations in the China JV. Are you expecting some of the capacity that's come offline recently to never come back? Is this part of the thesis of agreeing the China JV that you can fill some of this gap perhaps? Or are you expecting things to go relatively back to normal once other plants [indiscernible] feedstocks?

Okay. Thank you for the question. So regarding impact on the premia, we actually don't anticipate any impact. Now what you see reported, we need to put some caveat around it because at the moment, we feel that the market is in such a fast changing mode that the reporting that we get from benchmark data is unreliable. What we see though in terms of premia capturing and the way we measure it is that we see a very good progress actually in capturing our premia. So we are not concerned about it. We actually do see a possibility to further improve our premia as we move along in this turbulent environment. Regarding the supply, I think there's a time element to your second question. I think the China JV is not something that will start up any time, let's say, shortly, I would say. So I don't think there is any connection between, let's say, the current situation and the China JV.

Our next question is from Alex Estefanous from UBS.

Domestic polyolefin consumption in the UAE has held up well. How much further can the local market absorb? And could Egypt become a more meaningful demand market given its development plans? With polyolefin prices near-term highs, feedback costs indexed to PE/PP prices are also rising. In a supply-led pricing environment with weaker volumes, how should we think about the impact on margins? And are there any pricing lags or that help this?

Yes. So to answer the first question, so how well does the GCC market hold on, we see a continued strong demand within the region. And it also explains, let's say, our ability to actually significantly increase our sales overlap that is basically to serve that ongoing strong demand within the region. And that includes markets like Egypt, which continues to be a very strong market for us, and we will continue to serve that to the best of our abilities. In terms of premia and margin development, I mean, the costs are going up as indicated. So particularly the cost of feedstock, the cost of supply chain and let's say basically everything that we do to get our products to our customer. But we also, I think with our pricing strategy, we are passing these costs on to the market. So it is incredibly important to make sure that our margins continue to be stable within this environment to slightly increase.

Our next question comes from Nitin K. from UBS.

I have a couple of questions. Question one, given the more positive outlook, should we expect inventories to unwind over the coming quarters? And at what pace? And the second question is PP sales have been more resilient than PE, minus 10% versus minus 21%. What's driving this difference, end markets, product mix or customer behavior?

So in terms of inventory to online, so what happened during March is also demonstrated that the inventory went up. That is because we were producing at a period when the Strait of Hormuz got closed and initially, we will not be able to move those out. But we foresee that this inventory will come down as we progress and also as we further develop those alternative routes and develop them to full capacity. So that inventory should really stabilize to normal levels within a period of 1 to 2 months. PP sales more resilient over polyethylene. I would say that both are actually very resilient. There is an ongoing strong demand within the market for all our products. And we also don't see any impact on that. So we believe that moving forward that both product groups, the demand in those sectors will continue to be, let's say, strong and the fundamental drivers behind that are not changing.

We have no further questions in the queue at this time. That concludes the Q&A portion of today's call. I'll now hand over to Hazeem for closing comments.

Thank you for being with us and wishing everybody safe and we talk [Foreign Language] much more better time [Foreign Language]. Thank you.