Industries Qatar Q.P.S.C. (IQCD.QA) Earnings Call Transcript & Summary

Hello, and welcome to Industries Qatar Conference Call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Bobby, you may begin.

All right. Thank you, Angela. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Industries Qatar's Second Quarter and First Half 2025 Financial Results Conference Call. So on this call from QatarEnergy's Privatized Affairs Group, we have Abdulla Al-Hay, who is the manager for Privatized Companies Affairs. We have Rashid Hamad Al-Mohannadi, who the Head of IR and Communications. And let's welcome Mr. Ahmad Zakri, who is the Assistant Manager, Financial Operations. So we will conduct this call with management first going over the company's results followed by a Q&A. I would now like to turn the call over to Rashid. Rashid, please go ahead.

Thank you, Bobby. Good afternoon, and thank you all for joining us. Hope you are doing great. Before we go into IQ business and performance updates, I would like to mention that this call is purely for IQ investors, and no media representatives should be attending this call. Moreover, please note this call is subject to disclaimer statements as detailed on Slide #2 of the IR deck. Now we can go into the call. On Thursday, 7th of August, IQ published its results for the 6-month period ended 30th of June 2025. And today, on this call, we'll go through these results and provide you with key updates on financial and operational highlights. Kindly note that the MS Team link is to display the IR deck on screen. In case you want to participate in the Q&A session, you must dial in through the telephone lines on the phone number provided as part of the invitation. Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager of our Privatized Company Affairs; and we also have Mr. Ahmad Zakri, Assistant Manager for Financial Operations. We have structured our call as follows. At first, I'll provide you with a quick insight on IQ ownership structure, competitive advantages and overall governance structure. Secondly, Mr. Abdulla will brief you on IQ key macroeconomical and dividend aspects. Later, Mr. Ahmad will provide you with an update on company's financial performance, and then I will guide you through the segmental performance. And finally, we'll open the floor for the Q&A. To start with, as detailed on Slide #5, IQ ownership structures compromises of QatarEnergy with 51% stake and the rest is in the free float held by various domestic and international corporate and individuals. Rating agencies such as S&P reaffirmed IQ's issuer credit rating at AA- with a stable outlook, confirming IQ Group's strong business and financial position. QatarEnergy being the main shareholder of IQ provides most of the head office functions through a service level agreement. Operation of IQ Group companies are independently managed by its respective Board of Directors, along senior management team. In terms of competitive advantages, as detailed on Slide #8, the group is well positioned with several competitive advantages within its domain strategically, operationally as well as financially. These strengths include an efficient and well-maintained asset base, a qualified skilled and highly trained workforce, assured supply of feedstock and competitively priced energy sources, lower operating cost, a dedicated marketing team in the form of QatarEnergy Marketing to market the group's petrochemical and fertilizer products and reputable joint venture partner and most importantly, a well experienced senior management team. As detailed on Slide #10 from competitive positioning perspective, IQ ranks among the top-tier companies within regional downstream space across most of the matrices. In terms of the IQ governance structure, you may refer to Slide 50 and 51 of the IR deck, which covers various aspects of IQ corporate governance in further detail. I will now hand over to Abdulla to cover macroeconomic operations and year-on-year financial performance. Over to you, Abdulla.

[Foreign Language] Thank you, Rashid. Good afternoon, and thank you for joining us. Let me begin with a quick look at the macroeconomic environment. The global condition remains subdued during the first half of 2025. Geopolitical tension, tighter monetary policy and post-election uncertainty in a key market continued to weigh on growth, while inflation show signs of easing, elevated production cost and ongoing supply chain disruption kept pressure on economic activities. Moving on the petrochemical sector. We saw continued softening in demand, coupled with oversupply and margin pressure. Ethylene and its derivatives, prices were particularly volatile, driven by weak downstream demand and fluctuations in the crude oil, especially for naphtha-based producers. Environmental regulations also added cost burden, especially for operators of other assets. Turning into the fertilizers. The nitrogen fertilizer market remained relatively stable. Prices held firm, thanks to the balanced supply-demand dynamic and export restrictions. Energy costs were manageable, but farmer affordability remained a concern in some of the regions. As for the steel sector, continued to face challenges from overcapacity and weak demand, particularly in construction and real estate, seasonal slowdown, especially in the GCC, along with the high inflation and the interest rates added further pressure leading to price decline and some capacity closures. Looking at -- now looking at our financial performance. The group reported a consolidated net profit of QAR 2 billion for the 6-month period ended 30th June 2025. This reflects a decline of 27% compared to the restated net profit for the same period last year. However, when you exclude a one-off item from the first half 2024, such as the reversal of a financial guaranteed provision and gain from the subsidiaries acquisition, the decline is moderate and mainly driven by lower operating margins. Revenue, on the other hand, showed a slight improvement on a year-on-year basis. On the interim dividend front, the Board of Directors has approved an interim cash dividend of QAR 0.26 per share, representing 80% of the net profit for the period. This generous payout reflects our strong financial position and operational excellence. The dividend will be distributed to the shareholders registered as of 17th of August in combination with [ IDA. ] With that, I will now hand over to Mr. Ahmad to walk you through the financial and operational update for the period.

Thank you, Mr. Abdulla. Good afternoon, everyone. Diving into the financial performance as reported on Slide #15. The group reported a consolidated net profit of QAR 2 billion for the 6-month period ended 30th June 2025, which is a decline of 27% versus restated first half 2024 results. Earnings per share for the first half of 2025 was QAR 0.32 versus QAR 0.44 for the first half of 2024. EBITDA for the period is QAR 3 billion with an EBITDA margin of 35% compared to an EBITDA of QAR 3.4 billion for the same period of last year, with a reported EBITDA margin of 41%. Group revenue for the first half of 2025 increased by 5% to reach QAR 8.7 billion as compared to QAR 8.3 billion reported for the first half of last year. Improvement in revenue for the current period was due to an overall increase in prices, while sales volume stabilized. Going through IQ's net earnings for the first half of 2025 versus the same period of last year. As you can see on Slide #16, the group's financial performance for the 6 months period of 2024 was largely attributed to the following factors. In terms of product prices, blended average product prices marginally improved by 5% versus first half of 2024, reaching USD 472 per metric ton. This contributed positively to the group's net earnings by QAR 172 million compared to last year's period. This improvement was primarily driven by improved nitrogen fertilizer prices, which fully offset the reduction in average realized prices in other segments. Fertilizer prices have stabilized in recent quarters following the volatility seen throughout 2023. This trend was supported by renewed demand from key markets such as India, falling inventory levels and supply side constraints, including export restrictions from major producers such as China. Additional pressure came from production shortfalls due to facility shutdowns and cost escalation. Looking at sales volumes. Sales volume figures for the first half of 2025 remained relatively stable compared to the same period last year. This performance was achieved despite challenging market conditions characterized by relatively weaker demand across all operating segments, volatile macroeconomic factors, regional instability and ongoing uncertainty around global trade. The group's ability to maintain sales volumes was supported by improved production levels and more effective sales planning. Operating costs for the first half of 2025 have increased compared to the same period last year. The rise was primarily driven by higher price-linked variable costs, elevated fixed operating costs associated with maintenance shutdowns and the impact of general inflation. Looking at other income. The group's financial performance for the period was also impacted due to lower nonoperating income as a result of a lower interest rate environment and absence of one-off gains on reversal of provision for financial guarantee as well as gains recognized on acquisition of a subsidiary in the first half of 2024. Moving on to the statement of financial position. As detailed on Slide #15, the group's financial position remains robust with proportionately accounted cash and bank balances of QAR 9.9 billion as of 30th June 2025 after payment of dividends relating to 2024 amounting to QAR 2.6 billion. Currently, the group has no long-term debt obligations. The group's reported total assets and total group equity reached QAR 41.4 billion and QAR 37.3 billion, respectively, as of 30th June 2025. The group generated positive operating cash flows of around QAR 1.8 billion and invested around QAR 1.2 billion in capital expenditures and projects under development, thereby generating free cash flow of around QAR 0.6 billion. Now we can move on to the segment review, and I will hand over back to Rashid.

Thank you, Ahmad. And let's dive in with the segmental review and start with the Petrochemical segment. As detailed on Slide 24, the Petrochemical segment reported a net profit of QAR 488 million for the first half of 2025, representing a 32% decline compared to the same period of last year. This decrease was primarily linked to lower revenues and a contraction in operating margin, which was contributed by increase in operating costs and lower average selling price. Revenue declined due to a 4% drop in sales volume and a 2% decrease in average selling price. These reductions were driven by a combination of factors, including a persistent demand weakness, oversupply conditions, geopolitical tension and crude price volatility. Buyers remain cautious, further softening the price compared to 1H 2024. Additionally, volumes were impacted by unplanned shutdown in both polyethylene and fuel additives segments. On a quarter-on-quarter basis, net earnings decreased by 15%, mainly due to a 10% drop in average selling price and continued margin pressures. The impact of lower selling price was partially offset by a 6% increase in sales volume, resulting in a marginal reduction in revenue. Now we can move on to the Fertilizers segment as shown on Slide #30. The Fertilizers segment delivered a net profit of approximately QAR 1.1 billion for the first half of 2025, marking an 8% increase compared to the same period of last year. This growth was primarily driven by higher revenues, supported by 18% increase in average selling price. Price fluctuations was underpinned by tightened global supply, export restrictions, logistical challenges and geopolitical uncertainty. Demand also improved, particularly from large agricultural economies. Sales volume declined moderately by 10% due to lower production levels, impacted by both planned and unplanned shutdown as well as the broader macroeconomical pressures. On a quarter-on-quarter basis, the segment revenue improved by 3% marginally, supported by a 5% increase in sales volumes. This was driven by a stronger demand, tighter supply and temporary production curtailment among certain producers. The increase in volume partially offset a 2% decline in selling price. However, higher operating costs associated with increased volume slightly affected the profitability. And now we move to the last segment, Steel segment, as detailed on Slide 36. The Steel segment reported a net profit of QAR 265 million, reflecting a 26% decline compared to the same period of last year. While gross and operating margin improved approximately by 1%, supported by cost efficiencies, the net profit margin declined due to absence of one-off gains of QAR 143 million related to the reversal of financial guarantee recorded in the same period of last year, along with lower contribution from associates. On a like-for-like basis, profitability remained stable and aligned with historical averages. Segment revenue increased driven by a 37% rise in sales volume following the restart of previously mothballed production facility. However, this partially offset by a 13% decline in average selling price impacted by softening demand across key steel and metal markets. The global oversupply and continued weaknesses in construction activities due to reduced real estate investment and project delays. Despite some monetary easing by Central Bank, construction and demand -- construction demand remains subdued. On a quarter-on-quarter basis, the segment reported a 29% increase in net profit, primarily driven by a 64% increase in sales volume. However, average selling price declined by 13%, reflecting ongoing macro challenges, geopolitical volatility and supply chain disruptions. Production during the quarter declined slightly by 4% compared to the previous quarter, mainly due to an increased number of maintenance-related shutdown days, which reduced overall operating capacity. We would like to thank you for your attention. That concludes our presentation. And now we'll open the floor for the Q&A.

[Operator Instructions] And your first question comes from the line of Jonathan Chung with Morgan Stanley.

I've got 2, please. The first one is on your unplanned outages, unplanned shutdown. Could you give us a bit more color on your Q2 unplanned shutdowns? How long did they last? And also, are there any unplanned shutdowns during July? And then my second question is around your domestic steel demand. Could you give us some insight into what you see in the steel market going forward for the rest of the year?

So unplanned shutdowns, usually, sometimes when you do planned shutdowns, unplanned shutdowns are basically part -- an extended part of planned shutdowns. Sometimes you plan for, say, 30-day shutdown, sometimes due to arrival of -- extended delays in the arrival of spare parts, you may have to extend those shutdowns. So then you get these unplanned shutdowns. And also sometimes due to some unexpected events happening in the plant and machinery, so you get this unplanned shutdown. So this mainly happened in a couple of petrochemical and fertilizer plants. So other than -- in any shutdown, you plan at the beginning of the year. If anything happens other than that you consider unplanned shutdown. So anything going forward, any unplanned shutdown, you cannot plan. So we don't have any visibility on unplanned shutdowns. On -- with respect to demand -- on the domestic demand for steel, with the summer is getting over. So the demand for the domestic market will start to recover.

Can I just follow up on your unplanned shutdowns. Were there any events in July that has happened?

To our knowledge, no.

[Operator Instructions] Your next question comes from the line of Sashank Lanka with Bank of America.

Yes. I have 3 questions, if that's okay. The first one is basically on shutdowns that you have for the remainder of the year, planned shutdowns. Can you give us some guidance around that? The second one is just related to urea and the pricing outlook there. We've seen some strong Indian tenders. So just wanted your view on sustainability of this strength in prices. And the third one is on your dividend that you announced for the first half. Obviously, your net cash -- your cash balance has only been going up in the last few years given urea prices have remained strong, and you haven't had any major expansion. So just wondering your dividend policy here because I think you paid around 80% payout. And in the second half last year, you paid more than 100%. So how should we be thinking of your payout ratio first half versus second half? Is second half always going to be higher than the first half?

Thank you for your questions. Regarding the planned and unplanned shutdown, here, we need to consider that we have a huge facility. And this kind of shutdown is a normal activity for the continuation of the operation and for the business excellence. It does not mean something wrong. I see everybody is highlighting shutdown. So basically, we have a shutdown that will take place in the fourth quarter. It is in one of our assets, petrochemical assets. And this is based on the best practice to maintain the excellence of that asset. And usually, such plant shutdown would not have a severe impact on the -- or major impact on our production. This is a normal routine shutdown will slightly maybe have an impact. It is a 90 days shutdown. This number of days is facility days. So it's different from the calendar days, and we shouldn't worry about it. Second question related to the -- no, he has about the outlook, correct? What is your question, the second one?

Yes, it was related to the outlook for urea.

As you have seen, our prices compared to last year went out already by 18% to 20%. This is based on many factors that we have highlighted earlier. One of the factors is the supply/demand. We just mentioned that there is a huge demand in India. Another factor is the restrictions that China has. I think now China have placed a threshold of prices where they need to -- they can or they are allowed to export about such prices. However, I believe the price is strong right now, and it will remain at the same level for the following 2 quarters. This is our thought on the prices. We usually -- we don't give an outlook number, but this is how the market is giving us as a feedback from the prices. In terms of the dividend that we have paid last year, we have not paid more than 100%. This is not correct. What we have paid, almost it is the same compared to this year. Last year, we paid 80% of the total net profit. This time, we paid also the same. I believe once we approach the year-end, things will be much more clear on how our payment is going to be. Also, such decision will be discussed with the Board, having the full year results. And the decision will come. Definitely, it will be generous. As the historical track record demonstrates the strong dividend payout that we have. So I think business is as usual, and things will be fine.

Yes. Just one clarification on the dividend. I actually didn't mean you paid a higher payout in the first half. I meant your second half payout ratio is -- what we saw last year was higher than the first half payout ratio. So is that -- should that be a trend going forward? I think my question was more related on that angle.