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. I would now like to hand the call over to our moderator Bobby Sarkar. Please go ahead.

Okay. Thank you, operator. Hi, Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I want to welcome everyone to Industries Qatar's Third Quarter and 9 Months 2025 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 Al-Mohannadi, who is the Head of IR and Communications; and we have [ Ahmed Saleh ], who is the Assistant Manager in Financial Operations. So we will conduct this conference with management first reviewing the company's results followed by Q&A. I would now like to turn the call over to Rashid. Rashid, please get us started. Thank you.

Thank you, Bobby. [ Salam-Alaikum ], and good afternoon. Thank you all for joining us. Hope you are doing great. Before we go into IQ business 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 that this call is subject to the disclaimer statement as detailed on Slide #2 of the IR deck. Kindly note that the MS link is to display the IR deck on screen. [Operator Instructions] Now we can move on to the call. On Tuesday, 28th of October, IQ published its financial results for the 9-month period ended 30th of September 2025. And today, in this call, we'll go through these results and provide you with updates on key financial and operational highlights. Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager for Privatized Company Affairs; and [ Mr. Ahmed Zaki ] Assistant Manager for Financial Operations. We have structured our call as follows. At first, I will provide you with a quick insight on IQ ownership structure, competitive advantages, overall governance structure and macroeconomical updates. Later, Mr. Ahmed will provide you with an update on the company's financial performance. And then later, I'll guide you through the segmental performance. And finally, we will open the floor for the Q&A. To start with, as detailed on Slide #5, IQ ownership structure comprises 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 issuer rating at AA- with stable outlook, confirming IQ's strong business and financial position. QatarEnergy being the main shareholder of IQ provides most of the head office function through a service level agreement and the operation of IQ Group companies are independently managed by its respective Board of Directors, along with senior management teams. 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 petrochemical and fertilizer products, a reputable JV partners, 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 the regional downstream space across most of the matrices. In terms of the IQ governance structure, you may refer to Slide 47 and 46 of the IR deck, which covers various aspects of IQ of corporate governance in further details. Let's now begin with a quick look at the macroeconomic environment. The global economy faces persistent headwinds. GDP growth forecasts have been revisited downward due to policy shifts, geopolitical tensions and structural changes. Central banks are easing rates to support recovery, yet uncertainty remains. While conditions have improved since 2022, the outlook for 2026 is cautious with resilience needed among ongoing economical challenges. Moving on to the petrochemical segment. The sector faces significant challenges from overcapacity, weak demand and sustainability pressures. Post-COVID investments have outpaced the consumption, driving operating rates for base chemical to multi-decade lows. Depressed margin are incentivizing asset closure and consolidation with a slow demand growth and regional policy shifts. The industry outlook remains uncertain amid ongoing supply-demand imbalances. Turning to the fertilizer. Urea prices remained stable, supported by tight global supply and steady demand driven by raising food needs, arable land expansion and advanced farming technologies. Seasonal demand and stock depletion added momentum. China export restriction and trade barriers limited availability, while easing feedstock costs offered relief sustaining pricing despite broader global uncertainty. As for the steel sector, the global steel industry continued to face overcapacity and weak demand pressured by high financing costs and sluggish construction activities. China real estate downturn is reducing demand, while production expansion in other regions, mills in the mature market are closing due to low utilization rates, leaving the overall industry outlook uncertain amount persistent structural challenges. Now looking at our financial performance. The group reported a net profit of QAR 3.4 billion for the 9-month period ended 30th of September, reflecting a 12% decline compared to the restated figures for the same period last year. However, when excluding the one-off items from last year such as the reversal of financial guarantee provision and acquisition-related gains, the decline is marginal with net earning nearly comparable year-on-year. This underscores IQ's strong underlying performance and operational resilience. Notably, the third quarter was the best performing quarters of the year, supported by favorable condition in fertilizer market and robust operational execution, resulting in a QAR 1.4 billion in net earnings for the quarter alone. With that, I will now hand over to [ Mr. Ahmed Zaki ] to walk us through the financial and operational updates for the period.

Thank you, Rashid. Good afternoon, everyone, and thank you for attending this earnings call. Let's dive into the financial performance for IQ Group. As you can see on Slide #15, IQ Group reported a consolidated net profit of QAR 3.4 billion for the 9-month period ended 30th September 2025. This represents a decline of around 12% versus the restated 9 months 2024 results. Earnings per share or EPS for the 9 months of 2025 was QAR 0.56 versus QAR 0.64 for the same period in 2024. EBITDA for the period is QAR 5 billion with an EBITDA margin of 36% compared to an EBITDA of the same figure, QAR 5 billion for the same period of last year with a reported higher EBITDA margin of 39%. Looking at revenue, IQ Group revenue for the 9 months in 2025 increased by 8% to reach QAR 13.7 billion as compared to QAR 12.7 billion reported for the same period in 2024. The improvement in revenue for the current period was due to an overall increase in both average selling prices as well as sales volume. Going through IQ's net earnings for the 9 months 2025 versus the same period in 2024, as detailed on Slide #16, the group's financial performance for the 9 months period ended 30th September 2025 was largely attributable to the following factors: Firstly, product prices. Blended product prices increased by 6% year-on-year to reach USD 480 per metric ton, and this contributed around QAR 457 million to the overall net earnings for IQ Group. Prices have stabilized after peaking in late 2022 with fertilizers showing notable resilience. This was supported by strong agricultural demand, supply disruptions, export restrictions as well as policy shifts in key economies. Conversely, downstream product demand remained subdued due to tighter monetary conditions and muted economic forecast. However, recent months have shown signs of recovery, driven by improving macroeconomic fundamentals and regional demand, which offers cautious optimism for the supply-demand balance ahead. The next factor contributing to the improved bottom line is sales volumes, which for the 9-month period ended September 2025 has increased by 2% year-on-year and this contributed QAR 620 million to net earnings. This growth in sales volume was driven by stable demand amid easing macroeconomic challenges and supply bottlenecks alongside increased production. Despite regional uncertainties and shipment logistics challenges across segments, overall volumes showed positive momentum, and this performance clearly reflects the group's ability to navigate market complexities as well as optimize output, reinforcing its operational resilience and positioning for continued recovery in key markets. Moving on to the next factor that contributed to the net profit, operating costs. In line with increased production volumes as well as higher sales volumes and improved selling prices, operating costs for the 9 months in 2025 increased compared to the same period of last year. This increase had negatively impacted net earnings by QAR 785 million, primarily due to higher variable costs linked to volume growth, price-driven feedstock and raw material expenses, unfavorable inventory movements and general cost inflation. Moving on to the next factor, which is on other income. The group's financial performance for the period was also impacted due to lower other income as a result of a lower interest rate environment and the absence of one-off gain on reversal of provision for financial guarantee and absence of fair value gains recognized on acquisition of a subsidiary in last year. Moving on. Looking at the group's results for the third quarter of 2025. This has indeed been an excellent quarter with net earnings of QAR 1.4 billion, which is a whopping 47% increase compared to the previous second quarter. This was mainly driven by higher fertilizer prices and supported to a lesser extent by improved steel prices. Fertilizer prices strengthened on the back of renewed demand, export restrictions and bans imposed on certain producers. Meanwhile, steel prices benefited from increased demand for intermediary products and low-carbon fuel solutions. Moving on to the financial position of the group. As detailed on Slide #15, the group's financial position remains robust with proportionately accounted cash and bank balances of QAR 9.5 billion as at 30th September 2025, and this balance is already after payment of dividends relating to the second half of financial year 2024 as well as the first half of financial year 2025, amounting to QAR 2.6 billion and QAR 1.6 billion, respectively, which gives a total of QAR 4.2 billion of dividend payments. Currently, the group has no long-term debt obligations. The group's reported total assets and total group equity reached QAR 41 billion and QAR 37.1 billion, respectively, as at 30th September 2025. And the group also generated positive operating cash flows of around QAR 3.4 billion as well as free cash flows of around QAR 1.9 billion. Now we can move on to the segment-by-segment review, which I will hand over to Rashid. Over to you.

Thank you, Ahmed. To start with the Petrochemical segment, as detailed on Slide #24, the Petrochemical segment reported a net profit of QAR 714 million for the 9-month period ended in 2025, representing a 39% decline compared to the same period of last year. This decrease was mainly driven by the lower revenue and a reduction in operating margin influenced by an increase in operating costs. Revenue declined due to a 6% drop in sales volume and a 3% decrease in average selling price, both were impacted by a mix of internal and external challenges. Selling prices eased compared to last year, primarily due to a macroeconomical headwind, including weaker demand, oversupply from cautious buying behaviors, geopolitical tensions and crude price volatility. Additionally, the volume were affected by unplanned shutdowns within both polyethylene and fuel additive segments. On a quarter-on-quarter basis, net earnings marginally increased by 1%, supported by a marginal increase in revenue. Revenue growth was driven by higher sales volume by 3%, although this was largely offset by softer prices by 2%. Operating costs rose modestly in line with increased volume, resulting in overall marginal net profit improvement. Operationally, the segment delivered a stronger result during the quarter with improved plant availability, reliability and utilization. Moving on to the Fertilizer segment. As shown on Slide #30, the Fertilizer segment delivered a robust net profit of approximately QAR 2.1 billion for the 9-month period of 2025, marking a significant 38% increase compared to the same period of last year. This remarkable increase was primarily driven by a significant increase in average selling price by 23% with urea continuing to demonstrate price resilience, supported by growing food demand expansion of arable land, improved farmer accessibility, tightened supply from key export markets and uncertainty around tenders in major consuming regions. However, the sales volume declined marginally by 8%, mainly due to lower production and evolving market conditions. Revenue increased year-on-year by 13%, largely on the back of higher average selling price, while operating costs rose only slightly, supported by the segment's ongoing focus on cost optimization across all facets of operations. This resulted in a stronger improvement in operating profit and margins. Quarter-on-quarter, the segment delivered a strong performance, more than doubling its net profit with 101% increase. This primarily driven by expansion on operating margin, supported by a 24% rise in revenue and reduction in operating costs, mainly due to lower utility expenses. Revenue growth was underpinned by a 17% increase in selling price and a 6% rise in sales volume. The volume uplift was driven by improved production and healthier market dynamics, while price gains reflected a tighter global supply, renowned demand from major agricultural markets and export restriction from key producers. Now we'll move on to the last segment, the Steel segment. As detailed on Slide #36, the Steel segment reported a net profit of QAR 345 million for the 9-month period ended 30th of September 2025, reflecting a 21% decline compared to last year. This decline was primarily due to an absence of one-off gains recorded last year from the reversal of financial guarantee provision related to an associate. Excluding this nonrecurring item, the segment net profit would have been approximately 18% higher year-on-year, underscoring a stronger operational performance driven by higher production and improved sales volume. Segmental revenue increased by 25% year-on-year, supported by a 45% rise in sales volume due to expanded production capacity and market reach. However, selling price declined by 14%, impacted by global oversupply, softer domestic and international demand and changes in the sales mix. Rebar demand remained subdued amid a challenging macroeconomic environment and tight monetary conditions, although the signs of recovery began to emerge in the second half of the year, particularly in China. On quarter-on-quarter, segmental profit declined by 46% compared to the previous quarter, mainly due to lower gross margin and a reduced share of results from associates. Revenue recorded a marginal increase of 1% as a 5% rise in average selling price was largely offset by a 4% drop in sales volume despite the higher production, while operating -- while operating costs was slightly in line with increased production. Thank you for your attention. That concludes our presentation. We will now open the floor for the Q&A session.

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

I have a few questions, please. The first one is on your petrochemical segment. It looks like your methanol price Q-on-Q is -- has increased, while the other chemical products has declined. Can you just talk about the drivers for that increase in methanol prices, please? Second question is on your fertilizers. Again, stronger prices Q-on-Q. Where do you see the average selling price today versus 3Q average? And then my last question is around your unplanned turnaround -- unplanned shutdown in the fuel additives business. Could you quantify the impact for the shutdown, please? How many days they were shut down and how much EBITDA impact was that?

Just to answer you on the petrochemical, I think when you refer to the slide of the prices we realized, essentially, the whole petrochemical industry has been on a downward trend. However, the prices we are realizing is fairly stable Q-on-Q. And that's due to our product mix due to our outreach to the customers and the use -- the end users of the products. I think methanol has slightly increased, and we've been seeing ups and downs in the prices in the recent few quarters. And we don't see a particular reason why the price has slightly increased this quarter. It could be due to reviving of certain demand in certain region, but the uplift is not significant. The price used to be $235 per ton in the previous quarter. And this quarter, we're recording, I think, $7 increase. I think your second question with regard to the fertilizer segment. This quarter, specifically, we've realized a higher price, and that's due to the reason we mentioned. We've seen that there is an increased kind of demand or steady demand coming from the market, while at the other end, we have a shortage of supply in the market. Also, the uncertainty around the planned shutdown or unplanned shutdown for other competitors has played a role as well. So these factors have supported us in third quarter for the prices to rise in line with the market demand. Going forward, how the price will evolve will depend on the seasonality of the farmers, whether the farming season is more favorable in terms of their economics, whether the global GDP level sustained to be higher towards the year-end, whereby there is an increase in consumption, increase in all global economical KPIs. Those will determine the price trajectory in the fourth quarter. But essentially, I think that the lowering of the Fed's rate will provide a kind of a lower level kind of assurance on all commodity prices that hopefully will stimulate buyers' appetite to buy more products. And we are hopeful that we are ready for the next upcoming quarter, and we are well positioned for that. I think your third question, if you can repeat it, please?

Yes. My third question is around the unplanned shutdown in the fuel additive business. Could you quantify the impact and the number of days that was shut down?