Mesaieed Petrochemical Holding Company Q.P.S.C. (MPHC.QA) Q2 FY2025 Earnings Call Transcript & Summary

Hello, and welcome to Mesaieed conference call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Dana. You may begin.

Hello, everyone, and [Foreign Language] to you all. This is Dana Al Sowaidi from QNB Financial Services. I would like to welcome everyone to Mesaieed Petrochemical Holding Company's Second Quarter 2025 Financial Results Conference Call. On this call from management, we have Rashid Hamad Al-Mohannadi, Head, Investor Relations and Communications, Privatized Companies Affairs, QatarEnergy; and Sami Mathlouthi, Assistant Manager, Financial Operations, Privatized Companies Affairs, QatarEnergy. We will conduct this conference call with management first reviewing the company's results followed by a Q&A session. I will turn the call now over to Rashid. Please go ahead.

Thank you, Dana. [Foreign Language]. Good afternoon, and thank you all for joining. Before we go into the business and performance updates, I would like to mention that this call is purely for MPHC investors and no media representatives should be attending this call. Moreover, please that the MS Teams 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. Moreover, please note this call is subject to MPHC disclaimer statement as detailed on Slide #2 of the IR deck. Moving on to the call. On Tuesday, 12th of August 2025, MPHC published its results for the 6-month period ended 30th of June 2025. And today, through this call, we'll walk you through the key financial and operational highlights. Today on this call, along with me, I have Mr. Sami Mathlouthi, Assistant Manager for Financial Operations. As we structured our call as follows: at first, I'll provide you with a quick insight of MPHC ownership structure, its competitive strength, overall governance structure by covering Slide 5 till 10 and Slide 41 and 42 of the IR deck. Secondly, Sami will brief you on the macroeconomical environment, dividend distribution and overview of the results, and then Sami will top it up with the segmental performance update. And finally, we'll open the floor for the Q&A. To start with, as detailed on Slide #5 of the IR deck, the ownership structure of MPHC compromises of QatarEnergy with approximately 57.9% stake and the rest is held in the free float by various international and domestic investors. QatarEnergy, being the main shareholder for MPHC, provides most of the head office function through a service level agreement. The operation of MPHC joint venture all independently managed by their respective Board of Directors, along with senior management teams. In terms of the competitive advantages, as detailed on Slide #8, all the MPHC growth companies are strategically placed in terms of competitively priced and assured feedstock supply under long-term arrangements, solid liquidity position with strong cash generation capability and the presence of the most reputable joint venture partners. Additionally, its partnership with QatarEnergy Marketing acts as a catalyst for its access to the global market. As detailed on Slide #10 from a competitive positioning perspective, MPHC ranks among the top 3 companies in the regional chemical space across most of the matrices and specifically leads the chart in terms of the profitability margins. In terms of the governance structure of MPHC, you may refer to Slide 41 and 42 of the IR deck, which covers various aspect of MPHC code of corporate governance in detail. And now I will hand over to Sami to take you through the presentation.

Thank you, Rashid. Good afternoon, and thank you all for joining us. Let me begin with a quick look at the macroeconomic environment. In the first half of 2025, the petchem industry continued to face significant headwinds. Demand for key products like ethylene and its derivatives remained subdued due to weak industrial activity and cautious consumer spending. At the same line, global capacity expansion led to lower utilization rates and intensified competition, which squeezed margin and cost delays or shutdowns in some projects. Price volatility, driven by fluctuating feedstock and energy costs, especially crude oil, added further uncertainty, particularly for naphtha-based producers. Regulatory pressures around environmental compliance also weighed heavily on operators, especially those managing older assets with limited capital flexibility. For MPHC, these industry-wide challenges translated into year-on-year decline in commodity prices across its product portfolio, continuing the downward trend observed in the first half of 2025, so this softness in pricing followed 2 years of elevated levels and was largely driven by subdued global demand, increased supply from new capacities and heightened competitive pressures. In addition, fluctuation in feedstock and energy costs, particularly crude oil and ethylene added to the pricing volatility. Combined with ongoing economic uncertainty, these factors led to more cautious purchasing behaviors and contributed to margin compression across the sector. Looking at our financial performance, MPHC reported a net profit of QAR 379 million for the 6-month period ending 30th of June 2025. This reflects a decline of 5% compared to the same period last year. The reduction in profitability was primarily driven by a 6% drop in other selling prices, which led to decreased revenue. On the interim dividend front, the Board of Directors has approved an interim cash dividend of QAR 2.6 per share, representing 85% of net profit for the period. This payout reflects our strong financial position and operational excellence. The dividend will be distributed to shareholders registered as of 20th August 2025 in coordination with Edaa. Now diving into detailed financial analysis. Comparing MPHC financial performance for first half 2025 versus the same period of last year, as referred in Slide #16, MPHC reported a net profit of QAR 379 million for the 6-month period ended 30th of June 2025, down by 5% compared to the same period last year. This decline in profitability was mainly linked to lower selling prices, partially offset by an increase in sales volumes in both segments. The drop in group revenue was mainly linked to the decrease noted in average blended product prices which declined by 6% compared to first half 2024. This has translated into a negative price variance of QAR 66 million in MPHC current net earnings compared to the same period last year. Subdued product demand and amid macroeconomic uncertainties resulted in lower commodity prices. On the other hand, blended sales volumes increased by 5% compared to the same period of last year, mainly driven by higher sales volumes reported by both segments. This positive movement in blended sales volume translated into an increase of QAR 42 million in MPHC first half 2025 net earnings compared to the same period of last year. EBITDA for the current period noted decline versus first half 2024, mainly due to lower revenue. In addition, the drop in average selling prices was partially offset by higher production and subsequent sales volumes, within both segments, negatively impacting the group overall EBITDA. However, the EBITDA margin declined marginally from 44% to 43% in the current period. These factors collectively contributed to the decrease in financial performance observed in the 6-month period on the 30th of June 2025. The company's financial performance was weighed down by weaker earnings from the chlor-alkali segment, alongside a decline in income from fixed deposits due to the prevailing low interest rate environment. These negative factors were partially offset by improved results from the petrochemical segment. Consequently, the overall impact on the company financial results was lower compared to last year. Regarding the financial position, as shown on Slide #15, liquidity remained robust, with cash and bank balances standing at QAR 3.2 billion as of 30th of June 2025. The decline in cash and bank balances was mainly due to dividend payments for the second half interim dividend. In addition to the payment of MPHC portion in the financing for the PVC project, partially offset by positive cash flow generation during the first half of 2025. Moving to the segment review. We'll start with the petchem segment, as covered in Slide #21 to 25. The petrochemicals segment delivered a net profit of QAR 333 million for the first half of 2025, making an improvement over the same period last year. This growth was extremely driven by better margins, supported by lower operating costs and a 5% increase in sales volumes, which in turn were enabled by higher production level, despite a 4% decline in commodity prices pressured by ongoing macroeconomic uncertainties, global oversupply and softer demand. Volume growth and cost efficiencies helped sustain profitability. On a quarter-on-quarter basis, segmental profits rose to QAR 181 million during second half of 2025, reflecting an 11% increase in revenue. This was driven by a 7% improvement in selling prices and a 4% rise in sales volumes. The uptick in price signals a modest recovery in product pricing in line with broader market trends, while the volume increase was supported by enhanced production and operational performance. Moving on the chlor-alkali segment, as detailed on Slide 26 to Slide 30. The segment reported a net profit of QAR 8 million for the first half of 2021, reflecting a sharp decline of 78% compared to the same period last year. This drop was primarily driven by a 12% decrease in other selling places which fell to levels last seen during the peak of the COVID-19 pandemic. The decline was fueled by persistent macroeconomic pressures, sluggish demand from downstream sectors and weak construction and industrial consumption. In addition, elevated global inventory levels and lower ethylene prices aligned with the decline in crude oil, further dampened market sentiment. On a more positive note, sales volumes improved by 4%, supported by enhanced plant availability and stronger production performance. However, the benefit of higher volumes was fully offset by the adverse impact of lower pricing, limiting the segment profitability. Quarter-on-quarter, the segment posted a net loss of QAR 7 million, reversing its profitable position from Q1 2025. This was mainly due to an 11% drop in selling prices, which have now reached one of their lowest level since the pandemic. While sales remained relatively stable, the steep decline in pricing significantly compressed margins, resulting in a loss for the quarter. I would now hand over to Rashid.

Thank you, Sami, for the presentation. That concludes our presentation as a management. And now we'll open the floor for Q&A.

[Operator Instructions] Your first question comes from the line of Lee Beswick with QNB.

Just a question on the operating rates on Page 17. I was just noticing that all 3 or the 2 segments and therefore, the group are now above 100%. How sustainable is that? What's the sort of realistic operating rate that you can get to? And are there any planned maintenance that you're undergoing for sort of for the second half?

Thank you for the question. I think in terms of utilization, it's depending on many factors. So depending on the availability of feedstock, depending as well on the maintenance programs that each asset will take during the year. For the Q1 and Q2, luckily enough, I think most of the assets, they didn't have any unplanned shutdown, except for QVC, while we have, on average 3 days and this is below the levels that we are having normally for this plant. We have a planned shutdown in Q4 2025 for Q-Chem II. That's for around 45 days. This is planned and this is cyclic every 5 years, we have those planned turnarounds, which are taking place to improve the efficiency of the assets for the level which are above the 100% utilization. It's normal. I think if you look at the history, especially for the petchem segment, it's always achieving a higher level of utilization compared to the plant capacity. For QVC, I agree with you, this is not normally the trend. So this is an exceptional achievement for the production where the production levels have been very high. But in the normal levels, the plant is having on average per month 1 to 2 days of unplanned shutdown, which will take the average utilization normally should be standing at around 90% of the plant capacity.

Your next question comes from the line of Seki Mutukwa with Ashmore Group.

Just wondering, since the end of the second quarter and with maybe a little bit more news flow globally about agreed tariff rates, et cetera. Are you noticing any sort of behavioral changes with the customer base? I know it's a very short period we're talking about, but curious as to whether that's resulting in an uptick in demand in any way? Or are you seeing price stabilization maybe in chlor-alkali as well?

In terms of the market for Mesaieed, I think most of our products are sold outside the U.S. market. I don't think historically, we reported -- if we reported, it will be very minimal. So the impact directly on us is immaterial for us from that sense that we are not selling directly in the U.S. But the impact that will have in the price, it will depend on the market itself, the situation of the region that we are selling and up to now, we can see the reflection on the prices. The prices were down due to the softening demand aspect. We've seen petrochemical prices improve quarter-on-quarter, but chlor-alkali specifically was declining due to the link to the industrial base consumers and also due to the sluggish demand aspect as well as the oversupply in the market in the EDC/VCM markets. So that's, in a nutshell, what we see as a company. I hope I answered your question, Seki.

Yes. Just on that, I was asking sort of since the end of the second quarter, has had any trend changed granted it's a short period of time. And yes, the link with the tariffs was more sort of not necessarily for you yourselves and selling, but from your customer base if they were hesitant just because they were waiting for a bit of clarity, but I think you've covered that first. But just on the second one, it was anything to note since the end of June.

No, we did not see anything that is, I would say, that will bring -- I would like to bring to the investor attention. But we'll -- as we always said, as MPHC, we are on the lower side of the curve, and we'll move with the market. We are not a market leader here. We're selling our product based on the market price. And we are hopeful that the demand in second half could pick up, with -- if interest rates are going down, and that's what we are hearing from the market, that will give us a bit of an uplift in terms of consumption, but we are hopeful that second half could be better than the first half, but let's wait and see.

[Operator Instructions] There are no further questions. I will now turn the call back over to Dana for closing remarks.

So if there are no more questions, we would like to thank the company's management for the results update and for taking the time to answer all queries, and we look forward to speaking to you all for the third quarter results. Thank you.

Thank you, all.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.