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

Good day, and welcome to the Mesaieed Petrochemical Holding Company Q2 2021 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Roy Thomas. Please go ahead.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's Second Quarter 2021 Financial Results Conference Call. On this call, we have Sami Mathlouthi, MPHC's Assistant Manager for Financial Operations; and Riaz Khan, Head of Investor Relations and Communications. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call now over to Riaz Ramanan Go ahead, Riaz.

Thank you, Roy. Good afternoon, and thank you all for joining us. Hope you're all staying safe. Before we go into the business and performance updates, I would like to mention that this call is purely for investors of MPHC and no media representatives should be attending this call. Moreover, please note that this call is subject to MPHC's disclaimer statements as detailed on Slide #2 of the IR deck. Moving on to the call. On 5th of August, MPHC published its results for the 6-month period ended 30th of June 2020. And today, in this call, we'll go through these results and provide you an update on key financial and operational highlights of MPHC. Today on this call, along with me, I have Mr. Sami Mathlouthi, Assistant Manager, Financial Operations. We have structured our call as follows. At first, I will provide you a quick insight on MPHC's ownership competitive advantages and overall governance structures by covering Slides 5 until 10 and Slides 40 and 41. Secondly, Sami will brief you on MPHC's key operational and financial performance matrix. Later, I will provide you with insights on segmental performance. And finally, we will open the floor for the Q&A session. To start with, as detailed on Slide 5 of the IR deck, the ownership structure of MPHC comprises of Qatar Petroleum with approximately 65.4% stake, and the rest is in the free float held by various corporates and individuals. Qatar Petroleum, being the main shareholder of MPHC, provides most of the head office functions through a service level agreement. The operations of joint ventures are independently managed by their respective Board of Directors, along with the senior management team. In terms of competitive advantages, as detailed on Slide 8, all of the group's companies are strategically placed in terms of competitively priced and assured feedstock supply under long-term arrangements, solid liquidity position with a strong cash flow generation capability and presence of most reputed JV partners. Additionally, its partnership with Muntajat acts as a catalyst for its access to global markets. As detailed on Slide 10, we from competitive positioning perspective, MPHC ranks amongst the top-tier companies in the regional chemical space across most of the matrices and specifically leads the charts in terms of profitability margins. In terms of governance structure of MPHC, you may refer to Slides 40 and 41 of the IR deck, which covers various aspects of MPHC's core of corporate governance in detail. I will now hand over to Sami.

Thank you, Riaz. Good afternoon, and thank you all for joining us. To start with, as detailed on Slide 12, in terms of macro economic dynamics, the momentum carried from the later part of the last year on the back of satisfactory vaccination drive and easing up of geographical lockdowns in major markets and led to a sequential recovery in demand for petrochemicals and chlor-alkali products and positively reflected on selling prices. Industry-wide supply constraints and global logistical bottlenecks also played a part in keeping the product prices favorable for the downstream producers. MPHC joint ventures benefited from the strong economic sentiment, which resulted in improved price levels and translated into an improved set of financial results as detailed on Slide 14. For the 6-month period ended 30th of June 2021, MPHC recorded net profit of QAR 909 million as compared to QAR 135 million for the same period last year. So it's up by 573% as detailed on Slide #16. Group improved financial performance for the first half of 2021 was largely attributable to the improved product prices which, on average, increased by 57% and translated into an increase of QAR 721 million in group's bottom line earnings, as you can see on Slide 17. Sales volumes were also furthered by 26%, mainly on account of improved production volumes and contributed by QAR 238 million positively to the current period bottom line earnings versus the first half year of 2020. So the positive trajectory in product prices and improved volumes were slightly offset by increase in variable costs, which contributed by QAR 191 million negatively towards the current period earnings in comparison to first half year 2020. Current period net earnings were also positively impacted by favorable variance amounting to QAR 75 million in relation to inventory differentials due to lesser drawdowns in comparison to the same period last year. MPHC operations continue to remain robust and resilient, with total production for the period reaching 588,000 metric tons, up by 33% versus last year, as detailed on Slide 15. The overall increase in production volumes were mainly attributed to improved plant operating rates during the current half year as major planned turnarounds and preventive maintenance shutdowns were carried out in certain MPHC joint ventures facility during first half year of last year. Moving on quarter-to-quarter performance. MPHC revenue improved by 15% versus Q1 2021, while net profit significantly improved by 40%. The key contributor towards the growth was the overall increase in average selling place, which continued their positive trajectory on the back of continued macroeconomic recovery. Average selling prices increased by 18% during Q2 2021 compared to Q1 2020. On an overall basis, our base case strategy will be to continue its focus on the strategic drivers of operational reliability in terms of continued improvement in efficiency, further cost optimization programs, which should enable the group to contain costs while making strategic investments for unlocking further growth potential. I will now hand over to Riaz to cover the segmental performance.

Thank you, Sami. Starting with Petchem segment as covered in Slides 22 until 26. The performance of segment bounced back with a net profit of QAR 650 million with an increase of more than 700% compared to first half of last year. This notable increase was primarily driven by improved product prices, which increased by 51% on account of improved macroeconomic dynamics and supply constraints. Sales volumes also increased by 23% compared to the same period last year against a backdrop of higher operating days in the current period. The growth in product prices, coupled with sales volumes, led to an overall rise in revenue by 85% within the segment to reach QAR 1.4 billion for the current period. Production volumes also increased by 33% versus the first half of last year as the segment had planned periodic turnaround of Q-Chem II facilities during Q1 of 2020, which affected the overall operating rates for the last year. In terms of segment revenue by geography, as detailed on Slide 25, Asia remains the main market for the segment whereas Indian subcontinent and Europe are the key other markets for the segment. Moving on to Chlor-Alkali segment as detailed on Slide 27 until 31. The segmental performance recorded a significant recovery with a net profit of QAR 252 million compared to a net profit of only QAR 5 million reported for the first 6 months of 2020. This notable growth was primarily driven by significant improvement in blended average selling prices, which increased by 80% complemented by renewed product demand and supply shortages. Sales volumes also increased by 30% compared to the same period last year against the backdrop of better utilization rates in the current period versus last year. Growth in product prices, coupled with sales volumes, led to an overall increase in revenue by 136% within the segment to reach QAR 547 million for the current period. Production volumes also rose by 32% versus the same period of last year as the segment had more planned periodic shutdowns during Q1 of 2020. In terms of segment revenue by geography, as detailed on Slide 30, Indian subcontinent remains the main market for this segment. Now I think we can open the floor for the Q&A session.

[Operator Instructions] We have a question now from Siju Philip from United Securities.

Just a quick question. So how do you see the price outlook for the second half? Do you think the bottlenecks will start to ease? And do you see any pressure on the pricing? How comfortable is that? And could you just give a color on both the segment, Petchem as well as for the Chlor-Alkali? And second thing is that do you expect any kind of a maintenance schedule for the second half? Yes, that's all my questions.

Yes. In terms of price outlook, as you are aware that during the first half, we had a surge in demand because of opening up of economies as well as supply shortages, and there were certain bottlenecks in terms of supply chain. Going forward, what we have noticed in June specifically, that there has been some price adjustments happening specifically in the petchem sector. As far as the expectations are concerned, considering the recent price trend, we are seeing the prices are starting to settle down a bit, basically plateauing at the levels of what we have reached in the end of June. So going forward, the expectation is, considering there will be surge in demand on one side as well as on the supply side, we will have most of the operating capacities coming online, specifically in U.S. and China. So we are hoping that the prices will tend to stabilize. But I think on a year-on-year basis, when we compare for like 2020 versus the 2021 at the year-end, which we'll do, hopefully, the price trends will continue to remain positive.

Yes, in terms of your second question relating to the maintenance of the plant, so we don't expect any shutdown for the petrochem plant. And we have, in Q4 2021, a planned shutdown for QVC plants, which is relating to the chlor-alkali. So that's around 90 days in Q4 2021.

Okay. Just another question, I just want to ask. Since you mentioned that one of your strategic plans is cost optimization, could you just give us color on that, if you can just elaborate on that? And what is this exercise? How long this exercise is going to be over the -- is it 6 months or 1 year? Could you just elaborate on that? It would be helpful.

Well, I think we are continuously working to reduce the cost in all the plants to make sure that our direct costs are in line with the industry. So we are working with what I will say a very reasonable cost. So the exercise has been starting since few years. So last year due to COVID-19, we started officially an optimization plan. So it has started in June 2020. So that has achieved reasonable result, and we will continue basically to work with all the plants to achieve the highest efficiency in terms of product -- in terms of direct cost and especially to make sure that our gross margins are in line with the industry.

[Operator Instructions] Gentlemen, it appears we have no further questions at this moment.

If there are no further questions, we would like to thank Mesaieed Petrochemical Holding Company's management for the results update and look forward to speaking to you all for the next quarter results. Thanks.

Thank you all for joining us. In case you have any further questions in the future, please feel free to contact us. Myself or Sami will be here to help you out in understanding MPHC. And once again, thank you for joining us all.

Thank you so much. Thank you, everyone.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.