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

Hello, and welcome to the Mesaieed Petrochemical Holding Company Fourth Quarter 2022 Earnings Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Fabian Macquarie to begin the conference. Fabian over to you. Fabian over to you.

This is Rashid. I will do the introduction. Here, we have Mesaieed Petrochemical Holding Company management. I have alongside me Mr. Abdulla Yaqoob Al-Hay, Acting Manager for Privatized Company Affairs and QatarEnergy; we also have Sami Mathlouthi, Assistant Manager for Financial Operations; and myself, Head of Investor Relations and Privatized Company Affairs. Good afternoon, everybody, and thank you for joining us. Hope you all are doing great. We'll start with the disclaimer. Before we go into the business and performance updates, I would like to mention that this call is purely for the investors of MPHC, and no media representatives should be attending in this call. Moreover, please note that this call is subject to MPHC disclaimer statements as detailed on Slide #2 of the IR deck. Moving on to the call. On Wednesday, 15th of February, MPHC published its results for the year ended 31st December 2022. And today in this call, we will go through these results and provide you an update on key financial and operational highlights. Today on this call, alongside me, as I mentioned, Mr. Abdulla Yaqoob Al-Hay, Acting Manager for Privatized Company Affairs; and Sami Mathlouthi, Assistant Manager of our Financial Operation. We have structured our call as follows: at first, I will provide you with a quick insight on MPHC ownership structure, its competitive strength and overall government structure by covering Slide 5 til 10 and Slide 41 and 42. Secondly, Sami will brief you on MPHC key operational and financial performance update. Alongside him, Abdulla will also provide you an update on this. Later on, I will provide you the segmental performance update. And finally, we will 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 65.4% stake. And the rest is in the free float held by various domestic and international corporates and individuals. QatarEnergy being the main shareholder of MPHC provides most of the head office functions through our service level agreement. The operation of MPHC joint venture are independently managed by its respective Board of Directors alongside senior management team. In terms of the competitive advantages, as detailed on Slide #8, all of the MPHC Groups are strategically placed in terms of competitively priced and assured feedstock supply under a long-term arrangement, solid liquidity position with a strong cash flow generation capability and presence of -- most of the well-known joint venture partners. Additionally, its partnership with Muntajat acts a catalyst for its access to global markets. As detailed on Slide #10, on competitive positioning perspective, MPHC ranks among the top-tier companies in the regional chemical space across most of the matrices especially leads the chart in terms of the profitability margins. In terms of the governance structure of MPHC, you may refer to Slide 40 and 41 of the IR deck, which covers various aspects of MPHC code of conduct and code of corporate governance in detail. I will now hand over to Abdulla.

[Foreign Language] Thank you, Rashid. Good afternoon and thank you all for joining us. Starting with macroeconomic environment as detailed on Slide 12. Macroeconomic climate remains level throughout the year, marked by geopolitical conflicts and recessionary fears linked to the inflationary pressure and higher interest rate environment. Unprecedentedly high energy prices in Europe, weighted on European producer. Also, Chinese current 0 COVID policy is bringing additional layer of pressure to the commodities. And overall, commodity prices slightly declined on a year-on-year basis, especially within the Petrochemical segment following last year's slightly higher price environment mainly due to the cautious approaches from buyers and macro headwinds coupled with comparatively lower crude prices. In terms of top line, our revenue remained flat compared to last year, as slightly higher sales volume entirely offset the impact of a slight decline and average realized blended selling price as detailed on Slide #16. In terms of bottom line for the year ended 31st December 2022, MPHC recorded a net profit of QAR 1.8 billion, down by 5% versus last year. On dividend distribution front, you may refer to Slide #36, where you may notice that the Board of Directors proposed a total dividend distribution of QAR 1.38 billion for the year ended 31st December 2022, equivalent to QAR 0.11 per share. Despite the uneven market condition, which is a system testimony of MPHC financial strength, the proposal would be subject to General Assembly approval. I will now hand over to Sami to cover the rest of the presentation.

Thank you, Abdulla. In terms of group financial performance for the current year, it was largely attributable to slightly lower product prices, which on an average declined 14% and translated and to -- and translated and to decrease of QAR 40 million in group's net earnings, as you can see on Slide 17. On the contrary, sales volume slightly improved by 2% versus last year, mainly driven by better plant operating rates, improvement in sales volumes translated into an increase of QAR 53 million in MPHC net earnings. On the operational performance front, MPHC operations continued to remain resilient with total production for the year, reaching 1 million metric tons. Current period production volumes remained flat versus 2021, mainly due to a large scale turnaround carried out at Q-Chem facility during the first quarter this year. Entirely offset the lowered volumes due to a planned preventive maintenance shutdown carried out at the chlor-alkali facility during the fourth quarter of last year. Moving on to quarter-on-quarter performance, MPHC revenue declined by 13% and net profit decreased by 32%. The key contributors towards the downward trend in revenue and net earnings was mainly lower selling prices realized during the current period versus third quarter of 2022. Decline in selling prices was mainly linked to downward trajectory noted in commodity prices. It might make headwinds affecting global markets and comparatively lower crude prices. Sales volumes also declined by 7% compared to third quarter of 2022, due to lowered production predominantly linked to lower volumes reported by the Chlor-Alkali segment. On overall basis, our base case strategy will be to continue our focus on the strategic drivers of operational reliability in terms of continued improvement in efficiency and achieving cost optimization, which would enable the group to contain costs while making strategic investments for unlocking for further growth potential. I will now hand over to Rashid to cover the segmental performance.

Thank you, Sami. Starting with Petrochemicals segment. As covered on Slide 22 til 26, Petrochemical segment reported a net profit of QAR 1.2 billion for the current year, down by 13% versus last year. This decline in profitability was primarily driven by lower segmental revenue, it decreased by 6% on a year-on-year basis. Segment sales volume declined by 6% on a year-on-year basis, as segment carried out a large-scale turnaround Q-Chem facilities during the first quarter of 2022, which affected the segment production volume, which then churn declined by 7%. Product prices remained flattish and partially offset the negative impact of lower sales volume to an extent. Current year realized selling price remained affected throughout the year by overall macro volatility, which affected the current year price trajectory for most of the commodities. In terms of the segment revenue by geography, as detailed on Slide #25, Asia remains a key market for the segment, along with Indian subcontinent and Europe. We can move to the Chlor-Alkali segment, as detailed on Slide 27 til 31. Chlor-Alkali segment reported a net profit of QAR 504 million for the year ended 31st of December 2022, increased by 6% compared to last year. Growth in bottom line profitability was driven by improvement in sales volume, which increased by 16%, and then better plant operating rates as last year volume were affected by a large scale shutdown carried out during the fourth quarter of 2021. On the other hand, average realized selling price remained flat versus last year, as end product industries such as alumina, aluminium and PVC, et cetera, remained under pressure due to micro volatilities. In terms of segment revenue by geography, as detailed on Slide #30, India subcontinent remain the market for this segment. Now since we covered all operational and financial aspects of the company, we would like to open the floor for the Q&A.

[Operator Instructions] Your first question comes from the line of [ Nikhil Butane ] of CBFS.

Well, my questions are pertaining to 2 specific things. One is what t do with Q-Chem? In terms of -- we can understand your revenue is coming down because of selling prices, particularly related to our fourth quarter, but the cost striated with that, I mean, has also gone considering -- I mean it has been flat actually in terms of quarter-to-quarter. I mean indirectly, you know gross margins have been affected quite negatively. So just wanted to have any color on this. What has been the reason behind this. I mean, is the inventory push, is it something else? Can you see listing on this? Yes.

Yes. I think in the fourth quarter in the Chemical segment, you can see that the net profit has reduced by 13%. The main impact was basically, despite having flat selling prices, I think it's a little bit of higher direct cost, which is impacting the production.

It has got to do with inventory holding. That's what you are saying, which has gone through in the fourth quarter. That could be the reason?

Yes.

Okay. Second, sir, I mean, before, you can provide a highlight in terms of your other income under your QVC segment, there has been a loss, the way it looks like. I mean, can you explain that? I mean, what has been the reason beyond there?

Sorry, can you repeat the question again?

Under your QVC division, the other income as such has shown a loss on -- in fourth quarter. Am I right in that prognosis? And I mean why is that so in case [indiscernible]?

Can I ask you from where you got this information? Is it from the financial statement?

Yes. I mean we have seen from your subsidiary performances. And I think we have just correlated it with your last 3 quarter and accordingly come out with the -- I think we have seen that is some kind of a loss on the other income. That's what I said the reason. So in case suppose not that time, I mean, we can come back to you on this later on, not an issue.

Yes, we will just come back to you.

You can come back to us later on this one specifically.

Yes, definitely sir. See, I mean, of all your product prices, what we have seen your caustic soda to a certain extent have been holding on quite well. I mean, it has come down, but not to that extent, it has also been reflected in your graph, which you have given. So can you just highlight and how -- what exactly has been the reason for that? I mean, the demand and what likely you see going forward? And one last question, typically on your maintenance cycle. So 2023, what likely -- are we going to be following the same schedule what we have seen in 2022, or it could be different?

On the shutdown schedule for 2023, we are not expecting any planned or unplanned shutdowns for Q-Chem and Q-Chem II. However for QVC, we are expecting some shutdowns. So average, so it will be around 44 days for the whole year. And in Q1, we are expecting around 11 days in QVC plan.

Okay. And in caustic soda, sir, I mean can you just give an idea about what we see going forward for 2023 also in case [indiscernible] help us out in this?

In terms of future prices. So normally, we don't disclose any future prices. But as you can see in the Q4, so we are seeing a slight decline in prices. I think Q1, we don't expect a huge difference compared to what we have seen in Q1.

Now if you are talking about the prices, the prices for us is market-driven and what we need to focus on is the operational excellence, where the historical recon and demonstrate that, that we can demonstrate and the operational excellence as a lean user. So the market is -- market prices in the -- something not in our hand, but we believe we are doing much more than that.

Okay. And just last one question pertaining to any inventory, which is still left high -- and which I think holding on. I mean, as compared to the average inventory cycle, which could be carried forward in the first quarter. I mean, in the current quarter, are you seeing that?

No, no. As you can see, most of the production that we are producing is sold. So we don't expect any huge inventories. So there that will be sold in Q1 2023, please.

[Operator Instructions] And your next question comes from the line of [ Kishan Kabayani ] of ADIA.

Just a quick one on the PVC operating rate that was a little bit lower in Q4, and also the sales volume as a percentage of your capacity and there's a little bit of a footnote there that was a little bit of turnaround. But just wanted to understand as well, how many days and like -- the sales volume is a little bit on the low side, just to get a little bit more clarity there?

I think your question is centered around QVC. I think in QVC, we witnessed a plant shutdown in Q4, which is within the planned schedule and within the budget that we already agreed at the beginning of the year. And that's business as usual for us. So that's why you're seeing the impact of production cascading to sales volume impact. So going forward, we expect that this cycle will remain. As you know, that QVC will always be in a shutdown cycle throughout the year, totaling to around 40 to 44 days, as Sami mentioned. So you almost have to keep this in mind when you are reviewing QVC specifically.

Great. That's clear. And to be always expect the majority some being in Q4?

Can you repeat your question?

I'm just saying the majority of the day is shutdown days, are they going to be in Q4? I know you said that there is a little bit coming in Q1, but the rest is usually for Q4 event?

No, no, for the specific year. So the shutdown would be -- the main shutdown would be in Q1. And then the budgeted shutdowns will be spread over the next quarters on a similar way.

[Operator Instructions] And currently, there are no further questions. I'd like to hand back to Fabian.

It's Fabian here from QNB. Hope you can hear me. If there are no further questions, it brings us to the end of our conference call. Thank you all for joining us and for your questions. And I would also like to thank the management team for answering all your questions. Please join us again in Q1 2023. And have a good afternoon. Thank you.

Thank you all for joining us for this call and much appreciated. Thanks so much.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.