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

Hello, and welcome to the Mesaieed Petrochemical conference call. I would like to advise all participants that this call is being recorded. I'd now like to welcome Mr. Roy Thomas to begin the conference. Roy, over to you.

Thanks, Bhavesh. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's Second Quarter and First Half 2023 Financial Results Conference Call. On this call representing Mesaieed Petrochemical Holding Company, we have Abdulla Yaqoob Al-Hay, the Acting Manager, Privatized Companies Affairs, QatarEnergy; Sami Mathlouthi, the Assistant Manager, Financial Operations, Privatized Companies Affairs, QatarEnergy; Saoud Ahmed, the Senior Financial Reporting Analyst, Privatized Companies Affairs, QatarEnergy; and Rashid Hamad Al-Mohannadi, the Head of Investor Relations and Communications, Privatized Companies Affairs, QatarEnergy. We will conduct this conference call with management first reviewing the company's results followed by Q&A. I will turn the call now over to Rashid Hamad Al-Mohannadi. Go ahead, Rashid.

Thank you, Roy. Good afternoon, and thank you all for joining us. Hope you are all doing great. 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 this call is subject to the MPHC disclaimer statement as stated on Slide #2. Moving on to the call. On Wednesday, August 9, MPHC published its result for the period ended 30th of June 2023. And today, in this call, we'll go for these results and provide you an update on key financial and operational highlights. Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Acting Manager for Privatized Companies Affairs; Mr. Sami Mathlouthi, Assistant Manager for the Financial Operation; alongside, Saoud Ahmed, Senior Management Analyst from Privatized Company Affairs. We have structured the call as follows. At first, I'll provide you with a quick insight into the ownership structure of MPHC, its competitive strength and overall government structure by covering Slide 4 till 10 and Slide 4, 41 and 42. Secondly, Abdulla will brief you on the key financial highlights of the company and the microenvironment update. Secondly, Sami will provide you also with the key financial and operational performance matrices. And later Saoud will provide you 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 65.4% stake and the rest is in the free float held by various investors, domestic and international corporate and individuals. QatarEnergy being the main shareholder of MPHC provides most of the head office functions to a service level agreement. The operation of MPHC joint venture are independently managed by their respective Board of Directors along with senior management team. In terms of the competitive advantages, as detailed on Slide #8, all of the MPHC Group companies are strategically placed in terms of competitively priced and assured feedstock supply under long-term arrangements, solid liquidity position with strong cash flow generation capability and presence of the most reputable joint venture partners. Additionally, its partnership with Muntajat, act as a catalyst for its access to the global markets. As detailed on Slide #10, from a competitive positioning prospective, MPHC ranks among the top-tier companies in the regional chemical space across most of the matrices specifically, leads the chart in term 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 aspects of MPHC Code of Corporate Governance in detail. I will now hand over the call to Abdulla Yaqoob Al-Hay to provide you with overall of MPHC results and macroeconomic updates.

Thank you, Rashid. [Foreign Language] and thank you all for joining us. I'm glad to have you all here before we dive and end. We -- I want to share some of the key highlights of the results. Despite the challenging macroeconomic environment, MPHC achieved QAR 585 million for the first half 2023 signifying a reduction of 44% compared to the previous year. This accomplishment takes place against the backdrop of macroeconomic environment that post significant challenges to the product price and overall market dynamics. Diving into the macroeconomic environment update as detailed on Slide #12. The macroeconomic context remained wavered by several challenges affecting the commodity markets including geopolitical uncertainty, position refills linked to inflation-related pressure and a higher interest rate environment. Additionally, a slower-than-expected global economic recovery and reduced energy price brought more tense to the commodity markets. Moreover, the prevailing cautious stance among buyers has placed downward pressure on commodity prices on a global scale and some MPHC assortments of product prices has exhibited a year-on-year decreases, a shift from the considerably elevated price environment observed in the previous year. With that note, I will now hand over to Sami to provide you with a comprehensive update on our key financial and operational performance matrices.

Thank you, Abdulla. We can now proceed with in-depth analysis of financial and operational performance. As you can notice on Slide 15, MPHC operations remain robust and resilient with total production of the current period reaching 533,000 metric tons. Production for the first half of 2023 slightly declined compared to first half 2022, mainly due to maintenance turnaround at QVC facilities during the first quarter of 2023, which affected the production volumes during the first half of 2023. On quarter-on-quarter basis, production volumes in the second quarter increased by 23% compared to the first quarter mainly due to the increased production volumes from the petchem and the chlor-alkali segments linked to the shutdown days during the second quarter of 2023. As demonstrated on Slide 16, MPHC reported a net profit of QAR 585 million for the 6-month period ending 30th of June 2023, down by 44% compared to last year. This decline in profitability was mainly linked to lower group revenue will decline by 27% and reached QAR 1.5 billion. The decline in group revenue was mainly linked to the decrease in average blended product prices, which declined by 25% compared to the first half of 2022, translating into a decrease of QAR 578 million in MPHC current net earnings compared to last year. Sales volumes declined marginally by 3% versus first half 2022, mainly driven by lower sales volumes reported by the chlor-alkali segment, partially offset by higher volumes reported by the petchem segment. Negative movements in sales volumes translated and to a decline of QAR 10 million in MPHC first half 2023. Net earnings versus the same period of last year, as you can see on Slide 17. EBITDA for the current period amounted to QAR 797 million as per Slide 14 was a decline of 36% versus first half 2022 mainly due to lower revenue. EBITDA margins for first half 2023 reached 52% compared to 59% achieved during first half 2022. Moving on quarter performance, MPHC bottom-line profitability increased by 18%, mainly due to higher revenue noted on a quarter-on-quarter basis, which increased by 13%. The increase in revenue was mainly linked to higher sales volumes by 20%, offset by lower selling prices will decrease by 5% versus the first quarter of 2023 as lower demand continues to affect most commodity prices globally. This downward movement in selling prices led to a negative contribution of QAR 42 million to MPHC net earnings during the second quarter of 2023 compared to the first quarter of 2023. In the meantime, as per shown in Slide 16, liquidity remains robust with cash and bank balances standing at QAR 3.5 billion as of 30th of June 2023. The decline in cash and bank balances compared to 31st of December 2022 was mainly due to dividend payments for the financial year 2022, partially offset by positive cash flow generation during first half. I will now hand over to Saoud to cover the segmental performance.

Thank you, Sami. Starting with petchem segment as covered in Slides 22 to 26, the petrochemicals segment reported a net profit of QAR 502 million for the current period, down by 24% versus the first half of 2022. This decline in profitability was primarily driven by lower selling prices, coupled with comparatively higher operating costs linked to higher production and higher sales volume leading to unfavorable inventory movements. Segment's revenue declined by 10% to reach EUR 1.2 billion during the first half of 2023 versus first half of 2022 as higher sales volume partially offsets lower selling prices. Growth in sales volume was mainly linked to a higher production, which increased by 14% as the segment carried out a large-scale turnaround at Q-Chem facilities during the first quarter of 2022, which affected the segment's productions volume for the last year same period. On the other hand, product prices declined by 21%, mainly due to macro volatilities echoed for from last year, which affected the current period's price trajectories for most of the commodities in comparison to the same period of the previous year. On quarter-on-quarter basis, segmental profits increased by 23% mainly linked to an improvement in segmental revenue, which increased by 12%. Selling prices marginally increased by 2% on a quarter-on-quarter basis. On the other hand, sales volume increased by 10% on a quarter-on-quarter basis, aimed higher production due to better plant availability. Moving to chlor-alkali segment as detailed on Slides 27 till 31. The chlor-alkali segment's net profit decreased significantly by 91% in the first half of 2023 compared to first half 2022. This was due to lower selling prices and sales volume, which fell by 47% and 23%, respectively. Selling prices declined because end product industries: alumina, aluminum, PVC, et cetera, dampened demand and remain challenged, especially for product linked to constructions. Sales volume declined mainly due to lower production impacted by a planned turnaround at chlor-alkali facilities during the first quarter of 2023. The decline in selling prices and sales volume led to an overall decline in segmental revenues, which decreased by 60% year-on-year and reached to QAR 293 million for the first half of 2023. On a quarter-on-quarter basis, profitability for the second quarter of 2023 declined by 21% versus first quarter of 2023. This was mainly due to an increase in operating costs. The increase in revenue was mostly linked to a higher sales volume, which contributed by 41%. Now I will hand over to Rashid.

Thank you, all. With that, we are prepared to move into the engaging Q&A session. Feel free to ask your question or share your thoughts at this time. Your active participation is greatly appreciated.

[Operator Instructions] Our first question comes from the line of [ Nikhil Purpan ] from CBFS.

Well, I mean, this is a -- question is regarding your caustic soda prices. Actually, we have just seen the drop, which you have mentioned. But I just wanted to understand in terms of the time period, which you consider for your second quarter results in the caustic soda prices because internationally, whatever we get it through Bloomberg, the prices just looks a little bit more stable than what actually in the company has reported. Can you make us understand the variance behind this?

Just to answer your question about the benchmark. When you look at the prices we are showing, it's the prices in terms of the blend price, okay? When you look at the slides when we talk about the chlor-alkali segment. However, it's basically a combination of VCM prices, caustic soda. Also, we have other small product that we are selling as intermediates product as well. So I think in term of the price and realization of the price, it will depend which benchmark you are following when you benchmark against our prices. So if you are following, let's say, the Middle East benchmark, may not be a good indication that purely due to the fact that we are selling in several regions and several regions follow different price index, et cetera. So it would not match 100% but it should correlate in term of the movement trajectory of the prices. I hope I answered your question?

Yes. I mean, can you give us in caustic sort of segmental in terms of region wise. Given the fact that overall, we see a decrease, okay, on a Y-o-Y basis from your -- in some subcontinent to -- I mean, from 80% to 60%. So just wanted to understand because Indian subcontinent does have a demand. I mean, that's what we felt. So where exactly what can we look forward to? I mean, as far as caustic soda, chlor-alkali products are concerned for MPHC?

So you'll see that reduction purely due to the fact that in Q1, there was a planned shutdown in QVC. That's why the revenue segment, let's say, for India subcontinent reduced because I think most of the India subcontinent percentages pertain to the VCM products. And since that QVC was under shutdown, we have lower sales volumes compared to last year. So that's why you see a reduction. But we don't have -- we don't disclose the product-by-product geographical distribution. But we have this slide, as you might see in the presentation that give you a good sense of the blended, let's say, geographical distribution for the chlor-alkali segment sales.

There are no further questions at this time. I will now hand the call back to Mr. Roy Thomas.

All right. If there are no further questions, we'd like to thank Abdulla Yaqoob Al-Hay, Sami Mathlouthi, Saoud Ahmed and Rashid Hamad Al-Mohannadi from QatarEnergy for the results update and look forward to speaking to you all for the third quarter results. I will hand the call over to Abdulla Yaqoob Al-Hay for his closing remarks.

Thank you all for joining us. Thank you so much.

Thank you. Thanks a lot.

Thank you.

This concludes today's conference call. You may now disconnect.