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

Hello, everyone, and welcome to Mesaieed Petrochemical Holding Company Conference Call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Roy Thomas. Thank you. Please go ahead.

Thank you, Ali. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's First Quarter 2024 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 of Financial Operations, Privatized Companies Affairs, QatarEnergy and Saoud Ahmed Saifaldeen, Senior Financial Management Analyst, Privatized Companies Affairs, QatarEnergy. 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 Sami Mathlouthi. Go ahead, Sami.

Thank you. Thank you, Roy. Good afternoon, and thank you all for joining us. Before we go on to 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. Kindly note that MS Teams' link is to display the IR deck on the screens in case you want to participate in the Q&A session. You must dial-in through the telephone lines on the phone numbers provided as part of the invitation. Moreover, please note that this call is subject to MPHC disclaimer statements as detailed on slide #2 of the IR deck. Moving on the call, on Tuesday, 30th of April 2024, MPHC published its results for the 3 months period ended 31st of March 2024. And today, in this call, we will go through these results and provide you with an update on key financial and operational highlights. Today in this call, along with me, I have Abdulla Yaqoob Al-Hay, Manager, Privatized Companies Affairs, Sami Mathlouthi, Assistant Manager, Financial Operations; and Saoud Ahmed Saifaldeen, Analyst, Management Reporting. 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 governance structure by covering slides 5 till 10 and slides 41 and 42. Secondly, I will give you a brief on MPHC key operational and financial performance metrics. And later on, Saoud will provide you with insights on the segmented performance. And finally, we will open the floor for Q&A sessions. To start with, as detailed on slide #5 of the IR deck, the ownership structure of MPHC comprises of QatarEnergy, with approximately 57.9% 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 ] a service level agreement. The operation of MPHC 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 MPHC group companies are strategically placed in terms of competitive price and assured feedstock supply under long-term arrangement. Solid liquidity position over the strong cash flow generation capabilities and the presence of most repeated joint venture partners. In addition, its partnership with Muntajat acts as a catalyst for its access to global markets. As detailed on slide #10, from a competitive positioning perspective, MPHC ranks among top-tier companies in the regional chemical space across most [indiscernible] 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 code of corporate governance in detail. I'm starting with the macroeconomic dynamics. In Q4 2024, the macroeconomic climate remained wavered. This was marked by several factors carried forward from last year that affected the commodity markets and [indiscernible] linked to inflation-related pressures and a high interest rate environment. Additionally, the recent fall in natural gas prices brought an additional layer of uncertainty to the commodity market. Overall, commodity prices for MPHC basket of products declined year-on-year following the last 2 years' significant higher environment, mainly due to a cautious approach from buyers and mild macro headwinds coupled with comparatively lower energy prices. As reflected by the operational performance, slide #15, MPHC operations continue to be robust and resilient, total production for the current period reaching 280,000 metric tons. Production for first quarter 2024 increased by 17% versus first quarter 2023, mainly due to a maintenance turnaround carried out at QVC facilities during first quarter 2023 [ was ] affected production volumes for the first quarter in 2023. On a quarter-on-quarter basis, production volumes in Q1 2024 declined by 5% compared to fourth quarter 2023, mainly due to a decline in production volumes from the Petrochemical segment linked to maintenance [ era ]. Moving on to the financial performance, as detailed on slide #16, MPHC reported a net profit of QAR 194 million for the 3 months period ended 31st of March 2024, down 28% from previous year. The decline in profitability was mainly linked to a 17% decline in selling prices, which resulted in lower revenue by 2% to reach QAR 707 million. The drop in group revenue was mainly linked to the decrease noted in average blended product prices, which declined by 17% compared to first quarter of 2023. This translated into a negative price variance of QAR 80 million in MPHC current earnings compared to last year. Subdued product demand amid macroeconomic headwinds, along with excess supply resulted in lower commodity prices. Sales volumes increased by 18% versus first quarter of 2023, mainly driven by higher sales volumes reported by the Chlor-Alkali segment, partially offset by lower sales volumes reported by the Petrochemical segment. This positive movement in sales volumes translated into an increase of QAR 67 million in MPHC first quarter net earnings versus the same period of last year. As explained on Slide 16, finance performance in Q1 2024 compared to fourth quarter 2023, MPHC bottom line profitability declined by 17%, mainly due to lower revenue, where the decline of 13% was noted on a quarter-on-quarter basis. The revenue drop was mainly linked to lower selling prices by 6% and lower sales volumes, which declined by 8% compared to fourth quarter of 2023. Production volumes declined in Petrochemical segment due to a maintenance shutdown during the quarter, translating to a negative volume variance of QAR 77 million. Selling prices also dropped marginally by 6%, mainly due to relatively lower supply-demand dynamics, which translated to a negative price variance of QAR 35 million. As far as our financial position is concerned, slide #16 [ draws ] a clear situation on the liquidity. The liquidity remains robust, with cash and bank balances at QAR 2.7 billion as of 31st of March 2024. The decline in cash and bank balances was mainly due to dividend payment for the financial year 2023, partially offset by positive cash flow generation during the first quarter 2024. As of 31st of March 2024, total assets amounted to QAR 16.6 billion, and total equity amounted to QAR 16.2 billion. I will now hand over to Saoud to cover the segmental performance.

Thank you, Sami. Starting with the petchem segment as covered on Slide 22 until 26, during the first quarter of 2024, the Petrochemicals segment reported a net profit of QAR 138 million, marking a decline of 39% compared to the first quarter of 2023. This [indiscernible] profitability seems primarily from a 12% decrease in revenue amounting to QAR 516 million. The reduction in revenue can be attributed to lowered selling prices and marginally decreased sales volume. Notably, sales volume experienced a 7% decline, largely due to reduced production, while product prices saw a 10% decrease, reflecting a macroeconomic volatility absorbed in the previous year. These fluctuations have pursued influencing the trajectory of prices for various commodities compared to last year period. Furthermore, the first quarter of 2024 -- with the fourth quarter of 2023, we absorbed a 22% decline in segmental profits. This decrease primarily results from a 16% reduction in revenue, driven by an 11% decrease in sales volume and 6% decline in selling prices. The petrochemical market experienced a general downward trend in product prices compared to the preceding quarter. Contributing to the overall decrease in revenue, sales volume also witnessed a 11% decline on a quarter-on-quarter basis, largely attributed to reduced production level. While the Petrochemical segment faced challenges in the first quarter of 2024, including decrease in profitability and sales volume, it's critical to note that underlying factors contributing to these trends, understanding these broader market dynamics and their impact on pricing and production can provide valuable insights for informed decision-making and strategic positioning in the petrochemical industry. Moving on to Chlor-Alkali segment as detailed on Slide 27 till 31, in the chlor-alkali sector, net profit stood at QAR 18 million in the first quarter of 2024 -- the result of the first quarter of 2023. This consistency in profitability arose despite a decrease in selling prices, influenced by ongoing pressures in key downstream markets such as alumina, aluminum and PVC, which continue to negative macroeconomic volatilities. Notably, sales volume saw a significant uptick mainly attributed to enhanced production capabilities following improved availability of chlor-alkali facilities. Revenue surged by 41% to reach QAR 191 million, however, this substantial revenue growth did not translate into increased profitability due to corresponding rise in market expenses. Comparing quarter-over-quarter performance, the Chlor-Alkali segment's profitability in the first quarter of 2024 rose to 20% from the last quarter Q4 2023. This improvement was largely driven by effective cost management, particularly in general and admission expenses. So though it was somehow tempered by 6% decline in revenue, the decrease in revenue is linked to a 2% reduction in average selling prices compared to the previous quarter, reflecting ongoing adjustment and the market condition.

I think now we can open the floor for the Q&A.

Now opening the floor for question-and-answer session. [Operator Instructions] Our first question comes from Mohammed [ Atara ] from Jadwa.

Mohammed, please go ahead.

We're going to have to move on to our next question since Mohammed retreated with the question. Our next question comes from [ Amir Badran ] from NBK Wealth.

I have one question on the tax status of the company. And should we expect a change in the tax status next year with the global minimum tax rate?

Amir, I think you are referring to the OECD tax regulation with the minimum 15% tax rate, correct?

Yes.

Yes, I think we are still internally discussing that matter internally with our advisers. But from company's position view, the underlying joint venture are fully taxed and they are taxed the 35% tax rate. The holding company, however, it's not taxed, but we are checking how -- what will be the impact in terms of the holding company in itself, but the group companies underneath are fully taxed. We don't expect at the moment any changes unless our adviser will come up with different opinion.

Our next question comes from [ Sakinakamo ] from Ashmore.

A couple of questions, please. Firstly, just on -- when you look at your planned, sort of, shutdowns and maintenance, would you expect that second quarter volumes to be higher, particularly in the Petrochemicals than the first quarter? The other question was relating to the variable costs. Again, in Petrochemicals, you flagged that those had an impact on the margins. Could I just ask what happened on that side or what specifically? And then lastly, the marketing expenses, which you flagged in the Chlor-Alkali, are those -- is it a step change or there was a one-off particular sort of payment that was made and so over the rest of the year, that sort of smoothed out? Just to understand.

Yes. Perfect. I'll start with the first question. We are not expecting any shutdown days for second quarter compared to first quarter. So in first quarter, we had around 4 days in the petchem and on average, 1 day for the Chlor-Alkali segment. So Q2, we don't expect really an increase in terms of the Petrochemicals. In the Chlor-Alkali, it's normally we have 1 to 1.5 days shutdown per month, which is normal and regular. For the full year, so we are expecting in Q3, a 15-day shutdown in Chlor-Alkali and in Q4, around 11 days shutdown as well for Chlor-Alkali. Petchem, we're not expecting any shutdown during the next quarters. That's for the first -- for your first question. Regarding the marketing expenses, these are not one-off, but normally, there would be always some corrections relating to either previous quarters or the previous [ months ]. So this is based on the quantity and the assertion of volumes that will be made. This is based on the type of customer that we are selling or the destination that we are selling to. So everything will be adjusted at the end of each quarter, and it will be invoiced during the next quarter. So it's mainly adjustment, so mainly relating to the previous sales, and it will be allocated to the following quarter. That's in terms of marketing expenses. Variable costs, it's depending actually on the activities. For example, in [indiscernible] we have some maintenance, which are not relating to planned turnarounds because planned turnarounds are allocated to fixed assets. But if there is any normal unplanned or normal maintenance, this will increase the cost of variable cost and will have an impact on the net profit.

As of right now, we don't have any additional questions. I would now like to hand back over to the moderator for the final remarks.

If there are no further questions, we would like to thank Mesaieed Petrochemical Holding Companies representatives for the results update and answering the queries and we look forward to speaking to you all for the second quarter results. I'll hand over the call now back to QatarEnergy for their closing remarks.

Okay. Thank you so much. Operator, I think we were missing a few questions maybe from Mohammed, Jadwa. If he is available to ask a question, we are available.

As of right now, I cannot see the said analyst in the list.

That's fine. That's fine. Thank you.

You're very much welcome. If that's the case, thank you so much for attending everyone for today's call. We hope you have a wonderful day and stay safe.

Thank you so much. Thank you.