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

Hello, and welcome to MPHC Q3 2024 Conference Call. Please note that this call is being recorded. You will have the opportunity to ask questions for our speakers later during on the Q&A session. [Operator Instructions] I'd like to hand over the call to Roy. You may begin.

Thanks, Angela. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's Third Quarter and 9 Months 2024 Financial Results Conference Call. On this call for Mesaieed Petrochemical Holding Company, we have Sami Mathlouthi, the Assistant Manager for Financial Operations, Privatized Companies Affairs, Qatar Energy; Saoud Ahamad, Financial Management Analyst, Privatized Companies Affairs, Qatar Energy; and Rashid Hamad Al-Mohannadi, the Head of Investor Relations and Communications, Privatized Companies Affairs, Qatar Energy. 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 Al-Mohannadi. Go ahead, Rashid.

Thank you, Roy. Good afternoon, and thank you all for joining us. 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 representative should be attending this call. Kindly note that the MS Teams link is displayed in the IR deck onscreen in case you want to participate in the call. [Operator Instructions] Moreover, please note that this call is subject to the MPHC disclaimer statement as detailed on Slide #2 of the IR deck. Moving on to the call. On Monday, 28th of October 2024, MPHC published its results for the 9-month period ended 30th of September 2024. And today, in this call, we'll go through these results and provide you an update on key financial and operational highlights. Today in this call, along with me, I have Mr. Sami Mathlouthi, Assistant Manager for Financial Operations within the Privatized companies Affairs Department; and we have Mr. Saoud Ahamad, Senior Financial Management analyst. We have structured our call as follows. First, I'll provide you with a quick insight on MPHC ownership structure, its competitive strength and overall governance, structured by covering Slide 5 till 10 and Slide 41 and 42 of the IR deck. Secondly, Sami will brief you about the macro environment updates and MPHC operational and financial performance metrics, followed by Saoud to provide you more insight into the segmental performance. And finally, we can open the floor for the Q&A. To start with, as detailed on Slide #5 of the IR deck, the ownership structure of MPHC comprises of Qatar Energy with approximately 57.9% stake, and the rest is in the free float held by various domestic and international corporates and individuals. Qatar Energy, being the main shareholder of MPHC, provides most of the head office functions through 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 of the IR deck, all of the MPHC Group of Companies are strategically placed in terms of the 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 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-tier companies in the regional chemical space across most of the matrices and especially leads the chart in terms of the profitability margins. In terms of the governance structure of MPHC, you may refer to Slide 41 or 42 of the IR deck which covers various aspects of the MPHC Code of Corporate Governance in detail. Now I can hand over to Sami.

Thank you, Rashid. Good afternoon, and thank you all for joining us. I would like to begin by providing a brief overview of MPHC financial performance and position. For the 9 months period ending 30th of September 2024, MPHC reported a net profit of QAR 567 million with earnings per share of QAR 0.045. Our results were primarily impacted by macroeconomic challenges and both planned and unplanned shutdowns in our petrochemical segment, affecting our group profitability and margins. The global economic landscape remains challenging. We are seeing the ongoing effect of stringent monetary policy implemented to control inflation. While some central banks have begun lowering interest rates, the prolonged period of high rates continues to suppress industrial activities, slowing the economic recovery. Global industrial production growth remains subdued and geopolitical tensions in various regions have further complicated the macroeconomic environment. In terms of our product pricing, we have observed a year-on-year decline in commodity prices for MPHC product basket. This is largely due to cautious buyer behavior in response to economic headwinds and relatively lower energy prices. However, on a quarter-on-quarter basis, prices have stabilized and are showing early signs of upward movement. Despite these challenges, we remain focused on operational excellence and efficiency. We are closely monitoring market conditions and are well positioned to capitalize on any improvement in the global economic landscape. Comparing MPHC financial performance for the 9-month period 2024 versus last year, as referred to in Slide 16. MPHC reported a net profit of QAR 567 million for the 9 months ended 30th of September 2024, down by 33% compared to the previous year. The decline in profitability was mainly linked to lower selling prices and reduced sales volumes in petrochemical segment, which further challenged profit margins. The drop in group revenue was mainly linked to the decrease noted in average blended product prices, which declined by 10% compared to 9 months 2023. This translated into a negative price variance of QAR 221 million in MPHC current net earnings compared to last year. Subdued product demand amid macroeconomic uncertainties resulted in lower commodity prices. On the other hand, blended sales volumes increased by 2% versus 9 months 2023, mainly driven by higher sales volumes reported by the chlor-alkali segment, partially offset by lower sales volume reported by the petrochemical segment. This positive movement in blended sales volumes translated into an increase of QAR 44 million in MPHC 9 months 2024 net earnings compared to the same period of last year. However, EBITDA for the current period noted a decline versus 9 months 2023 mainly due to lower revenue. In addition, the drop in production and subsequent sales volumes within the petchem segment, coupled with a decline in the other selling prices, negatively impacted the group's overall EBITDA and EBITDA margins for the 9-month period of 2024 compared to the same period of last year. These factors collectively contributed to the decreased financial performance observed in the 9-month period of 2024. Overall, the financial results were impacted by lower earnings from the petchem segment compared to the same period of last year. This decline was partially mitigated by improved performance in the chlor-alkali segment, which showed better earnings year-over-year. The overall performance of these two segments resulted in net negative effect on the company overall results. Regarding the financial position, as exposed on Slide 15, liquidity remains robust, with cash and bank balances standing at QAR 3.2 billion as of 30th September 2024. The decline in cash and bank balances was mainly due to dividend payments for the financial year 2023 and interim dividend for financial year 2024, in addition to the payment of MPHC portion in the financing for the PVC project, partially offset by positive cash flow generation during 9 months 2024. Total assets as of 30th of September 2024 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. Over to you, Saoud.

Thank you, Sami. Good afternoon, and thank you, everyone, for joining us. Moving to the segmental review, and we will start with the petchem segment as covered in Slides 21 till 25. The petrochemical segment reported a net profit of QAR 394 million for the 9-month period of 2024 in comparison to previous year, down compared to the previous year. This significant decline of 44% in profitability was primarily driven by lower revenue. Segment revenue declined during the 9-month period in 2024 versus 2023 mainly driven by lower selling prices by 4% and lower sales volume by 13%. The drop in sales volumes was primarily linked to lower production due to reduced plant availability. Product prices also declined mainly due to deteriorated macroeconomic fundamentals compared to the same period last year. These factors presented challenges in terms of margins, further affecting profitability compared to the same period last year. The decline in petrochemical prices and demand is consistent with the global trends as the industry faced challenges throughout 2023 and into 2024 due to softening demand, increased global capacity and historically lower earnings across various chemical value chain. On a quarter-on-quarter basis, segmental profits declined by 30% primarily due to the further margin compression and lower revenue. The revenue decreased by 13% was driven by two factors: firstly, a decline in selling prices by 2% as supply and demand in the polyethylene market trended toward equilibrium; and secondly, reduced sales volume by 11%. The volume reduction was a result of lower production output and outages within the Q-CHEM facilities. These combined factors -- price pressure, volume constraints, and the resulting margin squeeze -- contributed to the overall decline in segment's quarterly performance. Moving on chlor-alkali segment as detailed on Slide 26 till 30. The chlor-alkali segment reported a net profit of QAR 68 million for the current period and increased by 15% compared to the same period last year. Despite marginally lower selling prices by 2% due to the presence of macroeconomics uncertainties, the segment's performance improved significantly. This improvement was primarily driven by a substantial increase in sales volume by 29%, resulting from higher production output due to better plant availability in chlor-alkali facilities. The boost in production and subsequent sales volumes significantly increased the segment revenue, leading to enhanced overall profitability compared to the same period last year. This positive volume effect more than offset the slight decline in prices, resulting in the segment's improved financial performance. Comparing the third quarter of 2024 to the second quarter 2024, the segment profitability increased significantly by 83%. This improvement was driven by three key factors: higher sales volume by 5% due to the improved production efficiency, increased selling prices by 5% as market fundamentals gradually strengthened, and overall margin expansion. The combination of these factors resulted in notably stronger quarterly performance for the segment. I will now hand over to Rashid. Thank you.

Thank you, Saoud. Thank you for the management team for presenting the results. And I think now we can open the floor for the Q&A.

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

My question is pertaining to your chlor-alkali segment, which has done better. So I wanted to understand what could be the trend which you could look forward to under VCM and caustic soda segment. And in terms of production volumes which has increased, do you see it sustaining going forward, especially in the caustic soda segment?

Thank you for the question. I think, as you can see, yes, the availability of the plant has improved during this year compared to last year with very minimal shutdown days. So normally, as we communicate every year, we plan around 27 to 29 days shutdown period for the segment. So this year, so we had only around 7 days of shutdown in the segment. The main reason is that we wanted to study, and we're still under studying options, to reduce the cycles of shutdowns for the segment. So how do we reduce that? So instead of 1 year, we will try to have a cycle of 18 months where we have like this average of shutdowns from 27 to 29 days. And this is not relating to the aging of the plant or anything relating to the plant in itself, but it's relating to the operation in the plant because in any plant, which is operating chlorine, so chlorine is corrosive in nature. And to maintain your operations, you will need to have some shutdown to clean some of the parts of the plant. So today, we are still in the testing phase. So it's successful so far. So we haven't seen any issues so far in the plant. I think this would be tested. Once we finish the first cycle, we will have much better idea whether the cycle is something sustainable in the future. So that's in terms of production and the impact of shutdowns on the production and the availability of the plant.

You mentioned about 27, 29, or 1.5 years period. So do you see going forward, in the fourth quarter or first quarter, more shutdown could happen?

No, we are not expecting. So we are still in the first year, so we are not expecting higher shutdowns to happen during the fourth quarter in that segment.

Okay. So any particular, I mean, shutdown, we can talk about in terms of your division at Q-CHEM I, Q-CHEM II, I mean in terms of overall...

I think for Q-CHEM I, Q-CHEM II, as you will see and we have communicated and disclosed, so we have seen some plant shutdowns, which have affected the production volumes, especially during Q3 2024. So in Q-CHEM, we had around 43 days, and that's relating to some unplanned shutdowns that are needed for the integrity of the asset. So these are planned shutdowns, as you know, in the operating of this type of industries. If you have anything that could affect or could have any impact on the safety and the integrity of the asset, you must shut down the asset to check exactly the origin of the shutdown, to check exactly if there is any issue, for example, like higher pressure in some of the equipment or higher temperature in some of the equipment. So basically, you need to shut down and you need to start the analysis and the test and then you need to take the corrective action, what normally will be the result of the testing that you will make and the report that you will make after shutting down. So we don't expect any unplanned shutdown for Q4. However, we have planned shutdown in 2025 that is planned for Q-CHEM II and then another planned shutdown for Q-CHEM I in 2027.

Okay. Regarding the other question in terms of the trend which we are seeing, especially in chlor-alkali segment. I mean, do you see that particular strengthening of prices going forward also?

In terms of prices, as you know, we don't disclose the forecast on prices as this is the company policy. However, I would guide you to look at various things for chlor-alkali. Chlor-alkali is used in various industries. So when we talk about VCM, it's used in construction. So you should keep an eye out for the activities on the construction side and how it will evolve in Q4. Also, you would look at industries such as, when you talk about caustic soda, you talk about also aluminum industry because caustic soda is a feedstock in the aluminum industry, and you should link it to the activities in the aluminum side, including other industries such as textile, pulp, paper, all these things. And when we talk about the petrochemical, and specifically HDPE, it's more linked to the car industry because the car industry uses HDPE in their production when they produce parts for the cars, when you also produce packaging as well. So towards Q4, naturally, with the holiday season, you would have a slight uptick in demand, and that's the trend globally given that the holiday season is coming up, Christmas, Chinese New Year, et cetera. So all these things will play a role in terms of the demand-supply dynamics going forward into Q4 and onward. Also, we should keep an eye on the interest rate because the interest rate is also a compass when it comes to consumer demand. If interest rate goes down and the projection for it is to go down, then that could give you some kind of a support in terms of consumer appetite to buy. So all these factors coupled together, once you have a view on them, it will give you some kind of a feeling how things will evolve into Q4.

Your next question comes from the line of Lee Beswick with QNB.

Apologies if I missed it in the earlier presentation, but could you just talk about why costs were up in Q3?

I think as I highlighted in the beginning, so due to the unplanned shutdown, so basically, you will have less available capacity for sales and less production during that specific quarter. So taking into consideration the fixed costs are stable from quarter-to-quarter, so basically, you will divide by lower quantities of production, which will have an impact on the higher cost. So in addition, so as we have mentioned during one of the, I think, quarters, so some of the CapEx has been finalized, which is related to the furnace 6 project, so that has been fully capitalized. And then we are starting depreciation of that specific asset, which will have an impact on the cost.

There are no further questions. I would now like to turn the call back over to Roy for any remarks.

If there are no further questions, we would like to thank Sami Mathlouthi, Saoud Ahamad and Rashid Hamad Al-Mohannadi for the results update and answering all the queries. And we look forward to speaking to you all for the final quarter results. Thank you.

Thank you all.

Thank you.

That concludes today's conference call. Thank you all for joining. You may now disconnect.