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

Hello, and welcome to the MPHC conference call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over 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 Fourth Quarter and Year-end 2024 Financial Results Conference Call. On this call for Mesaieed Petrochemical Holding Company, we have Abdulla Yaqoob Al-Hay, Manager for Privatized Companies Affairs QatarEnergy; Sami Mathlouthi, the Assistant Manager Privatized Companies Affairs QatarEnergy; Saoud Ahamad, the senior financial management 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 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 to display the IR deck on screen. [Operator Instructions] Moreover, please note that this call is subject to MPHC's disclaimer statements as detailed on Slide #2 of the IR deck. We can start the call on Thursday, 30th of January 2025, MPHC published its result for the year ended 31st December 2024. And today, in this call, we'll go through these results and provide you a key update on financial and operational highlights. Today in this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager for Privatized Companies Affairs; Mr. Sami Mathlouthi, Assistant Manager for Financial Operations; and Mr. Saoud Ahamad, Senior Financial Management Analyst. We have structured our call as follow: At first, I'll provide you with a quick insight on MPHC ownership structure, its competitive strength and overall governance by covering Slide 5 till 10 and Slide 41 to 42. Secondly, Mr. Abdulla will provide you with the update about the dividend and macro environment updates. Then Sami will provide you on key MPHC operational and financial performance metrics followed by Saoud to provide you more insight into the segmental performance. And later, 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 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 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 MPHC Group companies are strategically placed in terms of competitively priced and issue feedstock supply under a long-term arrangement, solid liquidity position with a strong cash flow generation capability and presence of most reputable joint venture partners. Additionally, its partnership with [indiscernible] QatarEnergy marketing acts as a catalyst for its access to the global market. As detailed on Slide #10 from competitive positioning prospective, MPHC ranks among the top-tier companies in the regional chemical space across most of the matrices and specifically leads the chart in terms of the profitability margin. 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 the MPHC Code of Corporate Governance in detail. And now I will hand over to Abdulla.

Thank you, Rashid. Good afternoon, everybody, and thank you for joining us. I am pleased to announce that MPHC Board of Directors proposed second half dividend distribution of QAR 377 million equivalent to QAR 0.03 per share, representing more than 120% of the earnings for the second half results. This brings the total dividend distribution for the year to QAR 716 million equivalent to a payout of QAR 0.057 per share representing 100% of the earnings for this year. The global macroeconomic landscape remained challenging. We saw the effect of the strict monetary policy implemented to control inflation, primarily in the first half of the year. During the second half of the year, some of Central Bank began lowering interest rate, but a prolonged period for the high rates continues to suppress industrial activities, slowing economic recovery. Global industrial production growth remained subsided and the geopolitical tension in various regions have further complicated the macroeconomic environment. In terms of our product pricing, we have observed that year-on-year decline in commodity pricing for MPHC product basket. This is largely due to the cautious buyer behavior and response to economic headwinds and relatively lower energy prices. However, on a quarter-on-quarter basis, the prices have improved due to the higher sales of petrochemical products, bringing the overall average price to a higher level as the segments resume after the shutdown in the previous quarter. Despite these challenges, we remain focused on operational excellence and efficiencies. We are closely monitoring the market condition, and we are well positioned to capitalize on any improvement in the global economic landscape. For the year ended December 31, 2024, MPHC reported a net profit of QAR 719 million with an earning per share of QAR 0.05. Our results were primarily impacted by macroeconomic challenges and both planned and unplanned shutdowns in both segments affecting our group profitability and margins. I will now hand over to Sami to cover the performance in more detail.

Thank you, Abdulla. Good afternoon, and thank you all for joining us. Comparing MPHC financial performance year 2024 compared to 2023. As referred to in Slide 16, MPHC reported a net profit of QAR 719 million for the year ended 31st of December 2024, down by 34% compared to the previous year. This decline in profitability was mainly linked to lower selling prices and reduced sales volumes in the petchem segment, which further challenged profit margin. The drop in group revenue was mainly linked to the decrease noted in average blended product prices, which declined by 7% compared to year-end 2023. This translated into a negative price variance of QAR 98 million in MPHC's 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 decreased by 3% compared to last year, mainly driven by lower sales volumes reported by the petchem segment, partially offset by higher sales volumes reported by the chlor-alkali segment. This negative movement in blended sales volumes translated into a decrease of QAR 200 million in MPHC's net earnings compared to last year. However, EBITDA for the current period noted a decline compared to last year, 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 average selling prices negatively impacted the group overall EBITDA and EBITDA margins for the year-end 2024 compared to the same period of last year. These factors collectively contributed to the decreased financial performance observed in the year ended 31st of December 2024. Overall, the financial results were impacted by lower earnings from both segments compared to the same period last year. The overall performance of these 2 segments resulted in a net negative effect on the company's overall results. Regarding the financial position, as exposed on Slide 15, liquidity remains robust with cash and bank balances outstanding at QAR 3.4 billion as of 31st of December 2024. The decline in cash and cash 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 financing the PVC project, partially offset by positive cash flow generation during year-end 2024. Total assets as of 31st of December 2024 amounted to QAR 16.7 billion and total equity amounted to QAR 16.3 billion. Now I will hand over to Saoud to cover the segmental performance.

Thank you, Sami. Good afternoon, everyone, and thank you for joining us. Moving to the segmental review, and we will start with the petrochemical segment as covered in Slides 21 till 25. The petrochemical segment reported a net profit of QAR 547 million for the year ended 2024, down in comparison to the same period last year. This significant decline in profitability was mainly driven by lower revenue. Segment revenue declined in the year ended 2024 versus year ended 2023, mainly driven by lower selling prices and sales volume. The drop in sales volume was primarily linked to a lower production due to reduced plant availability. Product prices also declined, mainly due to deteriorating macroeconomic fundamentals compared to last year. These factors present challenges in terms of margins, further affecting profitability compared to last year. The decline in petrochemical pricing and demand is constant with global trends, as the industry faced challenges throughout 2024 due to softening demand, increased global capacity and historically low earnings across various chemical value chain. On quarter-on-quarter basis, segmental profits saw a significant increase primarily driven by higher revenue. This revenue boost was due to increase in production which led to higher quarterly sales volumes. However, this partially offset by marginal decline in selling prices compared to the previous quarter. Moving to chlor-alkali segment as detailed on Slide 26 to 30. The chlor-alkali segment recorded a net profit of QAR 36 million for the current period, a decrease compared to last year despite higher sales volumes and marginally lower selling prices due to continued macroeconomic uncertainties. The segment performance declined. This decline was primarily driven by higher cost of goods associated with increase in sales volumes, resulting for 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. However, due to the planned turnaround and higher direct costs, the overall profitability declined compared to last year. Comparing quarter-over-quarter, the segment profitability decreased significantly, resulting in net loss mainly due to planned turnaround. This decline was driven by 4 key factors: Lower sales volume due to decline in production efficiency; decreased selling prices; and lower sales volume. The combination of these factors resulted in notably weaker quarterly performance for the segment. I will now hand over to Rashid.

Thank you, Saoud. Now I think we can open the floor for the Q&A.

[Operator Instructions] And your first question comes from the line of Seki Mutukwa with Ashmore Group.

Two questions, please, to start. Just wondering sort of year-to-date, since the end of the fourth quarter in the sales volumes, direction of travel in petchem versus chlor-alkali are you seeing sort of an uptick in sales volumes maybe because of demand or perhaps something delayed from the fourth quarter would be great. And the second question is just to ask what the latest you're seeing in terms of the premium of PVC versus VCM, just to see how that's evolving since last year?

Yes. Thank you so much for the question. I will take the first one, and then probably my colleague, Rashid, will take the second one. So for the first one, yes, for the uptake that you have seen in production volumes especially in the petchem, it's mainly relating to the availability of the plants during the fourth quarter, which is much, much better compared to what we have seen during the previous quarter. So previous quarter was impacted by unplanned shutdowns in both plants, and nothing has been seen during the Q4. That's why you will see that the increase in sales volumes during this quarter.

Would you allow me Rashid, the second question?

Yes, please. Please go ahead.

So actually you are asking about the premium of the PVC versus the VCM. Correct? Yes. We had our decision built based on a study that we have conducted in the past. And in that study, we have realized there is a premium and there is a market for the PVC especially locally versus the VCM. The margin is not that huge. There is a gap. However, this gap is not a major or not different in a level that make a big difference. However, this decision related to -- this decision is basically related to a market for the PVC product rather than the premium.

And I would like to add that based on the project, we are expecting the project to come live this year. So hopefully when you see the volume coming in, you'll see the real impact of the project. We think that the project is of strategic importance for the group given that it will cater for the local market, plus as well, it will help us to move the product to international markets more easily as we mentioned in the press release regarding the project. So the product can be moved in containers. It can be stored easily. So I think that will provide a big flexibility for the group, and we are hopeful that the project will give good returns to the investors.

Okay. And are you still expecting sort of 2Q for commissioning maybe.

Yes. That's still the plan. So we didn't have received any potential delays from the operating team. But during Q1, we will have much better clarity on that. So it will be announced in what Q1 IR call.

[Operator Instructions] Your next question comes from the line of [indiscernible] with Al Rayan.

This is [indiscernible] Al Rayan Investment. You mentioned there was an unplanned shutdown in the fourth quarter. Could you tell us which segment -- I think it was the VCM segment. For how long was the shutdown? And are there any planned shutdowns for 2025?

Yes, the shutdown that we have done in Q4 2024 is relating to the chlor-alkali segment. It has been extended over 45 days. This has been planned. The next planned shutdown that we have for 2025 is relating to Q-Chem II, which is for 45 days. This will be in Q4 2025.

Okay. Okay. And you were just mentioning that the margin, there's not a difference in PVC margin versus VCM. And the VCM that you sell right now is going to be used for that PVC, right? So then I mean, what is the benefit -- additional benefit that we can see from this project? Is this project going to be just replacement of the VCM earnings? Or is it actually going to be more earnings accretive?

Yes, it is a further downstream. It will have a margin, but my statement is not that big margin. Again, there is a market for the PVC, if you compare it for the VCM locally. So we will realize this benefit here locally in the state of the Qatar. All right?

[Operator Instructions] 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 Abdulla Yaqoob Al-Hay, Sami Mathlouthi, Saoud AhAmad and Rashid Hamad Al-Mohannadi for the results update and answering the queries. And we look forward to speaking to you all for the first quarter 2025 results. I will hand over the call now to Rashid for his final remarks.

Thank you all for joining us, and we look forward to hear from you in Q1. Thank you all.

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