Qatar Aluminium Manufacturing Company Q.P.S.C. (QAMC) Earnings Call Transcript & Summary

Okay, great. So to start with, first of all, thank you all for attending with us. Before we go into the QAMCO business and performance updates, I would like to mention that this call is purely for the investor of QAMCO and no media presentative should be attending this call. Moreover, please note this call is subject to QAMCO disclaimer statements as detailed on Slide #2 of the IR deck. Moving on to the call. On Wednesday, the 9th of August, QAMCO published its financial results for the 6-month period ended 30th June 2023. And today in this call, we'll go through these results and provide you with 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 Company Affairs; and Mr. Saffan Mohamed, Senior Financial Management Analyst. We have structured our call as follows: at first, I will provide you with a quick insight into QAMCO ownership structure, its competitive strength and overall government structure. By covering Slide 5 till Slide 14 and Slide 34 and 35 of the IR deck. Second Mr. Saffan will brief you on QAMCO key operational and financial performance matrices. Later, I'll provide you with more details of the JV operation and CapEx update. And finally, we'll open the floor for the Q&A session. To start with, on Slide #5 of the IR deck, the ownership structure of QAMCO comprise of QatarEnergy with 51% stake and the rest is in the free float held by various domestic and international corporates and individuals. QatarEnergy being the sole founding shareholder and the parent company of QAMCO provide all of the head office function through a service level agreement, while the operation of the JV is independently managed by its own Board of Directors, along with senior management team. QAMCO helds 50% share in Qatar Aluminium Company, Qatalum, which produced high-quality aluminum of about 650,000 tons per year against a nameplate capacity of 575,000 tons per year for customers in Asia, Europe and North America. These facilities include carbon plant, a reduction plan and casthouse and port storage facilities as well as gas-fired power plant. In terms of competitive strength, as detailed on Slide #12, QAMCO joint venture is considered to be among the low-cost aluminum smelter producer. With state of our production facility, assured feedstock supply via long-term arrangement with intense focus on HSE, which makes the JV a leader among its peers. As detailed on Slide #14, from competitive position in protective, QAMCO ranks among the top-tier companies within the industry at a global scale in terms of the EBITDA margin. Despite macro challenges faced by the industries, this is a testimony to QAMCO lean cost base and continued optimization drive, which keep QAMCO JV on the lower side of the cost curve amongst global peers resulting in strong margin evolutions. Moreover, the joint venture global marketing partnership with the other JV partner, providing access to strategic important market, which makes the company more competitive in comparison to its peers. In addition to -- the JV is capable of quickly shifting the product mix from value-added product to standard ingot and vice versa, which provide an additional layer of flexibility to the JV in terms of production processes as well as supply chain management, while ensuring optimum production and sales volume in line with evolving market dynamics. I will cover further details of the JV's operation activities and sales and marketing arrangement later on the call. In terms of the governance structure of QAMCO, you may refer to Slide 34 and Slide 35 of the IR deck, which covers various aspects of QAMCO code of corporate governance and further details. I will now pass the floor to Mr. Saffan, who will provide you with an overview of the QAMCO financial results and macroeconomical update.

Thank you, Rashid. I'm glad to have you all here on the call today. Before we dive in further, I want to share some key highlights of the results. Starting with macroeconomic updates as detailed on Slide #16, the macroeconomic context for the aluminum markets remain somewhat wavered. Several factors affected the aluminum markets during the reporting period, which cascaded down to the supply-demand dynamics of primary aluminum and led to volatilities in demand and prices. Throughout the first half of 2023, the aluminum market remained volatile as demand for aluminum was suppressed by China's slow post-COVID recovery. The global construction sector also experienced weakness due to rising interest rates and concern over recession. The decline in natural gas prices, a crucial input for aluminum production led to additional aluminum supply in the market for the challenged demand and supply dynamics. While at the same time, the persistent, the high interest rate environment continued to add pressure on industrial demand for various commodities, including aluminum. As a result of these factors, and as demonstrated on Slide 18, the share of JV's revenues declined by 25% to reach QAR 1.6 billion for the current period. EBITDA declined by 44% to reach QAR 498 million compared to QAR 883 million for the same period of last year, while the EBITDA margin for first half of 2023 remains at 31% compared to 42% of half 1, 2022. Despite the challenging market condition, the JV's operations remained stable. The JV's production facilities were operating at full capacity with production improving by 2% while the JV's cost control measures were effective in mitigating the impact of rising input costs. As demonstrated on Slide #19, QAMCO's financial results for the current period versus the same period of last year were largely attributed to an overall decline in average realized selling prices. The average realized selling prices for aluminum metals witnessed a decline of 24% during 1 half of 2023 versus 1 half of '22, to reach USD 2,743 per metric ton amid macroeconomic challenges and impacted QAR 496 million to the net profit for the 6 months period ended 30th June 2023 versus the same period of last year. On the other -- on Slide #19, you can see the production level slightly inched upwards with an increase of 2% noted in the production volume for the current period versus same period of last year. On the other hand, sales volume slightly declined by 1% versus 1 half 2022 on the backdrop of weaker global aluminum demand, lower sales volume of exclusion ingots, which was partially compensated by higher sales of foundry alloys and standard ingots versus period of last year. The decline in sales volume impacted to QAR 25 million to the net income for the 6 months period ended 30th June of 2023. Referring to Slide #20 -- Slide #21. The cost of goods sold for the current 6 months period declined mainly on account of lower material cost, coupled with higher closing inventory as production volumes remain higher than the sales volume versus the same period of last year. On an overall basis, the decline in cost of goods sold contributed to QAR 106 million positively to the net profit for the 6 months period ended 30th June 2023 versus the same period of last year. Compared to the previous quarter, QAMCO's net profit for second quarter of 2023 inclined by 58%. This improvement in profitability was mainly due to higher sales volumes coupled with slightly improved selling prices realized during second quarter versus the first quarter, which inclined by 13% and 3%, respectively. As demonstrated on Slide #22, the increase in sales volume contributed QAR 96 million positively to the bottom line profitability of second quarter '23 versus first quarter of '23. On the other hand, selling price inched slightly upward versus 1Q '23, in line with the slight recovery in aluminum prices and contributed QAR 17 million positively to the net earnings of the second quarter. In line with higher sales volume, the cost of goods sold is higher for 2Q 2023 versus first quarter of 2023 by QAR 63 million with direct positive contribution to uplift EBITDA by QAR 52 million for the current quarter. I'll now hand over to Rashid for the rest of the presentation.

Thank you, Saffan. QAMCO's JV continues to maintain high efficiency and cost competitiveness in terms of production and operations, health and safety measures continue to remain a priority to ensure reliability of the assets while achieving operational excellency. CapEx projects were conducted as per plan and in line with the operational reliability requirement. As detailed on Slide #26, in terms of the product mix, foundry alloy along with extrusion ingot remain key products for QAMCO's JV. In terms of the JV facilities, as detailed on Slide #9, it's located in Mesaieed with design nameplate capacity of 575,000 tons. But now the JV produced more than 650,000 tons per annum of high-quality primarily aluminum product. Moreover, Qatalum has a captive power plant with a capacity of approximately 1,350,000 mega tons -- megawatts. This benefits the JV from prospective of access to one of the most competitively priced source of energy. With that note, we are prepared to move into the -- engage in Q&A session. Feel free to ask your question or share your thoughts at any time. Your active participation is greatly appreciated. You may type your question in the chat or raise your hand for us to open the floor for you.

Hello, Nikhil. Unmuting Nikhil. [Technical Difficulty] We got the question from Nikhil. The presentation indicating [indiscernible]. Can you try Nikhil to unmute your line right now.

Yes. I think so now it is able to -- can you hear me, sir? Hello? Hello?

Nikhil, we can hear you.

Wonderful. Yes. I mean, see, the -- I mean I think so this -- you're suppose given the same kind of questions. I mean -- it is all about to a certain extent, understanding how your premiums are being played. Now our understanding over the last 10 to 12 quarters, what we have seen is largely your premiums, which is your extrusion in foundry alloys has been composing of your total sales. Standards, which are -- has been a decline between 3% to maybe 6% was in the fourth quarter, but largely on a very small scale. Now with that into perspective, I suppose we look at it as what has happened to the premiums over the last, say, 6 quarters in terms -- say, in terms of LME prices, we have seen -- actually, as the LME prices comes down, largely as a percentage of your premiums also to certain extent comes down. And at the same time, in fact, as a percentage of your LME prices, also suppose we look at it, it has been coming down. But in the second quarter, what we are seeing, there is a trend reversal with the same LME prices, the premiums actually has gone up. So what exactly has helped in terms of increasing the premiums, actually, I'll put it this way. So I suppose you can explain that. I mean, it will be great.

There could be a couple of reasons, Nikhil. Number one is your price of market. Number two and also now this -- the presence of Russian aluminum and there was a shift of aluminum between different markets. I think there were some policy changes with respect to sale of aluminum. I think there were -- in the London Metal Exchange, there were some restriction of sale of Russian aluminum. So that had pushed up the premium prices. And our marketing agent Hydro probably would have adjusted shifting the, what you call destinations to get better premiums. These are the two possible reason why the premiums were higher compared to the LMEs.

Okay. Saffan, I understand -- I mean the way you're putting your growth, but our understanding is the Russians has been -- given what was said and done it has not been completely [ divert ] or actually not been [ divert ] in the sense that the inventories stacking up at the traders because of which what we are seeing actually the spot prices is at an all-time discount to the forward prices, [ contextual ] effect is still going on, and there is a quite big difference. And in fact, in terms of your overall some few years, suppose we look back, this is one of the highest discounts that you are seeing, which indirectly suggest that continuing shipment of Russians, I mean, it's coming to the -- whatever a trader network and keeping the prices low. So in that context, I mean, -- just that's what I wanted to know, I mean, how the premiums are being -- have been higher? I mean, is it not mix a little bit sense on that? I suppose you can explain that.

I'll just add the flavor to what Saffan has mentioned. Also, perhaps our presentation doesn't show it clearly, but you can see that Europe right now as a market grew to 20% compared to us last year. Perhaps the movement to selling more product in Europe also helped us in getting additional premium. Premium is basically is a function of the destination you ship to, if you're shipping to a far destination, you would fetch higher premium because your shipping cost and everything will be incurred by the business and then the premium would factor that as well. Also does depend on whom you do sell to the product as a customer. What we've seen also towards the year end you'll have some adjustment in the premium, but that adjustment doesn't happen usually in quarter-on-quarter basis, but there could be a slight adjustment, and that could be the impact as well. But I don't have the breakdown of the premium whether...

Yes. I just wanted -- I mean, suppose you historically see your product profile in terms of geographical analysis. It has always been that Asia has been there more than 50%. And Europe has been there, of course, second best by above 20%. So we have not seen -- in fact, I can say slightly lower, say, for example, what we saw maybe last year and all that. So the concept of Europe playing a part on this premium, I mean, does not make sense from that point of view. I mean I could be wrong. I just wanted to highlight that.