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

Hello, and welcome to Qatar Aluminum 2024 Conference Call. Please note that this call is being recorded. [Operator Instructions] I would like to hand over the call to Mr. Roy, our moderator. Please go ahead.

Thanks, Eli. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar Aluminum Manufacturing Company's Third Quarter and 9 Months 2024 Financial Results Conference Call. On this call from Qatar Aluminum Manufacturing Company, we have Saffan Mohamed, 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 [ to review ] 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 QAMCO business and performance updates, I would like to mention that this call is purely for the investors of QAMCO and no media representatives should be attending this call. Moreover, please note this call is subject to QAMCO disclaimer statement as detailed on Slide #2 of the IR deck. Kindly note that the MS Team link is to display the IR deck on the screen. [Operator Instructions] Moving on to the call. On Tuesday, October 22, QAMCO published its results for the 9-month period ended 30th 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 on this call, along with me, I have Mr. Saffan Mohamed, Senior Financial Management Analyst; and Ilham Fassy, the Senior Financial Management Analyst. We have structured our call as follows. At first, I'll provide you with a quick insight into QAMCO ownership structure, its competitive advantages and overall governance structure by covering Slide 5 till 14, and 34 and 35 of the IR deck. Secondly, Saffan will brief you on QAMCO macro environment context and provide you an update on operational and financial matrices of QAMCO. Then Ilham will provide you with more details on JV operation and CapEx update. 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 QAMCO comprises of QatarEnergy with 51% stake, the rest is in the free float held by various domestic and international corporates and individuals. QatarEnergy, being the founding shareholder and the parent company of QAMCO, provides all of the head office functions through a service level agreement, while operation of the JV independently managed by its own Board of Directors, along with senior management team. QAMCO holds 50% share in Qatar Aluminium Limited, Qatalum, which produce high-quality aluminum in excess of 650,000 tonnes per year against a nameplate capacity of 575,000 tons per year for customers mainly in Asia, Europe and North America. The facility includes a carbon plant, [ port ] and storage facility as well as gas-fired power plant. In terms of the competitive advantages as detailed on Slide #12 of the IR deck, QAMCO joint venture is considered to be among the low-cost aluminum smelter with state-of-the-art smelter, assured feedstock supply via long-term agreement with an intense focus on HSE, which makes the JV a leader among its peers. As detailed on Slide #14, from competitive positioning perspective, QAMCO ranks among the top-tier companies within the industry at a global scale across most of the profitability matrices. This testimony to the JV linear cost base and continued optimization drive, which keep QAMCO JV on a lower cost curve among the peers, resulting in sustainable and a stronger profitability. Moreover, the JV global marketing partner with the other JV partner, provides access to strategic important market which makes the joint venture competitive in comparison to its peers. In addition, the JV is capable -- in addition, the JV capability and flexibility of quickly shifting the product mix from value-added product to standard ingot and vice versa provide an additional layer of flexibility to the JV, in terms of production processes as well as supply chain management while ensuring optimal production and sales volume, in line with evolving market dynamics and adopting to other changing customer requirements. We'll cover further details of the JV and its operational activities and sales and marketing agreements later in this call. In terms of the governance structure of QAMCO. You may refer to Slide 34 and 35 of the IR deck, which covers various aspects of QAMCO's code of corporate governance in detail. I will now hand over to Saffan.

Thank you, Rashid. Good afternoon. Thank you all for joining us. Let me start the meeting by providing you with a quick snapshot of QAMCO's financial performance and financial position for the period ended 30th September. QAMCO posted a net profit of QAR 428 million for the 9-month period ended 30th September 2024, with an earnings per share of QAR 0.077, driven by strong operating and financial performance discipline. Additionally, we are pleased to note that QAMCO's closing cash balance, including share of cash in QAMCO's joint venture stood at QAR 1.5 billion as of 30th September 2024. The strong financial position was maintained even after distributing 2023 year-end dividend and the 2024 interim dividend during the period. Additionally, QAMCO's JV has made significant progress in its debt management strategy, having already prepaid approximately USD 370 million as at the end of period and planning to repay an additional USD 55 million before the year-end, leaving USD 805 million as the outstanding debt at the JV level. Now we can move into the macroeconomic updates. The aluminum market has shown resilience in most of 2024 with prices strengthening compared to the previous quarter. This upturn is mainly attributed to the combination of factors, including modestly improved macroeconomic conditions, amidst ongoing supply constraints and improved demand from key sectors such as automotive. Geopolitical tensions continue to impact global supply chains and market dynamics. The aluminum industry has shown resilience, supported by gradual global economic developments and recent shift in monetary policies across various regions. Referring to -- moving into financial and operational updates specific to the year ended 30th September 2024. The financial performance for 9-month period versus 2024 versus the same period of last year. QAMCO reported a net profit of QAR 428 million in the current period compared to QAR 354 million versus the same period of last year, with an earnings per share of QAR 0.077 versus QAR 0.063 for the same period of last year. Share of JV's revenue reached QAR 2.38 billion in 9 months 2024 compared to QAR 2.43 billion in the same period of last year, remained relatively flat. EBITDA improved by 9% year-on-year and reached to QAR 809 million in 9 months 2024. EBITDA margin improved to 34% compared to 30% in 9 months 2023 on the backdrop of improved cost of operations. Diving deep into QAMCO's net earnings for 9 months 2024 versus 9 months 2023. QAMCO's financial results as detailed on Slide #21, in 9 months '24 this year were overshadowed by an overall marginal decline in average selling prices compared to the same period of last year, which was partially offset by improved operating cost and an increase in sales volumes. The average realized selling prices declined by 3% compared to last year, reaching to USD 2,584 per metric ton in 9 months 2024 amid macroeconomic headwinds. This had an impact of approximately QAR 79 million on the net profit for the current period compared to the same period of last year. Financial results were also partially impacted by increased finance costs due to higher interest rates. However, this was fully offset by improved sales volumes, which increased by 1% Sales volumes were aided by focusing selling more value-added products during the year. QAMCO's JV adeptly responded to changing market conditions by swiftly adjusting its production mix, geographical sales mix, maintaining sales across various product range of foundry alloys, extrusion ingots while trying to minimize the sales of standard ingots. An increase in sales volumes contributed QAR 30 million positively to the current year sales results compared to the same -- compared to 9 months of 2023 as the JV effectively managed market challenges by adjusting its product mix to maximize sales volume and cater to market demand requirements. The cost of goods sold for the current period declined compared to 9 months 2023, mainly owing to lower raw material cost. Overall, the decline in the cost of goods sold contributed positively QAR 114 million to the net profit in 9 months '24 compared to the same period of last year. I will now hand over to Ilham to discuss quarter-on-quarter performance of QAMCO.

Thank you, Saffan, and good afternoon to everyone. Comparing the financial performance of the third quarter versus 2Q 2024. QAMCO's net profit increased by 26% compared to the previous quarter, reaching QAR 191 million. This significant growth was mainly driven by higher selling prices, which increased 9% Q-on-Q and which was partially offset by lower sales volumes in the third quarter. The increase in quarterly selling price can be attributed to modestly improved macroeconomic conditions. The increase in selling price contributed QAR 78 million positively to the bottom line profitability in the third quarter compared to 2Q 2024. On the other hand, sales volume slightly declined 3% Q-on-Q, mainly due to lower turnaround in foundry alloy sales, which was substituted by standard ingots. This decline was also influenced by other factors affecting sales realization such as inco-term. Moving on to CapEx. Moving on to CapEx programs as detailed on Slide 30. QAMCO's JV has continuously demonstrated its ongoing commitment to maintaining high efficiency and cost competitiveness in its production and operations. The prioritization of health and safety measures underscores its dedication to ensuring both the well-being of its workforce and the reliability and integrity of its assets. Moreover, executing CapEx projects as planned in the -- moreover, executing CapEx projects as planned and in alignment with operational requirements showcases strategic foresight and resource management. Through its focus on operational excellence, health and safety and strategic investments, QAMCO's JV is well positioned for sustained success in its industry. That concludes our presentation, and now I will hand it over to Roy.

I'd like to thank the management team for presenting the results. And now we can open the floor for the Q&A.

[Operator Instructions] Your first question comes from the line of Anastasia with [indiscernible].

I have a question regarding the supply of alumina. We heard on the Alcoa call, they made a very bullish statement regarding the alumina outlook, expecting ongoing severe supply disruptions. And in fact on their end, actually, they proceeded to do a EUR 2.2 billion acquisition of their JV in Australia. Could you -- in case we do see this sort of supply disruptions and very elevated prices, could you please tell us a little bit about the impact for yourselves? And if you have yourselves any plan to hedge against such scenarios?

Thank you for your question. Just to highlight here, as we mentioned at the beginning of the presentation, we have long-term agreements for our feedstock, and that includes the alumina as well. So we get or we procure our alumina from various suppliers on a long-term basis as well as buying from the spot market as well. So we are pretty much well prepared for anything that happens in the market. We do have a healthy level of alumina inventory within the house. So we are well positioned in anyhow -- in any case if the market either goes in a disruption or goes in a different direction. So we are very much comfortable. Also year-to-date, you can notice that our cost for raw material has reduced significantly or has contributed to the profitability year-to-date. Perhaps Saffan has more points he would like to add.

So there are a couple of things. One is, as Rashid said, we have long-term contracts so we are secured. And also, if you look at the pricing is also indexed to pretty much aluminum end of the day. So therefore, so you are protected from a pricing and cost risk as well. So therefore -- so from a supply perspective, you are protected from a long-term contract perspective. And from a cost perspective, usually, your purchasing price is indexed to alumina LME price. So therefore, on both sides, you are protected.

And your next question comes from the line of Nour Eldin Sherif with Arqaam Capital.

Just following up on the previous one on alumina. So you mentioned long-term contracts, and this secures the supply of alumina. But does it follow the global market dynamics in terms of if we see -- we've currently seen a rally in alumina prices. Should this be reflected into Q4 of 2024 or next year?

Yes. So basically, the long-term contract secures the quantity, but the price is linked to the market. It's either going to be linked to LME or linked to the alumina index, so depending on the contract.

Okay. And we've seen flattish cash cost for Q3 compared to Q2 of this year, and this is despite of a rally in alumina. So can you explain how this took place? Is it that was inventory on hand of lower cost of alumina? Or is there other reasons?

So quarter-on a quarter, we realized almost a flattish alumina cost. In terms of why is that, because we are incurring or using alumina we have from our inventory. So going forward, of course, if the alumina price goes up or the LME goes up, you will have naturally an increase on the cost side of things. And that's -- I think that we cannot predict. But based on our inventory, we usually hold between 35 to 45 days of inventory of alumina.

That's clear. And my last question on the debt refinancing. So we have seen a sizable debt repayment this year. Can you share with us what's your plans there? How much of savings should we expect for next year?

So in terms of the debt as we mentioned, we prepaid $370 million out of the existing JV loan. The loan will expire in the end of first quarter of 2025. However, the QAMCO JV, Qatalum, is working with the banks currently on securing the loan and the discussion is going on with the existing plus new lenders, if any. And we report back to the market. It will depend on how much is the rate we're going to secure for the new loan and what is the term. In terms of the saving, it will -- at the end of the day, it will be LIBOR plus some margin as well and SOFR plus some margin as well. So in terms of principal -- because you will have a reduced kind of principal at your back end, that will naturally result in lower financing costs, but that will be dictated by how much the SOFR will move, whether the federal rate will go down before the quarter 4 and how it will evolve in the future. So we'll be in a better position to discuss this hopefully by end of Q1 of 2025 once the financing is closed.

In all means, there will be savings in terms of the quantity of loan and SOFR is also expected to go down with the Fed has did some rate cutting.

Yes, that's clear. And just my last follow-up is on the -- should we expect more debt early repayments before Q1?

We mentioned that another EUR 55 million is expected to be prepaid. So that will take the residual loan to be refinanced to be around $805 million. Approximately $805 million, but that will be at the Qatalum, or let's say, our joint venture level. So we will take 50% of that for QAMCO share.

Your next question comes from the line of [ Nikhil Putani ] with [ CDFS ].

Well, actually, I think a lot of cost questions have been answered. I'm just looking at on the sales front of you. I mean, I think as a long time, we are seeing actually your standard is not. I mean, percentage share has actually increased over the last 2 to 3 years. So I wanted to understand what is happening there? I mean what has been the reason behind this increase? And what do you see going forward in the, say, current quarter?

Just to reiterate, your question was about standard ingot.

Yes. Yes, it has increased in terms of percentage share, right? I mean, as compared to extrusion and foundry. So in terms of margins, it's quite less. So how you -- I mean, how you see -- I mean, what has happened in the third quarter and how you look going forward in the fourth quarter on the sales mix?