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

Hello, and welcome to QNB Financial Services QAMC Conference Call. Please note that this call is being recorded. I would now like to hand the call over to our moderator, Roy Thomas, please go ahead.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar Aluminium Manufacturing Company's Fourth Quarter and Year-end 2024 Financial Results Conference Call. On this call for Qatar Aluminium Manufacturing Company, we have Abdulla Yaqoob Al-Hay, Manager, Privatized Companies Affairs Qatar Energy; [ Mohammed ] Ilham, 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 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 that this call is subject to QAMCO disclaimer statements as detailed on Slide #2 of the IR deck. Kindly note that the MS Team link is to display the IR deck on screen. [Operator Instructions] Moving on to the call. On Tuesday, January 28 or 29 of 2025, QAMCO published its results for the year ended 31st December 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. Abdulla Yaqoob Al-Hay, Manager for Privatized Company Affairs; Mr. Saffan Mohamed, Senior Financial Management analyst; and Mr. [ Mohammed ] Ilham, 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 strength and overall government structure by covering Slide 5 till 14 and Slide 34 and 35 of the IR deck. Secondly, Abdulla will preview on QAMCO dividend proposal and the microenvironment context. Later, Ilham will provide you updates on operational and financial performance metrics of QAMCO as well as details on the JV operation and CapEx update. And 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 compromises of Qatar Energy with 51% stake and the rest is in the free float held by various domestic and international corporates and individuals. And Qatar Energy being the founding shareholder and the partner of the company and the parent of the company, provides all of the head office functions 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 holds 50% share in Qatar Aluminium Limited Qatalum, which will produce high-quality aluminium about 650,000 tonnes per year against nameplate capacity of 575,000 tonnes per year for customers, mainly in Asia, Europe and North America. The facility includes the carbon plant, port, storage facility as well as gas fire power plant. In terms of the competitive strength, as detailed on Slide #12, QAMCO joint venture is considered to be among low-cost aluminium smelters with state-of-art production facility, assured feedstock supply by long-term agreements with intense focus on HSE, which makes the JV a leader among its peers. As detailed on Slide #14 from a competitive positioning perspective, QAMCO ranks among the top-tier company within the industry at global scale across most of the profitability and metrics. This is a testimony to QAMCO lean cost base and continued optimization drive, which keeps QAMCO JV on the lower side of the cost curve amongst global peers resulting in maintaining its stronger profitability. Moreover, the JV global marketing partnership with the other JV partner provides an access to strategically important market, which makes the company more competitive in comparison to its peers. In addition, the JV is capable of quickly shifting the product mix from value-added products to standard ingot and vice versa, which provide an additional layer of flexibility to the joint venture 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 change in customer requirements. We'll cover further details of the JV's operational activities and sales and marketing arrangement later in the 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 code of corporate governance indeed. I will now hand over to Mr. Abdulla.

Thank you, Rashid. Good afternoon, and thank you all for joining us. Let me start the meeting by hearing you that the QAMCO has posted a net profit of QAR 614 million for the year ended 31st December 2024 as a net profit, making a 38% increase versus last year, with the earnings per share equivalent to QAR 0.11 versus QAR 0.08 for the last year. I am pleased to announce that the Board of Directors proposed a cash dividend distribution for the second half of the year of QAR 279 million, equivalent to QAR 0.05 per share, bringing the total annual dividend distribution for the year ended 31st December 2024, of QAR 446 million, equivalent to a payout of QAR 0.08 per share for the full year, subject to necessary approval and the Annual General Assembly meeting. This demonstrated QAMCO continued strong performance and commitment to delivering a strong value to its shareholders. On QAMCO's joint venture that refinancing, we are told to announce that by December 2024 after settling $325 million of its existing loan, the joint venture further secured QAR 805 million refinancing facility with a 7-year debt repayment structure. That on the -- half of the loan will be repaid and semiannual equivalent installment with the remaining half settled as a bullet payment at the end of the term. This strategic move optimize the joint venture capital structure and enhanced liquidity, supporting our long-term growth objectives. The competitive pricing achieved reflects our strong financial position and the confidence of financial markets on our future prospectus. This underscore our unwavering commitment to the financial stability and sustainable growth in the competitive aluminium industry. Now we can move to the macroeconomic update. The aluminium market demonstrate resilience during most of 2024 despite facing considerable macroeconomic variations in the first half of the year. Demand for the primary aluminium and the key markets were constrained by resistance inflation pressure and the tightness monetary policy with demand activities and the global construction and automotive industries. Meanwhile, challenging, including trade restrictions and global storage of alumina supplies and geopolitical tension distributing supply chain continued to create uncertainty within the industry. Despite these obstacles, major economic experience recoveries, mainly during the second half of 2024 on the back of easing monetary policies complemented by support of government fiscal measures aimed at boosting economic growth through the infrastructure investment and the other public spending program. This enable major industries nation to presume commodity-based growth, which paved the way for the overall unproved industrial and strengthen of the aluminium market. Consequently, these factors enable LME prices to gradually increase by 3% by December 2024 compared to the beginning of the year. Now I will hand over to Ilham to provide you with the financial, operational and CapEx update for the year ended 31st December 2024.

Thank you, Mr. Abdulla. Moving to Slide 20, financial performance. QAMCO reported a net profit of QAR 614 million for the year 2024 compared to QAR 446 million last year with an EPS of QAR 0.11 per share compared to QAR 0.08 per share in 2023. Share of JV's revenue reached QAR 3.3 billion, in 2024 compared to QAR 3.1 billion in 2023. EBITDA improved 15% year-over-year and reached QAR 1.1 billion in the year 2024. EBITDA margin grew 34% in 2024 compared to 31% in 2023. Now diving deep into QAMCO's net earnings, as detailed on Slide 21. We see that QAMCO's financial results for the year was marginally aided by nearly identical average realized selling prices compared to last year, which contributed positively QAR 11 million towards net profit compared to last year. This was primarily due to price stability shown during the second half of 2024. Sales volumes improved by 4% compared to last year, thanks to QAMCO JV's adaptability in swiftly changing its product mix to meet market requirements and achieve production and sales targets. This contributed positively to the net -- towards net profit by QAR 125 million compared to last year. Additionally, despite higher sales volumes, QAMCO successfully realized savings in the cost of goods sold compared to last year, further contributing positively towards net earnings by QAR 18 million. Comparing the financial performance of the fourth quarter or the third quarter of 2024, net profit marginally decreased by 2%, reaching QAR 187 million. This decline was marginally driven by higher cost of goods, particularly higher alumina costs, partially offset by higher sales volumes and lower finance costs and general and administrative expenses. The quarterly selling price remained almost unchanged compared to the previous quarter. However, sales volumes improved marginally, driven by higher sales of standard ingots to meet market demand and compensate for lower demand in other segments. Now moving on to CapEx programs. As detailed on Slide 30, QAMCO 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 and in alignment with operational environment showcase a 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. This concludes our presentation, and now I'll hand it over to Rashid.

Thank you, Ilham. I would like to thank the management for presenting the results, and now we can open the floor for the Q&A.

[Operator Instructions] And your first question comes from the line of Rob Skepper from Ashmore.

Yes, a couple of questions from my side. The first one, just looking at alumina versus aluminium prices. So we saw obviously a very strong spike in alumina prices at the end of 2024 and through the months of January they've come back down quite markedly. I think down kind of 30% or so. And I guess, during that period, we didn't see too much by way of changes to aluminium prices. So I just kind of wanted to explore for the kind of first quarter of this year, should we kind of expect to see a bit of negative margin pressure as you kind of use that higher priced alumina acquired in the fourth quarter of last year?

Thank you for your question. Correct. Actually, in the first quarter, we have seen the increase of the alumina prices that's coming. And we have seen also that the final product prices is staying the -- I would say, with a little bit improvement from the first half of the year. I would say, let's wait for the first of the 2 months or for the first quarter [ 2025. And then we can maybe have better views on the market. However, right now, we believe that the first quarter, we should have some increase on the both sides, the alumina and the final products.

Okay. Got it. Okay. And then my next question is something totally different. Just in terms of how you anticipate changes to corporation tax might impact QAMCO particularly given the structure of the JV and the holding company?

There is nothing to be changed on the tax mechanism and nothing will impact QAMCO by itself. So there is no impact on QAMCO. We are not paying tax.

Okay. So the JV will kind of continue to pay tax in the way it does and QAMCO is able to get a rebate on that?

There is a kind of, I would say, an arrangement where QAMCO is not impacted by the tax regime here in the state of Qatar.

Our next question comes from the line of [ Wei Chow ] from [indiscernible].

This is [ Parvez ] from [indiscernible] Investment. So a few questions. One, just a follow-up on what Rob was asking about the tax. So there's a global minimum taxation that is being implemented. So just to be clear, QAMCO will not be impacted because of that, correct?

Yes, we're not going to be impacted by that since QAMCO is listed. The JV is -- already there is a tax on the joint venture of 35%, which is not a case for QAMCO since it is a listed company, and it is a holding company.

Okay. Sounds good. The other question is on the debt. You recently restructured the debt and changed some. So could you tell us how much of finance cost savings if any, will we be -- we can see for QAMCO?

This is very early to highlight what is the savings as you will notice the savings or you will notice the impact of the financing during the year. So let's watch and wait for the results in the first 2 quarters then maybe you can calculate the savings.

But could you give us some details on what was the, for example, the profit rate before and after the change after JV structure?

No. There's still there is no reflection on it. Since this arrangement will kick start in 2025. However, we usually don't disclose any rates or any costing for our restructure. What I can tell you that it is a good arrangement, QAR 805 million will be settled in the next 7 years. Half of it will be repaid through installment. The 50% of it which remain will be as a bullet point after the year 7. So it is a great arrangement. It will ensure that the company will have a sustainable, I would say, financial position and we will continue having a solid financial.

My last question is on the margin. So your EBITDA margins were flat quarter-over-quarter and alumina prices have significantly increased in the last quarter. So I mean we can probably see the impact of that in this quarter. But where do you see this 35% margin going forward considering where the alumina prices are and were in the fourth quarter?

There is a lag between our sales and our cost of the alumina. We recognize our sales once the -- I would say, the shipment when arrived to the customer. So this is one factor. Other factor is that the EBITDA margin is impacted by the changes in the alumina prices. So you can see that impact in the second half of the year where the alumina prices started to increase, where the sales price stayed at the same level.

So in your fourth quarter, the EBITDA margin was 35%. Do you think that this will continue considering the alumina prices increased significantly in fourth quarter?

Yes. It's not only about the -- also the alumina. There are other raw materials where we have achieved, I would say, a good saving, which is reflected in our margin, like coke and pitch other raw material that's impacting our margin. .