Qatar Fuel Company Q.P.S.C. ("WOQOD") (QFLS) Earnings Call Transcript & Summary

Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to WOQOD's Third quarter and 9 months 2021 Results Conference Call. So on this call, we have Pradeep Kumar, who is the CFO at WOQOD; Sultan Al-Maadeed, who is the Finance Manager; and Mufaddal Jariwala, who is the Treasury Head and IR Officer. So we'll conduct this conference with first management reviewing the company's results followed by Q&A. I would like to turn the call over now to Mufaddal. Mufaddal, please go ahead.

Thank you so much, Bobby, for the wonderful introduction. Good day to all the participants, and we hope everyone is keeping safe and healthy. We welcome you all to WOQOD's 9 months ended September 2021 Results Conference call, and appreciate your participation as WOQOD is committed to continuously enhance its investor relation initiatives. This is in order to strengthen our communication and improve transparency with all members of the global investment community. The presentation of this call will be available on the Investor Relations section of our website. Any statement that refers to expectations, projections, guidance or any other characterizations of future events, including financial projections or future market conditions is a forward-look statement based on the assumptions to date. Actual results may differ materially from those expressed in these forward-looking statements. The company cannot disclose any commercially sensitive information due to the confidentiality agreements signed with our suppliers. Please refer to Slide #2 for the full version of disclaimer statements. All figures expressed in this call are in Qatari riyals and the conversion for the same to U.S. dollar is Qatari Riyal 3.64 to USD 1. Now I would like to hand the call over to our Finance Manager, Mr. Sultan Jassim Al-Maadeed to provide a brief overview of the WOQOD and update on the key operational activities.

Thank you, Mufaddal. Hello, everyone. Thank you for joining us today for the conference call for WOQOD. The key vision of WOQOD is to be the leading petroleum product distribution company in the region. I am on Slide 4 now, which shows the overview of WOQOD's group. WOQOD started operation in 2002 with exclusive rights for storage and distribution of the petroleum products in the state of Qatar. Operations started with 2 petrol stations in 2003, and we have grown to 110 stations as of end of September 2021. The chart on the right shows the WOQOD station network. WOQOD also operates 13 FAHES center for inspection of vehicles. Turning to Slide #5, which shows key operation of WOQOD group. Key operation of WOQOD group are diesel and gasoline fuel sale distribution, jet fuel sales, shore to ship and ship-to-ship bunkering, LPG sales and distribution, natural gas and CNG sales and distribution, fuel bunkering, bitumen operation, C-Store and auto care activities. Turning to Slide 7 now. which shows the diesel and gasoline fuel sales volume and price trend analysis. As was mentioned before, the core activity of WOQOD is fuel sales and distribution in the state of Qatar. For the 9 months ending September 2021 versus the same period of last year, diesel sales volume were higher by 6% driven by macroeconomic factors. Combined sales volume were up by 10%, driven by market demand and easing of restrictions. Average fuel price were higher by 26% year-to-date September 2021. The diesel and gasoline chart on the top shows the trend over the past 5 quarters. Diesel sales for the quarter were up 9% compared to the previous quarter. Combined gasoline sales for the quarter were up 5% versus previous quarter. This improvement was driven by easing of restriction and market demand. Turning to Slide 8, which shows the jet fuel sales volume comparison. Jet fuel sales were higher by 12% for the year-to-date September 2021 compared to same period last year, driven by easing of COVID-19 and the air travel restriction in many countries. Sales for third quarter 2021 increased by 41% compared to the same quarter of last year and 19% versus previous quarter. That is driven by improved uptake from airlines. Combined sales volume of all petroleum products increased by 10% year-to-date September 2021 as compared to the same period of last year. The combined sales volume for third quarter 2021 increased by 16% on a year-on-year basis and 12% quarter-to-quarter basis. Turning to Slide 9, which shows the retail fuel sales volume comparison with year-to-date September 2020. Retail fuel sales volume at petrol stations were higher by 9% for 9 months, ending September 2021 versus the same period last year. Turning to Slide 10, which shows the retail fuel sales volume quarterly trend. For the third quarter of 2021 versus the previous quarter, retail diesel sales increased by 8%, retail gasoline sales increased by 6%. Overall retail fuel volume increased by 7%, which was driven by market demand. We would like to share some additional information on other business segments for 9 months 2021 versus the same period of last year. Natural gas sales increased by 23% driven by market demand. Diesel bunkering sales increased by 28%, driven by the market demand. Lastly, the nonpetroleum retail segment increased by 2% driven by infrastructure development. Now I would like to hand over the call to our CFO, Mr. Pradeep Kumar, to discuss the key financial results.

Thanks, Sultan for all the volume updates. Good day, everyone, and hope everyone is safe and healthy. Now I would like to discuss the consolidated financial results of WOQOD for the 9 months ended September 2021. Starting with the revenue. I'm on Slide 12 now, which shows the revenue trend of WOQOD. Revenue from fuel sales account for nearly 95% of the total revenue. WOQOD achieved total revenue of QAR 13.6 billion during the 9 months ended September 2021 compared to QAR 10.2 billion during the 9 months ended September 2020, showing an increase of 34 percentage. The main reasons for the increase in revenue are increase in sales volume by 10% and increase in overall prices by 27%. As compared to third quarter of 2020, the revenue for the third quarter of 2021 is higher by QAR 2.3 billion, representing an increase of 74 percentage, mainly driven by increase in prices. Turning to Slide 13, which shows net income trend. WOQOD has made a net income of QAR 691 million for the 9 months ended September 2021 as compared to QAR 429 million during the same period last year, increase of 61 percentage. This was mainly driven by higher sales volume and increase in fuel prices. Improvements in nonfuel segment also helped increase in net income. The detailed analysis of net income variance is given in next slide. Slide 14 shows the key variance analysis of net income for the 9 months ended September 2021 against the same period last year. The increase in net income of QAR 262 million is due to following major factors: gross profit, which is net of noncontrolling interest, increased by QAR 264 million, mainly driven by increase in fuel sales volume and increase in fuel price. General and administrative expenses lowered by QAR 20 million driven by cost optimization and efficiency improvements. Other income lowered by QAR 22 million due to lower dividend interest income driven by prevailing market conditions. WOQOD's fundamentals are very robust and WOQOD is committed to meet all its strategic goals while placing safety as a top priority. WOQOD has taken all necessary measures to ensure the safety of employees and business continuity during the pandemic situation. WOQOD has a strong leadership committed towards delivering the results to the shareholders. With this, we are ready for the Q&A session. Thank you.

[Operator Instructions] We will now take our first question from Mujib Moosa from Commercial Bank Qatar.

This is a good presentation. I just have 1 or 2 follow-up questions on the presentation. The last 2 quarters' trend is seeing a good traction in pickup in the uptake of the fuel, the gasoline fuel. Just want to know, even on the aviation fuel, there's a reasonably good uptake that is seen. Heading towards a period where this post pandemic, where we are seeing demand recurring back, the travel restrictions being taken out, what is the outlook on both the aviation fuel as well as the gasoline fuel and the volume sales likely to contribute to better numbers in the coming quarters. That's one question. Second question is. On the fact that WOQOD is now looking for further expansion even into next year. But going forward, are there any cross-border opportunities being explored now that we are seeing some traction in cross-border investments happening, is WOQOD looking for any opportunities across the border to see growth opportunities.

Let me answer the first question, which is the demand for jet fuel. As you can see, the latest trend, if you talk about this September, we are almost 82 percentage of pre COVID situation. So we expect that this is going to improve in the coming months as we can see that quite a lot of countries are easing the travel restrictions that will definitely benefit the jet fuel segment. Regarding gasoline and diesel mainly related to the activities in Qatar where you now schools and everything is back to normal, offices are fully staffed. So we believe the -- definitely, the demand is going to improve in the coming months. Regarding your second question on cross-border opportunities, WOQOD is looking for right opportunities for expansion. And once we firm up anything, we'll definitely announce in due course.

Just a follow through question. With regard to the outlook on the next quarter, the performance that is in the third quarter, can that be taken as a normalized quarter for the growth or we can expect further growing quarters. As the quarters come by the volume sales push and with the margins remaining flat, the absolute contribution in terms of profitability, the outlook would be much better as you move into the next few quarters. Just a follow through question to the first one.

Well, as you know, we said about the demand side of it. Rest of the things, I'll let you walk on the number side of it. Definitely, we expect the demand going to improve in coming quarters.

[Operator Instructions] We will now take our next question from Mr. [indiscernible]

Yes, I just would like to an update on CapEx outlook for 2022, please.

In the CapEx, we are planning for adding another 10 to 11 stations in 2022 to meet the requirements. And we are also working to meet all the requirements for 2022 World Cup which is going to happen next year. So towards that, we are working on all the CapEx side of it and all the reliability improvements that we need to do in this country. So I mean, for WOQOD, which was kind of the slight delay due to all the COVID situation where work was a bit slow, but definitely, we will be catching up with all the work in the coming quarters.

We will now take our next question from Bijoy Joy from QIC.

My question is on the jet fuel side. So we can see that the volumes have almost picked up to the same levels of first quarter in 2020. But from a profitability angle, it's like almost 20%, 25% lower. So has there been a pricing change or margin reduction in the jet fuel side?

Comparing to the first quarter, you need to understand, we have first quarter there are a lot of other incomes like dividend, et cetera, which we received during the first quarter that gets accounted. But if you normalize for the dividend and everything, you can see our profitability improving quarter-on-quarter.

No, what I meant was basically first quarter -- what I meant was basically first quarter of last year 2020 in terms of volume trend, it's almost at the same level, probably 77 million liters less but almost at the same level. But on the profitability from the Jet fuel segment is still lower 20%, 25% lower because jet fuel used to make the -- when I compare with your jet fuel numbers, it looks like 20%, 25% lower. So from a pricing angle, I have that doubt that is the pricing still the same? Or the margins you're making still the same or it's lower than last year?

Bijoy, don't know where you're quoting the numbers from. What I stated is still valid. Cannot compare first quarter with any other quarters. First quarter has its own specific income, such as dividend, which we account in that quarter. And when you compare, it's improving quarter-on-quarter. Definitely, the volume improved so as our income also improving.

[Operator Instructions] We will now take the next question from [indiscernible] from [ Al Rayan ] Investment.

I have more of an outlook question on how do you think next year you've got the World Cup, this year, we've got the Arab Cup. Which sectors do you think are going to benefit WOQOD? How would these 2 big events help WOQOD in financially or operationally?

On the operations side, it's our responsibility to make sure that we meet all the requirements relating to these events. Financially, we're looking forward to all the opportunities associated with the event so we can capitalize on the same and improve our results wherever possible.

Thank you. So did you know which -- could you like give us some color on which segment do you believe is probably going to benefit within WOQOD like is it going to be retail sales? Is it going to be jet fuels, petroleum? Which one do you think you plan on -- do you expect to be improving in -- because of these big events?

We expect all segments going to benefit from this one, but definitely retail will take the lead in that, although jet fuel and all those segments will certainly benefit from this one.

We will now take our next question from Muhammad [indiscernible] from [ Al Faisal ].

So still about the CapEx. So you said you -- if I heard it correctly, you said you will have next year another 11 stations. Is there any electric superchargers in these stations? And what is your plan for electric charges, this is 1 question. My second question is also on the CapEx on the amount. You said 11 stations, but I didn't hear -- maybe I didn't hear correctly did you disclose any amount, how much is the CapEx for the next year?

Regarding the EV segment, yes. Definitely, that's a segment we believe there will be a growth in future, and we are working with all the stakeholders to tap the opportunities associated with that segment, which you will hear in due course. Now regarding the CapEx, we believe it's go back to somewhat that 2019 level for the reasons that we mentioned. So that's kind of our expectation at this level.

As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.

This is Bobby Sarkar again from QNB Financial Services. If there are no further questions, we can end the call for this quarter. I want to thank WOQOD management for taking the time to answer questions from investors, and we will pick this up next quarter. Thank you so much.

Thank you, Bobby. Thank you, and thanks to that and we'll see you in the next quarter.

Thanks, Bobby.