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

Good day, and welcome to the WOQOD Second Quarter 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Roy Thomas. Please go ahead.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to WOQOD's Second Quarter 2022 Financial Results Conference Call. On this call from WOQOD, we have Pradeep Kumar, the Chief Financial Officer; Sultan Jassim Al-Maadeed, the Finance Manager; and Ahmad Said Al-Mansoori, the IR Officer. 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 Pradeep Kumar. Go ahead, Pradeep.

Okay. Thank you, Roy. So we will start with Ahmad Al-Mansoori on introduction. Ahmad, please proceed.

Thank you, Roy. Good day to all the participants, and we hope everyone is keeping safe and healthy. We welcome you all to WOQOD's Quarter End June 2022 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-looking statement based on the assumptions stated. 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 the suppliers. Please refer to Slide #2 for the first version of disclaimer statements. All figures expressed in this call are in Qatari riyal and the conversion from the same to U.S. dollar is QAR 3.64 to USD 1. Now I would like to hand over to both our Finance Manager, Mr. Sultan Jassim Al-Maadeed to provide a brief overview of WOQOD and update on the key operational activities.

Thanks, Ahmad. Hello, everyone. Thank you for joining us today for the conference call of WOQOD. The key vision for WOQOD is to be the leading petroleum product distribution and related services marketing company in the region. I am on Slide 4 now, which shows the overview for WOQOD Group. WOQOD started operation in 2002 with exclusive rights for storage and distribution of petroleum products in the state of Qatar. Operations started with 2 petrol stations in 2003, and we have grown to 119 stations by the end of June 2022. The chart on the right shows WOQOD's station network. WOQOD also operates 13 FAHES center for inspection of vehicles. I am on Slide 5 now, which shows the key operation of WOQOD Group. The key operation are: diesel and gasoline fuel distribution and sales; jet fuel distribution and sales; shore-to-ship and ship-to-ship bunkering; LPG distribution and sales; natural gas distribution and sales; fuel bunkering; bitumen operations; C-store and auto care activities; vehicle inspection services. I am on Slide #7 now, which shows the diesel and gasoline fuel sales volume trends. As mentioned before, the core activities of WOQOD is fuel distribution and sales in the state of Qatar. For the quarter ending June 2022 versus quarter ending June 2021, diesel and gasoline chart on the top show the quarterly trends. Diesel sales volume were higher by 0.6% in the second quarter 2022 versus the same quarter of 2021, driven by macroeconomic factors. Combined gasoline sales volume were up by 13% in the second quarter of 2022 versus the same quarter of 2021, driven by market demand and ease of restrictions. The table on the right shows year-to-date June fuel volume and price variance analysis. Total fuel sales were higher by 4% during year-to-date June 2022 versus June 2021, driven by market demand. Average fuel price were higher by 22% for the year-to-date June 2022 versus year-to-date June 2021. Turning to Slide 8 which shows the jet fuel sales volume comparison. Jet fuel sales were higher by 30% in second quarter 2022 compared to the same period last year, driven by easing of COVID-19 and related air travel restriction in many countries. Sales for year-to-date June 2022 was 26% better than year-to-date June 2021, driven by improved uptick from airlines. Jet fuel average price was higher by 86% in June 2022 versus June 2021 -- correction to the percentage, not 86%, 30%. Combined sales volume of all petroleum products increased by 14% for the year-to-date June 2021 as compared to the same period last year. Turning to Slide 9, which shows the retail fuel sales volume quarterly trend. For the second quarter 2022 versus second quarter 2021, overall retail fuel volume increased by 14% driven by increased market demand. Retail diesel sales increased by 10%. Gasoline sales increased by 16%. Turning to Slide 10, which shows the retail fuel sales volume comparison for the year June 2022 as compared to the same period last year. Retail fuel sales volume at petrol station were higher by 10% for the year-to-date June 2022 as compared to the same period last year driven by market demand. The shares of WOQOD in the petroleum retail market reached about 86% for year-to-date June 2022. We would like to share some additional information on other business segments for the period year-to-date June 2022 versus 2021. Natural gas sales increased by 1%, driven by market demand. Diesel bunkering sales increased by 12%, driven by market demand. Non-fuel retail segment increased by 7%, driven by various initiatives. Now I would like to hand over the call to our CFO, Mr. Pradeep Kumar to discuss the 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 half year ended 30 June 2022. Starting with revenue. I'm on Slide 12 now, which shows the revenue trend of WOQOD. Revenue from fuel sales account for nearly 96 percentage of the total revenue. WOQOD achieved total revenue of QAR 13.7 billion for the first half of 2022 compared to QAR 8.3 billion during the same period last year, showing an increase of 65 percentage, mainly driven by increase in fuel sales volume by 14 percentage and increase in average price [indiscernible] around 54 percentage. As compared to first quarter of '22, the revenue increased by 34 percentage during the second quarter, mainly driven by increase in fuel sales volume by 7 percentage and increase in average price by 15 percentage. Turning to Slide 13, which shows the net income. WOQOD has made a net income of QAR 501 million for the half year ended 30th June 2022 as compared to QAR 461 million during the first half of 2021, an increase of 9 percentage, mainly driven by higher sales volume and other income. Additionally, improvement in non-fuel segment also helped the increase in net income. On a quarterly basis, the net income for second quarter of 2022 is QAR 238 million as compared to QAR 208 million for the same period last year. The detailed analysis of net income variance for first half of 2022 is given in the next slide. Slide 14 shows the key variance analysis of net income for the half year ended 30th June 2022 as compared to the same period last year. The increase in net income of QAR 40 million is due to following major factors. Margin increased by QAR 44 million, mainly driven by increase in sales volume net of expenses. Trading stock price variance driven by comparatively higher increase in fuel stock prices during the first half of 2021 as compared to first half of 2022, i.e., 60 percentage fuel stock price increase during the first half of 2021 versus 20 percentage increase only during this year, first half. OpEx increase relates to expenditure incurred for improving safety and reliability of assets and to meet the requirements of World Cup 2022 events. G&A expense is lower due to lower provisions against the receivables in line with the IFRS procurements. Other income increases mainly driven by increase in dividend income. WOQOD's fundamentals continue to remain robust and WOQOD is committed to meet all its strategic goals while placing safety as a top priority. The company has taken several proactive steps and initiatives to ensure continuity of its business during COVID and we'll continue to do in future in coordination with relevant authorities. WOQOD has a strong leadership committed towards delivering the results to its shareholders. With this, we are ready for the Q&A session. Thank you.

[Operator Instructions] Our first question, Zohaib from Al Rayan Investment.

I've got one question on your gross margins. So gross profit, actually. So for the last 2 or 3 quarters, if I compare it on a year-over-year basis, your gross profit has been on a down trend. The first quarter, the gross profit was lower by 2%. This quarter, it's lower by 7%. Prices are higher, [indiscernible] -- sorry, the entire total fuel volumes are higher. Why is the gross profit lower?

It's a good question, but if you go to Slide 14, which is clearly explained there, the increase in fuel sales volume is correctly captured, and we gained QAR 44 million from the volume increase of 14 percentage. That's clearly shown in that graph. Now on the other side, as I mentioned before, the fuel price increase last year first half was almost 60 percentage versus this year first half was like 20 percentage only. So we carried the inventory there. So last year, the price increase in the inventory was so high that we got that into net income, but this year compared to last year, it's not that high. So we suffered around QAR 37 million in that. Also, the operating expense increase of QAR 33 million to meet last couple of years with COVID and everything where we need to spend a lot of money to improve the reliability and safety and to meet the requirements. So we are incurring some additional expenditure. That -- these are the reasons for decrease in the GP. But on the other side, the volume increase is definitely captured in the margins.

Okay, one other question. Now that we are nearing the FIFA World Cup, what kind of preparations are you doing for the World Cup?

We are doing all necessary preparation activities gearing up to the World Cup. We are leading with all parties involved. And In sha'Allah -- all -- everything is going to be fine. We are ready with all increase in operation. So we're just waiting for the event to take place.

[Operator Instructions] We'll take our next question, [indiscernible]. [Operator Instructions] We'll take our next question, [indiscernible].

Just a couple of small quick questions. Could you please remind us the nature of the dividend income which you report [indiscernible]? And also equally, what is the dividend which you're paying [indiscernible]?

The dividend income represents the income from [indiscernible] investments we made in Qatar stock market. And this year, we made around QAR 84 million as compared to around QAR 60 million last year. So there's an increase of QAR 24 million, which is reflected in the other income. Regarding -- if I understand correctly, you asked for the dividend payment for this year by WOQOD, which will be kind of deferred in the January board meeting and subject to approval by the AGM based on the financial results and other commitments of WOQOD. So we'll wait until February to hear the final outcome of the dividend for this year. But you can always see historically, WOQOD is paying healthy dividend to our shareholders.

Yes, that's great. My second question was about the dividend which you have paid to the noncontrolling investment in equity shareholders in some of your subsidiaries maybe. So you have this slide in the cash flow statement.

Can you please come closer to the speaker? And because, honestly, we cannot hear the question.

Sorry, yes. So in the cash flow statement, you have this line, which is about dividends paid to noncontrolling interest, and I think it was QAR 48 million in the first quarter of this year. Could you tell us who is the entity which is getting this dividend?

All right. So we have a joint venture, which is QAMC in our jet fuel operations. So we pay dividend to them on a yearly basis. So this money represents the dividend payout to our noncontrolling interest which is QAMC.

That's clear. And if I may, maybe could you -- I mean, do you provide any guidance for the CapEx like for this year, maybe for the next few years? Is there any guidance you could share?

Well, this year, so far, we spent around QAR 188 million, and we're doing a lot of CapEx projects, which is kind of -- last year, our spending was so low, as you know, very well due to the restrictions from COVID, we couldn't execute a lot of projects. So definitely, we'll be doing a lot of projects, reliability improvements, safety improvements, et cetera, in the coming months. So that's kind of the plan. So far, we spent this year QAR 188 million.

We'll take our next question, [indiscernible].

I have other couple of questions. First one is related to World Cup -- football World Cup. So you're expecting some growth. So what kind of growth you are expecting in fuel consumption because of the World Cup? And secondly, another question on the North Field expansion. So that project is going on. And what kind of growth are you expecting as a result of that in terms of [indiscernible] sales growth for Qatar Fuel?

Yes. For the World Cup, definitely we expect that fuel segment is going to improve, especially on the jet fuel segment. That's what our expectation. Regarding North Field expansion, yes, when the real work happens on the ground, we believe that a lot of additional fuel requirements will be there, whether it's bunkering or bulk fuel supply. And we are looking forward to that.

And just a follow-up, if I could. So currently, what percentage of total fuel sales is bunkering?

That's relatively very low cost as compared to the overall. I told you, 96 percentage is the total fuel sales share in the revenue, and bunkering is very minimal, less than 5 percentage.

[Operator Instructions] We will take our next question, [indiscernible].

Just one more question for me, please. When I'm looking at some of your -- some of the markets in the region like UAE for instance, it has become quite popular for the retail network traders to expand the smaller format stations like mobile stations maybe. Is there something you have been looking at? I mean is it something which kind of makes sense for Qatar, you think? And do you have any such stations at all in the network? That would be very useful.

So just to answer that question, we already have mobile stations. And yes, there is an opportunity to expand on that and we would definitely take it.

And we are looking into such type of stations in the future, like mini stations, yes.

[Operator Instructions] There are no questions at this time. I would like to turn the conference back to the speaker for any additional or closing remarks. We have one question just came in, can I open it? We open our next question, [indiscernible].

So I have one question of slightly long-term basis. So a lot of growth in the sales fuel volumes have come from jet fuels. So this will happen again in this year because of FIFA World Cup and other restrictions going away. So going forward, how will the sales volume growth grow? Or will it be coming from -- how much will it be coming from gasoline and diesel and how much do you expect it to come from jet fuels?

Well, purely depending on the market demand. Of course, this temporary increase this year, which we expect is related to FIFA. But going forward, it's purely based on the demand from the segment, which is based on the macroeconomic factors in the country.

Operator, I think that we will take this as the last question.

Okay. We have one more in the queue, can I open it?

Sure, go ahead. That is going to be the last question.

[indiscernible].

Sorry, just a follow-up to what [indiscernible] was asking about bunkering operations. So you said it's only less than 5% of the total volume. Can I just ask you whether you are the only provider of those bunkering services? Or you just -- or you are just a small player? And what's your kind of market share there?

In the state of Qatar, we are the only fuel provider and distributor. So yes, I hope that answered your question.

Yes. Is this because -- I mean, is this because that market is [indiscernible]...

Yes, you can refer to the [indiscernible]. Thank you very much. Thank you, guys. Hope to see you in the next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.