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

Hello, and welcome to the QSLS QNB Financial Conference Call. I would like to advise all participants that this call is being recorded. I would now like to welcome [ Fabian ] from QNB Financial Service to begin the conference. Fabian, over to you.

Thank you, Cherry. Good morning to you all, and thank you all for joining us for the WOQOD's or Qatar Fuel Company's 4Q 2022 Conference Call. My name is [ Fabian Macquarie ] from QNB Financial Services. On today's call, we have WOQOD's management team led by Pradeep Kumar, who is the Chief Financial Officer. We also have got Sultan Jassim Al-Maadeed, who is the Finance Manager; and Ahmad Said Al-Mansoori, who is the IR Officer. So the way the call will happen today is that the management team will go over the performance. And immediately after that, we have a Q&A session. I will now turn over the call to Ahmad to begin the presentation. Thank you.

Thank you, [ Fabian ]. Good day to all the participants, and we hope everyone is keeping safe and healthy. We welcome you all to WOQOD's year-end 2022 results conference call and appreciate your participation as WOQOD is committed to continuously enhance its investor relation initiatives. This is 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 today. 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 agreement signed with our suppliers. Please refer to Slide #2 for the full version of this disclaimer statements. All figures expressed in this call are on Qatari riyal and the conversion for the same U.S. dollar is QAR 3.64 to USD 1. Now I would like to hand over the call to our Finance Manager, Mr. Sultan Jassim Al-Maadeed to provide a brief overview of WOQOD and update on the key operational actives.

Thank you, Ahmad. Good day to all. The key vision for WOQOD is to be the leading controlling product distribution and related services marketing company in the region. I am on Slide 4 now, which shows the overview of WOQOD Group. WOQOD, as you're aware, started operation in 2002 with exclusive rights for storage and distribution of petroleum products in the state of Qatar. Operations started with 2 petro station in 2003 and has grown to 126 stations at the end of year 2022. The chart on the right shows WOQOD station network. WOQOD also operate 13 FAHES centers for inspection of vehicles. I am on Slide 5 now, which shows the key operation of WOQOD Group. Key operational of WOQOD Group 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 services, vehicle inspection services. Turning to Slide 7 now, which shows the diesel and gasoline fuel sales volume trend analysis. As mentioned before, the core activities of WOQOD is fuel and distribution -- fuel distribution and sales in the state of Qatar. For the year ending 2022 versus 2021, the diesel and gasoline chart on the top shows the quarterly trend. Total fuel sales were higher by 5% during 2022 versus 2021, driven by market demand. Diesel sales volume went higher by 0.6 in 2022 and versus 2021, driven by macroeconomic factors. Combined diesel -- combined gasoline sales volume were up by 9% in 2022 versus 2021, driven by market demand. Average fuel prices were higher by 12% for 2022 versus 2021. Turning to Slide 8, which shows the jet fuel sales volume comparison. Jet fuel sales were higher by 20% in '22 compared to the same period last year, driven by ease of COVID-19-related air travel restrictions in many countries. Combined volume of all petroleum products increased by 11% for the year 2022 as compared to the same period last year. Turning to Slide 9, which shows the retail fuel sales volume comparison for the year 2022 as compared to the same period last year. Overall, retail fuel volume increased by 9%, driven by increased market demand. Turning to Slide 10, shows the retail fuel sales volume trend. For the year 2022 versus 2021, retail diesel sales increased by 6%, whereby retail gasoline sales increased by 11%. The share of WOQOD in petroleum retail market reached to about 86% for the year 2022. We would like to share some additional information on other business segments for the year 2022 versus 2021. Natural gas sales increased by 4%, driven by market demand. Diesel bunkering sales increased by 27%, also driven by market demand. Nonfuel retail segments increased by 12%, driven by various initiatives. 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 year 2022. Starting with the revenue. I'm on Slide 12 now, which shows the revenue trend of WOQOD. Revenue from fuel sales account for nearly 97 percentage of the total revenue. WOQOD achieved total revenue of QAR 30 billion for the year 2022 as compared to QAR 19.5 billion during the same period last year, showing an increase of 53 percentage. The main reason for increase in revenue are increase in fuel sales volume by 11 percentage and increase in average fuel prices by 40 percentage. As compared to fourth quarter of 2021, the revenue increased by 25 percentage during the fourth quarter of 2022 mainly driven by the increase in sales volume by 6 percentage and increase in prices by 20 percentage. Turning to Slide 13, which shows the net income. WOQOD has made a net income of QAR 1.70 billion for the year 2022 as compared to QAR 974 million during the same period in 2021, an increase of 10 percentage, mainly driven by higher sales volume and other income. Additionally, improvement in nonfuel segments also helped the increase in net income. This detailed analysis of net income variance is given in the next slide. Slide 14 shows the key variance analysis of net income for the year 2022 as compared to the last year. The increase in net income of QAR 96 million is due to the following major factors: increase in gross margin by QAR 162 million, mainly driven by increase in volume and pricing; trading stock price impact of QAR 116 million, mainly driven by comparatively lower increase in fuel price in 2022 against 2021; increase in finance income by QAR 22 million, driven by higher return from cash; increase in other income by QAR 28 million, mainly driven by increase in dividends received and other income, partly offset by the G&A expenses. WOQOD's fundamentals continue to remain robust, and WOQOD is committed to meet all its strategic goals while placing safety as a top priority. WOQOD has its strong leadership committed towards delivering the results to the shareholders. With this, we are ready for the Q&A session. Thank you.

[Operator Instructions] Your first question comes from the line of Zohaib Pervez.

I've got one question on the jet fuel. I would have assumed considering this was the World Cup quarter, the fuel volumes would have been higher, probably higher for the year. So what was the rationale that they were actually lower even sequentially?

Well, even we were also expecting for higher jet fuel volumes and we were prepared to meet all the demands, but the sales volume didn't increased as expected. That's all we know. But we were ready to meet all the market demands.

Sorry. So was the number of flights lower? Or was it because the refueling was done somewhere else that these volumes did not pick up?

I believe it's a combination of several factors that attributed to this one. Yes.

Your next question comes from the line of [ Faisal Al-Saidi ] from NBK Capital.

I just have one question. As we can see, top line grew by 53%, while bottom line grew by 10%. So there is a visible compression in margins. It would be great if you can refresh our minds what were the main reasons behind this compression in margins?

There are no compression in margins. Our revenue increased by 53 percentage. If you look at Slide 14, you can see that our increase in the gross income by QAR 162 million, that's approximately 10 percentage up. So our fuel sales volume increased by 11 percentage so as our gross margin. So our gross margin increase is in line with the increase in the fuel sales volume. The pricing increase because it's a fixed margin business, we don't get benefit out of the pricing increases. It goes back to the suppliers. Now on the other side, what it is, as explained on Slide 14, you can see the trading price stock variance QAR 116 million this year in 2022, mainly because in 2021, the price increase was considerably high, almost double the price from 2020 to 2021. So that was kind of held in 2021 income. But this year, the increase in price is not as were close to 2021 increases. So that's why this hit of QAR 116 million. So if you net it up, yes, that's kind of it, our growth margin has increased only close to QAR 50 million. But in reality, the gross income has increased by QAR 162 million.

Yes. If I may, I just have one follow-up. It's clear that gross margin or to be specific, gross profits increased. But what I mean is in terms of percentage, percentage of bottom line, as a percentage of the top line, net income over sales. That's what I meant.

Yes. These margins are based on the fuel sales, not on the price we generate from the revenue.

Let's proceed with the next question, comes from the line of [ Garsha Fanbi ] from Avalon Global Research.

Can you hear me?

Yes. Yes. Go ahead.

Yes. I just want to know since the oil -- crude oil prices has been high in the last 1 year. That is why the prices has been the key factor who has driven the revenue. Can we have some sort of guidance for 2023? We see the oil has been very volatile in the past couple of days.

You're right. The 2022, the oil prices were high. That's why our revenue also high. In 2023, it's all driven by the oil prices, and it is determined by the state of Qatar. So the prices are regulated by the government. And based on that, it fluctuates. So that's the answer. So what's going to be -- that definitely drives our income and our revenue.

Okay. Any guidance can you give me on the sales volume front for 2023?

Well, we don't expect a major decline in the sales trend in 2023. We expect to maintain the position in '23 on the sales volume.

Okay. So does that mean the volume is expected to grow in the range of 8% to 10%?

That's not what I meant to say. I said that we expect to maintain our position because we reach kind of a level where post-COVID, the growth is somewhat achieved. So this -- the volume of 2022, we believe is sustainable.

So the next question comes from the line of Ildar Khaziev from HSBC.

Yes. Can you hear me?

Yes, we can hear, please. Yes, go ahead.

Yes. So yes, my question is also about outlook for 2023 or rather like what are you seeing during the first 2 weeks of Jan? I mean, because it seems that the fourth quarter volumes were down even versus third quarter, presumably because of the World Cup. Are you seeing volumes sort of normalizing after December? Or are they looking stronger or the same versus Jan of 2022? That's my first question. And if you can say, of course. And secondly, would you be able and would you be in a position to maybe guide us in terms of CapEx this year? And what kind of investments the company will go through?

On the first question regarding the sales volumes, yes, during the month, there are some seasonal factors that influence the sales volume. But in general, we expect to maintain the level of 2022 during 2023 as well on overall sales volume. Regarding your second question on the CapEx, this year, we spent around QAR 366 million. And next year, we are going to spend approximately another 25% more because we've got a lot of reliability and safety project spending and -- which we need to execute during the year. So we expect that to grow up in '23.

Your next question comes from the line of Belal Sabbah from Jadwa Investment.

Just if you can explain in the fourth quarter why the diesel volume and gasoline volumes -- why diesel volume was down Q-over-Q and gasoline volume was up only 3%? I understand the World Cup quarter I would have assumed that all those people visiting the country would result in meaningfully higher diesel and gasoline volume. So on the jet fuel -- and I understand there's maybe some other factors, there's international agreements or whatever. Something is happening there. But at least locally, you have the market share, if you could explain that, please. And one more question, and forgive my limited knowledge. Are you at liberty to share what the margins are at the fixed margins that you earn on diesel and gasoline?

All right. On your first question regarding the sales volume during fourth quarter, our B2B segment, a lot of infrastructure projects completed, which were kind of in preparation for the FIFA. So those B2B segment volume has come down during the fourth quarter. On the other side, we saw a kind of increase in the B2C segment on fuel sales volume. So that's kind of the fourth quarter update. So regarding the margins, I told you this OpEx margin, as we mentioned in the outset, this commercially sensitive information, we cannot disclose due to confidentiality agreements we have. So we cannot disclose that margin information.

Okay. And just to make sure I get it correctly. So for 2023, you expect to maintain the overall volumes of 2022, and you expect 25% higher CapEx as you implement the safety measures across your stations. Anything else on the other businesses, the marine, the office leasing, do you expect some segments to deliver growth in 2023?

Well, on the fuel segment, as you rightly mentioned, yes, that's our expectation. And we are focusing on the nonfuel segment also and the growth. So we expect that segment either maintain its position or continue to grow in 2023.

Your next question comes from the line of Zohaib Pervez from Al Rayan Investment.

I have another question on your fair value reserves. So the fair value reserves in '21 were about QAR 200 million, QAR 240 million and now they're showing a negative QAR 93 million. What is the rationale for this change?

Okay. So during the year, it's -- the fair value reserve reflects the movement in the market price of investments. So you need to look into the investment. If you look at the other comprehensive income, you will see the detailed analysis of reclassification of the gains we realized from the fair value reserve. So wherever there is gains that is directly reflected into the retained earnings and remaining reflected as a change. So we can go through the other comprehensive income, and you will understand the complete movement in that.

[Operator Instructions] Next question comes from the line of Talal Samhouri from Aventicum Capital Management.

Great results. But I have a question. Where do we find the retail grocery business, Sidra? I don't see it on the presentation and it's not apparent in the annual statement. Can you please elaborate that or help us find it?

As I mentioned in the presentation, that 97 percentage of our revenue is from the fuel business. From the convenience store segment, it's very minimal. So I would say, overall, if you take the complete one, it's so minimal. That's why we didn't put a separate presentation on that. But I can tell you that it's shown a growth of close to 20 percentage during the year in that segment.

[Operator Instructions] There are no further question at this time. I turn the call back to Fabian.

Thank you, Cherry. If there are no further questions, then it brings us to the end of our conference call. I would like to thank you all for joining us and for your insightful questions. And I would also like to thank the management for answering your questions. Have a good day, and I hope you join us again in the first quarter of 2023.

This concludes today's conference call. You may now disconnect. Thank you.