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

Hello, and welcome to the Qatar Fuel Company 1Q 2023 Conference Call. I would like to advise all participants that this call is being recorded. I'd now like to welcome Fabian to begin the conference. Fabian, over to you.

Thank you, April. Good morning to you all. Thank you for joining us for WOQOD's or Qatar Fuel 1Q 2023 Conference Call. My name is Fabian Macquarie from QNB Financial Services. On today's call, we have 3 members of WOQOD's management team. We have Pradeep Kumar, who is the Chief Financial Officer. We've got a Sultan Jassim Al-Maadeed, who is the Finance Manager. We have Ahmad Said Al-Mansoori, who is our IR Officer. And as usual, they will go over the performance and we'll have a Q&A session immediately after. I will now turn over the call to Ahmad to begin. Please go ahead, Ahmad.

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 first quarter and March 2023 Results Conference call, and appreciate your participation as WOQOD is committed to continuously enhance its investor relation initiative. 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 suppliers. Please refer to Slide #2 for the full version of disclaimer statements. All figures expressed in this quarter are at Qatar real and the conversion for the same is USD 1 to QAR 3.64 billion. 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 activities.

Thanks, Ahmad. The key vision of WOQOD to be the leading petroleum product distribution and the related service marketing company in the region. I am on Slide 4 now, which shows our view 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 petro station in 2003 and grown to 128 stations in -- by end of March 2023. The chart on the right shows WOQOD's station network. We also operate 13 FAHES centers for inspection of vehicles. I am on Slide 5 now, which shows the overview of WOQOD Group. WOQOD has invested significantly in CapEx over the years to meet its petro station network targets. Total net book value of CapEx includes investment properties and network growth has reached a value of QAR 4.3 billion. WOQOD has invested QAR 46 million in cash in CapEx in the period of first quarter 2023. I am on Slide 6 now, which shows the key operation of WOQOD Group. Key operation of WOQOD Group are diesel and gasoline fuel distribution and sales, jet fuel distribution and sales for to ship and ship to ship bunkering, LPG distribution and sales, natural gas distribution and sales, fuel bunkering, vitamin operations, C-store and auto care activities, vehicle inspection services. Turning to Slide 8 now, which shows the diesel and gasoline fuel sales. Fuel sales volume trend analysis, as mentioned before, the core activity of WOQOD is fuel distribution and sales in the state of Qatar. Fourth quarter ending March '23 versus '22, the diesel and gasoline chart on the top shows the quarterly trend. The fuel sales were lower by 5% during the period of first quarter '23 versus '22, driven by market demand. The [indiscernible] and I said in quarter 1 '23 versus the same quarter of '22, driven by macroeconomic factors. Combined gasoline sales volume were up by 7% in first quarter '23 versus '22, driven by market demand. Average fuel price were stable for the period of first quarter '23 versus the same quarter of '22. Turning to Slide 9, which shows the jet fuel sales volume comparison. Jet fuel sales were higher by 12% in first quarter 2023 compared to the same period last year, driven by ease of air travel restriction in many countries. Combined sales volume of all petroleum products increased by 3% for the first quarter '23 as compared to the same period of last year. Turning to Slide 10, which shows the retail fuel sales volume comparison for the first quarter '23 as compared to the same period last year. Overall retail fuel volume increased by 1.4%, driven by increase in market demand. Turning to Slide 11, which shows the retail fuel sales volume trend. For the first quarter of '23 versus first quarter of '22, retail diesel sales increased by 16% and retail gasoline sales increased by 8.6%. The shares of WOQOD in the retail market reached about 86 in the first quarter of '23. We would also like to share some additional information on other business segments for the same period of -- which is first quarter '23 versus the same of '22. Natural gas sales decreased by 4%, driven by market demand. Diesel bunker sales increased by 23% driven by market demand. Non-fuel retail segment sales increased by 18%, driven by initiatives and network growth. Now I would like to hand over the call to our CFO, Mr. Pradeep Kumar, to discuss the key financial results. .

Thanks, Sultan. Good day, everyone, and hope everyone is safely healthy. Now I would like to discuss the consolidated financial results of WOQOD for the first quarter 2023. Starting with revenue. I'm on Slide 13 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 6.62 billion for the quarter ended March 2023 as compared to QAR 5.86 billion during the same period last year, showing an increase of 13 percentage. The main reason for increase in revenue are increase in sales price by 10 percentage and volume by 3 percentage in quarter -- in the first quarter 2023 as compared to the same period in 2022. As compared to the fourth quarter of 2022, the revenue decreased by 10% during the first quarter of 2023, mainly driven by the decrease in sales price by 4% and volume declined by 7 percentage. Turning to Slide 14, which shows the net income. WOQOD had a net income of QAR 223 million for the quarter ended March 2023, as compared to QAR 263 million during the same period in 2022, a decrease of 15 percentage, mainly driven by a decrease in value of trading stock and lower other operating income, partly offset by increase in margins driven by volumes and increase in other income. The detailed earns of net income variance is given in the next slide. Slide 15 shows the key variance analysis of net income for the quarter ended March 2023 as compared to the same period last year. The decrease in net income of QAR 40 million is due to following major factors. Gross margin increased in first quarter 2023 as compared to same period in 2022 as a result of increase in sales volume by 3 percentage. Trading stock price variance is mainly driven by a decrease in value of trading fuel stock due to fluctuation in prices during the first quarter as compared to the last quarter of 2022. Other operating income is lower, driven by lower bulk sales, driven by the prevailing market conditions. Other income increase is mainly driven by higher interest income. WOQOD's fundamentals continued to remain robust, and WOQOD is committed to meet all its strategic goals by placing safety as a top priority. WOQOD has a strong dealership committed towards delivering the results to the shareholders. With this, we are ready for the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Faisel abi from NBK Capital.

Yes. A quick question from my end. Is it a fair assumption to assume that a similar trend would continue in the upcoming quarter? More or less, should we see some sort of the same level of decline and bottom line for the full year versus the prior year? And if you can provide some sort of guidance on margins for the short term, that would be great.

Okay. On the cost question, relating to the sales trend. The first quarter was mainly driven by the B2B segment. It was lower. And we expect to recover from third quarter onwards, but that's our expectation, subject to all the market conditions. On the margin, okay, it's a fixed margin. Margin will definitely continue with the volume. However, the trading price stop is purely depending on the prices of the fuel, which is regulated and decided by the state of Qatar. Other than that, it's going to more or less in line with the sales volume.

Our next question comes from the line of Momi Adel of AFR.

So I have a question on your expansion in Qatar. So basically, if you look -- you ended '21 with 119 stations, right? And you ended '22 with almost around 8 more stations. But if you compare the first quarter of '23 by the first quarter of '22, you see that the volume has dropped. So I'm just trying to understand, okay, so what is the purpose of expanding if eventually, you will see the volumes are dropping?

Yes. Go ahead.

The retail -- actually, retail volume has increased. But in terms of expansion, there are multiple components. You have to look at it. First, we have a social responsibility to the community to expand where it's needed. Of course, the plan is that [indiscernible] our business we acquire, we would be building stations. We would be building a fixed -- our expectation in this year and in the coming year, we will slow down in our expansion. But we will see based -- subject to evaluation at that point of time.

Okay. So our future expansion is based on need. That's it.

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

So I just wanted to double check whether the revenue line in your financials is still linked to the market price for Jet fuel. Because minus standing was that even although the gasoline and diesel prices are regulated, jet fuel prices are probably not. And on top of that, am I correct to assume that in the first quarter, you might have booked a negative impact from weak jet fuel prices if that's the case just because your inventory was high, had a higher price.

The first part of the question, jet fuel crisis. Yes, these are market lend. That's how the revenue is signed up, up and down whenever the price goes up. On the other side, volume, as you've seen from the volume statistics in our jet fuel, volume has increased by loan costs this quarter. Now on the other side, yes, the stock price of the inventory that we have also subject to kind of changes based on the market price of the jet fuel.

[Operator Instructions] Another question comes from the line of Ana [indiscernible] from Alfaisal Investment.

You get the large repayment to Qatar Energy this quarter, QAR 350 million and it's around QAR 3 billion less. Could you tell us what is your plan on repaying the balance?

Can you please repeat the question? It was not very audible to us.

You paid down QAR 350 million due to related parties this quarter, QAR 350 million. And you have another QAR 3.5 billion balance. So how do you expect to decrease that? In what sort of timeframe? Or you keep a minimum balance, how is it going to work in terms of repayment?

Yes. I believe you are looking into the payable balances, which has reduced from QAR 3.8 billion to QAR 3.5 billion, and that's a factor of the price. As I explained just now, prices are subject to market fluctuation and when it is come down. And this QAR 3.8 billion is December. So from December to first quarter, our prices have come down from the fourth quarter to the first quarter of this year. Naturally, that's reflected in the payables also. .

Meaning -- can I clarify, if I may, please only. Assuming price is stable, it means that we will have a QAR 3.5 billion balance there or...

Yes. If the price is stable, that's what we hope our suppliers for the product that we purchase.

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

Okay. Thank you, April. If there are no further questions, it brings us to the end of our conference today. Thank you all for joining us. Thank you for your questions. And I would like to thank the management team for addressing investors' questions. Please join us again for the second quarter earnings conference call. Thank you, and have a good day.

Thank you so much from our side also.

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