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

Hello, everyone, and welcome to WOQOD conference call. Please note that this conference is being recorded. I'd now like to hand over to our first speaker for today, Bobby. Bobby, you may now start the conference call.

Okay. Thank you, Elie. 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 2023 Results Conference Call. So on this call from WOQOD, we have Pradeep Kumar, who is the CFO; Sultan Al-Maadeed, who's the Finance Manager; and Ahmad Al-Mansoori, who's the IR officer. So we will conduct this conference with management first reviewing the company's results followed by Q&A. I would like to now turn the call over to Ahmad. Ahmad, please go ahead.

Thank you, Bobby. Good day to all the participants, and we hope everyone is keeping safe and healthy. We welcome you all to WOQOD's third quarter and September 2023 results conference call and appreciate your participation -- as WOQOD is committed to continuously enhance its Investor Relations initiative. This is to strengthen our communication and transparency with all members of the Global Investment Community. The presentation of the call will be available on the Investor Relations section of our website. Any statement that refers to expectations, projections, guidance or any other characterizations, our 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 agreements signed with suppliers. Please refer to Slide #2 for the full version of the disclaimer statement. All figures expressed in this call are on Qatar Riyal and the conversion for the same to USD as QAR 3.64 to an USD. Now I would like to hand over the call to our Finance Manager, Mr. Sultan Jassim Al-Maadeed to provide an overview of WOQOD and update on the key operational activities.

Thank you, Ahmad. The key vision of WOQOD is to be the leading petroleum products distribution and related service marketing company in the region. I am on Slide 4 now, which shows the overview of 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 has grown to 117 owned stations at the end of September '23. The chart on the right shows WOQOD station networks. WOQOD also owns and operate 13 profit centers for inspection of vehicle across the state of Qatar. I am on Slide 5 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, shore-to-ship and ship-to-ship bunkering. LPG distribution and sales, natural gas distribution and sales, fuel bunkering, [indiscernible] operation, C-store and auto care services, vehicle inspection services and office leasing. Turning to Slide 7 now, which shows the diesel and gasoline fuel sales volume trend analysis. As mentioned before, the core activity of WOQOD's fuel distribution and sales in the state of Qatar. Total fuel sales lower by 6% during year-to-date September '23 versus same period of last year, driven by market demand. Diesel sales volume were lower by 70% during year-to-date September '23 versus the same period of last year, driven by macroeconomic factors. Combined gasoline sales volume were up by 4% during year-to-date September '23 versus the same period of last year, driven by market demand. On quarter-on-quarter basis, sales volume for third quarter '23 increased by 16% and 2% for diesel and gasoline, respectively. As compared to third quarter 2022, diesel sales dropped by 14%, where the gasoline sales increased by 1% in third quarter '23. Average fuel [ prices ] were stable during the reporting period. Turning to Slide 8, which shows the fuel -- the jet fuel sales volume comparison. Jet fuel sales were higher by 14% during year-to-date September '23 compared to same period of last year, driven by market demand. On quarter-on-quarter basis, jet fuel sales volume for third quarter of '23 increased by 19%, driven by market demand. As compared to third quarter of '22, jet fuel sales volume increased by 21% during third quarter of '23. Jet fuel price for year-to-date September '23 was decreased by 21% as compared to the same period of last year. Combined volume of all petroleum products increased by 4% for year-to-date September as compared to the same period last year. Turning to Slide 9, which shows the quarterly trend of retail fuel sales volume trend. Overall, retail fuel volume decreased by 2% for year-to-date September against the same period of last year, driven by a decrease in market demand. Retail diesel sales decreased by 16%, where the retail gasoline sales increased by 3% during year-to-date September '23 as compared to the same period last year driven by market demand. On quarter-on-quarter basis, retail fuel volume and third quarter of '23 increased by 12% and 1%, respectively, for diesel and gasoline. As compared to third quarter '22, retail diesel and gasoline sales decreased by 14% and 1%, respectively, in third quarter '23 driven by market factors. The market share of WOQOD in the petroleum retail market in the State of Qatar reached about 86% during year-to-date September '23. We would like to mention that nonfuel retail sales increased by 5%, 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 third quarter 2023. Starting with revenue. I'm on Slide 11 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 20.5 billion for the YTD September 2023 as compared to QAR 22.6 billion during the same period last year, representing a decrease of 9 percentage. This is mainly driven by the decrease in fuel prices by 11 percentage, partly offset by increase in combined fuel sales volume by 4 percentage. As compared to the second quarter of 2023, the total revenue increased by 14 percentage during third quarter 2023, mainly driven by increase in sales volume by 14 percentage. WOQOD achieved total revenue of QAR 7.4 billion for the third quarter of 2023 as compared to QAR 8.8 billion during the same period last year, showing a decrease of 16 percentage. The main reason for the decrease in revenue is a decrease in sales price by 18 percentage, partly offset by the volume increase by 7 percentage. Turning to Slide 12, whcih shows the net income trench analysis. WOQOD has made a net income of QAR 712 million for YTD September 2023 as compared to QAR 763 million during the same period in 2022, representing a decrease of 7 percentage. On a quarter-on-quarter basis, the net income for third quarter 2023 increased by 25 percentage, driven by higher volumes and better pricing. As compared to third quarter of 2022, net income for third quarter of 2023 is higher by QAR 10 million. This represents an increase of 4 percentage, which is mainly driven by increase in jet fuel volumes. The detailed analysis of net income variance is given in the next slide. Slide 13 shows the key variance analysis of net income for the 9 months period ended September 2023 as compared to the same period last year. The decrease in net income of QAR 51 million is due to the following major factors. Operating margin decreased during YTD September 2023 as compared to same period in 2022 as a result of decrease in diesel sales to B2B segment and [indiscernible] sales which is partly offset by increase in digit fuel volumes. Trading stock price variance is mainly driven by a decrease in value of trading fuel stock. Jet fuel has decreased by 21 percentage during the year. G&A expense decreased mainly driven by lower receivables provision in line with IFRS procurements during YTD September 2023 as compared to same period last year. Other income increase is mainly driven by higher interest income, driven by the optimization efforts on return on cash. 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's 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 have our first question from [indiscernible] Capital.

I just want to -- I know you might not want to disclose like the formula or what is the margin for the jet fuel, but is the compensation volume based? I mean, just if you give us some generic or general details about how the compensation is it? Is it like a set margin? Is it like a margin that changes by time? Because I remember a few quarters or a few years ago, you said a change to an operating fee, does this fee then like a margin that is fixed, similar to, let's say, to the gasoline segment? Just to understand how the volume impacts that.

Opportunity, this is commercially sensitive. However, as volume increases, of course, we gain more.

Would you like us to move to the next question now? It seems like [indiscernible] got disconnected.

Yes, we answered the question.

We have our next question from Ildar Khaziev from HSBC.

I have a question on the trading stock price variance. I understand that's obviously, jet fuel prices and diesel prices also have come down, since the levels we've seen -- we saw last year, last which is why basically, there has been some negative impact on margin most like just as you are showing on your presentation slide. But my question is like when oil prices or rather diesel and jet prices going up? Would you normally -- actually report a gain would your margin actually benefit from the scenario? And was this the case in the third quarter?

Well, as you know, the pricing in Qatar changes on a monthly basis. So our inventory gets valued every month at the end of the month. So now we are comparing from December 2022 to the current. And currently, you have seen the price decreased by 21 percentage. So definitely, to that extent, the inventory values get impacted, and that's what the trading price stock variants that you've seen in the books.

I'm a bit confused by that because I thought -- I mean, why would you compare to December 2022? My understanding was that you turn over inventories much, much quicker, and I thought that what matters basically is the price of inventory maybe just a few months ago for the given quarter. Let's say, if jet price was, let's say, like QAR 100 at the end of the second quarter. And then if it went to QAR 150 by the end of the third quarter in September, wouldn't you gain -- wouldn't you book a gain on that?

You're right. I'm talking from the 9 months period of '23, but every quarter, this move and at the last quarter, the price improved and we gained from that. But on a 9-month period, we lost this much. But again, if the price goes up again, definitely when we talk again in January, it may be much better than this.

We have our next question from [indiscernible] Investment.

There was a substantial increase in your receivable despite the weakness of the top line, QAR 300 million. Could you elaborate what was the cause and when you expect normalization?

Yes. This is where you need to look into our revenue, Slide #11, where you can see that the revenue for third quarter has increased by around 14 percentage. So definitely, once this goes up, of course, the receivables reflect the latest revenue trend, and that's why the receivable has gone up.

Okay. Generally, receivable are up year-on-year despite the year-on-year decrease in revenue?

But the volume, you see the overall volume also increased and recently, our sales gone up.

So you expect the current receivable be maintained at the current level?

Well, we are making every effort to make sure that our receivables are current that way, yes.

We have our next question from [indiscernible] from Investments.

With regards to the trading stock price or the inventory pricing changes, what will be this for the third quarter of 2023? That means the ongoing quarter. I can say for the 9 months, it's a negative number. But for the third quarter, is it a positive number or a negative number step?

Yes, we're just getting the number. Just give us 10 seconds. We'll answer that now. Well, if you look at the first half, it was QAR 120 million negative, and now it is QAR 78 million only. So that means during third quarter due to price improvement, we gained QAR 42 million in the third quarter.

[Operator Instructions] Our next question from Ildar Khaziev from HSBC.

Yes. Just a quick question about outlook for demand. If you can say anything for the fourth quarter, maybe if you have any thoughts about next year, that would be very helpful, too? And on CapEx also, I mean, do you have a forecast for full year 2023 CapEx? Has it changed? Is it the same number? And anything if you could say anything about 2024, that would also be great?

Yes. We believe that the jet fuel trajectory would continue. Whatever we have seen for the first 9 months would be the projection for this year as well. Regarding the CapEx, we are expecting within QAR 200 million for this year.

[Operator Instructions] It seems like we don't have any incoming questions. I'd now like to hand back over to the management for the closing remarks.

It's Bobby Sarkar, QNBFS, if we don't have any further questions, we can end the call for today. I want to thank Pradeep, Sultan and Ahmad for taking the time to answer our questions and for the presentation, and we will pick it up next quarter. Thank you very much, guys.

Thank you so much -- to the next call in January.

Thank you so much for attending to today's session. We hope you found it useful. have a good day and stay safe.