Qatar National Cement Company (Q.P.S.C.) (QNCD) Earnings Call Transcript & Summary

Good day, and welcome to the Qatar National Cement Company Quarter 2 2022 Results 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 Qatar National Cement Company's Second Quarter 2022 Financial Results Conference Call. On this call from Qatar National Cement Company, we have Essa Mohammed Ali Kaldari, the Chief Executive Officer; Sadiq Nimary, Finance and Administration Manager; and Saqib Parvez, 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 Essa Mohammed Ali Kaldari. Go ahead, Essa.

Yes. Thank you. First, [Foreign Language] good morning or good afternoon here in Qatar. On behalf of Qatar Cement Company and myself, I would like to express my appreciation for your warm presence in the second quarter 2022 investor relations conference. Trust that all of you having a good time and enjoy your summer vacation. I would like to take this opportunity to wish you a very happy new Hijri or Islamic year. Starting with our half yearly 2022 performance overview. On the whole, QNCD second performance is aligned with our expectations, although sales volumes have decreased due to general decline in the market demand, which was expected. And at the same time, the cost has increased due to renegotiation of gas supply agreement and general inflation of the market. Moving forward. Corporate strategy overview. I would like to share my thoughts on QNCD corporate business strategy. Our business strategy rests on 3 pillars. Cost optimization, which is being done through business process reengineering and automation. We intend to optimize our cost elements, improving our productivity by using -- and improving our productivity by using technology, training, multitasking and capture of continuous improvement, we intend to increase the value for money. The third thing is -- the third pillar, improving market share. The customers are at the heart of our business strategy. We have strengthened our marketing team by recruiting a new marketing manager in order to become more customer responsive and to their business needs. And at the same time, as such, we're improving our process of receiving trucks and customers, making it easy for people to come in and out, which will -- we believe that will improve our market share and encourage our customers to come to us. Some of the achievements that we have achieved so far, [ released techno ] commercial center for consultancy of waste management projects. At the moment, we are -- we have received some of the bids, and we will be evaluating these bids shortly. We'll be awarding and going ahead with this project. Obviously, as far as it's viable. The second achievement was the established health and safety department and organized training to improve awareness of our employees. The outlook, our assessment for 2022 is positive. The company -- the volume will remain the same. However, we believe that demand will start picking up in 2023, which will lead to increase in volume, and we will be ready when this happens. Contribution towards the society. We believe that a healthy and strong society is part of our -- part and parcel of our strong and sustainable corporate growth. Being a responsible corporate entity, we're well aware of the society obligations. In 2022, QNCD has contributed donation to Qatar Cancer Society. In addition to this, we have organized blood donation where most of our employees and even our contractors, including myself and the management, attended and contributed during that occasion. We have this humble -- we hope that this humble deed have [ enlightened your life ]. Thank you for listening. And now I will hand over the mic to Mr. Sadiq, the Finance and Admin Manager, to give a brief overview of the financial performance.

Thank you, Mr. Essa. Hello, ladies and gentlemen, you are welcome to our second conference call for the financial year 2022. It's my pleasure to present the first 6 months performance for the year 2022. First of all, we reported net profit of QAR 111 million, which is 18% higher compared to QAR 94 million reported for the same period last year, despite a 12% reduction in volume of sales. The most important reason behind that is a legal claim of the Ministry of Environment that was present last year, in addition to the increase in the selling price effective last September 2021, which compensated 6% of the total revenue. The gross profit margin impacted adversely by the increase of the cost of energy, resulting a 6% reduction in the gross profit margin from 32% to 26%. There was a reduction in selling and distribution expenses and increase in other income and increase in our share of profit from last year. All this contributed 12% of the net profit. Generally, the financial position of the company remained strong with total equity of QAR 2.98 billion, including the debt, covering more than 3x our paid-up share capital. It's worth to mention that the market value of QNCD stock is QAR 4.99 per share and higher than book value of QAR 4.56 by 9%. Also, we noticed a 3% increase in the market share of our share during the last week. As stated by Mr. Essa Kaldari, the performance remained exactly as expected, and we hopefully continue with the same thing under the upcoming stressful circumstances. Thank you for listening. Mr. Saqib will do the investor presentation.

Thank you, Mr. Sadiq, for giving a brief overview of the performance. Most have been covered by Mr. Essa and Mr. Elsadiq, so I would restrict myself to the profit and loss and plus some ratios that we have performed during the period time. So first of all, I would like to shed some light on the condensed interim income statement for the 6 months ended June 30, 2022. The sales, as -- like mentioned, that has declined by 6% and the cost of sales has increased by the 2%. Although the gross profit margin has dropped by 33%, we did well in the other income, which has increased by 33%. There was expensive amicable legal claim. That was last year. This time this year, there's no claim. The selling and distribution expenses is reduced by 58% and the G&A stayed put. And the share of the profit has increased considerably. Last year, it was a loss of QAR 42,000. And this year, we have a profit of QAR 1.5 million. So on the whole, the net profit has increased by 18%. So next, I would like to move towards the ratios. The GP has increased by 19%, and the net profit has increased by 26%. The current ratio has decreased mostly due to the increase in the liabilities. And equity to total asset ratio is more or less the same of that in the last quarter. So now it's enough from my side. Now we can move towards the Q&A session. Mr. Essa will take the question-and-answer session.

Elisa, you can go ahead and open it for questions right now.

[Operator Instructions] We will take our first questions from [ Zohaib ].

I've got 2 questions. One, could you talk about this gas supply agreement which changed? Because apparently, this has significantly impacted the gross margin. So could you give us more information on that? The second question is, if you could tell us how much of cement volume was sold in the second quarter and how much of sand volumes were sold in the second quarter.

Regarding the first question, the gas contract, as you're aware that there was a number of contracts signed with Qatar Energy. We had contracts signed for plant #1, #2. And then we have contracts for plant #4, 5 and 3. They were different rates, and each one of them had its own contractual obligation, the minimum take-or-pay and so on. The whole thing has been renegotiated. We have already reduced the take-or-pay volume. Know that the rate which -- we had 2 number of rates, but then it was averaged to between all of them. And we believe this is advantage for Qatar Cement as the take-or-pay, which was a huge obligation of Qatar Cement, has been reduced. This is regarding the gas. Regarding the volume of the quantity sold, in 2022, we have sold in cement 1.242 million tonnes against 1.284 million tonnes. For washed sand, we've sold 3.026 million tonnes of washed sand against 3.33 million tonnes of -- in 2022 during the same period.