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

Hello, and welcome to the Qatar National Cement Company's Year-End Financial Results Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. Roy Thomas to begin the conference. Roy, over to you.

Thank you, April. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar National Cement Company's Year-End 2022 Financial Results Conference Call. On this call from Qatar National Cement Company, we have Engineer, Essa Mohammed Ali Kaldari, the Chief Executive Officer; Viswanathan Hariharan, the Finance and Administration Manager; and Saqib Parvez, the Head of Finance and IR Officer. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call now over to Engineer, Essa Mohammed Ali Kaldari. Go ahead, Essa.

Thank you. [Foreign Language] Good afternoon. On behalf of myself and Qatar National Cement Company. I'm delighted to express, I would glad to do your presence in the fourth quarter 2022 Investor Relations Conference. I would like to take this opportunity to wish you a very Happy New Year and hope that this year will bring peace and prosperity to the whole world. Now regarding the financial performance for the year 2022. The revenue has declined mainly due to overall decrease in demand of cement in the state of Qatar. However, overall financial performance is in line with our budget expectations. The company has posted a profit of QAR 227 million compared to QAR 224.5 million in 2021. I would like to highlight a few challenges that we came across in 2022. As you might be aware, the cost of obtaining raw material for the cement industry has grown up, primarily due to the shortage of blasting material available in Qatar, which has negatively impacted the bottom line. And at the same time, as a result of the Ukraine unfortunate war, the cost of imported spares and industrial components has gone up. Having said that, there was a significant achievement of 2022. There is a saying that only those who confront unusual challenges can do unusual success. Having said that, despite the challenging circumstances that I stated earlier, we were able to secure a few notable accomplishments. We have increased the clinker production in the estimated amount necessary to improve strategic inventory, support the company's competitiveness and meet the market demand for cement projects while maintaining price stability. We have restarted the operation of cement plant #5. Assets have been temporarily shut down since April 1, 2020, which resulted to increase output of cement, improve their company's strategic stock and helped drive down their production costs. Optimization of manpower to improve productivity and lower expenses to provide a positive economic return, revamping the occupation and health and safety and environment department to mitigate risk in operations, raise health and safety standards at all the company's sites. The department has achieved remarkable development in professional practice and the improvements of the work environment within a short period of time. We have enhanced the company and its employee role in participating in social responsibility by developing programs to raise knowledge and meet social responsibility, such as active participation in blood donation campaign, cleaning campaign of Umm Bab beach and other plans that we are doing with them at the moment. We have implemented various cost optimization initiatives, which would reflect positively of company's profitability. With regard to our future plans and expectations for year 2023. Rationalization, production cost as much as possible, especially in the consuming of gas, electricity, commodity material and other costs, finding new opportunities for our products and increasing the market share through innovative products, updating ERP system SAP, which -- with a new version that adopts SAP S/4HANA database and automating the various activity, to reduce cost while achieving excellence and performance efficiency. Completing the tendering process for consulting work in order to put into practice the high and the best use of industrial area Street #10, piece of land that was leased by the Ministry of Municipality. The activity will diversify the revenue stream for the company. Future outlook, we are expecting the demand of the cement of the State of Qatar will remain the same as the level of 2022. Thank you very much. Hello?

Yes, April, you can go ahead.

[Operator Instructions].

I think before we move to this, I think we need to state some facts, if you will allow my team to highlight it to the audience.

Absolutely. Go ahead. Thank you.

See, I would like to discuss with you the income, the financial performance of the company for the year ended 31st December a little bit in more detail. Like during 2022, the company has posted a revenue of QAR 709 million and achieved a gross profit of QAR 220 million. The other income, like we have significant gain in other income like due to better management of our resources that we have earned have significant increase derived from that. Second, the selling and administrative expenses has reduced from the last year by QAR 4 million due to the shortage of discount and the G&A expenses have increased a little bit by QAR 3 million. The net profit result -- we achieved a net profit of QAR 227 million. Moving forward, I would like to highlight a few of the things here. With respect to the liquidity ratios. Liquidity ratios have reduced due to the -- from partnerships 6 months ago, due to decreasing inventory. However, liquid ratio as a state total is QAR 0.67. And the equity to total asset ratio at the same level, QAR 0.89 -- from QAR 0.88 to QAR 0.89. The Board of Directors of the company has proposed a 30% cash dividend, and it will be approved in the General Assembly, which is scheduled on 19th of Feb. So we can move to the next segment of Q&A. Mr. Essa will take up the questions from the audience.

Yes, you can go ahead and open it for Q&A right now.

[Operator Instructions] Our first question comes from the line of Mustafa Ameer from Al Rayan Investment.

This is Parvez from Al Rayan Investment. I've got a couple of questions. Firstly, you mentioned that the volumes for '23 are going to be more or less the same like '22. However, in '22, your volume declined because there was a certain slowdown, then there was -- probably construction was slower because of the World Cup. So do you not think that you're being conservative by giving guidance which is like low? Don't you think there should be more improvement considering that we don't have the World Cup this year? That's my first question. The other question is on the margins. The margins for '22 are lower by about 1%. Do you think this -- the gross margin, I mean, do you think this is a good indicator for future? Or we could see further reduction or increase in the gross margins?

Okay. With regard to the first question, I think for 2023, the government announced budget is more or less, it's close to the budget which was last year, keeping in mind that last year, most of the budget was maybe directed, as we believe, to beautification and landscaping. This year would be primarily directed to infrastructure. And with regard to your second question.

With respect to the fee effect, gross profit has decreased by QAR 17 million. As we earlier mentioned that in 2022, we came across a couple of challenges like with respect to the extraction of raw materials. Like these are the like costs out of our control. And it is affecting the whole cement industry due to unavailability of exclusive blasting material availability in the State of Qatar. So we have to switch to the alternative in order to keep things functioning. So like that has negatively impacted the bottom line. But however, we feel that these are temporary like years. Hopefully, like we are getting some positive feedback on the relevant industry. So in 2023, we'll be able to get the kind of blasting material.

Yes. Actually, we are in continuous dialogue with the relevant authority. And we've been receiving a confirmation that blasting material will be received. And bearing in mind that even during the shortage of blasting materials, we have done other initiatives to reduce our cost, which was now -- that's why it was the cost of unavailability of the blasting materials had a little impact on our gross margin.

And the second thing is like we are trying our level best to reduce our reliance on imported material. But as you know that, like we are using the European make our trial machinery. So to some extent that we have to rely on that. But we are trying to better manage our -- like better supply chain management we have implemented so that we can reduce the impact there. But certain things are unavoidable. Like anyhow, it will be very premature to say anything with respect to 2023. We hope that the more we'll finish, and will be like getting fees will prevail and things will become normalized.

So just a follow-up to that. You mentioned that things are improving on the blasting side. So that means we should see improvement in margins? Or this margin is going to be more or less the same?

No, hopefully, if things are resolved, then [Foreign Language] there will be an improvement in margin.

Our next question comes from the line of Faisal Al Zaabi from NBK Capital.

I just have one question. Again, like my previous colleagues have mentioned, now with the World Cup being on our backs, going forward, we all know that the expansion in the North Field is yet to take place. How are you positioned to capture from that opportunity as well as if you can provide us with some guidance on how do you see the top line gross profit and net profit looking like in 2023?

We are on a continuous dialogue with all the suppliers who would be supplying cement to those expansions in the North Field as well as, at the same time, we are in continuous dialogue with the company who are working in the expansion in the airport, as well as the other government or nongovernment projects. We believe based on the feedback we have received that quantity will be more or less the same. We are ready to supply even more as required. We are working on other initiatives. Hopefully, this will materialize. When we believe it's material, we'll be communicating this with the investors. And at the same time, we are working -- we have already recruited a consultant, BTG, and they already worked with us over the last couple of weeks. The company will help the -- BTG will help our company and optimizing our operation, the structure, the organizational structure and at the same time, looking for vertical and horizontal integration, which will, I think, help the company widen its revenue stream, which hopefully we will be able to -- not diverse -- but diversify from that normal construction business.