Saudi Basic Industries Corporation ($2010)

Welcome to Sabik's Q1 2026 Earnings Call. My name is Sarah Alzamami, and I'll be serving as a moderator today. Please note that the call is being recorded. A transcript of the recording, together with supplementary materials will be published on the Investor Relations website on Sabik's website. Today's earnings call will feature SABIC CEO, Dr. Fecal facer, its CFO, Mr. Solara and its IRO, Mr. Nailed. Naef will now take us through an outline of today's event.

Thank you, Sara, and thank you to everyone joining SABIC's Q1 2026 EdinCall. Let me begin by pointing out that forward-looking statements will be made on this call. These statements are based on assumptions the risk and certainty. So they are not guarantees of SABIC future performance. Actual outcomes may differ materially from what the statements imply. Further details about our forward-looking statements, -- please refer to the disclaimer of the presentations and in our financial report, both of which are available at SABIC.com. With the disclaimer out of the way, the earning call will start with a presentation by our CEO, -- he will provide an overview of the market context for the quarter, outlines a acquisitioning for long-term value, review our business units and highlight key operational and performance developments. The CFO will then take over the call to walk you through SABIC aggregate financial performance of the first quarter of 2026, show save financial framework and share recent update on Sabra portfolio optimization journey. Now please join me in welcoming SABIC CEO, Dr. Vestager to the call.

Thank you, Nav, and thank you to everyone for joining SABIC's earnings call. Let me begin with an overview of the macroeconomics and industry environment. While the market environment is gradually improving, our focus has been fair, prioritizing shareholder value preserving strong cost position, maintaining capital discipline and positioning SABIC to capture upside as conditions continue to normalize. Global GDP growth in the first quarter of 2026 was 2.8%, reflecting a moderation versus historical level my geometrical uncertainty. However, China and Asia GDBs remained robust near 5% for the quarter. At the same time, the manufacturing PMI remained above 50 indicating stable and gradually improving global manufacturing activities. Within the petrochemical industry, growth remains broadly in line with GDP. However, we are seeing an increasing regional divergence. Some regions are gradually decoupling from the broader global economy, particularly in the served led markets. Oil volatility continues to elevate certainty, reinforcing the importance of resilience. Again, as this backdrop, SABIC continues to adopt a strategic approach shifting from scale revenue growth to value driven profitability. Turning to global chemical trade flows, the Middle East continues to strengthen its role as a key export hub for petrochemicals. The region represents a crucial link for both C1 and C2 plus value chains. Approximately half of the global imports of key products such as MEC and methanol originate from the Middle East. Asia remains the primary demand center, reinforcing the long-term trade linkages between the regions. This position in the Middle East will to sustain export scale supported by feedstock advantage, infrastructure and proximity to key markets. However, overcapacity continue to weigh on margins. In this environment, our focus is clear: leveraging SABIC's structural advantage while building adaptability across supply chain and trade flows. In SABIC, we are doubling down on our core strategic business units, enabling higher returns on our investments. In petrochemicals, our focus is on resilience, leveraging our global commercial presence, cost advantage production base and disciplined capital allocation. In Agri neutrons, we'll continue to strengthen our leadership in core fertilizers markets, supported by a competitive cost position and growing demand fundamentals. And in specialties, we are accelerating growth by building a diversified platform expanding through potential partnership and advancing innovation-led solutions. Let me now turn to the forecast action we are taking to strengthen performance and create sustainable value. First, reinforcing our leadership position across our core businesses. Petrochemicals, agri nutrients and specialties with a clear focus in areas where we hold the structural competitive advantage. Second, enhancing our cost competitiveness through structural efficiencies, accelerated transformation initiatives and a strong focus on operational excellence. Third, continue to deepen our integration with Saudi Aramco, capturing additional synergies across feedstock optimization, operations and commercial platforms. Finally, terming committed to maximizing long-term shareholder returns through disciplined capital allocation, competitive dividends and selective high-return growth opportunities. In a few moments, Sabik's CFO will provide further detail on how our financial framework continues to support value creation and enhanced shareholder returns. Let me now highlight the key milestones achieved during the first quarter. Starting with operations, we maintained best-in-class safety performance. delivering a total recordable incident rate of 0.08. From a financial perspective, SABIC delivered a 36% uplift in EBITDA versus the fourth quarter of 2025. On innovation, multiple Edison award were secured for the sixth consecutive years, underscoring the strength and consistency of SABIC innovation platform. These solutions are translating into high-value applications across lightweight aerospace materials, electrical been components and more efficient agricultural imports. Reinforcing our focus and commercially relevant innovation and differentiated growth. Turning to our corporate transformation program, which is designed to unlock greater shareholder value, we delivered approximately $220 million of recurring earnings impact during the quarter. This strong moment keeps us on track toward our 2030 annual targets of $3 billion, comprising $1.4 billion from cost excellence and $1.6 billion from value creation initiatives. And Barallel advanced our portfolio optimization agenda is ongoing. As announced earlier this year, we signed two agreements to diverse our European petrochemicals business and our engineering thermoplastics business across the Americas and Europe. Further updates on these transactions will also be provided by SABIC CFO later in this call. On selective growth, I would highlight several well-executed strategic projects. First, the Sabik Fujian project. which strengthens our position for growth in China and broader Asian markets, has now reached approximately 98% completion across engineering, procurement and construction. Second, feedstock allocation approval was received from the Ministry of Energy to expand urea production capacity by up to 54% from current levels. This further reinforce SABIC's Agri-Nutrients position as a national champion and the global leader in nitrogen fertilizers. Finally, SABIC signed a strategic agreement with the Public Investment Fund, Brilley joint venture, enabling production capacity of 3.5 million tires annually in the Kingdom. This agreement supports our localization agenda under the NSA program and contributes to the long-term economic growth and industrial development of Saudi Arabia. Looking ahead, we remain focused on clear priorities and disciplined execution. Our emphasis is on delivering sustainable earnings growth strengthening cash generation and enhancing retails. We continue to advance our transformation and portfolio initiative to deliver meaningful EBITDA uplift. At the same time, we maintain strict capital discipline and a selective approach to growth. With the 2026 capital investment guidance of $3.5 billion to $4 billion. Overall, SABIC is well positioned to deliver on its strategic ambitions and create sustainable long-term shareholder value. With that, I will now hand over to our CFO, who will take you through our financial performance in greater details.

Thank you, Faisal, and warm welcome to everyone joining today's call. Despite the current durability tension, SABIK continues to demonstrate its resilient leveraging its strong infrastructure, integrated operating model and disciplined execution to navigate a dynamic market environment. Let me begin with an overview of our financial performance for the quarter. revenue stood at $7 billion, down 6% compared with the fourth quarter of the last year. The decline was primarily driven by lower sales volume, reflecting guopatical-related disruption and planned maintenance activities. Despite lower revenue, adjusted EBITDA increased to $1 billion up 25% quarter-on-quarter, supported by improved pricing and disciplined cost management, which I will discuss in this call. Adjusted EBITDA margin was 15.9%, representing an increase of 4% versus the previous quarter. Adjusted net income reached $218 million, marking a significant improvement from the losses of $373 million reported in the fourth quarter of 2025 and reflecting SABIC agility to capture higher prices globally. Cash flow from operations was $232 million, lower than last quarter, primarily due to higher working capital. We closed the quarter with a net debt of around $700 million, reflecting our robust financial position and balance sheet strength that we now dig deeper into EBITDA movement quarter-over-quarter. In Q1 2026, margin improved, driven by 7% increase in prices, offset by lower sales volume. As a result, EBITDA benefited from those higher project margin. Our continued focus on strengthening SABIK cost position and operational efficiency is clearly reflected by the 16% year-on-year reduction in general and administrative expenses. In a challenging market environment, disciplined internal performance improvement remain critical. We are undertaking a comprehensive review of all profitability drivers. To further enhance efficiency, optimize our cost base and strengthening overall financial performance. As the CEO mentioned in the first quarter of this year, our transformation program realized $220 million in recurring earnings impact. Which is a split approximately 39% value creation and 61% cost excellence, progressing as planned toward our 2030 targets. Before turning to segment performance, I would like to highlight an enhancement of our financial reporting. Starting this quarter, we introduced Corporate and Specialties segment. This will further improve transparency and financial performance enhance accountability and provides a more decision useful view of segment profitability for both management and investors. On Petrochemicals segment, prices increased by 6%, reflecting supply chain disruption, although this was partially offset by lower sales volume during the quarter. Total sales volume reached 6.2 million metric tons during the quarter. Adjusted EBITDA increased by 28% quarter-on-quarter supported by margin expansion, disciplined cost control actions and SABIC advantaged production capability, which enabled us to efficiently capture pricing in the market. Nevertheless, industry-wide overcapacity continue to weigh on the segments. And SABIC is actively building resilience within its petrochemical portfolio to navigate and overcome this structural challenge. Turning to agri nutrients. We also delivered strong performance. with adjusted EBITDA rising to $367 million from $305 million in quarter 4 urea prices were higher in Q1 as a strong virtalizer application season conciled with export disruption. Additional price support came from the redirection of natural gas from fertilizer production to the power generation sector. Sales volume reached 1.4 million metric tons down 17% versus quarter 4, mainly due to planned maintenance shutdown. Market fundamentals remain supportive, with demand continue to outpace supply across key regions. The Specialty business has recorded positive results, with adjusted EBITDA rising to $180 million from $86 million in Q4, an increase of 38% quarter-over-quarter. Volume declined by 4%, while prices increased by 4%. Demand remains diversified, led by infrastructure and mobility followed by electronics and other economic sectors. But all pricing remains resilient, reflecting the strength and value of our specialties portfolio. Now let me share our financial framework of financial resources prioritization and our approach to driving sustainable growth while enhancing shareholder value. Our cash sources are clear. Operating cash flow transformation and portfolio optimization are the main levers with a clear focus to further optimize costs in all parts of our business. Our capital priorities are equally formalized run and maintain CapEx first, competitive dividend to our shareholders, followed by selective growth, CapEx and higher return opportunities. The objective is simple: fund growth responsibly while maintaining attractive shareholder return. This reflects a disciplined approach centered on cash generation, resilience and long-term value creation. Portfolio optimization remains a key lever to improve return and carbon strategic focus. The Americas and European ETB transaction is progressing towards closing with the key steps on track, physical separation underway and closing targeted for early Q3 2026. The Europe petrochemical transaction is also advancing through regulatory approval and carve out with the closing targeted in Q4 2026. Beyond this transaction, additional portfolio action continue to recycle capital and unlock value and enhance profitability. As I conclude, I would like to reiterate SABIC clear focus on driving long-term shareholder value. Despite a challenging environment, the foundation for long-term success continue to strengthen, unlocking value through disciplined capital recycle derisking the portfolio by addressing underperforming assets and leveraging partnership, refocusing the asset base on cost advantage region and value chain and continuing to build sales through efficient go-to-market channels. This concludes the presentation portion of today's call. We will now be open for Q&A.

Thank you, Mr. Sala. [Operator Instructions] The first question is from Jason trim Jason.

This is as Jubran from desire Capital. And congratulations on delivering good results despite the current challenges. Only two questions from my end. The first question on the disruption in the Middle East. So the 13% Q-o-Q decline in volume mainly come from the disruption in March, -- and to what extent are the increased fried and insurance premium being bussed to the customer versus being absorbed by the company's bottom line. This is the first question. Should I continue with the second one?

Yes, please. .

Yes. The second question, based on the current condition as of April, what's the management outlook for the recovery in the volume -- and how do you see product prices for the remainder of 2026. So will some premium on the product promises persist for the rest of the year due to the current significant structural shift in the supply? Or does the management anticipate a notable downward correction with any settlement in the region. Thank you

Jason. I will take the first question and maybe our CFO, Salar address the second -- our sales volume in the first quarter was 9.6 million tonnes, which is 13% less than bits. . And this is mainly due to seasonality, plant maintenance activity and the supply chain disruption because of what's happening in the stress fun. We have also noticed an increase in the logistics and insurance costs to cover the words -- that was reflected in our prices. The price appreciations to in products increased 6%, and that compensated for the lower volumes and higher logistics costs. as can be seen in the 25% improvement in our adjusted EBIT quarter on quarter.

Maybe I'll take the second question typically, demand is seasonally strong Q2 inventory are currently decreasing as a such close of line, which is expected to add on negative demand -- at a certain moment, time, there will be a competition for available -- of course, the prices have been increasing as a result of higher onstream presence. We expect that petrochemical prices will continue to increase supply becomes more short, especially in Asia. -- where we have seen separate deviation possible continue to retain.

The next question is from Sriharsha Pappu from HSBC.

I just had 2 questions, if I may, please. The first 1 is on actual production volumes. Can you talk about your production volumes over Q1, what were you running at in March? And what are production volumes currently in April? Have you seen a big drop there given the disruption in the straight -- and also the second question is on feedstock availability. Have you seen any significant drop-off in feedstock availability from Aramco? The production question is obviously for your Jubail assets, please?

Yes, Harsha, -- thank you for the questions. As I mentioned, our sales in the first quarter was 13% less on the briefest quarter was around 9.6 million tonnes -- and in terms of production in March, there was no major impact on our production for all our facilities. For the second question on the feedstock, we continue to coordinate with some of the Aramco for the feedstock coming from GM and other sources. But I can assure you, most of our plants is up and running down with the ore operation. We continue to focus on reliability and safety of our employees and our assets. and make sure we deliver to our customers as per plan.

The next question is from Pratik agro Jefferies.

I have two.The first 1 is that there was a news that SABIC has announced force measure on the delivery of liquid chemicals. So in a scenario where stators stay closed, what are the steps companies taking to continue with the supply of liquid chemicals. That's question number one. And the question number two, if you look at the agri segment, the volume drop was 17%. But if we look in soft coats, the implied volume drop is much more. Can you reconcile the difference, please?

Thank you. For the fourth major, we continue to work with our customers to satisfy their needs. Of course, the major embarks for the homes spread was on the chemicals However, please remember, we have 2 athletes or 2 plants in Yamba, Jens and embed we can provide our customers with the chemicals from those to the I'll leave the second question for Sal...

Thank you for your question. Of course, you know the atimarket some CyberCapture product. And the venue recognition Consequently, the volume sales is different between the 2 entities. Additionally, some of the cyber category brand consolidated the chemical Cybereason. That is, for example, they will be and the immediate.

The next question is from Tesla Lava from Goldman Sachs.

On the strong set of numbers, I wanted to ask more about the rerouting of volumes in the current environment. If you can talk a bit to how much are you able to kind of reroute from production from East to West in Saudi today? And has it been improving? -- like have your capabilities picked up versus where we were, for example, in March? And are you looking at more long-term, let's say, sustainable options in terms of moving products or effectively, it's more of let's wait and see for the trade to reopen. If you can talk a bit more towards that, that would be helpful. And my second question is regarding the CapEx associated with the urea expansion. I saw that you've mentioned that you've obviously had the approval for feedstock for expanding a -- what kind of CapEx should we expect for this project?

Thank you so -- for the first question, yes, we have been utilizing the Western region that for our solid product. We have been able to move most of our solid product from Joubert Yonge and get an export from there I don't think this is -- there is an issue with that. It has been very successful in March and average so far. So this is done for, again, solid project. the challenges in the chemicals because liquids, we have volumes that will not lend itself to like a pipeline, but -- and it's very difficult to move with tracking to -- and this is where maybe the greatest question about the force metro came on the chemicals. On the CapEx, maybe Solace -- thank you for the question.

So maybe I can answer the question on the high end can talk about the age on capital allocation for the although I am very committed on what to disclose and use a separate proteome. So as a group, our capital priorities are reformed CapEx making first priority, competitive dividend to our shareholders polyester of cars, high number -- of course, this opportunity and CEO has actually highlighted, we're very excited we mitigated our feedstock indication on the project project any stage on the development, and hopefully, in the future, a very near future through agree trends, maybe standard calls. Total capital

Thank you, is -- the next question is from Sashank Lanka from Bank of America. the next question from Alex Comer from JPMorgan.

May be you can send your question to the IR team, so we can actually get back to you on your question.

The next question is from Pratik Baliga from Jefferies Rick.

My questions are already answered.

Okay. If no further questions, then we thank you all for the thoughtful questions. The Investor Relations team is available for vending inquiries and any follow-up from today's call. The contact information is displayed on the screen. Earnings call for the first quarter of 2026 has now concluded. Thank you again for attending. You may now disconnect.