Welcome to everyone, and thank you for joining us today. My name is Samar Khan, and I'm the Vice President of Investor Relations at Borouge. With me today, I have Hazeem Al Suwaidi, CEO, Rainer Hoefling, Chief Marketing Officer, Dr. Hassan Karam, Chief Operating Officer, and Jan-Martin Nufer, Chief Financial Officer. We will begin with a short presentation by the management team in respect to performance for the Q4 and full year 2023 periods, as well as our outlook for 2024. We will then open the call to your questions. I will now hand over to Hazeem to present highlights from the Q4 and the full year 2023.
Thank you, Samar, and thank you all for joining us today. Borouge has delivered a strong operational and financial performance for the Q4 and the full year of 2023, despite the challenging market environment. Performance was driven by strong production rates, high sales volumes, and disciplined cost management. Borouge reported a net profit of $288 million in Q4, representing an increase of 16% on a year-on-year basis, driven by strong sales volumes. Full year 2023 net profit stood at $1 billion, a decline of 29%, primarily due to a 16% drop in average selling prices over the year. Adjusted EBITDA in Q4 increased 11% versus the same period last year to $600 million and $2.2 billion for the full year 2023.
The Value Enhancement Program delivered $607 million positive impact for 2023, significantly outperforming its initial and revised targets of $400 million and $500 million, respectively. Strong cash conversion, high margins, and robust balance sheets supported our commitment to maintain 2024 dividend of $1.3 billion. This reflects our commitment to deliver superior shareholder value through market cycles. I'll now hand over to Rainer to discuss the market and provide an update on pricing and premium.
Thank you, Hazeem, and good afternoon, everyone. As just mentioned, we continue to operate in a challenging market environment. In 2023, average selling prices across polyethylene and polypropylene were down 16% from the very high levels achieved in 2022. For quarter four, average selling prices were down 3% on a year-on-year basis and flat on a quarter-on-quarter basis. In quarter four, benchmark prices for both polyethylene and polypropylene are down by 1% and 2% respectively on a year-on-year basis. For the full year, benchmark prices for polyethylene and polypropylene were down 9% and 12% from the previous years. Despite this challenging environment, Borouge was able to command healthy premium over benchmark prices, reflecting the company's strong market position in key segments.
In quarter four, 2023, the premium for PE and PP were both up 7% and 4% respectively versus quarter three, 2023. Premium for polyethylene was $187 per ton versus $217 per ton last year. For polypropylene, was $111 per ton versus $117 per ton during the same period last year. On a full year basis, we recorded a healthy overall premium for polyethylene of $215 per ton, and for polypropylene of $125 per ton. The polyolefins market remains challenging in 2024 against the backdrop of macroeconomic and geopolitical uncertainty, short-term polyolefin capacity increases, and muted global demand. Market analysts anticipate a soft pricing environment to continue until a delayed recovery materializes.
We expect a slight price uplift in quarter one, 2024 versus quarter four, 2023, price levels achieved for both PE and PP. That said, Borouge remains well-positioned versus industry peers and is expected to continue to deliver product premium over benchmarks due to its strategic focus on differentiated and durable products. I will now briefly discuss sales volumes for the period before I ask Hassan to take us through some operational highlights from the Q4 . Quarter four, 2023, sales volumes remain very strong at 1.359 million tons, despite subdued global demand, reflecting the strength of Borouge's extensive international distribution sales network and our ability to tactically move volumes in difficult market conditions. Sales volumes for PE were up by 3% and for polypropylene were down by 5%, respectively.
On a full year basis, sales volumes were strong at 5.116 million tons, up 1% on a year-on-year basis. Our sales volumes from energy and infrastructure solution represent 36% of our overall sales volumes in quarter four and 39% for the full year. This is part of Borouge's strategy to focus on durable products for industrial applications.... Further progress was made in the year towards the circular economy, with more than 18 new recyclates partnerships to explore sustainable applications. We also launched two new mobility grades made from up to 70% recycled material, and the company maintains its focus on innovation, with more than 20% of Borouge annual sales volume comprised of new products and 8 new products launched in 2023. The 2024 product pipeline includes new applications, including also the introduction of healthcare grades.
The Asia Pacific market continues to be the largest destination for sales, with 63% of total sales volumes, followed by the Middle East and Africa, with 30%. Other regions represent 7%. Over to Hassan.
Thank you, Rainer, and good afternoon, everyone. In 2023, Borouge continued to focus on a safe and reliable operation while maximizing production and achieving some of the highest ever utilization rate. Growth in scale has been achieved while maintaining industrial leading level of asset reliability and operational excellence. This underscores Borouge commitment to operational excellence and ambitious future growth and is a testament to our Borouge capability. During 2023, we secured the highest product quality while introducing a significant volume of a new advanced and diversified grade to support Borouge strategic focus on delivering high-value added and differentiated product. We remain committed to operational and commercial excellence with a detailed efficiency enhancement strategy focused on safety, plant reliability, and integrity, and also OpEx optimization. In Q4, production operated at utilization rate of 112% and 99% for PE and PP, respectively.
For the full year, utilization rates for PE and PP were 101% and 97%, respectively. This allowed us to produce over 4.9 million tons of polyolefins above the nameplate in 2023, despite the Borouge turnaround in the year. Access to stable feedstock quantity of ethane and propylene, and our cracker reliability and PE and PP reliability all support our reliability to sustain these high utilization rates. The olefin conversion unit, which allow Borouge to internally produce large amount of propylene from ethylene, also operated at high utilization rate in Q4 of 92%. As you are aware, ethylene is typically prioritized for use in maximizing the PE production, and the additional quantity are sent to the OCU.
A plant turnaround for Borouge 3 plant and feedstock-related operation is scheduled for 2024, with a total volume impact of 500 KT in the year. This will take place in two phases as follows: in Q1, there will be an approximately 170 KT of propylene volume reduction from a feedstock related to operational stock. In Q4, there will be an approximately 330 KT of ethane volume reduction due to the Borouge 3 plant shutdown. This is a part of Borouge regular plant maintenance, which keeps the company world-class asset base well-maintained and supports industry-leading asset reliability and efficient and safe operation. I will now hand over to Jan-Martin Nufer to discuss our financials.
Thank you, Hasan, and good afternoon, everyone. Overall, we are pleased to report a strong $1 billion net profit for the year in a very challenging environment, which saw a significant price decrease versus the previous year. $288 million net profit was achieved in the Q4 , increasing by 16% on a year-on-year basis and up by 2% compared to Q3 2023. Quarter four revenue remained flat on a quarter-on-quarter basis at $1.5 billion, a 6% decline on a year-on-year basis. On a full year basis, revenue is down 14% to $5.8 billion, versus $6.7 billion in 2022. This is primarily due to a 16% decline in average selling prices during the same period.
While top and bottom line performance in 2023 experienced pressure versus the previous year due to significantly lower comparative market pricing, we delivered a healthy EBITDA margin in Q4 2023 of 40%, versus 34% in Q4 2022. This is reflecting our improved operational efficiencies. Market weakness was counteracted by the positive impact of the value enhancement program, and we will delve deeper into that in the upcoming slides, and healthy sales volume. On to the next slide. We will now look at costs, an area where we have made remarkable progress. In quarter four 2023, our overall cost base declined by 13% as compared to Q4 2022. Feedstock costs increased by 1%, while other variable and fixed production costs decreased by 21% on a year-on-year basis....
Our selling and distribution expenses in Q4 2023 recorded a decline of 33% year-on-year, primarily due to lower freight costs. General and admin expenses in Q4 2023 decreased by 23% from $59 million to $46 million on a year-on-year basis. On a full year basis, cost of goods sold, excluding depreciation amortization, decreased by 5%, supported by a 14% decline in other variable and fixed costs, despite the higher volumes. Selling and distribution expenses were significantly down by 43%, strongly supported by the cost reductions for logistics, while general and admin expenses remained flat on a year-on-year basis. Borouge's first quartile position in the PE and PP cost curves is an important component that, when combined with the premium against benchmarks, supports a strong margin profile. I now discuss the progress on our ambitious Value Enhancement Program.
At the end of 2022, we introduced a targeted Value Enhancement Program to counter the anticipated market impact, support future growth opportunities, and overall enhance our competitive position in 2023. In light of the challenging market conditions, our focus was on managing logistics, conversion, and fixed costs, as well as on our revenue optimization. Following the strong progress reported in the previous quarters, I'm pleased to report that the Value Enhancement Program achieved $607 million positive impact in 2023, significantly outperforming our initial and revised targets of $400 million and $500 million, respectively. The significant contribution of our program of more than $600 million was key in counteracting the sharp decline in polyolefin prices versus exceptionally high levels in 2022, and positioned the company successfully for the future. CapEx and cash flow.
Adjusted operating free cash flow in Q4 was $526 million and $1.97 billion for the full year. Cash conversion in Q4 was 88%. Net debt stood at $2.96 billion at the period and imply a ratio of 1.4 times net debt to EBITDA on an LTM basis. Throughout 2023, Borouge has managed to repay $850 million debt under the commercial facility. Cash and cash equivalents stand at $354 million. The company disposes furthermore of a $500 million revolving credit facility , which was fully undrawn at December 31, 2023. Two dividend payments of $650 million each were distributed in 2023, amounting to $1.3 billion USD.
Borouge intends to maintain a $1.3 billion dividend for 2024. Borouge's unique operating model plays a key role in achieving premium above benchmark prices over the cycle, which ultimately contributes to strong operating free cash flows and high dividend-paying capacity. I will hand over to Hazeem to summarize and conclude.
Thank you, Jan-Martin. As mentioned earlier, we are currently navigating a challenging market environment characterized by subdued global demand, geopolitical uncertainty, and short-term polyolefin capacity increase. We expect pricing in Q1 2024 to be slightly higher than the Q4 2023 levels achieved for both PE and PP. The company will continue to focus on its core strategy in the high value-added segments and regional optimization. Planned maintenance operations in the year will impact 2024 production volumes by 500 kilotons. Borouge is well positioned from an overall cost basis going into 2024, following the successful implementation of the value enhancement program in 2023. Despite the challenging market, Borouge's performance continued to be resilient, supported by high production and sales volumes and a culture of cost discipline.
Borouge remains committed to a strategic focus on differentiated and durable products, and strives to be a leader in specialty and value-added segments. Product innovation and differentiations enable us to achieve premium over product benchmarks. The company is well positioned on an overall cost basis going into 2024, having realized significant efficiencies in 2023. The Borouge 4 project has crossed the halfway construction phase and expected to be completed by the end of 2025. With the recontribution of Borouge 4, Borouge's production capacity will increase by 1.4 million tons per annum to 6.4 million tons per annum. Additional growth is being explored through international expansion opportunities as mandated by the board. I am pleased to announce that we intend to pay $1.3 billion in dividends for 2024.
Since the IPO, Borouge has paid dividends of $1.63 billion.
...This is a testament to the resilience of our operating model that support high cash generation and our ability to drive shareholder value through the cycle. With that, we will open the floor for your questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from the line of Ricardo Resende from Morgan Stanley. Please go ahead, Ricardo, your line is now open.
Hello. Good afternoon, and thanks for, for taking my questions. I do have a question on the CapEx for 2024. How should we think about it, given the turnaround on Borouge 3? And then, a question on, on Borouge 4, and you mentioned that 2024 should still be a challenging year, globally for, for the sector. How do you see the timing of Borouge 4 starting within the global supply and demand for, for polyethylene? Thank you.
This question, Dr. Hasan, perhaps, maybe, yeah, Martin can start, and then maybe Dr. Hasan also can should start.
Yeah, sure. Hi, Ricardo, thanks for the question. I think how you can look at the CapEx for 2024, obviously it takes into consideration the planned turnaround. It will hence be elevated across what you would see as the average that we're normally showing, but it will be not significantly over that over that mark.
Okay, from the Borouge turnaround, as per the Borouge strategy in terms of ensuring the integrity and reliability of our assets, and to ensure that we will have good reliable assets, we are going to plan, as mentioned, that in Q4 2024, for 47 days of the cracker 3 turnaround, and that associated with around 330 KT of both polyolefins and the polyolefins products.
Okay, and the market, Rainer?
Yeah, on the market side, I think the Borouge 4 is coming in the right time. So 2024, of course, will be still difficult, specifically on polyethylene. Investments are coming down significantly, right, from 2025 onwards. So the utilization rates will go up. And there's a lot of infrastructure projects going on in our regions. We also recently launched a new office in Kenya, right, to penetrate more and more also in East Africa, which gives additional potential. So I'm very confident that the Borouge 4 is coming at the right time, but and we are waiting for it and prepare for it.
One thing also, maybe to add on what Rainer just mentioned, Borouge 4 would be polyethylene, 2 big lines of polyethylene, focusing on the differentiated products, building on the success and the great, let's say, unique products we have in infrastructures, specifically in water and gas applications. We have been pioneering and working very closely with our partners in different regions, developing this important segment, where we see also that we are realizing better, let's say, return for the company. So Borouge 4 really will complement our strategy toward bringing more differentiation in the market.
Okay, thank you.
Thank you. The next question today comes from the line of Afat Nathani from International Securities. Please go ahead. Your line is now open.
Hi, thank you so much for taking my question. Just a couple of things from my side. One, on the volume front, we've seen consistently impressive utilization this year. How should we see it going forward? Do you think a level over 100% is sustainable and something that we could, you know, build into our assumptions going forward? Of course, after accounting for the turnarounds that have been communicated. That's one. Second, with regards to Borouge 4 and how the financing of that would work, 'cause it appears that the company is looking to distribute most of the funds that will be, you know, generated from the current operations. So is it fair to assume that Borouge 4 will be largely debt-funded?
Lastly, a little bit on your Value Enhancement Program, which we've seen has outperformed the initial guidance and the revised guidance. Lately, we've seen shipping costs going up after the problems in the Red Sea. Is it fair to assume that, you know, some portion of it might be reversed in the coming quarters or so? Thank you.
First question, on the production utilizations, to Dr. Hasan, our Chief Operating Officer, and then the second on Borouge 4 and the Value Enhancement Program to Martin. And, perhaps also, Rainer, you can, just give a short statement around the shipping cost, 'cause we have also quite good, contracts in place already that will go to 2024. So things are under control on cost. Dr. Hasan, go ahead.
... We will continue the same spirit in maximizing and sweating our asset to the maximum utilization as we did in 2023. Looking to the what we mentioned about the turnaround of Borouge 3, that will give us more assurance that our asset availability, reliability, and utilization will be maximized during 2024.
And onto the second question on the Borouge financing. Indeed, the intention that it will be primarily debt financed. Let me recap a little bit the structure that was set up for the financing for Borouge 4 and the plans for the financing at the recontribution point in time. Borouge 4 has achieved a long-term funding from one of the export credit agencies, which is securing a large portion of the CapEx that we're looking for. This loan is then set up to be transferred to Borouge PLC at the point in time when a recontribution will happen. And for the rest, Borouge disposes of a very strong balance sheet, which you can see from the net debt to EBITDA ratio that we're displaying, so that we're well prepared for the recontribution of Borouge 4.
You mentioned around the dividend distribution, this is correct. We have also made a clear statement now around the dividend for 2024. Bear in mind, as I mentioned in the short presentation, that Borouge has also managed to repay $850 million of debt throughout the year 2023, which is, I think, a very good testimony to the excellent credit standing of Borouge. On to the Value Enhancement Program. Indeed, we're extremely pleased that we had such an enormous outcome of the Value Enhancement Program. We have a couple of levers, and to go to your question around, you know, what is sustained and what potentially could be reversed in light of the current shipping rates. Let's just look a little bit into the levers that we have been looking at.
One, approximately 50% of the program was based on the logistics variable cost. There, you have been seeing also from the reduction in the sales and distribution cost by 40%, 43%, an enormous decrease, so that's testimony to the good work there being done. Now, the task for us is to maintain most of the savings in 2024, and the good achievements in here. We're migrating the program into a continuous improvement initiative, which we will be looking at on a constant basis. It's clear that probably not everything can be maintained. I would then hand over to Rainer to talk a little bit about the current situation on the logistics side, represented in the current market situation on the Red Sea.
But overall, the target remains that the company is focused on having a conscious and very clear cost focus also in 2024.
Yeah, on the logistics side, as Jan-Martin said, first of all, was a great job done in 2023, right, to bring the cost significant down, as a contribution to the Value Enhancement Program and to get also more resilient towards volatility, although it was much more than just the sea freight. When you look at the current situation, specifically also for Borouge, you have to understand that not our full business is impacted on this, but it's roughly 15%-20% is impacted by the Red Sea issue. But so that relates to a bit longer lead time towards customers.
The availability of vessels and containers is still there, so there is no big disruptive process going on. What's happening, they have some force majeure surcharges on the cost side, which we need to digest. But this is manageable by also pricing in the higher cost into the polyolefin prices. Because such a thing gives also an economic opportunity because the trade flow of polyolefin changed a little bit, so less polyethylene from the U.S. is coming into Asia, and less polypropylene are coming from Asia into the Middle East and Mediterranean region.
So with our setup, right, we can take the opportunity, right, to lift the prices up, and that is what we are doing in quarter one, take the opportunity, and with our setup, we have the agility also to move a little bit volume where the opportunities are. The rest, so 80% of our business and logistics is not impacted at all. I had this week the meetings with all big shipping lines, and they confirmed the availability and their strong focus on Borouge as one of the biggest customer worldwide for them.
Wonderful. Thank you so much for, for quite a detailed response. That's all from my side.
Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad.
... Our next question today comes from the line of Faisal Al-Azmeh from Goldman Sachs. Please go ahead. Your line is now open.
Thank you for the opportunity to ask questions, and congratulations on the strong set of numbers. Maybe just looking at or going back to some of the commentary that you provided on the premia. Generally, we're still below the kind of like the medium-term guidance, so how should we think about the trajectory to going back to that higher level that you've achieved before, or in the first half of last year? Would it take some time, or do you expect to get there at some point in the second half of this year? That is my first question. My second question relates to the mix in terms of the shutdown in Q4. So how much of that would be polyethylene and how much of that would be polypropylene? If you can shed some color there.
Finally, any update on the Borouge Borealis talks, in terms of kind of when should we expect to hear something on that front? Thank you very much.
Yeah, I-
Hi, go ahead.
Perhaps I start with the premium.
Yes.
First of all, to understand the premium, also this is a benchmark price versus a commodity price in China. So what you have to know is, based on this business environment where we are, this is a down cycle environment. The premium what we achieved are excellent, right, versus our competitors. So in polyethylene, we are above the guidance over the year with more than 200. Then in polypropylene, we are not too far away from the guidance of 125-140. What you also have to know is, we had in this year record production volumes with record sales volumes, and we were selling 5.1 million tons.
We were selling significantly more volume on polypropylene in the market where we had also acquired some volumes into a little bit more packaging and commoditized areas, but generating additional margins. That brings the premium a little bit down, but the margins up. So if you look at 2024 around the similar market sentiment, I would say, as we have in 2023. But we have a little bit perhaps less polypropylene to sell due to the turnaround, so that gives some options to lift up a little bit the premium. You would see this already in quarter one, so we're getting closer to the guidance.
But overall, right, we continues to focus on this differentiated segment, infrastructure segments, wire and cable segments. For example, we had the highest high voltage sales ever, right, in 2023, right? And these high voltage sales that delivers premium of $1,500 per ton. Right, so we are going in that direction. We launched a new product, right, in the infrastructure segment on polypropylene. Right, so we had 8 new product launches. We have 7 new product launches in 2024, right, just elevating also the differentiation level. So it will be around the guidance, right, also in 2024, but in a relatively slow, subdued, a bit subdued market.
But we have shown that we can manage the market pretty well.
Back to your question, with regard to the PEs to the PP's. As we mentioned, that the whole 500 KT will have a deficit in 2024. 170 KT will be in Q1, and that's because of the propylene side of the shutdown and the feedstock. And the other is the Q4 2024, which will be related to the Borstar turnaround. However, as I mentioned, that we are having a good journey of the operational excellence and also reliability program, which we can enhance whatever the deficit that we did in 2024 with a great sort of the program that we are having in operational excellence. It will maximize our utilization and availability of our asset in 2024.
Just on, also, the Borouge-Borealis discussions, I just would like to also make this clear. These discussions are still currently being carried out between our major shareholders, ADNOC and Borealis, and OMV. So Borouge will make the necessary disclosures to the market if, and will require the full compliance with its regulatory applications, and any final decision will be subject to the governance processes of Borouge and other relevant parties involved. I just would like to also reiterate on our international expansion growth. We continue in Borouge to explore growth opportunities through international expansion, as mandated by our board of directors. We are exploring accretive growth, accretive growth opportunities within the UAE and beyond, specifically in geographies that matter, and matter that support the company's existing strategies and priorities.
We are open to the right opportunities, provided they are value accretive to the business and are complementary to our organic growth program.
Thank you.
Thank you. The next question today comes from the line of Shadab Ashfaq from Al Ramz Capital. Please go ahead. Your line is now open.
Congratulations for the good set of results. I have two questions. So what is the full year production guidance for Borouge? So like, from the turnaround, like, 10% of the capacity is currently out of maintenance, so leaving 4,500 kilotons operational. So are we likely to see the production level close to this remaining capacity, or the company has a plan to operate at higher utilization rate? Furthermore, is there a correlation between the high utilization and increased maintenance costs that the company needs to consider? And my second question is: How does the decline in plastic imports in China attributed to their local production affecting the market for Borouge?
I think, on the first question, if I hear it clearly, it's around also, the turnaround of 3, and, the total-
Yeah, so like, so turnaround, yeah. Yeah, so like turnaround is 500 kiloton. So like, the guidance will be around near 4,500 for the full year, or like, we, we can see high utilization?
So it will be in the tune of $400, $4.750 as a total business plan for... $4.750 as a total. If I am, if I understand your question that-
Yeah.
You need to subtract the $500 from the $5 million, and you will have the what you call the difference.
Okay. So if the company is going for high utilization, so does it include the higher maintenance cost also?
No, not necessarily, because whatever in the scope of the Borouge turnaround already been calculated and factored in.
Okay. Okay. And the Chinese imports, like, decreasing, so is it affecting the market for Borouge?
Pardon?
The Chinese market?
Yeah.
Yeah.
Like, if you see the imports in China, yeah.
Yeah. Yeah. Let's say it like this, so the 2024 will not change towards 2023, right? We always discuss in our calls that the market is oversupplied. But in an oversupplied market, we were selling record sales volumes. So this means we are able to move in these markets. You saw the prices are a bit more depressed, that this will remain in 2024. But with our setup, we can achieve excellent premium. But we have, based on the innovation what we have, we can place our products well. So I always said that more than 20% of our products are new products, right?
You can position them excellent into the market. I said that we recently developed new 8 products, high voltage sales record. So we are looking into markets where we see the growth and where we can differentiate versus the competitors. But I also said that there's an energy transformation going on, so there is still a lot of projects going on into the energy market, where we can supply wire and cable, where we can go also with the pipe material. There is a concern of not enough access to water, so you need to have water projects going on, and it's everywhere. It's a lot on being sustained also in food production.
So we see a lot of greenhouse projects going on across our regions, India, recently also in Egypt, where we introduced a new pipe with a 2.6 meter diameter to transport water into these regions. Then combined with the setup what we have in the most growing markets. So 86% of the growth is happening in our region, right? And it represents nearly 70% of the global market. And when you have then a good marketing and sales setup, combined with excellent production, with a high quality, the customers, they like our products, right? Because it's a high quality and innovative products. Then you are able, right, to maneuver yourself through these cycles.
Is the price level the absolute at the level we wish to have? The answer is no, right? But compared to our competitors, we are maneuvering quite well. This is the reason why we are confident-