Good day, and thank you for standing by. Welcome to PETRONAS Chemicals Group analyst briefing for second quarter 2021 conference call. At this time all participants are in only-listen mode, after the speakers presentation there will be a question and answer session, to ask a question during the session you'll need to press star one on your telephone. Please be advised that todays conference is being recorded. If you require any further assistance please press star zero. I would now like to hand the call to the speaker of today, Ms. Alia, please go ahead.
Thank you, Ajay. Hello. Assalamualaikum, ladies and gentlemen. Welcome to PETRONAS Chemicals Group Berhad analyst briefing for the second quarter financial results for financial year-end 2021. I'm Zaida Alia, Head of Investor Relations. Thank you for joining our call this evening. You should by now be able to access and download the financial results as well as the presentation material in our corporate website or in the link provided in the event invitation. As a health and safety precaution, today's briefing is conducted fully virtual, whereby we are all attending remotely from our homes. As such, we would like to apologize in advance for any delays or glitches we may experience. Ladies and gentlemen, we are pleased to have the group senior management present today.
Today's briefing will be led by our Chief Financial Officer, Mr. Azli, who will give highlights of the group's overall performance, as well as a briefing on the financial results. Other speakers are Mr. Kabir, our Chief Manufacturing Officer, and Mr. Shakeel, Chief Commercial Officer. Also present today are Mr. Yaakob, our Head of Strategy, Planning, and Ventures, as well as Mr. Akbar, Head of Special Projects. I shall now hand you over to Azli.
Thank you, Alia. Good evening, ladies and gentlemen. Thank you for joining us today, and I hope you are doing well and staying safe wherever you are. Firstly, I would like to convey Dato' Razali's warm regards to all of you and his apology for not able to attend this session this evening. We rather had a long board meeting earlier today, and then he is still stuck in meeting engagement with external parties. Before we delve into the results, I would like to take a moment and update you on some of the movement in our key management team. Firstly, I would like to introduce our new Head of Strategic Planning and Ventures, Mr. Yaakob Salim, who joined us on 1st of this month. Yaakob joined PETRONAS in 2006 as head of technical assurance within the group technical services.
Before that, he spent more than 15 years outside of PETRONAS Group. He brings to us his experience from both technical and strategic perspective, and I'm sure with his guidance and leadership, we will continue to realize our growth plan. I would also like to take this opportunity to thank Mr. Akbar for his invaluable guidance, insight, and support during his tenure as the head of strategy. Mr. Akbar now lead the specialty project team. This is a new team that will be focusing on specialty chemicals and sustainability. With his vast experience and knowledge, I'm sure we will be seeing a lot of exciting things from this new team, new projects and growth projects in line with our sustainable business goals. Welcome aboard, Yaakob. To Akbar, keep up the good work in your new department.
Now let's go back to the results on page three of the deck. We have enjoyed a strong growth momentum from the previous two quarter as business outlook have remained positive following the increased vaccination rate around the world and continued easing of the pandemic-related lockdown. GDP for the first half of 2021 recorded significant improvement at 7.3% compared to the -5.8% same period last year. With a positive business outlook and demand increase, the benchmark Brent crude oil averaged around 60% higher than this year at $65 per barrel, compared to $40 per barrel the same period last year. Following the higher crude oil prices and improved economy, petrochemical product prices also average higher on higher feedstock costs, stronger demand amidst tight supply. Overall, it has been a steady market recovery since the fourth quarter of 2020.
Ladies and gentlemen, alongside the market improvement that we have seen, we're also feeling the increased interest in ESG space as the ongoing pandemic continues to remind us how crucial it is for us to not just focus on long-term plan, but also ensure sustainability of the business and its ecosystem. Let me take you through some of the key indicators on sustainability that we have been tracking along this journey on page four of the deck, and some of you are very familiar with this sustainability metrics. Starting with our first pillar, people. Our key programs are based on engagement with our surrounding communities and stakeholder on our focus themes on environment, community development, and education.
Due to the ongoing pandemic and movement restriction, our community reach has been quite limited. Nevertheless, we have been actively in touch with key organizations within our communities to support the efforts, especially to help those in need. Since last year, we have contributed products and essential items as part of PCG COVID-19 relief program. We have continued to provide assistance to affected communities and stakeholders. This assistance includes medical oxygen concentrators, personal protective equipment, PPE, that was used by the medical officers, hand sanitizers, masks, laptop for support requirement at hospitals, clinics, vaccination, and sampling centers. In addition, under the people pillar, we are enhancing our due diligence on social and governance to ensure that our contractors are adhering to the PETRONAS Contractor Code of Conduct on human rights principles.
This allows us to monitor and mitigate the social risk on our supply chain. We are happy to see that to date, our suppliers and contractors are in compliance with our human rights principle. Next pillar is planet. The GHG emission during the quarter was 5% higher as startup activities at the PDH plant in Gebeng saw a slight increase in plant activities. With the higher volume produced during the quarter, GHG intensity was lower at 0.77 tons per CO2 equivalent per metric ton of production, compared to 0.79. Recycling rate improved from 72%-74% in the second quarter, with lower volume from non-recyclable products produced and collected during the plant turnaround activities. With no TA in quarter two last year, the recycling rate was lower year-on-year. Finally, our pillar, profit. We measure the energy intensity or energy use against our operation.
This quarter, we recorded a slight 1% increase in energy intensity against our previous quarter. Moving forward, we will continue to implement our energy reduction initiative at our plants, and we'll continue to monitor and ensure reduction of energy use through our energy and loss management system, ELMS, which aims to optimize energy use in our facilities, which is one of our cost-saving measures. Ladies and gentlemen, while we have embarked on our sustainability journey for some time, changes in scrutiny from various stakeholders are pushing us to continuously assess our sustainability pillars and metrics. In doing so, you may see changes in our three Ps as we move along. Do bear with us as we work through refining our sustainability strategy and solidify our plans towards lowering our carbon footprint, in line with our aim for net zero carbon emission by 2050.
Ladies and gentlemen, moving on to our performance highlight for first half 2021 on page five. As I mentioned earlier, we have seen steady performance improvement in the markets since fourth quarter 2020. Nonetheless, on our operation front, we started our turnaround cycle this year, mostly happening in the first half of the year. During the period, we completed three turnarounds for the PDH unit, Gebeng in Kuantan, methanol Plant 1 in Labuan, and our fertilizer plant, Kedah, which had completed this quarter. All turnaround were safely conducted while observing a strict HSE and COVID-19 SOP on-site. As a result of the TAs and some of the corrective maintenance works in our urea unit, plant utilization for the six-month period was lower at 94% compared to 97% in same period last year.
Consequently, production volume fell by 5% year-on-year at 5.2 million tons compared to 5.5 million tons last year. Our sales volume also took a slight hit. I'm pleased to share that our revenue for the period rose more than 45% to MYR 10.3 billion, mainly driven by our higher product prices. EBITDA and PAT saw significant improvement to MYR 3.9 billion and MYR 3.3 billion, respectively, on higher product margins and higher share of profits from JV and associates, especially in our JV with BASF and our JV in the acetic acid business. Our six-month EBITDA margin strengthened to 37%. For further details on the performance, let's move on to page six of the deck. Let's start with the comparison on the performance on the second quarter 2021 against second quarter 2020.
You heard just now that the second quarter was a strong quarter, supported by a rebound in global demand, surpassing our own expectation. The benchmark Brent crude surged from the MYR 30 per barrel average last year to average around MYR 70 per barrel on positive market development, pushing petrochemical product prices up. The turn around we started in quarter one 2021 continued into the second quarter . As a result, plant utilization for the quarter was lower at 97% compared to 100% recorded last year. Production volume was lower by 4%, although sales volume remained comparable. Group revenue saw 77% increase from MYR 3.2 billion in second quarter last year to MYR 5.6 billion this year, boosted by higher product prices. EBITDA has tripled to MYR 2.2 billion against MYR 695 million last year, contributed by higher spread and EBITDA margin increased to 38% from 22% same quarter last year.
PAT saw a tenfold increase from MYR 185 million to MYR 1.9 billion, supported by higher share of profit from JV and associated companies. Moving on to the group's financial performance against preceding quarter, that is quarter one this year. With the increase in vaccination rates, easing of pandemic related restriction, global GDP continued to improve quarter on quarter. Brent crude improved from $60 per barrel average in quarter one 2021 to $70 per barrel in the quarter under review, supporting the increase of petrochemical product prices. On the operation front, we had a lower turnaround days in quarter two 2021 compared to quarter one, resulting in higher plant utilization rate of 97% compared to 90%. Both production and sales volume increased quarter on quarter. Against this backdrop of better performance, group revenue saw 20% increase from MYR 4.7 billion to MYR 5.6 billion boosted by higher product prices.
EBITDA increased by 27% to MYR 2.2 billion on higher spread and positive foreign exchange impact. EBITDA margin improved from 36%- 38%. PAT increased by 27% from MYR 1.5 billion to MYR 1.9 billion following the improved EBITDA. Let's have a quick look on the group's performance for the cumulative six months this year. Operationally, we recorded lower plant utilization at 94% against 97% same period last year on higher maintenance and turnaround activities this year. Both production and sales volume took a slight peak. With the improvement in product prices year-on-year, group revenue for the period rose 45% from MYR 7.1 billion to MYR 10.3 billion. EBITDA has more than doubled from MYR 1.5 billion to MYR 3.8 billion. EBITDA margin has recorded at 37% against 21% in the same period last year.
PAT saw an almost fivefold increase from MYR 678 million to MYR 3.3 billion. Ladies and gentlemen, in the interest of time, I will not go through the group performance by segment, as much of the analysis overlaps with the group. As is our practice, we have provided the slide on the group performance by segment at the end of the deck for your own consumption. Should you require further clarification, I will gladly provide your clarification at the end of the presentation. Now let's move to the balance sheet and cash flow on page seven and eight. First, the balance sheet on page seven. From quarter one this year, total asset increased by MYR 3 billion to stand at MYR 44 billion, mainly due to higher cash and cash equivalent by MYR 1.6 billion, due to profit generated during the period.
There's also higher property, plant, and equipment, mainly relating to capital investment relating to our petrochemical project in Pengerang. It's also in line with higher revenue during the quarter, as we saw higher trade receivable. Now let's turn to our cash flow at page eight. Our CFFO saw significant improvement to MYR 3.3 billion, primarily contributed by higher profit generated. Our net cash inflow for the quarter stood at MYR 2.2 billion, giving a strong cash balance as at 30th June at about MYR 15 billion. Now, as you're also aware, quarter two 2021 is our best quarter ever. We managed to achieve this despite the challenging operating environment.
Given the stellar performance that we have achieved, I'm pleased to share that the board of PCG has approved a dividend of MYR 0.23 per ordinary shares, equivalent to MYR 1.8 billion, being the first interim dividend for 2021, payable in September. As you may notice, this is our highest dividend that we ever declared since our inception, we would like to share the fruits of our excellent performance with our esteemed shareholders. That is all for the financial performance for second quarter 2021. I would like to hand over the session to Kabir, our Chief Manufacturing Officer, for the manufacturing highlights. Over to you, Kabir.
Thank you, Azli. Good afternoon, everyone. Kabir here. Next, we share the operational highlight for the quarter. Alhamdulillah, group plant utilization for quarter two was at 97%, higher than the preceding quarter. Our operation at Olefins, Derivatives, Fertilizer and Methanol segment in quarter two were stable despite turnaround activity at Gebeng, Labuan and Kedah. This resulted in higher production volume against the preceding quarter, but was slightly lower than the same quarter last year due to the turnaround activities. In addition to that, we were able to continue running despite total lockdown imposed by the government in June. Effective engagement with relevant government authorities with full compliance to the SOP in controlling and containing the spread of COVID-19. Continuous collaboration with our supplier helped in ensuring reliable and improved feedstock supply for the quarter. Next. Let's see the segment of the Olefins & Derivatives.
O&D segment operated at the plant utilization of 98% in quarter two, slightly lower than 100% achieved in quarter one. We recorded comparable ethylene production with preceding quarter, but with slightly lower volume for the segment due to some challenges we required maintenance activities at the downstream unit, namely LDPE and aromatic plants. We were able to complete the repair work as per schedule. Next. For segment Fertiliser & Methanol, we achieved higher plant utilization rate in quarter two at 96%, as compared to 84% achieved in previous quarter. Both urea and methanol production volume were above the quarterly average. High urea production at PC Fertiliser Sabah had contributed a significant volume to the group total production, 329 KMT in quarter two and 259 KMT in quarter one. As for methanol, improved plant reliability were contributed by better performance of PC methanol plant.
Supported by reliable feedstock supply, resulted in higher methanol volume for the quarter as compared to quarter one . Next. Moving on to the progress of our project, PIC PETCHEM. The objective remain to achieve safe and successfully start up and ultimately stable and sustainable operation. To date, PIC PETCHEM had achieved excellent HSE performance, with no lost time injury and fatality recorded. Alhamdulillah. In order to keep start-up progress on track, PIC PETCHEM has worked together with PETRONAS Pandemic Preparation and also Respond Team, PPRT, to enhance the requirement before entering the facilities, which consists of PIC entry requirement and PIC Vaccination Program. This initiative will continue as to provide confidence to workers and family members that PIC is a safe and great workplace to work. Next. Think we have one on the conclusion. Okay.
To wrap up the quarter performance, we sustained high group plant utilization of 97% for the quarter. We successfully delivered above average quarterly products volume of ethylene, urea and methanol. Reliable plant operation of both Olefins & Derivatives and Fertilizer & Methanol segments. We also successfully completed turnaround at PDH plant, PC Methanol Labuan, PC Fertiliser Kedah, and plant maintenance activity at PC Ethylene/Polyethylene. We are confident to deliver the targeted volume of ethylene of more than 1 million ton per annum, as well as targeted volume for methanol and urea, comparable for preceding year. We are confident to deliver the targeted volume for both methanol and urea. Moving forward, we are going to carry out turnaround at fertilizer plant in Bintulu in quarter four . We remain focused and strengthening our PIC start-up activities, at the same time complying to the strict SOP in containing of the spread of COVID-19.
That's all I have for the operating highlight. I would like to hand over to Shakeel for the market performance and outlook.
Thank you, Kabir. Good evening. Shakeel here. Let's proceed with the market highlights. In quarter two 2021, product prices were generally higher compared to previous quarter amid the continued firming of crude and naphtha market, tight supply and the continued logistic issues. Downstream demand was also generally healthy, with most major economies slowly recovering as vaccination rates intensify and some countries see the relaxation of pandemic-related activity restrictions by governments. Now let's move on to the market outlook. Ethylene price is expected to be stable despite increase of supply from Northeast Asia region, with new China cracker start-up. The market is seen to be supported by the firming oil prices, which have reached above $70 per barrel. Cracker turnaround in the SEA region and delay in startup of South Korean crackers. Now moving on to polymers.
Polymer prices are expected to be bullish in the next three months on the back of stable supply in the region due to new capacity startup, balanced by the lack of export activities caused by high freight costs, port congestion, and prolonged shortage of containers globally. Demand expected to gradually increase in August 2021 and September, as buyers continue to restock their inventories prior to Golden Week holiday in China from October 2021 onwards. Next, for energy. Energy price is expected to be stable, supported by the firming oil prices, despite the rising supply from new plant startups in China, returning supply from South Korea's Lotte Chemical. On the downstream demand side, China demand is expected to improve on the seasonal boom in quarter three. There is growing optimism that orders from Made in China apparels will be positive.
As for paraxylene, PX price is forecasted to be stable to soft, mainly in anticipation of new capacity in China, which is expected to begin startup in July and will lengthen the supply. However, near-term supply is unlikely to witness a drastic change as the company is not expected to run at optimal rates due to the lack of crude import quota, and further balanced by several turnarounds in the region. Now let's proceed with fertilizer and methanol segment, starting with urea. Urea price is forecasted to be stable on the high side as tight global supply remains coupled with China's minimal export volume. India has been unable to buy its required volume on supply constrained by Chinese government to export, forcing up prices from other origins.
On demand side, India is expected to continue issuing tenders in the coming months as the country's supply remains to be in a shortfall of around 3 million for July to September volume. Moving on to ammonia. Ammonia prices is projected to be stable on the high side as tight supply continues to limit activity in the market on volume shortage from Saudi Arabia due to its plant disruptions. Healthy demand in India as buyers continue to purchase to support the country DAP production. On methanol. Methanol price is expected to be stable with sufficient supply as most producers are running at optimal rate despite few plant outages. Methanol demand into China and South Korea are stable, with Taiwan market were well covered for its term commitments. Improved COVID-19 situation and drier weather conditions in India have supported downstream consumption in the country. That's all from me.
Thank you. Over to Alia.
Thank you, Shakeel. Ladies and gentlemen, to conclude, let's move on to page 15 of the deck. As you may notice that the robust global economic recovery in the first half of the year have well surpassed our own expectation. Nonetheless, we also see many smaller developing economies continue to grapple with COVID-19 as resurgence in infections continue to limit their recovery efforts. As the pandemic continue to flare up, putting its mark on the ongoing economic recovery, we will continue to remain vigilant in our business decision and approach to continuously build on our strong business fundamentals as we move forward. We will continue our own initiative towards operational and commercial excellence to ensure the sustainability of our operations and business.
Our strong HSE culture remain key to support these initiatives as we continue to advocate the safety of our employees and the operations even more during this ongoing pandemic. Despite the improved performance we have seen this year, we will continue our strict adherence to the prudent financial management, including prioritizing our projects and continuing our cost optimization initiatives. On our growth commitment, we are continuing our efforts to ensure that PIC will start up by end of this year. Other growth projects such as the silicone blending facility in Gebeng, Kuantan, the Nitrile Butadiene Latex plant, the JV that we have with LG Chem in Pengerang, the oxyethylene plants in Kerteh, as well as the building of our own pilot plant for bio-based chemical. All these projects are progressing well within their timeframe.
Moving forward, we will continue to evaluate business opportunities to expand into specialty chemical portfolio, including green chemicals, in line with our sustainability commitment. Now that brings the end of our presentation. Let's open up the floor for Q&A. Over to you, Alia.
Thank you, Azli. Ajay, we can now proceed with the Q&A.
Certainly. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Once again, it's star followed by one to ask your question. Your first question comes from the line of Raymond Yap from CGS-CIMB. Please go ahead.
Hi. Good evening, guys. Thank you for your presentation. My first question is about the F&M division. I noticed that the second quarter revenues have been extremely strong compared to the immediately preceding first quarter. Revenues went up by 43% against the first quarter, but production went up by 15% quarter-on-quarter. The difference must reflect a price impact, I presume, that saw second quarter realized prices are much higher than the first quarter. However, if I look at the spot prices in the market, I think most of the urea and methanol price increase actually happened in the first quarter and not so much in the second quarter. I'm quite curious as to why the second quarter revenues and the realized prices actually you achieved much higher realized prices in the second quarter rather than the first quarter, per se.
Is there some kind of delay that usually happens under these circumstances?
Raymond, that's your first question. You mentioned that you have few questions?
Okay. The next question is a financial question in terms of the CapEx. Last quarter you guided for annual CapEx of MYR 2.5 billion. For the first half of this year so far, you only have just slightly over MYR 600 million. Is there some kind of delay there and/or are you still keeping to your full-year guidance of MYR 2.5 billion CapEx? The other thing, the last question I'd like to address is about the transfer pricing arrangement between the naphtha cracker and the downstream plants in Pengerang. Is the transfer pricing arrangement still intact? Is it still based on a favorable pricing, perhaps below market price? Just wanted to double confirm that arrangement is still intact as you bring your Pengerang online. Thank you.
Thank you, Raymond. Let us answer the first question with regards to fertilizer and methanol. I think like what Shakeel mentioned earlier, in quarter two, we witnessed the price has increased more so for urea and ammonia for quarter two. I guess, Raymond, you're asking, comparing with your own readings and research, the increase in price more so in quarter one, right? Maybe perhaps Shakeel can put some additional light on this. Shakeel?
Thank you, Azli. Just to add to what you have said just now, I give example here, we have seen how ammonia average price in the quarter two was about $527 compared to ammonia quarter one price at $336. We have also seen urea quarter two price average at $377 compared to quarter one $345. Basically those are the main contributors from a fertilizer side, supporting the prices in comparison to quarter one.
Shakeel, do you sell ammonia directly or is that largely converted to urea?
The price of ammonia that I've given you is the selling absolute ammonia in the market.
Yeah. I mean, do you actually sell ammonia as is or is it largely converted into urea to be sold as urea?
No, we do have ammonia being sold in the market apart from urea.
Okay. Thanks.
Yes. I think, Raymond, as you were aware, we have three ammonia plants. I think we have one dedicated ammonia plant in Kerteh. That will produce ammonia as ammonia.
Okay.
Yeah. On your second question, Raymond Yap, CapEx, now I think we still stand guided by with our annual CapEx program of MYR 2.5 billion. Yes, you correctly pointed out that the first half of the year, we only spent MYR 600 million. That's not unintentional. We do have few CapEx program and projects in quarter three and quarter four. You will see that this coming quarters, there'll be CapEx realized, spent and paid in quarter three and quarter four. Now regard to your third question, transfer pricing. I think I've mentioned earlier, and separately during our various engagement on investor relations, the integrated facility petrochemical and the refinery and cracker were meant to run on an integrated basis. For the petrochemical plant to run, it must be incentivized with a favorable feedstock of ethylene and others from the refinery and cracker.
To answer you, so those transfer pricing arrangements are still intact, even though there's a slight delay on the startup. Yeah, it's still intact.
Okay. Yeah, Azli, just wanted to pin you down on the commencement date. You mentioned by the end of 2021. Is it all the plants or is it spilling over into 2022 or everything will be up by 2021?
Our aim is to start up the plant by end of the year. If you recall in our previous quarter, I think the first plant to start up will be the CDU, part of the refinery, and then maybe within one month, the petchem plant will start to start up. The idea is for the entire integrated complex to start up by end of the year.
Okay. Thank you, Azli and Shakeel.
Thank you, Raymond.
Thank you. Your next question comes from the line of Bernard Li from Citigroup. Please go ahead.
Hello. Can you hear me? Hello?
Yes, Bernard, we can hear you.
Hello. Yeah. Thank you. Thanks for the opportunity to ask questions. I have three questions. The first one is actually on the latest update in terms of the refinery startup plan. Has the company started the CDU and produced naphtha already? What about the naphtha cracker and downstream? Are there any further delays due to lockdown? Second question is, what is the latest status of the BASF PETRONAS JV, given the force majeure for acrylics in late June? Has the plant restarted yet? Third question is on first half effective tax rate. We see very low effective tax rate of around 6%. What is the reason behind, and what is the guidance into second half and next year as well? Thank you.
Bernard, if you don't mind, can you elaborate on the second question with regards to the JV BASF on acrylic acid?
Yeah. That is the force majeure. Has the plant restarted yet?
Okay. All right. To answer your question, the first one, I think similar to my response to Raymond's question. I think the entire CDU and naphtha and the integrated petchem complex will start up by end of this year. That remains our agenda, that remains our commitment together with PETRONAS and Saudi Aramco. I think the definite date we will potentially make available to you once there's a progress in term of exact date, and maybe in quarter three. Yeah. I think on the latest updates on the BASF JV, I think that plant is already operating at full capacity. In fact, most of our PAT also contributed from the stellar performance from this JV.
I think in terms of, there's a good price realized from acrylic acid as well as oxo alcohol business that adds up to our bottom line and improve our share of profit. Okay. On your last question, effective tax rate, I think so far our effective tax rate, if you look at the Bursa announcement, is around 6%-7%. Just to give you guidance for the rest of 2021 and the full year of 2021, our effective tax rate will be ranging between 7%-10%. Okay. Does that answer your question, Bernard?
Yep. Thank you. What about next year? Sorry. Next year's guidance on the tax rate.
Well, that will depend, Bernard, in terms of the market prices and product prices. As you know, as product prices improve and as spread improves, most of these revenues and product margin will be captured in our marketing arm, which is enjoying Labuan tax initiative. Effective tax rate will be much lower, as the product prices get increased.
All right.
Our guidance on 2022 will be based on the outlook for the product prices.
Okay, got it. Thank you.
Thank you, Bernard.
Thank you. Thank you. Your next question comes from the line of Alex Goh from AmBank. Please go ahead.
Thank you very much, and congratulations on the fantastic set of results in the second quarter. I have a number of questions. The first question is regarding some guidance for this third quarter. Do you think that such a strong performance in the second quarter is able to be repeated in the third quarter, given the fact that you are looking at a flattish oil price outlook and for most of our products, and you are looking actually at higher prices in terms for the polymer segment? Also, in terms of the kind of plant utilization that you are looking at, would we be fair to say that we should be looking at something as similar in the third quarter compared to the second quarter of this year, right? That's my first question. My second question is regarding your OpEx and your maintenance in the second quarter.
Was there anything unusual about it that caused the margins to improve? What sort of trajectory should we look at for the second half of the year, right? My third question is regarding the PIC. Given the current high prices that you are seeing, right, and looking at the second quarter results for the whole group, do you think that Pengerang is able to break even on the pre-tax level, right? Could you give some sort of guidance on what sort of plant utilization rate should we look at next year when the plant starts kicking in completely? My fourth question is on your ESG side. Looking on your page four, it looks like your numbers appear to be slightly deteriorating, especially for your GHG emissions, the water recycling rate, and your energy intensity. It seems to be deteriorating.
Could you give a bit explanation why is that?
All right. Thank you, Alex. Let's tackle your first question regards to the quarter three guidance. As Shakeel has mentioned, I think for quarter three, we expect the price and spread to be moderate. Good thing is that for quarter three, there will be no plant turnaround. In terms of plant utilization, we expect to see higher plant utilization in quarter three, barring any unplanned plant hiccup or slowdown. With that, we hope to see a slightly better quarter in quarter three. On your second question, regards to OpEx and repairs and maintenance for quarter two, there is no unusual R&M or OpEx expenditure for quarter two or quarter one that deviate in terms of the numbers.
With regards to PIC, I think we have mentioned in the last quarter analyst briefing that we expect the PIC to break even when we reach 60%-70% plant utilization. We hope this 60%-70% will be happening once the plant starts to ramp up upon commencement of operation by end of this year. 60%-70% may be happening in 2022, throughout the year. On the fourth question, Alex, I think I probably need for you to clarify again which particular metric that you're referring to. I understand it's the GHG emission. Or is it the energy intensity?
Yeah, I'm looking at the GHG. The numbers seem to be increasing. Your waste recycling rate seems to have come down in your second quarter. How should we look at this?
All right. I think when I mentioned earlier during this presentation, the GHG emission increased slightly compared to last quarter, mainly because there's a lot of flaring activities as a result of completion of turnaround and plants starting to start up. Upon startup, we can expect a lot of flaring activities that contribute to the GHG emissions. Because of the plant turnaround, in fact, the 2Q, there are three plant turnaround. PDH plant and in Gebeng, plant one methanol, both end in early May. Plant fertilizer in Kedah started turnaround in June.
Yeah.
We have three plant turnaround during the period. You see a lot of waste recycling rate higher. I hope those answers your question, Alex Goh.
Yeah, thank you. Just going back on the third question regarding the break-even for 60% to 70%. You are talking about a pre-tax level, right? On a pre-tax level?
Yes. That's our aim, but again, it will depend on the market price outlook, Alex.
Yeah. Taking today's prices into consideration. Yeah.
Yeah.
It looks like you can actually be slightly profitable, right? If I'm not wrong.
We hope so, yeah.
Okay. Yeah. You mentioned that you are looking at this level of 60%-70% by the end of this year itself. That means in fourth quarter, should we be seeing some sort of contribution coming in already for PIC?
No. I think I mentioned 60%-70% throughout 2022. Yeah.
Thank you.
As the plant startup in the end of the year, so you will expect a slightly smaller percentage of plant utilization and it will continue to ramp up and averaging around 60%-70% in 2022.
I see. Okay. Your depreciation and your interest charges is going to be spread out evenly as your different segments of your plants come into operation, right? You get largely spread out the cost in that way. Am I right?
Correct. As per accounting principle, we will start to charge the project in progress into our fixed asset and start to depreciate as soon as we achieve the commencement of operations.
Okay, great. Thank you so much.
Thank you. Your next question comes from the line of Ahmad Maghfur from Nomura. Please go ahead.
Hi, Azli. Thank you for giving me the opportunity to raise question. I just have one question with regards to your specialty chemicals. At the moment, based on the first half numbers, what is the revenue and EBITDA contribution from Da Vinci? Can you remind us on the timeline on the commencement of the three plants again, and whether there has been a deferment because of the current lockdown imposed here in Malaysia. What would be the expected earnings contribution, roughly, from those three plants? Especially the one, I believe the silicone plant in Gebeng is the first one to come up. What should we be modeling into our assumptions from that plant? Thank you. That is all.
Thank you, Ahmad. I think you have two questions there. The first one is the contribution of DVG, our silicone business in Europe to our bottom line. As we mentioned earlier, the contribution in terms of EBITDA of DVG into our group EBITDA remains very low at below 5%. We expect with our new ambition to grow big into specialty chemical, we can increase this portfolio to much larger part to contribute to our bottom line. Nonetheless, I think over the six-month period, our friends in the DVG or BRB have also improved in terms of their financial performance and recorded significant contributions to EBITDA to our bottom line. In terms of the timeline for the three plants, let me go one by one.
In terms of the silicone plant, I think we anticipate the plant in Gebeng will start to commence operation in quarter four this year. The second plant, which is the Nitrile Butadiene Latex, our JV with LG Chem, we expect the plant will be commencing operation in quarter two 2023. For the other plant, our ethoxylate JV with PCC SE plant located in Kuantan, that we expect to also start up in quarter two 2023. That plan remain unchanged, the timeline remain the same as what we mentioned to you in the last quarter. The effect of this pandemic did not impact the timeline and milestone of this project. I hope this answer your question, Ahmad.
Okay. All right. Thanks so much. Congrats on the good set of results.
Thank you.
by the way.
Thank you, Ahmad.
Thank you. Your next question comes from the line of [Pinyan Pinchcon] from UBS. Please go ahead.
Thanks for the opportunity. I have three questions. The first question is regarding your associate income. Could you elaborate what drive the big increase this quarter? Secondly, on the FX impact on your margin and on your business, could you remind me how many % of your raw feedstock cost is in local currency? What the FX sensitivity to EBITDA, please? Finally, thanks for the nice dividend announcement. I wonder if we could think about this dividend as a sustainable dividend base going forward. What would management say on that? Thank you.
Thank you, Pinyan. Let's tackle your first question, the share of profit from our JV associates. I think I mentioned earlier, during my presentation, there are two particular JV, if you were to single out, that contributed the most to our bottom line. First is the JV with BASF, the plant in Gebeng. I think the improved performance is mainly due to the favorable spread that they have realized on acrylic acids as well as oxo alcohol business, that contributes significantly to the JV and hence our 40% portion of that. The other JV is the JV that we have with INEOS. Formerly, it was held by BP. This is a acetic acid business. In term of performance compared to last quarter, the net profit quite significantly increased and also contributed a lot to our bottom line.
To your second question, I think in terms of currency denomination. For us, most of our feedstock are denominated in U.S. dollar. It provides a natural hedge because our revenue is also predominantly in U.S. dollar. The rapid volatility in currency, it may have impact on us, but not significant impact because in a way we are quite naturally hedged in terms of currency. With regards to, I think your third question, can you repeat that, Pinyan? I may have lost it into my notes.
The dividend announcement, would you maintain the amount per share of dividend going forward? Or should we think about it as a percentage of our earnings?
Okay. Thank you. I think we will remain, in term of dividend, when we put out the proposal to our board, remain guided with our current dividend policy of 50% out of our PAT. Yes, we do acknowledge the request from our shareholders as well as the request and the current economic conditions. That's why, for this particular interim dividend, we're quite generous in terms of our dividend. Also due to our stellar performance, and we would like to share the fruits of our excellent performance with our esteemed shareholders. Moving forward, to answer your question, Pinyan, I think we will still be guided by our existing dividend policy. Of course, it will be deliberated at the board, and the board will take all these factors into account whenever we decide on dividend. I hope that answers your question, Pinyan.
Thank you.
Thank you. Your next question comes from the line of JY Tan from Affin Hwang. Please go ahead.
Hi. Greetings, everyone. Just to have a bit of clarity on the JV profit. Apart from the fact that the [inaudible] trend continue to be on the upward trajectory, was there any reasons for the stronger JV profit?
Okay. Is that your only question, Tan?
Yes, that's my only question. Thank you.
Okay. All right. There's no abnormality in terms of the JV that we have. Simply the stellar performance from our JV are mainly due to the spread that they have realized during the quarter and during quarter one, 2021. You also notice that in quarter one, 2021, there's also a significant contribution from our JV. It's just that during quarter two, they realized product spread and margin has even significantly increased. That's basically the main reason for the strong profit that they have generated.
Okay. Thank you for explanation. Perhaps I could do a follow-up. What about in terms of the spread in the third quarter, has this been stable or deteriorated in any way?
For quarter three this year? For this quarter?
Yes.
Okay. I think similar goes to our other products in terms of outlook. These products, if you're talking about acrylic acid, oxo alcohol, and acetic acid, in term of outlook, tend to be very moderate for quarter three and quarter four.
Okay. Thanks for that. Thank you so much.
Thank you, Tan.
Thank you. Once again, as a reminder, if you wish to ask a question, please press star one on your telephone. If you wish to cancel your request, please press the pound or hash key. It's star followed by one to ask a question. Thank you. We have your next question from the line of Anshool Singhi from JP Morgan. Please go ahead.
Hi, can you hear me?
Yes, Anshul, we can hear you.
Hello. I had a couple of clarifications. The first thing is, you mentioned that the plant utilization rate for PIC is expected to be around 60%-70% in FY 2022. Is that for the whole year, or are we going to see it ramp up to 60%-70% by the end of the year? My second question was about your 5% EBITDA contribution from DVG. That's for the first half for 2021, EBITDA contribution? That's all.
Okay. Thank you for your question, Anshool. I think for the PIC, the plant utilization, as I mentioned earlier, it starts to creep up when they start operation by end of the year. It's typically 60%-70% will be a good benchmark for any plant that starts to ramp up after commencement of operation. That's why we expect a full year 2022, it will be between 60%-70%. In terms of contribution of Da Vinci, I mentioned it's below 5% EBITDA contribution to our bottom line. I think the idea is for us to continue looking at business opportunity to grow into specialty chemicals, to increase this portfolio of specialty chemicals contribution to our general EBITDA. The idea is to have it more than 5% currently.
Just for the half year, 1H 2021.
Yes. That is currently the contribution of DVG into our group EBITDA, less than 5%.
Thank you so much.
Thank you, Anshool.
Thank you. We have a follow-up question, from Alex Goh from AmBank again. Please go ahead.
Yes. I guess one question on your plant utilization for the whole group. In your first half, you achieved 94%, and you've indicated in the third quarter there will be no turnaround. Should we look at second half of this year, where your plant utilization will be higher than 94% in the first quarter, sorry, for the first half of the year?
That is the guidance, I think, Alex, because there'll be no turnaround in quarter three, although we have a few pit stop on some of the plants happening in quarter three. In quarter four, we have one plant turnaround, as we mentioned in the last quarter's earnings briefing. That plant is our ASEAN Bintulu Fertilizer Plant in Bintulu. That will happen sometime in November.
Okay. With that being said-
On the whole, I think just to conclude, overall for the year, we hope our plant utilization to achieve around 93%, 94%.
I see. Okay. Thank you very much.
Thank you. If there are no further questions at this point of time, I would like to hand the call back to Alia for any closing remarks. Thank you.
Thank you, RJ. Thank you, everyone, for participating today. Thank you for all your questions. Do send us your reports once they are published. If you have any more questions, do get in touch with me or Safarah through call or email. Thank you, everyone. Good evening.
Thank you, everyone. Stay safe.
Thank you. That concludes the conference for today. Thank you for participating. You may all disconnect now. Thank you.