Hello everyone, welcome to Industries Qatar conference call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Bobby Sarkar. Thank you. Please go ahead.
Thank you, operator. Hi. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Industries Qatar's first quarter 2024 financial results conference call. On this call from QatarEnergy's Privatized Companies Affairs, we have Abdulla Al-Hay, who is the Acting Manager, and Saffan Mohammed, who is a Senior Financial Management Analyst. We will conduct this call with the management first, reviewing the company's results, followed by a Q&A. I would like to now turn the call over to Saffan. Saffan please go ahead.
Thank you, Bobby. Good afternoon, thank you all for joining us. Hope you are doing great. Before we going into IQ's business and financial performance updates, I would like to mention that this call is purely for IQ's investors, no media representatives should be attending this call. Moreover, kindly note that this call is subject to IQ's disclaimer statements as detailed on slide number two of investor relations presentation. Moving on to the call. On Tuesday, 13th of April, IQ published its financial results for the three months ended period, 31st of March 2024. Today in this call, we will go through these results and provide you an update on key financial and operational results. Today on this call, along with me, I have Mr. Abdulla Al-Hay, Manager, Privatized Companies Affairs. We have structured our call as follows.
At first, I will provide you with a quick insight on IQ's ownership structure, competitive advantages, an overall governance structure. Secondly, Abdulla will brief you on IQ's key macroeconomic update the performance aspects. Later, I will provide you with an update on the overall financial performance metrics and guide you through the segmental performance of the group. Finally, we will open the floor for a Q&A session with the investors. To start with, as detailed on slide number five, IQ's ownership structure comprises of QatarEnergy with a 51% stake, the rest is in the free float held by various domestic and international corporates and individuals. IQ is credit rated entity by S&P with A+ and Moody's with A1, both with stable outlook. QatarEnergy, being the main shareholder of IQ, provides most of the head office functions through a comprehensive service level agreement.
IQ's group company's operations are independently managed by its respective board of directors along with senior management teams. In terms of competitive advantage, as detailed on slide number eight, the group is well-positioned with several competitive advantages within its domain, strategically, operationally, as well as financially. These strengths include an efficient, well-maintained asset base, a qualified and highly trained workforce, assured feedstock, and competitively priced energy sources, lower operating cost base, a dedicated marketing team in form of Muntajat to market group's petrochemical and fertilizers products, reputed joint venture partners, and most importantly, a well-experienced senior management team. As detailed on slide 10, from a competitive positioning perspective, IQ ranks amongst top-tier companies within the regional downstream space across most of the matrices.
In terms of IQ's governance structure, you may refer to slide number 51 and 52 of the IR deck, which covers various aspects of IQ's code of corporate governance in further details. I will now hand over to Mr. Abdulla to cover macro aspects, including macroeconomy, operations, and year-over-year financial performance.
Thank you, Saffan. [Non-English content ] Good afternoon. Starting with the macroeconomic update. Although the global macroeconomic context eased somewhat during the first quarter 2024, it remained challenging as experienced mostly throughout the year 2023. Sluggish economic growth forecast, tighter monetary policies in the key market with the high interest rate, and the inflationary fears have acted as constraints on demand for the key products. Geopolitical instability, export restrictions on certain commodities, and lower production in some of the key production facility have affected the supply chain and consequently broadly offset the demand-supply effects. Uncertainty surrounding the petrochemical market continued to persist in the first quarter 2024, as there have been no real demand stimuli for the petrochemical segments.
The macroeconomic outlook for the segment during first quarter 2024 was impacted by several factors, including stable crude prices, regional geopolitical uncertainty, weaker demand in key markets driven by a higher interest rate environment and structure capacity additions. Macroeconomic environment for the fertilizer segment achieved stability after reaching its historical peak during the first half of 2022. Restoration of the supplies, return of the production of European production facility were aiding prices to adjust toward their long-term trend, while recent stoppage in some of the Asian producer due to the facility shutdown and improved farmer affordability have aided the fertilizer prices stabilize over the last few quarters.
The macroeconomic outline for the steel segments continue to remain challenging, an ailing property sector and large economies like China amid hawkish monetary policies, amid a higher interest rate environment, limited domestic demand, and a slowdown in regional construction activity impacted steel prices. A sharp decline in raw material prices, such as iron ore and scrap material, further impacted the steel prices. As detailed on operational performance on slide number 15. The group operations remain stable and robust as production volume for the current period marginally improved by 1% to reach 4.5 million metric ton versus the first quarter of 2023. This improvement was largely driven by stable operating rates and better plant availability across all the segments, amid plant maintenance and the polyethylene segment. Plant utilization rate for the first quarter 2024 stood at 103%, while the average availability factor remained at 98%.
This reflects the group continued commitment to the operational excellence and reliable operation, while ensuring unwavering importance to HSE. As noted on slide number 17, on a quarter-over-quarter basis, production volume improved by 10% compared to the fourth quarter 2023. This increase was due to the higher operating days across all segments except polyethylene segments, as most of the segments were on maintenance shutdown during the fourth quarter of 2023. Regarding year-to-date financial performance, as detailed on slide number 14, group reported a consolidated net profit of QAR 1.3 billion for the first three months ended 31st March 2024, a moderate improvement of 10% compared to the first quarter 2023. Earning per share for the first quarter of 2024 arrived at QAR 0.21 versus QAR 0.19 for the same period last year.
Group revenue for the first quarter 2024 moderately declined by 11% to reach QAR 4.3 billion compared to the QAR 4.8 billion reported for the same period last year. We note from slide number 17, improvement on IQ net earning for the first quarter 2024 versus first quarter 2023 is largely driven by improved operating costs linked to lower variable costs. This was partially offset by a reduction in average selling price and sales volume versus the same period of last year. I will now hand over to Saffan to cover quarter-over-quarter performance metrics together with the segment review.
Thank you, Abdulla. Good afternoon, everyone, and thank you everyone for attending this earnings call. In 1Q 2024, as detailed on slide number 14, the group's net earnings declined by 10% versus fourth quarter of 2023, mainly due to lower non-operating income in the first quarter of 2024, as the group reported a non-operating income of QAR 550 million in the fourth quarter of 2023 relating to a reversal of impairment within group steel facilities concerning restart of its previously mothballed DR2 facilities. On a comparable basis, the adjusted net income for the current period has increased by more than 46% if adjusted for this effect of non-operating income. As detailed on slide number 16, revenue for 1Q 2024 has marginally increased by 8% versus fourth quarter of 2023, primarily due to improved sales volumes that were partially offset by a slight reduction in the average selling prices.
Sales volumes have increased sequentially amid improved production within all segments except the polyethylene segment. Selling prices have marginally declined versus the previous quarter. Regarding the financial position analysis, as detailed on slide number 18, the group's financial position continued to remain robust with cash and bank balances increased to QAR 12.1 billion as of 31st March 2024. After accounting for a dividend payout relating to the financial year 2023 amounting to QAR 4.7 billion. Currently, the group does not have any long-term debt obligations. The group's reported total asset and total equity reached QAR 39.4 billion and QAR 36.5 billion respectively as of 31st March 2024. The group generated positive operating cash flows of QAR 915 million, with a free cash flow of QAR 400 million during the first quarter of 2024. Moving on to the segmental performance as detailed on slide number 20 to 25.
The petrochemical segment reported a net profit of QAR 354 million for the first quarter of 2024, marginally down by 7% versus the same period of last year. This decrease was mainly linked to a decline in the gross margin, attributed to a reduction in the average selling prices. Average selling prices were down, which were broadly offset by improved sales volumes, which were up by 7%, resulting in segmental revenue broadly remained at par with last year. On a quarter-over-quarter basis, as detailed on slide number 25, segment's net earnings improved significantly by 67%, predominantly linked to improved segmental revenue, which inclined by 18% versus the fourth quarter, and lowered operating costs, ultimately resulting in improved gross margin. This increase in segmental revenue was linked to higher sales volume reported amid higher production during the first quarter of 2024.
With regard to fertilizer segment, as noted on slide number 31, the segment reported a net profit of QAR 638 million for the first quarter of 2024, with an incline of 25% versus first quarter of 2023. This incline in net profit was primarily driven by improved operating cost, which declined by 28% versus the same period. The improvement in operating cost was associated with reduced sales volume that were lowered by 10% amid supply challenges and prevailing demand conditions. Operating costs were also reduced on the backdrop of improved variable cost, driven by lower feedstock costs. Segment revenue decreased by 16% in first quarter of 2024 versus the same period of last year due to the combined effect of lower prices and sales volumes.
Selling prices declined by 7% versus first quarter of 2023 after fertilizer prices returned to their long-term average since peaking in first half of 2022. Sales volumes moderately declined by 10% during first quarter of 2024, mainly due to supply challenges and prevailing demand conditions, despite relatively stable production during the year. On a quarter-over-quarter basis, segmental revenue marginally increased by 4% compared to the previous quarter, owing to higher sales volumes. Sales volumes improved by 7%, primarily driven by improved demand support. Selling prices declined marginally but remained within the historical ranges. Segment's net profit for the first quarter of 2024 increased by 21% due to higher revenues and lower operating expenditures. Concluding the segmental analysis with steel segment, as seen on slide number 37, the steel segment reported a net profit of QAR 156 million, which increased by 17% compared to the last year.
Improved earnings were mainly driven by higher gross margins due to improved operating costs, which decreased by 19% versus the first quarter on account of improved raw material costs. Revenue declined by 16% due to lower prices and volumes combined. Steel prices on average decreased by 4% due to lower input, raw material cost, and softening of demand. Simultaneously, sales volumes were also down by 12% due to weakening of demand. Construction demand remained challenging due to the prevailing macroeconomic environment, with most central banks continue to persist with their hawkish monetary policies. On a quarter-over-quarter basis, as you can witness on slide number 37, segmental profits declined by a notable 75%, mainly on account of lower non-operating income as the segment recognized a one-off non-recurring other income in the fourth quarter relating to the reversal of an impairment of one of its operating facilities amounting to QAR 550 million.
Comparatively, normalized earnings after adjusting for this impairment reversal in fourth quarter have improved by more than 100%. Segmental revenue increased marginally by 3%, mainly due to higher sales volumes, which increased by 6% due to higher production. Production improved by 14%, primarily due to higher output within Doha facilities, as Doha facilities were on planned maintenance during fourth quarter of 2023, and scaling up of operations within recently acquired Al Qataria. That concludes the presentation. I think we can now open the floor for the Q&A session. Thank you.
Thank you very much. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Ricardo Rezende from Morgan Stanley. Your line is now open.
Hello. Good afternoon. I have a couple questions. The first one is related to maintaining stocks for the rest of the year. If you could comment on what do you expect both for fertilizers and for petrochemicals? The second question is on QAFAC with the JV expiring next month, if you have any indications from QatarEnergy on how they're going to proceed and if there are negotiations with IQ for a potential acquisition of this stake. Thank you.
Thank you so much. With regard to your first question related to the shutdown and maintenance activity. In the fertilizer segment during the first quarter, we have 53 days of maintenance, and we are expecting to have 15 days in the second quarter and 20 days in the third quarter, and another 20 days in the fourth quarter. This is for normal routine maintenance activity. For the petchem.
Petchem, what do you mention?
Yeah. The information just I provided was for the petchem and for the fertilizer, we're going to have around 20 days for each of the quarters. In the first quarter, we have about 24 days and the same number of days for the second and third quarters. However, in the third quarter, we have an 85 days for further maintenance and shutdowns during the 2024 fourth quarter. With regard to your second question of the JV expiry next month, you are correct. We have QAFAC JV will be expired on the 6th of June 2024. Right now, all the parties and the shareholder at the final stages of the negotiation. Hopefully, we're going to hear something very soon about the JV and the extension of the JV, what would happen for the minority shareholder and everything in details.
Still, the final outcome of that negotiation have not arrived to the final decision. We will inform the market at the right time. I hope it is clear for you.
Yep, that is very clear. Thank you very much.
Thank you.
Next question comes from Seki Mutukwa from Ashmore. Your line is now open.
Thank you. Two questions, please. The first one is just in the fertilizer segment. The EBITDA margin sort of expansion. You talked about obviously the variable costs on feedstock but also other operating costs. Can you just give a sense of what was the biggest driver, if you will, of that expansion, whether it's compared to fourth quarter 2023 or first quarter of 2023? That's question one. Question two is just in the current quarter, although we've only had a month of the second quarter, are you seeing similar margins or has there been a sort of adjustment downwards or upwards just to get a sense? Thank you.
If you look at the gas prices or at the product prices for the last quarter compared to this quarter, as you are aware, our formula is very linked to that prices. The main differences and the reduction of these prices basically is the cost of the fourth quarter 2023 of the feedstock. Since we have the formula having the accumulative, I would say, average of selling price for the year versus, it will be restarted at the beginning of this year. In the first quarter we have, I would say, a lower feedstock prices where also the prices went in the other way. This is with regard to the fertilizer segments. Regarding your second question, if you can just repeat it.
Sure. It was in the same segment. Have margins sort of stabilized similar to the first quarter? Have they seen a little bit of adjustment perhaps because of a catch-up in feedstock?
The margin will remain almost the same. I believe, even if you look at the current prices of the urea and ammonia, which is QAR 340. However, we believe that the upcoming period will be more challenging and we are expecting a slight reduction in the urea and ammonia. This is based on the number that we have and sourced from online. It is not something that we prepared. This is the market expectation.
Thank you.
Thank you.
Question comes from Nitin Garg from SICO Bank. Your line is now open.
Yeah. Hi. I have two questions. First is for the petrochemicals. We recently saw some recovery in prices compared to the fourth quarter, especially in the ethylene chain. Could you please explain what led to this recovery? I mean, was there some shutdowns, plant shutdowns? We also read somewhere that there were closures in Europe in terms of crackers around 1 million tons. Do you think this price recovery will sustain or the prices have already started falling in April and May? If you can comment on this recovery in prices. Also on the urea side, if you can highlight when was the last Indian tender came and at what prices it was filled, and how much quantity for us to have a view on urea prices. As you said, the urea prices are expected to fall in the summer. Any update on the Indian tender?
That's it. Thank you.
Okay. For the petchem prices, I would say the market is stabilized a little bit. The prices improved, but it was in an acceptable range. We believe that the same range will continue for the year. The average realized price so far for the petchem we have, especially for the LDPE products, around $1,000. We are expecting the same range will continue for the year. With regard to the urea prices and the tender, for myself, I don't have enough information regarding the India tender. However, we believe that during the summer time, the prices will be under pressure. It will maybe go down by QAR 20-QAR 30. We hope the prices will pick up again in the third and fourth quarter of the year.
Okay. Just a follow-up on this. This recovery in petrochemical prices, was it driven by shutdowns, I mean, the supply? Do you think the demand has actually increased?
The 1 million shutdown, if you look at the global petrochemical supply, we talk about more than 100 million-110 million metric tons, right? The 1 million shutdown is not going to make a major impact on the overall prices. It's pretty much demand-driven.
Okay. As you mentioned, the prices have stabilized. It means that prices have fallen a bit compared to what was the recovery in first quarter. I mean, during the 2Q, directionally, the prices have fallen. Is that correct?
It's not fallen.
It's not fallen. I would say it will stay at the same range, $1,000. This is the expectation that we have based on the sum of the analysis. It's not an IQ expectation, but some of the analysis that we found. We believe it will remain healthy and stable during the year.
Okay. Thank you.
Thank you.
Next question comes from Abdullah Amin from QNB. Your line is now open.
Hi, thank you for the call. I have a question on fertilizers, specifically. Slide 31. If you look at slide 31, the net profit has been quite volatile from first quarter to second quarter last year, then it's gone up. This year, if you look at urea prices, already below $300. The Middle East is around $285. Average was $355 for first quarter. If you look at U.S. one, it's around $298. When do you think it's going to impact the margins for IQ? Is it with a lag, or in this quarter? Thank you.
Basically, Abdullah, our prices and the margins are linked to the end product prices, right? Usually, it's linked on a year-to-date basis. Urea cost or the feedstock prices are linked to your year-to-date prices. It will be reflective on a monthly year-to-date prices. When the prices either increase as well as decrease, will be reflective of your year-to-date bottom line. When the price goes up, increase will be cumulatively positive and the decrease also cumulatively negative.
Thank you. If I understand correctly, the feedstock prices also moves with urea price for the year average [inaudible] -
Year-to-date average. Year-to-date average. Correct.
In summary, this means that your revenue will be lower in second quarter and your cost will be higher in second quarter.
Not necessarily.
Cumulatively. Yeah.
Regarding steel, this variation in profit from QAR 619, there was a reversal in fourth quarter, then it was reversed again in first quarter. Is that correct?
No, no. It's only reversed in fourth quarter only.
If you read that thing, it says profitability decreased, slide 37. Profit decreased by 75% during 1Q 2024 compared to 4Q 2023. Mainly on account of lower other income as the segment included a significant one-off other income related to reversal of impairment in 4Q 2023.
Yeah. The impairment was in fourth quarter.
The profits went up in fourth quarter.
Yeah. Fourth quarter, you had QAR 619 million profit. Out of it, QAR 550 million is impairment. If you remove it, without that, it's only less than QAR 100 million.
Your real operating profit.
If it doesn't happen in second quarter, the profits will go back to QAR 600 million around?
No. Your average profit could be around QAR 125 million-QAR 150 million.
For every quarter on average?
Yeah.
Okay. Thank you. Thank you very much for the answers.
Our next question comes from Ray Chao from Epicure. Your line is now open.
Hello. Hi, good afternoon. Just a question on the gas costs. When do you expect the next review to be on the base price?
Yeah. We have done the review three years, I would say, three years ago. We do a review every five years. Maybe after three years there will be another review. However, we are not expecting any changes from that formula. We have seen the margins are very healthy margins and the mechanism that we follow are a very satisfying and competitive approach of the feedstock arrangement. We are not expecting any changes.
Okay. Sorry. The next review will be in five years you were saying?
No, within two years. Three years.
Within two years.
Yes.
Understood. Okay. Thank you.
Our next question comes from Alex Comer from JP Morgan. Your line is now open.
Hello, just had a quick question. Did you say 85 days shutdown in Q4 in fertilizers? Did I hear that correctly or not?
You are correct. We are planning to have an 85 days in the Q4. This is number of days of facility. During a 30 days month, we have 100 days of facility or more. This is a normal number and this is a routine turnaround activity.
Okay. Then if I might, I don't want to labor the point, in terms of the cost structure, I'm aware that the gas feedstock is reassessed as we move through the year. How do you start the year off? Is that reflective of the gas price in the Sorry, the end selling prices in Q4 or is it sort of just reset retrospectively on how prices have been in the first quarter?
From the day one you will restart all your numbers. Normally based on the current market prices and based on your formula, you're going to start build that accumulative until you achieve the first quarter. As simple as that.
Okay. All right. Thank you for that clarification.
Thank you.
We don't have any questions as of the moment. I'd now like to hand back over to the management for their final remarks.
Thank you all.
Hey, it's Bobby again. Sorry, this is Bobby again. If you don't have any other further questions, we can end the call for today. I want to thank Abdulla and I want to thank Saffan for taking the time to answer our questions and we can pick this up next quarter. Thank you.
Thank you so much.
Thank you everyone for attending today's call. We hope you have a wonderful day. You may now disconnect.