Hello, welcome to the Industries Qatar conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. Shahan Keushgerian to begin the conference. Shahan, over to you.
Thank you very much. Hi. Hello, everyone. I want to welcome you to Industries Qatar's fourth quarter fiscal year 2023 financial results conference call. On this call from QatarEnergy Privatized Companies Affairs, we have Abdulla Al-Hay, Acting Manager; Rashid Al-Mohannadi, Head of IR and Communications; and finally, Saffan Mohammed, Senior Financial Management Analyst. As usual, we will conduct this call with first management reviewing the company's results, followed by a Q&A session. I will turn the call over now to Rashid. Please go ahead.
Thank you, Shahan. Good afternoon, thank you all for joining us. Hope you are doing great. Before we go into the IQ business and performance updates, I would like to mention that this call is purely for IQ investors, and only a representative should be attending this call. Moreover, please note this call is subject to the disclaimer statement as detailed on slide number two of the investor relations presentation. Now, we can start with our call. On Thursday, the 8th of February 2024, IQ published its financial results for the full year ending 31st December 2023. Today in this call, we'll go through these results and provide you with an update on key financial and operational highlights.
Today in this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Acting Manager for Privatized Companies Affairs, and Mr. Saffan Mohammed, Senior Management Analyst in the Privatized Companies Affairs. We have structured our call as follows. At first, I will provide you with a quick insight on IQ ownership structure, competitive advantages, and overall governance structure. Secondly, Saffan will provide you on IQ key macroeconomic and performance aspects, and later, I will provide you with an update on the financial performance metrics. We will guide you through the segmental performance, and we'll open the floor for the Q&A. To start with, as detailed on slide number five of the IR deck, the IQ ownership structure compromises of QatarEnergy, a 51% stake, and the rest is in the free float held by various domestic and international corporate and individuals.
IQ is credit-rated entity by S&P with A+ and Moody's with Aa3 credit rating, both with stable outlook. QatarEnergy being the main shareholder of IQ, provide most of the head office function through a service level agreement. IQ group companies operation are independently managed by its respective board of director along with senior management team. In terms of the competitive advantage, as detailed on slide number eight of the IR deck, the group is well positioned with several competitive advantages within its domain, technically and operationally, as well as financially. These strengths include an efficient and well-maintained asset base, a qualified and highly- trained workforce, a sure supply of feedstock and competitive price energy sources, lower operating expenses, and dedicated marketing team in the form of Muntajat to market the group petrochemical and fertilizer group products. A reputable JV partner and most importantly, a well-experienced senior management team.
As detailed on slide number 10, from the competitive positioning perspective, IQ ranks among the top-tier companies within the regional downstream space across most of the matrices. In terms of the IQ governance structure, you may refer to slide number 51 and 52 of the IR deck, which cover various aspects of the IQ code of corporate governance in further detail. I will now hand over to Saffan to cover the macro aspects, including the macroeconomy, operation, and year-to-date financial performance.
Thank you, Rashid. [Non-English content] , good afternoon. Thank you all for joining us. Starting with the macroeconomic environment, the macroeconomic context remained uncertain, brought challenges to most commodities globally, global supply and demand dynamics. The year was marked by lower commodity prices as it reduced energy prices and an increase in influx of commodity supply during the year. On the backdrop of supply side easing, most European producers gradually increased production to compensate for the previous year's curtailed output, driven by feedstock availability and affordability. Meanwhile, on the demand side, buyers exercised a cautious approach in their purchasing decisions, cautiously navigating the impact of slower economic recovery, which led to muted consumer spending, significantly affected the demand for most commodities across our portfolio. These factors consequently contributed to a general downward trajectory in the trends of commodity prices compared to the previous year.
Nevertheless, there was an evidence of stabilization in the macroeconomic outlook during the latter part of the year, which had in general a positive impact on the group product portfolio sequentially. Overall, the lingering uncertainty in the global macroeconomic outlook to add pressure on our group product portfolio compared to the previous year. Operationally, as detailed on slide number 15, group's operations remained strong as production volumes for the current year remained stable against the last year and stood at 16.8 million metric tons. The stability in production was primarily driven by stable operating rates and plant availability across the group. Plant utilization rates for the year 2023 remained at 100%, while the average reliability factor stood at 98%. This reflects the group's commitment to operational excellence while ensuring the plant reliability and unwavering importance to the group's health, safety, and environment.
Production volumes declined by 7% on a quarter-on-quarter basis versus the previous quarter of 2023, with fuel additives and fertilizer, along with steel segment, undergoing shutdowns in the fourth quarter. Amid challenging macroeconomic environment, we managed to report a commendable set of financial results with a net income of QAR 4.7 billion, EPS of QAR 0.078, free cash flow of QAR 2.6 billion. The group financial position also continues to remain strong with a total cash of QAR 15.8 billion. Group's financial fundamentals and stability was further demonstrated by Moody's recent upgrade of its rating to Aa3 from A1 with a stable outlook. Financially, on a year-on-year basis, on slide number one, the group reported a consolidated net profit of QAR 4.7 billion for the year ended 31st December, with a decline of 46% versus last year. Earnings per share of QAR 0.78 versus QAR 1.46 was for the year ended 2022.
Group revenue for year-end 2023 declined by 34% to reach QAR 16.9 billion as compared to QAR 25.8 billion reported for 2022. This reduction in revenue and net income both were driven by selling prices, which was on average declined by 34% versus last year, partially offset by improved operating cost, other income mainly related to reversal of previously booked impairment within the steel facilities and investment income. Profitability measured by EBITDA margins, although down on last year, but still remained very competitive with an EBITDA margin of 37%. The softening of margin was primarily driven by weakened prices compared to last year. Moving on to quarter-on-quarter performance, as detailed on the same slide, compared to fourth quarter, the group revenue for the current quarter marginally decreased by 3%. The decrease was primarily driven by lower sales volumes.
That was down by 7% amid lower production, which was partially offset by improved selling prices by around 5%. Net profit, on the other hand, improved by 19% on the backdrop of improved other income, mainly related to reversal of previously booked impairment within the steel facilities and investment income. With respect to group's financial position, as noted on the same slide, the group's financial position remained robust with cash and bank balances standing at QAR 15.8 billion after accounting for dividend payout relating to financial year ended 2022 amounting to QAR 6.7 billion. Currently, group does not have any long-term debt obligation. The group reported total asset and equity of QAR 43.1 billion and QAR 40 billion, respectively, as of 31st December 2023. The group generated positive operating cash flows of QAR 5.4 billion with a free cash flow to firm of QAR 2.6 billion.
Nevertheless, our robust operating models and the strength of our global supply chain continue to leverage our resilience and provide flexibility to our operations. Whereas our continued positioning of being a low-cost operator ensures our competitive advantage. After reviewing the group's current year financial performance with present and potential liquidity position and considering the current and future macroeconomic conditions, business outlook, capital expenditure, investing and financing requirement for the group, the board of directors proposed a total annual dividend distribution of QAR 4.7 billion for the year ended 31st December 2023, subject to the approval of the general assembly, representing a payout ratio of 100% of current year net earnings. A dividend of QAR 0.78 per share, representing a dividend yield of 6% on the closing share price of 31st December 2023. Now, I will hand over to Rashid to cover the segmental performance.
Thank you, Saffan. Thank you for presenting the financial and operational updates. I will follow up with the segmental review and start with the petrochemical segment. As detailed on slide number 25, the segment reported a net profit of QAR 1.4 billion for the year ended 2023, down by 45% versus last year. This decrease was mainly linked to the decline of 26% reported in the segmental revenues, which was mostly driven by lower blended average selling price and selling volume realized during the year. A blended product prices for petrochemical segment declined by 19% against the last year because of the overall decline in the global petrochemical prices on the back of crude oil price volatility, e asing of supply chain pressure that was prevailed during 2022 and the cautious buying habit by most of the consumers on account of persistent recessionary fears.
Sales volume declined marginally by 9% compared to last year, as detailed on slide 24, due to the lower production amid shutdown and the conservative buying decision among most buyers. Net earnings for the segment witnessed a sequential decline of 34%, primarily due to the 16% reduction in sales volume. This reduction in sales volume was attributed to lower production resulting from planned shutdown in fuel additive segment. The results were partially offset by enhanced selling prices, driven by improved market sentiment in the polyethylene segment during the current quarter. Now, we can move to the fertilizer segment as detailed on slide 31 of the IR deck. The fertilizer segment reported a net profit of QAR 1.9 billion for the year ended 2023, with significant decline of 65% versus last year. This decline was primarily driven by lower segmental revenue.
Segment revenue decreased by 49%, along with lower selling prices, which declined by 47% amid the macro challenges affecting the nitrogen-based fertilizer markets globally. This is driven by the easing of supply challenges and softening of demand. On the other hand, sales volume marginally declined by 3% versus last year, amid lower production due to marginally lower operating rates. On sequential basis, segmental revenue decreased by 7% compared to the previous quarter, as selling volumes witnessed a reduction of 10% amid lower production on account of planned shutdown during the current quarter. On the other hand, selling prices increased by 4% on quarter-on-quarter basis amid a noted improvement in the global ammonia markets. Segment net profit for Q4 of 2023 decreased by 16%, mainly due to lower sales volume, offset by lower operating expenses and marginally higher selling prices.
We can now move to the last segment, which is the steel segment. We can refer to slide 37 of the IR deck. The steel segment achieved a net profit of QAR 1 billion, making a significant 16% increase compared to the previous year. This substantial increase was mainly attributed to the improvement in the non-operating income related to the reversing of impairment of non-current asset associated with the DR-2 facility previously mothballed and restarted in 2022. Furthermore, the additional reversal of impairment in the follow-up investment also contributed to the positive financial performance of the steel segment. Amid the positive net profit, the segmental revenue remained relatively unchanged compared to the previous year due to the moderate reduction in the average selling price, which was almost offset by the improvement in selling volume.
The pricing dynamic and the sales volumes balancing each other all contributed to maintaining overall revenue consistency. Segment acquisition of Al-Qataria Steel during the Q4 of this year also contributed to the improved sales volume and profitability. Compared to the previous quarter, the segmental profit significantly increased by 376% during this current quarter. This incline was mainly attributed to the one-off impairment reversal for the non-current asset during the quarter. Segmental revenue demonstrated a 13% increase due to the higher sales volume, and marginally higher selling price. Improved sales volume were partially driven by additional sales volume of Al- Qataria. Now, that conclude our presentation. I think we reached the stage where we can open the floor for the Q&A.
Thank you, sir. If you'd like to ask a question, simply press the star followed by the number one on your telephone keypad. That is star one to ask a question. Our first question comes from the line of Ricardo Rezende of Morgan Stanley. Please go ahead.
Hello. Good afternoon, thanks for taking my questions. A couple questions on my side, if I may. The first one, it's on the steel segment. If we look at the quarterly margin, it has been one of the weakest margins in a few years. Would you be able to just give us a little bit more color on the cost and expense, and what has driven this decline in margins? Then the second question, to the extent that you may comment, when you look into 2024, are you expecting any relevant maintenance turnarounds? How should we think about volumes in 2024? Thank you.
You were talking about the margins in general or at the fuel additive margins?
No, the steel segment.
Steel segment.
Yeah.
Steel segment, as you are aware, it is very challenging market. The margins in the steel segment is always thin. As you are aware, there is a supply where there is no demand, either locally or globally. We have focused o n the local market to sell the final products of rebar steel in Qatar, where most of the projects been completed. We also expand our sales to the region. Maybe some of the sales went to Kuwait during the year, related to the semi-finished products. The margin and the steel, if you can see across even the other smelters, it is very challenging. I would say that we are doing much more better than others. Some of the other smelters, maybe they are already exited business while we still reported profits.
We can go to the second question, if you have no further question on the steel.
Thank you. Our next question comes from the line of Prateek Bhatnagar of HSBC.
There is second question. He asked about the turnaround activity in the year 2024. Definitely, we run these plants, which require a yearly turnaround, and it require a plant shutdown on a yearly basis. Definitely next year there is going to be an activity, but there is no major turnaround. It is just a normal business turnaround.
Thank you. Our next question comes from the line of Prateek Bhatnagar of HSBC. Please go ahead.
Related questions. The first is that in your result, you mentioned that after the expiry of the JV agreement in the QAFAC, all the shares will be transferred to IQCD. Could you confirm that? Also, is there any payment you need to do to get the shares? Will the shares, 100% ownership, will be permanent or it will be for a certain time? The second question is that, have the feedstock agreement regarding for the QAFAC also been renegotiated? Could you give any color in terms of gas prices? Thanks a lot.
Thank you for your questions. I would like to highlight, in the past, we have not announced that we're going to have the share of the JVA at QAFAC level. We know that the JVA will expire on June 9th. We have announced in the past, we will enter into a negotiation with QatarEnergy. Either we take the other 50% stake. We don't know what is the QatarEnergy appetite on the other 50% stake. Still nothing been concluded related to the other stake in QAFAC. What I would say that, if this stake are offered for sale, IQ would be interested to enter into a negotiation with the owner. There is one thing. Related to the feedstock arrangement. The feedstock arrangement have not been changed since the past at least two years.
We have also highlighted that we arrived to a mechanism where the feedstock prices are linked to the final product prices, and this dynamic work very well during both cycle, high cycle and the lower environment cycle. Nothing's been changed and nothing to be highlighted in this regard.
Thanks a lot. Very clear.
Thank you. Our next question comes from the line of Sashank Lanka of Bank of America. Please go ahead.
Thank you very much for the presentation and the opportunity to ask questions. I have three questions, if that's okay. Just looking at your operating rates on slide number 20. It seems like QAFAC at 50% was probably the lowest in some time. Just wondering, what's the outlook going into Q1? Is the shutdown, the turnaround activity complete? Similarly, even for QAFCO, I think it was quite low versus what we saw in Q3. In terms of operating rates going into Q1, should we assume operating rates will be similar to the average of the other three quarters? Because it seems like Q4 was particularly quite weak. That's the first question. The second question is related to the Blue Ammonia plant. I think you've guided for 2026 as a startup. Where are we in terms of the ramp up, the construction activities over there?
Third question is just on the dividends. I think you're sitting on still a very healthy cash balance. I agree that you paid out 100% this time around. How would you look at dividends going forward, given this JV, QAFAC acquisition that's potentially possible and also the Blue Ammonia expansion, which means you will be spending over the next two years? Thank you.
Thank you for your question. I will answer your question related to the operating rate. As you can see, and obvious on this slide, we had a major turnaround in QAFAC, and we have also a plant shutdown in QAFCO during the year. We are expecting to have the first quarter for both entities having better operational rates. We are not planning to conduct any major shutdowns for these two units. Related to the Blue Ammonia plant work on progress, we already spent around QAR 1 billion on the project. The site preparation have been conducted, and the construction started there at the facility, and the projects are as per the plan. There is no delay anticipated so far, and nothing to be reported related to the schedule of the project.
As you are aware, we are funded the Blue Ammonia through our internal cash, and this is supported by the cash balance that IQ have and its group companies. Even if the other 50% stake been offered for sale, still we have not made our decision. Either we're going to finance that requirement or we're going to utilize the cash. Most probably based on the historical information that we have, that we will continue having the IQ without any liability, or we are not planning to take any kind of loan related to our growth.
Thank you. If I could just follow up on the Blue Ammonia CapEx spend. You said QAR 1 billion to confirm. That's around $300 million. You finished about a third of the CapEx of the plant. Is that correct?
You are absolutely correct. It is about QAR 1 billion already paid for the project. The total project cost is $1.2 billion.
Thank you.
Thank you. Our next question comes on the line of Joshua Martin of Ashmore Group. Please go ahead.
I don't know if you want to finish with the dividend question the last participant asked.
I am fine with it.
I'd also like to know, h ow are you guiding for that dividend going forward, I suppose?
Dividend going forward, we just announced the dividend for the year of 2023, the decision came after looking at all the operational and growth requirements. We have also explained in the past how we arrived to this decision. This decision came after we looked at all aspects and requirement of the operating capital working and CapEx requirements for all three segments, and either in petrochemical or in the fertilizer or in the steel. We look at our requirement, and we look at our performance during the year. The board of director take the decision on the proposed dividends to the AGM. As you can see this year, the proposal was 100% of the net income of IQ, which give us, I would say, a good record based on the even historical dividend distribution.
Perfect. Thank you. On the fertilizer side, have realized urea prices steadied the last two months? Is there any indication about where inventory levels with key clients are going, and do you have any color on that side of things? Thanks.
I think we realized during this quarter is kind of lower urea price versus the previous quarter. However, our blended price reported for the fertilizer was supported by the increase in the ammonia prices. This dynamics played in our favor. Yes, we don't sell a lot of ammonia, but we happen to sell excess ammonia when it's available to the market. Going forward, it will depend on a lot of things, how the fertilizer market will unfold in the future, how the Indian tender will play in 2024, how the cropping season will happen next year. I think this year we've seen a very good cropping season in both Americas. You'll see in our slide in terms of geographical distribution that we've sold higher than what we've sold in the previous year to that specific region. It will depend on the dynamics going into the future.
Thank you. Our next question comes from the line of [ Humad Pebnagar] of ABI Analytics. Please go ahead.
Thank you, gentlemen, for this call. My first question is, could you provide us some input or outlook on the Blue Ammonia project and PVC project? What are your revenue targets, or what are your outcomes from these projects?
The outcome, we cannot predict anything on the prices that is driven by market conditions. Rather, what we could say is the capacity. Blue Ammonia is 1.2 million metric tons per annum of Blue Ammonia. There are different views on the market. Some people say it could have premiums depending on which market you sell into. Some people say it may not fetch premiums depending on for what purpose you use it. On the other hand, PVC is, I think we have 340,000 metric ton capacity. Blue Ammonia expected to be online by Q2 2026. On top of, as we know, more than financial, there is a lot of ESG benefits on Blue Ammonia. CO2 is captured and sequestered beneath the earth. We minimize carbon footprint.
On the other hand, PVC, conversion of VCM into PVC brings a lot of other benefits, import dependability from India and also depending on major markets for PVC import to India and exporting VCM to a few markets and et cetera. These are the strategic benefits. Pricing, PVC is a function of crude petrochemical. Very difficult to predict. It is coming in 2026, I believe. At that time, petchem prices, very difficult to predict. Function of crude. What we could rather predict is the capacity plus our strategic motive. Hope I answered your question.
Yes.
Thank you. Our next question comes from the line of Ejayan Al-ahbabi from AlRayan Investment. Please go ahead.
Thank you, gentlemen. This is Zohaib Pervez from AlRayan Investment. Just one question. Are there any plans to change the frequency of dividends in June 2024, or it's still going to be annual? Do you not plan to go for quarterly or semi-annual payments? Thank you.
Thank you for your question. As of now, there is no plan to have any interim dividends during the 2024. It will be a similar practice, and it will be announced at the year end of the 2024. I would say, nothing to be different from our practice, unless we will announce it in the media.
Thank you. Our next question comes from the line of Nikhil Phutane of CBFS. Please go ahead.
Thank you, gentlemen. Just two questions. One is regarding your page 37, you mentioned about reversal of impairment on your non-current assets and additional reversal on your impairment in follow-up investment. Just wanted to understand whether do we see any further reversals going forward? Secondly, you also mentioned about Al-Qataria in your sales volume, how much that added up? Thank you.
Related to the reversal of impairment, as you are aware, we have a mothb alled the smaller unit of the steel segments, and we operate the bigger unit. We conducted the valuation exercise where all the stakeholder supported the reversal of the impairment. We believe that by operating the bigger unit, this will help the profitability of the steel segment. We will be able to meet all the requirement of the local market. Are we going to see any further impairment in the future? I don't-
Impairment reversal.
Further reversal of impairment in the future, I don't think so. As of now. Unless there are any other changes or unless we decide to go to a full operation of the steel segment. As of now, there is no decision been taken.
On your Al-Qataria acquisition, sir, how much it contributed to your volumes? In fourth quarter, it started off your total volumes. You can give percentage.
I don't have this number as of now with me. Maybe Saffan, he can elaborate more because it is one of the units under our subsidiaries. However, we believe that this acquisition of Al-Qataria will give us the comfort of having all the steel or meeting all the steel requirement within the state of Qatar. In addition to that, we have run the Al-Qataria facility. We have noticed that the facility is running in the best way with no issues, and we have produced around— Are they aware of how much? 15,000 metric tons after the acquisition. Because the date of the acquisition came-
Mid of October.
Mid of October. 15,000 metric ton were recognized for the year 2023.
Regarding your shutdown, you mentioned no major shutdown for CapEx. Any other color? You can talk about other divisions in terms of any shutdowns which we'll likely see, especially in the first quarter or in the second quarter 2024.
For the petrochemical QAPCO, we'll have approximately 35-40 days of planned shutdowns. More than that, there may be few unforeseen shutdowns depending on your reliability. If there is any upstream shutdowns happening, you have to follow in the downstream as well. As for Q1, if at all, the major shutdown will be in QAPCO, 35-36 days. This is for Q1.
Thank you, sir.
Thank you. Our next question comes from the line of Ricardo Rezende of Morgan Stanley. Please go ahead.
Hi. Follow-up, if I may. On the Blue Ammonia project, have you already signed the carbon capture contract with QatarEnergy? What's the latest on that front? Thank you.
As we have announced in the past that there is an arrangement with QatarEnergy for the carbon capture facility. This arrangement is still in place, and there is no progress on that arrangement.
Thank you.
Thank you. There are no further questions at this time. I will now hand the call back to Mr. Shahan Keushgerian.
Thank you everyone for joining. I would like to thank management for giving us an update on the fourth quarter. We will pick this up again in the second quarter. Bye.
Thank you. This concludes today's conference call. You may now disconnect.