Hello and 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 Bobby Sarkar from QNB FS to begin the conference. Bobby, over to you.
Okay. Thank you, Paulie. Hi, this is Bobby Sarkar, Head of Research at QNB Financial Services. I want to welcome everyone to Industries Qatar's fourth quarter and fiscal year-end 2022 results conference call. On this call from QatarEnergy's Privatized Affairs Group, we have Abdulla Yaqoob Al-Hay , who's the Acting Manager, Rashid Hamad Al-Mohannadi , who's the Head of IR and Comms, Saffan Mohamed, who's the Senior Financial Manager Analyst, and Riaz Khan, who's the IR Officer. We will conduct this conference with first management reviewing the company's results, followed by Q&A. I would now like to turn the call over to Rashid. Rashid, please go ahead.
Thank you, Bobby. Good afternoon and 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 no media representatives should be attending this call. Moreover, please note that this call is subject to the disclaimer statement as detailed on Slide 2 of the investor relations presentation. We can move on into the call. On Thursday, the 19th of February, IQ published its financial results for the year ended 31st December 2022, and today in this call, we will go through these results and provide you an update on key financial and operational highlights. Today in this call, along with me, I have Abdulla Yaqoob Al-Hay , Acting Manager for Privatized Companies Affairs, Saffan Mohamed, Senior Financial Management Analyst, Riaz Khan, Investor Relations Officer.
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 brief you on IQ key operational and financial performance metrics. Later, Riaz will provide you with an update on latest segmented performance. Finally, we'll open the floor for the Q&A. To start with, as detailed on Slide 5 , IQ ownership structure comprises of QatarEnergy with 51% stake, the rest is in the free float, held by various domestic and international corporate individuals. IQ is a credit-rated entity by S&P with A+ and Moody's with A1 credit rating. Both are with stable outlook. QatarEnergy, being the main shareholder of IQ, provide most of the head office functions through a service level agreement.
IQ group companies' operations are independently managed by their respective board of directors along with senior management teams. In terms of their competitive advantages, as detailed on Slide 8 , the group is well-positioned with several competitive advantages within its domain, strategically, operationally, as well as financially. These strengths include efficient and well-maintained asset base, a qualified and highly trained workforce, assured supply of feedstock and competitively priced energy sources, lower operating cost, a dedicated marketing team in the form of Muntajat to market the group petrochemical and fertilizer products, and well-known JV partners, and most importantly, our experienced senior management team. As detailed on Slide 10, from competitive positioning perspective, IQ ranks among the top-tier companies with the regional downstream space across most of the metrics.
In terms of the IQ governance structure, you may refer to Slide 51 and Slide 52 of the IR deck, which covers various aspects of IQ code of corporate governance in further detail. I will now hand over to Saffan to cover IQ operational and financial performance metrics.
Thank you, Rashid. Good afternoon and thank you all for joining the call. Starting with macroeconomic environment, as detailed on Slide 12, the macroeconomic environment remained volatile mostly throughout the year as a result of geopolitical uncertainty, along with recessionary fears on account of inflationary pressures and hawkish stance on interest rates by most of the central banks. Also, exceptionally high energy prices in Europe are persistently weighing on most of the European producers. Additionally, China's zero-COVID policy and related lockdowns, coupled with slowdown in Chinese construction sector, remained key catalyst for volatile global economic context during 2022. On the domestic steel market front, recently concluded activities related to FIFA 2022 World Cup weighed on the domestic steel demand amid muted construction activity that led to lower price trajectories.
On an overall basis, product prices across the group basket of products softened during the fourth quarter of 2022 versus third quarter due to cautious consumer demand on account of macro headwinds, coupled with comparatively lower crude prices. However, on a year-on-year basis, product prices trends remained positive on account of post-pandemic recovery phase, despite macroeconomic fundamentals remained mostly unstable throughout the year. Moving on the financial performance for the year 2022, as detailed on Slide 16 of the IR presentation, the group reported a net profit of QAR 8.8 billion as compared to a net profit of QAR 8.1 billion for the last year, with a growth of 9% on a year-on-year basis.
This record financial performance versus last year was largely attributable to the improved product prices, which on average inclined by 18% and translated into increase of QAR 3.7 billion in group's bottom line earnings, as you can see on Slide 17. Sales volume increased by 8% versus last year, primarily driven by higher plant operating rates leading into improved Operating rates leading into improved production volumes, along with restarting of certain production facilities. The growth in sales volume contributed QAR 2.1 billion positively to the current year's bottom line earnings versus last year. The overall growth in selling prices and sales volumes led to an overall growth in revenues for the group, which increased by 28% during the financial year 2022 to reach QAR 25.8 billion. As detailed on Slide 15, the group production levels were up on last year by 9%.
We started previously mothballed DR2 facility, having a larger capacity together with higher plant operating days noted with the petrochemical segment, mainly contributed positively towards an overall increase in production volumes during the current period. Moving on to quarter-on-quarter performance. As detailed on Slide 16, the group revenue marginally declined due to slightly lower sales volume, while the average selling prices remained relatively flat, despite global economic context remained under stress due to recessionary fears and continuing geopolitical tension, which kept most of the macroeconomic indicators volatile during the latter part of 2022. On the other hand, net profit improved by 10% due to lower operating costs, partially offset by lowered sales volumes. Our robust business models and the center for the global supply chain continue to leverage our resilience and provided flexibility to our operations.
Our continued positioning of being a low-cost operator ensured our competitive advantage. Moreover, as detailed on Slide 19, IQ's EBITDA margin continued to remain robust. Also, we continued to build our strong financial position with improved cash flow generation capabilities, and the group generated QAR 8.8 billion in terms of free cash flows during the financial year, as detailed on Slide 18. I'll now hand over to Riaz to cover the segment's performance.
Thank you, Saffan. I will start with the petrochemical segment. As detailed on Slide 25, petrochemical segment reported a net profit of QAR 2.5 billion for the year ended 31st of December 2022, marginally down by 1% versus last year. This marginal decrease was mainly due to a slight decline in gross margins, as growth in segmental revenue being almost offset against higher operating costs. Blended product prices for the segment improved by 2% versus last year as a result of recovery of demand following post-pandemic recovery. Higher energy prices coupled with supply bottlenecks. Sales volumes also improved by 14% compared to the last year, in line with the growth in production volumes against the backdrop of higher facility availability.
Growth in selling prices, combined with higher sales volumes, led to the overall growth in the segmental revenue and reached QAR 7.0 billion for the current year, with an improvement of 17% versus last year. On a year-on-year basis, production volumes increased by 15% as the segment's polyethylene segment was on a periodic larger scale maintenance shutdown during the fourth quarter of 2021, while segment's fuel additive operations were on a commercial shutdown during early parts of last year, which affected the last year's production volumes on overall basis. As detailed on Slide 26, segment's EBITDA margins continued to remain strong. In terms of segment revenue by geography, as detailed on Slide 27, Asia remains the main market for the PE and MTBE products, whereas Indian subcontinent remains a key market for methanol and polyethylene.
The fertilizer segment, as detailed on Slide 31, reported a net profit of QAR 5.3 billion for the year ended 31st of December 2022, with an increase of 5% versus 2021. This increase was primarily driven by growth in segmental revenue, where segmental revenue grew by 41% for the year 2022 versus the last year. This was primarily due to higher selling prices. Again, restricted supply from key exporting regions together with inflationary pressures due to higher cost prices, along with higher energy prices and geopolitical conflicts, remained the key factors for an elevated year-on-year price trajectories for the nitrogen-based fertilizers. Sales volumes also increased during the year, mainly due to timing of shipments and marginally improved production levels. Production within the segment improved marginally as segment's trains were available for higher operating days due to lower maintenance during the current year.
As detailed on Slide 32, segment's EBITDA margins continued to remain robust. In terms of segmental revenue by geography, as detailed on Slide 33, Asia remains the main market for fertilizers during the year 2022, along with Indian subcontinent and North America and South America. Let's discuss the steel segment, and you may refer to Slide 35 till Slide 41. Steel segment reported a net profit of QAR 888 million, up by 24% versus last year. Improved segmental earnings were mainly driven by higher revenues, which increased by 10% versus 2021. Additionally, segment's one of the associates that primarily produces and sells iron oxide pellets, Foulath Holding, reported commendable financial results against a backdrop of improved financial operations. Qatar Steel's share of net earnings in Foulath increased by threefold versus last year and reached almost half a billion Qatari riyals for the year ended 31st of December 2022.
Growth in revenue was primarily driven by improved sales volumes, which increased by 14% and was mainly linked to higher production volumes. Production also ramped up during this year as the segment restarted DR2 facility, a relatively larger facility that was previously mothballed and has been decided to shift the production from the DR1 facility. Restarting of DR2 allowed the segment to have a greater operational flexibility and improved output optimization. Selling prices on average marginally decreased by 4%, mainly due to softening demand coupled with slowdown in international steel prices. On Slide 38, segment's EBITDA margins continue to remain robust following the mothballing decision back in 2020. I will now hand over to you, Rashid.
Thank you, team, for comprehensively covering the financial operational segmental update. I think we can now open the floor for Q&A.
Thank you. I would like to now invite any participants that would like to ask a question to press star one on their telephone keypad. Again, to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Anoop Fernandes from SICO. Your line is open.
Yeah. Hi, good afternoon, gentlemen, and congrats on a great year. My question's on the gas price. Is there any change in the gas price formula this year that you're expecting? If there isn't any change, do you expect the gas pricing in the fertilizer business to be substantially lower Y-o-Y in the first quarter, given that urea prices have corrected so deeply?
Hi. Thank you for asking. I believe this year is a special year. We achieved a great net income of QAR 8.8 billion. We also proposed a great dividend proposal of QAR 1.1. Thank you for congratulating us on such a great result. Going into the gas prices, there is no changes took place this year related to the gas prices. That is exactly similar to the previous year. We are not anticipating any changes in the near future.
Yeah. Just to clarify, based on what you've guided in the past, can we expect the gas prices to be substantially lower in the first quarter, given that the indexation component would be a lot lower because urea prices have fallen so much?
As you are aware, the gas prices is linked to a formula, which is a market link as well. It has the flexibility of the rate to be changed while the end product price are changing. We have explained this mechanism earlier, I believe you are aware of such mechanism.
Okay. Just to clarify, the formula gets reset at the start of the year, right?
Yes.
From the 1st of January 2023, we again go back to the base price plus whatever the indexation is. It starts afresh.
Exactly.
Okay.
It is an accumulative formula.
Yes. Yeah, I understood. Thank you. Just to confirm. Thanks a lot.
Thank you.
Before proceeding to the next question, I'd like to remind everyone to press star one if you would like to ask a question. Your next question comes from the line of Sashank Lanka from Bank of America. Your line is open.
Yes. Thank you for the presentation and the opportunity to ask questions. Again, congratulations on a strong set of results again in 2022. I have two questions on my side. The first one is on the blue ammonia project that was announced last year. We understand the startup is Q1 2026. The CapEx for the project is around $1 billion. It seems quite low when you look at other similar projects globally. Just wanted to understand the backdrop for this and what the agreement with QERS is, which I understand will be supplying the renewable energy for this project. Any details there will be highly appreciated. That's the first question. The second question is just on your dividend. If I look at dividend payment year-on-year, I think it was kind of flat.
Your net cash position is at QAR 19 billion, which is, I think, at record high levels. If you look at some of your peers, they did increase dividends and also paid special dividends in the region. Just wondering if there's more headroom for you to pay higher dividends given the substantial amount of cash you have on your balance sheet. Thank you.
Thank you for asking us these questions. Going to the Blue Ammonia project, we need to separate. There are two projects there. There is the Blue Ammonia train, which is the cost of around $1 billion, and there is the carbon capture facility, which is a QatarEnergy project. This is why you are seeing that such project is, I would say, a lower project than the other. The carbon capture facility is the facility provided by QatarEnergy. As we have announced and disclosed earlier, there will be a fee, a minimal fee for the carbon capture storage at the facility. I hope this is clear to you right now.
Sashank, the CCS will be built and operated by QatarEnergy Renewable Solutions, for which a fee will be charged from the QAFCO, the fertilizer business.
Okay. Just in terms of, I know that this is probably a question that's maybe premature, but just in terms of pricing, how this would work for blue ammonia versus traditional ammonia, is that already stated in the contract?
It's too early now because still there is no established market for blue ammonia, even other operators like whoever, only one test or a couple of test shipments have been done. No one has a clear visibility on blue ammonia as a product. Most of the people are using it for energy. Instead of carrying hydrogen, they carry ammonia as energy. Still a lot of test marketing is being done. We can see when everybody comes into real operations, any other name, not so poor, still no real sales taking place. Once that's done, only we can see how much premium the customers are willing to pay. Lot of hype is there, but no real premiums have been seen. Discussions are, people are saying it can be 200, 150, 250, nothing is seen.
Okay. Just in terms of the fees, how is this going to be based on that you'll be paying QatarEnergy? Is it based on your volumes or is it cost-plus basis? How does that work?
Still under discussion. Nothing has been done. There will be principal agreements agreed based on which it will be both win-win situation for both parties. Nothing has been agreed upon.
Okay.
Still in discussion.
Okay. Thank you.
Moving to your next question related to the cash position that we have. I agree with you, we have a strong cash position of QAR 19.2 billion. IQ generates, as usual every year, of paying the dividends. This year, the dividend yield, if you take it's more than 7.7%. It even gives you more than what the bank gives you for the fixed deposit, I would say. I'm not expecting for a different proposal that will come more than QAR 1.1. That is the highest in the history. Previously, IQ paid the same amount, right now, due to the strong financial, we paid the same. Also, we need to consider that Blue Ammonia project is a self-financed project. We need to build the reserve for it. Also, we need to consider PVC projects. It's also IQ project.
Self-funded.
Self-funded. Also, we have announced in the previous year that in case of any foreigner shareholder in our group are willing to have their share for sale, we are willing to enter into a negotiation. We reserve that cash for the future strategy and future requirement.
One more point. The industry in which we operate in is very cyclical. Urea was QAR 800, QAR 700 last year, January. This year it is below QAR 400. The majority of our cash flows are very cyclical. We need to keep some buffer as well.
Thank you for this. Appreciate the color.
Your next question comes from the line of Seki Mutukwa from Ashmore Investments. Your line is open.
Hi, thank you for the call. Two questions, please. The first one just goes back to the dividend. Could I take the two consecutive years of a sort of similar payout ratio as the start of a formal policy on that dividend? The second question was just to try and understand the economics of the Blue Ammonia project as opposed to conventional one. I understand the sort of greener credentials in that, but just in however you can describe it, where one would see a sort of benefit from this that isn't necessarily related to the environmental impact or so just to get a picture. Thank you.
Okay. Regarding the dividends, is it like a policy that we are following? I will answer that question. It's not a policy. Every year, the board of Industries Qatar are meeting and discussing the dividend proposal. Depends on the current performance and the future requirement of the group companies. Luckily, for the last two years, Industries Qatar are performing very well. Last year, net profit of QAR 8.1 billion, almost. This year, our net profit of QAR 8.8 billion or QAR 8.9 billion. Amazing results. I believe the board also taken into consideration the improvement in the net profit. This is why last year the dividend was at exactly QAR 1, and this year of QAR 1.1. I hope this is very clear to you. What was the second question?
The economics? Definitely, we believe that the Blue Ammonia will bring additional value, being we are seeing blue ammonia as a value-added product. It will also improve the sustainability position of the fertilizer segment. It's not only about being a value-added product, but also to be adding a value for the group, being, moving towards more sustainability and environmental friendly.
Thank you. Can I just throw in one quick follow-up relating to the Blue Ammonia? Did you consider the carbon capture yourselves at some point and then opted for this sort of agreement as it stands? Just trying to understand why you didn't go and do the whole thing yourselves if you had the choice.
No, I believe the QatarEnergy, the asset owner, they are the one also taking the lead of such projects related to the environment. This is purely coming from QatarEnergy in line with our project of the Blue Ammonia. We have, I would say, both of the group companies, like the Fertilizer segment and QatarEnergy, they talk to each other. They then came to that proposal for QAFCO to build the train for the blue ammonia and QatarEnergy to have the carbon capture storage facility as well.
Thank you.
Your next question comes from the line of Tanvi from Avalon Global Research. Your line is open.
Good afternoon. Congratulations for great set of numbers. I just want to ask you two questions. One is, I can see your income statement. I see an income from investment of QAR 476,000, so QAR 476 million. I just want to know what exactly it is. Secondly, I see strong increase in the general admin and selling expenses. Can you just help in giving me what exactly is the thing which has to get the higher G&A expenses? Thank you.
Can you give us a second while we open the financial?
[inaudible]
I think for the first part, your question about the QAR 400-odd number income, this basically comes from our associate Foulath Holding. As we mentioned that at the beginning of the call that our Foulath Holding associate made a commendable performance, and this is where the QAR 400 million odd comes. For the G&A question, just give us, I think Saffan can take it over.
Yeah, G&A has declined, for your information, from QAR 712 million to QAR 679 million. If you combine the selling and distribution, it remains pretty much flat but still declined. Your answer to share of results has increased because of our associate investment in Bahrain. Income from investment, obviously it is increased for a couple of reasons. Number one, our bank deposits have increased in terms of absolute number and the rate of return. Fixed deposit rates have substantially increased compared to 2021. That has brought fairly large absolute return. Hope answered your question.
Can I have one more follow-up question? The steel prices. Hello?
Go ahead, please.
On the steel segment, if you look at the fourth quarter numbers, the prices have declined across all three products. Can we expect some revival in the prices in first quarter or maybe in second quarter? If you can give us some guidance on the same.
Basically, during fourth quarter or the second half of 2022, we have a slowdown due to FIFA activities. Once FIFA is over now, we are expecting a recovery, so definitely the prices will recover, but it'll be recovering at a slower pace. Q1, Q2, we expect recovery in the domestic market. There are new projects coming up, so that will help the market to recover in the domestic front.
Even on the international front, if you look into the steel dynamics, there is some discussion going on with the recent earthquake in Turkey, in the southern region where there was most of the steel facilities were located. It is yet to be noted how the overall supply will get impacted with that. That also one point, because ultimately what happens is in the international steel markets, that gets cascaded to an extent to the local markets. It's like two aspects. One is the local new demand, which is post-World Cup, and then on the international front, the steel prices. International front in the short term basis, slightly the prices have gone up in recent two, three weeks since 31st of December.
One of the key reasons for that is this Turkish earthquake , because there is some facilities located there and yet the markets need to wait and see that how things will turn out on those affecting the prices.
They are also one of the major supplier of
Yes.
hope we answered.
Thank you very much.
Thanks a lot. Thank you very much.
Your next question comes from the line of Rene Selouan from Jadwa Investment. Your line is open.
Yes, hi. Thank you for the call. My question is in regard to the fourth quarter urea price. It came in higher than the third quarter. That's number 1. Number 2, given that the price was higher in the fourth quarter, one would've assumed that maybe margins should have been quite similar to the third quarter, given that gas price is linked to the urea price. If you could explain the higher price quarter on quarter and the much higher margin quarter on quarter. EBITDA margin.
Yeah. Firstly, basically, I'll take it in reverse order, your question in terms of the EBITDA margin. That's true, we got uplift in terms of EBITDA margins. One reason for that is basically the year-to-date pricing formula, because we consider the year-to-date prices. Until the third quarter, the year-to-date price was higher, and the Q4 price was on a lower side. On the top line, that is the revenue, you were making less revenue versus the cost side where you were charging, or you were ending up paying a higher price for the gas because the year-to-date urea price was higher. Now reaching to the year-end, the prices were basically in the latter part of the year, the prices for urea was on a downward trajectory compared to the first half of the year.
When we reach to the year end, the year-to-date prices mathematically slightly declined, and that really helped the cause in increasing your basically overall margins. This is the first point, and obviously, the overall prices which we achieved in Q4 versus Q3, that also helped the cause, and that is predominantly basically the Muntajat's mandate, where they tend to ensure the best net backs available in the markets based on their relationships and their presence in multiple geographies at the same time. That is a credit to them, basically, that we achieved better prices even despite in depressed markets. Overall, mathematically, your year-to-date pricings were on a downward side, and that's why your cost also reduced comparatively. Hopefully I answered both your questions.
Okay, thanks.
There are no further questions at this time. I would like to turn the call back over to Bobby for closing remarks.
Thank you, Paulie. If there are no further questions, we can end the call today. I wanted to thank QatarEnergy Management for taking the time to answer our questions, we will pick this up again next quarter. Thank you so much, guys.
Thank you, Bobby. Thanks, everybody, for being with us on this call.
This concludes today's conference call. You may now disconnect.