Hello, and welcome to MPHC Q3 2024 conference call. Please note that this call is being recorded. You will have the opportunity to ask questions to our speakers later during the Q&A session. If you'd like to ask a question by that time, please press star one on your telephone keypad. Thank you. I'd like to hand over the call to Roy. You may begin.
Thanks, Angela. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's third quarter and nine months 2024 financial results conference call. On this call for Mesaieed Petrochemical Holding Company, we have Sami Mathlouthi, the Assistant Manager, Financial Operations, Privatized Companies Affairs, QatarEnergy. Saoud Ahmed, Financial Management Analyst, Privatized Companies Affairs, QatarEnergy. Rashid Hamad Al-Mohannadi, the Head of Investor Relations and Communications, Privatized Companies Affairs, QatarEnergy. We will conduct this conference call with management first reviewing the company's results, followed by Q&A. I will turn the call now over to Rashid Al-Mohannadi. Go ahead, Rashid.
Thank you, Roy. Good afternoon, and thank you all for joining us. Before we go into the business and performance update, I would like to mention that this call is purely for the investors of MPHC. No media representative should be attending this call. Kindly note that the MS Teams link is to display the IR deck on screen. In case you want to participate in the call during the Q&A session, you must dial in through the telephone lines on the phone number provided as part of the invite. Moreover, please note that this call is subject to MPHC disclaimer statement as detailed on slide number two of the IR deck. Moving on to the call, on Monday, 28th of October 2024, MPHC published its results for the nine-month period ending 30 of September 2024.
Today in this call, we'll go through these results and provide you an update on key financial and operational highlights. Today in this call, along with me, I have Mr. Sami Mathlouthi, Assistant Manager for Financial Operation within the Privatized Companies Affairs Department, we have Mr. Saoud Ahmed, Senior Financial Management Analyst. We have structured our call as follow. At first, I'll provide you with a quick insight on MPHC ownership structure, its competitive strength, and overall governance structure by covering slide five till 10 and slide 41 and 42 of the IR deck. Secondly, Sami will brief you about the microenvironment updates and MPHC operational and financial performance metrics. Followed by Saoud to provide you more insight into the segmental performance. Finally, we can open the floor for the Q&A.
To start with, as detailed on slide number five of the IR deck, the ownership structure of MPHC compromises of QatarEnergy with approximately 57.9% stake, and the rest is in the free float held by various domestic and international corporates and individuals. QatarEnergy, being the main shareholder of MPHC, provide most of the head office function through a service level agreement. The operation of MPHC joint venture are independently managed by their respective board of directors, along with senior management team. In terms of the competitive advantages, as detailed on slide number eight of the IR deck, all of the MPHC group companies are strategically placed in terms of the competitively priced and assured feedstock supply under long-term arrangements, solid liquidity position with strong cash flow generation capability, and presence of the most reputable joint venture partners.
Additionally, its partnership with Muntajat act as a catalyst for its access to the global market. As detailed on slide 10, from competitive positioning perspective, MPHC ranks among the top-tier companies in the regional chemical space across most of the matrices, and especially leads the chart in terms of the profitability margins. In terms of the governance structure of MPHC, you may refer to slide 41 and 42 of the IR deck, which cover various aspects of MPHC code of corporate governance in detail. Now I can hand over to Sami.
Thank you, Rashid. Good afternoon, thank you all for joining us. I would like to begin by providing a brief overview of MPHC financial performance and position. For the nine months period ending 30 of September 2024, MPHC reported net profit of QAR 567 million, with earnings per share of QAR 0.045. Our results were primarily impacted by macroeconomic challenges and both planned and unplanned shutdowns in our petrochemical segment, affecting our group profitability and margins. The global economic landscape remains challenging. We are seeing the ongoing effects of stringent monetary policy implemented to combat inflation. While some central banks have begun lowering interest rates, the prolonged period of high rates continues to suppress industrial activities, slowing economic recovery. Global industrial production growth remains subdued, geopolitical tensions in various regions have further complicated the macroeconomic environment.
In terms of our product pricing, we have observed a year-on-year decline in commodity prices for MPHC product basket. This is largely due to cautious buyer behavior in response to economic headwinds and relatively lower energy prices. On a quarter-on-quarter basis, prices have stabilized and are showing early signs of upward movement. Despite these challenges, we remain focused on operational excellence and efficiency. We are closely monitoring market condition and are well-positioned to capitalize on any improvement in the global economic landscape. Comparing MPHC financial performance for the nine-month period 2024 versus last year, as referred to in slide 16, MPHC reported a net profit of QAR 567 million for the nine months ended 30th of September 2024, down by 33% compared to the previous year.
The decline in profitability was mainly linked to lower selling prices and reduced sales volumes in petrochemical segment, which further challenged profit margins. The drop in group revenue was mainly linked to the decrease noted in average blended product prices, which declined by 10% compared to nine months 2023. This translated into a negative price variance of QAR 221 million in MPHC current net earnings compared to last year. Subdued product demand amid macroeconomic uncertainties resulted in lowered commodity prices. On the other hand, blended sales volumes increased by 2% versus nine months 2023, mainly driven by higher sales volumes reported by the Chlor-Alkali segment, partially offset by lower sales volumes reported by the petrochemical segment. This positive movement in blended sales volumes translated into an increase of QAR 44 million in MPHC nine-month 2024 net earnings compared to the same period of last year.
However, EBITDA for the current period noted a decline versus nine months 2023, mainly due to lower revenue. In addition, the drop in production and subsequent sales volumes within the Petchem segment, coupled with decline in the average selling prices, negatively impacted the group overall EBITDA and EBITDA margins for the nine-month period of 2024 compared to the same period of last year. These factors collectively contributed to the decreased financial performance observed in the nine-month period of 2024. Overall, the financial results were impacted by lower earnings from the Petchem segment compared to the same period of last year. This decline was partially mitigated by improved performance in the Chlor-Alkali segment, which showed better earnings year over year. The overall performance of these two segments resulted in net negative effect on the company overall results.
Regarding the financial position as exposed on slide number 15, liquidity remained robust with cash and bank balances standing at QAR 3.2 billion as of 30th September 2024. The decline in cash and bank balances was mainly due to dividend payments for FY 2023 and interim dividends for FY 2024, in addition to the payment of MPHC portion in the financing for the PVC project, partially offset by positive cash flow generation during nine months 2024. Total assets as of 30th of September 2024 amounted to QAR 16.6 billion, and total equity amounted to QAR 16.2 billion. I will now hand over to Saoud to cover the segmental performance. Over to you.
Thank you, Sami. Good afternoon. Thank you everyone for joining us. Moving to the segmental review, we will start with the Petchem segment as covered in slides 21-25. The petrochemical segment reported a net profit of QAR 394 million for the nine-month period of 2024 in comparison to previous year, down compared to previous year. This significant decline of 44% in profitability was primarily driven by lower revenue. Segments revenue declined during the nine-month period in 2024 versus 2023, mainly driven by lower selling prices by 4% and lower sales volume by 13%. The drop in sales volumes was primarily linked to lower production due to reduced plant availability. Product prices also declined mainly due to deteriorated macroeconomic fundamentals compared to the same period last year. These factors presented challenges in terms of margins, further affecting profitability compared to the same period last year.
The decline in petrochemical prices and demand in consistent with the global trends as the industry faced challenges throughout 2023 and into 2024 due to softening demand, increased global capacity, and historically low earnings across various chemical value chains. On a quarter-on-quarter basis, segmental profits declined by 30%, primarily due to the further margin compression and lower revenue. The revenue decreased by 13%, was driven by two factors. Firstly, a decline in selling prices by 2% as supply and demand in the polyethylene market trended toward equilibrium. Secondly, reduced sales volume by 11%. The volume reduction was a result of a lower production output and outages within the Q-Chem facilities. These combined factors, prices, pressures, volume, and the resulting margin squeezed contributed to the overall decline in segment's quarterly performance. Moving on Chlor-Alkali segment, as detailed on slide 26 through 30.
The Chlor-Alkali segment reported a net profit of QAR 68 million for the current period, an increase by 15% compared to the same period last year. Despite lower selling prices by 2% due to the presence of macroeconomic uncertainties, the segment's performance improved significantly. This improvement was primarily driven by a substantial increase in sales volume by 29%, resulting from a higher production output due to the better plant availability in Chlor-Alkali facilities. The boost in production and subsequent sales volumes significantly increased the segment revenue, leading to enhanced overall profitability compared to the same period last year. This positive volume effect more than offset the slight decline in prices, resulting in the segment's improved financial performance. Comparing the third quarter of 2024 to the second quarter 2024, the segment profitability increased significantly by 83%. This improvement was driven by three key factors.
Higher sales volume by 5% due to the improved production efficiency, increased selling prices by 5% as market fundamentals gradually strengthened, and overall margin expansion. The combination of these factors resulted in notably stronger quarterly performance for the segment. I will now hand over to Rashid. Thank you.
Thank you, Saoud. Thank you for the management team for presenting the results. I think now we can open the floor for the Q&A.
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Thank you. We will pause for just a moment to compile a Q&A roster. Your first question comes from the line of Nikhil Phutane with CBFS. Your line is now open.
Yeah. Thank you, gentlemen, for taking the call. My question is pertaining to your Chlor-Alkali segment, which has done better. Wanted to understand what could be the trend which you could look forward to under VCM and Caustic Soda segment. In terms of production volume, which has increased. Do you see a sustainable going forward, especially in the Caustic Soda segment? Thank you.
Thank you for the question. I think, as you can see, yes, the availability of the plant has improved during this year compared to last year, with very minimal shutdown days. Normally, we plan as we communicate every year. We plan around 27-29 days shutdown per year for this segment. This year, we had only around seven days of shutdown in this segment. The main reason is that we wanted to study, and we're still under studying options to reduce the cycles of shutdowns for this segment. How we reduce that. Instead of one year, we will try to have a cycle of 18 months, where we have the average of shutdowns from 27-29 days. This is not relating to the aging of the plant or anything relating to the plant in itself, but it's relating to the operation in itself.
Because in any plant which is operating chlorine, so chlorine is corrosive in nature, and to maintain your operations, you will need to have some shutdown to clean some of the parts of the plant. Today, we are still in the testing phase. It's successful so far. We haven't seen any issues so far in the plant. I think this will be tested. Once we finish the first cycle, we will have much better idea whether the cycle is something sustainable in the future or not. That's in terms of production and the impact of shutdowns on the production and the availability of the plant.
Do you see that, you mentioned about 27, 29, one and a half year period. Do you see, going forward in the fourth quarter or first quarter, more shutdown could happen?
No. We are not expecting. We are still in the first year, so we are not expecting higher shutdowns to happen during the fourth quarter in that segment.
Yeah. Okay. Any particular shutdown we can talk about in terms of your division at Q-Chem I, Q-Chem II, in terms of all of the chemical?
Yeah. I think for Q-Chem I, Q-Chem II, as you will see and as we have communicated and disclosed. We have seen some unplanned shutdowns which has affected the production volumes, especially during Q3 2024. In Q-Chem, we had around 43 days, and that's relating to some unplanned shutdowns that are needed for the integrity of the asset. These unplanned shutdowns, as you know, in the operating of this type of industries, if you have anything that could affect or could have any impact on the safety and the integrity of the asset, you must shut down the asset.
To check exactly the origin of the shutdown, to check exactly if there is any issue, for example, like higher pressure in some of the equipment or higher temperature in some of the equipment. Basically, you need to shut down and you need to start the analysis and the tests, and then you need to take the corrective action, which normally will be the result of the testing that you will make and the report that you will make after shutting down. We don't expect any unplanned shutdown for Q4. However, we have a planned shutdown in 2025 that is planned for Q-Chem II, and then another planned shutdown for Q-Chem I in 2027.
Okay. Regarding the other question in terms of the trend which we are seeing, especially in Chlor-Alkali segment, do you see that particular trending of prices going forward also?
In term of prices, as you know, we don't disclose the forecast on prices as this is the company policy. However, I would guide you to look at various things for Chlor-Alkali. Chlor-Alkali is used in various industry. When we talk about VCM, it's used in construction. You should keep an eye out for the activities on the construction side and how it will evolve in Q4. Also, you would look at industries such as, when you talk about Caustic Soda, you talk about also industry, aluminum industry. Because Caustic Soda is a feedstock in the aluminum industry. You should link it to the activities in the aluminum side, including other industries such as textile, pulp, paper, all these things.
When we talk about the petrochemical and specifically HDPE, it's more linked to car industry, because car industry use HDPE in their production when they produce parts for the cars. When you also produce packaging as well. Toward Q4, naturally, with the holiday season, you would have a slight uptick in demand, and that's the trend globally, given that the holiday season is coming up, Christmas, Chinese New Year, et cetera. All these things will play a role in term of the demand supply dynamics going forward into Q4 and onward. Also, we should keep an eye on the interest rate, because the interest rate is also a compass when it comes to consumer demand. If interest rate goes down and the projection for it is to go down, then that could give you some kind of a support in term of consumer appetite to buy.
All these factors coupled together, once you have a view on them, it will give you some kind of a feeling how things will evolve into Q4.
Okay. Thank you.
Your next question comes from the line of Lee Beswick with QNB. Your line is now open.
Hi. Apologies if I missed it in the earlier presentation, but could you just talk about why costs were up in Q3?
As highlighted in the beginning, due to the unplanned shutdown, you will have less available quantity for sales and less production during that specific quarter. Taking into consideration, the fixed costs are stable from quarter to quarter, you will divide by lower quantities of production, which will have an impact on the higher cost. In addition, as we have mentioned it during one of the quarters, some of the CapEx has been finalized, which is related to the Furnace 6 project. That has been fully capitalized. Then we are starting depreciation of that specific asset, which will have an impact on the cost.
Okay. Thank you.
There are no further questions. I would now like to turn the call back over to Roy for any remarks.
Yep. If there are no further questions, we would like to thank Sami Mathlouthi, Saoud Ahmed, and Rashid Al-Mohannadi for the results update and answering all the queries, and we look forward to speaking to you all for the final quarter results. Thank you.
Thank you all. Thank you.
That concludes today's conference call. Thank you all for joining. You may now disconnect.