Hello, welcome to the Mesaieed Petrochemical Holding Company conference call. I would like to advise all participants that this call is being recorded. I would now like to welcome Roy Thomas to begin the conference. Roy, over to you.
Thank you, Cherry. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's first quarter 2023 financial results conference call. On this call, representing Mesaieed Petrochemical Holding Company, we have Abdulla Yaqoob Al-Hay, the acting manager of Privatized Companies Affairs, QatarEnergy. Sami Mathlouthi, the assistant manager of financial operations, Privatized Companies Affairs, QatarEnergy, and 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 a Q&A. I will turn the call now over to Rashid Hamad Al-Mohannadi. Go ahead, Rashid.
Thank you, Roy. Good afternoon, thank you all for joining us. Hope you are doing great. Before we go into the business and the performance updates, I would like to mention that this call is purely for the investor of MPHC, no media representative should be attending this call. Kindly note that the MS Team link is to display the IR deck on screen. In case you want to participate in the Q&A session, you must dial in through the telephone lines on the phone numbers provided as part of the invitation. Moreover, please note that this call is subject to MPHC disclaimer statement as detailed on slide number two of the IR deck. On Sunday, seventh of May, MPHC published its result for the three-month period ending 31st of March 2023.
Today in this call, we'll go through these results and provide you an update on key financial and operational highlights. Today on this call, along with me, I have Abdulla Yaqoob Al-Hay, acting manager for Privatized Companies Affairs, Sami Mathlouthi, assistant manager for financial operation. We have structured our call as follow. At first, I will provide you a quick insight of MPHC ownership structure, its competitive strength, and overall governance structure by covering slides five till 10, and slide 41 and 42. Secondly, Sami will brief you on MPHC key operational and financial performance matrices. Later, I will provide you with insight on segmental performance. Finally, we can open the floor for the Q&A session.
To start with, as detailed on slide five of the IR deck, the ownership structure of MPHC comprises of QatarEnergy with approximately 65.4% stake, and the rest is in the free float held by various domestic and international corporate and individuals. QatarEnergy, being the main shareholder of MPHC, provides most of the head office functions through a service level agreement. The operations of MPHC joint ventures are independently managed by their respective board of directors, along with senior management team. In terms of competitive advantages, as detailed on slide 8, all of the MPHC group companies are strategically placed in terms of competitively priced and assured feedstock supply under long-term arrangement, solid liquidity position with strong cash flow generation capability, and presence of most reputable joint venture partners. Additionally, its partnership with Muntajat acts as a catalyst for access to global markets.
As detailed on slide 10 from competitive position and prospects, MPHC ranks among the top tier companies in the regional chemical space. Across most of the matrices, specifically leads the chart in terms of profitability margin. In terms of the governance structure of MPHC, you may refer to slide 40 and 41 of the IR deck, which cover various aspects of MPHC code of corporate governance in detail. I will now hand over to Sami to give you a highlight on operational and financial updates of MPHC.
Thank you, Rashid, and thank you all for joining us. Starting with macroeconomic dynamics as detailed on slide 12. Macroeconomic climate remained wayward during the first quarter of 2023, marked by several factors carried forward from the last year, which affected the commodity markets, including geopolitical conflicts and recessionary fears linked to inflation-related pressures and high interest environment. In addition, China's slow-paced post-COVID recovery phase, along with a recent fall in natural gas prices, is bringing an additional layer of uncertainty to the commodity markets. Overall, commodity prices for MPHC basket of products declined on a year-on-year basis following last two years significantly high price environment. However, prices improved to an extent sequentially, mainly on the back of relatively better supply-demand dynamics.
Moving on to the financial performance, as mentioned in slide 14, for the three month period under 31st of March 2023, MPHC recorded a net profit of QAR 269 million, down 39% compared to the first quarter of 2022. As detailed on slide 16, this decline in profitability was mainly linked to lowered group revenue, which declined by 26% and reached QAR 721 million. As evident from slide 17, decline in group revenue was mainly linked to the decrease noted in average blended product prices, which declined by 21%. Compared to the same period of last year, translating into a decline of $224 million in MPHC current period net earnings compared to the same period of last year. Subdued product demand amid macroeconomic headwinds, along with excess supply, resulted in lowered commodity prices.
Sales volumes also declined by 6% versus the first quarter of 2022, mainly driven by lower sales volumes reported by the chloralkali segment, being partially offset by higher volumes reported by the petrochemical segment. Negative movement in sales volumes translated into a decline of QAR 32 million in MPHC current period net earnings versus the same period of last year. On the operational performance front, as detailed on slide fifteen, MPHC operations continue to remain robust and resilient, with total production for the current period reaching 239,000 metric tons. Production for the first quarter of 2023 slightly declined versus the same period in last year, mainly due to maintenance turnaround carried out at QVC facilities during the current quarter, which affected production volumes on a year-over-year basis. Moving on to quarter-over-quarter performance, MPHC revenue declined by 16% and net profit decreased by 9%.
Decline in revenue was mainly linked to lower sales volumes, which decreased by 20% versus the first quarter of 2022, as production volumes declined, mainly linked to maintenance turnaround in chloralkali facilities. On the other hand, selling prices increased by 5%, mainly on the back of relatively better supply-demand dynamics. On an overall basis, our base case strategy will be to continue our focus on the strategic drivers of operational reliability in terms of continued improvement in efficiency and achieving cost optimization, which would enable the group to contain costs and making strategic investments for unlocking further growth potential. I will now hand over to Rashid to cover the segmental performance.
Thank you, Sami. Starting with petrochemical segment, as covered in slide 22 through 26. Petrochemical segment reported a net profit of QAR 225 million for the current period, down by 9% versus first Q of 2022. This decline in profitability was driven by higher operating costs linked to higher production and higher sales volume, leading to unfavorable inventory movement. Segment revenue was lower by 1% to reach QAR 586 million for this quarter versus the first quarter of 2022, as lower sales price being entirely offset by higher sales volume. Growth in sales volume was mainly linked to higher production, which increased by 30% as the segment carried out a large-scale turnaround at Q-Chem facility during Q1 of 2022, which affected the segment production for the last year same period.
On the other hand, product prices declined by 9%, mainly due to macro volatilities echoed from last year, which affected current period price trajectory for most of the commodities in comparison to the same period of last year. In terms of the segment revenue by geography, as detailed on slide 25, Europe remains a main market for the segment along with Asia. We can now move to the chloralkali segment as detailed on slide 27 through 31. chloralkali segment reported a net profit of QAR 18 million for the period, which significantly decreased by 91% compared to the same period of last year. Decline in bottom line profitability was driven by lower selling price and sales volume, which decreased by 43% and 39% respectively. Selling prices declined as end product industries such as alumina, aluminum, PVC, et cetera, remained under pressure due to macro volatilities.
Sales volume declined mainly due to lower production impacted by the plant turnaround at the chloralkali facilities. Decline in selling prices and sales volume led to an overall decline in segmental revenue, which declined by 46% on year-on-year basis and reached QAR 135 million for this quarter. In terms of the segment revenue by geography, as detailed on slide number 30, the Indian subcontinent remained the key market for this segment. We can conclude the call and we can open the floor for the Q&A session.
At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile a Q&A roster. Your first question comes from the line of Abdullah Amin from QNB. Your line is now open.
Hi. Congratulations on the results in difficult circumstances. Thank you for the call. I have only two questions. One, if you look at the quarterly report. Q-Chem versus Q-Chem II. Q-Chem II earnings are down because of the plant shutdown or maintenance. Is that correct? Hello?
Yes. Hello? Yeah.
Yeah.
Normally in Q-Chem I and Q-Chem II, we didn't have a turnaround during this quarter. We had just small day or two days of shutdowns, which are relating to the maintenance of the facility. The main decline was-
I was looking at the financial statements, footnote number four, where it's detailed Q-Chem I, Q-Chem II, QVC as a total. Revenue for Q-Chem II was down year-on-year, and the profits were also down for Q-Chem II year-on-year. Any particular reason for that?
I think we have a decline in selling price as well. As noted, there is a decline in the prices. This could be one of the reasons. The sales volume-
It should be the same for Q-Chem I as well. That's because they sell the same product, right?
Yeah. I think when you look at both companies, I think Q-Chem and Q-Chem I in 2023, they have both registered a decline in revenue.
No, Q-Chem I has shown a growth. Sorry.
Q-Chem I?
Q-Chem I is showing a.
Yeah.
Yeah. The revenue last year was QAR 389.6 million. This year, Q-Chem I revenue is QAR 521.5 million.
Yeah. I'm coming to that.
While Q-Chem-
Yeah, I'm coming to that.
Sorry.
The main reason in Q1, 2022 in Q-Chem, we had a big shutdown. That's a big turnaround that has been done in Q1, 2022, which is not present in Q1, 2023. That was the main thing.
Okay.
That was the largest turnaround that we have in Q-Chem I, which has impacted last year production. That's why you are seeing in Q-Chem, an increase in revenue compared to last year.
Thank you. Thanks for the clarification. I have still two questions remaining. One, is there any other plant shutdown coming this year? Plant shutdown for
For Q-Chem and Q-Chem II, we don't have any plant shutdown that are coming for the year 2022. The turnaround which are planned are for 2025 and the year 2026. For QVC, we had registered the shutdown during this quarter, Q1, 2023. We will have small shutdown days. On average, normally, in QVC, as you know, it's an old plant. On average, we are having around two days per month. This will help. In the next nine months or so, it's around 18 days on average, that are planned to be happening.
Thank you. My second question is regarding the CapEx on slide 33. It says it's a spread over with, I think, five years. How do you intend to finance this CapEx? From internal sources or from financing as well?
Well, we have two types of CapEx. I think the first part which are relating to the normal CapEx, relating to the turnaround and to the normal operation of the companies. Those will be financed directly from the group companies in themselves. We have another CapEx, which is related to QVC, which is the PVC project. That PVC project will be financed by the direct shareholders, MPHC, and the potential shareholder in QVC, which is IPO. This will be based on their potential shareholding in the QVC after 2026.
Still, the shareholding of MPHC will be financed from internal sources? Is there any plan for other outside, like borrowing?
Both will be financed from internal sources. Far, you will see in the financial statements that MPHC had spent around QAR 17 million during this year, QAR 43 million last year. In total, it's around QAR 50 million to finance the PVC project until to date.
Thank you.
This will be direct from internal sources without any loan.
Okay. Is there any minimum cash balance or criteria that we, sorry, MPHC manages internally or which can be disclosed? Because if I look at your footnote six point one, your fixed deposits went down from QAR 1.478 billion in December 2022 to QAR 729 million. Is there a particular reason you matured deposits and because it's a high interest rate environment where the company can make higher returns? I just want to understand, these cash fixed deposits will be used, and this will lead to lower income from the interest income side?
Okay. Fixed deposits are normally linked to the dividend that we are receiving from the group companies. As you can see in the balance sheet, we have received around more than QAR 280 million of dividend during this quarter. The fixed deposit is impacted by two things. The dividend that we receive from the group company and the dividend that we pay to our shareholders. In March, we have announced and distributed around QAR 1.38 billion of dividend. This will be taken out, and this will reduce the balance of fixed deposits that you see in 31st of December 2022. The main reason for the decline of the fixed deposit and the cash balance in MPHC level is the distribution of dividend, which is QAR 1.38 billion. Do we maintain a minimum cash or not?
We have internally our own policies. Those we cannot disclose, and this is based on the management of the cash at the holding level, and it is decided by the board of MPHC.
Sure. Thank you. One last question. I was concerned about if the internal financing is done, will it impact dividends going forward for the company? That was my primary concern, but I understand that board decides the dividend, if you can give any color on the dividends. Will this impact dividends going forward?
I think the level of CapEx that you will see, and we will see it spread over the next five years, it is not big amounts in terms of CapEx. These are mainly to save the world, the facilities, without any major CapEx that is done over the next five years. We are speaking about around QAR 1.8 billion in the next five years, and our distribution during the last two years, was around QAR 2.6 billion, which is more than, 50% of that amount. I don't think that the finance of the CapEx from the internal sources will have an impact on the distribution of dividends.
Thank you. Thank you. Much appreciated.
Thank you.
At this time, if you would like to ask any question, again, press star one. Our next question comes from the line of Zohaib Pervez from AlRayan Investment. Your line is now open.
Thank you gentlemen for the presentation. How many days was this plant shut down in the chloralkali segment?
The total shutdown planned for this year, 2023, it's around 43 days. Out of those 43 days, I would say around 29 days has been deployed during this first quarter, and these are planned shutdown days, which are normally done at the QVC plant. In some cases, we do those shutdowns during Q4 of the year. Otherwise, if it is not possible to do it during Q4, we do it normally in the following Q1. As I said in the beginning, the turnaround for this year is done already in Q1, and then the remaining days, it's an average two days per month, will be deployed during the next days.
Usually it's done in Q4. In 2021, it was probably done in Q4, and in 2022
I think it's every following year. In two years, we have a major shutdown. If you take last year, for example, that's an average of two days per month that's taking place.
There was no major plant shutdown last year, correct?
Yes.
Secondly, I can see that the prices have kind of stabilized in your both the segments, the chloralkali and over a quarter or sequential basis. The latest reports that we see from different sources suggest that the prices have again started to come down. How do you see these prices on a month-on-month or during this quarter? Do you see further weakness or you think the bottom is there and there's more stability on a sequential basis going forward?
I think, this quarter results a bit early to comment on as we are just in May and we haven't closed the April results. However, we are reading similar reports to what you are reading. At the latest hike in the Fed rate, the interest rate is increasing. That could have an impact on the GDP growth, and our products are linked to the GDP growth. That story could cascade to some kind of a lower level of pricing. Also at the other end, you have China. They're also opening up after the COVID restriction, and that could add additional layer of, let's say, demand. It's kind of uncertain what could happen next quarter or during the year. On the long term, we talk about one, two years from now, specifically in the petrochemical segment.
China has announced several projects that will go online either in 2024 or 2025, that could cascade in the overall market supply of petrochemical. That could have a cascading effect in terms of the prices. Short term, it's kind of uncertain. There are some driver could drive the price down. Also, there are some driver that could drive the price up. Long term, there is additional capacity that could stress the market in terms of supply. You'll have additional supply, that could cascade into the pricing and how it will evolve in the long term.
Okay. Thank you. Sorry, just a follow-up to that. Which segment are you talking about? Are you talking about the chlor VCM, caustic soda, or the HDPE? Which segment is these expansions coming online in China?
Petrochemical. It's in the petrochemical segment. Also, you have the PVC also project coming up in the future. The PVC project, I would say the PVC project are closely linked to polyethylene prices, et cetera. Those dynamics would kick in after we have the facilities up and running by, I think, 2025 or 2026. Yeah, that's to answer your question.
Okay. Thank you.
Again, if you would like to ask question, press star, then one on your telephone keypad. There are no further question at this time. I turn the call over to our presenter.
Correct. There are no further questions. We would like to thank Abdulla Yaqoob Al-Hay, Sami Mathlouthi, and Rashid al-Mohannadi from QatarEnergy for the results update and answering all the queries, look forward to speaking to you all for the next quarter results. I will hand over the call now to Abdulla Yaqoob Al-Hay for his closing remarks from the site.
Thank you all for joining us. Thanks a lot for your questions. I hope we clarified all. We looking forward for the first half session, which will take place in August. Thank you.
Concludes today's conference call. You may now disconnect.