Ladies and gentlemen, this is Alanoud Alghifaili . I will be your moderator for SABIC full year of 2023 earnings call, and I would like to welcome you all and hope you are all well. Today's call will be led by SABIC CEO, Engineer Abdulrahman Al-Fageeh, joined by our CFO, Mr. Salah Al-Hareky, and our IRO, Mr. Moneef Al-Moneef. Now, please allow me to hand over the call to our IRO. To you, Moneef, please go ahead.
Thank you, Alanoud. Good afternoon, and thank you, everyone, for joining us today for SABIC 2023 earnings call. Please note that any forward-looking statements are subject to assumptions, risk, and uncertainty. These statements are not a guarantee of future performance. Actual outcomes might differ materially. Please refer to the disclaimer in the presentation and in our financial reports, which are available at SABIC.com. We will go over the high-level market context that influenced our industry's performance over the course of 2023. This will be followed by strategic discussion on SABIC's transformation initiatives, growth journey, and ESG policy. The team will discuss SABIC's aggregate financial performance with additional background on the industry trends and market prices.
Our CEO will then provide a brief outlook for 2024 and open the line for a live Q&A session, during which participants will have the opportunity to follow up on any statements and field additional questions. We ask that the participants keep the questions limited to SABIC Corporate and avoid addressing any questions to our affiliated listed companies. Now, please join me in welcoming our CEO, Al-Fageeh .
Thank you very much, Moneef, and thank you, everyone, for joining today's call. Let us first set the stage with a review of the macroeconomic factors that shaped the global chemical industry and influenced our financial performance during the last year, 2023. The year presented numerous global and regional challenges despite a modest improvement in the GDP growth rates resulting from increased level of government spending and rising level of private industrial production. Regional economics have responded to high monetary policy. There is a noticeable decline in fourth quarter last year. Inflation rate has the cumulative effect of country-by-country efforts to steer towards stability. Interest rate hikes have been deployed as the primary tool to combat inflation and have the ultimate effect in slowing borrowing patterns, which in turn encourage both enterprises and consumers to begin prioritizing saving over consumption.
These higher interest rates carry over into the credit facilities used in global commodity trade and place downtrend pressure on demand. Energy markets have retreated from record high crude value, so a 3% decrease, averaging at $48 per barrel. As non-OPEC producers achieved record output, the downturn in energy cascades through a large suite of downstream goods, including petrochemicals. This upstream dynamic combines with underwhelming demand within our target markets, resulting in a lower product sales price, unfortunately. There remains considerable uncertainty heading into the first quarter of this year, 2024, particularly in the evolving response to regional conflicts and the associated disruption of seaborne trade routes. This uncertainty weighs negatively on immediate market sentiment, but we do see signs that petrochemicals demand and associated market pricing is stabilizing. SABIC has been well-positioned to navigate the challenges of 2023.
Our ongoing optimization programs position the company to continue performing through the intricacies of dynamic global market. Can you move to the next slide? Thank you. We are pleased to highlight a number of achievements reinforcing SABIC's ability to navigate the difficult 2023 operating environment. Safety and well-being for our people will always be on top of our minds. Our operations have accumulated 173 million safe man-hours, and SABIC recorded a total recordable incident rate of 0.1. This TRIR rate represents the leading position among peers in the global petrochemical industry. Despite tough market situation, SABIC distributed to its shareholders $3.04 billion in dividends for 2023. In addition, I would like to highlight that the second half of last year, the board has approved dividends of $1.28 billion that will be paid in early March this year.
The optimization of our company portfolio, with a focus on core assets, allows us to maintain this long-term commitment to our shareholders and to their distributions. We are deploying capital in a disciplined manner to fulfill future demand for high-end products across key markets. We have announced an addition of more than 4 million metric tons to our existing portfolio. I will highlight a variety of upcoming growth projects later in the presentation. Our unwavering focus on safety, capital disciplines, and a portfolio of a unique product offering has elevated the SABIC brand to $4.89 billion, representing the second most valuable global chemical brand with a growth of 3.7% from last year. We are guided by the ambition to become the preferred global leader in chemicals, and we are determined to create a better future for our people, our industry, and ultimately for our shareholders. Next slide.
Our team is working diligently to deliver on this ambition. Measured progress on a diverse suite of projects reinforces our long-term confidence in the petrochemical industry and reflects our commitments to disciplined capital allocation. We ultimately control where cash is deployed and have the ability to be selective in our growth initiatives. SABIC has announced a positive FID of the SABIC Fujian Petrochemical Complex in a joint venture in China. This announcement cements our presence in China and complements the launch of commercial polycarbonate production at existing joint venture with SINOPEC SSTPC. We further expanded our Asian footprints through successfully commissioning in-market production of our proprietary ULTEM resin in Singapore. Separately, we have awarded the Engineering Procurement and Construction (EPC) contracts for what will soon become the largest on-purpose single-train MTBE plant in our Petrokemya facility in Jubail in Kingdom of Saudi Arabia.
Sustainability is a fundamental pillar of our long-term strategy. SABIC is on track to not only meet but also exceed the comprehensive set of sustainability targets. Our leadership on the development of sustainable products is further showcased through the production, commercialization, and final delivery of low-carbon ammonia to both Taiwan and India. I'm also delighted to highlight the progression in collaboration with Linde in Germany for the construction of an electrically heated cracker furnace demonstration plant. SABIC has undertaken comprehensive portfolio review and identified the pathway of sustained value creation. The announced divestment of Hadeed Company is proceeding as planned. This optimization of internal resources will enhance our core focus on petrochemicals. Additionally, we are pursuing a number of initiatives to address the competitiveness of our European assets, ultimately striving for a maintainable and modernized footprint in the region.
The realization of joint synergies with parent company Saudi Aramco has accelerated. We have now seen $1.8 billion of value accumulation over the last three years as synergies with Saudi Aramco. This figure complements our proven ability to extract value through disciplined cost optimization. Our efforts have attracted a number of independent recognition awards. I'm thrilled to announce that SABIC has earned the number one ChemSec ChemScore ranking, and we have also received compliance leader verification via Ethisphere for the third consecutive year. As part of SABIC's continued support of national initiatives, we are cooperating with the National Cybersecurity Authority in implementing the National Cybersecurity Awareness Program (AMAN) with the aim of raising the level of awareness of cybersecurity and introducing best practices in protecting society from the cyber risk here in Kingdom of Saudi Arabia.
These awards and initiatives are a clear testament to our industry-leading environmental stewardship and chemical safety practices together with the strength of robust ethics and compliance program that covers all aspects of our existing operations and will be implemented across the pipeline of upcoming projects. Moving to Slide number eight, SABIC is pursuing measured growth across a number of product lines. We made a positive final investment decision of, as I have said earlier, for the SABIC Fujian Petrochemical Complex. SABIC owned 51% and 49% a joint venture between SABIC and the majority partner with Fujian Fuhua Gulei Petrochemical Company. This $6.4 billion investment is another centerpiece of SABIC's investment footprint in China and by far the largest foreign investment in Fujian.
Our new-built 260,000-ton polycarbonate plant, our existing joint venture with SINOPEC in Tianjin named the SSTPC, has now under commercial operation for a close to a year right now.
The plant is vital to our China strategy as it supports our global polycarbonate manufacturing footprint and the diversification offering of our customer needs. Also, SABIC has awarded, as I mentioned, the MTBE plant in Petrokemya. I'm really proud that our SABIC people and our affiliates and our external joint venture with our partners and also our customers have worked really hard to make these projects reality. Now allow me to speak on some of our sustainability metrics. Slide nine. This slide shows our environmental-related targets and the progress at the end of 2023. SABIC's approach has been guided by the intensity-based greenhouse gas emission targets with a baseline of 2010, and I'm happy to announce that in 2023, SABIC surpassed its 2025 intensity target for both the material efficiency and greenhouse emissions.
Greenhouse emissions, we achieved our target 25%, and in the material loss, as you may see in the slide, 52.2% versus 50%. Furthermore, I'm happy to report a significant reduction of 12.5% in absolute Scope 1 and 2 of greenhouse gas emission driven primarily by our concentrated efforts to improve energy efficiency across our assets and the integration of renewable power sources. Our carbon neutrality roadmap outlines a 20% reduction in greenhouse gas emissions by 2030 from the baseline of 2018, and I'm pleased to share that we are currently well on track. Another important target was announced earlier last year by setting a target to process 1,000,000 tons of TRUCIRCLE solutions annually by 2030. In 2023, this is the starting year, the sales of the TRUCIRCLE reached 18,000 metric tons of circular and renewable polymers, signaling still small but yet promising growing demand for sustainable materials.
I look forward to providing additional ESG updates in the near future. The next part to today's call will provide a high-level view of dynamics across key end-user segments. If I move to Slide number 10, Q4 demand trends varied considerably between industries. Quarter on quarter, demand improved in most sectors and remained stable across food and beverages, building and construction, and industrials. SABIC sales volumes are distributed across a number of industries, providing broad exposure to upside market dynamics while guarding against over-reliance on any single area. We expect to see an improved or stable in Q1 2024 trend in most end sectors, except for automotive, pharmaceutical, where market demands remain under pressure. These two areas make up a minor portion of our overall company sales volume. I will now hand over to our CFO, Mr.
Salah Al-Hareky, for an additional comment on end-user market and review of SABIC's financial results. Salah, please.
Thank you, Abdulrahman, and thank you to everyone joining today's earnings call. I will first discuss how pricing in various markets has affected the year's result, then take you through our 2023 financial performance. This chart displays the percentage change in market prices for our key petrochemical products across several relevant regions. On a year-over-year basis, most of our major products have faced headwinds from new capacities and weak demand globally. Focusing on the quarter-over-quarter directional performance, chemical products improved for methanol and MTBE while monoethylene glycol prices were flat. For polymers, polypropylene prices improved while polyethylene prices were flat. Finally, polycarbonate prices decreased due to lower demand. Let me take you through highlights of our 2023 financial result in Slide 13. Challenging market conditions have affected our industry throughout the course of year 2023, and SABIC navigated these challenges through robust capital discipline and focused effort on managing costs.
We have maintained a robust net debt position, initiated portfolio optimization efforts, reduced working capital, and delivered on value creation initiatives. SABIC recorded over $37.7 billion in revenue and generated an EBITDA of $5.1 billion in year 2023 despite a difficult market. Our full-year EBITDA margin came in at 13%, and free cash flow proved resilient at $3.7 billion, allowing us comfortably to distribute around $3 billion in dividends. We have worked to maintain a strong balance sheet and emphasized that the $1.6 billion release of working capital was driven by collective effort across the company. The $1.8 billion of synergy value with Saudi Aramco is another highlight that will be discussed later on the call. The company saw $348 million of net income from continuing operations. I will discuss more on this as we walk through the net income bridge in the next slide. Next slide, please.
As you can see in the chart in front of you, our net income was impacted by two main factors. We had several accounting-driven adjustments due to the chemical industry prices outlook. We believe it is prudent to take these adjustments as a matter of good financial accounting practice, which, of course, are cash neutral. The remaining one-off charges related to Hadeed, as shown in the chart. With these one-off charges, our clean net income from continuing operation before special item would be $592 million. These cash neutral impairments are mainly related to our polymer assets in the U.S. and European region. Recalibrating our manufacturing footprint in Europe also came with restructuring provision, which we also had to set aside in 2023. For more details of the segments and financial performance, you may please refer to the slide in the appendix. Next slide, please.
We believe our strategy and operating model continues to deliver the desired result with the necessary focus and agility for sustained value creation. We are committed to optimize our portfolio to deliver increased shareholder value. Our team is implementing several portfolio optimization initiatives that will enhance SABIC's competitive position. As announced in September, SABIC has agreed to sell 100% of equity in Hadeed to the Saudi Public Investment Fund. Our functional foreign business is also being divested in order to give more focus on our petrochemical core business. Our ongoing assessment of our European footprint resulted in ensuring a sustainable and economically robust future for our remainder of our European business. In relation to the synergies with Saudi Aramco, we are focusing on a series of value targets for maintenance, operation, procurement, stream integration, sales, marketing, and supply chain.
As highlighted by our CEO, our synergy realization journey is still ongoing, where supply chain and operation dominate the majority of these synergies. On the next slide, please. In summary, I would like to highlight that the cash generation of the SABIC business remains strong, as illustrated with the cash flow from operations in the chart. We are well positioned to weather through markets with a negative net gearing and a robust balance sheet. We are ranked third globally as the strongest chemical company by S&P Global Ratings, with a rating of A, stable, and a standalone company rating of A+. In addition, today, Moody's confirmed SABIC's credit rating of A+ with a positive outlook. Our portfolio optimization effort is yielding results, and we continue to restructure our assets where we are competitively challenged.
To conclude, our company has navigated the market challenges well in 2023, and with continued efforts on portfolio optimization with a focus on our core business, operations excellence, and profitable growth, we are confident of the future. I will now hand back to our CEO, Abdulrahman Al-Fageeh, to provide the closing remark.
Thank you. Thank you, Salah. Are we on the right slide? Okay. Thank you.
Yes.
Our guidance for the year ahead includes stable economic growth reflected in a GDP growth rate of 2.6% for the year 2024, improving margins during the second half of the year and $4 billion-$5 billion in CapEx. Safety first to our people, society, and the environment is a top priority for us. SABIC will continue to focus on operational excellence, value creation, and capital discipline with an active portfolio management on strengthening our operating model. We anticipate sustained value from synergies and collaboration with Aramco. This concludes the presentation portion for today's call. Back to Alanoud for the start of the session for questions and answers. Alanoud, please.
Thank you, Mr. Al-Fageeh. Audience, please use the raise hand feature on the control screen to ask a question and wait for your line to be open before asking a question. Make sure to click the lower hand button once the question is asked. You can also share your questions in writing. We have the first question from Prateek from HSBC. Prateek, please come closer to the mic and ask your question.
Thanks a lot. Thanks for taking my question. The first is regarding the [audio distortion]
Prateek?
Hello?
Prateek, you're cutting off.
Okay. I'll try to speak slowly. The first question is regarding the EPC MTBE plant for which you have awarded the EPC. Could you let us know the CapEx of the project and where will you be sourcing the feedstock of that project?
Okay. I will replay.
That's the first question. I hope I was clear.
Okay. Second?
Second is regarding the one-off gain in the finance income which you highlight in your results, the revaluation gains due to JV contracts. It's of SAR 1.5 billion. How much of it was in Waterfall, and what is SABIC's share of that one-off gain? Thank you.
Prateek, thank you so much. Let me just repeat the questions so that we answer them one by one. So let me start with the first one. So you asked about the EPC contract of the recent MTBE on-purpose plant. Is your question right? On the second?
Yes. Yes. It is right. Yes.
Okay. Good. Second one?
Okay.
Second one?
The second one is about the financial gain on the JV contracts related to the bridge.
Yes. The $1.5 billion part. Yes.
So maybe I'll hand over the first question to you, Abdulrahman, for the EPC of the MTBE plant.
Okay. Thank you very much. For the MTBE plant that we awarded the EPC in Petrokemya, and I think this is part of the growth that we normally have in our affiliates. Since this is not a greenfield, this is part of the brownfield. We normally don't announce this, but we will look for if you have announced this figure, then we can give it to you separately.
On the second question, maybe I'll hand it over to Mr. Salah.
Okay. Thank you very much for your question. As you are very well aware, the valuation of derivative changes from quarter to quarter. I can tell you the derivative gain for the fourth quarter was around $164 million.
Thank you. The next question is from Faisal [guess] from Goldman Sachs. Faisal, please come closer to the mic and ask your question.
Hi, and thanks for the opportunity to ask questions. Just to follow up on the one-off, so we saw that you have around $2.48 billion of a one-off loss. How much of that relates to the restructuring, and how much of that is effectively above the EBITDA line, or is it all below the EBITDA line? Because we noticed that the petrochemicals EBITDA margins contracted a bit in Q4. So we wanted to just try to understand how much of that margin is the function of pricing and feedstock, and how much of that contraction relates to kind of one-off expenses during the quarter. And just to kind of go back to that particular number, the 2.48, is it net of this one-off gain that you just mentioned, or is it gross of that one-off gain? Thank you.
Okay. So let me start by answering the last part of your question. The gain, the number that you mentioned, is actually net of the derivative gain. So it's actually the impairments that we did net of the derivative valuation. And thank you for asking the question. It's very important to clarify that the SABIC net income from continuing operation is actually excluding those special items, is around $592 million. And then when we take the special item and then also, most importantly, the fair value of Hadeed and also considering the accumulated losses over the year of 2023 for Hadeed, which is in total between the fair valuation and the accumulated losses around $1 billion-$1.1 billion. So basically, if you calculate back the net income from continuing operation, it's around $600 million.
Thank you. The next question is from Sashank Lanka from Bank of America. Sashank, please come closer to the mic and ask your question.
Me?
Yes.
Yeah. So just going back to the question that my colleague Faisal asked, so just to clarify, these one-off charges, given your EBITDA and the PetChems business did fall quite significantly, how should we look at that? Because the drop in EBITDA is more severe than the revenue drop that we are seeing. So what percentage—I mean, your EBITDA is around $3.3 billion that you have for Q4. So what are the one-offs there? And is my understanding correct that you're saying the clean net income for Q4 from continuing operations is around $600 million? Is that my correct understanding?
Okay. So let me clarify by answer. So the material special item within a bit, we have around $800 million for the full year for the full year 2023. The majority of that is the restructuring and impairment and provision and the rest of the world, that is Europe and America. And we have also contractors' constructive obligation of around $500 million, actually $200 million. And we have also the impairment in KSA is also around $100 million. This is for the full year 2023, and this is actually directly impacting our EBIT.
Thank you. The next question is from Ricardo Rezende from Morgan Stanley. Ricardo, please come closer to the mic and ask your question. Ricardo, your mic is muted. Okay. We will take the next question from Alex [guess] from JPMorgan. Alex, please come closer to the mic and ask your question. Okay. There are technical issues, so we'll move back to Sashank if you want to ask another question.
Yes. I think just on the clean net income for Q4, because there's been so many one-off gains and charges, it's a bit confusing here. So can you tell us what the clean net income for Q4 is from your continuing operations?
Yeah. Okay. So your question, Sashank, is on the clean net income for quarter four. Just give us a minute. We'll take other questions, and we'll come back to you.
Okay. Thank you. We'll take another question from Alex. Alex, please ask your question.
So I think.
Okay. We'll take the next question from Ricardo. Ricardo, please come closer and unmute your mic. Okay. We'll go back to Faisal [guess]. Faisal, please ask your question.
Yes. Thanks again. Just maybe a question on the market dynamics. You've mentioned that you're seeing some stabilization. Maybe if you can talk a bit about what you're seeing in Q1, not in terms of kind of the outlook, but generally how the dynamics have picked up recently and whether you could be a bit more optimistic for the first half, or is it still quite troubling in terms of where the supply conditions are? If you can talk a bit about that, that would be quite helpful, particularly on the polyethylene side. Thank you.
Thank you, Faisal. Let me address this, Faisal. Of course, this is our views and the market, and it does not represent how is our demand for the SABIC products because the demand for SABIC products, since we have a wide portfolio for our company that's starting from the C1 chemistry and the C2+ also chemistry, that we have a wide portfolio, Agri-nutrients, specialty, chemicals, polymers, etc. So the demand for the SABIC products in all the segments, we see that it is healthy, and we have established a very solid customer base that SABIC is partnering with our customers for many, many years. So I don't see any risk or any issues with the demand for the SABIC products. As far as the market itself, I can tell you that we have not seen any healthy recovery after the COVID-19 since 2019 in most of the segments.
Yes, there is a segment in the last quarter of last year. It shows a very small improvement on the demand globally. But mostly, when we are becoming to the major segments in the building and constructions and the automotive, especially automotive, still has some pressure in finding the right material for it, especially when it comes to the chips. And also, it has a slow in the production of the automotive since the market has lost more than 2 million cars per year. It has not been recovered yet, even to the levels of 2019. So China represents more than 45% of the demand of petrochemical. So China has not come back to the expected recovery in the demand for petrochemicals.
Despite this market challenges, we maintain very strong market share with keeping our sales globally, with a slight decrease in 2023 versus 2022 with only about 2% in our sales volume. Some of it, by the way, it is a matter of optimizing our inventory levels. Thank you, Faisal.
Thank you so much. We'll go back to Sashank.
First, thank you, Sashank, for the question. Our net income from continuing operation for the fourth quarter was around $650 million. The clean net income from continuing operation is around $380 million, and there was an impairment net of approximately $270 million.
Okay. The next question is from Prateek from HSBC. Prateek, please ask your question.
Thanks a lot. It's regarding [audio distortion] decision of not increasing its oil capacity. How does it impact SABIC in terms of its plant oil-to-chemical project? [audio distortion] SABIC's growth project in the kingdom? Thank you.
Yeah.
Prateek.
Repeat the question.
Yeah. Can you repeat your question slowly because your voice is disconnecting?
Yeah. Hi. I will speak slowly. Aramco has decided not to increase its oil capacity last month. How does this decision of Aramco impact SABIC's growth projects, mostly its plant oil-to-chemical project? And do you see any impact on SABIC's growth because of Aramco's decision of not increasing its oil capacity?
I get the question. I get the question, Prateek. Thank you very much. I think your question is related to the impact from the reduction in oil on the SABIC feedstock. And if this is your question, I can tell you the following. We have been getting a very reliable feedstock supply from Aramco for the past 40 years, and it was a tremendous contribution from Aramco as a supplier for feedstock in the Kingdom of Saudi Arabia for all kinds of feedstock: methane, ethane, propane, butane, naphtha, etc. So that has been a very robust, reliable supplier for the last 40 years. I mean, looking at what is the production level of oil in Aramco, we don't look at this. We continue to have a very reliable supply.
The beauty of SABIC is that we have a different feeder stock mixture that we could maintain our operation and our production capacity at the level that it has been planned and has been approved during our planning phase.
Thank you all for the thoughtful questions. The investor relations team is available for pending inquiries and any follow-up from today's call. Contact information is displayed on the screen. The call has now concluded. Thank you again for attending SABIC's earnings call for the year 2023. You may now disconnect. Thank you so much.