Welcome to SABIC's Q3 2026 earnings call. My name is Sarah Alzamami, and I'll be serving as a moderator today. Please note that the call is being recorded. A transcript of the recording, together with supplementary materials, will be published on the Investor Relations webpage on sabic.com. Today's earnings call will feature SABIC's CEO, Dr. Faisal Alfaqeer, its CFO, Mr. Salah Al-Hareky, and its IRO, Mr. Naif AlAyed. Naif will now take us through an outline of today's event.
Thank you, Sarah, and thanks to those of you who are joining the SABIC Q3 2026 earnings call. Let me begin by pointing out that forward-looking statements will be made during this call. These statements are based on assumptions filled with risk and uncertainty and are not guarantees of SABIC's future performance. Actual outcome may differ materially from what the statements imply. For further details, please refer to the disclaimer included in today's presentation and to our financial reports, both of which are available on sabic.com. Our CEO will begin with an overview of the global market context on the macro and microeconomics for the current period, followed by a demonstration of SABIC resilience and key operational and performance highlights and our strategic priorities.
Our CFO will then walk you through SABIC's financial performance for the third quarter of 2026 and will address structural industrial challenges and how SABIC is overcoming these challenges. Then we will conclude with an open line Q&A session. I ask that participants focus their questions on SABIC corporate performance and avoid referring to listed affiliates. Now, please join me in welcoming SABIC CEO, Dr. Faisal Alfaqeer, to the call.
Thank you, Naif, and thank you to everyone for joining SABIC's earnings call. Let me start by highlighting the key macroeconomics developments during the quarter and their implications on the global market. Global GDP growth stood at 2.3%, with varying trends across major economics. China and the broader Asia region continued to demonstrate relatively strong growth, reinforcing their strategic importance as key growth markets. Toward the end of the third quarter, interest rates increased as major central banks raised them in response to inflationary pressures. However, global manufacturing activities continue to show positive momentum despite broader economic challenges, with the manufacturing PMI remaining above 50. This indicates ongoing expansion in the manufacturing sector. Moving to the microeconomics environment, global ethylene capacity continued to outpace demand, sustaining pressure on industry operating rates and margins.
As shown in the chart, operating rates remain near cyclical lows, with a gradual recovery expected as supply and demand conditions rebalance. As we navigate this cycle, higher cost producers will continue to face notable margin pressure, leading to the rationalization of disadvantaged assets across the industry. Against this backdrop, SABIC's advantaged feedstock mix and selective investment in competitive value chain and regions strengthen our position on the global cost curve with C1 assets in the first quartile and C2+ assets in the second quartile. This provides greater resilience as we move through the cycle and position us to benefit as market conditions improve. Alongside our competitive cost position, SABIC's ability to maintain reliable operation despite the challenging operating environment continues to be one of our key strengths. This resilience is built on a strong foundation.
Our global network, integrated assets, and crisis management capabilities, supported by the Kingdom of Saudi Arabia vast and reliable infrastructure, and backed by the government as well as by our shareholders. These capabilities reflect years of disciplined investment in business continuity, enabling us to respond to challenges quickly and in a coordinated manner. We saw another demonstration of this notable resilience again in this quarter with safe and reliable operations. In Jubail, the flexibility of our ethylene network allowed us to optimize feedstock utilization and keep global markets supplied. Sales volumes increased quarter on quarter by 24% in Petrochemicals, 23% in polymers, and 68% in Agri-Nutrients. On the logistics side, following the disruption in the Strait of Hormuz, we adapted quickly by leveraging Saudi Arabia east to west infrastructure and alternative shipping routes.
A key example was SABIC Agri-Nutrients' first urea shipment through NEOM Port this quarter, adding another export outlet alongside the recently established routes from Yanbu, Rabigh, and Jeddah. We also increased polymer volumes shuttling from Jubail to the West Coast ports by more than 230% compared with pre-crisis levels. Additionally, vessel lifting increased by 38% quarter on quarter. Together, these efforts restored sales volumes on SABIC overall to around 80% of pre-crisis levels. Our ability to navigate these challenges reflect the strength of our integrated business model, robust supply network, and financial resilience, underscored by our A+ credit rating, allowing us to maintain business continuity while executing our long-term growth strategy. Let me now take you through some of our third quarter highlights.
Starting with operational performance and innovation, we maintained a strong EHSS performance, a total recordable incident rate of 0.06, which is among the lowest in the industry. On innovation, we received the R&D 100 award for one of our resins. A first of its kind laser weldable material for solar PV manufacturing, reflecting our commitment to innovative solutions. We also continue to support the kingdom's industrial development through Nusaned, strengthening local capabilities and domestic demand. These efforts were recognized during the third quarter, with achieving a local content certificate score of around 62% for the year 2025, up by 9% year on year. Alongside these efforts, our strategic collaborations with CEER and Lenovo support emerging industries, including electrical vehicles, electronics, and technologies applications while strengthening local value chains and demand.
Turning to portfolio transformation, we realized $950 million in transformation value during the first nine months of 2026, reflecting continued delivery and improving our structural cost base and operational performance. We also successfully completed the divestment of our engineering thermoplastic business, ETB, in the Americas and Europe during the third quarter, as announced on the Saudi Stock Exchange market. Meanwhile, the European Petrochemicals transaction is progressing well toward its expected closure in the fourth quarter of this year, further sharpening our portfolio focus and improving structural competitiveness of SABIC overall. In parallel, during the quarter, we advanced our goal of establishing a national petrochemicals logistic champion by completing the share exchange agreement to combine our shareholding in SABIC Terminal Services Company, SABTANK, with Jubail Chemical Storage and Services Company, CHEMTANK, strengthening our logistics capabilities and unlocking synergies.
We also continue to evaluate further opportunities to unlock additional value from these businesses. Turning to growth, the SABIC Fujian Petrochemical Complex, our largest investment in China, is approaching startup. During quarter three plants that produce mainly polyethylene and polypropylene successfully completed their trial runs on the first attempt, keeping us on track for full startup during the fourth quarter of 2026. Additionally, SABIC Agri-Nutrients announced the final investment decision for its seventh plant in Jubail. With engineering, procurement, and construction contract already awarded, the project will include an integrated ammonia and urea complex producing 1.2 million metric tons of ammonia and 2.6 million metric tons of urea annually. With an investment approximately $3.5 billion, the project is expected to increase annual urea production capacity by 54%. Commercial operations are planned to begin in the fourth quarter of 2030.
Moreover, as part of our selective growth strategy focusing on advantage value chain, we secured the required allocation to build 1.8 million metric tons of additional methanol production capacity. Additionally, our integration with Aramco continued to create value, most recently through an agreement to market 1.2 million metric tons of polyethylene from S-Oil, expanding our reach to customers across markets. Building on this quarter's highlight, our delivery demonstrates clear momentum in advancing our strategic priorities for the period ahead. On portfolio optimization, the focus is improving returns on capital employed and strengthening long-term competitiveness. On transformation, our program is well on track to deliver a recurring EBITDA uplift of $3 billion by 2030, driven by structural cost reduction, improvements in production reliability, and commercial performance.
On capital investment, we are progressing with discipline, and we have lowered our guidance for this year to $3.3 billion, reflecting greater rigor, maintaining capital efficiency, and prioritization without compromising reliability or growth. Our approach to growth remains selective, focusing on opportunities where we can leverage our competitive advantages and expand our access to strategic markets, including the SABIC Fujian Petrochemical Complex in China and our planned expansion in urea and methanol. Through our continued focus on and delivery of these priorities, we are building an even more resilient earnings base today and greater upside as market conditions improve. With that, I will now hand over to our CFO to take you through our financial results for the quarter. Thank you.
Thank you, Dr. Faisal, and welcome everyone. The third quarter was challenging as ongoing geopolitical uncertainties, evolving market dynamics, and supply chain disruption added complexity to the operating environment and reinforced the need for agility and disciplined execution. Despite these challenges, SABIC demonstrated resilience through operational efficiency, commercial discipline, and the strength of our diversified yet focused business portfolio. During the quarter, SABIC delivered an improved financial performance from continuing operation, with the revenue increasing by 14% quarter-on-quarter to $7.5 billion. This improvement was primarily driven by a 30% increase in sales volumes, supported by our global footprint and resilient supply chain management. Adjusted EBITDA was at approximately $1.3 billion, resulting in an adjusted EBITDA margin of 17%, an improvement of 3.2% compared with the previous quarter. I will discuss the key drivers behind this performance in more detail later in today's call.
Adjusted net income reached $225 million, representing an increase of $327 million compared to the previous quarter. While reported net income from continuing operations stood at $676 million. The difference is mainly attributed to impairment reversal of our investment in Clariant as a result of its share price appreciation. Year to date, free cash flow reached approximately $1.1 billion, up 2% year-on-year, primarily supported by a 36% reduction in capital spending, reflecting our prudent approach toward capital allocation. On a pro forma basis and excluding discontinued operation, SABIC continuing operation free cash flow reached $1.9 billion. Moreover, we maintained a strong financial position with a net debt of approximately $800 million and an A+ credit rating, one of the highest in the chemical industry. Recent reaffirmed by S&P and Fitch Credit Rating Agency with a stable outlook.
Our strong balance sheet and disciplined capital allocation provide the financial flexibility to navigate market uncertainties, pursue selective growth opportunity, and deliver sustainable long-term shareholder value. Let me now take you through the key driver of our quarterly EBITDA performance. During the third quarter, SABIC delivered a strong recovery in sales volume, marking an increase of 30% quarter-on-quarter. This was offset by a 13% decline in average selling price, reflecting continuing market uncertainties and pricing pressure. Despite lower selling price and logistic challenges, we achieved an improved profitability with a 40% increase in adjusted EBITDA, supported by higher sales volume and improved margin. Additionally, we continue to maintain our focus on cost discipline and operational efficiencies.
As is clear in the 5% year to date reduction in our general and administrative expenses compared with the same period last year, and a 14% reduction compared with the base year of SABIC transformation inception, which was in 2024. Furthermore, our transformation program delivered $950 million year to date, with approximately 55% coming from cost excellence and 45% from value creation, reflecting continued progress and driving structural cost improvement and enhancing operational performance. I will now walk you through the performance of our business segment. Starting with Petrochemicals. The third quarter showed strong recovery in sales volume, increasing by 24% quarter-on-quarter to around 7 million metric tons, reflecting improved sales activity despite supply chain and shipping disruptions. Average selling price declined by 10% quarter-on-quarter, primarily driven by lower polymer prices, reflecting adjustment from the elevated level seen in the second quarter.
Nevertheless, the Petrochemicals price index remained above its 2024 and 2025 levels. Although this price adjustment, the recovery in volume supported a notable improvement in profitability, with adjusted EBITDA increasing to $1 billion compared with $631 million in the second quarter, demonstrating the adaptability of our operations during continued market uncertainties. Looking ahead, while industry overcapacity and market uncertainties continue to put pressure on the sector, SABIC continued to be focused on enhancing the competitiveness of its Petrochemicals portfolio by growing in the most advantaged regions and value chain. Moving to Agri-Nutrients. This segment recorded strong recovery in sales volume with an increase of 68% quarter-on-quarter to 1.6 million metric tons, reflecting our logistic effort to utilize alternative shipping route and ports, including NEOM Port, along with three other ports in the western region.
However, average selling prices declined by 20% compared with the second quarter as a result of softer market demand and increased supply from key regions. As a result, adjusted EBITDA declined by 12%, reflecting the impact of lower selling prices on profitability. Overall, the quarter demonstrated our ability to restore sales volumes and maintain access to international markets while navigating pricing pressure and ongoing market uncertainty. Looking ahead, we continue to be focused on operational reliability and cost competitiveness while maintaining flexible logistics capabilities to support long-term performance. Moving to Specialties. Adjusted EBITDA reached around $125 million during third quarter, compared with approximately $100 million in Q2, marking a 22% increase quarter-over-quarter. This reflects the benefit of a favorable product mix alongside continued cost discipline. Focusing on sales, averaging selling prices increased by 3% quarter-on-quarter, supported by the more favorable product mix.
To conclude, our delivery across our strategic priorities is already strengthening SABIC's competitiveness and resilience, addressing structural industrial challenges and positioning us for further upside as market condition improve. Against continued overcapacity, margin pressure, and geopolitical uncertainties, we are taking decisive action to strengthen performance through our programs, the transformation, the portfolio optimization, and the selective growth. Our transformation program is demonstrating tangible progress in structural cost reduction and operational efficiency as we advance toward our 2030 targets. Our portfolio optimization actions have generated $2.3 billion in cash proceeds, including the exit from Hadeed, ALBA, and Functional Forms. The divestment of the ETB business in Europe and America and the European Petrochemicals business are expected to further strengthen earning resilience by removing business that recorded average annual operating losses of approximately $1.4 billion in 2024 and 2025, while also eliminating significant cash leakage.
Together, these actions strengthen our portfolio and support the redeployment of capital toward higher value opportunity in advantaged region and value chain. We are progressing toward the startup of SABIC Fujian complex as well as reached the final investment decision for the urea expansion, and secured gas allocation for the methanol expansion. These achievement and milestone position SABIC to navigate near-term uncertainty while strengthening our long-term earnings potential and maximize shareholder value. With that, we conclude our presentation and welcome your questions.
Thank you, Mr. Salah. To ask a question, please use the raise hand feature on your screen and wait for your line to be opened. Make sure to click the lower hand button once the question has been asked. You can also share your questions in writing. Let us have no more than two or three questions per person so that we have enough time for everyone. The first question is from Harsha Pappu from HSBC. Harsha, please come close to the mic and ask your question.
Yeah. Hi. Thank you for the call and for taking my question. I had two questions, if I may. The first is actually on volume. Could you talk about the drivers behind the improvement in volumes in Q3 and how sustainable you think that volume improvement is into Q4? Because obviously, a few things have changed on the ground there in Saudi. My second question is more on the transformation target that you've given. You've given the $3 billion recurring EBITDA target by 2030. Could we get a little more detail, please, around the makeup of that $3 billion number? Thank you.
Thank you, Harsha. For the sales volume in quarterly, we have seen a great improvement in all our major business units, Petrochemicals, Polymers, and Agri-Nutrients. That was obvious in our volumes, which reaches around 80% pre-crisis levels, demonstrating the resilience that SABIC has. In terms of the drivers, we leveraged our global network, integrated assets, crisis management capabilities to maximize the volume.
We took advantage of the great infrastructure in the Kingdom of Saudi Arabia to export through the Red Sea and taking advantage of the safe passage whenever available through the Strait of Hormuz. For example, this is the first time we export urea from the western region. We exported urea from Yanbu, and recently in Q3 is from NEOM. It's still too early to talk about Q4, but we continue to push our volumes through all available routes, and we are taking all the learnings from all the quarters in this year during the crisis to continue to deliver this fourth quarter. Thank you.
Thank you for the question. I will answer the second question. The transformation is actually a very structured program that we started in 2024. The goal is to deliver a $3 billion recurring EBITDA improvement by 2030. Of course, this target is measured against the transformation inception year of 2024. The program actually tackles not only the cost reduction and cost excellence, but also value creation and synergies. On the examples, I can be very specific about the cost excellence or cost reduction. We have targeted $1.4 billion of cost reduction and $1.6 billion of value creation and synergies. Examples of cost reduction include G&A, manufacturing cash cost, procurement, supply chain, while in the value creation example include manufacturing yield and throughput, business and commercial excellence, feedstock quality, and stream synergies.
Thank you, Harsha. The next question is from Ricardo Rezende from Morgan Stanley. Ricardo, please come close to the mic and ask your question.
Hello. Thanks for taking my question. I have one question on the CapEx. When you look at this updated range of $3 billion-$3.3 billion, should we assume that is the new sustainable rate, or should you go back to $3.5 billion-$4 billion? Thank you.
Thank you, Ricardo. During the crisis, we tried to optimize our CapEx, starting with the run and maintain CapEx and optimize our spends. We reprioritized some of the projects, either phasing out or rescoping these projects. For the future years, we will very soon finalize our plan for 2027, and we will finalize our CapEx for that year. But we are expecting to continue our optimization and focus on the CapEx. Thank you.
Thank you, Ricardo. The next question is from Alex Comer from JP Morgan. Alex, please come close to the mic and ask your question.
Hello, can you hear me?
Yes, we can hear you.
Thanks for taking my questions. Just a couple from me. First of all, how much inventory, if any, did you sell in the quarter? How is access to feedstock? Maybe you could elaborate whether the constraint on your production is either feedstock or the ability to sell. I am sure you are watching like a hawk what is going on on a weekly basis. Maybe you could just give an indication of where October sales are versus where they were pre-conflict in terms of volumes.
Okay. Thank you, Alex. Let me maybe answer this question by just emphasizing our priority is to maintain a safe operation while achieving and fulfilling our customer demand and maximizing the utilization of the feedstock. The production volume this quarter increased as we showed by around 24%, reflecting healthy operation and feedstock utilization. We are always maximizing all feedstock available. We continue, of course, to demonstrate resilience and supported by our ethylene grid, and close coordination between manufacturing, supply chain, and commercial team.
Thank you, Alex. The next question is from Sashank Lanka from Bank of America. Sashank, please come close to the mic and ask your question.
Hi. Yes. Thank you. Can you hear me?
Yes, we can.
Yes.
Yes. Great. I have a couple of questions. The first one is just on your EBITDA margins. I think you were close to 17% on an adjusted basis, and it seemed like it was the highest in many years, almost in four years. So just wanted to understand how sustainable you think these margins are and what is the number one driver for such strength in margins. That is the first question. The second question is just on the chemicals cycle outlook. I know you have a chart that kind of shows operating rates not recovering to the average utilization rate in 2030, but just more in the near to medium term, three to six months, given the massive disruptions in supply we have seen, and also news about China using up its inventories. Any views on near-term outlook would be quite helpful. Thank you.
Thank you very much. Let me maybe take the first question. So the improvement in EBITDA margins during Q3 was mainly driven by higher sales volume. Sales volume were, as we discussed, 30% higher compared to the previous quarter. Also, lower liquid feedstock cost, partially offset by lower average selling price. In addition, increased utilization of our assets. Of course, looking ahead, while the market condition remain dynamic, we are focused on maintaining cost discipline and operational efficiency to support profitability. For the chemical cycle, we wanted to believe this is high for long, but we certainly believe this is a temporary increase in the prices for the Petrochemicals because of the crisis. Actually, this is a reminder of the COVID, the year after COVID, the prices were high simply because of the imbalance between supply and demand.
I think, if I remember correctly, around 12% of the global ethylene capacity was dropped because of this crisis. Around 15 million metric ton, mainly from the Middle East. This resulted in higher prices, but we believe as soon as the crisis is over and supply in the Middle East countries goes back to the normal production rates before the crisis, the cycle will go back to the lower cycle for the Petrochemicals. Is it six months, one year? We do not know, but it is temporary. Especially that we do not see a cancellation of new projects. We expect maybe delays in the new projects, especially in the Middle East as well, but no cancellation. Actually, the crisis delayed some of the rationalization we were expecting in the different parts of the world. Thank you.
Thank you, Sashank. The next question is from Faisal Al Azmeh from Goldman Sachs. Faisal, please come close to the mic and ask your question.
Yes, hi, thank you for the opportunity to ask questions. Two on my end. The first one is regarding free cash flow levels. Obviously, from the presentation slides, you have shown that it is up 2% year-over-year. How should we think about dividends in the context of the strong free cash flow generation for the year, particularly for the second half of this year? That is my first question, and my second question relates more towards your growth projects. You have highlighted that you have now announced two major ones in Saudi, one on the methanol side and another one on the urea side. Given that we are seeing Aramco is likely to produce more gas over the next coming years, do you envision SABIC will participate in other growth projects in the kingdom, or do you think you have reached your growth targets at this stage? Thank you.
Thank you, Faisal. Maybe let me take the question around dividend. We have always been very clear in our dividend policy and dividend approach. We long-term aim to maintain and grow our dividend going forward in long term. Of course, for the last maybe one quarter or two, we had a very challenging geopolitical and market environment. However, our dividend policy and the way we look at our dividend remain constant. We will always maintain our dividend going forward and grow it long term. For the CapEx, and as you mentioned, we just FID the SAN-7. This is the seventh urea project in our SABIC Agri-Nutrients, and we received the allocation for methanol plant in Ar-Razi. We will not say we reached our growth in Saudi Arabia, and we will always consider growth opportunities.
However, for the additional gas, we have spare capacity where we can utilize a major part of that gas. We are in continuous discussion with the regulator and with Saudi Aramco and future opportunities for growth for SABIC. Thank you.
Thank you, Faisal. The next question is from Prateek Bhatnagar from Jefferies. Prateek, please come close to the mic and ask your question.
Yeah, hi. Thanks for taking my question. I have two, and both on the feedstock. Your propane butane prices are linked to Asian CFR prices, adjusted for the freight and obviously post a discount. The freight has gone up materially. When you are getting the propane butane, are you getting the benefit, the theoretical benefit of higher freight price and therefore you are getting the feedstock at a lower price? Some color on that. Do they take the spot rate or a long-term average rate? That is question number one. Question number two is on your overall feedstock mix. I am not sure if you will be able to answer, but Kayan was supposed to get additional ethane from second half. So relevant for SABIC as well. Has your feedstock mix changed in this quarter? That is my second question.
Thank you. For the liquid feedstock, as you mentioned, the freight is one factor, but it determines by multiple factors, and it reference the Japanese benchmark. What you have mentioned is exactly correct. If the freight is higher, we expect lower propane and butane prices. For the quarter-over-quarter, it was dropped by 35% and 38% for propane and butane respectively. For the additional ethane for Saudi Kayan, we continue to work with the regulator and Saudi Aramco for available ethane. As I mentioned previously, we have spare capacity to take more ethane in our other crackers. Thank you.
Thank you, Prateek, and thank you all for the thoughtful questions. The investor relations team is available for pending inquiries and any follow-up from today's call. The information is displayed on the screen. The earnings call for the third quarter of 2026 has now concluded. Thank you again for attending. You may now disconnect.