Hello. I am Ahmed Alj iffry, Luberef's Investor Relations Manager. I would like to welcome you all today to our annual 2024 earnings call. Our call today will consist of two sessions, the annual presentation followed by the Q&A session. It gives me great pleasure today to be joined by our CEO, Mr. Samer Al-Hokail, and our CFO, Mr. Saud Kamakhi. I would like to remind you that our session is recorded. Before we dive into the presentation, I would like to draw your attention to our cautionary statement. In today's presentation, we may forward-looking statements that refer to the estimates, plans, and expectations. Actual results, outcomes may differ materially due to factors stated in the slide. With that out of the way, I would hand over the call to Mr. Samer to share our highlights for 2024.
Thank you, Ahmed. Welcome to our 2024 full year earnings call. The market environment in 2024 was complex, with normalized base oil crack margins and the Red Sea crisis creating significant headwinds. Nevertheless, we demonstrated our agility and resilience, meeting our customer commitments, achieving volume growth in our base oils, and prioritizing safe and reliable operations. As we reflect on 2024, I am proud to highlight Luberef's unwavering commitment to a strong safety culture and operational excellence. This year, we successfully upheld our high safety standards, achieving a zero total recordable incident rate for the fifth consecutive year, with over 38 million man-hours worked without a lost-time injury or incidents. We continue to maintain top quartile mechanical availability and exceptional capacity utilization levels when compared to the industry. This translates to a low cost of production for the year of SAR 435 per ton.
The cost of the production is slightly higher than last year, mostly due to higher maintenance costs related to the catalyst replacement conducted in Q1 2024. Even with the catalyst replacement shutdown, we have delivered growth in our production and sales volume in line with our guidance of middle single-digit growth. With almost 70% of our sales remaining within our top-tier markets, going forward with our plan of growth, we aim to maintain a similar percentage by increasing local and regional demand via the LubeHUB and other similar initiatives which target the manufacturing of specialty products not currently produced in the region. We maintain our base oils as the preferred choice in the market by collaborating with additive companies. This has resulted in over 1,500 approved formulations for our base oils, a significant increase from just double digits a few years ago.
In summary, we maintain our market leadership in utilization and cost reduction through a relentless focus on operational excellence and safety, core values that underpin our success. This operational strength, combined with our unique product profile and market access, creates our distinct value proposition and a differentiation to the markets. Looking ahead to 2025, our primary focus is the successful delivery of the Yanbu Growth II project, which remains a cornerstone of our expansion strategy. We are targeting project mechanical completion in December and pre-commissioning completion by January 2026. As of now, we have achieved 40.3% progress, slightly behind our target of 42.6%. The delay is mostly due to open technical clarifications with equipment vendors. We are currently actively engaged with our vendors to close them out and remain on target to achieve our Q1 progress target of 45%.
When you look at our execution plan, you will notice that the progress will pick up in Q2 and Q3. This is because the nature of the project has a heavy weightage related to procurement activity and less in engineering and construction. This is why you can observe major progress in Q3 related to material delivery. In Q4 is mostly focused on site acceptance activities and construction. As you may remember, we have conducted a catalyst replacement in the first quarter in 2024 for our hydrocracker, with the Iso-Dewaxer catalyst replacement being planned during the upcoming turnaround. Our 2025 shutdown strategy initially targeted an early start for the turnaround and tie-in activities at the end of Q2 2025. This would have coincided with the end of cycle replacement of the remaining catalyst.
However, we determined that adhering to this timeline would require compromising critical quality control measures during the project execution. Therefore, we have made a strategic decision to prioritize the long-term success of the project over a marginal acceleration of the timeline. Our revised shutdown strategy involves replacing the catalyst in Q1 2025, taking advantage of lower base oil margins, followed by the turnaround and project activities at the year end. Going forward, our catalyst replacement cycle will follow the standard cycle, which is highlighted in the charts. As previously communicated, the continued operation of the Jeddah facility is subject to the future of the Saudi Aramco Jeddah terminal. The terminal provides essential feedstock supply and facilitates the export of our base oils. Moreover, the terminal's continued operation is a condition precedent to the renewal of the land lease, which expires in mid-2026.
Currently, the future of the terminal remains under review by Saudi Aramco. However, based on the recent discussions with our counterpart in Saudi Aramco, we have initiated the feedstock allocation request from the Ministry of Energy, and we will be updating the market accordingly. I have to emphasize it is not yet confirmed that the site will continue, and as per market regulation, once we have all the requirements and confirmation, a dedicated announcement will be made to the market. In conclusion, and before I hand it off to our CFO, I wanted to reiterate our commitment to growth. While this year presented its challenges, we maintained our focus on safe, reliable operations and leveraged our unique market position to create shareholder value. In 2025 and beyond, we will capitalize on the potential of our Yanbu facility and explore strategic growth opportunities through our partnership with Saudi Aramco.
Thank you, Samer, and welcome, everyone. It gives me great pleasure to walk you through our financial performance for 2024. As Samer pointed out, 2024 presented a number of challenges. The logistical difficulties stemming from the Red Sea situation near Bab el-Mandeb significantly impacted our export activities. The resulting increase in freight costs reduced our overall crack margin by approximately SAR 120 per ton. This, coupled with the normalization of crack margin, has been a key factor in our financial performance. However, even in these conditions, our normalized base oil crack margin has remained relatively within the 10-year average at SAR 1,742 per ton. Despite these headwinds, I am pleased to announce that Luberef achieved record sales volume exceeding last year's figures by 4%, which is in line with our guidance. This achievement translated into revenue just exceeding SAR 10 billion .
However, the lower crack margin, down SAR 365 year-over-year, impacted our profitability. We recorded an EBITDA of SAR 1.3 billion and net income of SAR 972 million for the year. Consequently, our ROACE reflects this impact. Nevertheless, at 22%, it remains a healthy indicator of the company's efficiency and effective capital utilization. From a cash flow perspective, we generated SAR 1.8 billion from operations. Our overall capital expenditures has also come in with our guidance, where we invested SAR 203 million in capital programs, including SAR 53 million in our growth project. This resulted in a strong free cash flow of SAR 1.6 billion. Our cash conversion rate reached 126%, driven by improved collections and positive working capital changes. Furthermore, our net gearing of -3% underscores the robust and resilient nature of our balance sheet.
The waterfall chart shows that lower crack margin has led to a negative impact of around SAR 600 million. However, this effect was partly offset by higher sales volume, which contributed to a positive impact of SAR 100 million. We can also observe a net increase in expenses related to sales activity and actuarial costs, which was partly offset by a reduction in Zakat. This resulted in a net impact of SAR 42 million. Despite these challenges, we have generated a free cash flow of SAR 1.6 billion, which allowed us to return SAR 1.4 billion to our shareholders and make a total loan repayment of SAR 1.1 billion. With that, we still maintain a cash balance of around SAR 1.2 billion. Looking at our 2025 guidance, our volumes are expected to come around 1.2 million metric ton, taking into consideration our planned operating schedule.
We are not expecting to utilize any VGO streams during the first quarter as our intermediate inventory will be high due to the catalyst replacement shutdown. We will update the market on our quarter two plans for HVGO or VGO stream utilization during the quarter one call. In closing, 2024 underscored our resilience and cash generation capabilities. In 2025, we will build on this foundation, delivering growth and further enhancing our unique value proposition. Now, I will hand over the call to Ahmed to start our Q&A session.
Thank you, Saud. Now to start off our Q&A session, kindly, if you want to ask a question, just raise your hand and once you're given the mic, introduce yourself by giving your name and the entity you're coming from, and proceed to ask your question. You also have the option of typing your question in as well. We could take those in as well. So far, I see no hands up. Very good. Mr. [Fawad Khan], you can unmute yourself and proceed to ask the question.
[Non-English content] Thanks for the opportunity for asking this question. From my side, a few questions. Number one, in terms of the turnaround, which has been brought forward into first quarter. Then there is obviously the linking activity to be done in some time in fourth quarter. Just need to ask, how much the operation would be impacted by 15 days you have mentioned for the first quarter, but will the guidance for the linkup activity for the new project and the 15 days shutdown for the Yanbu project will still be valid at this point in time, or if my understanding is correct?
To give it more clarity. We have a catalyst that is due for replacement by the end of the second quarter, and we opted to do this in the beginning of Q1, where in Q1, where prices are lower, and then our turnaround with the project execution will be done in Q4, starting from November 15th till the end of December. The idea here is that we couple those two together. Net, it has a lower number of days requirement of shutdown because the project activity would require around 45 days of shutdown. We just bring in the catalyst in Q1 and we conduct a turnaround with the project tie-in as well as equipment erection in Q4. I hope that covers the question.
All in all, let's say, if I understand correctly, the earlier guidance was for 30-45 days shutdown during the fourth quarter. In fact, 30 days shutdown during the fourth quarter and the catalyst turnaround was supposed to be done at the time of the turnaround and the project linkup. Now there are two different activities happening. One is happening in the first quarter and the other one happening sometime in fourth quarter.
That's correct. Now in terms of guidance, if you go back, Yanbu has always been given a range of 35-45 days in terms of turnaround activity. Jeddah is smaller. That's why you see Jeddah, when we guide for Jeddah, it's always 30 days because the facility is smaller and therefore the level of intensity of activity takes a smaller duration of days to execute.
Okay.
Hope that help, y ep?
Yeah. It does. In terms of the project commissioning, the pre-commissioning is expected sometime in first quarter, January 2026. How much time there the project will require to come to its, let's say, full potential or the optimized level of production once it's commissioned in first quarter as per the current guidance?
Yeah. It is very clear that the project pre-commissioning will happen in January only. In the pre-commissioning stage, you will have most of the units running already at the normal capacity with exception of the final unit. Although the final unit will not be our bottleneck, all of the production volumes will be able to be produced and recovered going forward because the hydrocracker has some room post project operation. The hydrocracker should be running fine. In terms of overall throughput for 2026, we should see the commercial realization of the project in 2026, in terms of initial target capacity of 1.25 million metric tons for the 2026 year from the Yanbu site.
Post 2026, I hope the whole project would be operating hopefully without any hiccups. What kind of production we should look at in, let us say in scenario of 2027 and beyond?
It all depends on the alternative streams that we bring in. If we have the, what do you call it? Because the name plate, the bottle end, iF you remember, the Yanbu transformation capacity can go up to 1.6 million metric tons.
Yeah.
For that to be achieved, we need to secure the UCO and ensure that the delivery of HVGO matches that requirement. Initially, our initial guidance is at the stage of post Growth II commissioning, which is the 1.25 million metric tons from Yanbu on its own. If you have Jeddah continuing, you could add around 260,000 tons on top of that. You add about 1.5 million metric tons from both sites, if Jeddah is continuing for the whole year.
Okay. I just go back in the queue to give other participants to ask questions.
Next, we have Mr. Oliver Connor. You can unmute yourself and proceed to ask a question.
Hi. It's Oliver Connor from Citi. Thank you for taking my question. I guess just following up on the feedstock point to get you to the 1.6 million metric tons. Can you give us a sense, I guess, of timeline on that in terms of procuring those volumes? Because clearly, that would be a significant uplift to Yanbu post 2026 if you are able to secure those. Any kind of additional color you can give there would be much appreciated.
When it comes to the additional volumes, HVGO, we are going to have a better idea on it once we are closer to the end of that year. Once we do, because that's the cycle where we do the business planning, we do the alignment with the supplier, that's SAMREF, which suppliers with the HVGO. In terms of UCO, we have ongoing discussions with multiple facilities, and hopefully when we have something that is material that we reach to, it will require an announcement and we will proceed to announce. We will give you an idea of exactly what is the value generated, whether it's before the growth execution or after the growth execution. It will give you a better idea of how to implement it.
As you saw in the guidance for HVGO, the way we are going forward with this is that we are going to give you a better clarity on a quarter-on-quarter basis what is the expected consumption. Hopefully, going forward, you are able to break down the two crack margins because one is the standard that the 10-year average of $100 per ton per crack margin that we target. The other one is a smaller margin that could generate additional profits because the fixed cost is there, I have the capacity my hydrocracker and Iso-Dewaxer . Hopefully, this year, we are going to be giving you quarter-on-quarter guidance on those volumes of consumption and hopefully it gives you a better idea to forecast our profitability going forward.
Great. Thank you.
Now we could go to Yasser Alnejaimi. You can unmute yourself and ask your question.
Hello, everyone. Thank you for taking my question. This is Yasser Alnejaimi from Alnahdi Holding Company. I have a couple of questions. My first question is the crack margin a good proxy for gross profit?
[Non-English content] Yes. Crack margin is our guidance in general on how to shape our profitability. The gross profit is mainly driven by the crack margin number that we generated in the year. Whatever the crack margin is, you can take that as an indication of our gross profit.
Yasser, just to clarify this. This is the CEO. Thanks for the question. As you have seen, if we graph our crack margins over the past 10 years, they average around $ 485-$ 500 per metric ton y ears on and year out. But when you have a little bit shutdowns like what we had in planned shutdowns in Q1, this will be affected. I am not sure, Yasser. T his is- y ou could do it as a proxy, but no, not to the level. I think, hopefully, the market will pick up on 2025.
So my--
So you need to take the margin and the volume. That is why we give the guidance in terms of number of operating days that we have in the quarter. You could use our annual report, and you can calculate the expected volumes. Then from the base oil margins, you could land in with a pretty good estimate on our gross margins.
My second question is, what is the sales per metric ton in 2024 and the cost per metric ton in 2024?
Sales were roughly 1,295 metric tons, and that is a record-breaking sales since 1976 when the company was born.
Yasser, I know where you're trying to go. The easiest way to get that number, it's not something we typically emphasize on because we always like to talk about crack margins because that's essentially what comes into your pocket. If you want to calculate the realized price, which is I think what you're trying to target, you take our feedstock price, which is High Sulfur Fuel Oil Singapore 380, and then you add on top of that our crack margin. This will give you the sales price. If you want our feed cost, it is that index, the High Sulfur Fuel Oil from Singapore. That gives you our cost of feedstock. In terms of operational or production costs, they are mentioned in the slide and typically we publish them annually as well as in the annual report. It gives you an idea what is our cost of production.
In our website, you can find a good page that talks about reference of Argus for our prices. That would be a good reference for you, Yasser, to go from there and start also from there to get also the numbers that you are looking for.
Okay. Still the delta 3.5% or 4% between the index HSFO?
Yeah. It is 3.5% High Sulfur Fuel Oil 380. Yasser, the best thing I think if you would like, send a note to our IR email. We typically do a walk-through with analysts. We show you sources to get the feedstock price, whether it is on Ship & Bunker, that is a free website, or on other sites like Reuters, or if you get it from Platts directly. Then we could walk you through how to construct our crack margins going forward. With premium and without premium, you have a whole walkthrough that we could go through and conduct with you to help you land on the right area.
Thank you.
[Giuseppe], you had your hand up and now it is down. Would you like to ask a question? Okay. It is back up. You can proceed, [Giuseppe].
Hi. Good afternoon. [Giuseppe] from Morgan Stanley here. Thank you for the presentation and for taking our question. I have just one, if I may. I know that you do not provide guidance for crack margins, understandably, given it depends on the market conditions. But we were wondering if you could tell us what the level of crack margins is currently for the first quarter of 2025, and then a broad indication of where you see margins in 2025 based on current market dynamics. Thank you.
[Giuseppe, we do not usually give guidance on the future quarter as we are doing in quarter one right now. Still we are in middle of it. But if you follow some analysts, you can see that the level of crack margin, they are anticipating that little bit of drop at the beginning and then back up by the end of the year in 2025. This is where analysts are showing the expectation for 2025.
[Giuseppe], good question. I think given the nature of the market, don't ask me why, usually in Q1s are lower margins. How the market is behaving than the following quarters. And maybe this year is different, I don't know, but that's the at least trend and the correlation we've been observing for the past five, four years or so.
Okay.
Okay. Now we have a couple of tapped questions. We'll start with Mr. [Yasir Al Dahani]. What is the remaining CapEx for the Yanbu project?
Yes. [Yasir ] This project is around $200 million, which is SAR 750 million. During the first two years since this project started, as shown in today's presentation, we have spent around SAR 130 million out of it. If you follow our guidance for 2025, we can talk about this year. The expectation is to spend between SAR 250 million- SAR 350 million during 2025. Next year, in 2026 [Non-English content] after commission, there will be certain payments that will be done during that period for the remaining amount and another payment of 15% that are related to warranty and guaranteed after the project are complete and performance have been gathered.
Okay.
I hope that answered your question.
We move on to the next tapped question, and then we will move back to the hands up. From Mr. [Hisham Qabbari]. What is the CapEx plan for 2025? Please break down by growth, turnaround, and sustaining.
During 2025, we have expectation of normal CapEx of around $37 million at that stage. We have the estimate that we mentioned that for our CapEx for our growth project, where we are talking about around $80 million within that range. The remaining will be growth of the turnaround, which is also around $70 million.
Mr. Yasser Alnejaimi, your hand is up. You can proceed to ask your question.
Just a follow-up question from my side. How might the replacement in 2025 impact the domestic and international demand for Luberef?
For us, the priority is to serve the highest, the tier one and tier two markets. We will give priority to the local markets and then the tier two market, which is within the GCC in terms of supply. Then the lower tier markets would not be supplied during the shutdown. However, this is typically planned out ahead. The marketing team makes sure that our contractual obligations are met, even though we have a 15-day shutdown.
Yes. Thank you.
Now we will go to another tapped question from Mr. [Mohammed Al-Hadlami]. If you could give us your view on demand, supply, and product spreads in 2025 compared to 2024.
Okay. [Mohammed], good question. From a demand perspective, the whole commodity demand is stable. Slight growth depending which region you are targeting. If you are looking at globally, there is stability globally on that end. But if you look at our region, it is actually three-fold of the global demand when it comes to CAGR. And most analysts are looking at a slight demand as we go on. However, with all projects that have taken place in the vision of 2030 here within the Kingdom, in the next 10 years, these giga projects will require more demand as well. And I will say even windmills or wind turbines would require lubricants and base oil. And the energy intensity is immense, therefore, heavy machinery will take place.
Even at an EV section, there will be batteries that you would require to move earth, and these would require heavy machinery with also lubricants on that. On the product spread question, maybe I will probably come back again and give you guidance on that. Or maybe Ahmed can answer this question in comparison between 2024 and 2025. However, it is more of a question of a crack margin, and that is a good proxy. We always look at the margins, crack margins that really can give you a better view on the company's, not only gross, but also net profits.
Okay. Touching on the product spread for 2025- 2024, analysts are positive, generally speaking, because they are forecasting that economies will perform better. The positive sentiment started coming in from the end of September, when you had the Chinese stimulus and the Fed rate cuts. And since then, that positive sentiment from the analysts is maintained. Going forward, we look at the crack margin 2024- 2025. I think it is important for us to highlight that 2024 for us should have been a year where our crack margin should have been around the $500 per ton level. And the main issue that we suffered in that year is the higher freight costs, which essentially cut in around $35 per ton from our crack margin.
Going forward, analysts seem to be more positive compared to 2024 and hopefully as things settle down, we will be able to recover some of those impacts that are coming from the freight in the Red Sea. Hope that covers all your questions, Mohammed. Now we are going to Mr. [Brennan]. We have two questions from Riyad Capital. What is the percentage of your shipments which are performed by Bahri? The straight answer is currently we do not have an arrangement with Bahri.
This is something that we are negotiating and are hoping to have something to announce, as previously communicated, by Q1. The target volume is anywhere between 10%-20% as we start this off. Once this is finalized, we will have something more material. It is still too early to give a fixed percentage. As for what is our largest export destination, it is the GCC. That is in terms of export.
If I may add on the first question, [Brennan], that is important. This is something that we have talked about even before COVID. After COVID took place, and then, of course, issues with Bab el-Mandeb, negotiating a contract or something that is beneficial between us and Bahri is very imperative because pretty much you are going to hedge 10%-20% of your sales with a reasonable freight cost that hopefully will be tagged to an index. So there will be a mechanism whereby it will be hopefully less than a quick or a market disruption. So that is very important. That is quite strategic to us. That would drive the freight cost down, and hence the crack margins up.
Just closing on your second question, [Brennan], the largest export destination currently is still the U.A.E. and the GCC as the single market, and you will see this hopefully in the annual report once it is published in March. Mr. Yasser Alnejaimi, your hand is up. You can proceed to ask your question.
Thank you again. My last question regarding margin of by-product. What is the margin of this kind of product?
By-product margin is minimum, as you see in your typical annual slides or one-on-one slides. That is why we typically like to keep a focus on the base oil side. Ideally, it is always good to assume that by-product margin is close to zero because it does not represent much of profitability. To give an example, in the year where diesel had high prices, our by-product crack margin maxed out at $20 per ton. You compare that to the $600 per ton we had in 2022, it was immaterial. That is why typically when you model the company, our focus is to focus on the base oil. This is where it will land you within the 90% range of the net income. The by-product, typically, we try to model it as an at cost element.
Hence, just to complete the thought, that is why there is a uniqueness in Luberef, and that is why we are differentiated, as I mentioned. As we are not back integrated to a refinery whereby we are exposed to by-products heavily and fuels. Therefore, it is as mentioned as immaterial. I think the guidance would be just to focus on the base oil crack markets, and you will be within.
Thank you.
Now we have three remaining questions. We have Mr. [Eldar]. You can proceed to unmute yourself and ask your question.
Yes. Hello. Thank you very much. I may have missed already the answer because I joined late. I am sorry about this, but can you share with us any updates about Group III considerations? Are there any updates, or are there any thoughts about where potential new assets could be located? Thank you.
The question is Group III.
Group III, yes. The Group III+ project.
Okay. Eldar, I did not get the question. I thought you were going to ask about it. We have done the feasibility study, and the project is advanced to a pre-FEED study for Group III+, which is Group III+, which is a higher end. The pre-FEED will be taking place very soon, and it will usually take maybe three to four months, even probably more. By hopefully Q4, we will probably make an announcement in terms of if this will be proceeding to a FEED. After the FEED, the usual natural progression of a project, depending on the contract and the contractor, might be a two-year to a two year and a half project. We will make the announcement accordingly to the time. This is also part of our growth story, which is pretty much a sequence of projects.
The name of the game is not only volume, by the way, but it is also formulations, which I just mentioned. 1,500 formulation is very important. Some of which we could book good premiums, and some we can have moderate premiums, depending on the formulation. This is one element that we want to push forward for. The team here, and I have tasked the team very well to really go and spearhead this Group III+ project. Hopefully we can get something material this year when it comes to advancing to the field stage, which is engineering.
Thank you.
As for the location, [Eldar], the pre-FEED will give us a better clarity because we currently have two options that we are evaluating. Once that is concluded, we will give you a better idea of the location.
Thank you very much.
You are welcome. Mr. [Fawad], you can unmute yourself and ask your question.
Thanks. I just need to ask a question regarding the export versus local mix, as the historical guidance has been 70-30, 70% export and 30% being local. We have seen significant growth in overall car sales last year and the company has also signed some contracts for the transmission fuel. If you can give us some sense what kind of mix we should expect this year, given the company is going for the turnaround. There will be some more weight tilted towards local. But beyond that, how much we should expect the local sales to comprise for the total company?
Mr. [Fawad], currently in the guidance, we are sticking to the 30% for the local, and hopefully once the transformer oil is commissioned, we will have a better weightage to the local, depending on what is the timeline and what is the volume that we are producing. Currently, we are hoping that APAR will be ready by 2026. If they come online, you have to keep in mind that at that time, our volumes will increase to around 1.5 million metric tons as an initial estimate. Hopefully, if we can maintain that 30% on that volume, it means we are securing a much bigger buy of local premium as well in terms of net volumes for local volumes. For now, our guidance is still around the 30%. This year we were under our target, so hopefully we will recover next year and we will meet that target of 30%.
As I mentioned earlier, we are trying to ensure that we operate in the highest netback. Whatever is going to make more economical sense for us, we will try to maximize that.
Thanks. I think this last past 12 months have been, in fact, last year has been more about normalization of the margins. If you can please give us some sense of the Group III margins, how fast they have normalized at the current level, and what are the current levels? If you can give us, if possible, some outlook on the Group III margins.
The standard average is Group III typically has $200-$ 300 per ton premium on Group II. Last time, honestly, I checked was towards the end of last year, Q3, Q4. They are still within that range, $200-$ 300 per ton. Going forward, one of the things we are going to be adding to the index in the beginning of 2026 is we are going to have the Group III index. The reason we are not doing it right now is because we need to make sure we have the right mix, so we have the right average.
When you look at the index that we produce currently for Group I and II, it is based on the typical blend of different products from Luberef production. Because we have multiple grades and under our agreement with Argus, we cannot give out each grade's price. We can give a blend, and that is why we need to make sure that we are giving you the right blend so you could plan at the right distance.
[Fawad], also, good morning. This is a great question because it is all going to be dependent on the blend and how we operate our facility and the demand that is, or the denominations from our clients and customers. Therefore, we can give guidance probably much later on, where, of course, we do have the optionality to produce Group III on the expense of severity of the facility. What I mean by severity, that means I would probably need to change the catalyst more often to do that Group III. So it is all going to be market-driven on the demand of how we will probably adjust our operation. That is the beauty of having two or three groups. A one-stop shop for our customers and for the market, and the agility to do so. That we could switch depending on the market dynamics and what our customers need.
Okay. Now we have some remaining questions from Mr. [Eissa]. Can you provide some color on the supply/demand situation, why drove crack margins lower, and what is the mid-cycle margin average? The average is around $490 per ton. In terms of what drove crack margins lower, it is essentially a normalization. The $660 in 2022 was the cycle high. $561 is materially above the average. Now we are entering to the period where we have average margins and the forecast going forward from some of the analysis that will be within the average. For us also, if you remove the impact of the Red Sea freight, we will be within the 10-year average. Did you secure feedstock for all expansion projects?
Currently, we are definitely, yes. This was the first project, which is the Yanbu Growth II project. This is already done and in the books to do so. For Group III, it depends on Group III+, which is the other project, the third project. This is in the works, depending on the FEED. Once it is done, pre-FEED, once it is done and completed, then we can simultaneously do the pre-FEED. In terms of the feedstock, it is not an issue. It is going to be very similar to what we have in terms of arrangement. So I do not foresee issues in securing feedstock on the third project.
The final question from Mr. [Eissa] is what sort of returns or IRR are we expecting from the projects?
In general, we do not give guidelines, any clear numbers of returns or IRR, but that can be calculated and looked from the size of the project that, of the capital figure that we usually get for our projects, and the expected quantities and the type of product that we are going to produce out of those new projects with the crack margin of those. Basically, you can get back and calculate those in a way.
I must say, it is not really difficult to do so on my side. It would be an exercise on how you got a little bit of assumptions. It is pretty much straightforward.
Okay. The beauty of this is that you can put your own assumptions on crack margins. Once you have the volumes and the CapEx, it is all about how concerned you would like to be or how positive you would like to be, and it could be easy to calculate IRR. I have no remaining questions, other types or via handle. With that, I will conclude our call. We are available in CMF in the coming two days. Please do come over for any further follow-up questions. If you are not able to attend, you can send in an email or try to book an online one-on-one next week. We are available to answer your questions as needed. Thank you for joining us on this call, and have a good day.