Qatar Aluminium Manufacturing Company Q.P.S.C. (QAMC) Earnings Call Transcript

Hello, everyone, and welcome to the Qatar Aluminum Manufacturing Company Conference Call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Roy Thomas. Please go ahead.

Thanks, Elie. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar Aluminium Manufacturing Company's Second Quarter and First Half 2024 Financial Results Conference Call. On this call from Qatar Aluminum Manufacturing Company, we have Abdulla Yaqoob Al-Hay, the Manager, Privatized Companies Affairs, Qatar Energy; Saffan Mohamed, the Senior Financial Management Analyst, Privatized Companies Affairs, Qatar Energy; and Rashid Hamad Al-Mohannadi, Head of Investor Relations and Communications, Prioritized Companies Affairs, Qatar Energy. We will conduct this conference call with management first to bring the company's results, followed by Q&A. I will turn the call now over to Rashid Al-Mohannadi. Go ahead, Rashid.

Thank you, Roy. Good afternoon, all. Hope you are doing well, and thank you for joining us. Before we go into the QAMCO business and performance update, I would like to mention that this call is purely for the investors of QAMCO and no media representatives should be attending this call. Moreover, please note that this call is subject to QAMCO disclaimer statement as stated on Slide #2 of the IR deck. On Tuesday, August 6, QAMCO published its results for the 6-month period ended June 30, 2024. And today, in this call, we'll go through these results and provide you an update on key financial and operational highlights. [Operator Instructions] Today on this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, Manager for Privatized Company Affairs; we have Mr. Saffan Mohamed, Senior Financial Management Analyst, and we have Mr. Saoud Ahmed Saifaldeen, Senior Financial Management Analyst. Let me start the meeting by sharing with you that for the first time, QAMCO Board of Directors decided to distribute an interim cash dividend. This is a clear instance of QAMCO unwavering commitment to its shareholder in particular and to the capital market in general. The decision was taken while prudent care was taken to maintain adequate liquidity for CapEx requirement obligation and unexpected adversity and all regulatory requirements. We have structured our call as follows. At first, I will provide you with a quick insight into QAMCO ownership structure, its competitive strength and overall governance structure by covering Slide 5 until 14 and Slide 34 and 35 of the IR deck. Secondly, Mr. Abdulla will brief you on QAMCO micro environment context and highlight of the result for the period ended June 2024 and the interim dividend for the half year. Later, Mr. Saffan will provide you an update on operational and financial performance metrics of QAMCO. Late and finally, Saoud will provide you with more detail on JV operation and CapEx update. And following that, we'll open the floor for the Q&A. To start with, as on Slide #5 of the IR deck, the ownership structure of QAMCO compromises of Qatar Energy with 51% stake and the rest is in free float helped by various domestic and international corporates and individuals. Qatar Energy being the founding shareholder and the parent of QAMCO provides all of the head office functions through a service level agreement, while the operation of the JV is independently managed by its Board of Directors, along with senior management team. QAMCO holds 50% share in Qatar Aluminium Company Limited Qatalum, which produces high-quality aluminum of about 650,000 tonnes per year against a nameplate capacity of 575,000 tonnes per year for customer mainly in Asia, Europe and North America. The facility includes a carbon plant, port, storage facility as well as a gas-fired power plant. In terms of the competitive strength, as detailed on Slide 12, QAMCO joint venture is considered to be amongst the low-cost aluminum smelters with the state-of-art production facility, assured feedstock supply by a long-term agreement with intense focus on HSE, which makes the JV a leader among its peers. As detailed on Slide #14, from a competitive positioning perspective, QAMCO ranks among the top tier company within the industry at a global scale across most of the profitability matrices. This is a testimony to JV linear cost of base and continued optimization drive, which keeps QAMCO JV on the lower side of the cost curve among global peers resulting in maintaining a stronger profitability. Moreover, the JV global marketing partnership with the other JV partner provides an access to strategically important market, which makes the company more competitive in comparison to its peers. In addition, the JV is capable of quickly shifting the product mix from value-added products to standard ingot and vice versa, which provides an additional layer of flexibility to the JV in term of production processes as well as supply chain management while ensuring optimum production and sales volume in line with the evolving market dynamics and adopting to other changing customer requirements. We will share the details of the JV and its operation activities and sales and marketing arrangement later on this call. In terms of the governance structure of QAMCO you may refer to Slide 34 and 35 of the IR deck, which covers various aspects of QAMCO for the corporate governance in detail. I will now hand over to Abdulla.

Thank you, Rashid. Good afternoon, and thank you all for joining us. Starting with dividends, following the latest regulatory update towards the end of last year and mid-2024, and based on other energy announcement to support the initiatives of distributing interim dividends by its listed companies being a key step and supporting efforts and initiatives that aim to strengthen the national economy through developing Qatar capital markets following the best regional and international practices. Following the announcement of Qatar Energy, QAMCO has further assessed the financial and legal capacity to distribute interim dividend. Based on this assessment, the Board of Directors on August 8, 2024, decided to distribute cash dividends totaling QAR 176 million for the period ended June 30, 2024. This distribution corresponds to a payout ratio of 70% of the total net profit for the current period, representing QAR 0.03 per share applicable to the shareholders at the closing trading on August 14, 2024. This achievement signified as strategic initiatives to maximize shareholder value while maintaining a strong and resilient financial stance to protect the company against any future market fluctuations. Now we can move to the macroeconomics update. The macroeconomic environment for the overall aluminum market began to stabilize during the second quarter of 2024, after being volatile for most of 2023 and the first quarter of 2024. Several factors led to a challenging supply, dynamic supply-demand dynamics of the primary aluminum resulting in the price volatilities during the period. This includes tightened monetary policy, regional geopolitical tension and the region and weakened customer demand from relatively high inflation and interest rates. Despite lower-than-expected global economy recovery, the aluminum industry has shown a remarkable resilience. The impact of U.S. and U.K. restrictions on trading Russian metals continued to influence the supply and demand dynamic in the market, but the industry remains steady. Now I will hand over to Saffan to provide you with the financial and operational update for the period ended June 30, 2024.

Thank you, Abdulla. Thank you all. Good afternoon. Referring to Slide #20. The financial performance for 1 half 2024 versus 1 half 2023. QAMCO reported a net profit of QAR 237 million compared to QAR 240 million for the same period of last year with an earnings per share of QAR 0.042 compared to QAR 0.043, pretty much similar versus the same period of last year. Share of joint ventures revenue reached QAR 1.5 billion compared to QAR 1.6 billion in the same period of last year. EBITDA marginally declined by 1% year-on-year and reached to QAR 495 million for the first half of 2024. However, EBITDA margin stood steady at 33% in 1 half 2024 compared to 31% in 1 half 2023. Diving deep into QAMCO's net earnings in 1 half 2024, QAMCO financial results as detailed on Slide #21 in half 1 were overshadowed by an overall decline in the average realized selling prices compared to the same period versus last year, which was partially offset by improved operating cost and increase in the sales volume. Average selling prices were declined by 9% compared to last year, reaching to USD 2,485 per metric ton amidst macroeconomic headwinds. This had an overall impact of QAR 154 million on the net profit in 1 half 2024 compared to the same period of last year. Financial results were also impacted by increased finance costs due to higher interest rates. However, improved sales volume, which increased by 4%, partially offset improved demand for unrealized and exclusion in costs compared to the previous period. An increase in sales volume contributed approximately QAR 56 million positively in first half of 2024 compared to first half of 2023 despite challenges faced in shipping disruption in the Red Sea that caused various delays during the first quarter of 2024. The cost of goods sold for the current period declined compared to first half of 2023, mainly owing to lower raw material cost, overall decline in the cost of goods sold contributed QAR 84 million positively to the net profit in 1 half 2024 compared to the same period of last year. I'll now hand over to Saoud to discuss the quarter-on-quarter performance of QAMCO.

Comparing the financials of Q2 2024 versus Q1 2024, QAMCO's Q2 '24 Slide 22. Net profit increased by 77% compared to the previous quarter, reaching QAR 151 million. This significant growth was mainly driven by higher sales volume up by 27%, coupled with improved average selling price realized in Q2 2024, which was up by 4%. The increase in quarterly sales volume can be attributed to improved demand for both foundry alloys and extrusion ingots during the quarter, stemming from the gradual recovery of the aluminium markets and timing of shipments. The increase in sales volume contributed QAR 171 million positively to the bottom line profitability in Q2 2024 compared to the previous quarter. Moreover, selling prices witnessed an upward push on in Q2 2024 compared to the previous quarter, adding an additional QAR 36 million to the profitability. Moving to the CapEx programs as detailed on Slide 30. QAMCO's JV has continuously demonstrated ongoing commitment to maintain high efficiency and cost competitive maintenance, production and operations. The prioritization of health and safety measures underscore dedication to ensuring both well-being of workforce and the reliability and integrity of the assets. Moreover, executing CapEx project as planned and alignment with the operational requirements, showcases strategic foresight and resource management. Through its focus on operational excellence, health and safety and strategic investments, QAMCO jV is well positioned for the sustained success in the industry. This concludes our presentation and now I hand over to Roy Thomas.

Thank you. I would like to thank the management for presenting the results. And now we can open the floor for the Q&A.

[Operator Instructions] Our first question comes from Rob Skepper from Ashmore.

Yes, just a few questions from me. First of all, are there any shutdowns planned for the second half of the year?

This is an aluminium industry. We don't have any shutdown during the year. We conduct our operation based on the ports and these ports need to be in operation. So we are not expecting any shutdown. Production will be as per the budget that we have for the...

And then, yes, looking more recently, like obviously, the commodity prices have been under pressure as we kind of go into the third quarter. Like is the business, Qatalum, doing anything differently? Are you looking at anything on the cost side? Is anything changing on the marketing and distribution side of things? Or is it kind of business as usual?

As you are aware, this is an aluminium products where most of the green power initiatives right now, they are acquiring the aluminium for their either wind or solar power. So there is a demand in that aspect. However, there is, I would say, a less demand on the steel for the construction activities due to the real estate and business activity taking place in China. But hopefully, right now, the market seems better than the first half, and we are expecting the average selling price to stay at a ratable or slightly to improve.

Got it. Okay. And then lastly, you kind of talked in the past on about kind of low carbon production, low carbon projects within Qatalum or within QAMCO. Is there kind of any update there or any message on that front?

So what is your question specifically...

Are you looking at any investments in the low-carbon aluminium production space?

Yes. We have announced earlier that we're going to utilize some of the green power or solar power from the grid that will be available that will be Qatar Energy selling to us. And this will improve our ranking and rating for the ESG.

Okay. So because at the moment, your captive power plant is underutilized, right? You have excess capacity on the gas production side, but what you're saying is you're going to start to buy by renewable energy from the grid and use less of your own captive gas power?

Yes, we're going to use some of these green, I would say, power from the grid. And we're going to utilize our also a power station for the remainder of the required power.

Yes. But no change in terms of your aluminium production.

No, no, no change.

Got it. And how much would you look to displace like, so at the moment, 100% of your power comes from gas power generation, like what would be the percentage from renewable sources?

Yes, it's not going to be as significant. I'm telling you. However, there is still a negotiation between our JV and between the power supplier on the quantity that allocated for this project.

Your next question comes from [ Nikiof Hussein ] from CBFS.

Well, actually, this is regarding which you mentioned about aluminna cost, which has increased during the second quarter. I'm just looking at it even on a per tonne basis as compared to the previous quarter, it has moved quite significantly. But then I suppose you look at the international prices for alumina, actually have started rising from April and May onwards. So this should not have affected your cost so significantly for the second quarter. So I wanted to understand the reason behind the steep ended increase.

Alumina is one of the raw material that's been used for the production of the aluminium final product. We know it is the majority of the cost, and we see the spike, this is the market. However, also we need to consider the recognition of the sales of that cost, while we have different terms where we recognize our costing. However, I don't see it as a concern, while we are maintaining strong margins. in our operation. And also, if you compare QAMCO or our joint venture with the other smelter, you will see that we really have a solid position comparing to them, and we are much more leaner than other competitors in the market.

Okay. So you're saying your alumina cost to a certain extent also reflected your past volumes. But overall, I mean, as I mentioned, the increased...

Yes, definitely. This is a timing...

But on the chart, what you have shown is actually the prices have been quite steady, and we have seen recently the increase. So we just wanted to understand from that point of view.

Yes, this is something that is beyond our control as the market is going up, and this is one of your main raw material, how you can control it. And this is especially right now what is happening to the one of the main supplier of the alumina, I believe taken a place in Australia where they have stopped exporting the alumina to their consumer. So this has also played another factor where the costing has gone up. However, our joint venture also started to find other sources of the alumina and the world, and as you can see, they are still doing very good in terms of minimizing the cost.