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

Hello, and welcome to Qatar Aluminium. Please note that this call is being recorded. [Operator Instructions] I'd like to hand over the call to our moderator, [ Fibian. ] Please go ahead.

Thank you, Gil. Good afternoon, and thank you for joining us this afternoon for the Qatar Aluminium Manufacturing Company 1Q 2025 Earnings Conference Call. On this call today from QatarEnergy privatized company's management, we have Abdulla Yaqoob Al-Hay, who's manager Privatized Company Affairs; Rashid Hamad Al-Mohannadi, who is Head of Investor Relations, and we have Saffan Mohamed, Senior Financial Management Analyst. And as usual, the management will first give us an update on the quarter, and then we'll have a Q&A session immediately afterwards. I'll now turn over the call to the management team to begin the call. Please go ahead.

Thank you, [ Fibian. ] Good afternoon, and thank you all for joining us. Before we go into QAMCO business and performance updates, 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 this call is subject to the QAMCO disclaimer statement as detailed on Slide #2 of the IR deck. Moving on to the call, on Tuesday, April 29, QAMCO published its results for the 3-month period ended 31st of March 2025. And today, on this call, we'll go through these results and provide you an update on key financial and operational highlights. Kindly note that the MS Teams link is to display the IR deck on screen. [Operator Instructions] Today's call, along with me, I have Mr. Saffan Mohamed, Senior Financial Management Analyst; and Mr. Ahmed [indiscernible], Senior Financial Reporting Analyst. We have structured our call as follows: At first, I'll 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, Saffan will brief you on QAMCO performance and microenvironment context, and provide you with update on operational and financial performance metrics. Later, Ahmed will provide you with more details on JV operation and CapEx update. And finally, we can open the floor for the Q&A. To start with, as detailed on Slide #5 of the IR deck, the ownership structure of QAMCO comprises of QatarEnergy with 51% stake and the rest is in the free float held by various domestic and international corporate and individuals. QatarEnergy being the founding partner and the parent of the company provides all of the head office functions through a comprehensive service level agreement, while the operation of the JV is independently managed by its respective Board of Directors, along with senior management team. QAMCO holds 50% share in Qatar Aluminium Limited, Qatalum, which produce high-quality aluminum in excess of 650,000 tonnes per year against a nameplate capacity of 575,000 tonne per year, for customers across the globe in Asia, Europe and North America. The facility includes a carbon plant port storage facility as well as gas power fired plant. In terms of the competitive strength, as detailed on Slide #12, the QAMCO joint venture is ranked as a low-cost smelter amongst its peer with state-of-art production facility, assured feedstock and raw material supply by long-term agreement with intense focus on HSE, which makes the JV a leader among its peers. As detailed on Slide #14, from competitive position and perspective, QAMCO ranks among the top-tier companies within the industry at a global scale across most of the profitability metrics, this is a testimony of the JV leaner cost base and continued optimization drive, which keep QAMCO's JV on the lower side of the cost curve among the global peers, resulting in a strong margin evolution. Moreover, the JV global marketing partner with -- is providing access to strategically important markets, which makes the company more competitive in comparison to its peers. In addition, the JV flexible manufacturing system is capable of quickly shifting the product mix from value-added products to standard ingot and vice versa, which provide an additional layer of flexibility to the JV in terms of production processes as well as supply chain management while ensuring optimal production and sales volume in line with evolving market dynamics. This allows the JV to minimize the risk arising from a trade concerns and the geopolitical concerns as well. I will -- we will cover further the details of the JV and operational activities outside of the marketing arrangement later on the 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 code of corporate governance in detail. I will now hand over to Saffan.

Thank you, Rashid. Thank you all. Good afternoon, everyone. Thank you for joining the call. Let's start with the macroeconomic update for the quarter. In the first quarter of 2025, we saw a mix of positive economic indicators along with some ongoing challenges. The aluminum market is currently navigating a complex landscape of trade policies, supply chain issues and fluctuating demand. Major economies, especially in the emerging markets have shown moderate growth, however, ongoing trade tensions, rising energy costs and logistical challenges have led to an overall increase in the prices of aluminum sequentially. On the positive side, government fiscal policies have boosted trade dynamics, increase in demand for aluminum through infrastructure investment and encouraging sustainability and innovations. The recent monetary policy revisions to have benefited the segment positively. As industrial nations continues to focus on commodity-based growth, they are promoting a more sustainable aluminum market. In the current macroeconomic climate, global demand for aluminum remains stable, driven by moderate growth in the automotive and construction sectors aided by moderate monetary and fiscal policies. For this quarter QAMCO reported a net profit of QAR 156 million for the 3 months period ended 31st March 2025. This translates to an earnings per share of -- and earnings per share of QAR 0.02 compared to QAR 0.05 for the same period of last year. Diving deeper into QAMCO's net profit for the first quarter of 2025 comparing to the same period of last year. Our financial results were driven by an overall increase in the average realized selling prices and sales volume compared to the same period of last year. This was partially offset by an increase in the direct costs, mainly due to higher alumina costs driven by industry dynamics. The average realized selling prices have increased by 19% compared to the same period of last year, reaching to USD 2,895 per metric tonne in Q1 2025. This had a positive impact of QAR 135 million on the current quarter's net earnings compared to the same period of last year. Our financial results were also positively aided by reduced finance costs due to the partial settlement of loan and the refinancing of the loan. Additionally, improved sales volumes, which increased by 9% were also driven by better market sentiment supported the improved financial performance. The increased sales volume contributed QAR 56 million positively to Q1 2025 net earnings compared to Q1 2024. However, the cost of goods sold for the current period increased compared to Q1 2024, mainly due to higher raw material costs, particularly cost of alumina. Overall, the increase in cost of goods sold negatively impacted our net profit by QAR 140 million in Q1 2025 compared to the same period of last year. Comparing the financial performance of Q1 2025 to Q4 2024, as shown on slide 22, QAMCO's net profit decreased by 16% in the current quarter, reaching QAR 156 million. This decline was mainly driven by lower sales volume due to Incoterms down 13%, partially offset by improved average selling prices realized in Q1, which was up by 5% Additionally, we realized lower direct cost, mainly due to lower raw material cost as alumina prices started to stabilize now. Now I will hand over to Ahmed.

Thank you, Saffan. Good afternoon, and thank you all for joining us. As detailed on Slide 30, QAMCO's JV has consistently demonstrated ongoing commitment to maintaining high efficiency and cost competitiveness in its production and operations. The prioritization of health and safety measures underscores its dedication to ensuring both the well-being of its workforce and the reliability and integrity of its assets. Moreover, executing CapEx projects as planned and in the alignment with operation requirements, showcases strategic foresight and resource management. Through its focus on operation excellence, health and safety and strategic investments, QAMCO's JV is well positioned for sustained success in this industry. I will now hand over to Rashid.

Thank you, Ahmed. This concludes our presentation. And now we can open the floor for the Q&A. .

[Operator Instructions] So your first question comes from the line of Rob Skepper with Ashmore Group.

Yes, just on the volume side in the first quarter, they were a little bit light. And you kind of mentioned the impact of Incoterms. Could you just put a little bit more color around that and explain kind of what happened, what was the impact and kind of what's happening at the moment into the second quarter?

Yes. Basically, we have different types of products, right? We have standard ingots, we have extrusion ingots and we have foundry alloys. Some of these products, the shipping terms, so these are different. For example, some of these are sold on FOB, some of these are sold on other different terms, right? Now depending on -- some of these shipments were on the sea and some reach to customers. So those will be recognized when they reach the customer. So those are what we call the Incoterms and sizable volumes of growth have left Qatalum but not yet reached the destination. Now we have shipping terms like DAT delivery -- DAT and DAP, for example, those will be recognized as sales only when they reach the customer. So those are not recorded as sales produced but not recorded in sales.

Okay. Got it. And so I guess, yes, so it's sort of...

So it will be recorded -- those left Qatalum Facility but those are effectively in the ships.

Yes. And also in Q4, we had the high realization of sales because some of the sales were sold to...

In Q3.

In Q4 of last year, we sold some of our products to Asia, and that realization of those products was fast, and they were realized in Q4. That's why you have Q4 as abnormally high. This is not the normal level when we talk about [ 180, ] it's not the quarterly, let's say, normalized level of sales. Usually, it's around [ 155 ] to [ 160 ] to [ 164 ] in that range. So I think what we have realized in this quarter is more or less stabilized kind of sales volume on average.

So to -- just to -- the standard story is value-added products are mostly sold on DAT, DAP terms. And always, you have a little bit of income terms, some amount of shipments are always in the sea. That's the standard industry practice. .

Yes. Got it. Okay. That's great. And then just in the -- with the current environment in the second quarter, like are you seeing any of the impacts from some of this disruption in some of these supply chains? Is that feeding through to the demand that you're seeing yet?

See, what we produce we sell. Now the -- I don't know whether your question is related to what the U.S. tariff -- reciprocal tariff if you ask that, that a systematic risk all producers are -- will face or currently, we don't know because there is for the temporary pause of that but that is a systematic risk like banks are facing many interest rate changes. But right now, there have been pause for 90 days and how global producers will react to that, we don't know. But right now, we are producing -- we are a low-cost operator. Now basically, the impact will be relatively lower on us. So there are several reasons. One, we are a low-cost producer. Number two, our reach to global markets are much wider than others because we are backed by hydro. And number three, our manufacturing system, we call it flexible manufacturing systems. Very quickly, we can switch between standard products to value-added products, even within value-added products, we can produce foundry alloys or extrusion ingots as we want. So for example, in the U.S. market looks not lucrative and if we want to shift to European markets, we can do it very quickly without making mid cost shifts. So from that sense, we will be on a relatively advantages compared to global producers. That does mean that we won't be impacted. It's a systematic risk, right? All producers will be impacted. So we cannot quantify but relatively, we'll be at the safer side.

Yes. No, I agree. Thanks for reiterating. Yes, obviously, your position as an industry leader but yes, but in terms of real impact, negative impact so far, you haven't seen anything?

Sometimes being on such a situation may be beneficial also like you -- on a competing world, getting into that situation may make you winner as well.

Yes. Okay. Great. And then the last question I had, yes, obviously, we saw in the COGS, the impact of the alumina shortages and price hike in the fourth quarter. We obviously saw that through the COGS in the first quarter. Is all of that kind of high-priced inventory on the cost side from the fourth quarter? Has that all been worked through now in the first quarter?

Basically, as we spoke over the call also. So these are, you have FIFO and weighted average different kinds of inventory valuation. Now alumina prices are getting stabilized. So over a period of time, that will move into your cost of goods sold. So that will get stabilized over a period of time. And our inventory levels are also at satisfactory levels. Those are not very high. So that will move into your -- closing inventory and the valuation and those will get stabilized. And -- but if you look at the margin, if you look at the margins, although your cost of goods sold with alumina are high, EBITDA margins. If you look at the margins, those remains still pretty good compared to last year or compared to the last few quarters, they remains -- will stabilize. So we move along the market and along the price.

Next question comes from the line of Mohit C. with Lesha Bank.

I'm Mohit from Lesha Bank. I have a question on the premiums. The premiums are almost 50% higher Y-o-Y and even Q-on-Q, it is around 12%. so what is your view going forward on the premiums of the LME?

I think Q-on-Q, the reason is because in previous quarter, we analyzed the sales of standard ingot. This quarter, we are not realizing any standard ingot in our product mix. That's the reason on Q-on-Q. And compared to last year, it's also the impact of the global demand aspects on aluminum, I think the raw material aspect that you have increased cost of goods or let's say, increased cost of raw material will also cascade to the premium as well and the destination, because when you sell to the far East, you would expect your premium to be higher because part of your premium will come on your shipping cost and other associated cost to ship the product from 1 location for other. I'll leave also the floor open for Saffan, if you want to add any additional points?

Yes, exactly what Rashid mentioned, it's -- premium is a function of 2 things. One is the mix of product and the destination. So exactly what Rashid covered.

But what is your view going forward like coming quarters? How do you see that moving?

It will demand. If the demand, let's say, shifts toward more standard ingot, you will produce more standard ingot, your premium would go down naturally or if you sell to the Far East and you expect premium to be higher. Even in last 2 years, I think the 1 year in 2022, we realized abnormal prices even for certain feedstock. I think it was, if I'm not mistaken, the product that is used in semiconductor, I think alloy was high and was in demand. And that's why the premium was higher on aluminum production because they use alloy as well in their production for aluminum. So that was one of the reason why the premium spiked. So it could be a lot of reasons that will spike the premium, including the destination, including the product mix, et cetera. So it will depend how the demand will shift going into Q2 and how it will evolve with the current tensions.