Saudi Basic Industries Corporation (2010) Earnings Call Transcript

Welcome to SABIC's Q3 2025 Earnings Call. This is Sara Zwami, acting as a moderator. Please note that the call is being recorded. A transcript of the recording together with supplementary materials will be published on the Investor Relations web page on SABIC's website. Today's earnings call will feature SABIC's CEO, Engineer Abdulrahman Al-Fageeh; 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 2025 earnings call. Let me begin by pointing out that the forward-looking statements will be made in this call. These statements are based on assumptions dealt with risk and uncertainty, so they are not a guarantee of SABIC's future performance. Actual outcome may differ materially from what the statements imply. For the details about our forward-looking statements, please refer to the disclaimer in the presentation and in our financial reports, both of which are available at sabic.com. With the disclaimer out of the way, the earnings call will start with the presentation by our CEO. He will briefly describe the market context that influence our industry's performance in the third quarter of 2025. This will be followed by a rundown of some key points with respect to SABIC Q3 2025 performance and priorities. Thereafter, the CEO will outline SABIC current growth project milestones before revealing the expected end industry market movements. The CFO will then take over the call to walk you through SABIC Aggregates financial performance, focusing on the third quarter of 2025. Afterwards, our CEO will return to provide a brief outlook for the rest of the year. We will end the call with an open line Q&A session. I ask that participants limit the topic of their question to SABIC corp performance and avoid referring to listed affiliates. Now please join me in welcoming SABIC's CEO, Engineer Abdulrahman Al-Fageeh to the call.

Thank you, Naif, and thanks to all of you joining today's earnings call. Let us begin with a brief overview of the macroeconomics and industry landscapes. The third quarter of this year showed the global economy growth rate at a modest rate of 2.6%. The Global Purchasing Managers Index rose slightly above 50, reflecting some improvement in business conditions as monetary policies in major economic began to ease and production output in China and in the Eurozone increased slightly. However, while some plant rationalization is being observed, resistant overcapacity continues to pressure market dynamics. I would like to highlight it now and talk about some achievements that reflect the strength of SABIC commitment to meet our priorities, operational excellence, selective growth, transformation and value creation. First, health and safety. The total recordable incident rate for Q3 is 0.07, an improvement of 22% compared with same period last year. This once again underscores SABIC's top priority, which is a part of operational excellence. Turning to selective growth. I'm pleased to say that the execution of our key projects, Petrokemya's MTBE expansion in Jubail and the SABIC Fujian greenfield petrochemical complex in China remains on track. Further details will follow in the next slides. In our transformation journey, we continue to deliver tangible results. During the quarter, we realized USD 300 million in value. This reflects the extent to which we are driving efficiency, competitiveness and cost optimization across the organization. We remain confident in achieving our overall transformation target of the USD 3 billion by the year 2030. Additionally, we have launched a major milestone in SABIC's digital transformation journey, the successful go-live of the STAR program on the SAB S/4HANA. This program is one of the largest and fastest technology transformation projects globally, establishing our unified digital operations platform. This achievement represents a pivotal step in enabling a range of digital and initiatives aimed in enhancing productivity, improving resource management and reducing operating costs. It will also support a stronger financial performance going forward. The star journey reflects SABIC's commitment to build an advanced high-performance digital ecosystems. It gives beyond system upgrades, representing seamless integration between business and digital enablement under shared vision to strengthen SABIC's competitive capabilities. From the value creation point of view, there are similar highlights this quarter. To begin with, we had more than 90 new products and solutions introductions, evidence of the strength of the relationship we have with our customers. I'm also pleased to share that we have expanded our low-carbon portfolio with the certification of new products like MEG, MTBE and MMA plus the ammonia. Additionally, we achieved our first successful scale of certified low-carbon methanol. These -- this -- these mark important milestones in our value creation journey as a leader in the petrochemical. SABIC continues to leverage advanced technology to lower carbon emission across its production processes, offering our customers more sustainable solutions that support global and regional energy transition goals. Our innovation for electric vehicles continue to gain international recognition. We won 2025 R&D 100 Award for having developed the world's first glass fiber reinforced flame retardant polypropylene for the large EV battery packs. This innovation opens market opportunities for SABIC in the fast-growing EV segment and reinforces our position as a material technology leader. Finally, I'm happy to highlight how we continue to empower industrial entrepreneurship and drive local content agenda for sustainable economic growth in the Kingdom of Saudi Arabia. Recently, SABIC 2024 local content certified was issued with a score of 56.4%, a year-on-year increase of 17% comparing with previous year. Nearly 57% of SABIC's spending now directly benefits the Saudi economy. Let me now go back to the 2 selective growth projects I mentioned earlier. SABIC successfully completed the MTBE project, replacing the existing betrochemia isobutane dehydrogenation unit with a new facility capable of producing 1 million tonne of MTBE annually. Mechanical completion was finalized in August 2025, followed by a successful start-up in October, supporting our expansion to enhance especially fuel additives capacity and improve downstream integration. Progress on the USD 6.4 billion, SABIC Fujian project continue to track in line with plan with about 87% completion achieved across engineering, procurement and construction activities. The project maintains an exceptional safety records with 34 million incident-free man hours and remains on schedule for a start-up in the second half of the year 2026, reinforcing our disciplined execution and commitment to long-term growth in a strategic market. Aligned with our strategic road map, both projects will play a key role and strengthen our growth platform and long-term value creation. Moving to the next slide, which is talk about the demand that has been stable for our end product sectors. We expect demand to remain stable across the board next quarter as well. Future momentum will depend on accommodative monetary policy, greater geopolitical stability and a broad-based global economic recovery. And with that, I will now hand the floor over to the SABIC CFO, Mr. Salah Al-Hareky. He will review the company's financial results and provide additional commentary in our business segment's performance. Salah?

Thank you, Abdulrahman, and a warm welcome to everyone joining the call today. Let me start with an overview of our financial performance this quarter. Beginning with revenue. SABIC continued to leverage its global footprint in the third quarter of 2025 generating $9.2 billion, down 3% from the previous quarter, primarily due to the absence of approximately $230 million in licensing and engineering income recognized in Q2. Consistent with our approach last quarter, we continue to assess our performance on an adjusted basis, excluding one-off nonoperational anomalies that can distort operational business performance. On this adjusted basis, we delivered an EBITDA of $1.3 billion, a 4% decline versus last quarter's on adjusted basis, which will be discussed further on the next slide. SABIC resilient EBITDA margin of 14.5% underscores our sustained cost discipline and operational efficiency during market headwinds, reinforcing our position among the top tier of the global petrochemical industry. Moving to adjusted net income. It increased 45% quarter-on-quarter, reflecting our strong commitment to value creation and cost reduction program or transformation. In addition to fair valuation of equity derivative and instrument associated with several joint venture and associates, year-to-date, SABIC adjusted net income totaled $296 million, lower than last year, primarily due to substantial lower average selling price, partially offset by higher sales volume and benefits from our transformation initiative and program. Cash flow from operation reached $2.7 billion for the first 9 months of 2025, up 8% year-on-year, supported by disciplined working capital management and improved cash conversion cycle. In addition, year-to-date free cash flow totaled $1 billion or $1.03 billion, an 81% increase versus last year same period, driven by continued prudent capital expenditure management, resulting in $256 million reduction in CapEx spending year-to-date. It's also important to highlight that the company secured approximately $1.8 billion during the year as a result of our portfolio optimization program. Finally, our net cash position continued to reflect SABIC financial strength and resilience. To dig deeper into our EBITDA performance quarter-over-quarter, excluding the nonfrequent licensing gains recorded last quarter, Q3 EBITDA was actually up by 10% compared to the previous quarter. This improvement reflects our diversified product portfolio and flexible asset base, enabling us to capture the benefit of lower liquid feedstock prices and higher prices of selected products such as urea. Our transformation journey continued to deliver strong momentum, reflected in consistent quarterly progress. By leveraging global presence, we are optimizing operation, reducing cost and demonstrating disciplined agility and resilience during ongoing market headwind. With that, let me take you through the progress we have made across our key transformation program. With regard to transformation program announced last quarter, targeting a recurring annual EBITDA impact of $3 billion by 2030, which is split between $1.4 billion in cost reduction and $1.6 billion in value creation, I'd like to take a moment to highlight our progress to date. Building on the foundation established earlier this year, we have realized $300 million of value under the program year-to-date or at the end of quarter 3 this year. This includes EBITDA-related improvement driven by cost optimization, procurement, and manufacturing efficiency. These savings are clearly reflected across our P&L with an 8% or $153 million reduction in general and administrative costs year-to-date compared with the same period last year. On nonrecurring item, we have reduced our CapEx spending by $256 million, as noted earlier. Overall, our progress highlights our disciplined execution, resilience and focus on delivering the $3 billion transformation targeted by 2030, and we'll update you on a regular basis. Turning to the Petrochemical segment. Market condition remains challenging during the quarter. We continue to see further pressure on prices driven by persistent global overcapacity. During this quarter, higher polymer sales volume offset by lower chemical sales, resulting in a flat sales volume for petrochemical quarter-over-quarter. The reduction in EBITDA this quarter compared with the prior quarter is mainly attributed to the absence of licensing income that benefited the prior quarter. Excluding this effect, underlying operation performance improved by 9%, mainly driven by achieving higher margin driven by reduction in liquid feedstock. In Agri-Nutrients segment, performance this quarter remained solid, supported by higher prices and stronger demand in India, leading to an increase of 13% in average selling price. Despite a decline in over sales volume, SABIC leveraged its global footprint to capture this regional demand, resulting in a 14% increase in EBITDA quarter-over-quarter. Total sales volume for the quarter reached approximately 1.8 million metric tons, reflecting our strong market position and agility in responding to shifting regional supply-demand dynamic. As I conclude, I want to highlight our consistent discipline and strategic focus on driving long-term value for shareholders. We have stayed resilient through a challenging market, maintaining a strong balance sheet and prudent financial framework that gives us flexibility to navigate a different market cycle. Improving capital efficiency remain one of our top priority. We are focusing on reducing costs, enhancing cash generation and driving stronger return on every dollar we invest. At the same time, we are moving forward with our transformation and portfolio optimization program, ensuring SABIC remains competitive, agile and well positioned for the future. We also remain fully committed to delivering value to our shareholders through competitive dividends and disciplined capital allocation, reflecting our confidence in SABIC's strength and outlook. And finally, we continue to unlock capital from nonperforming assets and noncore assets that strategically don't fit our competitive advantage. This concludes the financial highlights. I'll now hand back to Abdulrahman to walk you through our year ahead guidance. Abdulrahman?

Thank you, Salah. Our guidance for the year ahead is based on slow economic growth as reflected in the revised expected global GDP growth rate of the 2.7%. And in line with our commitment to capital discipline and selective growth, our 2025 capital investment is expected to be between the USD 3 billion and USD 3.5 billion. This concludes the presentation portion of today's call. We can now kick off the Q&A session.

[Operator Instructions] First question is from Sriharsha Pappu from HSBC.

I was just wondering on growth, if you had a working framework for potential additional ethane availability out of Jafurah and how that might impact volumes at SABIC. Have you done any studies on how much you can debottleneck existing assets? Do you have a sense of time lines, CapEx? How are you thinking about Jafura given that, I guess, the ethane volumes will start relatively soon? Also a follow-up question. Would you have a sense of FID time lines around blue ammonia projects that perhaps that some of your subsidiaries are working on?

I mean actually, our position here in the Kingdom of Saudi Arabia since SABIC has been started like almost 49 years back with very strong capability and taking the advantage of the hydrocarbon resources here in the Kingdom and adding value for that hydrocarbon resources. And we built with that, of course, our technology, our human resources capability as well as, I mean, the additional value for our stakeholder. So we can still have that advantage of the guys in the Kingdom competitively. And of course, this is -- all depends on how is the stakeholder of this is going to allocate that gas. But I can assure you that in the company that I think we have the capability for optimizing our feedstock to the best that is going to generate value for our stakeholders. The second part of your question, if I heard it correctly, it was about the FID in the ammonia -- in the ammonia. Yes, I would like to refer this question to the SABIC Agri-Nutrients since it is a company that listed in the Tadawul market.

Next question is from Sashank Lanka from Bank of America.

I have 2 questions, if that's fine. The first one is related to the $300 million that you spoke about through your cost saving program and value creation. Would you be able to talk about how much of this is coming from restructuring your European business? That's the first question. The second question is just on the chemicals market and wanted your views there. I mean, clearly, prices have weakened over the course of the year. People were expecting a recovery at some point, but it seems it is delayed. So in your view, what would drive a recovery from here given this prolonged down cycle that we're in?

Okay. Maybe let me start -- I'll take the first part of the question and maybe Abdulrahman can take the second one. The portfolio optimization had actually started last year and it's very strategic and it has a holistic approach to review underperforming assets and noncore assets that we don't have a competitive advantage. All options are being reviewed to improve the group financial performance, including closures, such -- the one that we did in Helin, Olufim 3 and recently the Teesside Cracker Unit. The program remains a strategic priority for the company, and we are progressing very well. Of course, any development on that front, we will be updated. Now the portfolio optimization is very important is not only looking into Europe, it is looking into all our investments globally. And the transformation also is another program that we are focusing on and consider the strategic priority for us is looking into all assets within SABIC. Maybe Abdulrahman...