In brief comments issued to the Qatar Exchange, H.E. Dr. Mohammed Bin Saleh Al-Sada, Minister of Energy and Industry, Chairman and Managing Director of Industries Qatar, stated “The group has followed-up its record-breaking 2011 performance with strong first quarter results. Both revenue and net profit have improved on the last quarter of 2011, closing at QR4.4bn and QR1.9bn respectively.
“In the first quarter, we witnessed the commercial launch of Qafco 5, the group’s 1.0 million metric ton urea facility. Incremental sales from the plant totaled approximately QR80m as the group recognised only about two week’s of commercial sales. However, this facility will undoubtedly prove to be a major growth driver for the group in the coming period.
“The second quarter is also expected to benefit from the launch of Qapco’s LDPE-3 facility. When fully operational, this plant should add 240,000 metric tons of LDPE to the group’s product suite.”
The strong first quarter financial results can be primarily attributed to additional fertiliser volumes following the launch of Qafco 5, high steel utilisation rates and resilient EBITDA1 margins.
Elaborating on the group’s revenue performance, Mr. Abdulrahman Ahmad Al-Shaibi, Chief Coordinator, Industries Qatar, said, “The group recorded revenue of QR4.4bn for the period ended March 31, 2012, representing a robust increase of QR0.4bn, or 8.9%, on the same quarter last year. This increase can be primarily attributed to volume-driven growth in the fertiliser and steel segments, following the start of commercial operations in Qafco 5 and improved production levels in the group’s Mesaieed-based steel operations.” Revenue increased over the last quarter of 2011 by QR0.3bn, or 9.5%, due to the same volume drivers and despite price weakness noticed in the majority of key products.
Petrochemical revenue in the first quarter of the year was QR1.3bn, down QR0.1bn, or 8.0%, on the first quarter of 2011. Almost 80% of the segment’s negative year-on-year performance was due to an adverse volume variance on account of planned and unplanned shutdowns in the fuel additives joint venture. In total, the joint venture lost 69 days to shut-downs (2011, Q1: 0 days), with 28 days of unplanned shut-downs related to one-off, non-recurring problems in the early part of the quarter. Expectations are that utilisation rates will return to normal in the second quarter of 2012. There were no other material shut-downs noted in the segment during the quarter. Due to the above, the segmental utilisation rate dipped to below 90% for the first time since the first half of 2010.
Overall, product prices were marginally down on the same period last year with the notable exception of LDPE which experienced an 18.3% drop from the record highs of 2011.
Versus the previous reporting quarter, petrochemical revenue dipped by QR0.3bn, or 19.1%, split between an adverse volume variance of QR0.4bn and a marginally positive price variance. Quarter-on-quarter volumes declined partly due to the return to normalcy in the current quarter following record LDPE and LLDPE sales volumes in the previous quarter, and because of the effect of the fuel additives planned and unplanned shut-downs.
The fertiliser segment closed the quarter with revenue of QR1.3bn, up QR0.2bn, or 14.5%, on the same period last year. The segment’s year-on-year performance was largely due to the combined effect of additional urea volume following the commercial launch of Qafco 5, a reduced number of shut-down days in 2012 and moderately positive year-on-year price inflation. Qafco 5’s first commercial sales were booked on March 12, 2012 following its start-up in mid-February. A total of 44,000 metric tons of urea sales were recognised during the quarter, and the plant closed the quarter while operating at 86% utilisation. Expectations are that the plant will continue its rapid ramp-up and will hit normal utilisation levels during the second quarter of 2012.
Sales volumes during the quarter were also boosted by a reduced number of shut-down days: 16 days (ammonia) and 14 days (urea) in 2012 versus 26 (ammonia) and 21 (urea) days in the first quarter of 2011.
Against the fourth quarter of 2011, segmental revenue was up by QR0.2bn, or 18.8%, as incremental ammonia and urea volumes from Qafco 5 offset the rapid tailoring off of the key product price rally that began in the last quarter of 2010, as well as the loss of production due to routine shut-downs. Key product prices in the first quarter were down between 10% and 40% on the previous quarter, due to muted global demand coupled with supply-side pressures.
With respect to the steel segment, Mr. Al-Shaibi remarked, “The steel segment recorded its second highest quarterly revenue since the group’s inception in 2003, with over QR1.7bn of steel sales registered in the first quarter of 2012. In doing so, the segment also became the group’s largest revenue contributor, accounting for almost 40% of total sales. This excellent result is indicative of strong local and regional demand for Qatar Steel’s products, and bodes well for the future as the segment is expected to significantly benefit from the progressive and wide-ranging infrastructure plans of the State of Qatar.”
First quarter steel revenue was QR1.7bn, an increase of QR0.3bn, or 22.1%, on the same period last year, and QR0.5 bn, or 36.2%, over the last quarter of 2011. The year-on-year and quarter-on-quarter increases were both largely predicated on production-driven volume increases due to lower shut-down days, as segmental utilisation closed the quarter at 107%, up 15 and 18 percentage points against the first and last quarters of 2011 respectively. The segment noted flat to low year-on-year key product price growth, and negative quarter-on-quarter inflation, in continuation of trends noted in 2011 whereby product prices peaked around the third quarter and have dropped consistently since.
On the subject of the group’s net profit, Mr. Al-Shaibi remarked, “The group’s profits were boosted by the strong revenue result and improved profitability levels, closing the quarter with net profit of QR1.9bn and EBITDA of QR2.2bn. The results were broadly in line with the group’s budgeted expectations. The petrochemical segment was the main profit contributor, accounting for over 40% of the group’s net profit and EBITDA; but, this is expected to change as the year progresses and the group benefits from the launch of Qafco 5’s second ammonia train, and Qafco 6.”
Net profit and EBITDA were up between 13% and 14% on the preceding quarter as the volume-driven growth in revenue was aided by resilient margins. Both net profit margin and EBITDA % improved in the quarter by circa 2 percentage points to close at 43.7% and 49.6% respectively, as the previous quarter was impacted by a number of exceptional items, including the write-off of certain project under development costs (QR85.2m).
In contrast, net profit and EBITDA decreased against the same period last year, both by QR0.2bn, due primarily to reduced profitability in the fertiliser and steel segments. Fertiliser margins were impacted by additional depreciation following the capitalisation of the QR8.9bn Qafco 5 facility in March, 2012, increased price and volume-indexed feedstock costs, the final installment of the take-or-pay liability due to Qatar Petroleum and increased finance charges. In the steel segment, however, margins were affected by high cost inventories sold during the quarter, the impact of higher salaries and wages and reduced income from associates and other income.
Concluding, Mr. Al-Shaibi said, “The group eagerly awaits the remainder of 2012 as we build on the successful launch of Qafco 5 and anticipate the imminent launch of LDPE-3. By the end of the year, the group expects to launch plant’s with a total of 2.0 million metric ton per annum of urea capacity and 240,000 metric tons of LDPE capacity.
In closing remarks, H.E. Dr. Al-Sada stated, “I would like to express my gratitude to H.H. Sheikh Hamad Bin Khalifa Al-Thani, the Emir of the State of Qatar, for his vision and leadership, the Board of Directors for its wise counsel, and to the senior management of the group companies for their hard work, commitment and dedication.”
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