IQ declares strong full year profit of QR8.0bn dividend of QR11.00 per share proposed
Industries Qatar (IQ or the group; QE: IQCD), one of the region’s industrial giants with interests in the production of a wide range of petrochemical, fertiliser and steel products, announced its financial results for the year ended December 31, 2013 with net profit of QR8.0bn.
In comments issued to the Qatar Exchange after the group’s first Board of Directors meeting for 2014, H.E. Dr. Mohammed Bin Saleh Al-Sada, Minister of Energy and Industry, Chairman and Managing Director of Industries Qatar, stated, “Industries Qatar closed the year ended December 31, 2013 with strong full year earnings of QR8.0bn – following the record-breaking 2012 results with the second highest net profit on record, and clearly showing the group’s ability to generate strong profits and cash flow even during the difficult international market conditions experienced during the year.”
This financial year was also noteworthy for two other reasons. Firstly, it marked the first full year of operation for QR12.8bn of petrochemical and fertiliser facilities launched during 2012 which added 2.0m MT / PA of urea and 240,000 MT / PA of LDPE to the group’s existing capacity, increasing the overall production capacity from 13.7m MT / PA to 16.0m MT / PA. And, secondly, the group’s credit ratings with Standard & Poor’s and Moody’s were maintained at AA- and Aa3 respectively in the companies’ annual reviews – placing Industries Qatar one notch beneath the State of Qatar’s sovereign rating, and in a very select group of international industrial conglomerates.
Continuing, H.E. Dr. Al-Sada stated, “These resolute financial results serve to vindicate the previous decisions of the Board of Directors to invest heavily in improving the efficiency of existing facilities and in expanding capacity, and lend support to the future investment plans as outlined in the recently announced group growth strategy – sustained growth throughout the commodity cycle can only be assured through judicious, yet bold, investment in improving capacity.”
Commenting on the financial results for the year, Mr. Abdulrahman Ahmad Al-Shaibi, Chief Coordinator, Industries Qatar, stated, “The group recorded strong year-on-year sales volume growth following the launch last year of new petrochemical and fertiliser facilities, while also maintaining exceptional petrochemical and steel EBITDA margins. Results, however, were adversely impacted by continued significant fertiliser price deflation, in line with international trends, and heightened fertiliser operating costs following increases in natural gas rates under the supply and purchase agreement with Qatar Petroleum.”
Reported revenue for the full year was QR5.8bn, a decrease of QR0.3bn, or 5.4%, on the restated results of 2012; however, on a like-for-like basis under the previous accounting standard, reported revenue would have been QR19.3bn, an increase of QR0.6bn or 3.1%.
Revenue in the petrochemical segment for the year was QR5.4bn (2012 restated: QR4.8bn), an increase of QR0.6bn, or 12.3%, versus 2012. The segmental performance can be largely attributed to significantly improved sales volumes following the commercial launch of the group’s third LDPE plant in the second half of 2012 and subsequent quick ramp-up, fuel additive comparatives adversely impacted by a number of significant planned / unplanned shut-downs in 2012 (2012: 83 days), and improved LDPE prices. Total LDPE sales volume increased by 145,000 MT, or 33.7%, versus 2012, and overall LDPE utilisation closed the year at a strong 103% (2012: 110%). Methanol and MTBE sales volumes were up 8.9% and 5.9% respectively following last year’s disruption (methanol: 42 days, MTBE: 41 days), with utilisation rates averaging a commendable 94.1% and 107.5% each (2012: 84% and 102% respectively).
“Resilient petrochemical prices contributed QR0.2bn to the year-on-year segment growth of QR0.6bn,” elaborated Mr. Al-Shaibi. “Commodity price inflation was most notable for LDPE and methanol, with the two products registering growth of 8% and 13% respectively versus 2012, as they continued to recover from the near-term lows noted in the second half of 2012. LDPE benefited from short supply from the Middle East and Asia due to maintenance shut-downs and / or reduced production levels on high input costs, coupled with strong demand from core Asian derivative markets. Likewise, methanol prices grew primarily due to a tightening of the demand-supply gap during the year following strong Chinese demand and competitor plant outages,” he added.
Petrochemical revenue for the fourth quarter of 2013 was QR1.6bn, up QR0.1bn, or 8.5%, on 2012. The favourable variance can be entirely attributed to a spike in LDPE sales volumes related to the timing of specific shipments, as production was marginally down on incrementally more shut-down days being noted during the quarter (2013, Q4: 29 days; 2013, Q3: 18 days). As a segment, the utilisation rate improved on the last quarter to a commendable 105% (2013 Q3: 102%).
The fertiliser segment closed the year with revenue of QR6.1bn, up QR0.1bn, or 2.4%, on 2012. The moderate segmental improvement occurred as incremental urea sales volumes following the commercial launch of Qafco 5 and 6 during the second half of the previous year and subsequent ramp-up were largely negated by urea prices continuing their negative trend, in line with international prices, closing 17.9% down on 2012.
Revenue in the fourth quarter of the year was marginally up versus the previous quarter, increasing by 3.8% to close at QR1.3bn, as quarter-on-quarter urea sales volumes increased by almost 100,000 MT. This improvement in sales volume occurred despite a number of planned and unplanned shut-downs (ammonia: 29 days, urea: 44 days), and served to compensate for static urea selling prices. Urea prices remained largely flat during the quarter, as the decline in international prices that resulted in the group’s weighted average price dropping by over $100 per MT since the beginning of the year to close at a 3-year low of $293 per MT came to an end.
Commenting on the ongoing weak nitrogenous fertiliser price outlook, Mr. Al-Shaibi said, “Although a significant recovery in fertiliser prices is not expected imminently, IQ is in a uniquely strong position to weather the current downturn in global fertiliser prices that has seen the group’s quarterly weighted average urea price drop by almost 40% since the current commodity cycle high of $487 per MT in the third quarter of 2011. Firstly, and most importantly, urea capacity increased by an additional 2.0m MT / PA in 2012, meaning that the group can continue to expect strong headline results as improved sales volumes should be able to compensate for all but the most severe and prolonged period of price deflation. So, while lower fertiliser prices weighed down full year revenue by QR1.1bn, improved volumes added QR1.3bn. And, secondly, the group should benefit from the improved marketing expertise of the State of Qatar’s wholly-owned petrochemical and chemical marketing specialist company, Muntajat, following the transfer of all sales-related activities in the first quarter.”
Full year steel revenue was QR5.8bn, a decrease of QR0.3bn, or 5.4%, in comparison to 2012. The reduction in revenue was primarily due to a 5.4% drop in the weighted average re-bar price to QR2,499 per MT, in line with decreasing iron ore costs and following changes to the steel subsidiary’s historical end-market mix. Utilisation remained at a high 108%, marginally down on 2012 (2012: 110%). Fourth quarter revenue was QR1.4bn, up on the previous quarter by QR0.05bn, or 3.5%, on moderately higher re-bar volumes.
Profits and Margins
On the subject of the group’s profits and profitability, Mr. Al-Shaibi remarked, “The group recorded full year earnings of QR8.0bn, a decrease of QR0.4bn, or 5.1%, versus 2012. Although earnings were moderately down on 2012, they still represent the group’s second highest results on record.”
EBITDA for the year was QR8.2bn, a decrease of QR0.5bn, or 5.1%, on the same period last year. “Benefits gained from higher sales volumes following the commercial launches of Qafco 5, 6 and LDPE-3, weak prior year comparatives due to extended fuel additives shut-downs in 2012 and improved operating results at several of the group’s local and regional investments, were offset by general price weakness and increased fertiliser and, to a lesser extent, petrochemical, operating costs,” continued Mr. Al-Shaibi. Quarter-on-quarter consolidated EBITDA deteriorated by QR0.1bn, or 5.4%, largely in line with the change in revenue across the group companies.
Net profit for 2013 was QR8.0bn, a decline of QR0.4bn, or 5.1%, versus 2012. Significant incremental depreciation and finance charges following the capitalisation of the new fertiliser and petrochemical assets in 2012 accounted for the additional movement in net profit vis-à-vis EBITDA. Versus the previous quarter, net profit changed in line with EBITDA.
Segmental EBITDA Margins
Petrochemical EBITDA margin closed the year at 75.6%: marginally down on 2012 by 2.9 percentage points, as higher LDPE-3 operating costs and reduced other operating income negated the positive impact of increased LDPE and fuel additive sales volumes, and a 26.6% improvement in profits in Qapco’s 63.64% joint venture, Qatofin (v 2012: +QR203.3m). Versus the previous quarter, petrochemical margins slipped by 6.4 percentage points mainly due to the booking of year-end provisions and increased operating costs.
Year-on-year, fertiliser EBITDA margin deteriorated by 16.3 percentage points to close at 53.9% principally due to the significant reduction in fertiliser prices and the increase in the average feedstock unit cost following the revision to the natural gas supply and purchase agreement rates for trains 1 to 4, and incremental supply to train 5. This decline was despite the benefits derived from higher economies of scale resulting from the new, state of the art, efficient production facilities, the reversal of excess prior period provisions (v 2012: +QR56.0m) and the return to profitability of the joint venture’s subsidiary, Qatar Melamine Company (v 2012: +QR43.5m). Versus the third quarter, margin dipped by 3.9 percentage points primarily due to increased operating costs.
Full year EBITDA profitability in the steel segment improved to 32.9% versus 26.7% in 2012. This increase of 6.2 percentage points was achieved due to a number of factors including improved iron ore pricing, a superior sales mix and enhanced results from associates (v 2012: +QR134.6m). The subsidiary’s annual average iron ore unit cost has now declined by 10.8% since 2012. EBITDA margin in the fourth quarter shrunk by 7.9 percentage points to 26.1% on account of increased raw material costs.
For more information please contact:
Mr. Abdulrahman Ahmad Al-Shaibi
Industries Qatar QSC