Qurain Petrochemical Industries K S C P : Transcript of the Analysts Conference

Qurain Petrochemical Industries Company 3Q 2021/22

Thursday, February 03, 2022-14:30 (Kuwait UTC+03:00)

Qurain Petrochemical Industries Company (QPIC)

Earnings Call transcript pertaining to nine months period ended 31st December 2021 (3Q 2021/22) - edited script -

Held on Thursday, February 3rd, 2022 at 14:30 (Kuwait Time) (UTC +03:00)

Participants from QPIC:

• Tanweer A. Khalfay, Chief Financial Officer (CFO)
• Mickey Zacharia, Chief Investment Officer (CIO)
• Abdulhameed N. Malhas, Investment & Communication Manager

Chairperson

• Alaa Saleh, EFG Hermes

Page 1 of 5

Qurain Petrochemical Industries Company 3Q 2021/22

Thursday, February 03, 2022-14:30 (Kuwait UTC+03:00)

Alaa Saleh:	Good afternoon, ladies and gentlemen. This is Alaa Saleh from EFG-Hermes Research. Thank you
	for joining us on Qurain Petrochemicals third quarter (3Q FY2021/2022) results webinar. We have
	with us on the webinar today from QPIC management, Mr. Tanweer Khalfay (CFO), Mr. Mickey
	Zacharia (CIO) and Mr. Abdulhameed Malhas (Investment & Communication Manager).
	We will begin the webinar with a brief presentation by the management, followed by a Q&A
	session. I would like to pass the call to Abdulhameed to get us started. Please go ahead.

Abdulhameed Malhas: Thank you, Alaa. Hello everyone, and, on behalf of Qurain Petrochemical Industries Co. (QPIC), I would like to welcome you and thank you for joining us on today's webinar covering our nine months' results for the period ended 31 December 2021 of the financial year 2021/2022.

My colleague Tanweer will begin the presentation covering the main financial highlights of the quarter, then I will follow with the main business highlights of QPIC group companies, and finally, we will open the floor for your questions.

On a final note, and before proceeding with the presentation, I would like to refer you to the disclaimer on slide 2 of the shared presentation. This webinar and presentation by no means represent an invite or an offer to subscribe or conduct any transaction on a given security. Any given forward-looking statements that may arise during this call are made to the best extent of our knowledge and assumptions as of date. Various factors could always cause future results, performance or events to differ from those described in these statements.

And now, I will hand over the call to Tanweer to begin the presentation.

Tanweer, please go ahead.

Tanweer Khalfay: Thank you, Abdulhameed.

The pandemic continues to have an adverse impact on the financial results for three quarters of our financial year 2021/2022.

For the three quarters, QPIC earned a Net Income of KD 5.03 million versus KD 7.61 million for the same period last year, representing a reduction of 34%. The Earning per Share (EPS) for the period was, therefore, 4.92 fils per share versus 7.45 fils per share last year.

The period ended 31st December 2021 witnessed decreased sales revenue from KD 175 million for the previous year to KD 168 million for this year, representing a reduction of KD 6.24 million or 4% mainly on account of decreased sales revenues from our subsidiaries. The cost of sales, however, has increased by 3% from KD 117.46 million for the previous year to KD 120.94 million for this year. This resulted in a decreased gross profit of KD 47.32 million for the period, a decrease of 17% compared to KD 57.04 million for the same period last year.

Share of results from associates increased from KD 1.63 million for the previous year to KD 3.09 million during the current year, an increase of KD 1.46 million or 90% mainly owing to increased share of profit from Kuwait Aromatics Co. (KARO). KARO posted a consolidated net income of USD

1. million (KWD 9.84 million) compared to a consolidated net loss of USD 3.39 million (KWD

1. million) in the previous year. QPIC's share of the same at 20% is USD 6.49 million (KWD 1.97 million) against share of loss of USD 0.68 million (KWD 0.21 million) in the similar period last year.

Page 2 of 5

Qurain Petrochemical Industries Company 3Q 2021/22

Thursday, February 03, 2022-14:30 (Kuwait UTC+03:00)

Tanweer Khalfay: With cost cutting measures in place, General and Administrative (G&A) expenses decreased from KD 20.18 million for the previous year to KD 19.07 million during the current year, representing a decrease of KD 1.11 million or 6%. This is partly owing to the decrease in intangibles amortization expenses amounting to KD 0.72 million, and decrease in G&A expenses of NAPESCO amounting to KD 0.31 million. Finance cost, owing to better cash management and reduced benchmark rate, decreased by 16% or KD 0.28 million for the period under consideration.

With that, I conclude the financial highlights portion.

Abdulhameed Malhas: Thank you, Tanweer. I will continue the presentation now and cover the main business highlights of QPIC group on slide number 10 with Petrochemicals markets.

Petrochemical markets overall maintained the positive momentum since the beginning of the year and continue to do so as global economies start recovering.

EQUATE Group has performed remarkably since the beginning of the year on the back of strong price recovery and excellent plant utilization that has enabled the group to exceed pre-COVID levels. Olefins markets have maintained the upward trend since the beginning of the year where in the nine months period, Ethylene Glycol (EG) at around US$680/MT & Polyethylene (PE) at around US$1,200/MT were higher than last year by 56% and 47%, respectively.

Moving on to the Aromatics Business, Kuwait Aromatics (KARO) posted a net profit amounting to US$ 32 million versus a net loss of US$ 3 million for the nine months period. This was mainly due to the impressive performance of the Styrene unit, (The Kuwait Styrene Company (TKSC), partially offset by the Kuwait Paraxylene Production Co. (KPPC) net losses during the same period. TKSC, despite the lower sales and production volumes resulted from the unplanned shutdown earlier in the year, has performed excellently during the announced period, and that is owing to the strong price recovery of Styrene Monomer (SM) during the year. SM prices averaged close to the US$1,200/MT mark, up by around 72% from the same period last year. KPPC, however, despite having 78% higher sales than the same period last year, has incurred marginal losses during the period due to tougher market conditions and compressed margins, as FRN prices has increased by 90% from last year.

Moving on to slide 11, Saudia Dairy & Foodstuff Co. (SADAFCO) has continued reporting healthy sales figures and double-digitnet profit margins during the quarter at 10.5% despite the increase in raw material, logistics and selling & distribution costs. YTD-Q3net profits of SAR 146 million for the nine months; which was 29% below the same period last year due to the mentioned reasons as well as lower sales. It's also worth noting that SADAFCO Board of Directors has approved interim dividends of SAR 3/share that was distributed in January 2022.

And now, moving on to slide #12 covering Oil & Gas services, National Petroleum Services Co. (NAPESCO) posted net profits amounting to KD 3.3 million for the nine months period of 2021, representing a 38% decrease from last year. The variance can be mainly attributed to the increased pressure on margins resulting from tighter competition in the well cementing market segments. YTD-Q3Oilfield gross margin has dropped from 40% to 24%, while non-oilfieldmargins also dropped from 18% to 16% compared to last year. Revenue mix remains in the same proportion (~70:30), respectively.

Page 3 of 5

Qurain Petrochemical Industries Company 3Q 2021/22

Thursday, February 03, 2022-14:30 (Kuwait UTC+03:00)

Abdulhameed Malhas: With regards to United Oil Projects (UOP) performance, Net profits have declined by 32% compared to the same period last year, owing to the lower contribution from its core associates that was impacted during the announced period due to having less operational rigs at the United Precision Drilling Co. (UPDC) and lower number of wells allotted to Al-Khorayef, in addition to having less dividends from NAPESCO received in 2021.

	Finally, covering Logistics & Basic Industries slide number 12.
	Jassim Transport & Stevedoring Co. (JTC) YTD-Q3 (September 2021) performance witnessed an
	overall increase in revenues by 1% as compared to the previous year, mainly due to an increase in
	Transportation division revenue by 65% supported by Ministry of Electricity & Water (MEW)
	contract and increase in revenue of Leasing equipment division by 4% driven by generator rentals
	and refinery and plant shutdowns in Kuwait and Qatar. Demand of generators from Kuwait Oil
	Company (KOC) ESP segment continued its excellent performance and utilization in Kuwait remains
	at over 90%. Market conditions remain challenging with the slower business environment and low
	government spending, in addition to delays and cancelations of large projects in Kuwait. But on a
	positive note, Aggregate handling operations at Shuaiba port has commenced in June, and
	construction of JTC first temperature-controlled warehouses in Mina Abdullah was initiated and is
	expected to be completed early next year.
	As for Insha'a holding (Insha'a), Insha'a incurred a net loss during the period, impacted by lower
	gross margin and lower total sales. But it's worth noting that last year profitability was positively
	impacted by the higher margins in ready-mix business, supported by lower cement prices and
	additional sales to Hessah Al Mubarak District.
	With that I conclude our part of the presentation. We would like to open the floor for any
	questions that you may have.
Q&A
Alaa Saleh:	Thank you very much for the presentation, the floor is now open for questions. If you would like to
	ask a question, you can either use the raise-hand function and I will open the line for you or you
	can send me a question through the Q&A box and I will happily read it out to the management.
Yousef Husseini:	I have a question over here. I would like to get a sense of what is your outlook on the
	petrochemical segment in 2022. How do you see Styrene prices this year, how are they holding
	so far? MEG as well. Thank you.
Mickey Zacharia:	We have seen the EG prices has breached the US$850/MT mark in October, which is the first time
	that they have done that since October 2018, so the first time in three years. In Q4 after that, prices
	witnessed a slight reduction but remained at healthy levels between US$650-700/MT. We have
	seen the same levels for the first month of this year and the expectation as of now is that it will be
	around the same levels in 2022. Going forward in 2023-2024, it's probably too early to say, but as
	of now we expect it to remain at the same levels, unless major changes occur in oil prices etc. We
	saw a slight dip in styrene towards the end of last year, but it remained above the US$1,200/MT
	mark and we expect that to hold.
Yousef Husseini:	Thank you, gentlemen.
	Page 4 of 5