ERC’s gross refining margins declined significantly
Qalaa’s consolidated revenues grow 2% y-o-y to EGP 27.7 billion in 2Q23
Qalaa Holdings، a leader in energy and infrastructure (CCAP.CA on the Egyptian Exchange)، released today its consolidated financial results for the second quarter ending 30 June 2023. The Group’s consolidated revenue grew by 2% y-o-y in 2Q23 to EGP 27.7 billion، primarily driven by ERC’s contribution. Meanwhile، Qalaa’s recurring EBITDA dropped significantly in 2Q23 to EGP 4.5 billion compared to EGP 9.0 billion in 2Q22. Profitability was mainly impacted by a significant rise in costs، as well as thinning margins at ERC this quarter.
ERC’s gross refining margins declined significantly during the quarter، averaging USD 1.86 million per day in 2Q23، compared to USD 5.36 million per day in 2Q22. The decline reflected an increase in feed stock prices، a drop in refined product prices، and the lower quality of feedstock received. It also partially reflects a normalization of oil product prices following a spike recorded in 2022.
Excluding ERC، Qalaa’s 2Q23 revenue was up 26% y-o-y، recording EGP 6.9 billion، driven by improved performances across most subsidiaries. TAQA Arabia’s revenue grew 30% y-o-y in 2Q23 reaching EGP 3.2 billion compared to EGP 2.5 billion in 1Q22. The company’s revenue growth was primarily driven by a strong performance at TAQA Gas، which benefitted from increased connection revenues as well as a rise in CNG volumes sold resulting from an expansion in the number of operating CNG stations versus last year. Revenue was also supported by the increase in the price and volume of both fuel and lubes at TAQA Petroleum.
National Printing’s revenue remained stable y-o-y in 2Q23، standing at EGP 1.1 billion as it saw mixed performances across its companies. Most notably، El Baddar continued to capitalize on its new facility to report a 15% y-o-y rise in revenues for the quarter. Meanwhile، Shorouk for Modern Printing and Packaging witnessed a decline in export volume which was offset by an increased average price per ton. In parallel، ASCOM delivered a 23% y-o-y top-line increase to EGP 436.7 million in 2Q23، mostly driven by EGP devaluation augmenting revenues at the USD denominated businesses including Ascom for Chemicals and Carbonates Manufacturing (ACCM) and Glassrock، an insulation material producer، the biggest revenue generators for ASCOM. Revenues were further boosted by the strong performance delivered by ASCOM’s Egyptian quarrying business.
In 2Q23 ASEC Holding’s revenue was EGP 811.2 million، down 25% y-o-y compared to 2Q22، owing to the negative impact of the ongoing armed conflict in Sudan on the company’s operations. It is worth noting that the staff and assets of Qalaa’s Sudan affiliate Takamol Cement are safe and continue to operate at a limited capacity. Qalaa continues to closely monitor the ongoing developments within the country. Meanwhile، Dina Farms Holding’s revenue reached EGP 480.0 million in 2Q23، up 40% y-o-y. The company’s performance was backed by improved operations across all business segments at Dina Farms and ICDP’s revenue benefiting from both higher prices and new product launches. Finally، CCTO’s transport & logistics business delivered a 148% y-o-y revenue increase to record EGP 168.6 million in 2Q23 driven by improvements across all revenue streams of its Egyptian arm NRPMC.
Challenging macroeconomic conditions
“Qalaa has been resilient despite highly challenging macroeconomic conditions، and I am pleased with the Group’s results over the past quarter in the face of a difficult operating environment،” said Qalaa Holdings’ Chairman and Founder Ahmed Heikal. Qalaa’s top-line increased slightly year-on-year، supported by stable results at the Egyptian Refining Company (ERC) and solid performances across all subsidiaries. Despite this، both EBITDA and net income contracted year-on-year due to the sharp decline in ERC’s margins، as well as the negative impact of the ongoing armed conflict in Sudan on Takamol Cement’s performance. Going forward، we will continue prioritizing the growth of our subsidiaries’ cashflows، and carefully utilizing them to make both high yield incremental investments while staying on track with our debt repayment plan.”
“Qalaa’s performance for the quarter comes in the midst of a challenging operating environment. On the global front، the world continues to face a tough macroeconomic landscape، with countries around the world facing record-high levels of debt، fast-rising inflation، and tightening monetary conditions. This has ushered in a period of anticipated long-term depressed economic growth، higher borrowing costs، and an increased focus on deleveraging. Furthermore، ongoing geopolitical tensions، coupled with the increasingly evident effects of global warming، continue to place further stress on the global financial system،” Added Heikal.
“On the domestic front، inflation rates remain on an upward trajectory، with the Central Bank raising interest rates once again in an effort to combat rising price levelsAs always، Qalaa remains well-positioned to successfully navigate these difficult times owing to our resilience، flexibility، and efficiency، which are ingrained into the core of our DNA. We are confident that Egypt’s recent inclusion in the BRICS bloc of developing nations، which will come into effect on the 1st of January 2024، will provide a long term boost to the country’s economy”، continued Heikal.
“Qalaa’s performance throughout the coming period will continue to be supported by our portfolio companies، which remain resilient in the face of macroeconomic pressures، and continue to benefit from Qalaa’s meticulous growth-oriented strategies. Over the coming years we will continue to push ahead with our growth strategies across our platforms، while keeping a close eye on potential investment opportunities. We have recorded solid results across our business segments this quarter، and I am confident that Qalaa’s outlook remains positive despite the ongoing challenges،” stated Heikal.
The listing of TAQA Arabia
“In addition to the favorable position of Qalaa’s portfolio، I am also happy to announce that following the listing of TAQA Arabia on the EGX on the 9th of July، the National Service Projects Organization (NSPO) has acquired 20% of the total shares of TAQA previously owned by Qalaa. The proceeds of the aforementioned transaction enabled the Group to settle some of our outstanding debt obligations. Furthermore، this transaction includes an agreement that provides Qalaa with the right to repurchase the sold shares from the NSPO within four years from the date of the deal completion at a repurchase price that equals the original purchase price plus an agreed upon annual investment return، a call option that Qalaa fully intends to exercise. Going forward، Qalaa may continue using a similar strategy with other assets as we reach agreements with our creditors on debt settlement and restructuring،” commented Heikal.
“Finally، I would like to reiterate that the true underlying valuation of Qalaa’s performing assets is masked due to the adoption of international accounting standards، which account for assets at their historical cost and adjust for impairments، and do not take into consideration any revaluation adjustments،” concluded Heikal.
“I am happy with Qalaa’s resilience over the past quarter، which saw the Group build on a positive start to 2023 and deliver further growth in the midst of a difficult operating environment،” said Hisham El-Khazindar، Qalaa Holdings’ Co-Founder and Managing Director. “During the second quarter of the year، the energy segment delivered solid results with TAQA Arabia reporting strong top-line growth driven by a robust performance at TAQA Gas. We were particularly pleased to note the increase in connection revenue as well as the increase in CNG volume sold as a result of the expansion of the number of CNG stations. Meanwhile، ERC managed to deliver steady year-on-year results despite refining margins declining significantly during the quarter. While margins have since improved، the planned shutdown that took place in July for an overhaul of the plant will weigh on ERC’s results in 3Q23. In parallel، Qalaa’s position as an import substitute and export play across our mining and printing businesses continued to support the Group’s consolidated results، providing valuable USD proceeds during a period of significant exchange rate fluctuations. Finally، our agriculture and logistics segments continued to deliver solid top and bottom-line results largely on the back of their robust investment fundamentals.”
“Our primary focus remains the reduction of Qalaa’s risk levels، primarily by deleveraging، and expanding the Group’s cashflows. As a result of our efforts، during the previous quarter ERC became current on all of its due interest and principal payments، and has remained so throughout this quarter. In parallel، we are also taking significant strides in restructuring Qalaa’s debt at the holding level debt، a key priority for us،” added El-Khazindar.
“Our performance during the second quarter of 2023 reflects our resilience in the face of adversity، and our proven ability to persevere during difficult times. Looking ahead، I am positive that Qalaa remains well-positioned to continue delivering strong results across our diverse markets and areas of operation”، concluded El-Khazindar.