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Edited Transcript of ALBH.BH earnings conference call or presentation 15-Feb-21 11:00am GMT

·40 min read

Q4 2020 Aluminium Bahrain BSC Earnings Call Feb 15, 2021 (Thomson StreetEvents) -- Edited Transcript of Aluminium Bahrain BSC earnings conference call or presentation Monday, February 15, 2021 at 11:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ali Al Baqali Aluminium Bahrain B.S.C. - CEO * Bryan Harris Aluminium Bahrain B.S.C. - CFO * Eline Hilal Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance ================================================================================ Conference Call Participants ================================================================================ * Anoop Mark Fernandes Securities & Investment Company BSC, Research Division - Senior Analyst * Vahaj Ahmed Tellimer Research - Head of Industrials Equity Research ================================================================================ Presentation -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [1] -------------------------------------------------------------------------------- Good afternoon, everyone, ladies and gentlemen. This is Aluminium Bahrain Executive Management. And we're going to take you today into Alba's Full Year 2020 Financial Results Conference Call. (Operator Instructions) Also, for this time, we would like to put a small apology note. We haven't been able to arrange this call on MS Teams or Zoom because we're having some issues in these 2 digital platforms. Hence, we are proceeding with the conference call today. Also for today's call, we will try to wrap up the call, including the IR presentation, including the Q&A questions and 1 hour sharp. So if one of you have asked a question, please, the other person make sure do not -- to not repeat the same question asked or addressed before so that we are able to wrap up the call in 1 hour sharp. Thank you very much. And before we start, we want to wish you a happy belated happy New Year. And maybe you all -- you are keeping safe in this unprecedented times. And with that in mind, we will start with our IR conference call. This call will be led by the Chief Executive Officer, Mr. Ali Al Baqali; the Chief Financial Officer, Mr. Bryan Harris; and myself, Eline Hilal, Director, Investor Relations. And without further ado, we will take you through our table of contents. The IR presentation is more or less the same as in the previous quarters. We're having 5 sections: The industry highlights, which will be done by myself, Alba highlights will also be covered by me, the 2020 results and more insights on our financial performance will be covered by our Chief Financial Officer, industry perspective for 2021 and Alba's priority for this year will be covered by our CEO. I would like to also point out that in the appendix, you will find further details on Alba's financial performance for Q4 of 2020. And with that in mind, can we please flip the presentations, if you have them in front of you, whether they are in hard copies or electronically, we will be starting with our industry highlights. For those who do not know, in our industry highlights, we rely on the inflow from CRU Market Intelligence. So whatever you see in this section is actually extrapolated from the CRU Market Intelligence report. If we move on, please, to the industry highlights of 2020. We all know that we've been living in unprecedented times, and 2020 was a year like no other. And with that in mind, we have seen and noticed that the global aluminum demand was in a pause mode for most of 2020, in particular for Q1, Q2 and Q3, as the world is to absorb the impact of COVID-19. With the COVID-19 pandemic, we have seen that many of the countries have faced short- and medium-term challenges. Specifically owing to the lockdown cast -- which has cast this loophole for the major market recovery. The political and economic response for COVID-19 has raised further emphasis specifically in Q3 and Q4 of 2020 on environment, social and governance issue, and it has given a voice for stimulus packages to be green, and that was seen in China and in Europe. The ripple effects from COVID-19 outbreak, along with the subsequent control measures exerted by different economies around the world, have seen the world market demand go down by 4% year-over-year to reach 62.2 million metric tonnes for 2020. And with this outbreak, we have seen many markets feeling this pressure. We have seen a double-digit drop in consumption, 14% year-over-year in North America, and in the Middle East, 13% year-over-year in the world, excluding China and 12% year-over-year. And from that, we can conclude that with the exception of China, the world consumption has dropped in double digits in the wake of the COVID-19 outbreak. For China, we've noted a very modest recovery and as the economy has resumed its activity to pre-COVID-19 times, and we have seen a 4% year-over-year increase in its demand. Moving on into the global production slide, which is on Page 6. The global production have increased relatively at 2% year-over-year. China, for the first time since 2009, was seen as a net importer, and that's thanks to the government stimulus packages, which has helped to reduce the metal surplus of the world outside China. Manufacturing activity in the U.S. continues at a steady pace with North America supply, up by 5% year-over-year. And thanks to Alba's Line 6 expansion projects, which has seen Alba producing at full ramp capacity rate in 2020 of 540,000 metric tonnes. The provision in the Middle East surged by 3% year-over-year when UAE has seen a 2% drop in its supply, and that's made mainly in Emirates Global aluminum. Europe output dropped by 1% year-over-year. This is always due to the shockwave caused by COVID-19. And 2020, in terms of the conclusion of the world market, has left the aluminum value chain with a structural surplus. Surplus with China, plus 2.6 million metric tonnes and without China, 3.4 million metric tonnes. Moving on into Page 7 for the LME and the premiums. The LME inventory registered at the end of 2020, we have almost 1.3 million metric tonnes, down from 1.4 million metric tonnes in 2019. The LME cash averaged $1,702 per metric tonne and that was down by 5% year-over-year. At premiums, as you note, in the following chart for the major Japanese ports, U.S. Midwest and DDP Rotterdam, we have seen a spike in the premiums, and this is due to higher freight cost. Moving on into Slide 8 for the alumina price and the LME price. As stated previously, the LME average for 2020, $1,702 while in Q4 2020, it averaged $1,918, $1 per metric tonne. Alumina price index registered for Q4 2020, was $280 per metric tonne, corresponding to 15% of the LME price. With that, we finish from this section of the IR presentation, the industry highlights, and we proceed with Alba's highlights for the year, in particular for Q4 2020. And I would like to highlight that this section is based upon Alba's official news, which has been made public over the course of the year. And in particular, in Q4 2020. As always, I'm sure you all notice if you've been driving next to Alba, Alba emphasize a lot on safety first and always, whether it is for its employees and the contractor workforce. So we're starting this section with the safety highlights amidst COVID-19. We have launched a new safety campaign. It's called 'Safety Voice' virtual campaign in November 2020. And the campaign was quite a success for Alba's employees and the contractor employees. Despite having an LTI in the third quarter of 2020, Alba closed 2020 strong with -- topping 6 million safe working hours without a lost time injury. That was a feat. We are getting back stronger on our feet with our safety performance, thanks to the diligent efforts of our management, led by the executive management on board as well as our Board of Directors. We've been working throughout 2020 with the national task force for combating COVID-19 to ensure our people's safety. So we have the frontline of the medical team in Alba, who's been working around the clock to keep us safe. Our support has went beyond Alba. We have very focused initiatives within our local community. So our community service team has been at the forefront to provide sanitization, face mask distribution among other things to the neighboring community to lessen the impact of COVID-19 in these areas. We've been quite lucky, our management has enabled the remote work from home for many of our soft departments and that apply to the men and women. We are also very pleased that we have ranked first for the second year in a row on environmental, social and governance, performance amongst company in Bahrain, and this rating came by ESG Invest. In the upcoming slide, which is Page 11, we just wanted to show you some snapshots about what the team has been doing over the course of 2020. So I would like to start by the art work on the bottom right about vaccinate. We do believe that vaccination is our first-line defense, and we are urging all our employees to take the vaccination. In fact, our CEO and CFO, who has been -- who are actually with me here today, they have taken the vaccine as early as December 2020. So what we're trying to do is with we're leading by example so that all other employees and contractors, employees follow and take the lead as well from our executives to make sure that everyone is safe. In terms of our safety performance, I have stated earlier that we have registered 1 LTI, a very unfortunate LTI in August 2020. So we ended 2020 with 1 LTI in terms of our total recordable injury. As you see, there is a trend over the last 6 years. And 2020 has seen a very good performance in terms of keeping our recordable injuries the same as in 2019. If you look at the header within this slide, we have kept Ecovadis and ASI, Aluminium Stewardship Initiative logos so that you know we are in full compliance with this initiative. Moving now into the operational highlights over -- within 2020 as well as milestones. We all know that Bahrain -- sorry, but that Aluminium Bahrain Alba is known to be the employer of choice for many the national employees. So what we have done over the course of 2020, we have exerted our efforts to be focused on people, and that was done via rolling out Al Jisr program. Al Jisr program in Arabic means in English, the bridge program, and this is a new training and development initiatives to build supervisory skills for national workforce. This initiative was launched in November 2020. If you remember, We've been giving, in the last couple of quarters, an update within Alba's priorities that we are looking to squeeze potential upstream opportunities. And with that in mind, we have signed a memorandum of understanding with Hangzhou Jinjiang Group to explore some upstream and development opportunities led by this group, in the aim to secure 1/3 of our raw materials. Discussions are ongoing, and we wanted to provide an update because we want you to know that from now on, this is something that the company is focused on to achieve. In terms of our operational performance, I've stated before that we have ended 2020 with a very strong operational performance. Our sales volume were up by 14% year-over-year while our production was up by 13% year-over-year. The value-added sales averaged 44% of total sales. Also, we noted previously that thanks to our certification with aluminum stewardship initiatives, we noted that Alba will look forward to boost its presence all around the world, and that has seen Alba establishing its branch office in Singapore. So as of today, Alba has 4 offices around the world. The first one is Zurich; the second one is in Hong Kong; the third subsidiary is actually in the U.S., Atlanta; and last one is in Singapore. We are also very pleased to mention that we have successfully completed the Port Upgrade project, which is met within our Calciner and Marine facility. In terms of our Spent Pot Lining Treatment Plant, we have had an overall progress in terms of construction by more than 60% by the end of 2020. And our line 6 expansion project, it has been the recipient of many awards of the GCC industrial project of the year in 2020 of the MEED Projects Awards. And this is very pleasing because we have taken 3 awards representing Bahrain and representing, as well, GCC in terms of importance of this new expansion project. And with that, we delve further into Alba's sales in terms of product line and by geographic footprint. So what we are giving you over here are our sales breakdown for the year of 2020. In terms of footprint, we have seen an increase in our footprint in Asia, from 24% in 2019 to 30% in 2020. In MENA, it was more or less the same, 16% in 2020 versus 17%; America, 10%; Europe, it's almost the same at 23%; and in Bahrain, it dropped from 25% to 21% as we have sold more quantity. And you know that we have sold -- produced more quantity and the quantity, which was sold to the Bahraini downstream was the same. Hence, we've seen a drop in the sales by geographic footprint. In terms of product line, as stated in Slide 12, our value-added products averaged 44% of the total sales. We have had 33% of our sales in billets; 10% slabs -- sorry foundry alloys; 1% slab; 17% molten or liquid aluminum; and about 40%, standard and T-ingots. And with that I will move into Page 14 about the financial key performance indicators. I will not be covering this slide all because more insights will be given by our Chief Financial Officer, but I would like to point out that Alba, for the first time in its 5 decades of operations, have generated the highest net profit in Q4 of 2020 of $85 million when -- compared to previous Q4s within the history of 50 decades -- of 5 decades of operation. So we are very pleased with this performance. And this performance has actually given us the impetus to end 2020 strong. We move now to another milestone, which we have achieved on the back of the efforts by our CEO, the Project Titan - Phase IV. So Project Titan - Phase IV has been duly completed. It was a 2-year project with the target completion in 2020 for an achieved savings of $100 million, but we had went above and beyond. Not only we have met 2020 target of $100 million, but we managed to achieve, in addition, $45 million in terms of savings and you can see that within our cost of goods sold and the profit and loss statement in our financial statement. Moving on into Alba's share performance, we have started 2020 with BD 0.418 and we have ended 2020 with about 100 fills higher. That was the share performance, the share price performance for Alba on Bahrain. Moving on into our operational productivity for 2020. Our headcount for the year has seen a reduction of about 50 people. The total headcount including full-time employees and contractor was 4,031 versus 4,365 in 2018. We have spoken about the value-added added sales. I would like to point out here, it's true that the vast average 44% as in 2019, but as you note, we have 2, way more than 2019 in terms of metrics tonnes and our accounts receivable days and inventory base, we have seen a notable improvement. Our accounts receivable days for 2020 were 35 versus 49, and the inventory days, 8 to 6 versus 108 days. Moving on into our net debt-to-EBITDA ratio. We're very pleased we have ended 2020 with 5.7x versus 8.0x in 2019 and what we can tell you, is the LME price has averaged as much as that an average in Q4 2020, we would have definitely been lower than 3.5x for the full year of 2020. And by that, I finish from the first 2-s section, and I will leave the floor to our Chief Financial Officer. -------------------------------------------------------------------------------- Bryan Harris, Aluminium Bahrain B.S.C. - CFO [2] -------------------------------------------------------------------------------- Thank you very much, Eline . Good afternoon all, or morning, for that are Good morning for those that are still in morning. As Eline mentioned, 2020 has been a year like no other. It's been characterized by a bearish market sentiment for most of the year, with a positive twist at the end of the year with somewhat of a market recovery and an increased LME price. So just starting off on Page 20, with the metal sales bridge comparing 2020 to 2019. So starting on the left-hand side, the sales of $2,648. We had a negative impact of the LME of $ 180 million. So this was the drop of 5% in LME price experienced across the industry. Product mix -- value-added product percentage was very similar, as a whole, to last year, although our value-added products actually went, increased in real terms as a percentage of total. It was slightly above flat. Pricing power, so that's premiums, had a negative impact of $35 million. The big change was, obviously, on the volume side, where we had a $374 million contribution from -- due to the increase in volume by 14%. That was mainly driven by Line 6, which is now up to 4 capacity as well as squeezing some of the other existing product production lines. And that takes us to our year-end metal sales of $2.81 billion. Moving on to Slide 21, which gives you a breakdown of the volume changes in more detail. Our production for 2019 was $1.35 million. We increased our value-added sales by 82 -- sorry, 82,000 metric tonnes; liquid metal by 3,000; and commodities by 106,000, which gives us a total increase of the year of 191,000 to $1,541. At premium, was substantially lower than 2019. It went down from an average of $171 million to $150 million, and that was driven mainly by global markets around the world. Looking at the cost breakdown on Page 22. What's interesting here is even though our sales volume was higher by 14%. Our total costs actually went down, as a company, from $2,288 to $2,282. This is mainly thanks to lower raw material prices. So the raw material price is predominantly alumina and Green Coke, gave us a positive contribution of $317 million. The raw material consumption, as you would expect, with an increase in production of 14%. That actually cost an additional $163 million. Gas energy price, in line with our annual increase in the gas price charged by the government of Bahrain, had a negative impact of $41 million. Other raw materials were lower by $48 million despite the increase in production. So that was mainly driven by reduction in prices. Alumina sales cost $2 million and the plant spending went up about $108 million. A lot of this was in comparison with 2019. There's a difference of $37 million due to exchange losses at $45 million for this year compared with $12 million profit in the comparative year as well as some additional once-off costs. We ran an early retirement scheme, which would cost $15 million. But again, this $108 million was for a level of production that was 14% higher than the prior year. And overall total cost actually went down compared with 2019. Looking at the -- the bridge 2020 versus 2019. The metal sales, it went through on Slide 20, contributed $162 million. This is mainly driven by an increase in volume, offset by increases -- by reductions in LME and premium. The direct costs actually reduced, so that was a positive contribution of $6 million, mainly driven by the reduction in raw material prices. Selling expenses we're impacted negatively by $19 million. So this was mainly due to increased freight rates associated with the increase in sales volume of 14%. And then also we increased a provision for one of our customers, as detailed in the notes, by an additional $8 million. Looking at the cash flow bridge on Page 24, the cash balance at the 1st of January was $216 million. We generated cash flow from operations of $455 million. So this is basically our EBITDA. Working capital changes were $198 million. CapEx spend, we split that between our Line 6 CapEx. So the payments to complete the Line 6 production line of $169 million and other CapEx of $114 million. And then loan repayments of $69, million. So this is where our corporate loan and the Line 6 export credit agencies loans as well as the interest, offset by some short-term debt. Payments to shareholders, so this was the dividend payment of $4 million (inaudible) 2020, giving us a cash balance of $118 million 2020. So looking at Page 25, then as a lane to keep to, we had an average cash LME of $1,702 and alumina price, which is our major raw material of $271 million, revenues went up substantially, driven by the much higher volume, offset by the LME and premium. We generated an EBITDA of $455 million. Our net profit as you will see, I'd be pleased to note we went from a loss position at the end of Q3 for the year-to-date. It's a very healthy profit position of $26 million. And if you take out the unrealized derivatives of $8 million for the year, that gives us an adjusted net income of $34 million. So with that, I'll hand back on to our CEO. -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [3] -------------------------------------------------------------------------------- Thank you, Bryan. As you can see that despite the pandemic, we achieved many good achievements in 2020. The most important achievement was the highest projections in Alba history. We achieved also the Phase IV Titan, the highest saving, also, in all the programs, as well as also, we ended the year with a flat number, which is $26 million as net income. If we look at Page 27, the industry perspective in 2021, the recovery of a global economy will depend on the rollout of the success rate of the COVID-19. Markets remain uncertain still with the recent spike of the COVID positive cases increase. However, so far, we see the market in a strong demand, and this, Insha'Allah, will continue. There is only one issue and challenge now in the market because of the COVID and because of the shortage of the containers. We faced some issue in shipping some metals in terms of containers availability. But however, we are looking at different options and means in order to ship the metals to the customers in dry bulk vessels. And we've already done 1 shipment on this basis. In terms of a global -- in terms of the surplus, it's said there is a slight surplus this year also, with or without China, but this is not affecting the demand. And accordingly, you can see that the premium and the LME price on the goods side, which is helping us as a primary aluminum producers. The consumption is good. As I said, and this will continue, since many countries, they are implementing stimulus measures in order to mitigate the risk of the COVID-19. For 2021, you will see in 3 major regions, China, Russia and Asia. There will be a slightly higher production. This depends on many projects on a greenfield and some replacement of project in China area mostly. The LME, our market forecast or our estimate, it is between $1,850 to $1,950. But last week, the good news that, from Harvard Market Intelligence report, they reforecast their alumina price, and they said the LME price in 2021 will be within the range of 2,000 to 2,200. If this price is achieved, definitely, this will change all the figures, Insha'Allah, in 2021. And by the way, the LME today is trading at $2,000, above $2,000 slightly. If we go to Page 28, the raw material trends, we noticed that in 2020 and 2021 still continue the alumina average price within the range of $300 per metric tonne, which is approximately 15% of the LME price. This is -- if you look at the historical debt of the alumina price versus the LME price, the ranges between 13% to 17%, which means 15%, it is in the middle point, which is a good price to procure the alumina for our operations. For the rest of the 3 materials, Alumina Fluoride, which is ALF3; liquid pitch and Green Petroleum Coke, we noticed that there is a slight increase in the price. This is due to a high demand and due also, some extent, to the increase in the oil price recently. If we go to the Section 5, Alba priorities in 2021 as Eline mentioned, that our focus in excellence is the key factor for our sector in 2020. And definitely, it will be in 2021. My first -- or our first objective, Insha'Allah, in 2021 is to keep our workforce and contractors employee save all the times because we believe that as our workforce is safe, then definitely, this will reflect on higher production, higher efficiency and so on. Also, we took a leap in December by taking the vaccination, and our objective, Insha'Allah, in 2021, to have at least 50% of our workforce to be getting the vaccine. And today, by the way, Eline should mention that after the conference call, she will go directly to the exhibition center in order to take the first dose of vaccination. Anyway, also one of the major priorities for us in 2020. One will be the rolling out of AL HASSALAH saving initiative. I will talk more about it in the next slide, but this is a new saving program targeting around $100 million improvement in our EBITDA. Still, we are screening the market for new opportunities for upstream in order to secure long-term alumina supply to the plant. However, as Eline mentioned earlier, this is only screening. And once we find the right opportunity that we see it will be a lot of due diligence, and they'll have placed an order to secure that one. Also, because we gained -- we're certified a few words, certification and other market certification regarding to the equality. We are going to capitalize on this in order to requalify more of the product and to enter a new market and market segment, Insha'Allah, in '20 in nearly -- in Singapore, because recently, we opened a new office in Singapore in order to increase our sales in Asia market. Regarding the Spent Pot Lining plant, it's ongoing. And hopefully, by first half of this year, we are going to commission the plant, everything under the target on delivery and within the budget. Definitely, the green aluminum is the hot topic at the moment. And our focus on the green and sustainable initiatives, putting us on our competitor edge also in order to plan for it. I can tell you that we have a plan in place to reduce our carbon footprint. And we have many initiatives on the table such as having, Insha'Allah, this year, we are going to issue a tender for having solar panels for our car parks and Alba clubs in order to generate around 5 megawatts for electricity. Just SPL plant also will contribute a lot to reduce our emission. Power Station 5 now is in full operation. The 3 blocks has contribute a lot to efficiency and it is the highest efficiency in the Bahrain overall. And this, definitely, may be you read the news about the many initiatives, as you're aware that we are not -- we are in Bahrain. Our main source of electricity is the gas. We are not, I mean, located in Europe, to have a river in order to generate hydropower, but this will not stop us to have whatever resources available for us in order to green (inaudible), by planting trees, by having a fish farm, by having [the feel of land], processing the dross, all is things to reduce the emission in the air. We are going to focus more, Insha'Allah, in 2021. Definitely, because of the COVID 2020, we approved the -- our vision, mission and values in 2020. But in 2021, we already launched them to the employees. I had a few sessions with all Alba employees virtually and physical to highlight the importance of our new vision, mission and values and I will explain this also in the coming few slides. If you look at AL HASSALAH, Page 31, as I said, or plan is to target $100,000. The $20 million will be in 2021, this year, and $40 million will be on 2022. There will be $60 million sustainable setting in the EBITDA and $10 million will be as one-time savings, mainly from the inventory side. How to break down the value chain of this improvement. We are targeting 39 million in the operation, from the operation side. $36 million from marketing and casthouse, this is mainly to increase our value-added products to 70% within the coming 2 years. We are targeting $14 million savings from our sourcing major materials and $11 million will be targeted from the power station, mainly from the efficiency side. The last slide in the presentation is highlighting our vision, mission and values. And if you compare our vision mission from the previous one, now it's very simple, direct and reflecting our reality. We are focusing more, this time, in our values on safety and the green, which is sustainability. And this, it will reflect the aim and the objective of the company to be the #1 aluminum, Insha'Allah, in the world. And by the way, we are almost now the largest smelter in a single-size smelter outside China. By this, we are ending the presentation. Section 6 is regarding the quarter 4 results. You can go on it deeply. But as Eline, she said quarter 4 was the highest net income achieved for the last 50 years in Alba history. By this, I will leave the floor to Eline to take the question-and-answer session. Thank you. -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [4] -------------------------------------------------------------------------------- Thank you, Ali. Thank you all for listening to our detailed IR conference Investor Relations presentation. And we are ready to open the platform for your questions. (Operator Instructions) ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Anoop Mark Fernandes, Securities & Investment Company BSC, Research Division - Senior Analyst [1] -------------------------------------------------------------------------------- Eline, this is Anoop from SICO. I have 3 questions. The first question is on your realized aluminum price for the fourth quarter. I understand there's a lot of volatility, but what was the price that Alba realized? The second question is on the geographical mix. There was a big increase in sales to Bahrain, within Bahrain and a big drop in North American and European sales during the fourth quarter. Should we assume that this trend continues? Or was this just a blip? If you could just highlight what really drove that shift. And the third question is on the cash flow. There seems to be a significant working capital impact. And I mean, some -- a bit on the inventory side, but significantly on the payable side. What really happened there? If you could just elaborate and give us some color. -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [2] -------------------------------------------------------------------------------- I will take the first 2 questions, and I will leave the third question about the cash flows to Bryan. The LME, if you notice that in December, the LME was within the range of $1,900. This is our, almost, realized price within the same range. For the delivery, if you look, there is some drop in delivery of shipment in 2020, especially in December. This is due that we already sold our metals and this is what is left over for the 2022 -- 2020 plan. But we are not expecting any disturbance in our shipping. As I said earlier that we are -- there is a problem of availability of the containers. But now we are shipping to the U.S. by bulk, which already -- the vessel shipped last week. And I don't see any problem on reducing the metal to the U.S. or other region. The cash flow, I will leave it to -- can you repeat the cash flow question again because... -------------------------------------------------------------------------------- Anoop Mark Fernandes, Securities & Investment Company BSC, Research Division - Senior Analyst [3] -------------------------------------------------------------------------------- Yes, there seems to be, in the fourth quarter, especially, there seems to be a significant working capital impact, a significant drain. And this has come mainly from the payable side. So even if I look at your balance sheet, your payables are now at 0. So what really drove such a big drain there? If you could just give us some color and does that mean that in the -- in the first quarter, you will see a big bump in the -- a big jump in the operating cash flow because of what you saw in the fourth quarter? Any color on what really drove the working capital drain in the fourth quarter. -------------------------------------------------------------------------------- Bryan Harris, Aluminium Bahrain B.S.C. - CFO [4] -------------------------------------------------------------------------------- I don't think you'll see any unusual items coming out of Q1 for that. Obviously, we do have some large individual items and accounts payables such as gas payments. So whether we decide to make a gas payment towards the end of the year or leave it for Q1, obviously, does create a big shift in our accounts payable and cash position. So obviously, we -- throughout this year, we've taken a very prudent, conservative approach to cash management and working capital management to make sure that we always had sufficient cash on hand, that we had sufficient credit lines open. And obviously, we adjusted our monthly payables to be in line with that. But I don't think there was anything out of the ordinary in Q4. -------------------------------------------------------------------------------- Anoop Mark Fernandes, Securities & Investment Company BSC, Research Division - Senior Analyst [5] -------------------------------------------------------------------------------- Okay. Fair enough. Just one more question, if I may. Regarding the JV or the MoU you've had with the Chinese alumina firm, what exactly are we looking at? I mean, is it investing with them in a future alumina project or what sort of an investment size we have in mind? And what is the scope? If you could just elaborate a little bit on where you see this thing going. And further -- I mean, you've mentioned a lot about securing alumina. Is this mainly on the production side? Because if I look at the alumina market, it is now with, especially Emirates Global Aluminum mining their own alumina, you're having a surplus, should be a really good environment for you guys. And your model -- business model is time tested. You all have done this for the last 40 years, and you all have done it really well. So why do you think you need to get into an alumina project or a bauxite project at this stage? What has really changed that -- except for the 2018 volatility, which is a black swan event. I mean, no one could have edited that. But why do you think you need to deploy capital into things like bauxite or alumina, wherein your model has worked really fine for all these decades? -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [6] -------------------------------------------------------------------------------- Okay. Thank you for the questions. The first part of the questions about the HJJ momentum of understanding, tackling 3 aspects actually. One is to have an offtake agreement for almost 10 years, has to take. This is one part. The second part is to be a minor joint venture with them in one of their potential refinery to be built within the coming few years, one will be on Indonesia. One, they are targeting in the GCC region in 2 countries. I would not mention the name, but they are targeting 2 refineries to be built in the regions. The beauty with the momentum of understanding is to have first the offtake agreement. Then it will be our option to convert that offtake agreement to a JV, which is good in our favor because we'll see the market. The second part of the question, why I will want to go on the upstream while there's a surplus in alumina and their EG and they already operate their refinery? You are right. This -- it was in the past when we are operating with less production below 1 million. Now procuring more than a 3 million tonnes of alumina. And it's not an easy to secure this with the short or medium or long-term supply agreement. Such things, as you said, in 2018, there was a reverse direction between LME price and alumina price, and this cost us a lot of money. But the main objective or the main aim for us is not in terms to hedge for alumina, however, to secure the alumina because what the -- with the concern of environmental issues and challenges, we want also to be looking for our future expansion, Insha'Allah, in the future like Line 7 and so on. And we want to secure the base of the major raw material. And the best thing is to have a JV to secure that portion. At least, 30% to 20% of that, at least, to be secured from the JV side. -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [7] -------------------------------------------------------------------------------- And I would like to add, Anoop, on the back of what the CEO has stated. Now our intention is not to fully operate the bauxite or the refinery, and we are not interested to be the owner of a project of 3.5 million metric tonnes of alumina. Our interest is to have this long-term offtake agreement with a potential partner having this refinery. And if the possibility happens or arises, you could end up with having a joint venture in that particular refinery to secure 30% -- 20% to 30% of your alumina requirement for 2 reasons. One reason, which is mentioned by the CEO, and by that, you will have some sort of an actual hedge because when you own a -- when you have a JV in a refinery, you only buy the alumina at cost price plus freight. So you do not pay for a premium if you are securing it from a trader or from another long-term offtake refinery producer. So by doing that, you actually reduce your cost base when it comes to alumina. And from a hedging perspective, this is seen like a natural hedge as in offsetting the potential cost on the other 70% of your alumina. These are only discussions, but this -- the matter is being taken seriously. Because today, alumina market is about 125 million metric tonnes today, and Alba is actually buying about 3.2 million out of that total market. -------------------------------------------------------------------------------- Anoop Mark Fernandes, Securities & Investment Company BSC, Research Division - Senior Analyst [8] -------------------------------------------------------------------------------- So Eline, what is the investment outlay you'll have in mind for this? I mean, I'm sure you obviously have done some... -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [9] -------------------------------------------------------------------------------- You are slightly ahead of the curve, Anoop. Today, our financial variables allow us to invest. -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [10] -------------------------------------------------------------------------------- No, it depends also on the investment. Let's find the opportunity sales and we'll just look at the value. -------------------------------------------------------------------------------- Vahaj Ahmed, Tellimer Research - Head of Industrials Equity Research [11] -------------------------------------------------------------------------------- Eline, this is Vahaj Ahmed from Tellimer. Congratulations, first of all, on fantastic Q4 results. Although the one for -- in my estimate at the margin as of now, especially the EBITDA margins, I believe that they'll be highest in end of the quarterly EBITDA margin over the last 5 years, 7 years of the regulations. So I don't have as many question that I mean, I just want to sort of -- I mean, understand, firstly, your view of the global aluminum market, I mean the prices have -- alumina prices gone up. But is there -- I mean, a level where you guys think you could flesh them out? And secondly, my colleague Janet is joining me a via Zoom call, for some reason, she just disconnected. She had a question regarding plans for dividend. She wants to know that the cash flow, I mean, minimal payment to shareholders. And I know that you guys want for it to probably go upstream. So mainly, she just wants to know to know that how much payout could be -- could we expect going forward? Those are the 2 question. A view on aluminum LME prices? And secondly, the payout ratio please. -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [12] -------------------------------------------------------------------------------- Thank you, Vahaj. On your first question with regards to our view on aluminum and the LME price, I believe this was tackled by the CEO in slide, I think, 27. So this states very clearly that the recovery of the aluminum sector is contingent or will depend on the success rate of the rollout of the vaccine. But as it currently stands, in 2020, there was a surplus in terms of the world market, whether it is with China and without China. So our view on this, we are cautiously optimistic and waiting for the success rate of rolling out this vaccine in the major markets to know what will happen with regards to the aluminum consumption. Having said that, in Q4, as you have noted we have seen a good recovery in terms of LME price, The LME price was registered at about $1,918, or averaging $1,918 per metric tonne. Today, the LME is above $2,000, which is very good for us. In terms of the forecasted LME price, we are actually a little bit relatively pessimistic in our view on the LME price. So we see the LME price at between $1,850 and $1,950. But we definitely to actually have the LME price higher and we want to be wrong in our forecast when it comes to the LME price. So hence, we have this cautious approach when it comes to the LME price. As with regard to the dividend, as you know, the dividend is actually proposed by our Board of Directors, and it is stable for the shareholders' approval during the AGM, and our AGM will be held within March 2021. We will be sharing more details once we have the regulator's approval on the agenda. But in general, for you to pay dividends, you definitely need to have a solid net income. You don't need to have lots of commitment when it comes to servicing the loans. So we do hope, if the LME continues at the same level at $2,000, and provided our Board of Directors are okay to recommence for dividends, that can be the case. And now as, I think there was a hidden question in the question of the dividend. So paying dividends doesn't relate, whatsoever, into our investment in upstream opportunity. We've been talking about a potential investment in upstream. If the opportunity arises for the last 2 to 3 years and nothing has materialized, but we're keeping our eyes open on any potential opportunity. And then when the time is right, since, we will definitely be putting more disclosures on how we foresee the financing and what will happen to the dividend. But let's not be ahead of what could potentially happen in the future. These are talks and we are reporting to you, guys, on what are our short-term objectives and long-term objectives. But dividend sits actually -- it is actually -- eventually when you are -- when you constantly continue to service your loan commitment, definitely paying a dividend is going to be ultimately, by default, it's going to be the outcome. And Alba has been known as a cash cow. So over the course of previous expansion, you pay -- you service the loans. And after -- once your loan starts to progressively reduce, then you pay more towards the shareholders. That is an option. -------------------------------------------------------------------------------- Bryan Harris, Aluminium Bahrain B.S.C. - CFO [13] -------------------------------------------------------------------------------- If I could just add to what Eline mentioned on the alumina side. I think the strengthening that you saw in Q4 was mainly driven by a very healthy and faster than expected recovery in China... -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [14] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Bryan Harris, Aluminium Bahrain B.S.C. - CFO [15] -------------------------------------------------------------------------------- As well as the weakening of the dollar, obviously, because the LME is quite in dollars. If the dollar weakens, commodities tend to go up against that currency. And then also, in a way, aluminium is stored energy. So as oil prices go up, so aluminium tends to go up. So I think those are the 3 main drivers of the increase that we saw in Q4. The -- as Eline said, many of the banks and traders and those in the aluminium industry are now upping their forecasts for 2021, which we're very happy about, but we remain cautious, and we're obviously hoping for the best, but we're making our plans on the assumption that we need to continue to rigorously challenge costs and improve efficiencies. -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [16] -------------------------------------------------------------------------------- Thank you, Vahaj. Does anyone of you have more questions? Questions, which was -- which were not addressed already by the management? Well, I guess if you have no more questions right now and if you have anything later on, you can always drop us an e-mail. And I guess we will be able to get in touch with you within our first quarter of 2021 in a couple of weeks from today for the results of Q1 2021. So please keep safe. And if you haven't done the vaccine, don't be like me because I'm taking the vaccine today. I waited 3 months before agreeing to take the vaccine. So hopefully, I will be on time to take the first shot of the Covishield vaccine. Please stay safe. Take care of yourself. And if you have any questions, please don't hesitate to get back to us. We do have our Annual General Meeting in March. We will be sharing more information by then. And we will also be reporting our corporate governance report and our annual report on the day of the AGM for the shareholders' approval. Take care. And again, on behalf of the CEO and the CFO, thank you for your time and be safe. -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [17] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Bryan Harris, Aluminium Bahrain B.S.C. - CFO [18] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Eline Hilal, Aluminium Bahrain B.S.C. - Director of Corporate Secretary, IR & Insurance [19] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Ali Al Baqali, Aluminium Bahrain B.S.C. - CEO [20] -------------------------------------------------------------------------------- Bye.