U.S. Markets closed

Edited Transcript of ESSO.BK earnings conference call or presentation 16-Aug-19 4:00am GMT

Q2 2019 Esso Thailand PCL Earnings Call

Bangkok Oct 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Esso Thailand PCL earnings conference call or presentation Friday, August 16, 2019 at 4:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jutarat Wareechuensuk

Esso (Thailand) Public Company Limited - IR & Planning Manager

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, everyone, and welcome to the Esso Thailand Second Quarter 2019 Results Conference Call. (Operator Instructions)

I would like to hand the call over to Khun Jutarat, Investor Relations and Planning Manager. And I'll be standing by for the Q&A session. Please go ahead. Thank you.

--------------------------------------------------------------------------------

Jutarat Wareechuensuk, Esso (Thailand) Public Company Limited - IR & Planning Manager [2]

--------------------------------------------------------------------------------

Good morning, and welcome to Esso Thailand's teleconference on our second quarter 2019 financial and operating results. At Esso side, we have the following management representatives with us today: Khun Jeremy Osterstock, Chairman and Managing Director of Esso Thailand; Khun Suchart Phowatthanasathian, Director and Refinery Manager; Khun Taweesak Bunluesin, Director and Public and Government Affairs Manager; Khun Pachara Sungkhapan, Director and Controller; Khun Ratrimani Pasiphol, Director and Treasurer.

On the cover page, you can see our Esso Smiles Driver Reward third anniversary, during which we had a marketing campaign on point redemption in June and July 2019 and received a positive response from card members.

Before starting the presentation, may I gently remind that the information contained in this presentation is subject to the conditions described in the disclaimer that is shown on Page 2.

Now let's start today's presentation. On Page 3, industry and business environment. The forecast for 2019 Thai economic growth was revised down by the National Economic and Social Development Council to be in the range of 3.3% to 3.8%. The economy is expected to be driven by favorable growth in domestic demand, a gradual improvement of export conditions and a recovery in tourism.

In June 2019, the average Dubai crude oil price was $61.8 per barrel, which was $5.1 lower than the average price in March, driven by a slowdown in the global economy and U.S.-China trade tensions, despite OPEC's decision to maintain cuts until March 2020. The average second quarter industry gross refining margin was $3.5 per barrel, representing a marginal increase from the average in the first quarter, driven by improved gasoline cracks as a result of supply reduction from Asian refinery maintenance.

Moving on to Page 4 for Esso headline results. Esso refinery operated safely in the quarter with a crude intake of 135 KBD, a slight drop reflecting maintenance shutdown of gasoil hydrofiner units. Gross refining margin weakened to $1.3 per barrel as pressured by strong supply, weaker demand growth and unfavorable inventory effects. Esso retail business continued to expand the network and improve customer experience. We had a net increase of 6 new sites in the second quarter, which brought our total number of Esso service stations to 615. We celebrate Esso Smiles card third anniversary with a promotion on point redemption during June to July. As of now, there are 2.56 million Esso Smiles card issued.

Second quarter 2019 net loss was THB 927 million.

Let's look into more detail. On Page 5, margins and crude intake. The chart on the top left shows quarterly industry gross refining margins. The average second quarter industry gross refining margin was $3.5 per barrel, slightly increased by $0.30 per barrel from the first quarter, mainly contributed by gasoline crack margin. The industry gross refining margin was down by $2.5 per barrel when comparing to the same period of last year. The decrease was driven by weakness in cracking margins for gasoline and gas oil due to supply surplus and weaker demand growth.

Product crack spreads are shown on the top right chart. The second quarter 2019 UGP crack spread was $7.5 per barrel, which was improved by $3.8 from the first quarter because of tight supply as a result of refinery maintenance in the region. When comparing to the same period of last year, UGP crack spread dropped $4.6 per barrel, reflecting higher global inventory levels. Meanwhile, ADO crack spread was $12.8 per barrel in the second quarter, or $0.70 lower than the first quarter and $2.2 lower than the same period last year, especially reflecting supply outpacing demand.

Esso gross refining margin is on the bottom left chart. The second quarter 2019 gross refining margin was $1.3 per barrel, decreased $3.2 per barrel from the first quarter and $11.4 per barrel below the same period of 2018. The decrease was mainly due to unfavorable inventory effects, in addition to weaker industry margins.

The bottom right chart shows crude intake. Esso refinery ran safely in the second quarter 2019 with a crude intake at 135 KBD, decreased when comparing to the previous quarter and the same period of last year, resulting from maintenance of gasoil hydrofiner unit.

Move on to Page 6, crude source and sales channels. On the left chart, our refinery continues to search for advantageous crude supply to improve refining economics. In the second quarter, there were another 2 new opportunistic crude processed in addition to the 2 new crudes in the first quarter. While the first half of the year saw some geographic shifts, it is important to note that we have not changed our approach for crude acquisition. We continue to look for advantaged crude to optimize integrated economics.

On sales channels, we continue to focus on selling products through higher margin channels, which are retail and commercial as shown in the chart on the right.

Move onto Page 7. The graphs on this page show refinery yields by type and by product. On the chart of production by type, yields in the second quarter reflect maintenance of gasoil hydrofiner unit with lower middle distillates production compared to light products and others.

On the right chart, a shift in product yields when compared with the same period last year reflect crude availability and product mix, including effects of the hydrofiner unit maintenance shutdown.

Next on Page 8. The graph on the left shows paraxylene spreads. Industry margin weakened in the second quarter mainly due to excessive supply from additional production capacity of new plants in China. Our paraxylene production was 90,000 tons, reduced 10,000 tons from the previous quarter to cope with the market conditions. However, the first half production was higher than the same period of last year by 11,000 tons, driven by efforts to capture favorable pricing during first quarter of this year. Moreover, we continue to look for and run economic feedstock like mixed xylene, especially when pricing is linked with paraxylene.

Let's move to the marketing business update on Page 9. In the second quarter of 2019, our marketing still focused on product offering, accessibility through our sales network expansion and enhancing customer experiences with moves towards digital like [Connect]. The top left chart shows the number of new service stations streamed. We added 13 new sites in the first half of the year, partially offset by divestment of sites that were not competitive. That brought the total number of Esso service station at end June was 615. We are on plan to achieve the targeted 640 service stations at this year-end.

The bottom left chart shows the number of service stations offering Supreme+ Diesel and Supreme+ Gasohol 95. As of end June, we had 397 sites and 222 sites which were 2/3 and 1/3 of total sites, respectively, right mix meeting the plan.

On the top right, we show the number of service stations with Synergy images. As of end June, the total number of Synergy service stations was 374 sites. We plan to complete a conversion of our remaining sites this year.

The bottom right chart demonstrates our success in promoting lubricants branding. As of June 2019, there were 1,361 Mobil signage, an increase of 140 from the 2018 year-end. We plan to increase Mobil signage to achieve 1,575 this year.

Moving to financial results on Page 10. The top left chart shows our sales revenue. The second quarter revenue was THB 45.7 billion. The quarter and the first half revenue from sales were lower than the same period last year, attributed to lower market selling prices and reduced sales volume. On the bottom left chart, second quarter EBITDA was negative at THB 0.8 billion, down by THB 4.8 billion from the same quarter last year, primarily driven by lower sales volume, lower refining margins and net unfavorable inventory impact.

The top right chart shows cash used in operation of THB 537 million for the first 6 month of 2019. It compares to THB 393 million cash generated in the same period a year ago, reflecting lower profit for the period and unfavorable working capital effects.

Our net profit at the bottom right chart, in the second quarter, we realized a net loss of THB 927 million, thus resulting in a net profit of THB 101 million for the first half of 2019 versus THB 3.8 billion in the same period of 2018.

On Page 11 showing financial position. For balance sheet indicators, we saw a decrease in total assets due to timing of tax claims, lower oil fuel fund balances and lower net property, plant and equipment balances. Total debt was THB 16.7 billion as of June 30, 2019, compared with THB 15.3 billion at year-end 2018.

Regarding cash flow, I have already explained cash flow from operations on the prior chart. Cash flow used in investing activities was THB 0.3 billion, reflecting capital investments for refinery efficiency improvements and service station upgrades. Cash flow from financing activities was THB 1 billion, reflecting net proceeds from borrowings, partly offset by dividends paid to shareholders.

Next on Page 12. In summary, the second quarter 2019 was another challenging period for both refining and paraxylene business. The refinery throughput in the quarter was 135 KBD, reflecting safe operation and maintenance shutdown of gasoil hydrofiner unit. We adjust paraxylene production to respond to unfavorable market conditions. Our retail sales continue growing the network and premium product offering in addition to enhancing customer experiences. Our second quarter 2019 net loss was THB 927 million.

That concludes the presentation. Now we will open the call for questions.

--------------------------------------------------------------------------------

Operator [3]

--------------------------------------------------------------------------------

(Operator Instructions) And at this time, speakers, there are no questions on queue.

--------------------------------------------------------------------------------

Jutarat Wareechuensuk, Esso (Thailand) Public Company Limited - IR & Planning Manager [4]

--------------------------------------------------------------------------------

Okay. So there appear no question at this point. So that concludes today's presentation. We thank everyone for participating in the call and all lines may disconnect now. Thank you very much, and goodbye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]