Earnings call transcript: Luberef Q3 2025 sees revenue beat, EPS miss

Saudi Aramco Base Oil Company JSC, known as Luberef, reported its Q3 2025 earnings, revealing a mixed financial performance. The company posted earnings per share (EPS) of SAR 1.37, below the forecasted SAR 1.56, marking a 12.18% negative surprise. Despite this, revenue exceeded expectations at SAR 2.06 billion, surpassing the forecast of SAR 2.02 billion by 1.98%. The stock reacted positively, with a slight increase of 0.26% to SAR 95.45, reflecting investor optimism over the revenue beat.

Key Takeaways

• Revenue exceeded forecasts by 1.98%, reaching SAR 2.06 billion.
• EPS fell short of expectations with a 12.18% negative surprise.
• Stock price increased by 0.26% post-earnings announcement.
• Base oil crack margins improved by 9% year-over-year.
• Growth 2 project is 60% complete, aiming for 70-75% by year-end.

Company Performance

Luberef’s Q3 2025 results showed a 14% rise in net income quarter-on-quarter, despite a 2% decrease over the first nine months year-over-year. The company’s EBITDA stood at SAR 968 million, and free cash flow was SAR 604 million. The base oil market in Asia-Pacific remained stable, contributing to the company’s solid performance.

Financial Highlights

• Revenue: SAR 2.06 billion, up from forecasted SAR 2.02 billion.
• EPS: SAR 1.37, below the forecast of SAR 1.56.
• EBITDA: SAR 968 million.
• Free cash flow: SAR 604 million.
• Cash balance: SAR 1.2 billion.

Earnings vs. Forecast

Luberef’s EPS of SAR 1.37 fell short of the expected SAR 1.56, a 12.18% miss. However, the revenue of SAR 2.06 billion exceeded the forecast by 1.98%. This mixed result highlights the company’s ability to generate higher-than-expected sales while facing challenges in profitability.

Market Reaction

Following the earnings release, Luberef’s stock price increased by 0.26% to SAR 95.45. This movement suggests that investors focused on the revenue beat and the company’s strong operational performance, despite the EPS miss. The stock remains within its 52-week range, with a high of SAR 118.2 and a low of SAR 81.3.

Outlook & Guidance

Luberef is progressing with its Growth 2 project, which is 60% complete and aims to reach 70-75% by year-end. The company revised its 2025 CapEx for the project to SAR 200-250 million. A scheduled turnaround is planned for Q4 2025, and a potential UCO supply agreement is expected in Q1 2026.

Executive Commentary

CEO Samir Al-Hagail emphasized the company’s commitment to strategic initiatives, stating, "Our commitment to strategic initiatives, asset optimization, and new opportunities is laying the groundwork for accelerated expansion and long-term value creation." CFO Saud Kamahi added, "We do not foresee anything as of now" regarding CapEx changes.

Risks and Challenges

• Supply chain disruptions could impact production and delivery.
• Market saturation in the base oil industry may limit growth.
• Macroeconomic pressures and currency fluctuations could affect profitability.
• Environmental regulations may increase operational costs.
• Competitive pressures from global players in the base oil market.

Q&A

During the earnings call, analysts inquired about the ultra-low sulfur diesel agreement details and the Growth 2 project timeline. Executives addressed concerns about working capital and confirmed that total project CapEx remains at SAR 750 million.

Full transcript - Saudi Aramco Base Oil Company JSC (2223) Q3 2025:

Salih Alghamdi, Investor Relations Department, Luberef: Hello, everyone. I’m Salih Alghamdi from the Investor Relations Department at Luberef. It is my pleasure to welcome you in today’s audio webcast, where we will be discussing our performance for the third quarter of the year 2025. I’m also pleased to be joined today by our Chief Executive Officer, Mr. Samir Al-Hagail, and our Chief Financial Officer, Mr. Saud Kamahi. Our session will begin with a presentation highlighting Luberef’s Q3 2025 performance, followed by a Q&A session. Please note this webcast is being recorded for future reference. Before we dive into the presentation, I would like to draw your attention to our cautionary statements. During today’s presentation, we may make forward-looking statements that refer to estimates, plans, and expectations. Actual results and outcomes may differ materially due to factors stated in this slide.

With that out of the way, I will now hand over the call to our CEO, Mr. Samir Al-Hagail.

Samir Al-Hagail, Chief Executive Officer, Luberef: Thank you, Salih. Good day, everyone. Welcome to Luberef’s third quarter 2025 earnings call, and thank you for joining us. In Q3, our unwavering commitment to safety and operational excellence has led to exceptional performance results. We have achieved a total of 41.1 million safe man-hours without a lost-time injury, maintained a zero total recordable incident rate, TRIR, reached a year-to-date mechanical availability of 98.9%, and we maintained 0.93 million standard cubic feet of greenhouse gas emissions, underscoring our focus on efficient performance. During the quarter, we expanded our customer base through a new ultra-low sulfur diesel sales agreement with Saudi Aramco. This initiative aimed to enhance our byproduct crack margins and to manage market volatility while maintaining operational resilience. We strengthened our partnership with Bahri Chemicals through a new contract of affreightment, a step that will further optimize our logistics and deliver meaningful reductions in our freight costs.

This collaboration reinforces Luberef’s competitive position in the industry, enhances cost stability, and ensures our sustained operational excellence. Building on the successes achieved in HBGO this year, we are now working to extend this optimization approach further by scaling up and evaluating other intermediate streams. Luberef has launched the Group 3 base oil slating program, marking another important step in expanding our range of products. This program is underway, aiming to secure commercial readiness for producing Group 3. This initiative represents a key milestone in our ambition to diversify our portfolio, increase market presence, and align with the evolving needs of customers. The Group 3 Plus technical study has entered a crucial stage, marking a step forward in our broader efforts to diversify our products. It is undergoing a pilot configuration to verify product quality. The results of these tests are expected in the fourth quarter.

If the results are aligned with our long-term growth strategy, we will carry the project to the next phase. The Growth 2 expansion project continues to progress, with overall completion reaching 60%. Despite some procurement delays that extended into this quarter, our focused recovery plan measures have pushed the procurement phase to an advanced stage. During Q4, both procurement and construction activities are planned to accelerate, pushing the project completion rate to approximately 70%-75% by year-end. We continue to work to mitigate delays and add resources to complete the project as early as possible in 2026. Further details and confirmations will be shared in the 2025 annual call. Our capital allocation continues to support the Growth 2 project. Though spending was lower than planned due to ongoing procurement delays, as of September 2025, total CapEx reached SAR 138 million.

We expect spending to increase as procurement progresses and construction activities intensify in the upcoming quarters. As we look ahead, we are fully prepared for the upcoming scheduled turnaround, which represents a pivotal step in upholding and strengthening our operational excellence. This turnaround will include a series of planned maintenance activities and strategic construction work under the Growth 2 project, aimed at reinforcing our operational reliability and safety records. In the first nine months of this year, our base oil crack margins reached SAR 1,884 per metric ton, reflecting a significant increase of 9% compared to the same period in 2024 and exceeding the historical 10-year average by 5%. Building on our strong operational foundation and a focus on efficiency, we continue to enhance our market position and deliver sustainable growth.

Our commitment to strategic initiatives, asset optimization, and new opportunities is laying the groundwork for accelerated expansion and long-term value creation. With that, I will hand over to our CFO, Saud Kamahi, to walk you through the financial performance of the company. Thank you.

Saud Kamahi, Chief Financial Officer, Luberef: Thank you, Mr. Samir. It’s a pleasure to welcome everyone, and I’m pleased to walk you through our Q3 2025 financial results and share our outlook for the remainder of the fiscal year. We sustained a strong financial performance supported by higher crack margins despite a decline in base oil sales. Although our net income in the first half of 2025 was below last year’s record level, performance improved notably in the third quarter, with net income rising 14% quarter on quarter. Our continued operational improvements and disbursement execution have narrowed the gap significantly, reducing the year-over-year difference to just 2%. During this period, our free cash flow declined by around 43% compared to the same period last year. This reduction was driven by working capital changes as well as an increase in our growth CapEx.

Additionally, spending across sustaining turnaround and Growth 2 project has risen relative to last year, reflecting our continued commitment to long-term operational excellence and expansion. Although our cash conversion rates softened during the period, our financial resilience remains robust, supported by an EBITDA of SAR 968 million, free cash flow of SAR 604 million, and a healthy cash balance of around SAR 1.2 billion. Combined with our exceptionally low gearing ratio, this highlights our strong liquidity position and ability to fund growth while maintaining financial stability. When we look at our performance over the first nine months of 2025, our net income recorded a 2% decrease compared to the corresponding period of 2024. This performance was driven by lower byproduct crack margins and a decrease in base oil sales volume despite the increase in base oil crack margins.

OPEX decreased slightly during the period, reflecting continued cost discipline while Zakat expenses rose marginally compared to last year. Turning to our cash position, we began the year with a balance of SAR 1,187 million. Over the first nine months, our operations generated SAR 885 million in cash, highlighting the company’s strong underlining ability to convert earnings into liquidity. Our focus on sustainable growth remained solid as we directed SAR 282 million toward capital expenditures aimed at strengthening our assets and expanding our capabilities. At the same time, we reaffirm our commitment to shareholder value to continue distributing dividends, demonstrating our ability to invest for the future while delivering immediate returns. We also recorded total cash outflow of SAR 102 million, mainly related to loan repayments and financing costs.

Taking all movements into account, our cash balance at the end of the first nine months of 2025 stood at SAR 1,170 million, a modest decline of SAR 17 million from the beginning of the year, fully consistent with our strategic spending plans and capital allocation priorities. Moving to the guidance, our production target remains the same for the rest of the year. However, the CapEx assigned for Growth 2 has been revised to be from SAR 200-250 million for 2025, reflecting the procurement delays that were previously highlighted by Mr. Samir. Ultimately, in the third quarter of 2025, Luberef continued to demonstrate strong operational momentum, delivering consistent progress in line with our strategic priorities. Through disciplined execution and a clear focus on long-term value, we advanced several key initiatives that are building a solid foundation for sustainable growth and future success.

As we are entering the last quarter of 2025, we look back to a year of achievements, and we remain confident in our strategic direction that continues to drive our success. The focus is firmly set on positioning Luberef as a recognized leader in the global base oil and specialty lubricants market, guided by disciplined execution and a commitment to long-term value creation. With that, we will move to the Q&A session, which will be moderated by Salih.

Thank you, Mr. Saud. For the Q&A part, as usual, please state your name, company, and question. Thank you. Mr. Elder. Please join the call. Mr. Elder, do you hear us?

Sorry, hi. Can you hear me?

Yes, Elder, I will hear you now.

Yeah, apologies. Thanks very much and congratulations on the strong set of numbers. Can I just ask to provide some guidance on the potential impact of the new diesel supply? What kind of impact are we talking about depending on the prevailing diesel cracks globally? Secondly, the same on the new freight agreement with Bahri, what kind of impact are we talking about here potentially? When exactly does that contract become operational and active? Thank you.

Sorry, Elder.

Samir Al-Hagail, Chief Executive Officer, Luberef: Elder, thanks for the question. This is Sam, the CEO. These are two major agreements we have signed, one with Aramco and the other with Bahri, and more to come with shipping. On the latter, which is the Bahri, significant reduction in freight operation costs. This should hit our operating expenses and our operating costs, OPEX, significantly, I mean, positively. On that, we were talking about double digits on the freight itself, the reduction percentages. On the low, ultra-low sulfur diesel, that is a big thing. It is pretty much a 20-year agreement, supplying around 6,500 barrels per day and subject for availability. This is going to be marketed over and above what we used to market the diesel of. This is pretty much low sulfur PPM diesel. In the past, that was just sent and sold in the normal diesel PPM. We should get a premium on that area.

I think guidance will be given further in the, hopefully, Q4.

Saud Kamahi, Chief Financial Officer, Luberef: Adding to that, Elder, that is important for us to find a different outlet. The major reason to do that also is to support our byproduct margins positively in the future.

Thank you. Do I understand correctly that the diesel volume under this agreement is basically how much you roughly produce today? With the Growth 2 project completed, you might have actually a higher diesel production volume. Would you expect that additional diesel volume to be also included in this deal or not, or rather not at this point?

Up to 6,500 barrels per day, this is the new agreement with Aramco. Even supplying all of that on a daily basis on that quantity, still there are additional production of diesel of the current operation. With the new operation, if there is any new diesel additional, we still have different sources to place that diesel. Later, even after the Growth 2. I think Elder is spot on. I do not have a number on top of my head with the new project. Definitely, asphalt will be increasing in the new project, Growth 2. Diesel and naphtha will be increasing. Because we are going Group 3, it is going to be cracked further, so the expectation, the yield of diesel should be less. I am just putting my chemical engineering hat here on that. We will give guidance on that.

Thank you. Maybe lastly, I think you talked about potential UCO supply contract to be potentially secured with the Growth 2 project completion. Is there any change in your expectations for that deal? When should we expect this to happen if it happens? Thank you.

Samir Al-Hagail, Chief Executive Officer, Luberef: Are you referring to the UCO supply agreement that coincides with the Growth project itself to reach the 65? That should be coming very, very soon. We do not anticipate any issues, honestly, on that. It is just more of having the process to work with Aramco. We should be getting it, hopefully by Q1 or even earlier.

Thank you so much. Understood.

Back, I just want a clarification to others. Back to the sulfur diesel. We used to sell that at a 500 PPM, but we produce almost 10 PPM or even less than 10 PPM. Imagine the difference on that. We were able to secure a sale agreement to sell it at 10 PPM pricing. You could look at Platts and see the difference between the 500 and the 10 PPM and figure out the math there.

Thank you. Thank you, Elder. Next, Mr. Fuad Khan.

Moderator/Multiple Participants, Luberef: Assalamualaikum. I just picked up from where we have left on the ultra-low sulfur diesel. One of the comments mentioned that the current agreement, the new agreement, does not cover the production of the current plant or the current configuration. Is my understanding correct? That means under the current production arrangement or setup, the company is producing more than 6,500 barrels per day of ultra-low sulfur diesel.

Can you repeat again? Sorry, can you repeat the part about the configuration production?

Apparently the comments mentioned that the new agreement does not cover even the current production of ultra-low sulfur diesel from the two plants or from the hydrocracker only. Is my understanding correct that the potential to increase or the potential positive impact from this agreement could be higher once we get into the Growth 2 project?

Samir Al-Hagail, Chief Executive Officer, Luberef: It’s going to be by volume. Group 2. First of all, thanks, Fuad, for the question. I’m just trying to maybe better answer, give clarity on that. Currently, what we used to sell, we should be selling at a higher premium given the 6,500 barrels. That’s one part, which is the current production. On Luberef. Now, when Growth 2 comes, we’ll have further guidance. I don’t have the exact number or predominant number, but however, it should be more than 6,500. It’s going to be volume gain at a higher price. I think this answers your question.

Moderator/Multiple Participants, Luberef: Partly. Let me try to rephrase the question. The agreement is for 6,500 barrels per day. Is the current production higher than 6,500 barrels per day, or is it lower than the current selling under the agreement?

If you’re referring to the current production, it’s a bit more. It’s above 6,000. Sorry, it’s above 6,500 barrels per day. This is just the agreement that was established with Saudi Aramco. The current contract will exist, and any surplus will be sold to other customers with whom we have other standing agreements.

Okay, sure. I commissioned the Growth 2 project and also tying up with the turnaround. Apparently, the early guidance was for the turnaround and the commissioning of the Growth 2 project to coincide sometime in late December. Then we have the new turnaround, which is starting from mid-November. My question is, once the Growth 2 project is about to be commissioned, should we expect another shutdown of the whole Group 2 train at the time of the commissioning of the project, or would it not require any shutdown at that time?

Samir Al-Hagail, Chief Executive Officer, Luberef: Fuad, good question as well. That is the clarity we want to give to the market soon, hopefully by our guidance in the year-end. Ultimately, we do not want to shut down, but rather slow down to be able to hook up the Growth 2 pots and pans and all the above on that. That is the ultimate, and that is what we are working hard during the TNI, the turnaround, to be able to install. Pretty much give some feasibility and flexibility whereby in the second, whatever, whenever it happens, the shutdown or slowdown becomes less impactful from our production point of view. That is the thinking now. Times and guidance will be given as things are moving. It is a moving target.

We took over some of the activities of the contractor, pretty much descoped some of the activities, and we are pretty much becoming in the driver’s seat on that to hopefully get this project as soon as possible in 2026.

Moderator/Multiple Participants, Luberef: In terms of the timing, I mean, you’re expecting progress of around 12-15% in one quarter. Would that be good guidance for future progress or future quarters? That means perhaps by end of third quarter, early third quarter, perhaps we should expect the commissioning of this project?

Samir Al-Hagail, Chief Executive Officer, Luberef: I think.

Moderator/Multiple Participants, Luberef: Or you’re expecting acceleration in sometime in early 2026?

Samir Al-Hagail, Chief Executive Officer, Luberef: I think by year-end, we’ll have better clarity to give pretty much good guidance. If it’s going to be Q1, Q2, Q3 on that. By end of December, I think that would be the right time for us to provide the right guidance.

Saud Kamahi, Chief Financial Officer, Luberef: I think the most important thing here is the actionable items, action that the company is taking. As mentioned by Mr. Samir, that during the next TNI, we will do our best to complete as much as we can. Also, all the procurement acceleration efforts that we are making, all of that will help us, inshallah, to accelerate the completion. This is where we want to focus on until the year-end, where we have better guidance on moving forward with the project.

Samir Al-Hagail, Chief Executive Officer, Luberef: Yeah, just to be to answer and to be frank, I’m very optimistic about this. Plan that we’ve revised the plan in terms of the schedule, where we are, procurement activities, material is incoming now. It’s in the field. People are very busy. Prefabrication and what have you. A lot is happening for the sake of this project. Since the last three months. And big progress. That took place. Hopefully, by year-end, we might reach 70-75% completion.

Moderator/Multiple Participants, Luberef: All right. I didn’t understand. There have been some comments regarding the upgrade revision in the CapEx for the project. If you can please remind us what was the upgrade. Earlier, if I understand correctly, the total CapEx guidance was around SAR 750 million for this project. What’s the new guidance now?

Saud Kamahi, Chief Financial Officer, Luberef: The total CapEx for the project amount has not been changed. It is still SAR 750 million. The guidance that has been changed is the amount that is expected to be spent in this year. The guidance was SAR 250-350 million. However, now we have reduced that guidance for the next till end of the year to SAR 200-250 million. However, the cost expectation until completion has not been changed.

Moderator/Multiple Participants, Luberef: There’s no change as to the total cost CapEx for this project as yet?

Saud Kamahi, Chief Financial Officer, Luberef: We do not foresee anything as of now.

Moderator/Multiple Participants, Luberef: Okay, thank you. I have a few more questions. I’ll go back to the Q&A when I have the opportunity.

Okay. Next, Mr. Yasser Nijami. A reminder to the gentlemen and ladies attending the call, please state your name and company name. Mr. Yasser, the floor is yours.

Amodebil?

Yes, please. Go ahead.

Yeah, I have three questions from my side. First of all, thank you, management, for the presentation. What were the main factors that drove the strong expansion in base oil crack margin during the Q3? How sustainable are these levels going into Q4, giving the market volatility? This is my first question.

Okay, Mr. Yasser, thank you for the question. This year, and especially from the end of Q2, as a result of the OPEC Plus decisions to go back from the cuts that were previously agreed upon one year and a half back, we observed pressure on the crude prices in addition to the direct crude derivatives, such as high sulfur fuel oil, which is the price or the index that our feedstock is indexed to. At the same time, we observed that the prices of the base oil remained stable. This created an opportunity to us to benefit from a relatively healthy crack margin. Going forward, looking at the forecast of the base oil prices for the next forecast period, which is approximately nine months to one year, the prices are expected generally to remain the same around the Asia region.

There are reports of pressure on the Group 1 and the Group 3, but Group 2 in the Asia-Pacific region is expected to remain the same during the forecast period. As for the high sulfur fuel oil, again, which is the index that our feedstock is indexed to, it is expected to receive even, to encounter more pressure for the coming period as a result of the OPEC Plus decisions.

Okay. My second question is regarding the free cash flow. We see that the free cash flow in Q3. That the company drives a strong free cash flow in Q3. Does the management see scope for a higher dividend or special payout in this year despite the upcoming maintenance in November and December?

Saud Kamahi, Chief Financial Officer, Luberef: Thank you, Yasser, for this question. I think that goes into two parts. First of all, to talk about free cash flow, and the second item is, we’ll talk about the dividends. For the dividends, let’s start with that. So far, we have the same policy that has been already approved by the board, where it’s related to performance linked to our free cash flow of 60%-80% of our free cash flow. This has not been changed yet, and this is where we are committed back to our shareholders as of now. For the free cash flow, we generated so far around SAR 600 million during these nine months, and hopefully that would continue to grow until the end of the year.

Moderator/Multiple Participants, Luberef: Okay. We see that the profitability margins are expanding in Q3, especially in gross and EBITDA, both improving on a sequential basis. Do you expect this trend to continue post-Jumbo turnaround, or was peak in this quarter?

Saud Kamahi, Chief Financial Officer, Luberef: In general, we have noticed the improvement in the crack margin during this year. That was one of the main reasons where we see the profitability in general has been improved quarter over quarter, and even if we compare it to the comparable of the last year. That trend is there. According to the reports, prices will be stabilized during the next period, especially after the completion. If we are talking about the short term of the up three months, six months, we have not seen any reports suggested otherwise so far. We do not give predictions in general, but we believe that trend is ongoing, especially in the short term after the turnaround of completion.

Moderator/Multiple Participants, Luberef: Thank you, management. Thank you, Rafi.

Rafik. A reminder too that in those who are using the typed questions, please state your name and company. Other than that, we will listen to any verbal questions. Mr. Fuad Khan, back to you again.

As-salaamu alaykum. This is Fuad Khan, Huawei Inma Capital. Just a question on the Jeddah facility. If I understand correctly, the agreement for operation or different, and different arrangements would expire sometime in next year or June. If there’s any update regarding the renewal of the agreement to continue operating the plant. If not, when should we expect any clarity on that aspect?

Samir Al-Hagail, Chief Executive Officer, Luberef: Fuad, thank you for the question. This will have clarity by hopefully Q4, end of Q4. There are some dialogues in negotiation as we speak. The company will make an announcement soon, inshallah.

Moderator/Multiple Participants, Luberef: Inshallah. One last question from my side regarding the working capital. There was some certain increase in working capital in the second quarter. Apparently, the third quarter, there was no letter as well. During the fourth quarter, should we expect any change in the current burden of the working capital of the company, or will it remain as it is, as we have seen in the second quarter and third quarter?

Saud Kamahi, Chief Financial Officer, Luberef: This is a very good question, Fuad. As you know, the working capital will be highly impacted with the reduced in our inventory and accounts receivables since the sales will be. All inventory will be turned into production and it will be sold. Especially part of it, especially we are talking about the invert part. We will see a positive impact, possibly at that site. For this quarter, yes, we saw that. There are huge improvements. In the first nine months, especially when we are talking about operational activities that turn out inventory, which impacted positively in our working capital. Also, the collection that happened during that period, which also impacted positively. As we mentioned last time, it has been impacted by settlement of also some voices that happened while the prices of our tables at that time were priced at the higher level of our feedstock.

With that, we are. We will see how it goes, especially with the turnaround. That would have an impact in our movement of our working capital.

Moderator/Multiple Participants, Luberef: Okay, sure. Thanks a lot. Thanks a lot, management, for your feedback.

Saud Kamahi, Chief Financial Officer, Luberef: Thank you.

Thank you, Mr. Fuad Khan. Any further questions? No one in the queue. Please raise your hand and proceed if you have any questions. Okay, gentlemen, thank you for your attendance. Due to no additional questions, we will conclude the call. Investor Relations Department is present for any follow-up calls following this earnings call. Thank you.

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