HELLENiQ ENERGY Holdings SA
ATHEX:ELPE
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Ladies and gentlemen, thank you for standing by. I'm [ Constantinos, ] your Chorus Call operator. Welcome, and thank you for joining the Hellenic Petroleum Holdings conference call and live webcast to present and discuss the first quarter 2022 financial results. [Operator Instructions] And the conference is being recorded. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Andreas Shiamishis. CEO; Mr. Georgios Alexopoulos, General Manager, Group Strategic Planning and New Activities; Mr. Vasileios Tsaitas, group CFO; Mr. Dinos Panas, General Manager, Oil Supply and Sales; and Mr. Nikos Katsenos, Head of Investor Relations. Gentlemen, you may now proceed.
Thank you very much. Welcome to our first quarter 2022 results presentation. It's a pleasure to have all of you on this call. The plan is for me to do a brief introduction of the key highlights for the quarter and maybe share some of the key themes that we see taking place, clearly in the last quarter but also during the rest of the year. And then Dinos Panas, Vasileios Tsaitas and Georgios Alexopoulos will be going through the presentation, covering the specific areas.
So as far as the first quarter results is concerned, we have a good quarter, clearly better than last year in terms of numbers. One of the factors that have affected the financial performance for the first quarter has been the fact that the Elefsina refinery was in a turnaround mode, so it was shut down for around 2 months in the first quarter, which meant that we did not take advantage of the high refining margins that we experienced in Feb and March. But the positive side is that the refinery completed the turnaround in a period when the refining margin were slightly lower rather than March, April and May. So that's the only negative point in terms of the delivery of financial results.
Benchmark margins are very healthy. We still have the energy high cost and the CO2 cost, which is clearly taking some of the shine away from the performance. But we do see a very positive demand performance in the Greek market. In terms of reported numbers, EBITDA reported numbers, our results are very positive. In all honesty, it is a factor of good performance, but at the same time, it's also an issue of reporting because we have inventory gains on higher oil prices. This is not real cash flows that will be converted in the course of the next few months because if the prices remain high, then effectively, we need to pump back the cash to replenish stocks, and also by the fact that IFRS requires us to mark-to-market the allocations we get on CO2 and effectively ignore the fact that these allocations will be utilized during the remaining of the year. This creates an artificial phasing issue in that in the first part of the year, you tend to report a mark-to-market gain, but in the later part of the year, this is reversed and you have to pay the extra CO2 costs.
In terms of balance sheet, the balance sheet remains quite healthy. We have a very good funding profile for our activities. The increase of crude oil prices has been driving incremental debt levels, higher working capital. And the fact that we had the Elefsina turnaround have led to higher net debt, plus the fact that we have completed the Kozani project, so all of the CapEx for that project has been accounted for.
Now in terms of the Kozani project, we'll be talking about that in a minute, but I'm very pleased to say that it is the first time that we are including a renewable section in our results report. Numbers are clearly small because of the bigger asset, which is the Kozani Plant Park started its operation in April. But it is becoming a business unit now. And over the course of the next few quarters, we will see that number increasing significantly.
So without further ado, I will turn over to Dinos. Dinos Panas, who will help us understand a little bit more about the underlying industry environment and the markets.
Well, thank you, Andreas. Good afternoon from me, and I also welcome you to this call. A few slides on the business environment. On Page 5, we see that brand and the foreign exchange we had an average of $102 per barrel during the quarter. Actually, in March, we had the highest ever price of Brent in Europe a barrel. So passing to the next page.
Page 6, you will see the product cracks. We have seen the ULSD cracks strengthening by the end of the quarter, by March, while we also had a record high price, a record high crack. And of course, you all know that in April and May, the ULSD cracks, and the [indiscernible] crack went much higher than what we had in the first quarter. We have some new benchmark margins that we are now showing for 2 reasons: one, to adjust for the natural gas price that was not done very well in the previous margins; and the second 1 was that because these margins were mostly based on euros and euros price, this connected totally to Brent, we had to price for much of euros at an equal basis to Brent to get the mark that we are showing you on Page 6.
Now on Page 7, the high energy costs that we all have seen. We see that the prices of the electricity at around EUR 242 per megawatt-hour. Actually, there was a subsidy from the Greek state to EUR 65 per megawatt-hour for this electricity cost. Then we see that natural gas prices were EUR 101 per megawatt-hour. There was a subsidiary of EUR 30 in January, EUR 20 in February, another EUR 20 in March from the Greek state and the CO2, of course, average at EUR 83 per ton.
And finally, on the domestic market environment, we had an increase of 16% in the domestic market. We saw a 23% increase in gasoline, a 12% increase in diesel consumption, 15% in heating gasoil and 11% in LPG and others. [indiscernible] were 4% higher than the previous -- same quarter of the previous year, while aviation at 106% higher than the first quarter of 2021 but still lagging by 23% from the pre-pandemic levels. And with this, I will pass you to our Group CFO, Mr. Vasileios Tsaitas. Vasileios?
Thank you, Dinos. Good afternoon to all of you attending our call today, and many thanks. Moving on to Page 10, where we'll start discussing in more detail the performance of the group. The usual variance analysis that we're looking at the main drivers of performance variance versus the similar quarter last year. We discussed before the positive impact of the environment in terms of benchmark margins just under EUR 80 million. The bulk of this is coming actually in March and another EUR 10 million from FX.
This was partially offset by the impact of energy crisis with 4x to 5x higher electricity prices and the doubling of CO2, around EUR 35 million overall.
In terms of performance, the positive benefit from the stronger refining margins was offset because of the turnaround of Elefsina again, as diesel was the main driver, especially in March of the increase in refining margins, it took out most of the positive impact.
On the other side, we have the contribution from renewable energy sources tripling versus last year. And overall, a better performance on our refining and supply and trading operations, leading our adjusted EBITDA for the project was under EUR 100 million.
Moving on to Page 11, the focus when the crisis started was to make sure that sufficient liquidity in headroom was available to manage the different working capital needs. Those are actually reflected on the face of our balance sheet because at the end of March '22. An additional comment on the yield of our bonds, which is pretty high, obviously reflecting market conditions and the actual and expected movement of base and swap rates, however, performing much better than the rest of the market.
Moving on to fund supply and trading on Page 14. As we mentioned before, market performance of last year on the back of margins, partially offset by the turnaround that Elefsina and the higher energy cost. We discussed about the Elefsina turnaround. Moving on to Page 15. Effectively, it was a full turnaround with all units undertaking extended maintenance. The focus was more on the conversion units, the hydrocracking complex and the flexicoker unit, including addressing issues from the Aspropyrgos shutdown in February '21 due to the power grid failure.
We also faced significant challenges in terms of supply chain and timely availability of material, and our teams, our refining teams and [indiscernible] teams to the ground, make the effort to make sure that -- but the turnaround was completed on time. Has the safety always a top priority in this kind of processes and a very good track record in the first quarter and during the turnaround process. As it usually -- you would usually expect in this kind of large projects, there will be an improvement in terms of the performance of the refinery as units and catalysts are free part of the maintenance. At a good time, enables us a better capture of the positive refining environment in the second quarter.
Moving on to the operations from Page 16. Both utilization levels, production levels and we largely reflect the outage of Elefsina for most of the quarter with lower-than-usual middle yields and higher fuel oil. On Page 17, sales are not -- the lost production from Elefsina was, to a large extent, offset by higher trading volumes, with overall increased sales in both our domestic grounds and vision banking markets, in line or even better versus the evolution of the market.
In terms of our margin performance on Page 18, we discussed before the rebasing of our benchmark margins, still overperformance at very good levels, driven by the improved sales mix and the supply optimization. Moving on to Petrochemicals on Page 20. A very good performance. Obviously, the comparison versus last year is not favorable. As you may recall, the first half of '21 was fundamentally driven by a significant supply deficit across the global polypropylene complex. However, even at EUR 20 million, still a very good performance, better than the mid-cycle before the COVID crisis.
On Page 22, our fuels marketing business, a much better performance again versus last year, largely driven by the lifting of mobility restrictions due to COVID in Q1 and capturing the upside on volumes across all products with market share gains even in a difficult environment with rising prices.
Similar picture in the international marketing business on Page 23, with adjusted EBITDA 17% higher. There is a reporting change on international marketing. We -- OKTA, our North Macedonian wholesale activity, which was up until last year, reported under refining aligned with the new corporate structure of the group following the implementation of Vision '25 is now reported under the international marketing. So you see the numbers, including comparatives with '21. At this point, I'll -- we'll move on to George Alexopoulos to discuss our renewables and power and gas business.
Thank you, Vasileios. Good afternoon, everybody. As Andreas mentioned, this is the first quarter where there is a financial report for our renewables unit. Clearly, it's not comparable to the same quarter last year because this quarter, we have the inclusion of new operating assets which contribute to the profitability. And also, from the quarter we are currently in, we will see the contribution of Kozani, which has entered commercial operation, in fact, has already produced about 10,000 megawatt-hours during this phase.
We expect to have a business with a run rate next year of the order of EUR 50 million EBITDA. We continue to develop our portfolio, which currently exceeds 2 gigawatts and, as you know, includes PV, wind and also storage assets. Moving on to Page 27, power generation as a [indiscernible], a good quarter with improved performance, higher electricity demand and also higher gas-fired generation and a positive quarter and a positive contribution to our results.
Moving on to DEPA. As you know, we have 35% stakes in 3 different ex-DEPA Group companies. The difference this quarter is that DEPA Infrastructure is consolidated as it's an asset held for sale. And in fact, we expect closing to take place in the next few weeks within the current quarter. The result of this deconsolidation of DEPA Infrastructure was the main reason for lower results compared to the same quarter of last year. And with this, I will turn it over to Andreas for the Q&A session.
Thank you very much, George. I think the key highlights which we need to repeat is a good performance for the quarter on the back of a buoyant market. An [indiscernible]. No, not an [indiscernible], an increased demand from the domestic market, which is very good, a very good performance on the international side. And I'm not just referring about our international subsidiaries but also about exports which are also contributing a lot to the group profitability.
And from a strategic point of view, a step in the renewables direction with the building of new parks, which alongside acquisitions, are going to give us a material footprint in the market. Clearly, it is important to accelerate our growth pace, but at the same time, building new parks is more value-enhancing than acquiring existing parks. So it is a question of combining a mix in our growth strategy. With that, I will turn over the call for any questions.
[Operator Instructions]
The first question is from the line of Grigoriou, George with Pantelakis Securities.
I've got a couple of them, please. First one relates to domestic marketing, I see the domestic marketing, if you like. Have you seen an impact in April and now in May from the higher prices at the pump? Is it affecting demand? And second question is, George, you said before that the run rate on a full year basis of the EBITDA contribution from renewables for next year is about EUR 50 million.
I was wondering if you could be so kind as to break it down in terms of projects or if you like, whether wind and solar? And my third question is regarding the contribution to net earnings from the 35% stake in DEPA. We're seeing a big swing quarter-on-quarter, EUR 50 million in the fourth quarter, EUR 5 million now in Q1. How should we think about it going forward? How -- it's difficult -- it's big numbers nowadays so I was wondering if you could help us out trying to model it.
Okay, George. Let's try and go through these questions. The first one, having to do with Domestic Marketing. It's a very valid point that you've raised. We haven't seen, however, an impact on demand. Clearly, there are a number of factors which affect that. You have people coming out of the COVID restrictions, so people are going out a lot more. You have tourism picking up and volumes are supported there. So it seems that the higher prices have not had the impact on a short-term basis at least. There is no question that if this price level continues, we will see some impact. Renewables run rate, I will pass over to George.
Yes. George, look, the target and which is also our estimate, if you will, includes all the currently operating assets and a couple of new projects that we have in the works that we expect them to be contributing next year. The breakdown between the 2 categories is, I would say, about [ 70-30. ]
70% in favor of wind, I presume?
No, no, no, sorry, not in favor of wind. 70% of this estimate comprises projects currently operating and 30% refers to projects which will be operating next year.
And coming back to the third point on DEPA, yes, it is a material number. It's coming from DEPA Commercial mostly because DEPA Infrastructure is on its way for completion. Unfortunately, because we have 2 issues. The first 1 is the volatility, which has become a lot more profound in the performance of DEPA because of the very high prices and the pricing formula for cargo that they buy.
And the second is a slightly more structural issue in that we do not participate in DEPA's Board because of the tender [indiscernible] that -- well, it's stale now, but formally, it has not stopped yet. So we do not have access to commercial information that would allow us to be a little bit more elaborate in this respect. Clearly, this is something which we plan to address because it is a big investment and we cannot be so decent from this business. It's very close to our own business, so we need to see what's going to happen there.
Okay. One last one, please, if I may. Regarding, again, DEPA Infrastructure. If it's to be sold over the next couple of weeks, if the deal is sealed the next couple of weeks, as you mentioned, when should we expect an extra dividend then in the second half of 2022?
Yes, George, just to be clear, I did not say -- and I certainly did not want to say it's going to be the next couple of weeks. I said it's going to be in the next few weeks and it's going to be in Q2. But it's not going to be in the next couple of weeks. So it will be in June most likely. And the dividend will be in the second half of the year.
[Operator Instructions] The next question is a follow-up question from the line of Grigoriou, George with Pantelakis Securities.
I'm sorry I'm taking up the time, but it seems that nobody else is asking anything. I just wanted again to ask, George, sorry. Regarding what you just mentioned before about the new projects coming on stream next year. Is there a firm target you could actually give us in terms of megawatts for the next couple of years? I'm not talking about in the long term, in terms of installed capacity.
Well, sure. As you know, we are today at 285. I believe we will be at 400 about next year, and we can be at 600 at least a couple of years from now. Clearly, profitability does not correlate easily with megawatts. I mean, not all megawatts are created equal, as you know. So I mean, megawatts are important but size and profitability is also quite important.
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing call statements. Thank you.
Thank you very much. I'll repeat my opening comments. Overall, a good quarter. We got the Elefsina maintenance out of the way. We still have some minor work, which will be done in the next couple of months. But the bulk of the work has been successfully completed. And clearly, this is a benefit because we are taking advantage of the prevailing margins.
Sales are doing very well. Our international business is doing very well. And renewables are growing at a pace, which is materially enough to be able to give us some substantial business results at the end of the year. Thank you very much for your attendance, and I hope that we have the next quarter results call with better conditions from a geopolitical point of view. Thank you.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.