HELLENiQ ENERGY Holdings SA
ATHEX:ELPE
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Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the HELLENIC PETROLEUM Holdings conference call and live webcast to present and discuss the fourth quarter and full year 2021 financial results.
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. Vasilis Tsaitas, Group CFO; Mr. Dinos Panas, General Manager, Oil Supply and Sales; and Mr. Georgios Dimogiorgas, General Manager and Refining. Gentlemen, you may now proceed.
Good afternoon. Thank you very much for attending our full year results conference call. If we turn to Page 2, we have a couple of pages of an executive summary in terms of the year and our strategic initiatives, and then we will proceed with a detailed analysis business by business as we usually do.
So in terms of the full year performance, from a numbers point of view, from a profitability point of view, we have an improvement versus last year. On a full year basis, we've improved our comparable -- our adjusted EBITDA by just over 20% at EUR 401 million and net income came in at EUR 144 million, which is a good increase compared to last year.
The drivers have been mainly increased production on the refinery side and sales with exports and a very high petrochemical cycle, which we have been able to capture and deliver the cash flow. At the same time, our Marketing businesses have performed very well as we saw demand picking up in most of our markets. Clearly, with a lot of ups and downs because of the lockdowns in various markets at various times of the year, and of course, the introduction of new premium products in Greece. On the downside, other than the refining benchmark weaker performance, especially during the first half of the year, we have significantly increased energy and CO2 costs, which are quite significant in terms of our cost structure.
On a reported results basis, our numbers are clearly much better. We have reported a sizable inventory gain which is effectively reversing the losses that we reported since 2020 and '21, which is effectively the impact on our significant inventory, which has been converted into cash flow as we make sales out of our inventory. We had a very positive performance on our DEPA and ELPEDISON associates, mainly because of increased volume and increased contribution of natural gas in the energy generation mix.
For the first time after a lot of years, we're pleased to report financing costs of below EUR 100 million, which is a very good thing. We believe that we can improve on that even more [ on a set that is part of it ]. So excluding the investments in growth, we should be able to reduce that number even more.
On that basis, we are proposing that a total distribution of EUR 120 million to be made out of 2021 results. The proposal, which was approved by the Board, is to distribute in April EUR 0.30 per share, so roughly EUR 90 million, and the remaining EUR 10 million will be distributed after the AGM in the summer. In addition to that, as we have already announced in previous conferences and AGMs, we plan to distribute roughly 50% of the DEPA Infrastructure proceeds, which will give us the opportunity to distribute another EUR 130 million in the year. So all in all, our return to shareholders will be around EUR 0.25 billion for 2022.
In terms of strategy, we have a significant progress achieved on all fronts. I remind you that earlier in the year, we came out with a new strategy which was effectively questioning a number of practices of the past in terms of governance, in terms of strategic direction and in terms of portfolio strategy.
And as you know, Vision 2025 was well received by the market. We had pretty much a unanimous acceptance at all steps of the way, and we're quite pleased with that because we have worked very hard during 2021 to achieve significant progress on that agenda. And I believe it is important to cover some of those areas to remind ourselves of what has been achieved on that front in the year.
If you recall, we had 5 pillars under Vision 2025. On all 5 of them, we have at least performed as expected. In some cases, we have overdelivered.
So starting from the footprint improvement on greenhouse gas emissions, for the first time, we have a fairly reliable abatement curve with specific targets, which has already been incorporated in our strategic plans.
In terms of our strategic plans, which is the #2 area, in our core business, we have scaled back expansion investment in traditional fuels business and instead we have opted to improve, from a carbon footprint point of view, our current refineries. We are expanding the value-capturing capacity without adding volume capacity to our units. So we're being a bit cautious as to future potential of the fuels business. And we are investing a lot of time and effort in improving the way we run our business there. Whether it's digital transformation, whether it's new product launches in EKO, whether it's organizational streamlining, we are effectively doing as much as we can to improve and solidify the position there.
More importantly, however, Vision 2025 opened up a new line of business, which up until last year, it was considered simply a peripheral activity which was not even part of our standard reporting. So we went from just under 30 megawatts of operating capacity back in 2019 to close to 0.3 gigawatts, which will be operational in the next couple of weeks. It's a combination of acquisitions, but more importantly, it is a result of a greenfield investment of over 200 megawatts which will be inaugurated in the next few weeks. It will be effectively linked to the grid.
And that is something which makes us quite proud because it was delivered on time despite the COVID issues and also because from a value-adding point of view, it is not a question of acquiring producing assets and paying for it, even though that is also part of our growth strategy, but it is something which also adds value to the shareholders simply because we get into that project earlier in the maturity curve.
At the same time, for the first time, we have relinquished exploration areas. We have terminated all onshore explorations. And we are exiting -- we have exited, it's a question of formality now, the West Patraikos exploration. We're still active in the Ionian blocks and we participate in the southwest of Crete blocks.
On natural gas on DEPA, as you know, we have signed the sale of the DEPA Infra unit. We expect closing in the next few months. And we are reviewing our options on DEPA Commercial, which was supposed to be privatized, but the time line has shifted significantly as a result of decisions by the controlling shareholder, which is the Hellenic Republic Asset Development Fund.
On a corporate governance basis, we have upgraded or dare I say, transform the company because we are fully compliant with the new corporate governance law. And in fact, with the new articles of association in place, a new Board election process in place and a new Board within the proper policies, I believe we have a much healthier position as a listed company to be running our group.
From a group structure point of view, as we communicated at the beginning of the year back in April, the intention was to restructure the group legal structure and split the holding activities from the main refining and petroleum and petrochemical activities by the end of year 2021. Well, in fact, we managed to do that. So 3rd of January 2022, which was the first working day of the year, we had our new company invoicing our customers and delivering products from all of our installations. So again, a target which was achieved in full.
In terms of the rebranding, we are very close to coming to the Board and an AGM with the new branding of our group, which will allow us to be more aligned with our strategy. So hopefully, over the next few weeks, we should be in a position to come out to the market and call for an AGM if we decide to do so or wait at the AGM, which is not so far away, to rebrand our group.
So on all 5 fronts, we have delivered as promised on top of improving our performance. However, ESG is an area where we have done a lot of work, but maybe we have not been so vocal about it in the past. So for the first time, we decided to include a page, a mention on ESG activities, which are part of our daily routine.
On the environment, we take quite a lot of -- we spent quite a lot of money and a lot of attention in terms of our operations, and I think it's quite self-explanatory. The fact that we are actually spending 60% of our CapEx, which is around EUR 400 million, behind projects in new energy which are taxonomy-eligible. We have reduced our CO2 footprint and -- or we have improved as a result of offsetting energy production from renewables. And in terms of supporting environmental projects, we have been one of the key sponsors in addressing the damage suffered as a result of the summer '21 wildfires with funding and actually carrying out significant anti-flood works in areas which were affected by the fires.
In terms of social support and corporate social responsibility, we continue to support local communities. We are trying to be more focused in our actions and combined the social support with sustainable development initiatives. In that, we try to promote cultural and educational programs in the local communities that we operate. And through a number of scholarships, we try to provide access to and the means for people who are excelling in their domain to continue their education.
Finally, and this not an exhaustive list, it's an indicative list, we are the major sponsor to the Hellenic Paralympic Committee for the next 3 years, '21 to '24. This is on top of our what I would call marketing support to national teams in basketball and the EKO WRC Acropolis Rally, which we consider as marketing. This is more of a social responsibility program rather than marketing. We are not doing it to gain market share. We're doing it because we believe that we should be supporting the communities.
On governance, I think we spent enough time as part of Vision 2025, so there's no need to come back to that.
Now coming back to the quarter. The performance is improved on all businesses. And unfortunately, the only thing which we have as negative here is the fact that the recent energy crisis has, as we say, redefined the cost of energy in CO2 in our business.
So far, we have not passed on a single euro into the market. We have absorbed all of these incremental costs. However, it is an issue which concerns us and will need to be addressed with more attention in the future. I will not go through the detailed numbers, which are on Page 6.
And I believe this brings us to the end of the first section, which is effectively a discussion on our strategic initiatives and our overall performance. So in that -- at that point, I will ask Dinos Panas to walk us through the industry environment and give us some more insight as to what is happening. And maybe at the end of the presentation, you may have some questions as to what is going to happen. So I'll pass on to Dinos.
Okay. Thank you, Andreas. Good evening to all.
Now on Page 8, you can see the Brent prices. The first -- the fourth quarter of 2021 bring towards that $80 per barrel, roughly double than a year ago, and the U.S. dollar exchange at $1.14.
Coming on Page 9, you can see that on the right-hand side of the page is that we had quite good refinery margins, both for FCC and hydrocrackers, at point -- at $5.2 for the FCC and $5 per barrel for the hydrocrackers, mostly due to the white products, ULSD, gasoline and naphtha, had improved cracks during the last quarters of the year.
On Page 10, what Andreas discussed before and you all know, the big increase in the energy costs. Natural gas at EUR 97 per megawatt hour, CO2 at EUR 72 per metric tonne and the electricity price at EUR 229 per megawatt hour.
Finally, the slides on the Greek market on Page 11, you can see that in the fourth quarter of the year, we had a consumption in the domestic market which was very similar -- equal to the total consumption that we have 2 years ago in 2019, 25% higher than it was in 2020. And as you can see, on a product-by-product basis, we have 23% higher gasoline consumption, 12% higher diesel, 59% higher heating gasoil consumption and 12% of the LPG. All in all, we can say that in almost all the products, we have reached the level that we had before the COVID period.
And on Page 12, the aviation demand, 115% higher than the previous quarter, quite close to the numbers of 2019. And a big increase, you can say, in the bunkers demand of 11%, so also the bunkers demand increasing further in the fourth quarter of the year.
And with this, I think I will pass to Vasilis Tsaitas to discuss financials by business segment.
Many thanks, Dino. Good afternoon to all of you attending.
So we move on to Page 14 where we'll have a look on our results and how they compare versus last year. As discussed before, we had a much better environment in terms of refining margins and much more normalized markets versus Q4 '20 where most of Europe was in lockdown and consumption was lower.
On the other side, as Andreas mentioned, we had the impact of the energy crisis in the form of significantly higher electricity prices and nat gas. As you can see, the impact here was around EUR 40 million, and that would be much higher if we were not able to substitute the use of natural gas with oil products to a very large extent. And the EUA prices that continue ascending, another EUR 20 million, so another significant impact on our operating expenditure.
In terms of things that we can control, we had -- last year, we had a positive one-off impact from the contango market structure that we could have -- took advantage in the second quarter of 2020 and materialized in the second half. But given the fact that [ as probable cause ] in full availability versus the turnaround, the full turnaround of third and fourth quarter of 2020, we were able to take advantage and utilize our refineries and including the better operation and capturing opportunities on the supply and trading side. We were able to reach an adjusted EBITDA of EUR 138 million with all business improving contribution.
Same picture in terms of the full year on Page 15 where benchmark margins as well as petrochemicals margins, which spiked in the second and third quarter of the year, provided significant support. The markets recovered. However, if you look at the total impact of the energy crisis and the CO2 cost escalation, they amount to EUR 130 million. That's around $1.3 per barrel, and that is the average for the year, which was much more intense in the second half. The run rate currently is more than double of that actually. Again, our increased refinery availability operations outweighed the lost, let's say, positive impact from contango from last year, leading to adjusted EBITDA for the year at just over EUR 400 million.
Now on Page 16, moving on. Our crude sourcing remains diversified with uncommitted facilities reduced versus previous years. We have the upcoming refinancing towards the end of the year for committed facilities with [ green ] banks that we'll start discussing. And I guess the key highlight is, looking at the whole of 2021, is the fact that our total finance expenses undershot the EUR 100 million mark for the first time after several years.
On Page 17, moving on, as you can see, around 60%, 58% to be exact, of our CapEx is directed to taxonomy -- to EU taxonomy-eligible activities. If you add other health and safety and environmental projects at our refineries, that number is around 70%. Compared to last year, the staying business CapEx was less because the maintenance schedule of our refineries was much lighter. The turnaround of Aspropyrgos was the key project of 2020.
Moving on to '22, our maintenance CapEx will be higher than 2020 as we have the Elefsina full turnaround, which is currently in process; and the Thessaloniki full turnaround, which will happen later in the year.
Moving on to the individual business units performance, starting from refining, supply and trading on Page 20. The quarterly EBITDA doubled courtesy of the improved environment that we discussed before, partially offset by the increased OpEx days as we're able to take advantage of the full availability of our refineries and the normalized markets. CapEx, as I mentioned before, it's significantly lower in refining versus last year.
And moving on Page 21. Effectively, we're looking at a very high production levels, the highest in the last couple of years. In terms of crude and crude sourcing, minor adjustments in terms of the operating mode of [ Aspropyrgos property ]. Let me add here that the Russian crude in the second half of 2021 represents around 15% of the total crude feed. And there's no dependency in our refineries in Russian crude. It can be replaceable by similar grades mostly from Middle East. And in terms of yields, white products, around 80%, 85% as usual.
Page 22, the higher utilization of our refineries and higher production enabled the increased sales, close to 3.9 million tonnes, with higher output to all market channels. And the overall sales, 21% higher year-on-year.
On Page 23, as you can see, our exports portfolio is -- it remains well diversified. Around 85% will end up in the region, Southeastern Europe, West Med, Middle East and North Africa mostly and another 15% will go further [ of sale ]. Mostly, again, white products, in line with the production profile of our refineries. And exports close to record highs of 9 million tonnes for the year.
Page 24, we have a very strong realized margin. Obviously, improved benchmarks did help a lot, but also the recovery of all the markets that we are operating, both our domestic market as well as very strong export markets, enabled the achievement of close to $2 per barrel of realized margin.
Moving on to our Petrochemicals business on Page 26. If you look at the quarter, other than the strong petrochemicals margins, we also had Aspropyrgos refinery operating at normal utilization in the fourth quarter versus last year, so that reduced the need for propylene imports and we were able to maximize our margins. And for the full year, as we discussed in previous quarters, we're looking at a record performance with EUR 131 million of EBITDA with a very strong margins of the second and the third quarter.
In terms of Fuels Marketing business, again, recovery in the markets, which is reflected in our numbers. However, that was partially offset by supply chain costs, including [indiscernible] transportation, which are both inflation- and fuel-related, as well as point-of-sale costs. But overall, a year of recovery, profitability close to EUR 60 million with all market channels improving performance and market sales.
A similar picture on Page 29 in terms of our international markets with profitability flat year-on-year for the fourth quarter but higher for the full year. Again, improved sales volumes in all markets that we operate, partially offset by the higher OpEx that is affecting our common network as well.
At this point, I'll pass you on to Georgios Alexopoulos, who will discuss our renewables business.
Thank you, Vasilis. Good afternoon, everybody.
On renewables, I think some of this has already been mentioned, but it's worth emphasizing. We are reaching approximately 300 megawatts in operating capacity in this quarter with Kozani entering commercial operation shortly. It is the largest renewables park in Greece and among the largest PV parks in Europe. And currently, I believe it is the largest bifacial PV park in Europe. All 18 parks have been completed on time despite the challenges of COVID. And we're currently finishing the connection, so Kozani will be operational shortly.
Our current portfolio is over 2 gigawatts, including a recent addition of a PV project of 300 megawatts. And we completed 2 acquisitions for a total of 54 megawatts, 38 megawatts in -- of wind in Evia and 16 megawatts of PV in Viotia. We are developing a number of energy storage projects in our various facilities and we have received 175 megawatts of licenses for these projects.
Going to power generation where we own 50% of ELPEDISON, a strong quarter and a strong year as electricity demand increased and gas participation in the generation mix increased. ELPEDISON performed quite well.
Turning to Page 34, gas, where we have 3 associates, DEPA Commercial, DEPA Infrastructure and International projects. As we know, we are in the process of selling DEPA Infrastructure where currently the final regulatory approvals are taking place. And we expect that these approvals, which consist of competition and [ wry ] approvals here in Greece, will be completed shortly.
On the operating side, it was a strong year with a good performance from the DEPA Commercial unit as the offtake of natural gas in power increased. And just as a reminder, the tender for DEPA Commercial remains suspended and we are evaluating our respective options for this participation.
I believe this concludes the presentation. So I will turn it over for questions.
The first question is from the line of Grigoriou, George with Pantelakis Securities.
I have a number of questions. So please forgive me, I'll spread them all out. The first one relates to CapEx for this year as a whole.
The second one is based on what you've shown in the chart and Vasilis mentioned. What is the current cost of natural gas and electricity and CO2 on a per barrel basis at present?
And have you got an update as well on the new CCGT plant, that 826 megawatts? You had mentioned in the past you were in the stage of taking the final investment decision.
And the last one goes -- is for the new acquisitions in renewables. What do you expect are the financial contribution to group earnings in EBITDA earning from this -- from this extra 54 megawatts that you recently acquired?
Hi, George. In terms of CapEx, I guess the question refers to 2022. As we mentioned before, given the fact that we have 2 turnarounds at our refineries, then CapEx -- the staying business CapEx should move higher versus 2021.
In terms of current cost of nat gas and electricity, as I mentioned before, including CO2, is around $2.5 to $3 per barrel. Around $1 per barrel of that is on EUAs at current prices. So I guess that leaves you around $1.5 to $2 per barrel of cost of nat gas and electricity, both in the gross margin and the OpEx.
Yes. Renewable?
On the renewables question, I think, George, you can assume a contribution and EBITDA contribution in excess of EUR 15 million per year.
Regarding the new CCGT investment in Thessaloniki, the development process is quite mature and we have not made the final investment decision, but we expect to do that in the next few months.
Okay. Just one last question, if I may. So I don't want to take the time of any other questions.
Regarding ELPEDISON, the supply side of ELPEDISON I mean, I presume given where current prices are in, it's a rather tough environment for it. And given that there's been recent press report out that a number of smaller players are on the block for a sale, are you interested in acquiring somebody else? How do you see the immediate future? Let's put it that way.
It is a challenging environment indeed. I'm sure you follow it. We certainly follow it very closely. We have a very strong business with ELPEDISON. So we do not have some of the issues faced by smaller players.
I think the value of acquisitions in this space is debatable. We are watching it closely, but I don't think there's anything to add at this point.
The next question is from the line of Lamb, Jonathan with Wood & Company.
Good afternoon. The big surprise for me in the results was the contribution from associates, I think, mainly gas. How do you think that's going to be in the first quarter and going forward? Was that just a one-off? Or is this what we can expect when gas prices are high? That would be the first question.
The second question is do you -- are you currently importing any semi-finished products or finished products from Russia like diesel or gasoil or fuel oil?
Thank you very much, Jonathan. Yes, the contribution from DEPA and ELPEDISON was improved. And it is a result of a number of factors. For example, the fact that at the end of the year, DEPA always had a tendency of booking a number of accounting entries which affect the results and may not be directly related to the quarter, but the way it gets reported is that we pick up everything at the end of the year.
The second is the increased contribution of participation of nat gas in the power production system. If you see Page 33, we have nat gas at 44% compared to 38% in the same quarter in the previous year, which, by definition, means that there is bigger volumes or better margins by the utilization of the network and, of course, better contribution from the CCGT plants.
Clearly, there is also the impact of prices to the extent that there may be some time lagging in the price saving of nat gas. So for example, if you have a part of your portfolio being priced on Brent and fuel oil which is trailing prices, you may see a reversal of that in the first quarter. In fact, there may be some reversal of that in the first quarter as the price curves change. So I would not expect to see a repeat of this performance and I would definitely not consider it to be a baseline going forward.
Now for the feedstock, Dinos, do you want to take that for Russian feedstock?
Yes, yes. We usually buy some [indiscernible] and [indiscernible] throughout the year. Maybe 1 to 2 cargoes of [indiscernible] and occasionally some [indiscernible] cargoes of the same size.
The next question is from the line of Gkonis, Argyrios with Axia Ventures.
Congratulations for the strong set of results. A couple of questions mostly clarifying thing from my side. First of all, on your renewable capacity, can you give us some more granularity of the numbers that you report? I see on your presentation that at the end of the year, you mentioned 285 installed is our capacity. I understand this includes the major PV project that you have. Does it include the 50 megawatts of projects that you acquired or part of that capacity?
Thank you, Argyrios, for the question. The 285 megawatts, it does include the 54 megawatts in acquisitions, the Kozani plant and our existing capacity from previous years, 285 total.
Okay. So if I were to look at the CapEx number for Q1 2022, should I expect any payments related to the acquired capacity?
Yes, for the second transaction, you should expect that. And you should also expect to see the back end of the Kozani project given that it's now essentially done. But there's always some payments that are near the complete project and after the completion of the project.
Okay. And the final comment in that is the EUR 50 million of run rate EBITDA you mentioned versus the 285 megawatt...
No, no, no. The 54, the 54, the 54.
Okay. So for the entire portfolio of roughly 300, what would be the right number?
Certainly over EUR 30 million, probably closer to EUR 35 million.
Okay. And a couple of questions on refining. First of all, you mentioned the 2 major turnarounds that you had in the year. Can you give us an idea of the extent in terms of expected duration?
On Elefsina, the turnaround is going to be fairly long. We had an incident in January, towards the end of January, which effectively caused us to shut down the refinery and to start the maintenance works. So that is expected to go back towards the end of March for pretty much half of the refinery. And a couple of weeks later, we should be getting the flexicoker up as well.
Now for Thessaloniki, it's a much shorter stoppage, but roughly, we're talking about the 6 to 8 weeks [ and 12 ].
Okay. And now turning to the situation with Russia. Currently, on your balance sheet, are there any liabilities relating to payments that you are due to [ composed ] of Russian interest? I'm just looking in the case if there are any bank -- sanctions affecting the banking and the payment system if this is something that could also impact your balance sheet.
Yes. No, most of the supply coming out of Russia is actually handled by trading companies, which are not necessarily Russian-owned. It could be international companies. In fact, most of them are.
So we do not have any direct exposure to Russian producers and sellers at least for the time being. We did have in the past. We may have in the future if we are allowed, but at the present, any Russian-origin crude is actually supplied through traders.
And the final question, could you give us some color on the refining environment that you're seeing prevailing in the first quarter? And what are the expectations for Q2?
Yes. I'll pass you on to the expert there, which is Dinos.
Well, the cracks [indiscernible]. And most probably, we'll see better tax for the gasoline as we see a better weather [indiscernible]. Of course, one of the main issues is that Vasilis mentioned about the finance cost.
Would you say that in Q1, we should see a further escalation of the run rate costs? Is that fair?
We have seen it already, but it will depend where the price will go now with the crisis. So we have to wait and see what the sanctions will be and how would be the total effect.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments.
Thank you very much for attending our call. It is clearly a difficult day today with everything that is happening and very unpleasant as well.
With respect to our results, we have what we believe is a good set of results for the full year that's come in with a background of a lot of challenges, COVID being one of them and the escalating energy and CO2 prices being and equally important from a financial point of view challenge.
The whole world is discussing, and to an extent, migrate into a green energy footprint. However, we do believe that even though we are investing and actively participating in this energy transition path, it is important to be realistic about it and avoid building expectations which may not be met either because of technology or the level of capital expenditure required or the cost of energy which will be a result of this hasty transition.
That is not to say that we do not embrace the goals. On the other hand, I think it is the first time that this group has actually set a very clear set of goals and an agenda which supports the energy transition. What I'm simply saying is that we need to be cautious and realistic about this journey.
In terms of our group, we're doing everything we should in order to make it a leading company in energy for the years to come. We have achieved all of our targets that we set out at the beginning of the year. And we have strengthened our position in new areas, while at the same time, divesting from areas which have not been so core to our business and we do not see as strategic going forward.
Thank you very much again for attending this call. And we should brace for the next few months as we see a lot of challenges coming up not only on the economic side, but as of today, on the geopolitical side as well. Thank you.
Ladies and gentlemen, the conference is now concluded. You may disconnect your telephones. Thank you for calling, and have a pleasant day.