Motor Oil Hellas Corinth Refineries SA
ATHEX:MOH
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Thank you for standing by, ladies and gentlemen, and welcome to the Motor Oil Conference Call on the First Quarter 2018 Financial Results. We have with us Mr. Petros Tzannetakis, Deputy Managing Director and Chief Financial Officer; and Ms. Mary Psyllaki, IR Officer of the company. [Operator Instructions] I must advise you that this conference call is recorded today.
We now pass the floor to your speaker today, Mr. Petros Tzannetakis. Please go ahead, sir.
Good morning, good afternoon to all of you from a nice and sunny Athens, Q1 conference call for the results. It was a weaker quarter, as expected, which, however, had again record exports and record production, a slight increase in debt and a few other interesting features that happened during this quarter.
Let's start with specifics, crude prices, product prices. Crude moved down before moving up again. But what one must keep in mind, for both crude and product prices, is the translation into euros from dollars because this alone will answer part of the potential questions at the end.
So while we saw gasoline, for example, moving from $624 per ton in December to $658 per ton in March, the number was almost EUR 520 to by about EUR 530. And in products like fuel oil, or heating oil, or diesel, the euro translation actually resulted in a lower value at the end of the quarter compared to December. This explains, to a large extent, the reason of the small inventory loss that we have included in the numbers.
Plus the fact that during the quarter, between end of December, end of January and end of February, there was a drastic drop of the prices, which generated inventory losses and the loss because of the value of what you sell in the middle of the quarter is much lower than what you started off with.
Dollar moved from $1.993, almost $1.20, to $1.23. That's a drop of about 2.7%. Averaging, though, quite high. The average was 1.229, so almost $1.23. Of course, it has changed since then. We saw a strengthening of the dollar, which is something clearly liked by us. And from this $1.23, it has now gone to $1.17, so a significant strengthening of the dollar, which clearly helps both the margins and whatever translation from dollars into euros if you generate more euros.
Greek macros. Things are progressing. Gradually, we are progressing. The numbers of the economy start improving, even though nothing drastic yet. So we have not seen a drastic change in the domestic demand and with the numbers there. We will touch this a little bit because it has its own peculiarities.
The total demand for automotive fuels and heating oil as well was down. So as a total, it was down by 6.2%. However, if we break down to automotive fuels alone, we had gasoline increase by 1.9% and automotive diesel by 5.8%. So the 2 of them, automotive fuels was up by 3.8%. But there was a huge drop in the consumption of heating gas oil -- heating diesel by 22.4%.
Of course, the fact that automotive fuel had this better behavior, it was that -- it was influenced by the January demand, by the January sales, which, compared to last year's January, were inflated last year because of the change in tax. Everybody went and rushed and filled up before the end of the year. So if we compare January last year with January this year, there is a clear difference, which is not very real.
I just got off-the-shelf April numbers. Literally arrived about an hour before the call. And we see, for gasoline, a very slight increase of 0.4%. And for auto, a slightly better increase of 10% to -- I believe, to a large extent, this can be explained by the Easter. Because Easter this year is the holiday happened early in April 1. While last year, it was in May, if I remember well. And this explains a slightly better April compared to last year. And of course, heating is now towards the end. I mean, April, there is very little heating. And total civil market for April was, again, minus 1.1%.
So the macros, there is no -- not yet such turning of the page. There is some optimism. There is some improvement. But still, it has not yet filtered into the real economy.
Operations, high sustainable capacity again for one more quarter. So if one looks at the last quarters of Motor Oil, the last sort of 4 quarters, it's almost flat out, every single one of them, with very small differences.
This Q1 of 2018 was actually the highest first quarter in the history of Motor Oil ever, even though it was slightly lower than Q4 and Q3 of last year. But still, we're talking about 3.3 million metric tons of processed volume is a very significant amount. The biggest chunk of that, of extra imports, which we will see -- let's go straight to Page 2 in order to see this off the slides. You see that crude, gas oil and fuel oil. The gas oil number was the highest we have ever processed in a first quarter. And it's only, I think, second or third highest ever. But clearly, it's the highest in the first quarter, which shows the ability, again, of the refinery to really sustainably process high volumes.
An interesting part here in this quarter is the mix of crudes. Let me make something clear. What you see in this picture is that you have Basrah Light, Basrah Heavy, Kirkuk. And let's say, roughly half of the other. So we are talking about 48% plus 18% plus 10% plus another -- I mean, let's not be too aggressive, say, a number 5% or 6%. Almost 80% of the crude is heavy sour crude.
Don't get mixed up with the word Basrah Light. Basrah Light doesn't mean it is a light crude. It is a heavy crude. And occasionally, we switch between a bit of Basrah Light versus Kirkuk, or Basrah Light versus Basrah Heavy. But all these crudes are sour and heavy crudes, judged by the sulfur content, judged by density and the API.
Just to give you an example, when we are talking about Basrah Light, it has an API -- let me look into my numbers. It has an API of about 29%. When -- Iranian Heavy is again 29%, while Russian is over 30%, Libyan is 33%, Arab Light is 33%. So all these 80% of crudes are heavier and more sour. This is how one should look at them.
Moving to Page 3, we see the production. One, again, should add diesel with Jet. And adding this together because there is sort of an interchangeability, depending on the market conditions, demand, et cetera, which one chooses to sell more Jet at the expense of diesel and vice versa. Thus this shows you, therefore, the mix of production during this quarter, which then leads us to the sales.
And let's analyze a little bit what you see on Page 4 and give you some more light into the individual product categories, which also follow a little bit from the production column. Our gasoline production sales actually is up by about 12%. Our Jet sales are up. But again, if you add them to the gas oil diesel, which was slightly down, we are almost flat. Fuel oil is up very significantly. Total fuel oil sales during this quarter were 1,007,000 metric tons compared to last quarter, 760,000. So clearly, there is a significant increase of fuel oil sales, which cannot only be explained by more production because there isn't really that much more production. You can see it in the previous slide. There is only 30,000 cubic meters more of fuel oil, so it is mainly trading activity of additional fuel oil because we obviously have the customers. Asphalt is up, which is something good. This is the general sales.
Let's go into individual categories. The markets. Domestic market is up, 693,000 compared to 626,000 because we managed to perform better than the Greek market. This can be seen in the numbers, can be seen in the market share gains and in the penetration that hub stations have in the Greek market. Bunkering is slightly lower, but this has mainly to do with fuel oil rather than Jet because the Jet sales even within the Bunkering are high. And exports, again, a new record of 2.56 million metric tons.
A little bit on the individual markets. Civil market is up with gasoline, strong demand. Up with diesel, particularly automotive diesel, because heating was down. So this almost 11% growth in the domestic market is divided between gasoline, diesel and a little bit in LPG.
Exports. Gasolines were strong. Jet was strong. Diesel was slightly weaker. Fuel oil was very strong.
Bunkering, as I told you before, the Jet performed very well. There was a strong growth in the Jet sales because of aviation doing very well, and this is what we see here.
The next slide, obviously, is the same as the one on Page 4 because we only have 1 quarter. The result of that, therefore, is on Page 6, where we see a lower refinery margin compared to what we saw in the previous quarters, but again, with a good premium over what happened in the rest of the Mediterranean. So we are at $51.6 compared to $29. So this $20-plus, this $21-plus, $3 per barrel of premium is there.
Refining and trading sales volume, you can see the number. Some additional -- even a slight increase actually in the trading volume, which is one more interesting point. You grow your sales and you still manage to sell a bit more in trading volume. Obviously, this is more fuel oil. Because otherwise, the gap between fuel oil produced and fuel oil sale cannot be answered. So yes, there was demand and we sold more fuel oil, which, to a certain extent, obviously, dilutes the margin as well. But at the end of the day, you just sell more.
This takes us to Page 8. Well, what do we see? What do we see? We see lower gross margin than the year-ago with a small inventory adjustment mainly because of the way we calculate, which, we believe, is a very efficient way of calculating it. I'm showing the reality.
Refinery costs, pretty stable. Sorry, not really stable. Has a slight increase mainly because of bonus given to the employees in January? Operating expenses, slightly lower. FX gain, under control, very much so. And financial expenses, drastically down, as expected from our last quarter's conference call, taking us to earnings before tax of EUR 55 million or at EUR 66 million, depending of if you look at reported or adjusted.
Next page, group P&L. There is a EUR 16 million approximately addition of the EBITDA of the subsidiaries, which is an improvement to last year's numbers. Yes, the subsidiaries are doing well even though the market was not so strong, so we are pleased with that. And the financial expenses as well are reducing. So they're not only reducing at the parent level, but they're also reducing at the level of the subsidiaries.
Page 10, CapEx. We have less numbers as they are because things look pretty stable for the time being. So we have not changed the forecast at this point of time, which takes us to Page 11, which, again, is the current situation of the loan maturities at the parent company, with the biggest one being the bond showing in the bar of 2022. What we said sort of a couple of months ago about restructuring and refinancing most of the loans, we are in the process of having almost completed almost everything, more or less. So yes, a reduction of interest cost. Still, you'll see some more. Also, we reduced debt by about EUR 100 million -- drawn debt by about EUR 100 million in the first quarter. So keep reducing the interest cost, but also -- the interest rates rather, but also the absolute volume of drawn debt.
Another point worth mentioning here is the completion of the Coral-Shell bond. We did a Greek bond, which is an instrument in the Greek Athens Stock Exchange governed under the laws of the Greek Capital Markets Commission. And this bond loan was launched a couple of weeks ago and was oversubscribed by 3.8x. This is public news in Greece and has a coupon for 5 years of 3%, which, we believe, is a fair but also a good coupon for Coral. And therefore, we will see this result in the coming quarters in the consolidated numbers. We were pleased because of -- there was very good acceptance by the public, institutionals and the banks or the whole financial community. So we are pleased with the results of this bond.
I think I will stop here. I think I've covered most points and let you come back with questions. Thank you very much.
[Operator Instructions] Your first question comes from the line of Kseniia Maslova.
Just a quick question on your working capital as we can see some deals during the quarter. So I just wanted to clarify on what was driving that and if we can expect to see some results later in the year. And my -- sorry, and second question. So more on macro implications of your decision to leave the Iran deal. What are kind of your thoughts on crude differentials and if you see any alternative supplies into the region?
The working capital change, which, at the parent level, is EUR 67 million, let's concentrate on that because also, the subsidiaries follow suit in an almost similar fashion. One can see that a similar thing happened a year ago. So at Q1 '17, we had minus EUR 70 million. It was created by a slight increase in receivables and a decrease of payables and a slight decrease of inventories. So it is purely operational. It is nothing else. It's purely a matter of timing. And think of the price of oil these days. Cargo is over EUR 60 million. So if you pay a cargo, how -- the timing of the cargoes is, you can only -- you don't influence them. They just happen. When you buy, depending on where you bought and what is the payment date, you just pay. And also because you sell more and the growth of sales took place in Q1, you might have a little bit more of receivables at some point. So it's purely timing. There is nothing else. There is no structural change here. And I would say the same happens in the subsidiaries mainly because they do additional trading and they do some imports directly from Thessaloniki, from the north of Greece, because it's more profitable for them -- for some of the cargoes to be imported directly in the north of Greece rather than buy them from Motor Oil and Motor Oil having to ship them. So it's all purely operational. And we expect it to reverse most probably by the second quarter, looking at the numbers of the cash position today, for example, okay, and the forecast we have. Of course, it will be better in Q2, but it will deteriorate in Q3. Because in Q3, we have the payment of the dividend, which is on July 3. And then we have the payment of the taxes. So -- but again, there are specific things. Now on the second or the macro situation with the global supplier, demand has clearly -- even though the price of oil has gone up, there has been tightness there, and the margins have increased significantly. So we are talking about the second quarter, which looks very promising. Let's wait until it comes to the end. But the way April-May looks, they look very good. There is no problem with replacing Iranian supplies, which, in our case, anyway, were small with others. And you can see this with the flexibility there is amongst the mix. You can move around between Basrah Light and Basrah Heavy and Kirkuk. And now Libyan has come into the picture, which was not there a year ago. And it's quite -- it's well priced. I mean, you even saw the occasional cargo of -- let me go to the Slide 11, a slide that you have as well. I mean, we have [ Thortis ], which is not the standard cargo to find and process. But obviously, we found it, we processed it and even the [ Thortis ] one at the time made sense. So no, we don't see any problem with availability of crude.
Your next question comes from the line of [ Antonios Stamatopoulos ].
I would like to ask the speakers to share with us their view on the recent construction of a new refinery in Izmir in Turkey if you have any view on that subject.
Yes, yes. We have been waiting for this refinery for a long time. It seems that it will start operating gradually step-by-step in the coming months. And I think it will be in full operation, I'm not sure, before of the end of the year or the beginning of next year. So it will be a gradual process. From statistics we see, mainly through Tupras, from their publication of Tupras, the deficit in Turkey is very substantial and will remain so after the operation of the Star refinery, as it's called. And so we do not expect any significant impact on demand for the products that are in deficit in Turkey, which is diesel and Jet. So this is our view, and this is the feeling we have, having discussed it with analysts and other people from the industry.
Your next question comes from the line of Yuriy Kukhtanych.
I have a more of a macro side question about -- regarding the overall market in the Mediterranean region. I just would like to hear your views on -- especially on Turkey, given what is happening with the currency crises in the country and potential implications it may have on the broader economy. Do you see a risk on the market, perhaps not in terms of the volumes, but definitely for the margins, that you're making on the export volumes? And then do you see any changes in product trading dynamics in the Mediterranean region after Sonatrach's purchase of the Augusta refinery in Italy? And if you could then, I guess, my third question would be on the domestic market as well. Because your domestic volumes went up by 10%. I'm just wondering what were the incremental volumes in what particular products and whether they are sustainable as well. But most -- I think most importantly is your view on Turkey. And if you could just elaborate on product threats in the broader Mediterranean region, that would be great.
Good to hear, Yuriy. It's a big question. We have not felt anything in particular as we speak, okay? Demand -- and you can see this. Demand is very strong. There is the occasional ups and downs with different products. I mean, there's quite a lot of fuel oil trading these days, and a lot goes to Saudi Aramco. We have not seen any other peculiarity. I mean, looking in the product sort of sales, both gasoline is up, in our case, both in the civil market and the export market. Jet, mainly export because the tourist season in Greece has not started. But the small sales domestically are very strong, but just small compared to the -- because of the period. Diesel, we have been very strong both in the civil, but also in the automotive exports. Heating has been weak, both domestic and exports. Asphalt has done pretty well. But this, I guess, has to do with the different investments we did in the refinery aiming at asphalt sales by speeding up the rate at which ships are loading so we will minimize the berthing time and so make Motor Oil a supplier of choice for buyers. So no, we haven't seen anything. We haven't seen -- and sales are really flat out. The refineries are operating flat out, and sales are just booming. On the Sonatrach, I don't see any particular threat for us. It's clearly more Italian-related because, I guess, they were buying most of the contents from Italy anyway. So it's more of owning your supplier, I guess. I'm not an expert in that. I haven't started much, but from the first things I read. On...
I was actually thinking that it's more of an opportunity for you other than a threat. The refinery will be supplying -- the refinery will be supplying the Algerian market as far as I understand from now on. So it's just -- I was thinking whether Western Mediterranean for you is potentially an attractive market or not at all.
It depends on -- it's all the while -- it depends on economics. Asphalt, we export quite long distances on. We can go to Morocco and places like that. North of Africa, we sell. We sell gasoline to Libya. We sell lubricants to Libya. We sell lubricants to Algiers, I think. It is an opportunity, but it's a matter -- it's economics at the end of the day. We sell anything to all of the -- everything to all of the people as long as it has a good margin. Now with the domestic market, we have been keeping our ground. And all this work that has happened over these years is gradually paying off. And we see this, the growth in the number of control stations. Avin has been doing particularly well. We've been working on the Avin case for a number of years, and Avin is really, really turning the corner these days. The flagging of the stations, new motto, new loyalty card, company-owned -- company-operated stations expansion, and we've really seen good results on that. So this whole strategy, increase your cocoa stations, improve your logistics through chartering ships, buying the revolt [indiscernible] installation in the north of Greece and largely your Crete -- your Crete depot, your Perama depot, going to marine bunkers. All these little steps are adding up, and we see this happening. Maybe this is also an explanation a little bit on the question Kseniia asked earlier on the working capital, something I forgot. Part of the working capital growth of the subsidiaries has to do with marine diesel, which marine diesel we didn't sell a year ago. So marine diesel needs its own working capital, and we are now aggressively claiming our turf in the Piraeus port and doing well on that. So -- yes, and we've increased the market share significantly there. Started from 0, it has gone to double digit now. Yes, so you know me. I'm -- you've known me many years. I try to be positive, but not too much.
Okay, yes. And Petros, regarding Turkey, I was just wondering because this is quite a big year I think for the market. Star refinery will become operational and -- probably towards the end of the year. And again, this risk to -- maybe not to the demand, not to the volumes, but to the margins because of this FX issues in the country. And if you have -- well, I guess, my question would be, do you have any long-term contracts with the traders in Turkey? And do you see these contracts will become an impact already today because of these events or not?
No, we don't have any long-term contracts.
There are no further questions at this time. [Operator Instructions] Our next question comes from the line of Ildar Khaziev.
Just one question please about your refining margin. When I'm looking at this chart on Page 6 and looking at the -- your margin and the benchmark, what exactly explains the contraction of the differential? Because my understanding has always been that it's mostly about either shutdowns or maintenance or changes in the crude oil price differential, changes in your basket. But if I were to understand, looking at your baskets, the Iraqi crudes, their pricing was more or less stable versus euros. So I kind of -- I'm a bit lost why there was such a big contraction. So I'm wondering whether you will generate $5 per barrel of premium of a benchmark now as I think about $3. What explains this?
Yes, let me have a look. There's too many elements in this puzzle. The discounts have contracted clearly during Q1, and so a part comes from there. And we have more of discounts than the benchmark because the benchmark is more standardly set. It's a theoretical model. It's a computer model, which does not do these often changes that Motor Oil does. So when you have narrowing of the discounts, clearly, it affects the delta. I guess a part of it has to do with the mix of products. We have more fuel oil produced and actually sold. And after all, the margin comes from tons sold. And let me just take it in front of me this page I have with the breaking down of margins. If you can give me, Mary, this magical paper you have with your calculations. Because when you have a mix of other feedstock like you have, the fuel oil and the gas oil, and if you look at this and calculate it on the sales, this clearly dampens your refinery margin. And what you see here, this $51.6, is not crude margin. It's the blended margin. It includes the diesel and the fuel oil that you have bought as additional. So if the discounts on that have narrowed, it will clearly influence the absolute margin. So on -- our margin was $7.1, this is the result of -- if you divide $51.6, it's $7.1 per barrel. But if you calculate it only on crude, it would look closer to something like $8.8, $8.9. But it has been dampened because of the additional fuel oil and gas oil, which, at the end, is more income. But it's -- gives you a smaller per metric ton margin. So it is a sum mainly of these 2 things, the narrowing of the discounts and the different mix of products because, to a large extent, this is how the demand drove it. We sold more, but more of it was mainly fuel oil, and that's it. But there is -- we must look -- it's -- one more. We try and analyze sometimes in a quarter something that is -- needs more time. I mean, one -- it's best if one looks at Q2 as well. And if you include Q3, it becomes a more natural period to reach concrete conclusions as far as margins and deltas are concerned.
There are no further questions.
Okay. Then I want to thank you very much for listening in, and wishing you all nice rest of your days. Thank you. Bye for now.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.