Motor Oil Hellas Corinth Refineries SA
ATHEX:MOH
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Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Motor Oil conference call and live webcast to present and discuss the first quarter 2021 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Tzannetakis Petros, Deputy Managing Director and Chief Financial Officer; and Ms. Mary Psyllaki, Investor Relations Officer. Mr. Tzannetakis, you may now proceed.
Hello to all of you. Good morning. Good afternoon. I don't think we have any good evenings today. I want to apologize because I'm always about sort of 4 to 5 minutes late. It's purely so that more people can join before I start, because, sometimes, some of you complained that by the time you joined, I had already moved to the slides. So that's the only reason.
So Q1 results. I like thinking of titles when we come to the results, particularly in difficult periods of our sort of history of our business. I will dare to give a title to this Q1 and, hopefully, Q2 and Q3 from the resilience to success as a colleague, a close colleague of mine, sort of suggested. It is from the very difficult 2020, where resilience and survival was the name of the game, to success that building on what we experienced last year into the current year and to the future.
The refining environment at the start of the year continued to be affected by the pandemic headwinds, reduced demand, high inventory levels, volatility in crude prices continued to weigh on refinery economics, allowing, though, for some early glimpses of hope.
Looking into specific products, gasoline had a good quarter, building upon the increase of -- the increasing use of passenger cars. Driving demand slightly started increasing mainly in the U.S., but gradually, we start feeling it as well in Europe. Middle distillates remained impacted by high inventory levels due to refineries switching from jet to diesel and because of lagging demand. Jet cracks remained positive for the second quarter, however, at very low levels. And finally, something quite interesting, fuel oil cracks improved year-on-year, having, though, easy comparables due to the IMO-related weakness in the start of 2020.
Just a number which is sort of quite impressive, in Q1 2021, we had minus $7.9 per barrel in the fuel oil crack compared to Q1 2020, minus $14.8 per barrel. Very interesting development, we will discuss it a little bit further.
Crude differentials was another interesting development during this quarter. We saw a gradual widening that started at the end of Q4, continued in Q1 '21 in anticipation of the OPEC decision to reduce production cuts, with the trend continuing in April and May and June, as we see in these days, supported, of course, by the Saudi Arabia decision to roll back its voluntary production cuts.
Crude prices clearly increased during this quarter from about $50 per barrel to $64. Product prices increased as well, $4.54 to $6.20 for gasoline, $4.22 to $4.97 for diesel. Of course, this happened with the weakening of the dollar vis-a-vis the euro. So we had a situation where the Q1 average parity stood at $1.20 compared to the average parity a year ago in the first quarter at $1.10. So clearly, this affects, at the end, the amount of -- the value of the refinery margin, but also the value of the overall sales. We -- I must say we had probably the strongest euro vis-a-vis the U.S. dollar over the last 2 years.
Greek macros were not very strong because of the situation with COVID and the lockdown. And so we had the government really make -- working very hard on the front of creating a very positive environment for the economy and trying to control the lockdown and the their risk -- how shall we say, the speed of vaccinations. We believe they did a good job overall. And we have high numbers, one of the highest numbers in the European Union, of people who have been vaccinated. So these percentages keep increasing, which, of course, rubs off in the psychology and in the economic climate the way it develops.
However, domestic demand was clearly affected by the lockdown, with a total drop in fuel demand for the quarter at 14.7% compared to a year ago when the drop was only 3.8%. Yes, this is because of the lockdown lasting for most of the first quarter compared to last year when the lockdown was introduced, if I remember well, towards the middle of March.
Looking at specific products. Gasoline was down by almost 22%, automotive diesel by 12%. So automotive fuel was down by over 16% compared to a year ago in the first quarter when automotive fuel was down by 3.6%. So clearly, the numbers for this quarter were weak. I mean, if one wants to see the full year of 2020, automotive fuel was down by 12.6%.
Looking at the refinery processed volume, coming to more specific figures for Motor Oil. We see a throughput increasing to the average of 2020. I'll remind you that the average of 2020 stood at 172,000 barrels per day, which is exactly the nominal capacity. Q1, we moved to 184,000. So it was full capacity and slightly over it compared to the fourth quarter of 2020, which, again, stood at 184,000. Resourcing moved to heavier mix than in previous quarters. The sour to sweet for the first quarter stood at 83% sour, 17% sweet. Compared to the fourth quarter, which -- or rather to the first quarter of last year, where it stood at 69%, 31%, the respective number, and the full year at 75%, 25%. So clearly, we had a much heavier mix, which, to a certain extent, also explains the higher fuel oil production.
Overall, the throughput, if we look at the percentages with -- staying on Slide 4. We see an increase in the crude by 20% compared to last year and overall by 32%. So clearly, these numbers of higher throughput reflect also the final output of refined products.
Moving to Slide 5. We see the overall sales increasing by 33%, which is refined sales, of course. If we want to see the specific breakdown in the 3 markets, we see that, yes, overall, the increase of total sales stands at 20%. I'll come back explaining why there is a difference between refined versus total sales. But let's stay at total sales for now, where we see exports increasing by 46%, bunkering and aviation dropping by 52%, and civil market dropping by 33%. Clearly, the economy affected bunkering, aviation and domestic markets, but the business model of Motor Oil and the neighboring countries and the way we operate gave us the ability to grow our sales mainly through the exports.
Looking a little bit at specific products, which is quite interesting, while diesel-gas oil, both automotive and heating, in total, increased by 16%. It was a drop of 37% in the domestic market, but an increase in the exports of 43%. So we suffered domestically, but made up this deterioration by the growth of exports. In Jet, the situation is even more sort of -- is even bigger, is even more significant with an increase in the overall sales in Jet by 9%, which occurred with domestic dropping by 70%, but exports increasing by 25%. Lubes is another culprit of this, where we had 62% increase in lubes sales, caused by 10% drop in domestic market by almost 100% increase in exports. Keep a note of the lubes because even though it is small in absolute volumes, it is very important in the profitability contribution.
Naphtha was another participant in this sort of big growth. It grew by 470%, a huge number, and it was all exports. So bigger demand of naphtha, we managed to export a lot of it. These are the positive ones. Gasoline, however, is a negative one, where we had a drop of overall sales of gasoline by 20%, mainly caused by domestic at minus 35% and exports by minus 11%. And LPG was a growth of 35%. Asphalt, a slight drop. Fuel oil, a big increase.
Spending a little bit more time on the exports of the fuel oil, which is quite important. And this brings to mind where we stood about a year ago. A year ago, we stood in this position where everybody was expecting the IMO affecting the demand for high sulfur fuel oil, so making it very difficult for refineries like Motor Oil to optimize its crude mix because the more heavy crude you buy, which is exactly what happened in this first quarter, the more fuel oil you produce.
So a year later, what can we say about the demand of high sulfur fuel oil. And I will look at north of Europe, Rotterdam, rather than Greece. So in Rotterdam, in the first quarter of 2021, high sulfur fuel oil demand was over 25%. It stood at 26% according to Standard & Poor's analysis, which came out very recently, with a very low sulfur fuel oil demand standing at 42%. Why did this happen? Because the global fleet of vessels equipped with scrubbers has increased and is anticipated to grow further by about 10% by 2022, and thereafter, increasing by about 2% yearly up until 2025, which, according to S&P again, equates to the high sulfur fuel oil consumption, almost doubling between 2020 and 2025. So it is still expected that the demand of -- post-IMO demand is expected to stay at about 26% up until 2040.
Finally, on that topic, if we want to see the numbers in Greece, which are even more -- even steeper for the high sulfur fuel oil. The bunker market in Greece 40% was high sulfur fuel oil, and 60% was very low sulfur fuel oil.
So the analysis of what we just described, the details give us sort of the figures of Slide 9, where we see a refinery margin of 44.7% in the adjusted numbers, or 62% in the reported numbers, which if we translate it into dollars per barrel is $8.6 for the reported and $6.2 for the adjusted for Motor Oil compared to $0.8, so even below $1 per barrel for the benchmark.
Coming to the numbers. Parent company P&L, EBITDA stood at EUR 101 million. Net profit stood at EUR 64 million. If we subtract the inventory gain of EUR 42 million, it gives us an EBITDA of EUR 59 million, with the earnings after tax at EUR 33 million. The respective number for the group stood at EUR 129 million for EBITDA, and EUR 65 million for after-tax, with inventory gain of EUR 49 million because there is some inventory gain at the level of the subsidiaries as they carry their own inventories.
We have EBITDA adjusted at EUR 80 million, with the bottom line of the group at EUR 28 million. CapEx, we have forecast for the full year at EUR 260 million, with Q1 standing at EUR 47 million. Net debt, slight increase. This was mainly caused through -- because of operating cash flow being marginally negative, EUR 13 million for the parent and about EUR 29 million for the group. This was due -- mainly due to the increase in the inventory value and to seasonality, which we usually see in the first quarter.
Just to sort of refresh your memory about the seasonality and how does this compare to the previous sort of years. Back in '19 and '18, which were very strong years, we saw almost similar numbers of operating cash flow being slightly negative because of working capital movements. So we believe that, overall, the cash flow was quite satisfactory.
Moving to Slide 15. The debt profile keeps extending in the future, keeps improving. So there is almost nothing for 2021. And for 2022, we have almost the bond, the eurobonds alone, nothing else. You can see in 2028 the new Greek bond, the EUR 200 million, so this is a 7-year bond. If you remember, we discussed at the full year results. And the others are the refinanced bilateral, mainly loans with our relationship banks. And here, we show the drawn lines. So we don't show you the profile of the available lines, which really stretches out to 2024 onwards up until 2028. I think, yes, that's it as far as the slides are concerned.
A little bit of an update on the front of the new business, what has happened since our last sort of call. We -- the deal with the renewables, the wind assets, has been completed, as we publicly announced. And the [indiscernible] as it was called, with increasing the capacity of operating wind and solar has been now completed. We will see the effect of these assets in the second quarter after they have been integrated into our numbers. And the last deal that we announced was the joint venture with TERNA to build a CCGT plant in the north of Greece, in -- plants where TERNA already has a license to build one. We simply moved to a new gas turbine of higher capacity of 877 megawatts capacity and a very high efficiency, which is over 64%, which is the highest of all the existing CCGT -- or planned CCGT turbines, at least as far as having already been announced.
We believe it is a good strategic move because there are projections that the power demand in Greece is going to be growing over the next 15 years. And the supply of renewables, of course, will be growing in parallel, but there is going to be a gradual phasing out of lignite. And as we both, ourselves and TERNA, have our own electricity companies, we become integrated by having our own electricity production. And at the same time, having natural gas -- LNG, sorry, as its supply, being able to buy bigger volumes of this, it will help Motor Oil and TERNA, respectively, in our efficiency in this front.
We are not in a position at this stage to give much more information as far as future EBITDA and future economics. But from our internal homework and all the studies we have made and some thorough research done by McKinsey, which helped us reach the final decisions, it is going to be a good investment. It has an IRR of above 10%. We have calculated something between 10% and 13%, depending on assumptions. And of course, there is additional upside, which, of course, cannot be quantified at this point, from balancing revenues and capacity payments, which could exist in the future, even though they have not been calculated in the model, the way the model has been initially sort of done.
I think I'll stop here and let you come back with your questions. Thank you very much.
[Operator Instructions] The first question comes from the line of Patricot Henri with UBS.
Yes, Petros. Three questions, please. The first one, just following up on your last comments around the gas power platform. I was wondering if you can give us more details around the financing for the project, how much project financing you would expect and to what extent that could impact the deployment of your renewables [ dispute ], which increased renewables capacity? That's the first question. And secondly, just on CapEx guidance for '21, which has gone up slightly compared to the previous guidance. What's driving the small increase? And finally, if you can give us some comments around the macro environment in refining in the second quarter seems to be improving versus the first quarter, but yes, interested to see what you've -- or you've been performing in the second quarter so far?
Yes. So CCGT. Project finance, EUR 370 million is the cost -- sorry, EUR 375 million. Project finance, 75% debt, 25% equity. If you do the calculation, it gives a number of slightly below 100%. Let's use 100% to make it easier. So EUR 50 million, EUR 50 million on each shareholder side. So out of our own Motor Oil's equity, it's going -- or debt, it's going to be EUR 50 million. No -- equity consolidation is going to be the way we will include it in the balance sheet. So it will not burden the consolidated numbers with the additional debt incurred at the level of the subsidiary. And this project finance is already in place with the bank syndicate. We have agreed the principles and all the details of it. Okay?
Now on the CapEx, I think, mainly the spending of the reformer has been slightly increased for this number, EUR 260 million, to be a bit higher than what we have given to you before. But it doesn't mean that, overall, it's going to be higher, I mean if you want to add 2022 in your calculations. It means just speeding up some of the spending for the reformer.
Mr. Patricot, are you done with your questions, sir?
So the last question is on the second quarter with current environment.
Sorry, sorry. So second quarter, much stronger. You know I like being conservative. So I don't like giving -- throwing high numbers around, but the numbers are very, very satisfying. I mean, what can I tell you? April was over 8%, May was over 9%, and June is very good. This is margin per barrel. So both margin and volumes are strong. Yes, I could give you a number, which is interesting even for me, it's sort of surprising and pleasing. Domestic market, we have a clear increasing demand as of the middle of May for automotive fuels, with June being even stronger. And now we don't compare the numbers to what they were for May or June 2020, but we, there, compare it to what they were in June 2019. So I can tell you that we hope that the full June numbers, after the bank holiday of Monday where people usually tend to take their car and drive, they will probably be at the levels of 2019 for automotive fuel. So keep our fingers crossed.
[Operator Instructions] The next question comes from the line of Gkonis Argyrios with Axia Ventures.
Actually, there are 2 questions, more clarifying. First of all, you mentioned that -- it was shown in the presentation the difference in the volume of the output of the refinery versus the sale. You -- or was, I think, a comment there. You said that you would come back to that and you didn't. Comment on that.
Sorry, I forgot. I will, I will. Yes.
And my other question, again, clarifying essentially the 10% to 13% IRR that you mentioned for the CCGT. May I ask if this is levered or equity IRR?
Equity. Equity.
Equity IRR. Okay.
Now yes, the other one I forgot. It was actually on one of the slides. It was on Slide 8. It is, refining sales were up 34%, 33%, while trading sales were up 20%. So it means that -- sorry, the overall sales were up 20%, sorry. Overall sales were up 20%. And this is because the traded volumes reduced compared to a year ago from 454,000 down to 220,000. Why? Because, last year, as we had the big shutdown, and we still had good demand, even though lower than this year, we try to cover part of this demand by trading products, so buying finished products and reselling them.
This year, because we had much higher refining throughput, instead of 2.1 million, we had 2.9 million metric tons. We did not need to buy as much traded volumes. That's the reason. So it was more profitable sales in reality because, clearly, refine sales are much more valuable than traded. I mean, we have a higher margin on them.
And if I may add 1 more, if you could give us 1 more comment on the financials. We saw there some impact from derivative valuation. Could you expand a bit there?
Yes. There is, shall we say, getting back some of the money we lost last year because the mark-to-market last year had to report the loss on the derivatives, which was reported at the end of the year. But as the prices increase, we get back what we lost last year. And hopefully, during the rest of the second and third quarter, we hope that, assuming that the oil prices are -- will stay at these levels, we'll gain back most of what we lost last year.
Now this has appeared in Q1 in the financing cost. But for the following quarters, they will start appearing in the -- above the EBITDA line because we have started reporting in hedge accounting -- we started doing hedge accounting. However, the losses of last year, because they were reported below the EBITDA line, the benefit will have to be reported this year below the EBITDA line as well.
For the old position.
For the old position. Okay?
The next question comes from the line of Labate Victor with Piraeus Securities.
Another question regarding jet fuel cracks. How do you see jet fuel cracks? And I also have the same question for diesel cracks?
Yes. Let me look at my -- yes, here it is. So jet cracks were negative in Q3 and Q2 last year, turned into slight positive territory in Q4, slightly better Q1, okay, slightly better Q2, but still nothing spectacular. Diesel cracks are lower. So they stand at about $5 per barrel. And the strongest being gasoline cracks. This is the situation. So they are slightly better in Q2 than in Q1, both the diesel and the jet cracks, but we hope they will go higher, put it that way.
And so how do you explain the weakness of diesel cracks? What is the explanation for that?
I guess one reason could be oversupply because a lot of refiners are putting their jet into diesel, so they increased the diesel pool.
Oh, I see.
Which is something we've done as well. I mean if you look in Q1 last year, diesel stood at -- diesel production stood at just over 1 million cubic meters compared to this year standing at 1.4 million. So we have done that, but I'm sure many others have done it as well.
[Operator Instructions] We don't have any more audio questions. We will move on to the webcast questions.
And the first one comes from Mr. [indiscernible] with Dorval Asset Management, and he has 3 questions.
The first one, how many years do you think it will take to see jet fuel demand come back to 2019 level? His second question is, given the present level of U.S. refinery capacity utilization, should we fear diesel exports to Europe? And his third question is, where do you stand in terms of capacity utilization? How does that compare with pre-COVID situation? And what are your expectations for the rest of the year?
Good to at least hear you. Unfortunately, we couldn't come to Paris this year. Anyway, so jet fuel demand, that's a very difficult question. Not in '21, that would be the answer. Not in '22. I don't know, maybe '23 or '24. That's -- I don't know, that's very much my personal opinion. I don't know. I have a few colleagues here in the room, our Head of Planning and our Head of IT. And -- I mean, what's your view?
[indiscernible]
Yes, roughly '23.
Maybe more.
Maybe more. Yes. So that's the consensus in the room. We all wear mask and have social distancing, okay? Now diesel exports, if we are -- if I understood the question correct, we are worried with diesel exports coming from outside Europe into Europe, not particularly for the Eastern Mediterranean. I think of Eastern Mediterranean being a basin like a closed basin where the only way things can come is by ship. And when they have to come by ship, clearly, they have the disadvantage of having the freight to be paid. So -- and the Eastern Mediterranean is an area, which has growth in this demand. So I don't see a particular threat of that.
Capacity utilization.
Capacity utilization, for us, as I said earlier in the call, has been at 184,000 barrels. Let's do the division, 184,000 divided by 172,000 means we are at about 107% now.
[indiscernible]
And we are in line with pre-COVID level already. So from Q4 2020, we are in pre-COVID level. So Motor Oil, I guess, is one of the very few refineries in Europe, which can claim that. And this continues being so in the second quarter. In second quarter, it's the same level, and we see the same happening in third and fourth quarter. Okay.
Okay. The following question comes from [ Gamza Alpar ] with [ Impera Capital ]. And he says, can you please give us some insight on the strategy going forward on the power area? Are we likely to see MOH entering into more projects?
The answer is no. This is the project that puts us in the correct positioning vis-a-vis our growth in electricity, in retail electricity through our company, NRG. Don't forget that we bought this company 2.5 years ago, and it had about 9,000 clients. And today, it has close to 150,000 clients. So with the market like the one in Greece, which is still an imperfect market as far as the whole balancing and the whole electricity supply, it is imperative to have your own supplier of electricity. Clearly, this new CCGT makes us, one can say, self-sufficient in this front.
And renewables, of course, which we have capacity by -- of operating capacity by 2022 of 383, 384, I think -- 364, including this final small existing wind projects that we are completing. And then there is a pipeline, as we said in our previous call, of 650 megawatts, of which now we are choosing and selecting the better ones. And so yes, we have a pipeline which will gradually take us to numbers which will be 500 to 600 as a first target and eventually higher, but let's stick to the first target first.
And we have another question from a webcast participant, [ Rafael Mohit ] with [indiscernible] and he says, "Hi, Petros, your comments on current margins are very positive, while benchmark margins have improved but remained low. Is it because you managed to have great sourcing conditions currently? Is your outperformance versus benchmark much higher than before?"
No, it's good to hear you, and we have to speak. We have to catch up anyway. The differentials have improved significantly, one of the reasons. So the crude differentials have increased compared to what they were sort of in the second quarter, in the first quarter last year. That's the main reason.
And in the current quarter, there is a significant improvement in this. We can see this in the crudes we buy, Basrah Heavy, Basrah Medium, Kirkuk, even the Es Sider one. All of the crudes we buy have a better one, have widened.
And at the same time, as I also said in the presentation, the increased fuel oil production, which may be a year ago would have penalized us because the fuel oil crack, if you remember, in the fourth quarter of '19 of -- or in the first quarter of '20 was at minus 15. Today -- I mean, in the first quarter was at minus 8. So we buy heavy crude with a bigger discount. And the increased fuel oil that is produced, we can sell at a better price than we could a year ago. So this really explains both the overperformance and the absolute size of the margin -- magnitude of the margin. And we have to catch up.
[Operator Instructions] There are no further questions at this time. I will now turn the conference over to Mr. Tzannetakis for any closing comments. Thank you.
Thank you very much for listening to you or at least to your questions and to some of you. I wish you are all healthy, and I wish we will soon manage to meet in one of the conferences. Wishing you all the best, and goodbye from all of us here in Athens. Bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.