HELLENiQ ENERGY Holdings S.A. (ELPE) Earnings Call Transcript

Ladies and gentlemen, thank you for holding. The conference will begin shortly. Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ Energy Holdings conference call and live webcast to present and discuss the second quarter and first half 2026 financial results. [Operator Instructions] The conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to the HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed.

Thank you very much. And I think I would like to thank everybody who is are spending today's afternoon to to be with us in order to discuss the second quarter and the first half of '26 results. And any issues that may arise as a result of this presentation. So I would like to start, first of all, with something which is not results related. And it is something that was decided by our Board of Directors earlier today. And it has to do with our support to areas which have been affected by the wildfires over the last few days in Greece. Over and above the usual local community support programs that we have and they are quite extensive, we felt that the situation was quite severe. And as a result, the Board approved a special contribution of EUR 25 million to be used with cooperation with the appropriate authorities. As a means to accelerate and the relief, aid to people who have been affected. A lot of these areas are areas where we have operations, be it in the electricity production or in in parts of Artica where we have the refineries. So it is something that we feel very, very responsible for people in those areas, not for the fires, but for the people in those areas. And I would like to say that this is a decision which has been made by the Board of Directors, but it was also a decision which is fully in line with our previous strategy in TSR. And what our main shareholders are actually sort of pointed to as a direction. And we have received the confirmation and the -- if you will, positive feedback in this respect because at the end of the day the company is effectively a legal vehicle for the representation of the shareholders. So this is something which we feel it's important, and we should stay it upfront before we go into the results. Moving on to the summary, which is Page 4 of our presentation. Clearly, it is a quarter which has been exceptionally strong. It is a quarter which presented us with various challenges. These challenges have to do with safety issues, for example, because we completed the as probably refinery turnaround that was done with success with very good safety records and the refinery started up operating mid-to-end April successfully. And we are actually seeing the benefit of a start-of-run refinery performance. We also had the challenges of crude supply. This continues roller coaster of supply routes being opened and then being closed and then being open again. And then before you actually send the ship in to the , the gap is closed again, -- it is something which has attracted a lot of our efforts, and we have managed to maintain a very high level of crude supply into our refineries. And that is something which effectively has supported the level of financial performance that we see in the quarter. In addition to that, I would like to emphasize that we are seeing, and especially in the last month or so or so after the end of the quarter, we are seeing very high refining margins. That's a result of the supply-demand in balance on products, and it's a result of restricted flows out of the group. It is a result of no Russian exports via a number of routes. And it's also a result of the last 2 decades of underinvestment in the European refinery space, either because of economic reasons, refineries is a cyclical business. So yes, we have been enjoying good refining margin over the last period. But it has been a very long series of weak refining margins in previous years as well. So a lot of majors or independent companies have not kept up with their investments in refining capacity and this is the result of a series of years of underinvestment leading to the supply shortage, especially in diesel in this part of the world. In terms of operations. We have a very good brand with all of our refineries performing very well. We expect that this will continue for the rest of the year. In the third quarter of this year, we were planning to commence the refinery shutdown of the [indiscernible]. This is likely to be pushed to '27, which means that from a performance point of view, we should expect to be in a good spot given the current environment that we have. It's not just benchmarks, which have done very well. It's also the over performance or the additional performance that we are monitoring, which has been doing very well. That's a combination of 2 things, much more detailed performance optimization at the refineries, which is driven by our recent investments in technology, in AI and a result of the digital [indiscernible]. So being able to extract more value out of the same molecule of hydrocarbons, of course, into the refinery. But it's also a result of better coordination and performance with the supply and trading team in Greece and in Geneva, which has given us an additional agility and insight into the market, which has been able to be converted into additional profitability. The third level of performance is sales. We are doing very well at [indiscernible] levels. In fact, it is a case of being able to sell more than what we can produce or source at this point in time, which is very good. On the power sector where we have the convention of the thermal capacity and sales under Enwave and the renewable portfolio. The news are positive there as well. And the news effectively come in the form of being able to hold a sliding performance in the older [indiscernible] system because of the process of changing ownership. That's been halted. The company has entered into a turnaround mode, which is evidenced by better metrics are pretty much everything. Clearly, we cannot double the financial performance of the company in a year, but the signs are very positive. On renewables, the rollout of additional megawatts is adding to the portfolio. And as a result, we are seeing some improvements there as well. On financials, I won't go into detail. Vasilis will be covering those later. It's suffice to say that it is a record half year and it looks like the remaining of the year will be at least as good, if not better. The outlook, I just mentioned that performance for the remainder of the year is going to be at least as good. And we see that subject to the 2 ARM conflicts in Ukraine and the Gulf, we will continue to be seeing a higher than mid-cycle performance. The rollout of capacity of the renewables mainly is continuing as planned. It's up to us to effectively accelerate even faster and the increased profitability does give us the ability to deploy faster our investment plans, both in hydrocarbons and renewables. I will end this introduction by just referring to the E&P portfolio, where we've completed the transfer of this 30% Block 10 to share on, which effectively leaves us with with 5 blocks that we are effectively exploring with Chevron. One block, which is soon to be drilled, brought in the Ionian and also 2 other blocks, South West Creek, which is currently 70% accident 1% ourselves and the [indiscernible], which is 100% HELLENiQ. So that taking form, it is a portfolio which changes, and that's the point. We focus on what we can do and what we should be looking into utilizing international expertise and hoping that we'll be able to get something at the end of this process. So over to Kostas for the market back. I'm sorry.

Thank you, Andrea. Good afternoon. Starting off with the industry environment. The quarter was dominated by geopolitics as has already been mentioned. There was a lot of volatility at both crude absolute crude prices and relative cracks. Brent prices averaged about $105, and we're mostly from the end of Q1, we're mostly dropping up until the last few days of June. . Product cracks improved during the quarter, reaching very high levels for distillates and gasoline, smaller numbers and a small decline for naphtha and fuel oils. Our system benchmark margin averaged $9.5 per barrel, which is a bit less than the previous quarter, but well above the 5.7% average last year's same preview. If we focus on the domestic market. The domestic market declined by 6% during the second quarter, driven mostly by reduced LPG and gasoline demand as prices had reached high levels. overall diesel demand was stable, if not rising a bit. The relaviation fuels for the Greek airports is showing a steady increase from the start of the year and has reached 6% quarter-on-quarter raised, while bunkering has dropped a bit due to a bit lower demand of Marine Gasoil. Vasilis, over to you.

Thank you, Kostas. Good afternoon to all of you attending our call this afternoon. Moving on to the environment on nat gas and electricity effectively as a result of the crisis, we saw natural gas prices at escalating as expected around the [indiscernible] during the quarter averaging [indiscernible] significantly higher than either the previous quarters or the last quarter, similar quarter of last year. The the impact on electricity price has been largely contained mainly due to the fact of the penetration of renewables in the energy mix, which is certainly higher than what it used to be in a similar situation, perhaps 3 or 4 years ago with the Russian crisis. In terms of generation, Greece continues to be -- I mean the increase in renewables is also reflected here. So similar passengers at a much higher production base and Greece being a net exporter to nearby country. So moving on to discuss a little bit more detail on our performance. So a quarter of autosomal operations, let me remind you that as profit was started from the turnaround only after Easter. So missed out perhaps 2 or 3 weeks from the quarter. [indiscernible] had pistohydrocracker during June, a planned one for the change of categories. So production and sales much higher than last year because last year, let me remind you had the turnaround at Lesina at 3.8 million tons and for the half of the year of 6.8 million. Similarly, higher volumes at marketing and power includes, obviously, the incorporation of [indiscernible]. We have the annualization is the last quarter that the comparables of last year did not include nerve. Adjusted EBITDA of EUR 442 million for the quarter and more than EUR 100 million for the last year. with refining almost doubling its contribution for the quarter. Petrochemicals recovering from the loss of the last few quarters mainly driven by the supply constraints due to the crisis of Hormuz. Marketing, better performance, both in our domestic business and our international and power, largely driven by the very strong performance of finer wave even if we compare the reported numbers last year. In terms of cash flow before go to cash flow, we -- the first half -- during the first half, CapEx and investments in total exceeded EUR 400 million. This is the highest reported on a first semester ever. driven by the turnaround of poor refinery that we discussed before as well as the addition of the the parks in Romania with the 2 more coming in the next few weeks. So despite relatively heavy maintenance half the normalization of working capital because let me remind you, in the first quarter, we had the impact on the supply chain because of the popsturnaround. Together, we started the crisis. This largely normalized. As a result of that, the second quarter cash flow was around EUR 300 million. And the impact of the net debt versus the previous quarter was EUR 700 million, significantly better performance. In terms of our profitability and how we connect with last year. As you I mean we discussed about the impact of benchmark margins. On top of that, we had very strong margin capture because of the crude differentials. And we certainly paid more than normal to -- for crude supply, especially at the height of the crisis during April and May. Still, we paid much lower than what the benchmark was, and that margin capture is also reflected in the overperformance. Similarly, in terms of our operations and being realized, especially for premium because of the shortages in diesel and jet. We were able to maximize the production of both which are seen are running flat out. And to the extent possible squeeze in a bit more the production towards mid distillates because of the short in our markets and the region in general, [indiscernible] with higher export premium that we were able to realize and achieve a much better performance in that respect. The net impact of the maintenance in terms of volumes was certainly lower because last year, we had the full turnaround that we have seen throughout the quarter more or less. However, that gain at a much lower impact in terms of loss profitability because of the very high margins if we look at the second quarter of '26. And one more point is the accounting profit and the cash profit that came from the farming out of block the the partnership with Chevron, that is also included in the -- in our EBITDA numbers. In terms of our balance sheet, as we discussed before, the very strong cash flows resulting deleverage both on an absolute basis with net debt below EUR 2 billion and having the bulk of the CapEx already behind us for the year. So what is coming for the second half. There's not much in refining really as we push the sort of main turnaround for next year. So there is the -- the acquisition of the [indiscernible] Romanian PV parks, the battle will be connected, but the CapEx has been largely spent and then -- so there's not much we would expect compared to the first half for -- in terms of CapEx. So the cash flow generation will be even better in the third quarter. if we look even on a relative basis, leverage of 1.3x based on our last 12 months numbers, if you look at downstream, it's actually 1 carter the higher profitability, but as well as a very low net debt figures on an absolute basis. So we'll move on to discuss a little bit the business performance in each of our strategic business units. In terms of refining, not much to add on Page 15, we'll discuss more detail about the margin capture almost EUR 250 million CapEx for the half, including mostly the foot and around and the improvement work at spottier. Let me comment here that out of the improvement projects, we have already seen a very strong performance [indiscernible] refinery. Especially at the energy efficiency projects at the reformer unit. And certainly, the fresh at beginning of run performance is as expected and even a little bit better than we anticipated. So -- on the operations page, let me highlight the very good in of met distillates, a result of have seen operating at full capacity as well as our efforts and the selection of crude with the proper netbacks in order to maximize output of diesel and in jet. And on sales, let me highlight the 270,000 tons of crude. This refers to 2 cargoes that we were effectively able to trade during the quarter. It was a kind of difficult situation in the sense that we have to make sure that we have enough group. The market was very volatile. Amid this environment, our [indiscernible] team in Geneva was able to take advantage of opportunities that arose in terms of both the forward curve as well as the netbacks, the relative netbacks between the various crude types, and made 2 tales in May and June with a very good outcome for the business and financial obviously. In terms of profitability, the benchmark margin around $10 per barrel in the second quarter was a bit distorted in the sense that, that included a significant premium on the crude. So if you would look at Brent-based refining margin. So assuming that there was no cost of discounts on the crude. The number would be something like double that -- so the overperformance includes other than the very good export premium, a significant discount effectively relative discount that we were able to realize on the crude supply versus the benchmark. Petrochemicals, we've seen a stronger spike in the benchmark margin hovering even above the EUR 700 million -- EUR 700 million, sorry per ton that was the average for the quarter. to a large extent, we're able to take advantage of this with the business operating normally, with the exception of the first couple of weeks of April because of now out from the proper splitter. Margins can corrected is, but they are in areas much better and much more favorable than the previous few quarters. In terms of our fuels marketing business, important to note a very difficult environment in the sense that the prices were high, consumption was slightly affected but more so on the premium fuels that we've been focusing a lot in the last few years. We also have the margin cap for several weeks during the crisis. Despite this environment, our business continue delivering much better results, a very strong momentum, but we capitalized on very good performance, improved the NFR. And overall, that stability both on the quarter and the 6-month basis. in the second quarter, also a very strong aviation business performance that we were able to take advantage of. In our international marketing business, the backdrop in the sense of sanctions affecting refineries in the region and reducing supply options brings all the group companies at a much better position and having to cover the shortfall. Also, the operation now is more, more than 6 months of the diesel converted pipeline between the [indiscernible] refinery and our Okta facilities in [indiscernible] the transfer of products at a much lower cost and much higher volumes in order to cover also the deficit in the market. And as a result of that, improved volumes mostly on the wholesale as well as EBITDA. At this point, I will pass you over to George Alexopoulos, that will discuss our Power business. George?

Thank you, Vasilis. Good afternoon, everybody. On Page 24, we show our power business key numbers. And since we did not consolidate Enwave [indiscernible] in Q2 of '25, we're showing it on a pro forma basis to enable comparisons. On the operating capacity, we have about 60 megawatts more as a result of the completion of 2 of our Romanian PVs. Power generation is essentially flat, although the mix is somewhat different. EBITDA is considerably higher as a result of a marked improvement on the Enwave side, both the turnaround of the retail business and better balancing market opportunities contributed to this increase. And in -- on the renewable side, we're starting to see the contribution of our Romanian assets the market remained challenging in Greece as a result of curtailments and very low prices during the midday hours. I will skip Page 25 with the numbers. I'm sure you have reviewed them and go to Page 26 to update you on our renewables development plan. As you can see on the graph on the left side, we have currently over 0.5 gigawatt under construction. Most of the projects are in Southeastern Europe. And out of these projects, we expect to have 250 megawatts of PV and battery projects entering operation in this quarter. The path to 1 gigawatt -- 1.5 gigawatt by 2028 remains secure. And through our pipeline, we can also comfortably achieve the 2 gigawatt target in 2030. Our technology mix remains diverse, both at the operating level and the pipeline level. And as we roll out our plans in Southeastern Europe, our geographical diversification increases. And with this, I think I will close our presentation. I will turn it over to questions. Thank you.

[Operator Instructions] The first question is from the line of George Grigoriou with Wood & Co.

I've got 3, please. I'll shoot the mall out together. One, if you could please explain in the refining segment, the main difference between reported EBITDA and adjusted given that rent prices towards the end of the second quarter were lower than what they were at the end of the first quarter? That is my first question. The other question relates to marketing -- there was a substantial decrease in the number of petrol stations quarter-on-quarter. I presume that relates to dealer-owned network, if you could give us some color on how you see that evolving in the remainder of the year or going forward, if you like? And my third question is you mentioned something about an accounting gain from the farm out our A&P. And I suppose that maybe if you could explain to us a bit more what that may gain at the other line in EBITDA relates to suppose that's it. And whether that is actually net of tax as well capital gains. Thank you.

Vasilis you want to take the lead the first and the third question. .

Yes. Sure. Thank you. Thank you, Jo, for the question. In terms of our important the main -- it's 90%, 95% is inventory gains, right? So in the first quarter, we recorded something like EUR 150 million -- the reason for that was 2 reasons, right? One is we don't act, we do weighted average. So the increase of the prices take some time to replenish through our inventory. So the price increase take some time to get through both ways, and that explains also how she decline. That's 1 thing. The second is that the crude we acquired versus the benchmark. First of all, it's a gate versus the IC and the premium on top of that -- so the realized price of procurement is actually higher than the bread price that you see on the screen. And the third one is that -- we were a little bit late to record those numbers because of the lower sales in March because of the focus turnaround. So the start of that is pushing the inventory gains mostly [indiscernible] May effectively. And in June, we recorded a small loss to be honest, because of the -- because the prices went down. The price went up a bit. So let's see in the third quarter, if prices remain at 80 or below, then we should see -- we should see additional losses. So the a partial offset of the gain reported so far. In terms of the impact of the farm-out with Chevron effectively, the agreement was cash consideration for the expenses that we have paid up until the farming in of Chevron that was around EUR 17 million, which given the fact that we had -- that those have gone through our OpEx in the previous years. They -- it's a gain of EUR 17 million, which is net of tax, there's no impact in terms of tax.

Okay. On [indiscernible], I think your comment this was on George. It's an ongoing process of reducing [indiscernible], which are underperforming and replacing them partly with Columbus or with better performing stations. So there is a trend that will continue. It's difficult to predict what is going to be the magnitude of the reduction of the network reduction. As you might know, we've seen reductions of 3,000, 3,500 federations increase over the last 10 years, 10, 15 years. So it's 1 West Street. We see how that goes. There is a plan, which will take the number of [indiscernible] even lower.

Okay. Vasilis, sorry, just a follow-up on that net capital gain of EUR 17 million you mentioned. There's the reported and the adjusted numbers are shown in the presentation, where the difference is about EUR 13 million. Can you please in that as well, if you can, when you're at -- and I'll finish off here. Thank you.

Sorry, your which number you're referring.

Yes, on the presentation of the - at the end on Page 31 of the presentation, where it shows the breakdown of reported and adjusted EBITDA. The other which includes mainly E&P between adjusted and reported there's a EUR 13 million, EUR 13 million difference. In the second quarter.

Maybe if you cannot see it, maybe there's a point of picking up later and calling George to sort it out.

The next question is from the line of Christiana Armpounioti with Eurobank Equities.

Congratulation for [indiscernible]. One question from me. Could you clarify whether the EUR 20 million contribution and at lowering fuel prices at the pump represent one of [indiscernible] for August or whether you could consider extending similar support over over the coming months if prices remain elevated. And in relation to that, do you have any insight into following this action whether the government could still be considering a windfall tax on excess refining profit as we saw in Portugal.

Well, thanks very relevant questions. Going the wrong way for the results, of course, but on the discounts, we have offered a $0.10 and $0.05 per liter effective discount at the pump price. So for us, you have to take out the VAT costs. In reality, the value of that discount is going to be higher than EUR 30 million simply because volumes are picking up. We are not seeing any real demand distractions as a result of higher prices. So it's going to be a little bit higher than that number. But in the context of things, still a very manageable number. We have not made any decision whether we will continue for the following months. There are 2 here. The first 1 is the absolute level of pricing. That level is changing on a daily basis. As you may have seen, product prices have dropped significantly. So this will find its way into the pump price over the next few days, unless there is another change in in the gulf situation. So it's very difficult to be able to see what's going to happen. Clearly, our performance has been very good, and it's going to be even better in the third quarter. So to the extent that we can afford and in a responsible way, responsible, meaning to all stakeholders, provide some price support to maintain the demand for private consumers, especially in the period, which is very sensitive for Greece, I would not count out a continuation of this process. But it's early days. Now on the windfall tax, we've seen what Portugal has done. Portugal is a totally different case, much more system. -- much lower investment in refining. They don't have enough products to serve their own market. So it's a bit of an easy case for them, much smaller numbers as well. I think it's roughly 200,000 barrel per day refinery compared to just 1 million barrels per day refining capacity increase. So it is something which is a totally different ballgame. Very difficult to say what's going to happen. This is clearly something that the government will have to be taking as a question. So I will leave it there. From our end, we're doing what we can to provide support to the [indiscernible] market. As part of the profitability that we are enjoying mainly from international factors and exports. So we are doing in a prudent and possible way rebalancing through our commercial policy. I don't have anything else to add to add on this front. So we'll have to wait what the government will decide if it decides on anything.

[Operator Instructions] There are no further audio questions. I will now pass the floor to Mr. Katsenos to accommodate any written questions from the webcast participants. Mr. Katsenos, please proceed.

Thank you, operator. We do have some questions through the webcast. The first question comes from [indiscernible] Bank. [indiscernible] be updates on the Northern Neona exploration program with Texon Mobile and Energia -- are you still targeting the first exploration well in first Q 2027. And what are the key milestones over the coming quarters?