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

Ladies and gentlemen, thank you for standing by. I am [ Vassilios, ] 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 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed.

Good afternoon, and thank you very much for attending our call for the second quarter results. The second quarter has been positive in terms of results. We have an adjusted EBITDA of just over EUR 220 million, which if one takes into account the Elefsina shutdown, would be closer to EUR 250 million, which means that we're back on track with relatively strong quarterly performances. The most important thing during the quarter, however, is the actual implementation of the Elefsina maintenance turnaround, which was the biggest one since the start-up of the refinery in 2012. The maintenance works were done successfully. Safety performance was stellar. And it allows us to go into the third quarter with a practically beginning of run refinery and be able to command better realized margins on our feedstock. Now as far as the markets are concerned, margins are significantly up compared to last year and better than the previous quarter. And the most important thing which we need to keep at the back of our mind is a continuous growth in demand. All types of transport fuel, whether it's ground fuels, aviation or bunkering are exhibiting strong demand. And that's not only in the Greek market, which is our core market, but also in other markets that we actually participate in the Balkans, Cyprus. In terms of operations, as I just mentioned, the Elefsina turnaround was successfully completed. We've had good performance on the refineries and a very good performance on the retail business with improvements in Greece as well as our international subsidiaries. And on the renewables part, the addition of new capacity was able to offset part of the curtailment that we've had to suffer over and above our original expectations. On the financials, the adjusted EBITDA number, as I mentioned, to EUR 221 million, including the impact from the shutdown that's closer to EUR 0.25 billion. But we did have to suffer inventory write-downs on the balance sheet as a result of the drop in crude oil prices and currency fluctuations. Weaker dollar means weaker valuation on the inventory. This is expected to be reversed in the coming quarters, clearly dependent on the crude oil price evolution and the currency exchange. On the strategy and the outlook for the year, we have a positive outlook. We have confirmed that the shutdown of Aspropyrgos will not take place in the second half of this year. It will be pushed back to the first half of next year. We've done all of the necessary works to ensure that the units are in a position to operate for the additional period. So no problems there. We had the start-up of the Geneva trading office operations. Most of the team members are actually based there now. So we expect to be able to add to our trading portfolio over the next 12 to 18 months. And of course, just after the end of the second quarter, we had the completion of the ELPEDISON transaction, whereby we became sole shareholders in the company. And that is something which will allow us to consolidate the results from the third quarter onwards and also to be able to control and define our destiny a bit better. On the renewables part, we have positive news as well. If you exclude the curtailment issue, which is something that all companies in the markets that we operate are facing and especially in Greece, our assets are performing as expected. And we have agreed for 3 new projects, which are at a ready-to-build phase in Romania, 2 of them in Romania and Bulgaria, which effectively are consistent with our announced strategy and allow us to have better visibility at the achievement of the interim target of 1.5 gigawatt in operation in the next few years. Unfortunately, when it comes to the Greek renewables market, we are facing delays, primarily because of grid connection terms clarity. And this is something that will delay the deployment of assets in the Greek market. However, overall, we have a pretty balanced portfolio going forward, both in terms of geography as well as in terms of technology. So I think we will be able to counterbalance that impact. That's the high-level summary for the quarter. And I would ask Dinos Panas to walk us through the environment, which for the first time, we're going to do in 2 parts. We have the hydrocarbons and the energy environment as well.

Okay. Thank you, Andreas. Good afternoon, everybody. We had the lowest -- the 5-year low prices of Brent during the second quarter of 2025. And at the same time, we have the best benchmark margin over the last 5 quarters at $5.7 per barrel. You can see that the cracks of the products were lower than they were in the same quarter in 2024 for the light products, but we had better cracks for fuel oil and naphtha that more than compensated, let's say, the lower cracks of the light products. The third quarter of the year, July started with improvements in cracks across the board. So we had a good start for the third quarter. On the next page, Page 7, you will see that electricity prices were higher by 6% compared to second quarter of 2024. Natural gas prices at plus 14% and CO2 prices at rather the same levels, plus 1% compared to last year. And finally, on the domestic market, coming back to what Andreas was saying, we are experiencing a growth -- continuous growth in the domestic market. Quarter-over-quarter cover over the last year's quarter was gasoline was 2%. Diesel was 4%. Overall, the market in the domestic market sales were higher than 6%. 4%, we had higher the aviation sales and 6% the bunker sales. In the bunker sales, you can see that there is an increased share of the marine gas oil at the expense of heavy fuel oil because from 1st May onwards, Mediterranean became a sulfur emission control area. And the fuel oil is being gradually replaced by the gas oil. So with this, I will pass you to Vasileios for the group performance.

Thank you, Dinos. Good afternoon from Athens. So moving on Page 10 to discuss our financials. In refining, given the downtime of Elefsina due to the turnaround that we mentioned before, sales were lower, and this is entirely driven by the turnaround at 3.5 million tonnes. On the other side, in marketing volumes were higher as we'll see further on in detail. Our top line were affected other than the decline in volumes that are reverting back to normal in the third quarter by the lower Brent oil price and the weaker dollar, both at a 4-year low. And in terms of EBITDA, as we discussed before, refining close to last year's performance despite the turnaround of Elefsina. Petrochemicals are running a cycle of very low, very weak PP margins, while marketing recorded a very strong performance, much better than last year with adjusted EBITDA at just over EUR 220 million close to last year levels. Associates reflect the deconsolidation of DEPA Commercial following the transaction that took place at the end of last year with ELPEDISON performance more or less flat versus last year. Financing costs continue their declining trend, both on the back of lower spreads as well as Euribor decline with adjusted net income at the same level as last year. CapEx is higher, reflecting mostly the turnaround of Elefsina. On Page 11, bridging the results of last year versus current, the environment took us around EUR 20 million off as despite the slightly stronger benchmarks electricity, nat gas EUA prices were higher and the euro-dollar is reversing versus the trend that we had up until the previous quarter. On the other side, the opportunity cost of having Elefsina down for the quarter was just over EUR 20 million. We were like in the sense that the turnaround took place mostly during April and beginning of May, where margins were certainly lower and the refining now is back online and able to take advantage of the very good -- the very strong benchmark margins that we're witnessing in the third quarter. Still, the downtime was offset by better operations in refining and mostly supply and trading with higher premium on our export markets on our bunkering business with higher market shares and the switch of fuel oil to gas oil. And as we mentioned before, margin performance, both in Greece and our international business was certainly much better than last year. On Page 12, looking at our facilities maturity profile, we have one maturity, one facility that is maturing next November. We will roll over this over the coming months. So the maturity profile will be at around 4, 4.5 years plus the project finance, which is certainly longer. Interest cost despite the somewhat higher debt on the back of CapEx mainly is still trending lower. And so we're looking into ways to reduce our funding cost even more. Now moving on discussing our business segments in a little bit more detail, starting with Refining Supply and Trading our core business on Page 15 with adjusted EBITDA, as I mentioned before, at EUR 163 million. Main event for the quarter was the safe and successful completion of Elefsina refinery that is operating flat out from July onwards with increased performance even beginning of run versus end of run should be a few tens of cents versus the first or the second quarter of this year at a period of very good margins. CapEx for the semester is at EUR 170 million with Elefsina turnaround being the major project for this year for refining. Aspropyrgos turnaround will take place in the first half of '26. On Page 16, the lost production from Elefsina downtime of around 700,000 tonnes was partially offset by the increased utilization of Thessaloniki and Aspropyrgos. Our domestic market sales were higher in line with the market with small market shares. In Bunker, we recorded market share gains mainly on the back of increased gas oil sales. And obviously, the difference was in exports given the reduced production of -- from Elefsina, which is also reflected on the product yields. On Page 17, overperformance despite the turnaround remains just over $8 per barrel, mainly on the back of better supply and trading performance and the higher benchmark margins pushed the total margin close to $14 per barrel for the quarter. Moving on to our petrochemicals business. The polypropylene margins are the weakest we've seen for some time, and that is reflected on our EBITDA despite the higher sales volume. We have excess supply in the market, both in Europe as well as from exports in the Middle East. And the situation is actually -- is not much better in the third quarter. Moving on to our fuels marketing now, starting with our domestic marketing business with adjusted EBITDA at EUR 17 million for the quarter and EUR 26 million for the semester, a significantly better performance versus last year with a number of factors contributing to this outcome. The brand awareness of [ EKO ] has increased over the last few years. Market shares have increased by around 2 percentage points versus last year on the key products. The penetration of differentiated products continues to increase, both on our common network as well as the rest. And NFR contribution keeps increasing. So the underlying dynamic is very positive for our domestic marketing business, both on retail as well as aviation bunkers. Similarly, if we move on to Page 22, our international marketing is performing very strongly. Similar, again, factors at least in terms of the contribution from NFR as well as differentiated products penetration. Hence, on top of that in international business, you have the impact -- the positive impact of the network expansion that has taken selectively over the last few years and is now maturing and yielding very good benefits with first half EBITDA at EUR 40 million. This is the largest first half number that we've reported in our international marketing business. On this note, I'll pass you over to Georgios Alexopoulos to discuss our Green Utility business. George?

Thank you, Vasileios. Good afternoon, everybody. On Page 24, on the renewables business, as Andreas already mentioned, despite the higher capacity, the additional production and some income from renewables aggregation services was offset by weak wind conditions and also high curtailments, particularly on PV. It is worth noting that the second quarter is always the worst in terms of curtailment because demand is relatively low, yet PV production tends to be high, but there was also a deterioration of curtailments this year versus last year. So essentially flat EBITDA for the quarter and slightly higher for the half year ending at the end of June. If we turn to Page 25, we are announcing important additions to our renewables portfolio in Southeastern Europe in terms of ready-to-build projects, more than 400 megawatts worth of projects, which improve geographic diversification, resilience in the sense that we're talking about wind and/or hybrid projects, thus much less susceptible to future curtailment and also notably much higher financial returns compared to what we observed in the Greek market. Specifically, 3 ready-to-build projects, our first project in Bulgaria, 123 megawatts hybrid PV project, which is ready to build and 2 wind projects in Romania, also ready to build. One is starting construction, 96 megawatts and the other 186 megawatts hybrid wind and battery also expected to start implementation relatively soon. On that note, if we go to Page 27, the other pillar of our green utility. This quarter is the last quarter to be consolidated on an equity basis, a difficult quarter. Second quarter is always difficult. Yet this one, the conditions were particularly adverse, lower demand, much higher renewable production. And at the same time, we had a maintenance in Thisvi. And also, we were hit by losses from last year regarding the system losses of the distribution system, which are retroactively charged to power suppliers. This did not affect the adjusted EBITDA, but it's worth noting because this underlines the regulatory instability and unpredictability of the market. So from the next quarter on, we will report ELPEDISON on a consolidated basis. And we look forward to discussing with you our plans about the company. I think this concludes the presentation, and we'll be happy to take your questions.

[Operator Instructions] The first question comes from the line of [ Chun Jonathan ] with Morgan Stanley.

Could you give us some sense on what's the expected CapEx and time line on the start-up of the Romania and Bulgaria project? And what are the expected returns there compared to the Greek project? And secondly, could you comment on any sort of expectation for the refining margins in the second half?

I'll take the question on Romania. Look, the time line for implementation is for one of the projects we're starting construction now, and we expect to finish in '27, and we expect assets -- all assets to be operational by '28. This will bring us to 1.5 gigawatts. And in terms of returns, we expect returns of 10% to 12%, which is considerably higher than Greece and CapEx of approximately EUR 0.5 billion, which will be financed on a project finance basis for the most part.

Dinos, do you want to take it for the refineries?

Well, Jonathan, as discussed, we had a strong start of, let's say, quarter so far. But the market is volatile and so many parameters that can affect it that at this point of time, I would refrain for expressing, let's say, our expectations on the refining margins for the future. It looks like -- it will all depend on the crude supply and what -- how this will affect, let's say, for example, the Indian refineries that are bringing diesel, for example, into the Mediterranean now that they are not taking so many Russian crude, which is a positive thing for us. But let's see how it will evolve. So I think it's very soon to forecast for a full, let's say, second half of the year.

[Operator Instructions] The next question comes from the line of Athanasoulias Nikos with Eurobank Equities.

I have one question on my side regarding the EBITDA bridge on Page 11. I see you have a small negative electricity and CO2 pricing negative effect. And I want to ask if you're doing any hedging on that end? Or is it just because of the increase that you showed in the previous page. Yes, that's it.

Thanks for the question. Effectively, for electricity price, we don't hedge. So the impact on OpEx effectively is entirely driven by the higher electricity prices. For EUAs, we occasionally do some hedging. So we take -- sometimes we take some small positions. But again, I would say 80% of the impact is again driven by the higher prices versus last year because as you may recall, 2024, we saw prices much lower than the previous couple of years.

Okay. And I have a follow-up regarding FX. Have you -- do you do any hedge on that end? And especially in July, should we expect a negative effect to offset the strong margins?

I mean we have 2 types of FX risk. So one is on the P&L, what you guys see on our numbers. So effectively, you have gross margin, which is entirely dollar denominated and driven. And our OpEx, which is, I would say, around 80% euro. So this is an impact which is difficult to hedge because effectively, you would take a position, right? So you have a physical exposure on the market and by the fact that we report our numbers in euros, while we are a dollar margin company. So we have always been refrained from taking a position on the FX on the P&L exposure. The other exposure that we are running is our balance sheet. So we have assets and liabilities, mostly on the working capital, which are -- some of them are dollar like our inventories, part of our receivables and most of our payables. Now depending on the level of our working capital, we usually run a long dollar position. And that one, we manage through partial hedging of dollar liabilities. This is one that we've deliberately held long, but we're now managing in order to reduce the impact to mitigate the impact of a stronger euro.

The next question comes from the line of [ Rory George ] with Wood & Co.