Metlen Energy & Metals PLC (MTLN) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I am Gaily, your Chorus Call operator. Welcome, and thank you for joining the Mytilineos Conference Call to present and discuss the Mytilineos S.A. full year 2023 Financial results. All participants will be in listen-only mode and the conference is being recorded. [Operator Instructions] Please note that following the presentation, there will be a Q&A session. At this time, I would like to turn the conference over to Mr. Evangelos Mytilineos , Chairman of the Board of Directors and Chief Executive Officer and other senior executives. Mr. Mytilineos, you may now proceed.

Thank you. Welcome to everyone from Greece and a lot of foreign countries. Good morning in the United States. Good evening to our European friends. Thank you once again for being here for our conference call for our 2023 results. A lot of questions, a lot of things to say as a result of so much going on in this group these days. So I'm sure you have all seen the results that we have announced this morning. The results on the bottom line indicated net profitability of EUR 623 million. The EBITDA has surpassed the EUR 1 billion benchmark for the first time ever. Our cash available and total liquidity is EUR 920 million and EUR 2.25 billion, respectively. Net debt to EBITDA stays at EUR 1.5 billion and the proposed -- sorry, the earnings per share is EUR 4.5. And the proposed dividend is EUR 1.5 with adjustment for own shares on the ex-dividend date. As we speak, this would amount to EUR 0.08 per share, which brings the proposed dividend to EUR 158. As I said in my statement, we are all proud of these results, which are a result of a lot of work during the year. It has not been easy. A good year to everyone. We now look to 2024, and I'm sure most of your comments and questions, they refer to 2024 going forward. This is what matters. So I have a complete set of questions in front of me, which, as I always do, I will go through these questions. And afterwards, anyone that would like to ask -- to add something to make a comment on something or have another question, we are all here to answer. A couple of our colleagues, notably Mr. Gavalas, who is a member of the Board and Chief Treasurer and Chief IR Officer; as well as the Dimitris Katralis, who is the Head of IR desk. They are both in New York. So they will follow up from there, and they will intervene if appropriate.

So let's start Mrs. Fani Tzioukalia from Europe Securities. Congratulations on the strong set of results. Number one, you have tripled your EBITDA profitability over the past 2 or 3 years. Are there further opportunities for growth? This company has always been looking for growth. And obviously, that is not going to stop now. It is important to underline that the new structure that we announced in 2022 has been tested over the last couple of years and has been proven quite successful, although it has not reached the 100% synergistic structure that we are looking for. Growth potential going forward is, of course, always a priority. From -- where do we expect growth to come from on segment point of view. Let's say a few words. Number one. Our retail business is constantly improving its position with the potential to more than double its market share from about 15% at the moment to the 30% mark. We have a combination of organic growth, acquisitions, further consolidation of the market and representation of the aluminum of Greece subsidiary. So as we speak, we have reached 20% with aluminum. And I think we will add another 10% by acquisitions and organic growth in the next couple of years, which brings us to the 30% mark. Number two, generation is currently building momentum following the commercial operation of the new big CCGT of 826 megawatts. It's important to note that these big new plants -- they do not work full time as it was in cold and then in hot commissioning during 2023. We hope that this year will be in full operation, and it will enhance the profitability of this particular generation segment. Actually, generation -- it's only generation. As you know, it's generation energy management. Energy management is becoming more and more important by the day. And it vindicates our decision to split the company in 2 business units, energy and metals. This is a mode of operation that is now being copied around Europe by many other big companies. Number three, natural gas supply has locked higher volumes and has brought very high results which, of course we have to look at this year in view of the collapse of natural gas prices gradually during last year. Power projects, which is mostly power plants and grid projects. I want to underline very much as we said in our press release, that for us, grid project is going to be the next M Renewables. The Grid business is going to be universally European-wide and in Greece, the biggest company, the biggest item, the biggest business of the green transition. We are already in this business. For example, if you look at the Subsea, Scotland, England cable that we had took together with GE. We are in the business, we have the know-how. We have the financial resources to support the expansion of this particular sector. And I would ask you to pay particular attention to our grid expansion. Number five, metals continued to deliver solid results due to proactive actions, good cost control. And an operation, which is vertically integrated, and it's working in an extremely efficient way. All subsegments have strong potential and as they grow, the synergies among them will become more effective. As I said, we are probably now managed to get 60% or 70% synergies out of the new structure of the company. So we have 20% or 30% more to get to where we want. Regarding the M Renewables, you are all looking at the performance of this particular segment. All I can say at this stage is that we continue -- we expect this progress to continue and even accelerate starting 2024. Second question by Mrs. Tzioukalia, how do you expect the production cost of aluminum to evolve in 2024, given that Mytilineos are now undertaking smelting's electricity supply. For those of you who have followed this company for a number of years, I'd be very interested to hear after I'm done with the written questions, who 2 or 3 years ago -- or 3 years ago, when we had the last contract with PPC, and that worries almost all analysts about the future of aluminum. And what would be the impact on the Mytilineos group in general. I would like to hear someone to tell me what you believe is going to be the electricity cost for aluminum in the last year of the PPC supply, which was 2023, in the first year, of the [ Proterra ] supply, which one is more favorable to the aluminum. So I turn the question to another -- I reply with another question. So anybody that would like to make a comment on this, I would appreciate. But I have to remind you that most of you who have been following this company for a number of years, you have a lot of doubts of how aluminum would cope. So let's see. Number three, despite the sharp drop in natural gas prices year-on-year, LNG supply profitability came in stronger this year. Could you please give some more color on this performance as well as your '24, '25 expectations given that natural gas prices maintain a downward trends. That's very true. In 2023, we had an average price on the [ TTF ] at EUR 47 per megawatt hour. And now as you all know, the price is below EUR 30. That makes a price which is slightly 40% plus lower. No doubt there would be pressure on the margins of the business, which is a negative thing. On the other hand, it will help the generation segment of the business because the electricity which is being produced by our plants -- our generation plants, as you know, either renewables, which are starting to do with it or gas fired. Therefore, the electricity, which is going to be produced by our plants is going to be cheaper, much cheaper. And of course, much cheaper than the lignite or coal plants, which enlist with these kind of prices almost except one out of operation. Therefore, which is a good thing for us. So the lower prices and here comes the synergies, of course, as you can realize. So I would be more specific on the effect of the lower prices on the various segments of our business because it touches the lower prices or the higher prices or whatever, they touch many segments of our business and not only the gas trading. On another note, a way to offset the lower prices on your results is to expand the basket of energy products that you offer to your customers and widen your geographical reach, which is exactly what we are doing this year. We are expanding -- we're making a much fuller basket of energy products and that we are expanding our geographical footprint. As you will notice in the next few weeks when we announced the opening of a new office in Western Europe to cope with our demand for our energy products in this part of the continent. Mr. Vangelis Karanikas from NBG Securities. Mr. Vangelis Karanikas has 4 questions. Number one, how does the deescalation of energy prices affect Mytilineos? Do you believe that we have overcome the energy crisis? No, we have not overcome the energy crisis, not yet anyway. The energy crisis on the surface is done. We are done with it. But if you look at it a little deeper, you will see that the global supply-demand situation is tight. And as we have noticed in the last few months, when there was a strike in Australia that it never occurred in the end. Prices went up by 50%. What does that mean? It means as far as Europe is concerned, that the European dependence on Russian gas has been substituted by European dependence on the global LNG markets. And the global LNG markets comprised of a number of suppliers, but 2, 3 or 4 of them are very big suppliers. One of them is Qatar. And now the problems that we see in the Red Sea, if they move to the Persian Gulf, we talk about a completely different situation. Therefore, if you move your dependence from the supply on the continents to a global supply, whatever happens anywhere in the world from a major source of gas is going to affect you. So this is going to be a state of things from now on. We have to live with it, and we have always to be careful about the security of supply. The escalation of energy prices is very good for aluminum. It's not good for power supply. But this is also debatable. We will have to wait and see more for all these kind of questions. It would be much more specific during our annual general assembly as we always do, and we also cite specific goals and numbers. Number two, are there any intentions of any new bond issuance this year. As you all know in the case of the bond markets, you issue a bond when the window is open and not when you need the money because when you want to raise money through new bonds or when you have to raise money through a new bond, the window may be closed. So this is an exercise that is quite sensitive, it's delicate. Therefore, I have no answer whether we are going to issue a new bond or not in 2024. As I said at the beginning of our discussion, we have ample liquidity for obligations, for our extended CapEx and so on. So there's no need to issue a new bond, but it depends entirely on the market circumstances. And especially on the central banks and what they will finally decide to do with the pace of the de-escalation of the interest rate policy. Number three, how far do you think are you for investment grade given that in the past 3 years, you had significant CapEx from renewables and other increase cash outflows. As you probably all know, we are one notch away from investment rate, both by Fitch and S&P. It's worth noting that here that the BB+ rating could also be considered as a crossover rating, acting as a quasi-IG level. That is why our bonds are trading in the market at levels that are offered by IG investment-grade companies. The dilemma is how strong you grow as opposed to how much you control your debt, these things, obviously do not go together. If you spend very much and if you spend properly and prudently, you may accelerate your growth. But then the metrics of the liquidity and the funding possibilities and the rates and the ratios are becoming worse. And then IG is frozen for a period of time. So I consider as a duty here to keep our growth on track and at the same time, preserve our extremely healthy liquidity position in order to keep our possibilities open for an eventual investment-grade upgrade. Number four, with regards to M power projects, grids have become the largest component of your signed backlog. While we have recently been awarded for a large project in the U.K. with a value of GBP 1 billion. What are your plans with regards to grids going forward? As some of you may know, the European Commission estimates that overall, EUR 584 million in investments are necessary for electricity grids over the next 10 years. Industry estimated around EUR 400 million of investment is necessary by 2030. Around 40% of our distribution grids are over 40 years old and need to be modernized and accommodate the new renewable wave of projects. U.K. alone, where we have a big presence, needs $26 billion for investments to expand its grid capacity over the next 4 years. So as you can all realize and as a good friend of mine who is a CEO of a very big German energy company, once told me -- in the last few months, actually, he told me that people think that the green transition will be affected by building more solar and more wind. I have to assure you that it is not the case. The CapEx and the spending that has been -- that has to be made on the grid structure is much, much bigger than renewable plants. Mr. Krishan Agrawal from Citi. Great set of results this morning. Below are few questions from my side. Number one, can we talk about the capacity growth strategy in renewable for 2024 as to how much of gigawatts of solar projects you expect to bring online and what is the target for project disposal. At the moment, as we speak now, we have in operation 845 megawatts owned projects operating. We have in construction as we speak, 1,538 megawatts which are due for completion and operation by the 31st of December of 2024. This brings us to 2,383 megawatts by the end of the year. Whether some or a lot of these megawatts are going to be disposed or not. It depends entirely on the market conditions and interest rates, valuations and so on. At the right market conditions, as you know, we never hesitate to make a deal. So this question will have to be answered in due course by the real facts of life. But keep this number in mind, we will have, by the end of the year, in our own portfolio, 2,383 megawatts. Question number two, how should we think about the profitability potential in the electricity supply, gas trading and EPC projects in 2024 in the context of super normal profits seen in the last 2 years. About the EPC project business, you obviously mean -- you are talking about the power projects. And I come back to what I said before. The power plan order book is very healthy. The grid order book is becoming thicker and thicker, this book. And we are very happy about it, and I repeat what I said before, this is probably going to be the next success after the M Renewables stellar performance over the last few years. As far as electricity supply and gas trading is concerned, I made a few comments just a few minutes ago. Both about gas trading and how we face the downturn in prices as well as the electricity supply, which is going to be aided by the lower prices of gas. The third question, do you see the underlying business model of cash generation from metal and thermal business being deployed in renewable being sustained for next 3 or 5 years. Are there any new markets that you are targeting for solar expansion? I think it's clear to everybody that the demand for solar projects globally is an unlimited demand. You can supply as much as you can make, whether you make money or not, it's up to you on how well organized you are, what your cost structure is, and what your know-how is. I think we have a proven track record of all this and therefore, I can confirm to you that this business is continuing. It may surprise you in the results that it's going to bring in 2024 and the years going forward. New markets, we are looking for new markets all the time. But we have to be careful. We have to choose carefully the country, the rating of the country. For example, look at the Canadian example. As a super country, a AAA, a country which is relatively new in the renewable business and we made a great start. I will be in Alberta in March in the commencement of the construction of the new project. So yes, heads up for this business going forward, 3 to 5 years at least. Mr. Nikos Athanasoulias from Eurobank Equities. Question number one, as Mytilineos expanding renewables, what are your expectations for the next few years. Okay. Our expectations are very high. Our 5-year business plan points to that growth in a big way going forward. Don't forget that we are also very active in the battery storage business, which is also an extremely growing business. And for example, for those of you that do not know, they are not from Greece. The government from now on intends to give a license for a solar or a wind park only if there is a battery to go with it. Why is it doing this? Because it wants to expand what we call the electricity capacity of the grid. So there's a long way to go in the renewable business. We are there with the solar. We are there with wind. We are there with the batteries. And now we are going to be big time on the grid as well. Question number two, is Mytilineos Group still considering a dual listing or listing at the LSE? If so, what progress has been made? Should we expect any developments on that front in 2024? The first time I was asked this question, may I remind you, was in December 2022, when we presented to shareholders, stakeholders and analysts the transformation of the group. So I receive this question, do you consider moving to a major stock exchange, especially the question, if I remember well, was about the LSE. And the reply I gave was the following. My colleagues last week, they brought me to see a few numbers. These numbers were first 9 months of 2022, top line, bottom line and EBITDA and bottom line. These numbers put us at the 4,800 -- at the position between 48 and 52. At the same time, our market capitalization then put us at the place 152. That was the answer I gave, and I asked the person who placed this question to me to answer herself what -- to make a guess what the answer would be. She did not say anything. Now I have to tell you that the things have changed. Numbers are now still in the middle of the 4,800, even a little bit higher. But our place on the capitalization list is not and is not 152, it's #80. So there's a lot of work to make a realistic or dual listing in such a major stock exchange in the world. All I can say at this stage is that the numbers are already there. It is a matter of a final decision. Mr. Manos Chatzidakis from Beta Securities. Question number 1. Public Power Corporation said that it targets 45% market share in 2026. On the other hand, Mytilineos also targets to strengthen its presence in retail, targeting initially to exceed 20% in the short term and then go for 30%. Does that mean that we are entering in an era of fierce competition in the electricity supply and what does that mean for the power market? Also, how do you see the new regulatory framework in the electricity market, what is the outlook for the grid energy market going forward. Okay. At the moment, PPC, which by the way, made an impressive presentation in the Investor Day a couple of -- 2 or 3 days ago, announced that it's going to aim for a market share of 45% because I think according to the EU regulation, sooner rather than later, it has to bring its share of the market from 55%, which is now down to below 50%. So I think 45% is the market they choose -- the percentage they chose to announce as their target. At the same time, as I said a few minutes ago, our target is 30%. Does that mean that there is going to be a head on collision. My answer is I don't think so. Even if these numbers materialize, the 2 of us will have 75% and there will be another 25%, which is going to belong to other companies. So it's not a duopoly. It's an open market. Number 2, twists of life are interesting sometimes. Aluminium of Greece and to a large extent, Mytilineos used to depend on PPC for decades. And now we are reaching the position where we're going to find with PPC for the Greek markets. Let's hope it will be friendly coexistence. How do you see the new regulatory framework in the electricity market? Well, a lot of us has been made the colored invoices and so on. I said a couple of months ago, in a speech, Colors were invented only to facilitate normal citizens to make a choice. Otherwise, in my opinion, there is not much change. It's just to facilitate the companies, the consumers and make it a little bit easier for the companies as well. My prediction is that in the next very few years, maybe a couple of years. there would be only vertical operators left in the market. It will be impossible for independent operators, which rely on their supplies from the wholesale market alone to face another energy crisis, if there is any. So we know who the vertically operated companies are. So you may have an idea of where we're heading to. I have a last question for Mr. Nestoras Katsios from Optima Bank. Congratulations on your results. I was wondering what do you expect in terms of profitability for thermal generation this year? I expect good news. So guys, these were all the questions that we have had so far. We are all at your disposal to answer any questions you may have, please.

[Operator Instructions] First question is from the line of Masvoulas Ioannis with Morgan Stanley.

Congratulations on exceeding the EUR 1 billion EBITDA target. A few questions from my side. First, on CapEx, you have reached a record level in 2023, so as to support the higher earnings generation of the group. Can you perhaps provide some color on your 2024 CapEx expectations? And how does your asset rotation program, M Renewables fits into this outlook? And second question is on the balance sheet gearing. You've reached 1.5x net debt-to-EBITDA, excluding nonrecourse debt in 2023, which remains at comfortable levels. And I would imagine it keeps you on track for an investment-grade rating. What's the gearing outlook for 2024? Shall we expect a further step up given your growth ambitions? Or are we looking at peak levels now and potential some moderation throughout this year? And I'll stop here.

Thank you, Mr. Masvoulas. Very important questions, both of them. Our CapEx has been high for the last couple of years, at least, if not for the last 3 years. Mainly, as we know, probably 80% to expand our renewable business. The asset rotation plan has -- the cycle of the asset rotation plan is about 2.5 to 3 years for a single project. That means the money we put in the business in 2022 is maturing now for collection of 2024. That means if all goes well, in 2024, we will actually receive the first wave of big time payments for our power plants, solar power plants that we started building in 2022. That means it confirms what you have also said in your analysis that this mode of operation is now starting to become self-financed and increasing because the rotation is bringing in your capital plus your profit. So your available cash is more than the cash you put in when you started. So going forward, this is going to be indeed self-financed. However, we still have a CapEx of about EUR 0.5 billion this year which, this time, excluding about EUR 100 million, which is maintenance -- annual maintenance for our extensive number of industrial installations, mines generators and so on. The rest EUR 500 million are going as equity part for all solar pumps, solar plants and batteries that we are going to build for our own portfolio. Please also bear in mind our last agreement we have made with the European Investment Bank, which is an extremely interest funding agreements with low interest rate and it's destined for renewable projects only within certain countries in the European Union, including Greece. But obviously, you don't even ask about the fund because you know that the funding is not the issue here. The issue is the asset rotation plan. And it's very interesting that in 2024, the first full cycle is being completed. The second question refers to 1.5x EBITDA and where this gearing is going to stay like this, or it's going to become a little higher or not. And our expectations for this year is that we are going to see the gearing going up in the first months of the year and then going back down until the end of the year. So I think despite all this continuing investments, I think there will be -- we are probably near the peak of the gearing in the group. And because for us, investment grade is a top priority. We will make absolutely sure that our liquidity remains humble and comfortable for our bondholders, the banks and everyone -- and all our stakeholders. Thank you very much.