Metlen Energy & Metals PLC (MTLN) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your Chorus Call operator. Welcome, and thank you for joining the Metlen Energy & Metals Financial Results Conference Call to present and discuss the Metlen Group first half 2024 financial results. 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 very much. Welcome to all friends and analysts from Greece and overseas. We are here this evening to discuss the financial results of the first half of 2024. We had a relatively good first half. I think our shareholders are pleased with the results. Our earnings per share exceeded EUR 2, which is up 5% year-on-year, net profitability at EUR 282 million, also 5% up. EBITDA is EUR 474 million, up 8%. Current liquidity of the company is at EUR 2.6 billion, which is 15% up year-on-year. And the leverage to net debt is 1.76. Remind you that a dividend of EUR 1.55 has already been paid earlier this month. The background of the first 6 months was a difficult background. That's why we attach a lot of importance to the results that were achieved this 6 months. It's been the first semester that we have seen energy prices going all the way down. It's remarkable what we have seen in the energy prices actually, which has affected, directly or indirectly, almost all our results either good and bad, good for metals, definitely bad for gas trading, et cetera. That is probably the most important thing. The other, of course, is the extremely low power prices in Greece, also the ever-widening amount of 0 pricing for power, which all of you, I'm sure you have noticed and you have analyzed. And it's a very interesting subject to discuss as well. July is a different month especially for generation. But the government has caught up with us and has applied the tax, as you know, which after 6 difficult months, the first month you have a good month, you get a tax. It's one way to look at the business. We have a lot of questions, which I think are all very interesting. I'll go straight to questions that have already been submitted. And then of course, anyone who wants to ask anything afterwards can ask to be heard immediately.

I'll start with Mrs. Fani Tzioukalia from Euroxx Securities. Congratulations on another strong set of results. Given H1 EBITDA performance, are you confident that you will meet the targets set in June AGM for a 2024 EBITDA range of EUR 1 billion to EUR 1.2 billion and net earnings of EUR 600 million to EUR 700 million? How do you expect the second half profitability to unfold among subsegments? After the results of the first semester or the first half, our confidence has, of course, grown. I always avoid to speak with certainty when I make forecasts because anything can happen in this difficult times. But I can say that our confidence has grown stronger that the results of the whole year will be easily within the range that we set as a target in our AGM in June. The H2 in general, we expect to come stronger. And according to our interim budget, we have also a quite stronger performance on the top line. We're going to see a much bigger turnover than the -- that's why I advise you not to multiply the turnover of the first half by 2 to bring the total for the year. It's not going to be like this, the same for medium line and bottom line. About the segments, as you know, there is an inherent seasonality of the Greek utility, including generation, including retail and so on. And the third quarter especially, it includes the two hottest months of the year, July and August, which are favorable months for a utility. On the renewable side, we had a robust first half. I think the second half performance would be at least as good as. But we also have good visibility for a significantly stronger performance from the M Power Projects as well as from the METKA side for the second half of the year. As far as metals are concerned, that should maintain the current profitability base. Thus, most, if not, all subsegments should see an even stronger second half with some of the segments posting significantly higher performance for the second part of the year. As far as trading, gas trading is concerned, I think the miserable performance of the first half may improve slightly in the second half but as much as [ that ]. Mr. Vangelis Karanikas from NBG Securities. Number one, could you please provide an update on your potential listening to the London Stock Exchange? What could be considered to make you having second thoughts about pressing the go-ahead button? Mr. Karanikas, the go-ahead button has been pressed a few months ago. And as far as I know, it has not been unpressed. Therefore, there's no change on this one. Number two, on a more technical aspect, could you please explain what causes the spikes of DAM prices during the evening hours? And should one consider this positive for your profitability factor to be maintained in the future? Okay. What I'm going to tell you is not what happened in July. What happened in July was a totally different state of events, which all resulted in 15- to 20-year spike in the power prices and was an East European phenomenon rather than Greek. Usually, the spike of the evening hours is due to the solar generation. And please note what I'm saying, I'm not talking about renewables, I'm talking about solar. Because the wind generation can be 24-hour generation, the solar cannot be 24-hour. As foreseen by nature, the solar is there when the sun shines. And as you know, the sun doesn't shine in the evening. So when we have such a massive, indeed, massive production of solar power during the day, when the sun sets, it's like you turn off the lights. And then when you turn off the lights, you need energy from other sources. And you need energy, not only you but everybody. So everybody is going to get energy from other sources that what they get until that time of the evening. The immediate or, so to say, very soon increase in the demand of electricity after the sun sets is the cause of the spike in the power prices. The DAM prices that you mentioned reflect exactly this spike of demand. Now we try -- the system try -- the system operator tries to maintain adequate supply at this time of the evening in order to provide energy to the people, power, but also to make sure that there are no blackouts or any other problems. And I think we have made a huge progress in Greece in the last few years in the sense that, number one, there is adequate supply, thermal mostly. Number two, there are adequate interconnections with neighboring countries, both in the north of Greece and in the west to Italy. So there is power but at a higher price. Why? Because the demand, as I said, is going through the roof at this particular 2 or 3 hours after the sun sets and the supply is not increasing as much as the demand. That's a very pure and simple economic theory explanation. Now what happened in July is totally different phenomenon. A lot of things have happened in the east and northeast and southeast part of Europe. There is a big problem in the Ukraine, where a lot of generators have been damaged because of the war. And Ukraine, which was always a big exporter of power, is now a big importer of power. So there's a black hole over there, which descends down to Hungary. And then we have other phenomena, like in Romania, there has been a drastic decrease of wind power, which is very important in Romania and in all the Balkan area. And then if you go a little bit south, you had Bulgaria, where the Kozloduy, the major nuclear power plant in the Balkans, was almost 50% or [ 60% ] out of operation. So if you combine all these forces, Greece had no supply problems or very little anyway. Greece was the market that all the traders tried to secure quantities, especially in the evening hours. During the day, we had, on top of what we mentioned, in all the areas that we mentioned, we had extremely high temperatures. So if you combine all this, Greece was a recipient of the results of this situation. It was not the country that caused these problems to happen. So after-sun hours, all the traders, they're trying to secure Greek power because it was cheap and it was available. And that, in order to secure the quantities, they raised the prices very much. That's why I think that the overreaction from the part of the government should have been avoided. These things happen in markets, especially during the times of climatic change and extreme phenomena, like the 15-year -- 15-day of heatwave that we have seen in such a big area of Europe. As you see now, prices are slowly coming back to normal. We have a much lower average than price, I think it's about EUR 114, if I remember well. So slowly, the phenomenon, we've come back to seasonal normal, I think. I cannot make any forecasts for August. But there is every possibility that we can see again very hot weather to some days. Mr. Ioannis Noikokyrakis from Alpha Finance. Congratulations on another set of results. A question from my side, you stated back in January that your goal is to achieve a 30% market share in the Greek electricity supply. What are your expectations of profitability once you reach this level? My god, Mr. Noikokyrakis, it's so difficult to reach the 30%. The last thing we think at the moment is how much money we are going to make when we get up to the 30%. We finalized today, the acquisition of Volterra. We will make an announcement shortly. It's something that the market knows anyway, but it has been formally completed. And our market share is approaching now 20%. We're working very hard. Because if you want to have a utility, you have to have size. And as far as our production facilities are concerned, with the biggest thermal fleet in Greece after PPC and probably the biggest renewable fleet after the completion of the construction of our current round of solar parks, which are on the way, what we need to match this supply is demand. And this demand is going to come from the retail side. But going from 20% to 30%, it's going to be a huge task and a very difficult effort. Once we get there, we will have to see what would be the basket of our supply, whether it is still going to be gas and solar or we are going to have a much bigger battery share and so on. So once we get closer to the 30%, we will be able to give you numbers and be more confident to what we're saying. Mr. Nestoras Katsios from Optima Bank. Hello, two questions from my side. Number one, what are your estimates on CapEx for the current year and also going forward? Ms. Eleftheria Kontogianni, our CFO, will answer this question. Eleftheria, please.

Thank you, Mr. Chairman, and [indiscernible] for your question. We report today a level of CapEx spending at EUR 311 million. I will only take a few seconds to go back and compare this figure to what happened on 2023. A year ago, we reported a CapEx of EUR 0.5 billion. Why, for the end of 2023, this reached EUR 1 billion? Approximately 90% of this spending is what we call internally growth CapEx. This CapEx is mainly spending for the construction and development of our renewables, either in Greece or abroad. What we estimate for the year is that this, today's reported figure, will be at least double, if not higher, always depending on the progress of our investments worldwide. Now this level of approx EUR 1 billion of spending is something that we will see decreasing going forward, especially from 2025 onwards. This downward pattern is something that will be maintained, as today, we have built a crucial mass of renewable assets that would potentially be disposed. Thank you.

Thank you, Eleftheria. Question number two, following the profitability uplift over the last 3 years -- I repeat the question. Following the profitability uplift over the last 3 years, do you think there is further room for improvement in the short and medium term? Well, if we don't hope for improvement in the short and medium term, then we better go home. Why do the shareholders would pay us our salaries and bonuses and everything? We are here to deliver. We are very hopeful on all the segments, both separately and on a by-now-famous synergistic model, that they are going to deliver better and better results. And it is interesting to note, and you will see it even more in the full year results, how. For example, the decrease of the big profitability in gas trading, which is, for reasons that you can all understand, the price of gas has gone down by probably 90%, it's one of the biggest crashes in commodity history that I remember. And therefore, the decrease is very, very much justified. But that did not drag down our profitability. On the contrary, our profitability went up. And it's going to go even up even more in the second half, despite the lagging gas performance. Now if gas trading comes anywhere near to what was last year or the year before last, then you can realize what I mean by diversified model, where one segment helps the other, and they all work together to produce and to be the basis of the synergies that are being delivered. I'm sure when we discussed the transformation of the company back in December '22 and we tried to explain to all of you the synergies, I'm sure a lot of you had questions. And I can understand this justified. But I think quarter-by-quarter, semester-by-semester, full year-by-full year, we all understand how right we were to do this transformation. Also, a big number -- a reasonable number of analysts had doubted that the uplift in our profitability, which I had said to you then that is here to stay, you still had some doubts. I think 2024 full year is going to dispel all these doubts big time. Mr. George Grigoriou from Wood & Company. Can you please comment on the recent article by Australia renewables portal, RenewEconomy, that Metlen has put its Australia renewable assets up for sale, including eight solar farms in operation or under construction as well as a 2.9-gigawatt development pipeline, including battery storage and hydrogen projects? In addition, please provide some info on progress in the development of the Canadian solar projects. So well, anyway, the article of the -- of this RenewEconomy portal, which is one of the most well-known [indiscernible] in this business, it was accurate. The portfolio is quite big. And I think the valuation that we are going to achieve will be very, very attractive for us. It would be way above $0.5 billion anyway, so stay tuned. Your second question, in addition, please provide some information on progress in the development of the Canadian solar projects. The way the permitting goes, I think everything is going to be ready to start building before the end of the year. Now the actual building in Canada to start in Christmas may be a little difficult, to be honest. It's a little colder. But if we can make it, because of the weather in the heart of the winter, we will definitely start building in the spring. So that were the questions that we had in written so far. And now everybody who would like to ask something, please do.

[Operator Instructions] The first question comes from the line of Masvoulas, Ioannis with Morgan Stanley.

I've got a few questions. I'll take them one at a time if that's okay. So first question, on the power situation in the Greek market, as it has been fairly topical of late. So you mentioned the one-off tax that the government is contemplating for July, August impacting gas-fired power producers, depending on how prices develop in the coming weeks. How would that impact Metlen's power generation and power supply units? And what actions have you taken to position the business in this environment?

Thank you, Mr. Masvoulas. May I remind you what I said in our AGM at the beginning of June regarding our metal business unit? At that time, in a similar question, I had said that all the cost parameters and the sales prices for 2024 have been hedged. Therefore, the crisis -- the power crisis and the spike in prices that we have seen in July does not affect the aluminum production in any way. Thank you.

And just to clarify, when it comes to the electricity supply part of the business, you made an announcement that the tariffs for low-voltage customers in August will stay at the July levels. How does that impact the business, that specific segment? Can you still generate decent profitability? And then on the thermal plants, can you still capture the higher prices that we're seeing in certain hours of the evening and boosting your profitability for at least the third quarter?

As I have said over again, I am personally very proud about our energy management team, which I think is one of the best, if not, of the best that I have seen and they make the best out of situations. The fact that prices may go up to, I don't know, whatever, EUR 200 or EUR 300 per megawatt hour in August does not affect our overall basket. You can be sure that the energy markets -- the energy segments, and generation especially, and management is taking all measures to approach all adverse impact of heatwaves or other things. Rest assured that our offer to our customers is an extremely well calculated move, both on the supply side and the numbers as well as on the marketing side for the expansion of our retail business.