Metlen Energy & Metals PLC (MTLN) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I am Gelly, your Chorus Call operator. Welcome, and thank you for joining the Metland Energy & Metals plc conference call to present and discuss the Metland First Half 2026 Financial Results. At this time, I would like to turn the conference over to Mr. Evangelos Mytilineos, Executive Chairman; Mr. Christos A. Gavalas, Group CEO; Ms. Fotini Ioannou, Group CFO; and other senior executives. Mr. Mytilineos Nos, you may now proceed.

Good afternoon to good friends. Good morning to our U.K., U.S. and other European -- West European friends. We thank you all for joining us today for Metlen's First Half 2026 Results Conference Call. The presentation materials have already been published and are available on our website. Joining me today are Christos A. Gavalas, Group Chief Executive Officer; Fotini Ioannou, Group CFO; and members of the executive team. Let me begin by saying that the first half of 2026 marks an important step forward for Metlen. 15 months ago, we outlined a clear medium-term road map during our Capital Markets Day in London. Today, I'm pleased to say that after setbacks suffered the previous time, we are firing on all cylinders to execute against that plan successfully and I hope that the underlying strength of our business is becoming increasingly visible to the community. Our performance during the first 6 months of the year demonstrates the resilience of our integrated business model and the quality of the industrial platform we have built over the years. Sales increased by 11% to almost EUR 4 billion. Group EBITDA rose by 23% to EUR 550 million and net profit attributable to shareholders increased by 23% to EUR 313 million. Perhaps equally important, operating cash flow exceeded EUR 800 million, allowing us to materially strengthen our balance sheet and reduce net debt by approximately EUR 0.5 billion within 6 months. Our leverage ratio improved significantly to 1.7x net debt to EBITDA, demonstrating both the strong cash generating ability of the group and our continued financial discipline. Fortini will tell you more about the numbers right after. Looking at our businesses individually. Energy continues to perform strongly. We have successfully completed the simplification of the segment into 2 integrated platforms, creating a more focused structure around our integrated utility business and our renewables storage and energy transition activities. We are seeing already the benefits of this approach through improved coordination, stronger execution and better capital allocation. At the same time, our partnership with PPC battery storage creates a new growth avenue and further strengthens our position in one of Europe's most promising energy markets. In metals, the strategic importance of our investment program continues to grow. During the period, we secured EIB financing and additional institutional support for Europe's first industrial scale gallium production facility. More importantly, though, that the H1 event but shows we signed our first commercial gallium contract, covering a significant portion of future production and providing a strong market validation of both the project and our broad critical and rare metals strategy. This milestone also marks the launch of MCRM metal critical and rare metals, a new dedicated platform, bringing together critical raw materials and circular metals under a single strategic structure. We believe these activities share common technological, operational and commercial characteristics, creating a unique growth platform positioned at the center of Europe's strategic autonomy agenda. Following the successful commissioning of the pilot plant and the achievement of recovery rates exceeding expectations, we are steadily advancing towards the commercialization phase, creating a new source of high-value sustainable metals production for the group. [ MPetroOgies ] also continues to progress rapidly. The expansion of our defense industrial labor is advancing ahead of the targets we communicated to investors, while new international partnership continue to strengthen our position within the European defense ecosystem. As you know, very recently, the business secured an important new contract with [indiscernible] further enhancing visibility and validating the growth trajectory of the platform in the international markets as well. As the scope and technological focus of the business continue to expand, we are also evaluating the evolution of the brand towards advanced metal technologies, a name that better reflects the broadening capabilities and strategic ambitions of this fast-growing segment. As geopolitical developments continue to reshape defense priorities across Europe, we believe this business is exceptionally well positioned for long-term growth. Infrastructure and concessions is emerging as another important growth driver. EBITDA more than doubled during the first half, supported by strong project execution and an expanding backlog, further validating our strategy of building a diversified industrial group with multiple sources of sustainable earnings growth. At the corporate level, our presence in London continues to strengthen. Our inclusion in the FTSE 100 and the broadening of our international shareholder base represent important milestones for the company and a recognition of the transformation achieved over recent years. The launch of our share buyback program further reflects our confidence in the long-term value of the business and our commitment to shareholder returns. Looking ahead, we remain confident in our medium-term objectives. The structural themes supporting our growth remain intact. Energy security, critical raw materials, industrial resilience, defense and infrastructure. In all these areas, Metlen is investing, expanding and building capabilities that we believe will continue to create significant value for the shareholders over the coming years. With that, I will now hand over to Fotini to guide you through the financial performance in more detail, and then we'll be back to you to discuss your questions and remarks. Thank you.

Thank you, Chairman, and good morning, good afternoon, everyone. As the Chairman highlighted, Metlen delivered a strong performance during the first half of 2026, demonstrating the progress that has been achieved across the group and across all segments. There are 3 key things that I would like to underline. First, that we see but you see record level performance in all our key financial metrics, supported obviously by EBITDA increase in all our sectors. Second and most importantly, this increase in profitability translated into very strong cash generation. And third, the combination of the 2 allowed us to materially strengthen our balance sheet while obviously continuing to execute our strategic investment program. Turning to the group's financial performance and in order to elaborate a little bit more. Our revenues increased by 11% year-on-year to almost EUR 4 billion, and the group EBITDA increased by 23% to EUR 550 million compared to EUR 445 million. Net profit after minorities increased again by 23% to EUR 313 million, while EPS rose to EUR 2.18 compared with EUR 1.8 in H1 2025. Going to each sector one by one, looking first at energy. Our whole energy sector delivered EBITDA of EUR 331 million, increasing by 15% year-on-year, supported by stronger performance across both of our integrated platforms, the integrated utility platform and [indiscernible] Going first to Eryet, we had a good start to the year with EBITDA coming in at EUR 116 million, roughly 30% higher year-on-year with significant achievements across asset rotation and EPC and operational risk. We completed the sale, as you know, of roughly 280 megawatts solar portfolio in the United Kingdom as part of our asset rotation strategy, demonstrating the group's ability to develop, mature and monetize renewable energy assets across geographies. Significant progress has also been made across energy storage. And as we have communicated in the past, more than 400 megawatts of BES projects were energized across Greece and Italy during the period. Most importantly, we made significant progress in executing what used to be the old NPP projects, the legacy contracts that affected our 2025 performance. We have committed to the market that by the end of this year, we would deliver the vast majority of these projects, and we're well in line with that commitment. Since the beginning of the year, we achieved significant milestones in all projects and especially the 3 problematic ones. We achieved first fire milestone at the [ Gruas ] project. We handed over 1 of the 3 OCGTs for the Drax contract, and we already reached the readiness to receive waste milestone at Protos in the U.K. As I'm sure you appreciate, as the legacy projects are approaching completion, we recognized additional completion costs in our H1 results as these projects continue to the final stages of delivery. The enhanced controls that we have communicated in the previous conference call, and they were introduced in the period following the challenges that we had in 2025 remain firmly in place and bear fruit. Moving on to the fully integrated utility, also a solid performance. EBITDA increased by 8% to EUR 215 million, and this performance importantly was achieved despite lower wholesale electricity prices and obviously demonstrate the strength of our integrated model across generation and supply. Power generation in Greece reached about 4.4 terawatt hours, while our market share in electricity through Provia increased to 21.5%, roughly 1.5 -- 150 basis points versus H1 2025. Moving to metals. Our EBITDA increased by 15% year-on-year to almost EUR 150 million, and this was obviously driven primarily by stronger aluminum prices and enhanced cost efficiency. As you know, through our hedging ahead strategy, our aluminum and majority of calcined alumina sales for 2026 to 2028 have been hedged at progressively higher prices. And together with the hedging of the key input costs, it provides us with increased visibility on earnings, margins and cash flows in the coming years. The group also continued to shift our alumina sales towards contracts linked to LME as opposed to the alumina price index, further supporting the alumina profitability. Final segment Infra and Concessions, we delivered another very strong result. EBITDA increased to EUR 82 million, almost tripling the EUR 31 million recorded in the first half of 2025. This performance reflected accelerated project execution, particularly across projects funded through the RRF, disciplined project management and the continued expansion of our infra and concessions portfolio. Our total backlog, including projects at an advanced stage have exceeded EUR 2 billion. And this obviously increases the scale, the quality and the visibility of this segment's future earnings. Turning now to what I think is the most important feature of this set of results and our first half of performance. We have committed to reach net leverage below 2x by the year-end. We managed to bring that in at the end of H1. Our net leverage decreased to 1.7x compared with 3.1x at the end of 2025. And as you appreciate, this is a significant improvement over a 6-month period. Our cash flow from operating activities exceeded EUR 800 million during the period, reflecting strong cash generation and very disciplined working capital management. Looking ahead towards the end of the year, despite significant outflows planned for the second half of the year, we remain confident that this leverage ratio will be at least at the same level as it is now. Closing, the first half in its totality demonstrates our ability to grow our earnings, convert those earnings into cash, continue to fund our investment program, return capital to shareholders and strengthen our balance sheet simultaneously. Thank you.

Thank you, Femi. We have here -- first of all, apologies for starting 4 minutes late. but we have to expect a lot of friends to join in. And we have, as we speak, 202 friends online. Therefore, again, apologies for the delay. We have a number of questions that have been sent to us by mail. And we have 1 or 2 questions which have been verbally expressed to us. And of course, everybody is invited to make a comment or raise any questions as the conference call unfolds. So the first one is from Mr. Alan Gabriel from Morgan Stanley Research and goes like this. I hope you are well. We are very well. Thank you. May I please send through these questions below the call? First one, Gal, can you give us a bit more color on the commercial terms and how confident you are on your ability to secure similar terms of the remaining 75%? That's a very interesting question, very much [indiscernible], as we say in French, it's -- everybody talks about the gas business. I will try to be as open as possible because the disclosure agreement that we have with our buyer -- with our first buyer is extremely, extremely strict. So on the commercial terms, some people are wondering what is the usual terms of pricing of the critical metals. So this is not like the London Metal Exchange or other exchanges. These prices benchmarked on the publications of Argus and fast markets, which are twice a week each. And that is where the prices are set. If there are discounts, premiums or whatever, this is a different story. But if you want to make as analysts, your calculation, this is what you have to look at. Now payment terms, delivery terms and others, unfortunately, we cannot make any comments. Regarding our ability to sell or secure the sales of the remaining 75% -- that could be a nice joke because we could sell not only our 50 tonnes, we could sell 200 tonnes if we had. But unfortunately, we don't have. So the remaining 75% will be sold in the next period of time. We have here to understand that Calum is because of its dual use in civil and military applications, it's an extremely sensitive product. And one has to be very careful to who it can and to who it cannot sell Callum. That's not any metal. Therefore, we have to take also into account that some of this material we would like to see ending up in European consumers. But I have to admit that the interest from European consumers is way below the interest of the American, Japanese or South Korean consumers. Therefore, I'm afraid it is a possibility that the Europeans will be left out totally. I'm sorry to say that, but this is a reality. On the energy side, development run rate of your renewables projects under construction is now below those that are in operation. Is that a temporary dip? Or is that a new normal? I think that is a temporary dip, and it has to do with many issues and Christos, who is sitting next to me, may like to add 1 or 2 things about it. Chris?

Thank you, Chairman. So on the ER settles, we call it activity, we have provided 1.5 years back the outlook for the medium term, which is there. I mean, more than EUR 0.5 billion of EBITDA as a contribution to the total profitability going forward. We see the asset rotation still strong and very promising. In fact, as we currently stand approximately 2.5 gigawatts of asset rotation projects are under construction. The list is not having the one that we have already sold. And this is an opportunity for us to say that the model is a bit different on the asset rotation activity. We have delisted by preselling the assets that we are constructing. So we have a risk-free model, and we are mindful of the third leg of that operation that has to do with connections that we cannot really control. So we are picking only those that do not run this risk. Last point, if I may make on the blend of what we call now asset rotation in relation to what was the case a few years back. You know that stand-alone solar is suffering on the back of very low pricing. So the demand comes mostly from batteries globally. And this results to a different mix, meaning most of them are coming hybrid as a request, some of them battery stand-alone. And this is going to represent the mix going forward, which is going to be quite the opposite as it used to be in the beginning. I mean, it used to be more solar, less batteries. It's going to be more batteries, less less solar. The last point has to do with Australia that is very much linked to that observation, meaning that we are going into hybridize that project as well as the case has been with Chile. And for this reason, we do expect 2027 to be the year of disposing it. Thank you very much.

And the last question of Mr. Gabriel is, can you elaborate more on your net working capital performance over the quarter, which was much better than many have expected. Fotini, please?

Thank you, Chairman. Yes, as I mentioned at the beginning, cash generation and cash management was a key priority for us throughout the first half with a strong focus, obviously, on improving cash conversion across all of our businesses and strengthening working capital. The principal drivers that led to the EUR 820 million operating cash flow in the first half were obviously very strong cash conversion from our traditionally cash-generative businesses, namely the fully integrated utility and the integrated aluminum value chain, together with good asset rotation proceeds and very disciplined working capital management across the group. Especially in H1, we benefited from the collection of receivables that were overdue in previous periods as well as commercial arrangements and customer prepayments that we managed to secure in long-term contracts and long-term relationships that we have with our clients. I think as a final point, what I want to point out is that we managed to bring in this net leverage improvement and this operating cash flow without jeopardizing in any way our investment plan or our CapEx plan as that was planned for H1.

Thank you, Fotini. We go to the next question -- set of questions actually from Mr. Nestoratios from Optima Bank. Question number one, your strong H1 performance coupled with expectations for an even stronger second half driven by seasonal factors, suggest that full year 2026 results could reach the upper end of your guidance range. Are you considering an upward revision to your guidance? I agree with Mr. Katos that the results of the first half could merit an upgrade in our guidance. But we prefer to stay on the conservative side and keep the guidance as this. Second question, how is the Metlen Metca IPO progressing? Are you still on track for a potential listing in second half of 2026? Depending on global and local market conditions, the IPO of Metlen in the second half of 2026 is a strong possibility. Number three, could you update us on your aluminum and alumina hedging levels in coming years? And how should we think about the impact on the Metal segment's future profitability? Have you also fully hedged your input costs? Hedging is a difficult business. And that's why many companies try to avoid it. On the other hand, in situations like the ones that we are going through now and when a company has the possibility to lock in prices that are way above its cost basis. Our practice has been to lock in both the prices of the sales prices as well as the prices of the inputs, the main -- at least the main materials. That has now been the case as well. And as you very well point out, it concerns the years '26, '27, '28. This concerns both aluminum and alumina. And following the trend of the prices of the last, I would say, 9 months, the trend of the hedging prices has also been on an upward move. Mr. Marius Burazanis from European Eurobank Equities. Number one, you have a bond maturing in second half 2026. Are you considering early repayments? And more broadly, do you intend to refinance the bonds or repay it using available cash? So this EUR 500 million maturing bond bears a coupon of 25%. Therefore, any repayment makes, as you can realize, absolutely no sense. Whether a repayment of the bond will take place with available cash, I remind you in our results, we speak about a total liquidity of EUR 5 billion, of which EUR 2.6 billion is cash. Whether repayment will take place with this cash or through refinancing operation depends entirely on the market conditions. In general, repayment of our capital markets obligation is never linked to refinancing. Our operations in the capital markets are totally independent and linked only to what we, as management, consider as appropriate conditions. I want to be very frank and clear about it, never linked the 2 as far as our company is concerned. Repayment of the bond is one thing. Going into the capital markets to raise money is another thing. They don't go together, not for us. Question number two, on metals, how should we think about the timing of the recent aluminum pricing uplift in your results? -- should the alumina benefit be even more visible in second half due to pricing lag? And will the full aluminum benefit come through mostly over '27, '28? It's a bit early to talk about '27, but I would make a small exception. And I would say without mall, the results of the metals sector is going to surprise the market community very much. This is as much as I can say at this stage. Mr. [indiscernible] from Alfa Axia Securities. Number one, could you help bridge the gap between EBITDA and operating cash flow in H1? What level of operating cash flow do you expect by year-end 2026?

Chairman, I think this is the same question that I've already replied to. As I explained, operating cash flow was helped by strong cash conversion from our underlying businesses and very focused working capital management. Going forward, net leverage ratio will remain at least at the same levels as where we are now and working capital management will continue to be a priority.

Thank you. It doesn't matter to repeat the question and answer in the question twice as long as we make ourselves very clear to all our friends who are now 213 and make sure that we understand exactly the answer. Number two, what is your CapEx outlook for the remainder of 2026? Additionally, how much do you expect to invest in '27 and '28? Christos, please.

So we keep on growing. This was clear from the outset, both on metallurgy and energy. numbers is going to be a bit lower compared to what we were anticipating in the beginning of the year because it was a bit higher last year. And it has been, as a result, a bit higher leverage end of 2025 indicated. So as a total, it's going to be much lower than EUR 1 billion that we have initially thought. It's going to be split between metallurgy and energy after many years of spending money on energy. So now it's going to be split. You know that we spend money on increasing alumina, bauxite, gallium on the one hand, defense-related projects that will result in a completely different level of earnings, '27 onwards. Even though that we anticipate this number to be coming in second half, probably a bit lower than EUR 1 billion, as I told you before. And at the same time, dividend is going to be paid, financial cost tax. As said twice, we stick to our commitment on the leverage metrics to stay at least at the levels that we have currently indicated.

So the third question is you previously guided to year-end leverage -- net leverage ratio below 2. Yet you have already achieved this target in H1 2026. Should investors expect further deleveraging in H2 2026.

For the third time, despite the expected dividend payment and the increased CapEx in H2, as Christos mentioned, we will have ample financial flexibility, and we will remain at least at the levels of leverage where we are now.

Thank you. Mr. [indiscernible] from NBG Securities. Two questions from my side, please, mostly on the Metals business. First, congratulations on signing the first gallium offtake agreement, which provides early commercial validation of the project. Could you provide more color on the pricing mechanism and contract duration? I assume you are not in a position to disclose the identity of the offtakers. Is there room for any potential capacity expansion above the 50 tonnes. Well, of course, as you say, we cannot disclose the of the offtaker. I repeat, this is a very severe disclosure clause in our contracts. We are trying to exhaust our technical possibilities, not only exhaust, but stretch our technical possibilities to expand our production to 60 tonnes but we will not be able to say more on this one before the second quarter of 2027. But this is our goal. At the moment, we are talking about 50 tonnes. About the color on the pricing mechanism, I referred to you 5 minutes ago to the Argos and fast market publications, which published twice weekly the price of the market. Almost all contracts for these products are usually made on this basis. Now regarding the rest of our business on the gallium Again, I have to say that it's only a matter of time or a very short time that we will book as many quantities as we wish to very selective buyers. And we are -- I repeat for a second time, we are really patient in order to cover any European needs that may come up. So I would like to make it very clear, and I say it again, over and again because we want to avoid criticism that a European company, which is the first to produce gallium on a commercial scale is selling the material to the world and not to Europe. I'm sorry, I have this to say once and again. Regarding the financial side of the gallium, some of you may remember that in the Capital Markets Day in London in April 25, we had -- first of all, we had split between the gallium business and the circular metal business. As I said, this is now one division. It's called metal and are critical and rare metals. This is now one division. And we had said at the time, we had indicated an EBITDA for gallium at EUR -- at that time, the price was about -- if I remember well, it was about $800 per kilo. Now the price of fast market and Argos and always when you look at these prices, the price we are talking about is the high price because they have a low price and a high price. When talking about commercial sales, it's always the high price. The high price at the moment is $3,250. At that time, as I said, it was $800. You can make your calculations. What is more important, and I think you should all know, -- the negotiation with the first buyer, which is a massive company in size was a lengthy and difficult negotiation, but it was in very good spirits. And I really have very good impression and memory out of this negotiation. There was only one issue that the counterparty made it a deal breaker. And that was a cap on the price that the deal during its duration could not exceed. I cannot, of course, name the price. All I can say is that the price of the cap is way above the current prices. And the fact that the company of this size and knowledge of the market, the insistence on a cap even at so much higher price means something to us and our ongoing 5-year business plan. Keep in mind for your own analysis as well. It was the only deal breaker issue. Second, could you provide an update of the Circle Metals platform? In particular, could you elaborate on your strategy for scandium germanium and the other critical metals expected to be recovered through the platform following your comments on the 2026 AGM that additional initiatives are expected to follow. Scandium and germanium are indeed the 2 rare metals to follow gallium. Our research and development and technical teams have made a lot of progress, and I hope we'll be able to announce positive development in the next months. As for the circular Metals first plant in Salonica, commissioning is going ahead, first high-purity metal oxides expected in 2027. Let me make now a definition here, which I think is important for you as well. All these metals scandium, germanium, gallium and the more well-known metals like copper, aluminum, zinc, and so on, they're all included in the list of 34 metals of the European Union called critical raw materials. So as I said before, our divisions now is metal CRM, critical rare metals, not rare. Why rare? Because scandium, germanium and gallium may be in the same list, but at the same time, they are rare metals. That's why we make the definition in the name of the division so that everybody knows what we're talking about. Usually, the rare metals come in smaller prices and much, much higher prices, whereas critical metals, they come in much larger quantities and lower prices. So the Salonica plant is concentrating, as you know, on the extraction of metals from waste materials through proprietary patents that are already established. And our hope for this plant is that it will be an even bigger success than the rare metals, gallium, scandium and germanium. Stay tuned on this one. it is, I can assure you, our best bet. Some people think is gallium, scandium and gamanium. And indeed, they are, as you can realize from the numbers of the gallium and the cap that the buyers want to put on the price. But if you knew, you would make completely different calculations. But the big quantities and the future is absolutely on the extraction of metals from the waste materials. So big on this one. Mrs. Agi Mani from Beta Securities. Congratulations on the results. Three questions from our side. What is the distinction between critical metals and rare metals? Thank you very much. I just said 2 minutes ago. I hope my answer is satisfactory to you, if not, please in the Q&A, please ask me again. Number two, at the Capital Markets Day, you outlined a number of strategic initiatives. How would you assess the progress made against your objectives, particularly in your new growth platform such as infrastructure, defense and critical raw materials. That's a question, if I may comment, which is very much the point because the rest of our business is well known to you, and we keep you very well posted about the developments, which are gradually and steadily all the way up. And relatively newer things in which I would not include defense, which we only made a different division, but defense has always been in our portfolio. But thank you. Allow me to say that infrastructure and construction is superseding all our hopes on its results. And the management had told me that the years '24, '25, '26, every year, we will double the results. And they think they keep the promise. On the defense side, they said the same, except for the fact that the results are accelerating a little more speedily. So we had, if I remember well, about EUR 12 million to EUR 15 million EBITDA in '25. We now have EUR 30 million in '26 and the first draft budget for '27 points at EUR 85 million, not to mention '28 or -- and the last one, which is the critical and rare materials, I just made the comment. I don't need to say anything more. Number three, how do you view the outlook of M Renewables going forward? Christos, please.

I guess most of that has been covered by previous answer. So we stay put with the guidance provided to the market last year. It's going to be a core business for Metlen going forward, more than EUR 0.5 billion medium term as a contribution, which considered to be a core alongside metals and utility. composition is going to be a bit different between storage and solar. So this is again the answer. Thank you for asking.

So these were the written questions. We are now going into the normal session of Q&A. And I can see Jason as the first name on the screen. So Jason, please go ahead.

Look, with a little bit of an apology, I think I'm going to ask you to repeat yourself again, Mr. M. You have had quite a tricky 12 months at Metlen because of the legacy MPP projects. We had the 2 profit warnings last year. And I think last year, we thought that you'd fully provisioned for these problem projects. But in the first half, you've had to take more charges on those projects. So I guess, could you give us some confidence that this expensive part of the journey is nearly over? Will you definitely deliver the 3 problem projects this year?

Fotini, please will answer if, I will add something.

Jason, thank you for the question. Yes, we -- as I said before, we have committed to deliver 11 out of 13 projects within 2026. We're well in line to do that. As all of these projects, including the main 3 problematic ones, they come to a close and they come close to delivery. I think you can see from what we shared that we made significant progress across all of them, including Protus. As these come to a close, we have to take additional completion costs, okay? And these are obviously depicted in the overall [indiscernible] said profitability. Given that all these projects will be delivered in 2026, I think the worst is behind us, let me put it that way.