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

Ladies and gentlemen, thank you for standing by. I'm Vasileios, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ Energy Holdings conference call and live webcast to present and discuss the fourth quarter and full year 2024 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.

Thank you very much for attending our full year '24 call. The aim of the next half an hour or 40 minutes is to walk you through our main performance indicators for the year, share a little bit more information about our activities and our plans and to give you a heads up of what is to come for the next year or 2. So without further ado, let's go to Page 4, which has the highlights. Overall, it has been a very good year. It's the first year with EBITDA over EUR 1 billion, even though this is assisted by the collection of the insurance compensation which related to losses experienced in previous years. But still, it is a very healthy and strong performance. On the reported side, we do have the negative impact of the special Solidarity Contribution which was enacted in '24, but relates to the '23, or is calculated on the basis of the '23 results. That's just under EUR 200 million of net impact on our results. And of course it's a cash flow which will be paid in the next day or 2 as the law provided. Now all of these results came in a market which is totally different to the one we experienced over the last couple of years. We saw benchmark refining margins moving closer to the mid-cycle. In fact, towards the end of the year, we saw those refining margins being weaker than mid-cycle historic numbers. Definitely, when you take into consideration the increased cost of refining a barrel, which is the CO2 and the electricity bill, it has been a weak quarter and overall a weaker '24 compared to the previous year. On the positive side, however, we did have a part normalization of nat gas and electricity, which programs at the end of the year with higher prices for nat gas and the sort of electricity bill. But overall, it has been a better year from a cost side than '23 and '22. On the good side for the market, we do have an increasing demand, especially driven by the transport fuels. We have the auto fuels demand being higher. And we also see a continuous switch to better quality fuel to premium fuels. And at the same time, we see aviation and marine bunkering sales increasing. So summarizing the background, weaker margins, stronger demand on the Greek market and indeed it is the case in other markets that we operate. And maintenance of a relatively higher cost base than historic mid-cycles. On our internal performance, I would probably describe it as one of the best years we've had in a number of years or in the last 10 to 15 years that I recall. In terms of refinery availability and production, we had record production with increasing production over the 17 million tonnes of production with increased sales both in the domestic market but also increasing export sales. The capturing of opportunities in the market, albeit lower than last year in terms of opportunities available, I mean, we have been able to deliver a relatively strong margin realization. And we have been able to deliver increased sales performance in every single market that we operate in, be it the refining, the ex-refinery market, wholesale market in Greece, the retail market in Greece or the markets in the Balkans that we operate. That's the story behind the core business. And at the same time, we start seeing the impact of renewables in the portfolio, which as we deploy CapEx in that market, we do see the benefit of renewables not linked to refining margin EBITDA. So with all this in mind, the Board earlier today approved a proposal to the AGM for a $0.55 final dividend, bringing the total dividend for the year to $0.75 per share with a very healthy dividend yield for the group for another year. However, one has to clarify that out of the EUR 0.35, EUR 0.30 relate to the DEPA commercial or consideration, I should say, being more accurate. And this is in line with our commitment that about 50% of divestment consideration will be returned to the shareholders in the form of either an exceptional dividend or a capital reduction. In this case, we have opted to go for increased dividend because that is the most efficient and time-effective way of doing it. Now looking at the key achievements for the year on Page 5, we have, starting from the end of the year, the gas and power streamlining, which effectively was the sale of 35% in DEPA commercial and the agreement to buy the remaining 50% of Elpedison. We have the growth of renewables portfolio to 0.5 gigawatt in operation, and we also have implementable plans to go to the 1 gigawatt and then 2 gigawatts eventually. We've opened up our geographical footprint. Even though they're still small compared to the Greek footprint, they are growing and delivering value in 2 of the countries that we've opened. We've achieved a better funding profile through the refinancing of a number of maturing loans, and that has not only a quantitative impact in terms of interest cost, but also has a qualitative impact on the balance sheet of the group. We've improved the operating model and the governance in a number of ways. We've pushed the digital transformation effort, which is probably 80% culture and 20% tools and systems, and that's delivering anything between EUR 40 million and EUR 50 million of annualized benefit year-on-year. We've improved a number of other processes internally, whether it be procurement or safety or customer attraction and retention in our retail businesses. And also, we have launched the trading company in Geneva. It was established at the end of the year. It is expected to start operating out of Geneva in the end of the second quarter this year. And hopefully, that's going to give us an additional platform to improve our trading activities. Finally, on E&P, we have a few developments. The interpretation has been -- the acquisition of seismic has been completed. We've interpreted the Ionian blocks data. And we are in the final stages of the interpretation of the Crete blocks, which is the Southwest Crete and West Crete. We are not at the stage to be able to make any announcement at this point in time. It is something which has been covered in the press widely. Not all of it is based on formal announcements either by us or our partners or by the HEREMA organization. But I expect that over the next few months, certainly by Q2, Q3 2025, we should be able to disclose a bit more about what's going to happen there. Now that's about the 2024 performance and key developments. And I will turn you over to Vasileios Tsaitas, our CFO, who will cover the industry environment and the business unit performance.

Thank you, Andreas. Good afternoon to all of you attending our call, and many thanks. So moving on to see the market backdrop throughout '24 and, more importantly, the fourth quarter on Page 7. In terms of Brent prices, we saw a move lower during the second half with Q4 actually the lowest that we've seen for some time for several quarters, and that resulted to the inventory losses of around EUR 130 million, as we mentioned before. The dollar strengthened, especially during the end of the year, and the trend continued also in the first quarter of '25. As you may recall, our gross margin in our refining business is dollar-driven denominated, while the vast majority of our OpEx base is equally euro. So a stronger dollar has a positive impact in terms of translation on our EBITDA. In terms of energy prices, nat gas move towards the second half of the year that intensified in the fourth quarter and the first couple of months of '25 also led electricity prices higher and increasing our OpEx. However, on a full year basis, the prices were actually lower and we benefited versus last year. EUAs, they trended between $60 to $70 per tonne in '24, which the lowest for at least 2 years, which, again, is a positive on our OpEx, if you compare versus '23 with some recovery witnessed in the first couple of months of '25. Moving on, on Page 8. Refining margins were significantly lower in '24, especially in the second half where we saw benchmark margins below what we would call mid-cycle, driven mainly by middle distillates. Similarly, the trend was kind of along the same lines in January. However, since the beginning of February, we saw a strengthening across the barrel driven mainly by the tightening of sanction on Russian crude and products as well as the discussion on U.S. tariffs on North American crudes. In terms of the domestic market on Page 9, as we mentioned before, it was another year of strong growth in auto fuels market that led to a headline increase of 2%. Heating gas oil always has to do with weather conditions. And we see a similar trend also in the first months of '25. Aviation sales recorded an all-time high. This is a business where we have a very strong market share, and it's profitable across our refining and marketing business. And similarly, bunkering sales for the year remained at high levels, close to 2.8 million tonnes, mostly on the relative pricing of Greek ports versus the rest of the East Med. Now moving on to discuss our financials on Page 11. In terms of -- I mean, we discussed about record sales in our refining business. Similarly, marketing also grew. If you look at our turnover, the lower oil prices were offset by the higher volumes. So almost flat turnover. In terms of EBITDA, refining was affected by the weaker refining margins in the second half. That explains the EUR 25 million more or less decline in the -- on a full year basis. Fourth quarter includes just over EUR 100 million of insurance compensation almost entirely related to business interruption at -- damage at the Elefsina refinery back in '22 and '23. The rest of our business, improved performance and profitability. Petrochemicals starting from a low base, but still much higher than last year. Similarly, our marketing business, both in Greece and across all of the countries that we operate. And renewables on the back of capacity additions in Cyprus and Greece at the end of the year despite the increased curtailments. Our associates include for the last time in the last quarter, the contribution of DEPA, the negative contribution of DEPA, which it actually exceeds the EUR 24 million. Our finance costs were lower than last year despite slightly higher gross debt and much higher benchmark rates on the back of the refinancing cycle of the second and the third quarter that led to lower spreads and much better cash utilization. Our reported numbers on an EBITDA basis are affected by the inventory loss and some one-offs, mostly related to the voluntary early retirement scheme that took place in the second quarter. And on a net income basis, on the Solidarity Contribution, which had a net effect of EUR 173 million recorded in '24 and paid in the first quarter of '25 that will affect the cash flow of the first quarter. Now moving on, on Page 12, we see a representation with more specific numbers of the variance of profitability, of EBITDA profitability versus '23 with benchmark margins saving of around EUR 400 million. That was around 50% offset by what we could do better, including the insurance compensation as well as the very good performance of our refineries, our marketing business and our renewables. On Page 13, as we mentioned before, we have improved our funding profile and structure over the last 4 years, more notably during '24 with a further decline on spreads, a rebalancing of our fixed versus floating exposure, a much better utilization of our cash, reducing overall balances and reducing the negative carry. Looking at our 2 business with different funding characteristics, our downstream is geared around 35% with a leverage even with '24 numbers of less than 1.5x with significant headroom of around EUR 1 billion to be able to carry on with our CapEx and for risk management purposes. Our renewables business, when it comes to external funding, it's project finance nonrecourse at the project level without spillover to other projects, long-term tenors, 15 years and above, a totally different funding profile. And if you look on the bottom right, the evolution of our gross debt over the last 2 years, we see a deleverage of our downstream business of around EUR 1 billion on a gross debt basis on the back of the reasons that we explained before as well as the very good results, while our renewables business is a bit under EUR 0.5 billion. In terms of the mix, we rely on long-term committed facilities and capital markets for almost the entirety of our funding with some small part to cover any cash flow hiccups as the operating cycle is may be affected. On Page 14, you can see a history of our profitability and distributions. We are consistent in terms of our dividend policy of distributing anything between 35% to 50% of our adjusted net income, plus special dividends out of the sale of noncore assets like we are doing now with -- we're proposing to the Board to the AGM for DEPA Commercial and like we did with DEPA Infrastructure 2 years ago. Overall, our dividend yield exceeds -- it's a double digit for the last 3 years, sector leading and Greek large cap leading as well with a cumulative TSR over the last 4 years of around 100% equal to our share price. Now moving on to discuss the performance of our business segments, starting with Refining, Supply & Trading on Page 17. The record production is obvious, 5% over '23, which was also a very good year. So a consistently strong performance over several quarters now. Our CapEx represents the normal stay in business of anywhere between EUR 150 million to EUR 200 million. That will -- I mean, in '25, we have the turnaround of Elefsina refinery, which will start next month and will certainly affect CapEx as well as the turnaround -- the full turnaround of total refinery towards the end of the year. Decline of benchmark margins of around $3 per barrel, as mentioned before, which is reflected on our numbers. Now on Page 18, both fourth quarter and the full year are a record all-time high gross production. That prompted similarly record sales of 16.3 million tonnes. It's the second best performance in terms of exports and the highest ever in terms of aviation and bunkering. Product yields, no significant movement. As you know, operations have been very strong with refineries running flat out, around 77% of middle distillates and gasoline with white products exceeding 90%. In terms of our crude and feedstock sourcing, that represents any changes versus previous periods do represent availability as well as the various crude types in the region and further afield that we have to go sometimes as well as the relative pricing and opportunities that our supply and trading team is trying and succeeding in capturing. On Page 19, the time series of our realized margin. Our, what we call the overperformance, the additional margin driven by operations despite a much tighter crude market in '24 remains strong, just under $8 per barrel, a very good performance sustainable over the last few years. Now moving on to Petrochemicals. The annual performance is a tale of 2 halves. In the first half, as you may recall, we saw a strengthening of polypropylene margins. We saw a decline in the third and most notably the fourth quarter, close to historical lows. However, still we were able to deliver a better performance, a EUR 25 million increase on EBITDA, still, however, lower than the historical average of what this business has been able to deliver in the last few years. In terms of our fuels marketing business on Page 23, starting with our domestic business, a very strong performance across the board, higher volumes in all our individual products, very strong aviation profitability, increased penetration of premium products, differentiated fuels, much better service to customer. That is reflected also in increasing market share, so higher volumes and better quality volumes and higher margin volumes when it comes to the premium products, considering the issues in terms of the regulatory cuts on margins that still remain even a year, 1.5 years after the end of the energy crisis. That leads to a total EBITDA for the year of just under EUR 50 million, a significant improvement versus '23. In terms of our international marketing business, that was a record year with adjusted EBITDA of EUR 75 million with improved performance across all our countries that we operate. Volumes are affected mostly by wholesale, low-margin wholesale business in North Macedonia. But overall, a very good year, very strong contribution from convenience retail in most of the countries that we operate that now in some countries represent a very significant part of profitability. At this point, I'll turn you over to George Alexopoulos, Deputy CEO, that will discuss our renewables and power business. George?

Thank you, Vasile. Good afternoon, everybody. On Page 26 we can see the renewables performance. We reached 494 megawatts in December of last year. So the effect of the latest addition on profitability will be in 2025. We increased EBITDA to EUR 46 million. However, increased curtailments did limit the positive impact on profitability. We expect some technical and accounting measures to be taken to distribute curtailments in a fair way in the market, which was not the case in 2024. If we turn to Page 27, we can see the evolution of our portfolio. We have a clear path to 1 gigawatt with projects under construction or ready to build, and we expect to reach that important milestone next year. And also, we're confident about reaching the 2 gigawatts by 2030, drawing from our pipeline, which is currently well over 5 gigawatts and considering selectively acquisitions. We are in 3 countries, and we're looking into additional markets in the region. And we expect to diversify our portfolio more into wind and batteries and of course maintain a strong position in PV. We recently added a pump storage project in our portfolio as well. If we turn to Page 29, what you see here, of course, is a 50% stake in Elpedison. We expect to close the acquisition of the other 50% in the second quarter and thus fully consolidate starting in the third quarter. The fourth quarter and frankly the whole year has been quite challenging with fewer opportunities in the gas market and weak contribution of the retail business. The EBITDA for the year, EUR 43 million. If we adjust for the one-off items, this number is approximately EUR 50 million. It's worth noting that the Greek market turned from being a market which imported about 10% of its demand to actually exporting power. And we saw that for the entire year, but it was much more pronounced in the fourth quarter. And it's worth noting that 2025 has started better than '24. We'll see where that goes. So with that, I think we can -- we completed the presentation, and we can turn to the Q&A session.

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

We have 2 questions, if we may. The first one is about the insurance compensation. Could you tell us a little bit more about that? Is it EUR 100 million? And is it included within the adjusted EBITDA for refining? And then secondly, do you have any expectations about when the fuel cut prices could be removed in Greece?

Hi, Giuseppe, many thanks for the question. In terms of the insurance compensation, the EUR 102 million refers to lost revenue, business interruption effectively at the Elefsina refinery, as I mentioned -- as we mentioned before. That was when the incident happened and the revenue was lost, that there was no provision raised for the compensation. The compensation was discussed and the claim discussed and negotiated and finalized at the end of '24. That's why we have included into our adjusted results.

The second on carbon retail prices, I believe that's what was asked. Formally, what we know, Giuseppe, is that it is valid until the end of April this year. I cannot predict what the government will decide to do, but it has been in effect for a number of years since COVID. We do not see any reason why it should be continued. But as I said, it is not something that the company controls.

Okay. That's very clear. Just a quick follow-up. Here, you're showing that it's EUR 100 million impact to EBITDA. And could you tell us how much of that is in adjusted net income?

It's actually, if you deduct the tax rate. So 78% of the EUR 102 million is included in the adjusted income.

The next question comes from the line of Athanasoulias, Nikos with Eurobank Equities.

I have 3 questions from my side. The first one is regarding the refining environment in 2025. Year-to-date, we've seen refining margins on the upsell again. How do you see it from your side? And what do you expect for the year going forward? Will it be a better year than we initially expected? The second question is regarding Elpedison and what is your strategy there once you acquire the asset. And what should we expect in terms of recurring profitability, especially given the high volatility that the company's profitability has exhibited over the last few years? And finally, regarding your payout ratio, I'm not sure if you've ever communicated a payout ratio before, but do you have a hard cap on the 35% to fund your renewables investments or we might expect a bit more potentially over the next few years?

Okay. I'll start with the refining margin and very briefly comment on Elpedison before passing on to George and then the payout ratio, Vasileios can pick it up. Now on the refining margins, we had a weak start, a soft start to the year in January. Numbers are better than the previous months. So we are seeing an improvement in refining margins, but not at the levels that we had in Q1 last year. February, however, has picked up, and it looks like it's going to be a very good month. The projections for the year is that we will have, on average, a probably better year than '24 on the refining margin environment. But I do have to remind you that we have 2 full turnarounds scheduled in '25. That's the Elefsina refinery, which is starting in a few days. And as appropriate, which we need to see what sort of conditions we will have towards the third, fourth quarter of the year. So even if we do have a positive environment, we do expect a dent in the profitability as a result of the turnaround to be affected. Now Elpedison it's still early days. We are in the process of completing the transaction in the next couple of months. The strategy will be determined, but I will let George sort of give his take on the timing here.

Look, the acquisition of Elpedison fits very well with our renewables portfolio and our growth plan. It creates an integrated position in the market. It adds conventional and renewables production and batteries, thus strengthening energy management opportunities. And also, it fits very well our commercial business in the fuels and the fact that we are a major consumer of electricity in our operations. So it's an integrated green utility strategy. We're in the process of confirming it and detailing, and we will be coming back soon with details on that. Regarding the profitability, you can see where we are today. Renewables is at about EUR 50 million without taking into account the full effect of recent additions to the portfolio. Elpedison was EUR 50 million for the year, but this is not a typical year for Elpedison. So if you look at the last few years, I would say the run rate, if there is such a thing in a volatile market is EUR 60 million plus. And on top of that, you can add the renewables growth, which we have projected to achieve by the end of next year and the considerable synergies that we see between our current operations and Elpedison.

Niko, on your third question in terms of the payout, the 35% is not actually a cap. It's the low end of the range of our policy. So as we mentioned before, we aim to distribute anywhere between 35% to 50% of adjusted net income. The 50% is an intention. It's not a hard cap. I mean if you look at our payouts both this year as well as before, we have -- at times, we have exceeded that 50%. So if you include the special dividend for the '24, it actually is around 56%, 57%. And mind you that the proceeds from the divestment will be collected over the course of the next 2 to 3 years. However, we accelerated the payout to our shareholders in '25.

[Operator Instructions] The next question comes from the line of Rezende, Ricardo with Morgan Stanley.

If I may, just a follow up on something you mentioned during the presentation. When talking about other countries in the region on the renewable side, would that be through organic expansion? Or are you looking at potential assets or companies?

It's both. It's both actually. We are already developing projects in the region. And we're on the lookout for opportunities with more mature projects. So we expect to grow our regional business outside the current markets where we are already present.

If I can add to that comment because it does have a big impact on the value created from the renewables business. As you know, you have effectively 3 stages of life in a renewable project. You have the sort of development. You have the bringing it up to the FID and the grid connection stage. You have the building of the thing and then you have the operation, which up until now has been less of an issue. It was almost a given, it was a projectable part of the equation, given that it was usually dispatched under a feed-in tariff or a feed-in premium. This is no longer the case, definitely in Greece, and it's working that way in a lot more countries now, which means that the expansion model, as George mentioned earlier, has to be a combination. It will be an agreement to buy assets, whether it's developed or in a development stage, the economic transaction is to buy them on a COD basis. So part of the value of the project will remain with the seller. But once you move further from the entry strategy into a market, then you start moving closer to the development model because effectively you monetize more value in that way. So that's why we have different development modes. It doesn't necessarily mean that if we find an opportunity, we will not look into it. But it is clear that we have a lot of the value as HELLENiQ ENERGY, which is the monetization of the asset compared to what it used to be in the past, which is the development and the sort of connection terms value. And that is something that we intend to expand on in the future.

And if I may follow up on that. On a like-for-like basis, do you see returns being much different than what you get in Greece when you look at the other countries in the region?

Yes. Greece is a more mature market. It's the most mature market in the region. So you would expect lower returns. The returns in the other countries in the region are considerably higher, I would say at least 200 basis points higher than Greece. And of course, it depends, it varies from market to market. It varies across technologies and stage of maturity, but it's fair to assume that the returns are considerably higher, yes.

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

Thank you, operator. We have a question from Adam Milewicz from PKO BP Securities. The question is, "What drilling CapEx would you assume per annum if you decide to drill on 3 blocks?"

Okay. Well, we have not made a decision to drill yet. It doesn't necessarily mean that we will not. But as I said, this is something which will come in the next 3 to 6 months. We're talking about deepwater drilling there, 2-plus kilometers of depth. The cost of the drill will depend also on the partner and the availability of drilling platforms and ships in the area because it can range from EUR 50 million to EUR 60 million if you have a program of more than one drill to up to EUR 80 million if it's a dedicated ship coming into the [indiscernible]. But that is the range that we are hearing from our partners who are probably one of the most experienced groups in the world for this type of activities.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing statements. Thank you.

Thank you very much for your attendance and your questions. Overall, '24 has been a good year for us. It has delivered on an operational basis, I would actually say, better than in previous years, even though this is not translated into better financial results because of the weaker margin environment. But looking at the company from the inside, it is clear that every single part of the organization has improved their performance. We have worked to bridge that gap with the sort of EUR 400 million to EUR 500 million delta on the environment with increased production, with better sales, development of new projects and of course negotiating to close old cases, and we are going to continue doing that. And I think that this is the sign of a company that is very serious about managing the performance and about delivering value to the shareholders. On top of a strong performance, we also have Vision 2025 completed a year ahead of its target. And that for anybody who has followed up on the original Vision 2025 communication, one would probably consider it at the time as too ambitious given that it was aiming to change a lot of the parameters that affect the company's operation, including its governance, its strategy and business model. Well, we have managed to deliver on all fronts. And I think the year-end conclusion of the DEPA and the Elpedison transactions probably the best way to demonstrate the effort behind that. And I can assure you, it hasn't been an easy ride. Over the last few years, our teams have performed at the highest standards. Clearly, there is room for improvement. But nevertheless, they have performed at a very high standard with commitment and focus on delivering the strategy without letting the daily operations fall between the cracks. And I can tell you that this is not an easy feat. Changing a company while at the same time, improving the performance is quite a task for the management team and for the employees. However, here we are with close to EUR 4 billion of clean EBITDA over the last 3 years, one of the best, if not the best dividend payouts in the Greek market and able to sort of confirm that we have a '25 to '27 platform which looks equally positive. Maybe we won't be able to deliver the '22 year numbers or the '23 year numbers because of the industry, but definitely we'll be much closer to what you're seeing today as a baseline. That is without taking into consideration the scheduled turnarounds. On top of everything, I think it is important to mention that the company has also improved its performance on ESG metrics on pretty much all KPIs, starting from the governance point of view and moving to the contribution to society. And I believe that is something that any serious company should have in the target. So with that, I would like to thank you for taking the time to listen to our call. And we expect and hope that we will be able to repeat this performance over the next few quarters. Thank you.