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

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the HELLENiQ ENERGY Holdings conference call and live webcast to present and discuss the third quarter and 9 months 2026 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to HELLENiQ ENERGY Holdings management team. Gentlemen, you may now proceed.

Good afternoon. Thank you for joining our third quarter conference call for our results. Given the numbers, it could well be an annual results conference call. It has been a great quarter for all refiners, and especially so for us. So let's say things one at a time. If we go to Page 4 of the presentation, we try to give you an overview of the environment and what are the key developments in the company. So in terms of the market, we've seen the tightening of the crude supply as a result of everything that's happening in the Gulf, which, on a day-by-day basis, is changing the impact on the market. What became more apparent is that it's not a crude supply issue per se, but it's the availability of refined products, at least for Europe and the Med, which is actually driving the market because you get crude, you can do nothing with it unless you have a refinery. So very, very quickly, we saw a rapid escalation of refining margins, primarily through diesel and middle distillates, jet gas oil, simply because Europe is a middle distillate market. So that became the theme for the quarter, taking us to refining margins level that we have never experienced in the past, at least not in such a sustained way. What is interesting to note is that the demand for diesel, and of course, for jet fuel, remained relatively unaffected. And when I say unaffected, I mean that we did see a drop of a few percentage points. But given the prices that we were experiencing, even the support that the Greek government and other governments in our markets offered and the special promotion or discounts that we offered, we would expect to see a bigger demand destruction. Now whether that is something to come in the future, I don't know. But so far, we have been seeing as more part of what one would expect given demand elasticity for price. We are seeing more increasingly now, the nat gas prices spiking. And that's going to lead -- and it already has led into electricity market pricing issues. And that is something that will affect us. But clearly, the effect is going to be proportional to our exposure. So the biggest exposure we have is on the oil price, on the oil refining margin market rather than the gas prices. But we are exporting that respect as well. Coming to the company operations. What I would like to sort of highlight is the positive view of maintaining a very well-controlled operation throughout the quarter in terms of, clearly, first of all, safety, environmental footprint and the flexibility to be able to source crews, which were not part of the normal diet, but they have been tested and approved in the past, which allowed us to make good use of the high availability of the refineries. Both of the main refineries came out of extensive maintenance months earlier in the year or maybe 12 months ago for Elefsina. So we had almost part of the refineries with very good availability, debottlenecking projects having taken place during the shutdowns. And a very flexible supply and trading team which ensure that we always had the appropriate, for the market conditions and constraints, crudes to refine. At the same time, we were able to monetize those product molecules by selling into the export markets, which have been demanding middle distillates at a much higher pace. In all honesty, if we did not have to maintain the supply in our domestic markets where we have networks, and if you will, a much more influential position, the exports business has really offered us returns that we haven't seen for some time. Likewise, on the marketing side, both in Greece and in the markets that we are operating in, we have seen improved performance. In Greece, for example, if one considers the impact of a margin comp which was snapped back at the beginning of the summer, we still saw a very healthy performance. And that's very good news. Now in terms of our newer business, it's a few years now that we have been building this portfolio, which is power, gas and renewables. We have mixed messages. The high prices clearly are affecting anyway. On the commercial side, there is a bit of an upside on the production to the extent that the units were not in maintenance mode. But the behavior of the renewables portfolio is quite linear in the sense of investing more euros to get more megawatts gives us more euros in terms of EBITDA. So there's a very clear and linear relationship there. We've been very careful in our investments, not to burn cash with marginal projects. And as you probably saw over the last few days, we've launched our Romanian portfolio. That's the start of the journey for us, and there is more to come in that respect, but always with the required discipline on our capital projects and the delivery and bringing this product to the market. Financials, I'll say very little. Vasilis will be going through a lot more detail later on. Clearly, the best set of results we've ever reported, and that's on a clean basis. The reported basis will be even better because of the increase in prices, but that is something that we're not sort of taking into account. At some point in time, prices will come down. To the extent that we maintain relatively stable inventory levels, that should be a cyclical wave, if you will, that will be positive, sometimes negative some other times. But the cash flow proxy, which is the clean EBITDA, is something that has been performing very well. We've taken the advantage of this profitability to accelerate the development plans, not only on the [ renewals ], but also on the refinery side where we are looking into debottlenecking and accelerating some of the investments. And of course, we are rewarding our shareholders, both in terms of better conversion of enterprise value to equity value, given that we are reducing debt. So that is, in theory, at least a very direct relationship between the value of debt and the value of equity, but also with the doubling of the interim dividend from EUR 0.20 to EUR 0.40 per share. The aim there is to maintain at least a dividend yield of 6% to 8%, which is something that we've done in the past on our shares. Meaning that at current or even higher levels of share, the dividend will be adjusted to bring us to that level. So I think it's a win-win situation. Going forward, we are seeing -- after a very slow start to the fourth quarter, slow compared to what we've seen in the past, clearly, above mid historic mid-cycles. We have a new mid-cycle level now. What we're seeing is a [ rep out ] of refining margins, which means that one would expect to see a strong fourth quarter. Maybe not a strong -- the third quarter, but traditionally, the third quarter is usually significantly higher, but it is looking to be a strong quarter. We'll be accelerating our projects. The fact that we're bringing more megawatts to the market will provide additional profitability, which is smaller than the hydrocarbons, but it's clearly much more stable, less risky. So it helps to address part of the cash flow profile going forward, and we're working to add to our business. We've got an announcement already on a small network in Cyprus. We've got a couple of other networks in our sites that we're working on. Over the next few months, we should be able to reach a conclusion on that. Nothing major, so I don't want to mislead you. But at the end of the day, growth is the underlying trend for the group. On exploration, we have the first drilling campaign in the first half of '27. We'll see how that goes. And we are working with Chevron on the seismic acquisition for the remaining of the areas. I won't go into the financial and operational highlights. Vasilis will do that in a minute. But all in all, it has been a great quarter. And as I said, we are using that performance, first of all, to keep increased rewards to the shareholders who have been with us for a long time. And recently, they have renewed and increased their interest in the company with a lot of interest in our shares. We are giving our business plan a boost. We are accelerating and taking the step further than what we had. In fact, in January, we were planning to have a Capital Markets Day to sort of explain our new strategy, that should be a little bit earlier than the full year results. So that's to come. And of course, we have increased significantly the support both on the commercial front in markets where we operate. Clearly, the biggest part has to do with Greece with special promotions and discounts, as well as -- but in other countries as well. And also, at the same time, a much more aggressive CSR program. We're supporting communities. We are trying to help people who have needs that cannot be served otherwise. We're not replacing the role of somebody else in the society, but being a prudent and responsible corporate citizen, we are utilizing our performance and good fortune to sort of create better bonds with the society and the local communities. So with that, I pass on to Kostas. Kostas will describe the market background, and then Vasilis will walk you through the financials. And the rest of the business units will be discussed subsequently.

Thank you, Andreas. The quarter 3 started off with dropping prices in the Brent crude oil. This was the effects of the discussions between the U.S. and Iran at the time where people were hoping for a cessation of hostilities. Going into Q3, start of July, these did not materialize as expected. So throughout most of the quarter, Brent was trending upwards, reaching up just shy of $120 per barrel at the end of the quarter. Throughout the entire period that we're discussing, ULSD and jet crack [ listed price ] remained high and were further increased in Q3. Interestingly, in Q3, gasoline cracks also increased well below historic -- well above historical averages, and thus, yielding record benchmark margins, which reached $30.3 per barrel for our system versus $8.5 in the same quarter of 2025 and enhanced the large variance. In the domestic market, as Andreas said, despite the increase in prices seen at the pumps and across the board, we did not observe any noticeable demand destruction. In fact, at a yearly level, we see minimal change in domestic consumption in the inland market. Aviation sales have increased throughout the year by 5%, which is slightly more than the market size has grown. So this was an overall growth in the market. Bunkers were reduced by 5% overall, partly because of a reduction in overall demand, and partly because of seasonal specifics in our logistics. And I hand over to Vasilis.

Thank you. Thank you, Kostas. Good afternoon, everyone, and thanks for attending our 3Q results call. So moving on to natural gas and electricity. As expected, natural gas prices have gone up in the third quarter, and the trend has continued in the fourth quarter on the back of geopolitical disruptions and the low inventories -- low storage inventories in Europe mostly. That, in effect, had an impact on electricity price up to an extent in the second and maybe part of the third quarter, the production of renewables in Greece have kept prices to a relative check. However, from September onwards and mostly in the fourth quarter, the seasonally lower output of renewables and combined with the higher TTF prices have led the fixed price also higher. That has a negative impact both on the operational expense of our refining business, as well as on the supply business of Enerwave, as George will explain further on. Otherwise, Greece remains an electricity exporter, mainly on the back of additional capacity in the renewables business, [indiscernible]. Moving on to Page 11 to discuss the [ Vita ] group performance. Sales more or less flat year-on-year in terms of our refining business. Maybe a couple of [ cargoes that let up ] in October made the small difference versus last year. Marketing, higher volumes, mainly on the back of our increased sales in Northern Macedonia and, to a lesser extent, to other markets. And power production on the back of annualization of Enerwave and higher RES output following the addition of the Romanian PV parks earlier in the year. Turnover is affected mostly by higher price. Obviously, it's going to be a higher rating for the rest of the year as well. In terms of adjusted EBITDA, Andreas went through, refining is the main driver of the numbers. Petrochemicals, while not a significant contributor this quarter, I think it's important to note, it's a very good example of how well [ care and the creation ] play effectively shows the resilience even when margins of the Petrochemicals business are lower. So we -- the EBITDA was better than last year and better than what the market would expect based on margin. Marketing, slightly better than last year, a seasonally strong quarter for marketing that we were able to capture the increased demand mainly due to tourism both in Greece as well as our other markets. Power business results are mainly driven by the supply business at Enerwave, which is affected by the negative prices, while renewables were slightly higher year-on-year. Financial costs, despite the higher base rates that have escalated in the third quarter, are lower in the year -- sorry, year-on-year for the quarter, mainly because of a significant debt reduction that took place during the third quarter and continued in the fourth quarter. And in terms of -- as a year when total investments for the 9 months are close to EUR 600 million, a little bit higher than last year. But still, we're able to reduce net debt at the most in the last 2 years. And if you look at leverage and gearing numbers, it's the lowest historically, with improvement expected for the full year. Now on Page 12, looking a bit of how the main part of influenced our numbers. Certainly, refining margins at the highest levels that we've seen historically were the main drivers. On crude differentials, I think it's important to note that this is a combination effectively of our ability to capture differential as well as freight rates. 2/3, if not more of our crude supply in the third quarter comes from sources which are close by. So we said a lot on the freight, 2 or 3 days versus further competition in Europe or overseas that has much longer journeys in order to bring crude to their plan system. No significant impact from electricity and FX certainly because of the margin of numbers. In our refining operations, I think the main driver here was other than keeping all our units at very high utilization, the record [ debt for premium ] are also a key factor that has driven results and has also enabled us to extend around EUR 50 million for the third quarter. And the number is higher if you look -- if you take into consideration the first half of the fourth quarter, that has lasted already of fuel discounts in our home market. And there are also initiatives at other markets that we are active in order to give back part of the value that was created to our consumers. Now in terms of our balance sheet, certainly, the very strong cash flows will have initially, the very positive impact on the optics of our balance sheet and the strength with a net debt which is very low, very well-structured maturity profile. Our fixed [ vessel ] floating rate now, because of repaying floating facilities is -- our fixed rate is around 45%, 50% on a pro forma basis by the end of the year. So much more resilience on higher rates, but still, the quantum of debt is overall lower. And one important thing, I think it's important to highlight is also the spread versus [ mid drop ] on our Eurobond, which is a public traded and shows how the market [ specie ] our balance sheet strength. So we -- this is a bond that we issued 2 years ago, we get a quarter ago. And the spread has reduced to 70 bps versus current [ metros ]. On dividend address, I think, covered it, we're dumping our interim dividend this year. Certainly, that points to us certainly [ at 1 ] overall higher payout. As a reminder, we have a dividend policy of distributing a significant part of our adjusted EPS. However, we always keep an eye on the yield, and it's an important consideration to keep an attractive yield on our payout. Moving on to this kind of the different segments, starting from Refining, Supply & Trading, the main driver of our very good numbers. Three main things that drove those numbers, certainly, the environment, a very good international operational margins, the crude differentials and our ability to capture those because of location, because of the complexity, because of a very good market outreach following the limitation of the new supply and trading model. The export premium, that has helped us capture a very good environment with realized margins well in excess of the best mark for the quarter. Another part, I think, however, to discuss the operation of the new [ shelf ] recovery unit at the CDU at Thessaloniki is a very good example of a number of improvements that we're doing in the business, which are either lower or, I would say, 0 CapEx. But it's difficult to get -- to understand the impact in a period of very high margins. However, we're continuing those. The new [ S ] unit, it's a EUR 20 million, EUR 25 million investment. That drove an effective capacity increase of around 10% at debottlenecking of the last year. On normal margins, this would be a EUR 20 million additional EBITDA from Thessaloniki. Certainly, the numbers are much higher in the current margin environment. Similarly, as a reminder, we built the energy efficiency projects at as probably another EUR 10 million. Geneva, if you consider the very good progress on the first phase and you expect the gas margins is another EUR 15 million to EUR 20 million. So overall, our downstream business, our -- sorry, refining business has captured improvements even at normal refining margin of around EUR 50 million, which will stay even when margins return to some normality down the line. In terms of operations, not much to add. We took advantage of the flexibility in the crude supply and capture a very good overperformance, which on the following page, is reflected on the realized margin, which is almost $50 per barrel, with $19 of overperformance driven to a large extent by the crude and the freight differentials and the export premium on top of the very good refining operations. Moving on to petrochemicals. As a reminder, 2025 was a very weak year for petchems on the back of benchmark margins. We saw a spike in the second quarter because of the shut-in of the capacity. Some of it has been normalizing in the third quarter. However, we still were able to post a positive EBITDA in an overall digital petrochemicals market, which, as I mentioned before, comes from the pack, mainly of [ Mercantegle ] integration with our propylene production as per refinery. In marketing business, seasonally the stronger quarter for [ Eco ]. We were able to deliver EUR 35 million of adjusted EBITDA at an environment where pump prices down [ 5% ] higher year-on-year where there is some elasticity in demand, especially for premium products as consumers are switching to normal grade. That is having an impact on [ Eco ]. However, we're able to increase and to maintain and increase market share, gains that we realized already in the beginning of the year in an overall difficult market for Eco and a better additional results that drove adjusted EBITDA to EUR 35 million for the quarter and EUR 70 million for the 9 months. Equally, our international business continues to take advantage of the -- of two things, mainly. One is the reopening of the Thessaloniki [ Scorpio ] pipeline. The other is the improvement of our position in all our markets that we operate on the back mainly of geopolitics and saving a significant positive effect. I would say combined, those two would be EUR 15 million to EUR 20 million. Obviously, the numbers are higher this year, right? But that may include some, let's call them, one-off effects, but the sustained improvement should be around that vicinity, even when markets normalize. At this point, I'll pass you over to George Alexopoulos, that will discuss our power business. George?

Thank you, Vasilis. Good afternoon, everybody. On the power and renewables business, a mixed quarter, improved performance in renewables as additional capacity is coming on stream with new assets in Romania and batteries in Greece. And more difficult conditions on the conventional power business, mainly due to high prices, which continue on the first quarter, which affect the retail business. The generation business is doing quite well. However, Thessaloniki is now on a scheduled turnaround, so it is currently not contributing to the operation. On Page 27, you can see the development of our renewables pipeline. We are currently at 0.8 megawatts operating. We have an additional 300 megawatts under construction, and we expect these to be to come on stream gradually over the following year, and together with our mature projects, give us a secure path to 1.5 gigawatts. And through our pipeline and given the increasing maturity of our pipeline, we're confident we can reach the 2 gigawatt target we have said. We continue to target geographical and technology diversification. Our assets going forward are hybridized, and we're looking at hybridizing existing assets as well. And with this, I think we're reaching the end of the presentation, and I will turn it over for questions.

[Operator Instructions] The first question is from the line of Nestoras Katsios with Optima Bank.

Thank you, [indiscernible] for the presentation and for your great results. So 2 questions from my side. The first 1 has to do with the refinery. You have any planned maintenance in any of your plants in the next month? And also with regards to the -- there was a press import in casing that we are considering the acquisition of [ coils ] refinery in Romania. Do you have anything to comment on that?

Nestor, thanks for the questions. I'll take the first 1, and then Andreas will take the second. In terms of maintenance, there's nothing planned for the rest of the year. A partial shutdown of at Elefsina refinery for the cleaning of hydrocracker and flexicoker will take place in March '27. That's the next plant maintenance that we have for the next March.

Now on the [ Balkan ] refineries, which have currently Russian ownership, and there are 3 or 4 such assets in our region. You have Bulgaria with [ Lukoil ]. We have [ Mic ] in Serbia. You have the refinery in Romania and maybe a couple of other smaller networks. There has been a lot of [ more ] over the last few days following the visit in Romania about our plans. So let me try and clarify where we stand with respect to these assets and hopefully try and explain what is doable and what did not work. First of all, they are located in regions that we either have activities or we have an interest in entering in the markets. Bulgaria, Serbia, Montenegro, North Macedonia, the areas where we have already activities. So any asset which is relevant to our business, by definition, will be of interest to us. It doesn't mean that we're going to buy a full refinery and a system of distribution and federal station networks on our own or even as a partner. But they are assets that we are monitoring to understand what is happening. I'm not saying we will never buy, but I'm saying that we are monitoring. For Romania, we recently entered into the renewables market, into the -- with PVs and wind parks that we have in the pipeline. So Romania is a market which is very close to -- I mean, it's [ poultry ] with markets where we already have presence. So we are looking to see whether there is an opportunity for us to expand there. In that respect, we are trying to understand the battleground, if you may say, if I may say, what is the market factor. Now that's what we're doing. On the other hand, you have reality. And reality says that right now, there have been rumors of a couple of transactions. Some of them are more than rumors, they were announcements. But so far, we've seen nothing. There was an announcement [ Carlisle ] were actually going to buy all of [ Lukoil's ] international business. So far, we haven't seen anything, and I believe that it has actually been withdrawn as an interest. There are rumors of other funds looking into those assets. Some of those funds are serious funds. Some of those funds, I don't even know who they are. There is a discussion. Actually, it's more than a discussion. It's a public announcement by the government of Serbia that more will be buying into [ niche ]. Again, that's something that was announced months 6 months ago, 8 months ago, nothing has happened yet. Serbia has a new government. I don't know how things will develop. I'm not saying that we are privy to any information. But as you can understand, there is a lot of uncertainty around assets in the Balkans which have Russian ownership. Sanctions come and go. Some markets are realizing that they cannot operate without those assets. They are banning Russian crude oil. So we have [ restive 4G ] backdrop to that with respect to what is doable and what is not doable. And then, of course, you have the actual owners, which are Lukoil and Gazprom. And clearly, if you're going to buy an asset, you have to understand who the seller is. So given that today, the owners of those 2 companies, clearly, they have to be taken into consideration and discuss it. So we are monitoring. We do have an interest to expand, and we are expanding in the region. It doesn't mean that we're going to buy everything that is available. It doesn't mean that we can buy everything that is available from a [ trial ] point of view. But the battleground is quite foggy. So I would not rush to say that we are moving to buy something material there. I hope that clarifies the situation.

The next question is from the line of Ricardo Rezende with Morgan Stanley.

I have 2 questions on capital allocation. You have a good problem in your hands, given the capital -- the cash generation. When you mentioned about the shareholder creation -- value creation and mention about the EV to equity, when we look at your debt profile and you see there is the bond in 2029, but the base loans maturing quite -- a constant maturity from 2027 to 2030, what could you be doing there to either reduce your debt or getting some more interesting interest rates on that front as well? And then second question is a follow-up on what I just mentioned about some of those assets potentially up for sale in the region, and that could be some interest given you already operate in most of those markets. What has been, in your view, the main challenge is in the hypothetically you end up acquiring one of those refineries? Would it be more from an operational standpoint? How would you expect that to happen?

Ricardo, thanks for the question. On debt profile -- and as I mentioned before, the immediate thing that we'll do is reducing debt. Once the dust settles in a few months' time or in a year's time, we need to revisit our capital allocation based on the investment plan and then identify the right tools. In the meantime, we have a combination of RCFs that we're being repaying. We're building capacity for our investments. We are keeping a decent, I would say, balance between fixed and floating. In terms of our renewables business, which is one of the main growth CapEx absorbers, we are largely financing that through long-term project finance that matches the cash flow projection profile of each of the new assets that are coming on stream without recourse between each other. We are taking steps together with our banks to improve terms on existing loans on the floating ones, mostly on the spreads, and we're making good progress on that. So we're trying to bring the actual cost of debt closer to what the markets perceive. We discussed the numbers before. And I guess once we crystallize the additional cash flow and the uses of it, namely, the shareholder remuneration, namely, growth investments, then I think to see to -- we need to review what kind of changes we need to make at our capital structure in finance.

On the second leg of the question, I think it's -- it's, first of all, premature. And in all honesty, it would be a bit superficial on our side to comment on potential difficulties for 4 or 5 different types of assets with different circumstances surrounding them. So I wouldn't want to go into that discussion, to be honest.

The next question is from the line of George Grigoriou with Wood & Co.

A couple of follow-up like questions. You mentioned that the Elefsina refinery will be partially shut in March between '27. What about the Thessaloniki refinery? Is there any scheduled maintenance for that one? That's my first question. I think Andreas, you mentioned something at the beginning of the Capital Markets Day in January. And should we expect then, an update on any potential investments going forward at your existing, if you like, refineries, first of all? And then on your capital structure, my last question is if you could walk us through -- explain to us a bit in detail, what exactly the one-offs were in the third quarter? I'm referring to the special items, not to the inventory gains or losses.

George, thanks for the question. On maintenance, you're right, Thessaloniki will undertake a full turnaround. It's a much lower scale, obviously, [ Vestas ]. And that will happen sometime in '27. It will depend on the availability of contractors and the planning that we plan to finalize in the coming months. In terms of the CMD, we'll come back with specific data and invite soon. We -- the plan is to have a strategy update. We have completed Vision 2025 very successfully. So the plan is after a few years that have done a similar update to go to the market and explain our plans for the next, I would say, decade or so, medium to long-term plans that would include as well, capital allocation, organic and inorganic investments in our downstream and power business.

[Operator Instructions]