Motor Oil (Hellas) Corinth Refineries S.A. (MOH) 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 Motor Oil conference call and live webcast to present and discuss the first half 2021 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Tzannetakis Petros, Deputy Managing Director and Chief Financial Officer; and Ms. Mary Psyllaki, Investor Relations Officer. Mr. Tzannetakis, you may now proceed.

Hello to all of you. Good morning, good afternoon, good evening wherever you are, and have a good month. September is here but still nice and sunny outside. So let us start with what happened in the second quarter and the first half. Refining margins showed a small improvement in the second quarter of '21 on the back of widening crude discounts and a gradual improvement in demand, following the lifting of lockdowns, which, of course, was mainly reflected in gasoline. In April, refined product demand in the EU was just under 35 million metric tons, 20% above the level of 2020, when the first lockdowns had begun and about 15% less than the same month in 2019, so gradually picking up. On a cumulative basis, the demand for the first few months of 2021 is 5% below last year but still 15% below the same period in 2019. Looking at the individual products. Demand for diesel, the biggest selling product, was 10% below April '19 and 16% higher than April 2020. Gasoline, on the other hand, in April '21 was 13% below the same month in 2019, so slightly better and definitely much better for April 2020, 62% higher. Cracks improved in Q2 '21, reached double-digit levels, as the European stock levels continue to decline on demand from exports and support mainly from the driving season. In the middle of the barrel, though, cracks for diesel remained weak, similar to previous quarters, affected by excess supply, with a small improvement driven by higher mobility and economic activity pickup, along with a slow pace of demand recovery for jet fuel. Jet fuel cracks remained weak compared to pre-COVID levels for the second quarter. And of course, moving in parallel with flight activity, while some recovery was noted in June, flight reached about 50% of 2019. And at the bottom of the barrel, high sulfur fuel oil cracks moved even weaker, especially in June on the back of increased refinery runs following the maintenance season. In July, OPEC+ agreed to continue the increase of oil production over the coming months. The effective cut by then was almost 6 million barrels per day. And under this agreement, this should fall more by 400,000 barrels a day in each of the coming months. If this does not change, an additional 2 million barrels of extra oil will come to the market by the end of the year. We believe that this is expected to gradually widen the heavy crude discounts since the heavier barrels will be entering the market. The industry environment during Q2 deteriorated on another front as well, which was the EUA prices, the carbon cost. They increased significantly as Phase 4 of the EU emission allowances reduced further the requirement for the free allowances that one gets. Let's look a little bit at this sort of steep increase. I've written down a few numbers looking at the history. So Q2 '17 -- 2017, the price was EUR 5 per ton; 2018, EUR 14; 2019, EUR 26; Q1 '21, EUR 38; Q2 '21, EUR 52, so clearly, a burden for everyone, pushing us all to find ways to emit less, and obviously, to invest in cleaner technology as well. How did the crude prices move? They moved up during this quarter from about EUR 54 -- sorry, but let's talk dollars, from about $64 per metric ton at the end of March to $76 per metric ton in June. However, euro-dollar moved in the opposite direction, meaning that the dollar weakened. So from about $1.17 in end of May, it moved to almost $1.19 by the end of June, having, of course, moved as high as $1.21 in the end of May. So weaker dollar means weaker eventual euro gross margin. July and August, it is hovering at the $1.18, $1.17 level. So for the whole quarter, it was at $1.20 parity compared to Q2 of the previous year, which was at $1.10 parity, so clearly, a negative factor of this product. Greek macros. We were -- I wouldn't say we're fortunate but maybe luckier than others that the lockdown started being gradually lifted from the middle of May, and the tourist season has started very aggressively, a bit later than usual but caught up fast. And August has been a very, very strong month. And I was in the island of Paros last weekend, and last weekend of August usually -- the island starts emptying this time. It was still packed with people. So I believe there is a slight sort of delayed in the departure of tourists. However, domestic demand up to and definitely for the period we are talking, which means Q2, the numbers were as following: Gasoline was up 25%. Automotive diesel, almost 16%. So total automotive fuels just under 20%. However, because of the peculiarity with heating gas oil showing a number of minus 80%, but I'll explain you what I mean by peculiarity, the total domestic market for the second quarter fell by 9% as far as the demand. The peculiarity stands in the point that, last year, there was a prolongation of the period during which one can consume heating oil for most of May, which resulted in large volumes of heating oil being sold in the market. I have it somewhere here. I think it was 240,000 of additional -- metric tons of additional volumes being sold in the second quarter compared to any previous year, which, of course, this year didn't happen. So part of the reason we will see lower domestic market sales has to do with this delay, let's say, of the prolongation of the heating oil season. Let's -- I think you have seen most of the cracks. I don't want to go into more detail at this point. Let's talk a little bit about the second quarter specifically and what did we do. Throughput, almost at the level of Q1. Theoretically, thousands barrels per day less, but this purely has to do with the days of the quarter. So it was 181,000 barrels per day, While the first half was 183,000, so slightly bigger first quarter. However, when compared to 2020, we then stood at 172,000. And a good point, if we talk about July and August, we are at 190,000 barrels per day. Crude sourcing, slightly heavier mix in Q2 compared to Q1. Iraqi, I would divide it this time in Iraqi and non-Iraqi because, otherwise, it's quite difficult to see what one includes in sour and non-sour. So Iraqi crude in Q1 was 83%, and all others were 17%. While Iraqi in Q2 was 65% and all others were 35%. However, API in Q2 was lower than API in Q1. That's why I didn't want to do any other separation because this API really shows you that we had a slightly heavier mix in the second quarter. Overall, sales in the second quarter compared to a year ago, we were 5% up. And for the first half, we were 12% up. Looking at specific products, gasoline had a very good quarter. Sorry, let's go back before I start talking about the sales because we have the Slide 4. What you see on Slide 4 is clearly a higher throughput of crude, so it's plus 13% compared to a year ago. But we also see additional feedstock of -- additional volumes of other feedstock like the gas oil and the fuel oil and the other, which, for example, the fuel oil was 68% higher -- the fuel oil in feedstock was 68% higher than last year, which leads overall feedstock. This first half compared to last year was 17% up. This is important to keep in mind because it explains, to a certain extent, the sales mix as well. So let's now move to the mix of the products. Gasoline had another very good quarter with Q2 having significantly higher sales than Q1 and almost the same volumes as Q2 of 2019. And exactly because what I said before, the lift -- the lockdown lift -- was lifted towards the middle of May. So only half of this quarter, let's say, suffered or half of this quarter benefited. June and July figures, definitely August figures are much stronger. I guess an interesting point here is, too, that August, the numbers which we saw this morning for full August and the consumption and the sales of our retail subsidiaries are they stand at par with the sales of 2019, so a very pleasing fact. Shell and Avin automotive sales -- automotive fuel sales for August 2021, the same as for August 2019. Overall, the -- even the jet fuels was weak. They continued being weak, but they were stronger than in Q2 of '20, and they were stronger than Q1 of this year, and they are gradually improving but, clearly, at a much lower pace. Heating oil, we touched upon a few minutes ago. They do compare unfavorably as last year. There was this extension of the heating season, which resulted in additional 250,000 metric tons of sales. Naphtha sales were strong as well. They were stronger than Q2 of 2020 and stronger than Q2 of 2019. Particularly, if we consider the half of 2021, they were more than double the 2020 volumes and almost double the 2019 volumes. Fuel oil sales for Q2 and for the first half were higher than the comparable volumes for 2020 but much lower than the 2019 volumes. And part of this, as I said, was due to the higher feedstock volumes of fuel oil and the lower asphalt sales. Asphalt volumes were lower in 2021 than both 2020 and 2019. And just to conclude, total sales were 5% higher Q-by-Q and 12% higher for half of '21 versus half of 2020. If we now want to break it down to the markets, we will see that the civil market, which was down in Q1 by 33%, was down in Q2 by 27%. So for the first half, it was down by 30%. I have not done the calculation how would these numbers show if you exclude this 240,000, which, I guess, they would -- if we add them back, they would still not reach the first half of 2020 numbers. But clearly, the difference would not be as big. Bunkering aviation, minus 52% in Q1, plus 42% in Q2 compared to a year ago, so minus 21% for the first half. So yes, we are gradually seeing a pickup there, and we are also seeing it in the sales of bunker fuel. In exports, we are the star performer. It's 46% in Q1, 11% in Q2, plus 26% in the first half. It shows that the refinery managed in a period of lockdown in Greece and other countries, so clearly affecting the demand all over the place and definitely Mediterranean to operate above nameplate capacity, 172,000 nameplate. We operated 181,000. And currently, we are operating at 190,000. Let's move on. The volumes, we touched upon. These results in the refinery margin now for the first half, standing at $47.7 for the first half, the adjusted number; $61, the reported number, again, a significant overperformance of the benchmark. Maybe what we can say before we turn to numbers, we can say that we have seen that the refinery margin recovery has started happening, but it is still a slow process because it means you must buy, refine, sell and gradually build up the profitability. So we believe that with lockdowns increase being over and the big improvement in the tourist sector, which we see happening, we gradually expect in Q3 a significant improvement. Looking at numbers. So the second quarter was -- of '21 had an EBITDA of EUR 71 million and the first half an EBITDA of EUR 171 million. Okay, clearly, a big improvement from last year, leaving before tax and after-tax numbers of EUR 51 million, EUR 39 million; EUR 136 million, EUR 104 million. On the next slide, we have estimated -- we have calculated inventory gain of EUR 23 million in Q2 and EUR 65 for the full year, giving us respective numbers for the EBITDA of EUR 48 million and EUR 106 million and earnings before tax and after tax, EUR 28 million, EUR 20 million; EUR 71 million, EUR 53 million. Looking at the group numbers, the EBITDA for the reported number is EUR 122 million; and for the half year, EUR 251 million. So reported numbers are really coming back to what we were hoping for, leaving an after-tax number of EUR 56 million for the second quarter and EUR 121 million for the first half. Adjusted numbers clearly are lower because we have the inventory gain to subtract. So we have a EUR 93 million and EUR 173 million respective figure. CapEx continues as per plan. I think we have married the same guidance. So we -- yes, we have the said guidance, it's the EUR 260 million. The naphtha reformer is progressing as per plan. So hopefully, it should be ready by the end of the first quarter next year. And so it is on schedule. It is on budget, and it -- keep in mind that we will have, at least for a number of quarters next year, the additional income in our EBITDA from the operation of this unit. Net debt has increased. The main reason has been CapEx, if we want to single out a reason because capital expenditure and other investing activities. During this quarter, we acquired the large wind with generators, and this was paid in May. So clearly, there is equity and debt in this acquisition. So we see the equity part in the cash flow of Motor Oil, and we see the debt part in the group's debt. Working capital, a slight negative working capital in this quarter of minus EUR 38 million for the parent. Clearly, much improved to what we have seen in Q1, which was minus EUR 109 million, but we have not yet seen the reversal of that. We are quite hopeful that this -- we will see now because a lot of the sales are happening as we speak in July, August and September. So August has been particularly strong. You can see the debt profile as far as the maturities are concerned on Slide 15. And I would just sort of -- I'm sure you all remember what happened during these quarters. We issued a Greek bond in March, and we issued a Eurobond in July. They both went very well. And particularly, the Eurobond is performing very well and -- which is a happy -- a good -- how shall we -- good news because it shows trust, and it also helps us lower our financing costs across all the financing instruments we use, whether it's Greek bonds, international Eurobonds or bank debt or supplies credit. And here, the debt maturity profile, the 2023, EUR 320 million is some bilateral loans, which are going to be rolled over. EUR 250 million of which will move away from this column to 7 years and 10. So clearly, in the next quarterly results, the EUR 320 million, most of it will have gone away to much longer duration. The EUR 500 million is the column in which the Eurobond stands, and the EUR 200 million is the column -- actually is the Greek bond. So clearly, on this front, we are very pleased with how things have developed. I think I'll stop here and let you -- time for questions.

[Operator Instructions] The first question comes from the line of Labate Victor with Piraeus Securities.

Wondering what was the impact of the higher CO2 emission prices on your Q2 results in euros, if you could give us a figure, if possible.

Yes, yes. EUR 10 million.

Additional, okay? That's the delta.

The next question comes from the line of Patricot Henri with UBS.

I have 3 questions, please. So the first one, EBITDA follow-up on the previous question because refining EBITDA -- adjusted EBITDA was down quarter-on-quarter despite the benchmark margin improving. So I understand there's a negative impact from CO2 prices. Just hoping, can you give us an idea of some sort of a bridge of that drop quarter-on-quarter? What was running that? And secondly, on the...

Sorry, sorry. The -- sorry, Henri. What do you want me to give you? Outlook for where we are now or what?

No. On the second quarter because the refining EBITDA was weaker, the reported adjusted figure. Just wondering beyond the higher CO2 prices, what was driving the weakness sequentially, given a small improvement in benchmark margins? And secondly, on the power and gas business, the new segment that you're presenting, can you give us a sense of whether the first half performance is a good proxy? What would you expect for the rest of 2021 and 2022 from this business in terms of EBITDA generation? And finally, just a quick one. What's your like just thinking around an interim dividend for this year?

Yes. So looking at the EBITDA, yes, the main culprit, I guess, has to be a slight increase in operating expenses from the parent and this extra -- these other expenses as well, which big part of it is FX because of the weakening of the dollar. And I guess, which is very difficult to exactly calculate and pinpoint, that the sales that were done in June, even though the quarter had larger sales, there was a significant amount, quantity of products that were sold into July and then into August. So the inventories at the end of the quarter were than higher usually, which means when you report the number, the value of these inventories is lower than if you had sold them as products into the market. Okay. So you miss out on earning the profitability by the fact that you had an approximately, I think, 200,000 tons of products that were sold that slipped into July instead of being sold into June. Okay. So the average inventory at the end of June was higher than it would be usually. And maybe this, by itself, is enough to explain it.