Hellenic Petroleum Holdings S.A.

Earnings Release • Aug 29, 2019

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RNS Number : 6269K

Hellenic Petroleum S.A.

29 August 2019

PRESS RELEASE

29 August 2019

Second quarter / first half 2019 financial results

Operating performance helps to mitigate weakest refining environment in five years and leads to strong cashflow and improved balance sheet

HELLENIC PETROLEUM Group announced its 2Q/1H19 financial results in accordance with IFRS. 2Q19 Adjusted EBITDA came in at €130m and 2Q19 Adjusted Net Income amounted to €33m, recording another quarter of positive performance.  Despite a weak refining environment, results were positive on account of continued strong refining performance, the highest Petchems contribution on record, as well as continuous reduction in financing cost. International refining macro environment deteriorated to its lowest level in the last five years, as evidenced by record low benchmark refining margins and problems with Russian crude supplies into Europe due to the Druzhba incident. In this environment, the flexibility of the Group's refineries to process a wide range of crude grades, enabled uninterrupted supply and optimized operation, as well as capturing opportunities in lighter crudes pricing. Production remained at high levels (3.7m MT) and sales at 4.1m MT, flat y-o-y, with 57% of total sales directed to exports markets underlying the strength of Greek refineries in the region.

Contribution by Fuels Marketing and Petrochemicals was also increased, with Petchems recording an historical record Adjusted EBITDA of €28m. Furthermore, Marketing companies' performance improved and interest costs reduction continued, as refinancing plans were implemented and balance sheet remains very strong.

IFRS Reported Net Income amounted at €75m, affected by inventory gains of €59m, while it should be noted that the results include for the first time the impact of new IFRS 16 on operating leases of retail fuel stations and other equipment.

With regard to the upcoming changes to bunkering fuel specifications, (IMO 2020), one of the most significant challenges for the global refining industry in recent years, the Group is on track with its plans to be able to deliver very low sulphur fuel oil by the beginning of 2020. An extensive test of new crude grades mix was conducted recently at Aspropyrgos refinery, yielding positive results, in terms of both quality and specs of the new 0.5% fuel oil, as well as the operation of the refinery's conversion units. We expect that HELPE refining system will be ready on time to cover the Greek bunkering market with the new type of fuel, as well as maintaining its ability to serve customers who opt for the scrubber solution and require high Sulphur fuels.

Complex refining margins at the lowest levels in five years

International crude oil prices increased from $64/bbl on average in 1Q19 to $69/bbl in 2Q19, with volatility during the period, reflecting global macroeconomic and geopolitical developments.

In the European oil market, the contamination of significant quantities of Russian crude oil in the Druzhba pipeline, which supplies Central and Eastern European countries, disrupted the supply of Russian crude in the wider region, for most in 2Q19. As a result, the availability and pricing of Urals, as well as other high sulphur grades, which were called to substitute Urals deliveries shortfall, presented significant challenges during this quarter.  This, combined with weaker cracks for most products, led complex refinery margins to multi-year lows. FCC margins were 40% lower to $3.2/bbl. Naphtha cracks drop to the lowest level in the past seven years led Hydrocracking margins to $1.3/bbl, while Aspropyrgos and Thessaloniki refineries benefitted from the reforming spread, highlighting HELPE's refinery system ability to capture opportunities from changing market conditions. With the restoration of the Russian crude oil supply infrastructure in eastern Europe, the market appears to gradually recover, with margins normalising as early as the end of 2Q19.

The Euro/USD exchange rate averaged at €1.12, with the dollar strengthening further to a two-year high, with a positive impact for European refining sector.

Increasing demand for domestic fuels market

Domestic fuel demand in 2Q19 amounted to 1.6m MT (+4%), mainly due to increased heating gasoil consumption, while auto-fuels demand was flat. Aviation and bunkering fuels rose 9% to 1.2m MT, mainly on account of increased international marine consumption, with all markets improving.

Strong balance sheet, considering options for improving capital structure

Net Debt at €1.4bn, c.€500m lower y-o-y and Gearing at 37%, an additional drop vs 1Q19, further strengthened the Group's balance sheet.

It is noted that the Group fully repaid its €325m 5.25% Eurobond issued in 2014, out of own cash balances, which will lead to additional drop in finance costs.

The Group, as part of its financial plan for capital structure optimization and taking into account improved capital markets conditions and yields of its existing bonds, is considering a new bond issue in 2019, subject to market conditions.

Key strategic developments

In E&P, on 27 June 2019 the Lease Agreements for the two offshore areas of 'West Crete' and 'Southwest Crete' were signed (Total 40% - Operator, ExxonMobil 40%, HELLENIC PETROLEUM 20%) and are expected to be ratified by the Greek parliament, in order for the exploration works to commence. During 2Q19, planned environmental and exploration studies in other Western Greece concessions continued.

In addition, on 26 July 2019, ELPEDISON BV, in which HELLENIC PETROLEUM Group holds 50%, completed the acquisition of a 24.22% stake in ELPEDISON SA from the ELLAKTOR and ELVAL-HALCOR groups for a consideration of €20m in cash, with ELPEDISON BV now owning 100% of ELPEDISON SA's share capital.

Finally, on 07 August 7 2019, a new Board of Directors of HELLENIC PETROLEUM SA was put in place with Mr. Ioannis Papathanassiou elected as Non-Executive Chairman and Mr. Andreas Shiamishis as the Group CEO.

Key highlights and contribution for each of the main business units in 2Q19 were:

REFINING, SUPPLY & TRADING

-     Refining, Supply & Trading 2Q19 Adjusted EBITDA at €69m (-50%), on account of significant benchmark margins drop.

-    White products' yield remained at 84%.

-  Sales remained at the same level as of 2Q18, leading to total 2Q19 sales of 4.1m MT (-1%).

PETROCHEMICALS

-  PP sales growth led to a record high Adjusted EBITDA of €28m (+ 3%) in 2Q.

MARKETING

-  2Q19 Marketing Adjusted EBITDA at €36m (+44%), following IFRS 16 implementation, while comparable performance improving vs LY.

-  In Domestic Marketing, sales volumes were flat vs 2Q18, with 2Q19 EBITDA at €21m (+81%).

-  International Marketing volumes increased by 3%, with EBITDA at €15m (+12%).

ASSOCIATED COMPANIES

-  2Q19 DEPA Group contribution to consolidated Net Income was reduced (€0m vs €4. In 2Q18), following the de-consolidation of DESFA.

-  Lower production due to Thisvi plant shut-down, as well as the absence of a Flexibility Compensation Mechanism, led Elpedison's 2Q EBITDA to negative levels (€-4m). 

Key consolidated financial indicators (prepared in accordance with IFRS) for 2Q/1H19 are shown below:

€ million	2Q18	2Q19	% Δ	1H18	1H19	% Δ
P&L figures
Refining Sales Volumes ('000 ΜΤ)	4,165	4,139	-1%	8,267	7,690	-7%
Sales	2,499	2,465	-1%	4,667	4,457	-5%
EBITDA	307	187	-39%	473	323	-32%
Adjusted EBITDA 1	187	130	-31%	336	252	-25%
Net Income	151	75	-50%	225	121	-46%
Adjusted Net Income 1	66	33	-50%	128	70	-45%
Balance Sheet Items
Capital Employed				4,431	3,766	-15%
Net Debt				1,916	1,398	-27%
Debt Gearing (ND/ND+E)				43%	37%	-

Notes:

1. Calculated as Reported adjusted for inventory effects and other non-operating items.

Further information:

V. Tsaitas, Investor Relations Officer

Tel.:      +30-210-6302399

Email:   vtsaitas@helpe.gr

Group Consolidated statement of financial position

		As at
	Note	30 June 2019	31 December 2018
ASSETS
Non-current assets
Property, plant and equipment	10	3.243.091	3.268.928
Right-of-use assets	2,11	220.447	-
Intangible assets	12	109.813	105.617
Investments in associates and joint ventures		403.098	390.091
Deferred income tax assets		61.382	64.109
Investment in equity instruments	3	1.566	634
Loans, advances and long term assets	2	54.250	73.922
		4.093.647	3.903.301
Current assets
Inventories	13	1.025.159	993.031
Trade and other receivables	2,14	852.226	822.805
Assets held for sale		3.361	3.133
Derivative financial instruments	3	2.107	-
Cash and cash equivalents	15	1.319.688	1.275.159
		3.202.541	3.094.128
Total assets		7.296.188	6.997.429
EQUITY
Share capital and share premium	16	1.020.081	1.020.081
Reserves	17	265.889	258.527
Retained Earnings		1.020.202	1.052.164
Equity attributable to equity holders of  the parent		2.306.172	2.330.772
Non-controlling  interests		61.747	63.959
Total equity		2.367.919	2.394.731
LIABILITIES
Non-current liabilities
Interest bearing loans & borrowings	18	1.606.607	1.627.171
Lease liabilities	2	154.464	-
Deferred income tax liabilities		204.397	185.744
Retirement benefit obligations		167.566	163.514
Provisions		29.994	42.038
Other non-current liabilities		28.911	28.852
		2.191.939	2.047.319
Current liabilities
Trade and other payables	19	1.330.527	1.349.153
Derivative financial instruments		7.034	16.387
Income tax payable		106.591	80.171
Interest bearing loans & borrowings	18	1.112.819	1.108.785
Lease liabilities	2	28.313	-
Dividends payable		151.046	883
		2.736.330	2.555.379
Total liabilities		4.928.269	4.602.698
Total equity and liabilities		7.296.188	6.997.429

Group Consolidated statement of comprehensive income

		For the 6 month period ended		For the 3 month period ended
	Note	30 June 2019	30 June 2018	30 June 2019	30 June 2018
Revenue from contracts with customers	4	4.456.629	4.666.909	2.465.413	2.498.523
Cost of sales		(4.037.224)	(4.071.307)	(2.232.323)	(2.126.620)
Gross profit		419.405	595.602	233.090	371.903
Selling and distribution expenses		(157.434)	(154.463)	(81.887)	(79.988)
Administrative expenses		(65.660)	(66.393)	(31.696)	(34.264)
Exploration and development expenses		(1.712)	(29)	(1.262)	97
Other operating income	5	20.492	13.083	14.812	7.750
Other operating expense	5	(7.412)	(8.435)	(4.648)	(5.124)
Other operating income/(expenses) and other gains/(losses)-net	5	13.080	4.646	10.164	2.623
Operating profit		207.679	379.363	128.409	260.371
Finance income		2.956	1.750	1.956	775
Finance expense		(66.444)	(77.766)	(33.149)	(38.258)
Fiunance expense - lease finance cost		(4.705)	-	(2.432)	-
Currency exchange gain/(loss)	6	743	4.528	(512)	6.646
Share of profit/(loss) of investments in associates and joint ventures	7	14.445	15.083	(3.646)	1.188
Profit  before income tax		154.674	322.958	90.626	230.722
Income tax expense	8	(33.313)	(97.785)	(15.881)	(79.769)
Profit for the period		121.361	225.173	74.745	150.953
Profit attributable to:
Equity holders of the parent		121.321	223.613	74.205	149.341
Non-controlling interests		40	1.560	540	1.612
		121.361	225.173	74.745	150.953
Other comprehensive income:
Other comprehensive income that will not be reclassified to profit or loss (net of tax):
Actuarial losses on defined benefit pension plans	17	(56)	-	-	-
Share of other comprehensive income of associates	17	(41)	-	(41)	-
Changes in the fair value of equity instruments	17	700	(442)	704	(324)
Net other comprehensive income that will not be reclassified to profit or loss (net of tax):		603	(442)	663	(324)
Other comprehensive income that may be reclassified subsequently to profit or loss (net of tax):
Recycling of (gains)/losses on hedges through comprehensive income	17	1.501	(14.920)	-	-
Fair value gains/(losses) on cash flow hedges	17	5.186	16.256	(1.202)	(548)
Currency translation differences and other movements	17	66	(357)	36	(232)
Net other comprehensive income that may be reclassified subsequently to profit or loss (net of tax):		6.753	979	(1.166)	(780)
Other comprehensive income  for the period, net of tax		7.356	537	(503)	(1.104)
Total comprehensive income for the period		128.717	225.710	74.242	149.849
Total comprehensive income/(loss) attributable to:
Equity holders of the parent		128.683	224.152	73.695	148.299
Non-controlling interests		34	1.558	547	1.551
		128.717	225.710	74.242	149.849
Basic and diluted earnings per share (expressed in Euro per share)	9	0,40	0,73	0,24	0,49

Group Consolidated statement of cash flows

		For the 6 month period ended
	Note	30 June 2019	30 June 2018
Cash flows from operating activities
Cash generated from operations	20	228.949	31.448
Income tax (paid)/received		(3.052)	2.572
Net cash generated from / (used in) operating activities		225.897	34.020
Cash flows from investing activities
Purchase of property, plant and equipment & intangible assets	10,12	(78.262)	(60.531)
Proceeds from disposal of property, plant and equipment & intangible assets		363	40
Participation in share capital increase of associates		(342)	-
Purchase of subsidiary, net of cash acquired	25	(5.341)	(1.298)
Settlement of consideration of acquisition of further equity interest in subsidiary		-	(16.000)
Grants received		199	80
Interest received		2.956	1.750
Prepayments for right-of-use assets		(463)	-
Dividends received		1.347	-
Proceeds from disposal of investments in equity instruments		21	266
Net cash used in investing activities		(79.522)	(75.693)
Cash flows from financing activities
Interest paid		(63.127)	(69.941)
Dividends paid to shareholders of the Company		(122)	(214)
Dividends paid to non-controlling interests		(2.246)	(2.061)
Movement in restricted cash	15	-	144.445
Acquisition of treasury shares	17	-	(511)
Proceeds from borrowings		10.000	407.810
Repayments of borrowings		(27.671)	(407.272)
Payment of lease liabilities		(19.729)	-
Net cash (used in) / generated from financing activities		(102.895)	72.256
Net increase in cash and cash equivalents		43.480	30.583
Cash and cash equivalents at the beginning of the period	15	1.275.159	873.261
Exchange gain on cash and cash equivalents		1.049	4.272
Net increase in cash and cash equivalents		43.480	30.583
Cash and cash equivalents at end of the period	15	1.319.688	908.116

Parent Company Statement of Financial Position

		As at
	Note	30 June 2019	31 December 2018
ASSETS
Non-current assets
Property, plant and equipment	9	2.666.689	2.684.237
Right of use assets	2,10	23.165	-
Intangible assets	11	5.637	4.799
Investments in subsidiaries, associates and joint ventures		1.040.473	1.032.372
Investment in equity instruments	3	1.203	318
Loans, advances and long-term assets		19.974	8.887
		3.757.141	3.730.613
Current assets
Inventories	12	905.543	893.859
Trade and other receivables	13	718.215	681.555
Derivative financial instruments	3	2.107	-
Cash and cash equivalents	14	827.875	1.070.377
		2.453.740	2.645.791
Total assets		6.210.881	6.376.404
EQUITY
Share capital and share premium	15	1.020.081	1.020.081
Reserves	16	269.601	262.263
Retained Earnings		807.464	864.333
Total equity		2.097.146	2.146.677
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings	17	1.641.415	1.657.598
Lease liabilities	2	16.761	-
Deferred income tax liabilities		171.510	151.873
Retirement benefit obligations		136.074	132.539
Provisions		24.179	37.858
Other non-current liabilities		14.497	14.810
		2.004.436	1.994.678
Current liabilities
Trade and other payables	18	1.200.868	1.226.107
Derivative financial instruments	3	7.034	16.387
Income tax payable		100.971	76.322
Interest bearing loans and borrowings	17	642.740	915.350
Lease liabilities	2	6.640	-
Dividends payable		151.046	883
		2.109.299	2.235.049
Total liabilities		4.113.735	4.229.727
Total equity and liabilities		6.210.881	6.376.404

Parent Company Statement of Comprehensive Income

		For the 6 month period ended		For the 3 month period ended
	Note	30 June 2019	30 June 2018	30 June 2019	30 June 2018
Revenue from contracts with customers	4	4.087.415	4.322.650	2.263.042	2.312.015
Cost of sales		(3.826.905)	(3.877.253)	(2.123.081)	(2.021.461)
Gross profit		260.510	445.397	139.961	290.554
Selling and distribution expenses		(49.637)	(48.132)	(25.343)	(25.894)
Administrative expenses		(39.110)	(40.142)	(18.067)	(20.585)
Exploration and development expenses		(52)	(162)	(23)	(141)
Other operating income/(expenses) & other gains/(losses)-net	5	(485)	1.044	(3.336)	425
Operating profit		171.226	358.005	93.192	244.359
Finance income		5.509	4.614	3.121	2.127
Finance expense		(60.605)	(71.584)	(30.038)	(35.165)
Lease finance cost		(464)	-	(245)	-
Dividend income		7.917	35.083	7.917	35.083
Currency exchange gains/(losses)	6	1.032	4.243	(531)	6.744
Profit before income tax		124.615	330.361	73.416	253.148
Income tax expense	7	(28.666)	(96.634)	(13.522)	(79.236)
Profit for the period		95.949	233.727	59.894	173.912
Other comprehensive income/(loss):
Other comprehensive income/(loss), that will not be reclassified to profit or loss (net of tax):
Changes in the fair value of equity instruments	16	651	(468)	668	(345)
		651	(468)	668	(345)
Other comprehensive income/(loss), that may be reclassified subsequently to profit or loss (net of tax):
Fair value gains / (losses) on cash flow hedges	16	5.186	16.256	(2.703)	14.372
Recycling of losses / (gains) on hedges through comprehensive income	16	1.501	(14.920)	1.501	(14.920)
		6.687	1.336	(1.202)	(548)
Other Comprehensive income/(loss) for the period, net of tax		7.338	868	(534)	(893)
Total comprehensive income for the period		103.287	234.595	59.360	173.019
Basic and diluted earnings per share (expressed in Euro per share)	8	0,31	0,76	0,20	0,57

Parent Company Statement of Cash flows

		For the 6 month period ended
	Note	30 June 2019	30 June 2018
Cash flows from operating activities
Cash generated from operations	19	172.120	159.512
Income tax (paid)/received		(1.768)	4.184
Net cash generated from/(used in) operations		170.352	163.696
Cash flows from investing activities
Purchase of property, plant and equipment & intangible assets	9,11	(55.856)	(41.992)
Proceeds from disposal of property, plant and equipment & intangible assets		1.074	-
Dividends received		6.571	-
Interest received		5.509	4.614
Settlement of consideration of acquisition of further equity interest in subsidiary		-	(16.000)
Participation in share capital increase of subsidiaries & associates		(10.014)	(15.853)
Net cash used in investing activities		(52.716)	(69.231)
Cash flows from financing activities
Interest paid		(66.132)	(65.164)
Dividends paid		(122)	(214)
Acquisition of treasury stock		-	(511)
Proceeds from borrowings		10.067	442.698
Repayments of borrowings		(302.423)	(406.866)
Payment of lease liabilities		(3.527)	-
Net cash (used in)/generated from financing activities		(362.137)	(30.057)
Net (decrease)/increase in cash and cash equivalents		(244.501)	64.408
Cash and cash equivalents at the beginning of the period	14	1.070.377	667.599
Exchange losses on cash and cash equivalents		1.999	4.243
Net (decrease)/increase in cash and cash equivalents		(244.501)	64.408
Cash and cash equivalents at end of the period	14	827.875	736.250

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