Why we are optimistic about our overall trajectory in 2024

The Chief Financial Officer of HELLENiQ ENERGY, Vasilis Tsaitas, discusses all the group's open issues, including financial results, the process concerning Elpedison, the potential sale of its stake in DEPA, dividend policy, the future of the refining sector, oil prices, and the stock’s performance following the recent placement. He emphasizes that the strong nine-month performance was achieved amid declining international margins. Regarding Elpedison, he highlights that the chosen process will lead to a positive outcome for both Groups as well as for the company. Concerning DEPA, he notes that selling the 35% stake to the state is considered a potential solution. Mr. Tsaitas points out that liquid fuels will remain a significant part of the global energy mix, while for oil prices, he notes that supply is expected to continue exceeding demand even in 2025.

The low refining margins affected the performance of the sector in the third quarter of the year. Are you satisfied with the Group’s progress? How do you assess the impact on operating profitability?

We are very satisfied with the quarter’s financial results, which brought the nine -month Comparable EBITDA to over €750 million, marking one of our highest historical performances. It is important to consider that this strong performance was achieved in an environment of declining international refining margins, which have fallen to their lowest levels in the past 2.5 years. It is worth noting that in our core business, refining, both the costs and the selling prices of our products – factors that shape our revenues and, by extension, our gross margin – depend on international crude oil and fuel prices.

Despite operating in a less favorable environment compared to the past two years, marked by the European energy crisis triggered by the Russian invasion of Ukraine, we achieved improved operational performance across all our activities.

With these factors in mind, are you optimistic about your overall trajectory in 2024?

Amid the volatility of our operating environment, we focus on what we can control through the strategies we implement and the continuous improvement of our day-to-day operations. The reason we achieved excellent operational performance in Refining during the third quarter of 2024, with product output reaching a six-year high, is the increased availability of all refining units and the optimization of their operation. Similarly, we capitalized on opportunities in international trading, achieving an eight-year record in petroleum product sales.

On the other hand, our performance consistently confirms the Group's outward orientation. Exports account for 45% of our sales, and together with international market sales (shipping and aviation), they represent 72% of total sales. In petrochemicals, exports exceed 70% of total sales. Additionally, there has been significant and continuous improvement in the performance of retail trading both in Greece and abroad, alongside substantial growth in our new Renewable Energy Sources (RES) activities. At the same time, we are advancing the Group's digital transformation program, which has already generated significant annual benefits of €40 million.

All these factors are reasons for optimism. Furthermore, in the fourth quarter, we are observing a recovery in international margins compared to the previous quarter, while the Greek market, which remains our core market, continues to grow at a very satisfactory pace.

In your opinion, is the decline in profitability a broader trend affecting the refining sector, or is it a temporary phenomenon? In short, does traditional refining have a future?

The oil sector is characterized by fluctuations in the prices of raw materials and products. Consider that over the past four years, we have witnessed both the lowest and the highest margins in history, during the COVID-19 and Ukraine crises, respectively. We are now entering a cycle of stabilization in the global environment, which, however, can at any moment be influenced by geopolitical and economic developments.

In the long term, all indicators show that liquid fuels will remain an essential part of the global energy mix. Global demand is expected to continue growing in the coming years, with estimates suggesting that by 2040, it will remain at least at current levels. A significant development has been the recognition by energy companies and institutional players shaping energy policy that petroleum products are part of the solution for the energy transition.

For the refining and petroleum sectors, the future lies in adapting to the new environment rather than being replaced. As the global energy mix gradually shifts toward cleaner forms of energy, the refining sector is expected to contribute through investments aimed at decarbonization and evolution. This includes producing cleaner fuels and alternative energy sources, such as hydrogen and synthetic fuels.

The Group's electricity and natural gas activities are undergoing restructuring. What is the status of HELLENiQ ENERGY's stake in DEPA? What scenarios are being considered? At the same time, the process for Elpedison is underway. When is the auction expected, how will it be conducted, and what is HELLENiQ ENERGY's goal? Will you be a buyer or seller of the company’s 50% stake? What is the reasoning behind these moves involving DEPA and Elpedison?

HELLENiQ ENERGY aims to have control over the companies through which it operates in its areas of interest. Participating in specific sectors via companies that may compete with each other, or where shareholders have differing strategies, creates management and governance challenges. Our priority is to rationalize our portfolio in the electricity and natural gas sectors.

Regarding DEPA Commerce, selling our 35% stake to the Greek state is being considered as a potential solution. The discussions we are conducting, I believe, will lead to a resolution that aligns with the strategies of both parties. As for Elpedison, Edison has been an excellent partner over the past 15 years, bringing expertise and know-how. However, at this stage, our strategic priorities no longer align. We mutually agreed on a process that will lead to a positive outcome for both Groups as well as for Elpedison, one of the most significant companies in the Greek market.

You follow an investor-friendly dividend policy. Do you plan to continue at this pace? What are your plans for rewarding shareholders in the near future?

Historically, our annualized dividend yield has been highly competitive, both compared to large-cap companies listed on the Athens Stock Exchange and similar international firms, averaging above 8% over the past eight years. This year’s interim dividend was set at €0.20 per share, and based on the year-end results, we will announce our proposal for the total dividend for 2024. The company takes into account a range of factors in shaping its dividend policy, targeting a distribution of 35%-50% of Comparable Net Profits. This is done with consideration for the dividend yield, future prospects, and trends in the broader European sector.

Are you satisfied with the stock’s performance following the recent placement? How did the investment community respond? Could we expect similar moves in the future?

The issue of a potential new private placement of HELLENiQ ENERGY shares is solely a matter for the shareholders and not the company. However, the successful completion of the transaction for the disposal of an 11% stake, in the share capital to international and domestic investors, was another testament to the investment community's confidence in HELLENiQ ENERGY's strategy and prospects. Following the significant increase in free float, we have seen a notable improvement in the stock’s liquidity, trading activity, and overall investor interest. It’s worth mentioning that since the beginning of 2024, the total shareholder return, including distributions, has outperformed comparable European companies.

What factors do you believe will influence oil prices in the near future? How do you think the market will be affected by Trump's election, given his declared support for fossil fuels?

Currently, global oil supply exceeds demand, a trend expected to continue into 2025, according to the International Energy Agency (IEA). Similarly, OPEC recently revised downward its forecasts for global oil demand growth for both this year and 2025. Weak demand in China, India, and other developing countries is exerting pressure on international crude prices. Even if OPEC+ production cuts remain in place, rising output from the U.S. and other non-OPEC producers outweighs the subdued demand. A potential shift in U.S. energy policy following the outcome of the presidential elections could influence the global energy landscape, including Europe. This, combined with other factors shaping global supply and demand for energy products, will inevitably impact prices. For instance, a U.S. administration more favorable to fossil fuels could lead to increased investment and production, which may either stabilize or further suppress prices, depending on the interplay of market dynamics.

Source (in Greek): The interview was conducted by Mr. Haris Floudopoulos and was originally published on the website capital.gr.