Operations-driven profitability improvement leads to 24% increase in Net Income despite weaker environment
Hellenic Petroleum Group reported first half Consolidated Net Income of euro175 million, up 24%, corresponding to euro0.57 per share (EPS). Second quarter Consolidated Net Income amounted to euro102 million, 42% higher versus first quarter of this year. The Board of Directors approved an interim dividend of euro0.15 per share, 26% of reported EPS.
Group Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) for the first half of 2006 were euro330 million.
Key financials for the first half of 2006, relative to the same period last year, were:
- Sales euro4,104 million, up 43 %
- Clean- EBIT euro175 million, up 39 %
- Earnings per share (EPS) euro0.57, up 24 %
- Operating cash flow measure euro281 million, up 33 %
- ROΑCE 12.6 % (12M: July 2005 - June 2006)
- ROE 16.5 % (12M: July 2005 - June 2006)
- Interim Dividend euro0.15 per share
Factors affecting first half 2006 results were:
(a) Operational profitability: Significant improvement in domestic Refining, Supply & Trading operations as well as International R&M businesses provided additional profitability exceeding euro40 million compared to last year. As a result, comparable -Clean- EBIT (excluding effect of higher crude oil and products prices) is up by 39%.
(b) Market environment: On the other hand, the refining environment was less favourable than last year. Despite the persistence of high crude oil prices, average refining margins remained lower than last year with the exception of complex refining margins (Med cracking margin) in the second quarter. Greek market demand for gasoline products and ULSD was up, while the weakening of the US Dollar against the Euro had a positive impact on the financial results.
REFINING, SUPPLY & TRADING
Comparable Clean EBIT for Refining, Supply & Trading (adjusted for Inventory gains) was euro157 million, 39% up vs. half year 2005. Including inventory gains, EBIT was euro235 million (up 8%). Key drivers were:
- Second quarter sales volume from the Group-s three refineries in Greece was 3.8 million tons (up 12% versus the same period last year), with half year sales volume at 8 million tons, up 5%. OKTA sales volume in the second quarter was 237 thousand tons (up 10% from last year) and half year was 461 thousand tons (up 5% from last year).
- Improved operations with greater international trading, crude oil feedstock optimisation and tight control of operating costs resulted in an overall improved performance, despite softer market conditions.
In contrast, the impact of the business environment on first half results was lower by euro36 million when compared to last year's. This was due to lower average Med refining margins as well as lower inventory gains.
RETAIL MARKETING EKO Greece sales volume was up 1% to 1,891 thousand metric tons, with higher domestic market sales volume and slight decrease aviation and marine fuel markets. ΕΚΟ improved its market share in automotive diesel and maintained its share in gasoline in the first half of 2006. The decrease in profitability in the first half was a result of pressure on profit margins during the early part of the year. Commercial policy changes and increased sales volumes in higher value products during the last month of the s econd quarter had little impact on reported results for the six months.
International marketing sales volume increase of 8% was the primary reason for the doubling of Earnings Before Tax. All business reported organic profitability improvements with the exception of Bulgaria where, despite volume gains, local market driven retail margin pressure affected gross margins. Total number of Hellenic Petroleum retail stations rose to 195 with 21 new stations since the end of year.
PETROCHEMICALS
Petrochemicals sales volumes increased by 13% in the first half of 2006 compared to last year, to 207 thousand tons; with operational profits were up by 75%.
POWER GENERATION AND TRADING
Higher SMPs and realised crack spreads lead to improved profitability for the power generation unit in the second quarter. Total power sales for the first half of 2006, including cross-boarder trading and capacity certificates, amounted to euro51 million with EBITDA of euro10 million.
EXPLORATION AND PRODUCTION
An important development during the second quarter of 2006 was the announcement of encountering separate hydrocarbon bearing zones during the initial exploratory drill in Murzuk carried out by the consortium of Hellenic Petroleum, Repsol YPF and Woodside. It is estimated that a period of 12 to 18 months is required to evaluate and assess commercial developments and expected financial results.
Furthermore, negotiations with EGPC (State owned petroleum company of Egypt) for the signing of the EPSA (Exploration, Production and Sharing Agreement) in the West Obayed block in the Western Desert were successfully completed and the agreement initialled. Ratification by the Egyptian Parliament is expected in the 4th quarter and Hellenic Petroleum is in the process of establishing a branch and a subsidiary company in Egypt to facilitate to carry out its activities as operator. It is worth noting that the block was awarded to Hellenic Petroleum during the International Bid round conducted by EGPC in early 2006.
INVESTMENT PLAN
Group investments during the second quarter of 2006 amounted to euro32 million (first quarter euro17 million) and related mostly to small projects for the upgrading and maintenance of industrial sites and network of petrol stations in Greece and abroad.
As part of the Group strategy, the Elefsina refinery upgrading project FEED is already in progress. The technology and licensor for the main Hydrocracker and Flexicoker units has already been decided and awarded as has for most of the ancillary utilities and process equipment.
FINANCIAL POSITION
The sustained high level of international crude oil and product prices as well as the increase of stocks led to debt levels close to euro1 billion similar to last quarter. As a result, despite the positive operating cash flows (euro281 million), debt gearing ratio (D/D&E) remained at 30%. During the period additional credit lines of euro300 million were secured through a syndicated multi-currency loan organized through the newly formed Group Treasury subsidiary, Hellenic Petroleum Finance plc.
Key Financial Indicators for the Group are attached:
HELLENIC PETROLEUM GROUP
HALF YEAR 2006 CONSOLIDATED KEY FINANCIAL RESULTS (Prepared in accordance with IFRS)
HALF YEAR
euro MILLION
2005 2006 %
Net Sales
EBITDA
Clean EBIT(1)
Earnings before Tax
Net Income
Earnings per Share (EPS) euro
Operating Cash Flow (2)
2,863 311 126 211 141 0.46 211 4,104 330 175 255 175 0.57 281 43% 6% 39% 21 % 24% 24% 18%
31.12.2005 31.3.2006
Net Debt(3)
Debt Gearing (D/D+E) (3)
700 25% 999 30% -- --
(1) Calculated as Earnings before Interest & Taxes (EBIT), excluding results from associates and inventory effect.
(2) Calculated as EBITDA less capital expenditure.
(3) Compared to 31.12.2005 figures.