Second quarter 2014 financial results

Operating results across Group business units were improved in 2Q14, driven mainly from (a) performance of refining units, (b) increased contribution from Domestic and International Marketing, (c) lower operating cost and (d) stabilisation of sales volumes in the Greek market. On the contrary, the weak environment for European refiners, as well as geopolitical developments that create uncertainty in crude oil markets and increased cost of supply, continue to have a negative effect. As a result of the above, Adjusted EBITDA came at 49m euros (+133% vs 2Q13).

Since the beginning of the year, the Group has successfully completed a significant part of its refinancing strategy, increasing long term credit capacity and reducing cost, with the issue of two new Eurobonds, with a total size of 620m euros and renegotiating existing facilities with improved terms.

Challenges in European refining environment persisted throughout 1H14, with uncertainty and increased volatility in crude oil markets due to the developments in Iraq, as well as Libya and Ukraine. As a result, Brent crude price recorded a 9-month high at 115 dollars/bbl.

Diesel exports from US and Russia to Europe remained at high levels, leading diesel cracks to 4-year lows, while most product cracks were also lower than last year. Benchmark Med refining margins remained weak, with FCC margins averaging 2.3 dollars /bbl (2Q13: 3.5 dollars/bbl) and Hydrocracking at 3.2 dollars/bbl (2Q13: 2.4 dollars/bbl).

The stabilisation trend in transport fuels demand reported in the previous 3 quarters sustained through 2Q14 as well, while auto diesel consumption continues to grow substituting gasoline usage, a trend that has already been reported in new car registrations. According to preliminary domestic market data, 2Q14 demand remained broadly stable at c.1.5m MT.

Adjusted EBITDA amounted to 49m euros, (+133% vs 2Q13). International and especially European refining environment remained challenging, with weaker benchmark margins and US dollar, negatively affecting 2Q14 results by c. 18m. euros. Despite those adversities, operational profitability improved in refining, as well as all other main Group business units. Elefsina refinery increased its contribution following the improvement works that were implemented during the shut-down of last Spring, with utilisation exceeding 100% of nominal capacity, while Thessaloniki refinery also operated with positive contribution. Total refined product sales amounted to 3.2 million tons, with exports maintained at 50% of total sales.

Competitiveness improvement projects and cost control positively affected results with additional €23m benefit for 2Q14, with the total annual recurring cash contribution from these initiatives since 2008 exceeding  310m euros. Material part of the benefit came from the reduction in G&A expenses which are 16% lower in 1H14 compared to last year. The target for 2014 is for cash benefits to exceed 80meuros.

On reported results, operating performance and gains from inventory valuation led Reported EBITDA, to 53m euros (2Q13: -25m euros), while Reported Net Results, which include 53m euros of financial expenses and 48m euros of depreciation were also improved at -50m euros (2Q13: -95m euros).

Capital expenditure came at 61m euros, relating mostly to maintenance and small improvement projects in refining and logistics, with the Group remaining one of the largest industrial investors in Greece.

Net Debt, amounted to 1.6bn euros, lower vs last year, with gearing (Net Debt/Capital Employed) at 43%.

During 2Q14, the Group implemented a number of actions for the improvement of its financial position and the particularly high cost of funding, an outcome of the recent years’ crisis, affecting all Greek corporates. In this context the Group proceeded with the issue of two Eurobonds, a 2-year, 400m dollars at 4.625% and a 5-year, 325m euros with a 5.25% coupon on 16 May and 4 July 2014 respectively. Both issues met strong domestic and international demand, attracting both private and institutional funds, resulting in completion of the book-building processes in a few hours and their significant oversubscription. The new bond issues, a vote of confidence to HELLENIC PETROLEUM outlook and prospects, will improve the Group’s cost of funding and liquidity, with positive effect for all business activities.

Furthermore, the renegotiation of syndicated facilities maturing in 2016, with an original size of 605m euros, was completed with early voluntary prepayment of 150m euros (in addition to a scheduled repayment of 50m euros), using the proceeds of the USD Eurobond with the same maturity. The new 400m euros facilities are due up to 2018.

Following the above, the key objectives prescribed in the 2014 financial strategy are largely achieved, with improvement of terms, average duration, as well as cost of funding.

The regulatory approvals process for the sale of 66% of DESFA share capital, from HELLENIC PETROLEUM and HELLENIC REPUBLIC ASSET DEVELOPMENT FUND to SOCAR, for 400 million euros, by the competent authorities in Greece and the EU is in progress. On 29 May 2014 the Greek Regulation Authority of Energy (RAE) has issued a draft decision for the certification of DESFA as independent operator for gas transportation and proceeded with the notification of its decision to the DG Energy of the EU Commission, an important step towards the obtaining of the required regulatory approvals and permits for the completion of the transaction, expected in 2014. The amount that corresponds to HELLENIC PETROLEUM for its 35% indirect share in DESFA is 212m euros and the proceeds of the sale are earmarked for the reduction of gearing and funding cost.

John Costopoulos, Group CEO, commented on 2Q14 performance:

“The challenges in European refining sustained in 2Q14. In addition to weak margins, volatility returned to crude oil markets, due to developments in regional oil producing countries. Despite the difficult environment, HELLENIC PETROLEUM achieved better operational performance in all business segments vs last year, as reflected in improved financial results.Elefsina refinery, following the maintenance and improvement works, has reported a historical utilisation high, with all new units at record performance, which is expected to further support the refinery’s contribution. Competitiveness improvement programs were a key driver for improved operational profitability in all our business units, with significant savings in 1H14, while the full year target of80m euroscash benefit is expected to be achieved.

In terms of our financial strategy, we have successfully completed the first phase of our debt portfolio management, with the issue of two Eurobonds, with total size of over  600m euros  and the renegotiation of our largest syndicated facility. With these actions we have achieved the reduction of funding costs, as well as the improvement of the financial risk and maturity profile. The benefits of those actions will positively affect our financial results from 2H14. I would like to thank our employees for their commitment and efficiency, as well as our shareholders for their confidence and support.”

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