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Article Excerpt
OPERATOR: Good afternoon, ladies and gentlemen. This is a Chorus Call conference operator. Welcome and thank you for joining Hellenic Petroleum Full Year 2008 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).
At this time, I would like to turn the conference over to Mr. John Costopoulos, CEO, Mr. Andreas Siamisis, CFO, Mr. George Alexopoulos, Corporate Planning & Development Director, and Mr. George Grigoriou, IRO. Gentlemen, please go ahead.
JOHN COSTOPOULOS, CEO, HELLENIC PETROLEUM SA: Thank you very much. Ladies and gentlemen, good evening and welcome to our conference call for the presentation of the highlights of our fourth quarter 2008 and full year 2008 results. I guess you've got the presentation in front of you and I will kind of quickly walk you through some of the pages and then as we usually do, I'll open up the forum for questions and clarifications.
Let me start by saying that clearly, as you all know, we have been operating throughout 2008 in an environment -- in a macroenvironment of unprecedented volatility and of course, an unprecedented, at least in my generation -- in a financial turmoil in international markets and particularly the financial markets, which obviously are -- have gradually had their impact on the real economy.
Now within this, I would say quite volatile and challenging environment, our Group came in with what we see as very strong underlying operating results, focusing particularly on the last quarter. As you can see from the numbers that we have sent you, the adjusted EBITDA and that's obviously excluding the effect of the inventory loss, but also excluding a number of non-operating items which I will explain in a minute.
But EBITDA is up 117%, coming in at EUR143 million, and our adjusted net income -- again adjusted for inventory losses -- came in at EUR35 million versus EUR6 million for the equivalent quarter last year. And of course, this was mainly due as we all -- mostly a refining company due to the higher margin realizations.
So, we've seen strong underlying profitability in refining, the adjusted EBITDA grew to EUR131 million, up from EUR39 million in the fourth quarter over 2007, and that was on the back of higher margins, particularly in middle distillates and on fuel oil and on a continued struggle over very tight cost controls, as well as about EUR15 million that came in as initial gains from our transformation initiatives which started last year and are proceeding on plan. And we expect more of those gains from our transformation initiatives across refining and across our marketing operations to begin to deliver additional benefits in 2009 and as we proceed in the following years.
If we move to volumes, our volumes for the year were flat year-on-year, obviously on the back of the domestic market trends and the trends in our export markets. But again, the product mix was improved which obviously gave us better margin realizations.
In terms of domestic marketing, the subsidiary EKO was hit by a very sharp fall in oil product prices at the end of the year or through the kind of the end of the year, so inventory devaluation, if you will, also impacted the results of EKO. So therefore, despite the fact that they've been able to come in with decent gross margins, they've done some things on their cost controls, they were badly hit by inventory valuations towards the end of the year.
Volume sales and market shares continued increasing in our international marketing operations. So, in the Balkan markets and in Cyrus where we operate our marketing subsidiaries, we've seen growth on the back of course of network expansion and we obviously have been focusing on managing our foreign exchange and our credit exposures very, very tightly. Clearly, we are concerned with the developments in the Balkans, so credit risks, devaluation risks are very closely monitored and managed.
In petrochemicals, the overall macroenvironment in petrochemicals was dismal in 2008 and obviously, we've seen lower demand and particularly we've seen lower prices hitting our results -- I mean, our volumes particularly in the major profit generator which [poorly properly in] were not that bad versus a year ago. We've had a slight decline, but obviously margins were very badly hit and that had a negative impact on profitability coming in from pet-chems.
Now, on -- behind all these operating results, our overall reported profitability was supported quite well this year by a number, if you will, of initiatives that we took. As you recall from our previous conference call, we embarked on a restructuring of our E&P portfolio starting with the profitable sale of our Libyan concessions -- its original concessions -- which brought in about EUR138 million of gains that are reported in our results. And also, the completion of our dealing with Edison, the Italian company, in energy production and trading; that brought in another EUR53 million gains from that transaction.
Reported results of course as I mentioned earlier on was seriously affected by inventory losses. In the fourth quarter, those inventory losses were to the tune of EUR28 million, expected I guess as we hold compulsory stocks in the Greek markets, which obviously far exceeds our operating stock requirements -- I mean, as opposed to a number of other European markets.
Greece does not have a government controlled or an industry controlled compulsory stock obligation organization. The compulsory stocks are 90 days of inventories -- safety inventories -- are held by the importers of crude or the importers of products. Given our large market share and presence in the domestic market, obviously we hold large stocks and therefore the inventory losses were commensurate.
And if you recall in the fourth quarter of '07, again because of the same reasons, but of course prices were in the other way, going up then, we had inventory gains of over EUR107 million. So clearly, I mean, this -- unprecedented drop in oil and product prices, both in terms of scale but also in terms of very fast timing, very sharp timing, had an impact on our inventories.
On the other hand, free cash flow was strong in the fourth quarter of '08 through a combination of dropping price, enhance lower inventories, very tight working capital management both in terms of receivables and payables, and also the inflow of the gains from the Libyan sale and the Edison sale. Our cash flow generation reached EUR900 million versus a negative EUR42 million in the fourth quarter of '07.
Our balance sheet is solid. We will go over the structure of the balance...
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