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Annual Report 2016

Message to Shareholders

E. Tsotsoros Photo
E. Tsotsoros
Chairman of the BoD
G. Stergioulis Photo
G. Stergioulis
Chief Executive Officer

Message to the Shareholders

Dear Shareholders,

In 2016, after seven years of recession, the Greek economy has shown signs of stabilization, with growth at +0.4% compared with 2015. Although some uncertainties remain, regarding the implementation of funding programs, especially in regards to reforms, the ground for the gradual return of the economy to growth has been laid.

With regard to the international environment, the international crude oil prices recovery towards the end of the year - following a change in OPEC’s policy for the control of production and exports - was the main development in 2016, despite prices averaging the lowest since 2004.

The evolution of the euro against the dollar, reflected monetary policy and, in the last months of 2016, political developments in Europe and North America; the dollar remained strong against the euro, favoring European refiners.

In refining, especially European refineries, competitiveness continued to suffer from high regulatory costs, due to the EU policy on climate change and sustainable development, while for Greek refineries, competitive pressure is expected to increase further, due to the increase and modernization of refining capacity in neighboring countries, the Middle East and Southeast Asia, which will not bear the high costs of EU compliance.

For HELLENIC PETROLEUM Group, 2016 was a year that all major targets were met, with respect to the performance in refining and other activities, improving the balance sheet and diversifying crude supply options.

The Group’s refineries achieved their highest availability in recent years, recording a production increase of 16% to 14.8 million tons, the highest performance in the Group’s history, with exports at 8.6 million tons, also a historic high. Total sales amounted to 15.8 million tons, up 10%.

HELLENIC PETROLEUM, with its significant international experience in the exploration and production of hydrocarbons (thanks to its participation as an equal partner in 17 joint ventures with recognized major international oil companies in Libya, Egypt, Albania and Montenegro), is once again focusing its interest in Greece. As part of a consortium of international joint ventures, or independently, the Group has created a portfolio of exploration and production areas that it intends to develop in the coming years, attracting large international players from the global oil industry.

In the marketing sector, the Group, with 1,700 petrol stations through the EKO and BP brands, 550 tank vehicles and five owned vessels, continued to increase sales and market shares in 2016, sustaining its profitability despite market challenges, while completing the merger of the two marketing entities, with significant benefits.

In the international market, with 300 petrol stations, mainly through the EKO brand, the Group has continued its successful presence, maintaining a leading position in Montenegro and Cyprus and is among the top five companies in the sector in Bulgaria, Serbia and FYROM. The Group’s foreign subsidiaries have maintained their operating profitability at high levels.

In 2016, HELLENIC PETROLEUM Group announced the strongest operating profitability in its history, with EBITDA of €836 million, while net profits amounted to €329 million. The Adjusted results, after the deduction of the stock valuation gains of €102 million, due to the recovery in international crude oil prices, were sustained for the second year at the historically highest levels for the Group, with Adjusted EBITDA at €731 million and Adjusted Net Income at €265 million.

During 2016, and for the second consecutive year, the Group reported strong operating cash flows (Adjusted EBITDA less Capex) at €605 million higher compared to 2015 (€593 million), continuing the improvement in the Group’s balance sheet.

The Group successfully completed the renegotiation and improvement of financial covenants in bank loans and eurobonds and issued a new fiveyear, €375 million bond with a 4.875% coupon, coupled with the repurchase of existing bonds maturing in 2017 with an interest rate of 8% amounting to €225 million, following a tender offer. The above considerations have significantly improved the Group’s balance sheet, as the maturity profile of the loan obligations has been extended and finance cost has been reduced.

In addition, improved liquidity, coupled with direct supply agreements with state oil companies in Saudi Arabia, Iran, Iraq and Egypt, have allowed for the exploitation of opportunities in the Mediterranean crude oil pricing structure in 2016, with significant financial benefits for the Group, while improving supply chain management and security of supply.

Taking into account the positive results of 2016 and the Group’s improved financial position, the Board of Directors of HELLENIC PETROLEUM decided to propose the distribution of a dividend of €0.20 per share to the General Meeting of Shareholders.

In 2016, the focus was on improving working environment with targeted management initiatives, empowering the role and participation of employees, thereby fostering their active participation and contribution to the achievement of goals, that make them proud of the Group’s role in the national economy and its social contribution. Moreover, as part of the strategy for stable working conditions, a new collective three-year agreement was signed at the beginning of 2017, securing labor relations stability and contributing to the Group’s sustainable development.

Human centered social contribution and sustainable development focused on the environment and climate change, defined the planning and features of key initiatives in the context of CSR, highlighting the Group social angle, its contribution to local development in collaboration with local communities, the development of strong relationships with our customers and suppliers, as well as systematic and sustained actions to address environmental issues, such as water and energy waste, biodiversity, CO2 emissions and waste management.

Following the positive results in 2016, in 2017, the Group’s Management will implement the 2017-2021 Medium Term Development Program with the strategic objective of creating an independent, innovative and competitive regional Energy Group, which is a pioneer in energy transformation, within the framework of the European Roadmap for sustainable economic and social development.

Finally, we would like to thank our employees for their important contribution to the Group’s development as well as our shareholders for their continuous support and trust. They are the main supporters of our strategy for the implementation of our vision to adapt to the current conditions, develop sustainability and maximize benefits for society as a whole.

E Tsotsoros Signature
E. Tsotsoros
Chairman of the BoD
G Stergioulis Signature
G. Stergioulis
Chief Executive Officer