MARKETPLACE Hellenic Petroleum A Story of Transformation and Growth Panos Cavoulacos, CEO of Hellenic Petroleum, discusses the challenges and successes at one of the largest energy groups in South-Eastern Europe

BY PANOS CAVOULACOS

ellenic Petroleum is one of the largest energy groups in South-Eastern Europe. We have recently started H implementing the transition from a public-sector business culture to one of a listed, competitive private enter- prise and, as a result, started creating significant shareholder value. We will continue developing our business footprint in the region, implementing world-class business processes, strengthening and renewing our personnel, creating a new cul- ture and philosophy based on accountability and transparency, and building a strong management team.

Strategic Targets We established three key objectives for Hellenic Petroleum at the outset in 2004. The first was to restructure the group and operate it with procedures and business processes suitable for a regional and international energy group. The second was to identify and implement strategies to help grow our business. And the third was to significantly increase our profitability and returns —actually to double them over a five year horizon. Implementation is under way for all three objectives; in partic- ular, profitability has improved significantly, with net income of Euro 334 million in 2005, up 160%, and Return on Aver- age Capital Employed of 17% (excluding our participation in DEPA and the Power construction project).

Restructuring and Efficiency Improvement One of the most important things we’ve done was to change, and often simplify, our business processes and improve the way we organize ourselves. I will give you some examples. We had several international businesses that were running separately, so we created an International Refining and Mar- keting Division, appointed a new General Manager, staffed key positions with strong managers, provided common tools for management reporting, introduced SAP for control, estab- lished quarterly review meetings and common strategy ses- sions, and shared best practices. In the last 18 months, perfor- mance is strong and profitability is growing dramatically. We put cost control mechanisms in place and started moni- toring our operating expenses. As a result, we cut overtime by 30% last year and managed to keep operating costs flat for the

26 AEGEAN NEWS SPRING 2006 first time in the history of the company. In the past, they used Growth and Value Creation to increase annually by 6% to 8%. We therefore captured During the last decade, investments in global refining capacity “self-help” of Euros 15 million in 2005. lagged the increase in oil products demand. Consequently, ex- We introduced a variable compensation scheme for the cess global refining capacity is limited today and refinery uti- management team, linked with corporate performance and in- lization rates are very high. The industry has entered a re-in- dividual objectives, so this year we will pay cash bonuses and vestment economics period with higher refinery margins and award stock options. We will also offer a bonus to our person- increased profitability for refineries. Hellenic Petroleum’s prof- nel, in light of our strong performance in 2005. itability has followed this international trend, while a series of We also created a financing company in the UK for Hel- “self help” measures has further increased performance com- lenic Petroleum Group that allows us to borrow more efficient- pared to previous years. The most important measures include ly and more effectively for our businesses. During the year we the upgrade of the Aspropyrgos Refinery in late 2004 which have varying cash needs and the ability of each company to added Euros 50 million in annual operating profit, the capture borrow differs, so centralized cash management and borrow- of synergies following the merger with Petrola which added ing are far more effective. Euros 25 million, the improvement in the profitability of our We brought in new personnel to certain key management International Refining & Marketing business adding Euros positions, and more is going to come. For example, we brought 30-40 million above historical levels, as well as the better con- in two new executives to run our Bulgarian and Serbia sub- trol of operating costs and discipline in capital spending. sidiaries, with the skills and local market knowledge required Our plan for growth and value creation is based on further for improved performance in these markets. Our people are strengthening our core business, refining and marketing, and vital for us and we are now at the point where we must renew on developing two new energy businesses: oil and gas explo- our skills base and age pyramid. Soon we will be hiring as a ration and production, and power generation and trading. private company for the first time, and this should have a major We are currently executing an investment program to up- impact on our overall performance. grade our refineries in by investing in new state-of-

Our plan for growth and value creation is based on further strengthening our core business, refining and marketing, and on developing oil and gas exploration and production, and power generation and trading.

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the-art units, a distillate paign. We are currently hydrocracker and a coker, evaluating several attrac- in the South to convert tive assets in the region low-priced fuel oil into and we have entered high-value diesel. The Egypt, where EGPC upgrade is a three-year, (Egypt General Petrole- Euros 600 million in- um Cooperation) award- vestment, fully supported ed to us exploration and by international and re- production rights for the gional demand trends; we West Obayed area in the expect it will generate latest exploration round. significant additional Moreover, we have en- ebitda and boost our re- tered a new business, fining profitability. We power generation and are also evaluating in- marketing. Hellenic Pe- vestments in conversion troleum owns the first and distillation capacity private CCGT power in the North. plant in Greece through At the same time, we Thessaloniki Power SA. are working to further The gas-fired GE 9FA strengthen our position in plant has a capacity of the retail market in 390 MW and started op- Greece, where we plan to erations on December 24, expand our retail network 2005. Although current- by adding new, flagship, ly the profitability of the company-owned retail plant does not meet our stations that will enable expectations, we expect us to further increase our that as time goes by the market share of Kinitron regulators will take the premium products, in- decisions that will alter crease non-fuel sales and the pricing structure in improve our overall brand the country, and that will position. We are also tar- allow us, and other pri- geting Serbia and Bul- vate producers, to prof- garia for retail expansion itably participate in the and we are executing and electricity market of investment program for Greece. At the same time building or acquiring a Hellenic Petroleum is transforming itself we have stared trading total of 80 retail stations power by importing from in each country in a from a Greek refiner to a leading energy Bulgaria and exporting three-year period. We company in South-Eastern Europe. to Italy, a very profitably are the market leader in activity so far. Cyprus, Montenegro, and Overall, Hellenic Pe- FYROM, guaranteeing security of fuels supply. troleum operates in a positive global business environment In addition to these, we are transforming the Hellenic Pe- for refining, has significant efficiency improvement potential troleum portfolio in two parts of the energy value chain. We and strong growth opportunities both in South-Eastern Eu- are building our Exploration and Production business into a rope and in new activities such as power generation and oil material contributor of profitability, with a production objec- and gas production. Supported by its strong financial posi- tive of 50,000 barrels per day by 2010, covering 15-20% of tion and its stable shareholder structure, its excellent assets our crude requirements. In addition to Greece, we have an ex- and strong teams, its new culture and philosophy of account- cellent position in , with six blocks in the Sirte and ability and transparency, Hellenic Petroleum is transforming Murzuk basins in partnership with Woodside and Repsol YPF itself from a Greek refiner to a leading energy company in where we have recently started a 2-rig, 6-well drilling cam- South-Eastern Europe.

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