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Annual Board of Directors Management Report
BOARD OF DIRECTORS ANNUAL REPORT
The present Board of Directors Annual Report pertains to the 2015 fiscal period.
The Report has been prepared so as to ensure harmonization with the relevant
provisions of C.L. 2190/1920 as in effect, of law 3556/2007 (GGI 91Α/30.4.2007)
and the issued executive decisions of the HCMC, especially HCMC Board of
Directors Decision number 7/448/11.10.2007.
The present report contains financial details on the entity titled «MYTILINEOS
HOLDINGS S.A.» (hereinafter called the «Company») and its subsidiaries and as-
sociated companies (hereinafter called the «Group», jointly with the company) for
fiscal year 2015. It describes major events that occurred in the same period and
their influence on annual financial statements. It also describes the main hazards
and risks that may be faced by the Group member companies in the forthcoming
year; finally, it lists major transactions between the Company and the persons
associated with it.
Ι. 2015 REVIEW - PERFORMANCE AND FINANCIAL POSITION
After a short-lived recovery in 2014, the Greek economy in 2015 entered again
into recession, under the negative effect of the extreme economic uncertainty,
which peaked at the end of July with the introduction of the capital controls. The
agreement reached in July on a new financing programme laid the foundations
for the stabilisation of the Greek economy. The new strengthening of the Greek
banking system’s capital reserves, coupled with the phased easing of the re-
strictions in banking transactions, helped normalise the economic activity, which
showed remarkable resilience, as evidenced by the impact on GDP (-0.7% for
the entire year), which was less than initially forecasted. Having said that, the
Greek economy in 2015 went through its seventh year of recession in the space
of the last eight years. As a consequence, the debt to GDP ratio deteriorated
further, unemployment remained very high and social costs increased. In paral-
lel, despite the new recapitalisation concluded in December, the banking sector
remains vulnerable, as the resolution of non-performing loans remains very much
a pending issue and the sector relies almost exclusively on the ECB to secure
the necessary liquidity.
On the international front, the weakened growth rates in emerging markets and
especially in China, the rapid decline in the prices of oil and commodities and
the widespread political instability, result in scepticism, with reservations voiced
openly about the effectiveness of potential future interventions by the Central
Banks.
Against this backdrop, the ECB has expanded its asset purchase programme
and continues to follow an expansive monetary policy, as the risk of deflation
intensifies. At the same time, however, investments in negative-yield debt are ris-
ing to unprecedented levels, causing concerns over the balance sheet quality of
the European banks. On the other hand, the normalisation of the FED’s monetary
policy caused strong fluctuations in the international currency, commodity and
stock markets.
Acknowledging these challenges, the Group focuses on strict cost controls, on
ensuring increased liquidity, on drastic actions to strengthen the competitiveness
of its Metallurgy and Energy Sectors, and on METKA’s further penetration in new
markets abroad with high growth rates.
Metallurgy and Mining Sector
In 2015, the Aluminium industry was strongly affected by factors such as the de-
cline in energy costs, the concerns over the slowdown in the growth rates of the
emerging economies, particularly so of the Chinese economy, and the stronger
performance of the US Dollar against most peripheral currencies.
Average prices for Aluminium at the LME stood at $1,679/tn, down 11% relative
to the previous year. Premia came under stronger pressure, as they declined by
over 60% relative to their record-high prices, which had climbed to nearly $900/
tn (Billet premium) at the beginning of the year. The rapid decline in the prices of
Premiums drove the all in average price (“LME+Premium”) to $2,100/tn, down by
around 11% compared to the previous year.
The decline in aluminium prices was significantly
offset by the weakened performance of the US Dol-
lar against the Euro (-16.4% relative to the previous
year), as well as by the continuing decrease of en-
ergy costs, on the back of the rapid decline in oil
prices, to levels even below $40 per barrel.
Despite the remarkable decrease in production
costs, the decline in Aluminium prices to a new six-
year low brings strong pressure to the industry and
forces a significant part of marginal producers to
curtail or even suspend their production .
The pronounced decline in prices seems to be out of
step with the evolution of demand, as both in China
and in the rest of the word aluminium consumption
continues to grow at satisfactory rates (posting a
growth above 3% for 2015) and is expected to reach
60 million tons in 2016, corresponding to an annual
growth of nearly 5%.
In the light of said conditions, MYTILINEOS Group
remains focused on the strict monitoring of produc-
tion cost, having as major priority the implemen-
tation of its cost optimization programme, called
“Excellence” to further improve its competitiveness,
and laying the foundations for long-term growth in
the future.
EPC Sector (Construction)
Against an adverse economic environment in
Greece, but also in the countries of the Middle East
and North Africa where METKA has a significant
activity in the recent years, the company’s perfor-
mance followed a satisfactory course in 2015.
Pursuing its strategic goal to develop its activities in
sub-Saharan Africa, METKA announced its first sub-
stantial project in the region. It concerns the engi-
neering-procurement-construction-commissioning
of a 250mwatt power plant with the BOOT method,
a five-year time schedule and a budget of USD 360
million.
Also, through its subsidiary, METKA EGN, which
was established with an aim to evolve into a new
leader in the solar power sector on a global level,
the Group has signed contracts for EPC and O&M
for seven solar photovoltaic power plants, valued at
approximately Euro 112 million.
For yet another year, the professionalism, the high
expertise and the dedication of METKA’s employees
had a significant contribution to the achievement of
exceptional performance, in an environment of in-
tense uncertainty and continuous challenges.
The positive performance of the company is re-
flected in the financial results of 2015, which confirm
METKA’s resilience.
More specifically, the Group’s turnover for 2015
reached
€
668.0 million compared to last year’s
€
609.3 million, while the Company’s turnover for the
same period mounted to
€
411.9 million compared
to last year’s
€
549.0 million.
The main factors which contributed to the Group’s above course are:
a) The project «Engineering, Procurement and Construction (EPC) of
250 MW power plant» in Ghana, with a contractual value $ 360 mil-
lion, which in the period under review recorded a turnover of
€
209.0
million.
b) Τhe continuation of the project «Construction of a thermal power
plant station of 1250 MW» in Iraq, with a contractual value of $ 567.7
million which in the period under review recorded a turnover of
€
164.8
million.
c) The «Construction and commissioning of a 590,726 MW open-cy-
cle, three turbine, dual fueled power plant» in Hassi ‘Rmel, Algeria,
with a contractual value of
€
154 million and 2.311 million DZD, which
in the period under review recorded a turnover of
€
60.5 million.
d) The continuation of the project «Construction of remaining infra-
structure, permanent way, signaling-telecommanding, telecommuni-
cations and electrical engineering works for the tunnel facilities for the
new railway line Kiato-Rododafni» of a contractual value
€
227 million,
which in the period under review recorded a turnover
€
43.3 million.
e) The continuation of the project «Construction of a power plant sta-
tion of 701 MW» in Deir Ali, Syria, with a contractual value of
€
673
million which in the period under review recorded a turnover of
€
42.5
million.
f) The project «Defined metal structures of the hull and turret for 62
LEOPARD 2A7 main battle tanks for the Middle East market» of a con-
tractual value
€
56.5 million, which in the period under review recorded
a turnover of
€
30.2 million.
g) The «Construction of 8 mobile generators of 179.72 MW» in Algeria,
with a contractual value of $ 66 million, which in the period under re-
view recorded a turnover of
€
23.1 million.
h) The «Construction and commissioning of an open-cycle, natural-
gas fired, two turbine power plant of 368.152 MW» in Algeria with a
contractual value of
€
72 million and DZD 2.127 million, which in the
period under review recorded a turnover of
€
19.1 million.
Energy Sector
In the domestic energy market, demand for electricity in 2015 was
negatively affected by the economic and political uncertainty which
prevailed during the first half of the year. It is indicative that, despite
a strong increase of demand in the first quarter (+8.4%) of the year,
the rate of increase subsequently declined, thus resulting in a 2.2%
year-on-year increase and a full year electricity consumption of circa
51.4 TWh.
In terms of the generation mix in the wholesale market, the reduced
generation from gas-fired plants during the first half of the year was
reversed during the second half, due to the decrease of natural gas
prices. In parallel, 2015 was yet another year of reduction in the elec-
tricity generation from lignite-fired plants (-14.5% year-on-year). Con-
sequently, the average System Marginal Price (SMP) declined at the
level of
€
51.9/MWh (-9.9% compared to 2014).
However, the delays in the assessment and implementation of several
regulatory measures, such as the failure to introduce the new flexibility
mechanism, had a negative impact, especially for those producers
operating the flexible units. Said negative impact in the Group’s result
of operations for the reported year amounts to 46mio
€
. In addition,
considerable delays continue to exist with regard to the liberalisation
process of the wholesale and the retail energy market.
The new memorandum between the Greek govern-
ment and is Creditors acknowledges the fact that
the Greek energy markets require the implementa-
tion of high scale reforms in order to get aligned
with the legislation and the directives of the E.U, to
become modernized and more competitive, to re-
duce monopoly rents and inefficiencies, to promote
innovation, to enhance the adoption of Renewable
Energy Sources (RES) and natural gas and to en-
sure that all such changes will be to the benefit of
the consumer.
The contemplated measures are as such:
• Reforms in the natural gas market so as to
make it possible for all consumers to choose be-
tween alternative suppliers up to 2018.
• Design, in cooperation with the European
Commission, of the electricity auctions system
ΝΟΜΕ, with the target to decrease by 25% the share
of PPC in the electricity retail market and a further
decrease of its market share below 50% until year
2020. If an agreement for said auctions cannot be
reached, the Greek authorities will have to agree
with the institutions on structural measures that will
effectively lead to the same results as mentioned
above, regarding market shares and timelines.
• Privatization of the Greek Independent Power
Transmission Operator (ADMIE), or other alternative
plan that can ensure the complete ownership un-
bundling from PPC, having equal results in competi-
tion and investment prospects.
• Implementation of a new temporary and per-
manent mechanism for capacity remuneration and
amendment of the regulations to avoid the compul-
sory operation of power plants below their variable
cost of operation.
• New framework for the support of RES, pre-
serving their financial viability, as well as for the im-
provement of the energy efficiency taking the opti-
mum advantage of EU funds and also international
and private funding.
• New plan for the upgrade of electricity net-
works, to improve efficiency, enhance interoperabil-
ity and reduce the cost for the consumer.
Despite the above, the Group continued in 2015
to strengthen its presence in both the wholesale
and retail electricity market. More specifically, the
high efficiency of the Group’s units paired with an
efficient purchasing of Natural Gas from the spot
LNG market, brought up the Group’s electricity
generation for 2015 by 23%. In parallel, the entry
of PROTERGIA in the retail market is progressing
successfully, as the company trebled its market
share within the reported year.
