Consolidated financial results of PKN ORLEN 4Q2015

In 2015, PKN ORLEN’s LIFO-based EBITDA reached a record high of PLN 8.7bn. Sales volumes rose year-on-year, to 38.7m tonnes, with almost 31m tonnes of crude processed. In 2015, PKN ORLEN consistently pursued its growth strategy and paid out a dividend of PLN 1.65 per share.

PKN ORLEN’s 2015 financial highlights:

  • LIFO-based EBITDA of PLN 8.7bn (operating profit before depreciation and amortisation, net of non-cash effect of inventory revaluation and impairment of non-current assets)
  • LIFO-based EBITDA of the retail segment coming in at a record level of PLN 1.5bn
  • Revenue of more than PLN 88bn, despite a year-on-year decrease in prices of petroleum products
  • Oil and gas reserves growing to a total of approx. 97m boe (2P)
  • Further increase in the value of the ORLEN brand, to PLN 4.5bn, according to a ranking by the Rzeczpospolita daily
In 2015, the Company’s LIFO-based EBITDA before impairment losses on assets reached PLN 8.7bn, up PLN 3.5bn year-on-year. PKN ORLEN’s financial performance in 2015 was largely an effect of very favourable macroeconomic environment and record-high sales. In 2015, the average price of Brent went down 47% year on year, to USD 52.4/bbl, the Polish złoty weakened against the US dollar by nearly 20%, and the downstream margin rose by USD 2.4/bbl, to USD 13.8/bbl.

PKN ORLEN continued its capex projects across all segments. As part of the efforts to grow its power business, the Company continued the construction of an almost 600 MWe CCGT unit in Płock and the commissioning of a 463 MWe unit in Włocławek, whose commercial launch is scheduled for mid-2016. By acquiring Kicking Horse Energy, PKN ORLEN expanded its base of production assets, and the takeover of FX Energy gave the Company access to promising oil and gas deposits in Poland. With these two transactions, PKN ORLEN increased its oil and gas reserves (2P) to approx. 97m boe. In its petrochemical business, the Company gave a go-ahead to the construction of a new Polyethylene Unit at the Litvínov plant in the Czech Republic. Building up the downstream business, both petrochemical and refining, in the Czech Republic, PKN ORLEN finalised the acquisition of a 32% interest in Česká Rafinérská from, ENI, Italy’s oil and gas group.

“PKN ORLEN’s consistent pursuit of its strategy was the main driving force behind these impressive results. The macroeconomic conditions are now slightly different from what they were in mid-2014, when the strategy was approved, so our financial objectives may need to be reviewed. Therefore, we do not rule out a revision of the strategy, to ensure we can flexibly respond to market developments. We will also seek to capitalise more on our potential to innovate,” says Wojciech Jasiński, CEO and President of the PKN ORLEN Management Board.

Ensuring stable supplies of raw materials for the process units is an important element in the operations of the ORLEN Group. Late 2015 and early 2016 is when two long-term contracts, with Mercuria Energy Trading and Rosneft Oil Company, expire. That is why at the end of December 2015 PKN ORLEN signed two new contracts for crude oil deliveries (with Rosneft and Tatneft), securing good pricing terms and flexibility with respect to supply volumes and points of delivery. Currently, the Company has an optimum structure of long-term and spot contracts, allowing it to take advantage of the market situation and diversify its sources of supply to the best possible extent.

“Our 2015 performance figures show how successful we have been in exploiting the opportunities offered by the favourable macroeconomic environment to strengthen our financial foundations. Last year, we continued to develop and integrate our business segments and streamline the Group’s structure, to even more effectively respond to market changes in the long run,” says Sławomir Jędrzejczyk, CFO and Vice-President of the PKN ORLEN Management Board.

In the fourth quarter of 2015, PKN ORLEN reported LIFO-based EBITDA in its retail business of PLN 369m, with total sales rising by 3% year on year, despite lower gasoline consumption in Germany, the Czech Republic and Lithuania. The segment’s performance was bolstered by year-on-year improvement in margins on non-fuel products in Poland and the Czech Republic, partly offset by tighter fuel margins across markets, lower margins on non-fuel products in Germany, and the widespread grey market in Poland. In the fourth quarter, PKN ORLEN continued to expand its non-fuel sales, adding 154(y/y) new Stop Cafe and Stop Cafe Bistro outlets to its network in Poland, bringing the total to 1,404 as at the year end.

In the fourth quarter of 2015, the ORLEN Group’s downstream segment posted LIFO-based EBITDA of PLN 1.7bn, up PLN 669m on the same period last year. In the quarter, PKN ORLEN reported an 8% year-on-year increase in crude throughput and a year-on-year rise in total sales by 5%. The segment’s performance was driven by such factors as the weakening of the Polish currency against the US dollar by 16% year-on-year, and a year-on-year expansion of margins on heavy fuel oil, gasoline, SN 150, and ethylene. The positive effect of stronger sales was partly offset by lower margins on diesel oil, propylene, benzene and paraxylene, depreciation of the euro against the US dollar by 12% year-on-year, and a 1pp year-on-year decline in capacity utilisation in the Czech Republic caused by a breakdown of the ethylene unit at Unipetrol in the third quarter of 2015.

A milestone event in the power generation segment in the fourth quarter of 2015 was the commencement of the start-up phase and launch of the gas turbine in Włocławek. The work to put the 463 MWe unit into operation went smoothly, with first electricity from the new plant fed into the national grid in January 2016. Currently, the project has entered its final phase, which will involve comprehensive measurements of the guaranteed parameters. The project is scheduled for final acceptance in mid-2016. Progress was made on the Płock power project as well, with the drawing of a comprehensive basic engineering design for a 596 MWe generating unit completed in the fourth quarter of 2015. Work began to lay foundations for main process facilities, such as boiler house and the turbine house, and final tests were performed on the steam turbine and electric generator. The new unit is scheduled to start cogenerating heat and electricity in late 2017.

In the upstream segment, efforts to achieve the production potential target of 6m boe/year by 2017 continued in line with the segment’s sustainable development strategy. PKN ORLEN’s oil output rose on two transactions closed in late 2015, when the Company acquired a Canadian upstream operator, Kicking Horse Energy Inc., and the US-based FX Energy, which holds its main production assets in Poland. The transactions increased PKN ORLEN’s 2P oil and gas reserves to approx. 97m boe, and were preceded by comprehensive analyses to determine an optimal future profile of production assets. Having finalised the transactions, PKN ORLEN moved closer to delivering its strategic production target of 16,000 barrels a day by 2017. Its current focus is on integrating the new assets into the Group.

In the fourth quarter of 2015, PKN ORLEN took steps to obtain new prospective licences in Poland. In addition to the Polish production assets of FX Energy, in mid-October PKN ORLEN acquired the Siennów-Rokietnica licence under the Miocen project. Also, a procedure was initiated with the Ministry of Environment for the acquisition of 100% interests in two licences in Outer Carpathians. In the fourth quarter of 2015, design and analytical work was performed on the Polish licences, work commenced or continued to acquire and process 2D and 3D seismic data, and preparations began for development operations.

PKN ORLEN’s financial position remained sound, with financial leverage at 28.1% as at the year end. In 2015, PKN ORLEN made capital expenditure of just under PLN 3.2bn, with the largest share allocated to development work and PLN 1.6bn spent on acquisitions of upstream companies and ENI’s interest in Česká Rafinérská. In the fourth quarter of 2015, PKN ORLEN maintained its net debt at a safe level, similar to that posted in the previous year.

In line with its strategic objectives, in 2016 PKN ORLEN will proceed with the key projects designed to support the growth of individual business segments. In Poland, the start-up of the Włocławek CCGT plant and the power project in Płock will be continued. In the Czech Republic, the construction of a polyethylene unit and the reconstruction of the olefin unit will be carried out. In the retail business, PKN ORLEN plans to invest in expanding its service station network, which will include building 20 new stations in Poland, Germany and the Czech Republic.

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