PKN ORLEN’s consolidated financial results for Q2 2017
21-07-2017   
RECORD Q2 PERFORMANCE DRIVEN BY SALES GROWTH ACROSS ALL SEGMENTS
AND FAVOURABLE MACRO CLIMATE

In the second quarter of 2017, PKN ORLEN reported record-high LIFO-based EBITDA, coming in at PLN 3.1bn, up by PLN 0.5bn year on year, mainly on the back of a 10% growth in total sales volumes across all segments, aided by a supportive macroeconomic backdrop. In the past quarter, the Company strengthened its position in power generation by completing its modern 463 MWe CCGT project. In June, PKN ORLEN’s Management Board was appointed for a new three-year term of office and the Annual General Meeting resolved to distribute PLN 3 per share in dividend for 2016. 
 
For Q2 2017, PKN ORLEN reported:
 
• LIFO-based EBITDA of PLN 3.1bn
• operating cash flow of PLN 3.5bn
• 10% year-on-year increase in crude oil throughput
• 10% year-on-year growth of sales volumes
• 19% year-on-year revenue growth.
 
The Q2 2017 LIFO-based EBITDA of PLN 3.1bn was supported by higher sales, the improved macro environment, positive effect of the regulations curbing the grey market in Poland,
and retail margin expansion. In the period, diesel oil consumption increased year on year across the Company’s home markets, with a 26% growth seen in Poland, while consumption of gasoline (yoy) rose in Poland and Germany, stayed unchanged in the Czech Republic, and fell in Lithuania. In the second quarter, the model downstream margin expanded by USD 1.4/bbl year on year, the average Brent price moved up USD 4/bbl (yoy), and average PLN exchange rates strengthened against both USD and EUR.
 
“It was another quarter when the delivery of PKN ORLEN’s strategic goals translated into excellent performance. We closed the first half of the year with a huge success: our long-running dispute with the Lithuanian Railways was finally settled, clearing the way for ORLEN Lietuva’s enhanced business efficiency. We also completed the CCGT project in Włocławek, which will not only benefit our business, but will also improve the country’s energy security. Having chalked up these successes, we can be confident about the Company’s ability to achieve its strategic goals over the next years,” said Wojciech Jasiński, President of the PKN ORLEN Management Board.
 
The Retail segment, with LIFO-based EBITDA of PLN 576m, reported another record-breaking second quarter. The PLN 135m year-on-year improvement of its performance was chiefly driven by expanding sales volumes, up by an overall 10% year on year, including 8%
in Poland, 20% in the Czech Republic, 9% in Lithuania, and 7% in Germany. The positive impact of higher (yoy) fuel margins in Poland and the Czech Republic, coupled with improved non-fuel margins on the Polish, Czech and German markets, was mainly offset by increased operating expenses incurred by service stations on higher sales volumes. The Company was consistently broadening its non-fuel offering, with around 1,731 Stop Cafe and Stop Cafe Bistro outlets operating at the end of Q2, including 1,538 in Poland, 170 in the Czech Republic,
and 23 in Lithuania. In response to market trends and new mobility models in urban areas,
PKN ORLEN provided a carsharing service (car rental by the minute) for its customers in Warsaw and Kraków.
 
The LIFO-based EBITDA of the Downstream segment improved by PLN 259m in the second quarter 2017 (yoy), to PLN 2.55bn. During the period, the refineries’ oil throughput rose 10% year on year, mainly as a result of the FCC unit and Steam Cracker at Unipetrol coming back
on stream after the emergency shutdown in the fourth quarter of 2016, as well as the 10% year-on-year increase in total sales volumes, including 11% in diesel oil, 4% in gasoline, 8% in olefins, 122% in polyolefins, and 12% in fertilizers. The positive net effect of macroeconomic factors such as growing margins on middle and heavy distillates, olefins, PTA, aromatics and PVC, was partly offset by a lower Brent/Urals differential and compressed polyolefin and fertilizer margins.
 
“We have been able to take advantage of the good market climate, which is particularly visible
in our fuel and petrochemical sales figures. While we benefit from the continuing supportive environment and the government’s crackdown on the grey market in fuels, we keep a focus on growth initiatives, expanding the range of goods and services in Retail and investing in modern petrochemical assets. We seek to further reinforce our position and make the Company’s performance resilient to macroeconomic trends in the longer term,” said Mirosław Kochalski,
Vice President of the PKN ORLEN Management Board.  
 
Consistent implementation of PKN ORLEN’s strategic objectives in power generation led to the launch of an advanced CCGT unit in Włocławek. It already supplies electricity and heat to ANWIL and several other entities, with some of its heat output distributed throughout
the Włocławek industrial complex, of which the plant is an integral part. Any surplus electricity
is supplied to the National Power Grid. In Płock, work on another CCGT unit is running
on schedule: the second quarter saw the first application of voltage from a 400kV line, and now the unit, scheduled to go on stream in the fourth quarter, is undergoing tests of the electricity generation system.
 
In Q2 2017, the average production of hydrocarbons at the ORLEN Group was up 17% (yoy), driving up LIFO-based EBITDA to PLN 82m, with higher average output in Canada
(up by 2.3 thousand boe/d), lower average production in Poland (down by 0.1 thousand boe/d), and a positive contribution of macro factors, specifically a year-on-year increase in oil and gas prices. Work on the Polish assets included seismic data acquisition and analysis, and the drilling of an exploration well in the Płotki area, where production tests have confirmed the presence of gas qualifying for commercial extraction. Preparatory work was continued to drill further wells and acquire a new set of seismic data. In Canada a project to develop sour gas treatment facilities was completed. In the Ferrier area, work was under way to construct a pipeline for the supply of liquid hydrocarbons. PKN ORLEN’s oil and gas reserves (2P) currently total 114m boe, including 11m boe in Poland and 103m boe in Canada.
 
Over the past quarter, the Company’s stable financial fundamentals were maintained:
its financial leverage was reduced to 3.7% and net debt fell by PLN 2.5bn (qoq) on positive operating cash flows of PLN 3.5bn, offset by investment spending and other items. The Company redeemed PLN 400m worth of Series A and Series B retail bonds, and in July it received the Polish Financial Supervision Authority’s approval for the issue of a few series of further bonds to be offered to retail investors. The programme was assigned a high provisional rating of A(pol)(EXP) from Fitch Ratings.
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