PKN ORLEN reports very good Q1 2018 results

For Q1 2018, PKN ORLEN reported:

• LIFO-based EBITDA of PLN 1.9bn
• Record-high LIFO-based EBITDA in the Retail segment of PLN 464m
• 8% year-on-year increase in crude oil throughput
• 4% year-on-year growth in sales volumes
• 2% year-on-year revenue growth

“Taking into account the macroeconomic environment in the first quarter, the ORLEN Group delivered very good results, so we are entering the next quarter with a continuing strong financial position. We are ready to implement the intentions we have declared to the Ministry of Energy in relation to Grupa LOTOS, proceeding with key investments in all of our home markets as well as projects of material importance to the Company’s and Poland’s energy security,” said Daniel Obajtek, President of the PKN ORLEN Management Board.

In Q1 2018, model downstream margins shrank by USD 0.7/bbl (y/y), mainly because of a USD 13/bbl increase (y/y) in the average Brent price and appreciation of average PLN exchange rates against both USD and EUR. The markets in Poland, the Czech Republic and Lithuania saw a year-on-year growth in diesel oil consumption, with a simultaneous drop in Germany. Gasoline consumption increased in the Polish and German markets, while falling in the Czech and Lithuanian markets (y/y).

The Downstream segment’s Q1 2018 LIFO-based EBITDA came in at PLN 1.5bn The figure reflected an 8% year-on-year rise in throughput, resulting from the Płock and Mazeikiai refineries operating at full capacities, and a 2% year-on-year increase in sales volumes. The reporting period saw year-on-year growth in sales of diesel oil (Poland: by 14%), olefins and polyolefins, and a decline in gasoline, LPG, fertilizers, PVC and PTA sales. The positive effect of higher volumes was offset by increased costs of energy used for own needs, lower margins on polyolefins and both light and heavy refining fractions, and appreciation of the PLN.

In Q1 2018, the Retail segment posted LIFO-based EBITDA of PLN 464m, a record-high quarterly result. The Company recorded an 11% (y/y) increase in sales volumes as well as expansion across all markets, including a 2.9 pp growth (y/y) in the Czech market share as a result of taking over OMV service stations and integrating them with the Company’s retail network. In the period, fuel and non-fuel margins in Poland and the Czech Republic were on the rise (y/y), while in Germany and Lithuania they remained largely flat. In Q1 2018, the Company continued to roll out its non-fuel range, with 138 new Stop Cafe and Star Connect outlets having been opened since the corresponding period last year. As at the end of the period, the Company operated a total of 1,864 food outlets, including: 1,611 Stop Cafe in Poland (including 209 O!SHOP convenience stores), 210 Stop Cafe in the Czech Republic, 23 Stop Cafe in Lithuania, and 20 Star Connect shops in Germany. Car-sharing service was launched in Silesia and the Dąbrowa Górnicza region, and is now available at 70 ORLEN service stations. In April 2018, the Company introduced EFECTA fuels into the Polish market, which are to replace the currently offered EuroSuper 95 and Ekodiesel Ultra. The advanced technological solutions applied in its new products place PKN ORLEN among the leading refiners in Europe.

In Q1 2018, the average production of hydrocarbons at the ORLEN Group grew by 19% year on year, to 17,100 boe per day, driving up LIFO-based EBITDA to PLN 68m. In Poland, the drilling of three exploration wells was completed, and studies of seismic data were continued. Preparatory work was also carried out to enable acquisition of new seismic data and drilling of more exploration wells. In Canada, eight wells were spudded and six fractured as part of operations conducted by the Company together with its partners. Seven wells were brought on stream in the Kakwa and Ferrier areas. In the Kakwa region, work continued to expand the gas pre-treatment facilities and the gathering system, and the project to deploy gas lifts on production wells was taken to the next stage.

In line with its strategic development vision, the Company consistently expanded its power co-generation business. In Q1 2018, the Płock CCGT plant was certified for operation and all other permits required for its use were obtained, while the Company together with PSE continued to run relevant tests and trials. After the unit is placed in commercial operation, PKN ORLEN will produce about 7 TWh of electricity, accounting for 4.5% of Poland’s total electricity output. PKN ORLEN has also announced a tender for the development of a preliminary technical concept to determine the options for preparing and implementing a project involving the construction of offshore wind farms in the Baltic Sea. Under the licence held by PKN ORLEN, maximum capacity of the wind farms may be 1,200 MW. In Q1 2018, negotiations with the general contractor of the Włocławek CCGT project were successfully concluded. As part of settlement of the contract, the consortium (consisting of General Electric and SNC-LAVALIN POLSKA) will implement advanced technological solutions to improve the plant’s availability and performance.

In Q1 2018, the Company generated operating cash flows of PLN 0.5bn. Its net debt totals PLN 5.2bn, with leverage maintained at a safe level of 15.7%, in line with the Company’s strategy. In an effort to diversify its financing sources, PKN ORLEN intends to continue the retail bonds programme initiated in 2017. After the Management Board’s approval was obtained, subscription for a new series of bonds targeted at retail investors will start on May 7th 2018.