LIFO-based EBITDA reported by PKN ORLEN for Q1 2017 came in at PLN 2.3bn, up by almost PLN 400m year on year. The growth was driven mainly by a 4% year-on-year improvement in total sales volumes, which reached the highest level ever recorded in the first quarter of a year, an increase in crude throughput by 0.5m tonnes, an increase in the average daily crude production in Upstream by 1.2 thousand boe/d, as well as higher fuel and non-fuel margins in Retail. In the past quarter, the Management Board recommended dividend payment of PLN 3 per share for 2016. In April 2017, Moody’s Investors Service assigned a Baa2 rating to PKN ORLEN, the highest in the Company’s history, with a stable outlook. Furthermore, PKN ORLEN was again awarded the titles of ‘The World’s Most Ethical Company’ and ‘Top Employer Poland’.
For Q1 2017, PKN ORLEN reported:
• LIFO-based EBITDA of PLN 2.3bn
• 4% year-on-year growth in total sales volumes
• 41% year-on-year growth in revenue
• 7% year-on-year increase in crude throughput
• 8% year-on-year increase in the average daily crude production
LIFO-based EBITDA of PLN 2.3bn, attributable to record-high results posted by all segments in Q1 2017, was accompanied by a growth of the downstream margin by USD 0.4/bbl yoy, increase in average price of Brent crude by USD 20/bbl yoy, lower average PLN/USD exchange rate, and strengthening of the złoty against the euro. Relative to the same period of 2015, PKN ORLEN saw increased diesel oil consumption in all its markets. The strongest growth, in excess of 10%, was recorded on the Polish market, mainly in the wake of the regulatory crackdown on the grey market and more effective law enforcement. Gasoline consumption rose year on year in Poland and Lithuania, and remained stable in Germany and the Czech Republic.
“Despite a less favourable business landscape, we had a very good start into this year. Our performance in the first quarter was supported by regulatory steps undertaken to curb the grey market in fuels. Our diesel oil and gasoline sales in Poland rose by 42% and 11% year on year, respectively, as a result of which we paid PLN 1.2bn more to the state budget, in VAT, fuel tax and excise duty. This is obviously very satisfying, but we do not forget that we need to continue strengthening our position, including through improved asset efficiency. In Q1 2017, we launched the visbreaker project to further increase crude throughput. We also continued power generation projects in Poland and petrochemical projects in Poland and the Czech Republic, as well as upgrade work in the Retail segment on all our home markets. We keep growing while maintaining a stable financial position, so we can flexibly respond to new market challenges,” said Wojciech Jasiński, CEO and President of the PKN ORLEN Management Board.
LIFO-based EBITDA in the Retail segment amounted to PLN 372m in Q1 2017, up by PLN 71m year on year. This was mainly an effect of the continued sales growth (up 2% yoy), driven by sales increase in Poland (up 5%), the Czech Republic (up 20%) and Lithuania (up 12%), partially offset by a decrease in Germany (down 7%). The result was also supported by the year-on-year improvement in fuel margins in Poland, Germany and the Czech Republic and non-fuel margins on the Polish and Czech markets, offset to some extent by higher operating costs incurred by service stations on higher sales volumes. In Q1 2017, PKN ORLEN consistently developed its non-fuel sales network: at the end of the reporting period the network comprised included a total of 1,726 Stop Cafe and Stop Cafe Bistro outlets, 135 more year on year. In the Czech Republic, another 16 stations acquired from OMV were included in the Benzina service station chain.
The Downstream segment delivered solid LIFO-based EBITDA of PLN 2bn, an increase of PLN 266m year on year. The result was achieved on higher total sales volumes (up 4% year on year) and higher crude throughput (up 7% year on year, a record-high volume of oil processed in the first quarter by the Polish and Czech refineries), mainly as a result of the FCC unit and Steam Cracker in the Czech Republic coming back on stream after the emergency shutdown in Q4 2016. The result was also supported by the model downstream margin, which gained USD 0.4/bbl year on year, improved diesel margins and Brent/Urals spread. Another positive contributor to the segment’s result, of PLN 200m year on year, was the compensation received for last year’s accident at the Czech refinery in Kralupy. The effect of these supportive factors was weakened mainly by rising oil and gas prices, which translated into higher costs of the segment’s own energy consumption. In early April, PKN ORLEN signed a contract to supply up to 100,000 tonnes of propylene annually to Basell ORLEN Polyolefins. The contract covers the output of the Metathesis Unit currently being constructed in Płock, scheduled for commissioning in the second half of 2018.
In the first quarter, PKN ORLEN made further progress on the project which, by the year’s end, will turn it into Poland’s largest producer of electricity co-generated with heat. In Włocławek, warranty measurements on the CCGT unit were completed, with trial run commenced in mid-April and commissioning scheduled for the second quarter of 2017. Work on the CCGT unit in Płock is on schedule, with commissioning planned for the fourth quarter.
In the Upstream segment, plans for ORLEN’s Polish and Canadian assets were being consistently carried out. The segment once again positively contributed to the Group’s overall result, turning in LIFO-based EBITDA of PLN 80m, up PLN 53m year on year. In Polish licence areas, seismic data was being acquired, exploratory drilling was continued, and preparations were under way to drill new boreholes and acquire new data. Three exploration licences were relinquished following assessment of their potential. In Canada, drilling of new production wells began, first oil was obtained from previously drilled wells, and more fracking work was done. Projects were also carried out to develop sour gas treatment facilities (Amine Skid) and to construct pipelines and near-wellbore infrastructure. The average production from ORLEN’s assets in the reporting period amounted to 14.4 thousand boe/d.
“The Company’s increasingly stronger performance has been noted by analysts - we received our historically highest issuer rating of Baa2 with a stable outlook from Moody’s, who also upgraded our credit rating. This best confirms that we are solidly placed to make continued progress towards our strategic objectives,” said Sławomir Jędrzejczyk, CFO and Vice President of the PKN ORLEN Management Board.
In the past quarter, ORLEN maintained a firm financial footing, with a safe level of debt and leverage of 11.6%. In line with the progressive dividend policy, the Management Board recommended a dividend payment of PLN 3 per share. In the first quarter of 2017, PKN ORLEN was named ‘Transparent Company of the Year 2016’ by the Institute of Accounting and Taxation, while its shares were selected for inclusion in London’s FTSE4Good Emerging Index, which picks up companies from more than 20 countries standing out for their strong ESG (Environmental, Social, Governance) practices.