RECORD RETAIL PERFORMANCE AND LANDMARK CAPITAL EXPENDITURE DECISIONS
PKN ORLEN posted record-high earnings from retail operations for Q2 2018, of PLN 677m, an increase of 18% yoy. All business segments combined earned a LIFO-based EBITDA of PLN 2.1bn. The solid financial performance was delivered despite scheduled overhaul shutdowns across all Group refineries and a tougher year-on-year macro environment, chiefly driven by rising oil prices. The adverse impact of macroeconomic factors was partly cancelled out by a 2% year-on-year growth in sales volumes.
The highlight of Q2 2018 was launch of the Petrochemicals Development Programme, with PLN 8.3bn planned to be spent on petrochemical projects by 2023, which should add some PLN 1.5bn to annual EBITDA once completed. In Q2 2018, the Company finished the construction of an advanced CCGT unit in Płock and secured clearance from the Czech National Bank to buy out Unipetrol’s minority shareholders. PKN ORLEN’s Annual General Meeting approved the Management Board’s proposal to pay dividend of PLN 3 per share from profit earned in 2017.
In Q2 2018, PKN ORLEN delivered:
• LIFO-based EBITDA of PLN 2.1bn
• Record-high LIFO-based EBITDA in the Retail segment of PLN 677m, an increase of 18% year-on-year
• 2% year-on-year growth in sales volumes
• 16% year-on-year revenue growth.
In Q2 2018, the model downstream margin fell USD 1.2/bbl yoy, chiefly on the back of an almost 50% yoy rise in average Brent crude prices. Diesel oil and gasoline consumption increased 5% yoy in Poland, with fuel consumption growth also reported for the Czech Republic and Lithuania.
“Our strong second-quarter results, particularly the record-breaking performance delivered by our retail business, provide a solid foundation to implement our strategic plan. When making business decisions, we focus on long-term value creation. Hence the Petrochemicals Development Programme, which will enable us to further diversify our revenue sources and successfully respond to the challenges lying ahead. The good news for shareholders today is the commercial launch of the CCGT unit in Płock, which will strengthen our position in the power sector,” said Daniel Obajtek, CEO and President of the PKN ORLEN Management Board.
The Downstream segment’s Q2 2018 LIFO-based EBITDA was close to PLN 1.6bn. This solid result was supported by a 1% yoy rise in sales volumes. The reporting period saw growth in sales of diesel oil, polyolefins, fertilizers, PVC and PTA, and a decline in gasoline, LPG and olefin sales. The positive volume effect was offset by adverse external impacts, mainly because of increased costs of energy and consumables used for own needs and tighter margins on petrochemical products, heavy distillates and SN150.
The Retail segment posted LIFO-based EBITDA of PLN 677m, a record-high quarterly result, with sales volumes rising 5% yoy. PKN ORLEN increased its market share across all markets, including by 2.9pp in the Czech Republic. The Company was rapidly expanding its retail chain, with the number of locations having increased by 38 yoy, to 2,782 at the end of the second quarter, and continued to roll out the non-fuel range, with 1,907 food & beverage outlets in operation (up by 170 yoy), including 1,621 Stop Cafes (including 231 O!SHOP stores) in Poland, 229 Stop Cafes in the Czech Republic, 23 Ventus Stop Cafes in Lithuania, and 34 Star Connect stores in Germany. In Q2 2018, a technologically-advanced fuel line was launched in Poland under the EFECTA brand, taking the Company to the forefront of European producers.
The average production of hydrocarbons at the ORLEN Group grew by 20% year on year, to 18,000 boe per day, driving LIFO-based EBITDA up to PLN 82m. 3D seismic data acquisition commenced in the Carpathia and Edge areas in Poland, and the processing of the previously acquired 2D and 3D seismic data continued. The Chwalęcin-1K exploration well was spudded. In July, the drilling of the Bystrowice-OU1K well commenced. The well is located in the Rzeszów province, a region with a long oil production history and extensive exploration potential. In Canada, one well was spudded and four fractured as part of operations conducted by the Company together with its partners. Three wells were brought on stream in the Kakwa and Ferrier areas. In the Kakwa region, work was continued to expand the gas pre-treatment facilities and construct a water storage system. Also, the construction of a gathering pipeline commenced in the Lochend area.
In line with its strategic development vision, the Company consistently expanded its power co-generation business. Following successful tests and trials carried out in partnership with PSE, the CCGT unit in Płock was approved for commercial operation in Q2 2018. All relevant permits were also secured for the unit, including the licence, integrated permit and operation permit.
The Company reduced its net debt by PLN 0.9bn qoq in Q2 2018, mainly thanks to a positive operating cash flow of PLN 1.9bn, and managed to bring down its financial leverage ratio to a safe level of 12.7%, in line with the target range set in the strategy. In the reporting period, the Company also successfully completed a PLN 1bn retail bond programme, which helped it to further diversify its funding sources.