PKN ORLEN: A record performance in 2004
PKN ORLEN has achieved another record yearly financial result, with net profits of PLN 2.44 bn, some 147 per cent higher than in 2003. Sales revenues in 2004 rose by 25 per cent in comparison with 2003, while ROACE improved by 10 percentage points to 19 per cent. Over the course of the full year, PKN ORLEN’s cost cutting programme generated savings of PLN 637m.
Market background
The key factors behind the favourable market conditions in 2004 were the 33 per cent increase in crude oil prices to USD 38.3 per barrel, an 84 per cent increase in refinery margins to USD 5.6 per barrel and the Ural / Brent differential to the level of USD 4.10 per barrel. Domestic fuel consumption (petrol, diesel, Ekoterm heating oil) is estimated to have risen by approximately 6.9 per cent. PKN ORLEN’s market share in liquid fuel sales in Poland throughout the 12 months of the year is estimated at 61.8 per cent for petrol, 48 per cent for diesel and 60.1 per cent for heating oil.
PKN ORLEN’s revenues for the full year increased by 25 per cent compared with last year. This was mainly due to increased volumes of sold fuels and better prices for fuel and petrochemical products. Throughout the four quarters of the year PKN ORLEN generated a 147 per cent higher net profit compared to the same period of 2003. In this period revenues increased at a faster rate than costs. At the same time, the cost of sales, administration and general management dropped by PLN 187m compared to 2003.
Refining and wholesale
The refining, wholesale and logistics segment witnessed the best revenues in 2004. Thanks to the favourable market environment, increased efficiencies, and larger sales volumes, the refinery, wholesale and logistics operations recorded a figure of PLN 2.292 bln after 4Q 2004, which is PLN 1.079 bln more compared to 2003. The cost cutting initiatives in this segment delivered PLN 151m of savings. At the same time external sales of fuel in 4Q 2004 rose by 8.6 per cent compared with the equivalent period of 2003.
Retail
Profit from retail operations after 4Q 2004 totaled PLN 49m, a rise of 28.9 per cent compared to the same period of the previous year. Such a performance could not be possible without our cost cutting initiatives, which generated PLN 141m of savings. The segment’s performance was significantly affected by the fact that in 4Q 2004 the sales volume of the German operation was partially included in the refining and wholesale result, while in 4Q 2003 all of the German operations were disclosed under Retail.
Petrochemicals
Throughout the 4 quarters of the year, the petrochemical segment witnessed an almost 94 per cent increase in operating profits (compared to the same period of 2003) due to strong demand for the petrochemicals and fertilizers produced by PKN ORLEN and Anwil. The operating profit figure generated by this segment during the period stood at PLN 810m.
Commenting on the 4Q 2004 performance, Pawel Szymanski, Vice President and CFO, said that ORLEN’s record results follow from both improved corporate efficiency as well as a favourable market environment. All these factors have allowed the segment to generate an operating figure 119.2 per cent higher than in 2003.
Outlook
Our economic assumptions for 2005 indicate weaker market conditions: refinery margins, crude prices and the Ural / Brent differential are forecast to be lower. On the other hand, the Polish currency should continue to gain against the US dollar. The assessed market changes indicate a slow down in the rate of retail market growth and weaker demand for liquid fuels in Poland. PKN ORLEN estimates that in 2005 it will achieve the following figures:
• EBITDA >= 14 per cent
• Personnel costs – below 2004 level in PKN ORLEN
• CAPEX – PLN 2.3 bn
• Dividend – 30 per cent of PKN ORLEN 2004 net profit (recommended)
Igor Chalupec, President of PKN ORLEN, said that the record financial results provide a firm platform for the implementation of the objectives defined in the Group’s strategy announced on 2 February. In 2005 the Group’s management will take up the challenge to utilize the potential within PKN ORLEN in the most effective way possible. All our activities will be aimed at creating value for shareholders by striving to becoming the regional leader, further improvements in efficiency, and continued cost savings. It is also crucial to reverse the current adverse trends of a narrowing share in the retail market and to undergo a rigid assessment of all new investment projects. A key challenge for 2005 will be to achieve a successful integration with Unipetrol.
