PKN ORLEN: FIRST QUARTER 2007 RESULTS
Good results from the ORLEN Capital Group’s Polish and Czech companies, especially in retail and petrochemicals, the consolidation of Mažeikiu Nafta, and inventory valuation, were the main factors affecting PKN ORLEN’s first quarter 2007 results. The ORLEN Group generated an EBITDA of PLN 995m, representing a 39.5% increase over the Q4 2006 results and a 1.2% improvement over the corresponding period of last year. Net profit was influenced primarily by the consolidation of our Lithuanian assets, reserve valuation, crude prices and other incidental factors. The cost reduction program’s results were 63% better than in the first quarter of 2006.
In the first three months of 2007 PKN ORLEN generated PLN 13,408m in revenue – 18.3% more than in the same period last year. Excluding the impact of the consolidation of the Lithuanian refinery, the ORLEN Group’s EBITDA was PLN 1190m, i.e. over 21% more than in Q1 2006.
Excellent results in the first quarter were generated by the retail segment – PLN 108m, which is 18 times more than in the corresponding period of the previous year. The pillars of these excellent results included growing sales volumes, which generated an additional PLN 44m, and margins on non-fuel products, which generated PLN 8m. Larger sales volumes than last year were also generated in the refining (wholesale) and petrochemical segments of PKN ORLEN (the dominant entity), which reported growth of 4.8% and 7.6% respectively.
Radical efficiency improvements (45%) were achieved in the chemicals segment, mainly due to Anwil’s operations, which generated sales increases alongside growing product prices and steady cost discipline. This segment's operating profit was PLN 83m.
The OPTIMA program in Q1 2007 brought significant savings of PLN 88m. The best results in terms of savings were achieved by the refining (PLN 36m) and chemical (PLN 20m) segments.
It should be emphasized that the ORLEN Group’s results in the first quarter of 2007 were significantly impacted by the Mažeikiu Group’s operating loss of PLN 334m, which was due to, among other factors, the fire that broke out in October 2006. As a result of this event, in Q1 2007 the Mažeikiu refinery utilized only approximately 50% of its nominal capacity and produced large volumes of low margin products, especially heavy heating oil.
Also significant was the impact of the LIFO-based inventory valuation adjustment, which, in the context of falling crude prices, was a disadvantageous factor. In the first three months of this year crude prices were approximately 7% lower compared to the first quarter of 2006. The impact of the significant drop in crude prices in January and February 2007 was far more negative than the subsequent price increases in March. Additionally, as a result of the overestimation of CO2 emission rights in the Mažeikiu Nafta Capital Group, PKN ORLEN incurred a one-off negative effect of PLN 63 m on its operating result.
The ORLEN Group’s operating profit in Q1 2007 was PLN 375m, i.e. only 10.1% less than the year before, despite the PLN 334m loss incurred by the Mažeikiu Group. Excluding the effect of the MN consolidation, PKN ORLEN’s operating profit grew by 70% compared to Q1 2006, and amounted to PLN 709m. The net result (excluding the MN impact – PLN 287 m) was approximately PLN 336 m, a level comparable to the previous year, despite a 55% increase in financial costs related to increased debt. Including the impact of the MN consolidation, Group net profit was PLN 49m.
After allowing for the impact of the Mažeikiu Nafta consolidation and other transient factors, the ORLEN Group’s 1Q 2007 financial results confirm the corporation’s dynamic growth. The Group also reported stable operating cost levels, despite the increases in the scale of operations.
