PKN ORLEN - 2008 consolidated financial results
The Group's 2008 financial results were affected by negative macroeconomic circumstances in Q4. A reversal of the trend of rising oil prices cut the reported operating profit by approx. PLN 2.7bn, whereas fluctuating f/x rates negatively impacted reported financial costs by over PLN 1.5bn. However, please note that the evaluation of stocks and f/x differences influenced the reported result predominantly from an accounting, not cash, perspective.
Nevertheless, in the difficult economic environment faced throughout the entire year, the Company managed to display good operating efficiency. Orlen's consistent approach to implementing its strategy boosted the Group's revenues by 25% y/o/y, and led to an optimisation of operating costs. Oil processing grew by 22% y/o/y, while retail and wholesale went up by 13% and 22%, respectively.
Reported results
PKN ORLEN reports 2008 operating profit of PLN 758m, despite the very unfavourable stock valuation effect. Increased volumes and sale of non-fuel products significantly boosted operating profit in the retail segment: up by 48% to PLN 625m. Refinery's poor results are due to the unfavourable valuation of stocks. Petrochemical results worsened mainly because of reduced sales volumes of olefins and reduced margins on polyolefins. Improved margins boosted the result in the chemical segment by 16%.
PKN ORLEN's 2008 sales growth dynamics were significantly above market growth. Sales volumes were up by 16%. Oil processing increased by 22%, while the production of high-yield medium distillations went up by 26%.
In 2008, PKN ORLEN Group reported revenues of PLN 79.5bn, i.e. up by 25% y/o/y. PKN ORLEN's operating profit before EBITDA amounted to PLN 3.24bn. The Group reported a consolidated net loss (- PLN 632m).
With the changing f/x rates, it was necessary to revalue foreign currency denominated credits that are a natural security against unstable operating results caused by the PLN f/x rate. It must be emphasised that the Group adopted and followed a conservative financial policy, and its portfolio never included speculative instruments, e.g. currency options.
Results under LIFO
Under the LIFO stocks valuation method, current output is valued at the current cost of purchased oil. The LIFO method reflects the Company's actual operating efficiency as it excludes any items beyond its control.
Compared to 2007, EBITDA was up by 32%, from PLN 3.86bn to PLN 5.09bn. 2008 EBIT operating profit totalled PLN 2.6bn, i.e. up by 81% y/o/y. The 2008 net profit was PLN 884m, i.e. down by 43% y/o/y. Cash Flow from operating activities surged by over PLN 1.6bn in 2008 y/o/y.
Strategy followed
As planned, in 2008 the group followed the assumptions aimed at boosting fuel production and sales, especially diesel oil, as well as increasing retail sales of goods and services. Despite the unstable 2008 macroeconomic conditions, the Group has been implementing the key projects under its long-term strategic plan. The results will positively influence the company's future results. Last year's capital expenditure totalled PLN 3.9bn.
Implementation of main projects in 2008
- Refinery: development of Diesel oil hydrodesulphurisation (HON) VII and Sulphur Plant in Płock; launch of Diesel oil production plant (HONH1) in Płock; completed reconstruction and launch of a vacuum pressure unit at Mazeikiu Nafta
- Petrochemicals: development of p-Xylene and Terephthalic acid production facility, development of benzene extraction and C5 fraction production facility in the Unipetrol Group
- Retail: 71 petrol stations launched (31 franchised); 225 petrol stations modernised, rebranded and reconstructed.
2009 strategic plans
PKN ORLEN will continue implementing the strategy announced at the end of last year. Due to the challenging global economic situation, the company will seek optimisation opportunities in capital expenditure and operating costs, and savings in all activities in order to maintain the proper level of indicators. The 'waiting list' will now include the investment projects that have not yet been launched or that are not a priority during the downturn.
The Group's key investments will continue though. Activities in the refinery segment will be focused on the 2009 launch of a new Diesel oil hydrodesulphurisation (HON) facility in Płock.
In 2009, the retail segment's objective will be to improve the sales volume per petrol station ratio, to maintain the growth of non-fuel margins, and to cut the costs of stations and marketing. Scheduled activities include: continued upgrade and optimisation of petrol stations, broadening the range of the non-fuel offer, and improved cost efficiency.
In the petrochemical industry, the two flagship investments will be continued: P-Xylene (PX) and Terephthalic acid (PTA) plants. A new Butadiene facility will be developed at Unipetrol in the Czech Republic, with a capacity of 120kT/year. Chemical facilities will be regularly upgraded and extended to secure the growing competitive edge of Anwil and to maintain the attractiveness of those assets for future investors.
The Company plans to continue with the sale of its shares in Polkomtel S.A. and to prepare for the sale of ZA Anwil SA.
