PKN ORLEN’s Q1 2012 consolidated financial results
HIGHER REVENUE AND STRONG FINANCIAL PERFORMANCE DESPITE VOLATILE ENVIRONMENT
In the first three months of 2012, PKN ORLEN's overall sales volumes were up by 2% year on year, driven chiefly by stronger sales in the retail and petrochemical segments. Also the number of ORLEN’s regular customers, holders of VITAY loyalty cards, increased. Following the record-breaking year of 2011, when PKN ORLEN issued over 930 thousand new VITAY cards, another 107 thousand motorists opted for the VITAY card during the quarter under review.
Through all these efforts, and despite the continuing market volatility, the Company delivered solid performance and maintained its safe financial position. Operating profit for Q1 2012 was PLN 939m, while profit measured on a LIFO basis was PLN 201m.
In Q1 2012, the Company sold, with a good yield, seven-year notes worth PLN 1bn, which was a major success. Closing the short list of potential contractors to build a gas-fired power plant in Włocławek was another important development over the past quarter. PKN ORLEN has also consistently pursued its hydrocarbon exploration projects which are at the core of the strategy of transforming Poland’s largest company into an energy conglomerate. Analyses of samples from test wells drilled in the shale licenses provide grounds to assume that PKN ORLEN could commence its first ever horizontal drillings in the second half of 2012.
For Q1 2012, PKN ORLEN reports:
- Operating profit in excess of PLN 930m
- A PLN 0.7bn LIFO effect caused by higher crude oil prices
- Year-on-year increase in retail and petrochemical sales volumes by 8% and 10%, respectively
- Revenue in excess of PLN 29bn, up 29% year on year
- Debt reduced to PLN 7.1bn and financial leverage – to 26.9%
- Sale of another tranche of inventory, worth PLN 1.2bn.
PKN ORLEN’s performance in Q1 2012 was affected mainly by unstable macroeconomic conditions: a 13% year-on-year rise in crude oil prices, an 18% year-on-year decline of the model petrochemical margin accompanied by an increase of the model refining margin, a rise in the URAL/Brent differential to 4.6 USD/bbl (5% y-o-y), and appreciation of the złoty against the US dollar and the euro. Despite this challenging market climate, PKN ORLEN posted a PLN 939m operating profit and expanded its net profit by 8% year on year, to PLN 1.2bn. A nearly PLN 330m negative effect of the volatile macroeconomic conditions on EBIT was offset by higher sales volumes in the retail and petrochemical segments, which in aggregate contributed over PLN 480m.
The year-on-year decline of GDP growth rates across all PKN ORLEN's geographical markets and steep fuel prices hurt demand for gasolines and, on the Polish market, also for diesel oil, putting strong pressure on the Company's retail margins. In spite of this, through its balanced pricing policy, PKN ORLEN achieved an 8% year-on-year increase in fuel sales volumes thanks to stronger retail sales in Poland, Germany and Lithuania. All in all, the retail segment’s operating profit came in at PLN 26m, a result similar to the 2010 figure.
“Our performance in Q1 2012 was affected by unstable economic conditions, weaker demand for fuels depressed by high prices at the pump, and shrinking retail and petrochemical margins. ORLEN's sound financial standing is primarily attributable to the efficient operating initiatives designed to boost sales and optimise working capital,” said Jacek Krawiec, President and CEO of PKN ORLEN S.A.
Record-high sales in the petrochemical segment (up by 10% on Q1 2011) were achieved thanks to the market launch of terephthalic acid (PTA) in mid-2011, and increased sales of olefins, polyolefins and fertilisers; all this yielded a PLN 346m profit (PLN 292m on a LIFO basis). The result was adversely affected by lower margins on monomers and polymers.
Overhaul shutdowns, declining sales and a negative effect of biofuels tax regulations brought the refining segment’s operating profit down by nearly 30% year on year, to PLN 723m. However, despite the overhauls, in Q1 2012 the volume of crude processed expanded by 4% year on year.
The safe level of debt and of the financial ratios is a result of continued implementation of deleveraging measures and steps taken to reduce working capital. In Q1 2012, financial debt fell by another PLN 0.5bn, to PLN 7.1bn, which contributed to a further lowering of the financial leverage to 26.9%. During the quarter, PKN ORLEN issued seven-year bonds with a value of PLN 1bn; the securities were very well received by investors. The Company’s liquidity position was strengthened by net foreign exchange gains of PLN 0.4bn on revaluation of loans, recognised in the income statement. Additional inflows of PLN 1.9bn were related to the continued optimisation of working capital, and included a PLN 1.2bn contribution from the sale of another tranche of mandatory reserves.
PKN ORLEN prepares to drill further exploratory wells, still before the end of 2012. Analyses continue of samples collected in the previous year from two vertical wells drilled during exploration for shale gas in Lubartów and Wierzbica. Within both license areas, horizontal drillings are planned to commence this year if test results are positive. In the Garwolin license, analytical and test work is ongoing to identify the site for the first vertical well. In the Hrubieszów license, acquisition of seismic data is scheduled for this year.
PKN ORLEN also plans to conduct in 2012 work focusing on conventional oil and gas exploration projects. Work continues on final interpretations of seabed tests on the Latvian shelf, where drilling of wells is planned for this year. Within the areas of five licenses in the Lublin province, 3D seismic data will be acquired and, if the results are positive, an exploratory well will be drilled. In the Sieraków licence, where PKN ORLEN has worked on a joint project with PGNiG, a site has been selected for drilling another appraisal well this year.
Construction of the 450–500 MWe gas-fired power plant in Włocławek moves into the next stage. Towards the end of the previous quarter, prospective turn-key contractors were shortlisted. This phase of the procedure is expected to end in mid-2012, marking the end of the first part of preparations for this important project. PKN ORLEN holds all decisions and permits necessary to start construction of the generating unit. Project’s future access to the necessary infrastructure has also been secured –agreements for connection to the power grid and construction of a gas supply pipeline have been executed. The construction of the unit is expected to start in 2012 and its launch in planned for 2015. Capital expenditure is estimated at approx. PLN 1.5bn. In addition to commercial sale of electricity to the grid, the new power plant will also satisfy the demand for steam and electricity from the nearby Anwil plant.
