PKN ORLEN’s consolidated financial results in Q3 2012
ORLEN Group's maintains stable sales volumes despite lower consumption
In a positive macroeconomic climate, with stronger refining margins, higher Ural/Brent differential and recovering retail margins, PKN ORLEN generated a LIFO-based operating profit of PLN 1bn. Despite lower fuel consumption across the home markets and overhaul shutdowns of certain facilities in the petrochemical segment, the Company's total sales volumes came in at PLN 9.6 million tonnes, and the volume of processed crude at 7.4 million tonnes, which is comparable to the figures reported for Q3 2011. ORLEN's debt was down PLN 3.4bn year on year, with the financial leverage at 25%. In line with the adopted strategy, the Company continues its gas exploration and power generation projects. Drilling of the first horizontal well has been commenced in the Wierzbica commune, and the final stage of the tender called to select contractor for the Włocławek power project is nearing completion.
For Q3 2012, PKN ORLEN reports:
- PLN 1bn LIFO-based operating profit, up by PLN 0,8bn year on year
- Continued stable sales volumes of 9.6 million tonnes
- Debt reduced to PLN 5.9bn.
Macroeconomic factors had the strongest bearing on PKN ORLEN’s performance in Q3 2012. The model refining margin and Ural/Bent differential increased significantly, the Polish currency appreciated against the US dollar and the euro, and ORLEN managed to maintain stable sales volumes despite the petrochemical segment's production being affected by overhaul stoppages. As a result, PKN ORLEN posted a LIFO-based operating profit of PLN 1bn, up PLN 774m year on year. Revenue during the quarter was record-high at PLN 31.7bn, having increased by 10% year on year.
In Q3 2012, all PKN ORLEN's national markets suffered from the lower GDP growth rates and weaker demand for petrol. Further, consumption of diesel oil fell in Poland and Germany. In light of all these factors, the Company's ability to maintain stable sales volumes year on year proves the effectiveness of its business strategy focused on stimulating demand.
“Despite the economic slowdown, in the third quarter the overall macroeconomic climate for our industry, especially the refining segment, proved much better than the forecasts had led us to expect. The production and sales volumes remained stable. With consumption declining, this means that we have actually strengthened our position,” said Jacek Krawiec, CEO and President of the ORLEN Management Board. “This would not have been possible but for the balanced pricing policy designed to stimulate the market, which has been appreciated by our customers for months,” added Mr. Krawiec.
The routine maintenance shutdown of the petrochemical segment's facilities was completed. The correlated stoppages of the Olefin II and PTA units at PKN ORLEN, as well as at Basell ORLEN Polyolefins and Anwil, combined with lower petrochemical margins, which had fallen year on year by EUR 38/t (to EUR 625/t), eroded the segment's operating result for Q3 2012. This was partly offset by stronger sales of fertilisers. In Q3 2012, the ORLEN Group's petrochemical segment posted a PLN 213m operating profit, down PLN 154m year on year.
The refining segment's performance improved on stable sales volumes. Lower sales in Poland, reflecting the weaker consumption, were offset by higher sales of ORLEN Lietuva, as the company resumed production at full capacity following completion of the maintenance shutdown in the second quarter of the year. An uplift in refining margins boosted the segment's LIFO-based operating profit, which rose from PLN -215m in Q3 2011 to nearly PLN 740m in Q3 2012.
Strong retail sales maintained despite the economic downturn and the weakening consumption on most of the home markets helped improve operating profit, which in Q3 2012 came in at PLN 271m. The profit improvement was also supported by a gradual margin recovery on the Polish market and rising volumes on the German market, which offset strong pressures on margins in the Czech Republic.
In the face of the dwindling fuel consumption, the Company keeps a strong focus on sales of non-fuel products. At the end of September 2012, the number of Stop Cafe and Stop Cafe Bistro catering outlets was 738, up by 95 on September 2011.
“In the third quarter, the Group's debt fell to a level last seen before the acquisition of the Mažeikiai refinery. With the safe leverage of 25%, our financial position is largely secure. Consistent efforts are on to reduce working capital, as a result of which we recorded additional inflows of PLN 2.1bn at the end of the third quarter. The efforts are being appreciated by Fitch and Moody's, which have recently revised our rating outlook to positive, announcing a likely upgrade in the near term,” said Sławomir Jędrzejczyk, Vice-President of the Management Board, CFO of PKN ORLEN.
PKN ORLEN continues its exploration and production operations in the area of both shale gas and conventional oil and gas resources. In the third quarter, the Company continued its exploration projects, as part of which three vertical wells were already drilled, while in September 2012 PKN ORLEN commenced work on a horizontal well, which will lead to the first fracturing operation. Up to three wells, including a horizontal one, are to be drilled in the Lublin Province by the end of 2012.
ORLEN also holds nine exploration and exploration/production licences in Poland and on the Latvian shelf. As part of the work carried out in these regions, one appraisal well was completed in the Polish Lowlands, while further three wells (one in each project) are planned for completion at the end of 2012 and beginning of 2013.
The Company moved to the last stage of the tender procedure for selection of the EPC contractor for construction of a power unit in Włocławek. In addition to commercial sale of electricity, the power project will also satisfy Anwil's demand for steam and electricity. Licence approvals are planned to be obtained at the end of November or beginning of December 2012, which should enable ORLEN to commence the construction work this year. Commissioning of the unit is scheduled for 2015. Concurrently, work is underway on construction of a CCGT unit in Płock. An analysis of the construction concept scenarios was completed and a feasibility study was prepared for the 450-600 MWe variant of the project. Work on the Environmental Impact Report was also completed, which allowed the Company to apply for the environmental permit. At present, work on the utilities connection plan is nearing completion.
PKN ORLEN continues to receive recognition from independent experts, including authors of the prestigious Platts "250 Global Energy Company Rankings”, who have only recently ranked PKN ORLEN first in the EMEA Oil and Gas Refining & Marketing category. The Company also secured the 83rd position among world’s largest energy companies. PKN ORLEN received “The Best Annual Report 2011” award in the category of WSE-listed companies.
In the third quarter, the Company’s CSR practice was distinguished twice. The PKN ORLEN shares were again included in the RESPECT index, a high-profile index of socially responsible companies listed on the Warsaw Stock Exchange. It should be emphasized that ORLEN has been a part of the index every year since its inception five years ago. For the second consecutive time, the Company received the “Fuel Industry Leader in Responsible Business” award, granted annually by the Responsible Business Forum to the most socially responsible company in the fuels and power sector.
