PKN ORLEN’s Q1 2013 consolidated financial results
HIGHER SALES AND GOOD OPERATING PERFORMANCE DESPITE A VOLATILE ENVIRONMENT
In Q1 2013, PKN ORLEN reported improved LIFO-based operating performance and maintained its good financial position despite major market challenges: deceleration of economic growth and lower consumption of fuels. The ORLEN Group's total sales volumes increased by 4% (y-o-y), driven primarily by growth in the refining segment. LIFO-based EBITDA rose by more than PLN 150m, the main contributor being a nearly 40% increase in the LIFO-based EBITDA posted by the petrochemical segment.
In line with the dividend policy provided for in the Company's strategy, the Management Board recommended distribution of dividend of PLN 1.5 per share. In pursuance of the assumed investment policy, preparatory work on the construction of a power unit in Włocławek was successfully completed, and construction work commenced. The exploration projects on the licences held by ORLEN Upstream have been consistently implemented. The sixth research borehole was completed, and another two are being prepared. In the weeks to come, the first horizontal drilling with fracturing will be performed. As part of our efforts to diversify financing sources, launch of a retail Bond programme is being considered
In Q1 2013, PKN ORLEN recorded:
- LIFO-based EBIDTA higher by PLN 150m year on year
- LIFO-based EBIT of PLN 0.4bn
- Sales volumes up by 4% year on year
- Financial leverage at 26.9%
The Company's performance in Q1 2013 was driven by improving petrochemical and refining margins, declines in fuel consumption seen on all home markets , as well as the foreign exchange rates. The Group's revenue fell by 6% year on year, mainly due to the effect of non-recurring events, including sale of a batch of mandatory stocks in Q1 2012. LIFO-based EBITDA was up by 20%, to PLN 932m, on the back of higher refining and petrochemical margins and higher sales volumes. LIFO-based EBIT was PLN 394m, almost doubling relative to the Q1 2012 figure.
"The first quarter was difficult, owing to the economic slowdown and flagging fuel consumption. However, our performance was supported by the refining and petrochemical margins and the higher sales volumes. This enabled us to maintain a sound liquidity position and therefore we can go ahead with uninterrupted implementation of the investment programme to diversify our future revenue sources," said Jacek Krawiec, CEO of PKN ORLEN.
The higher margins translated into improved performance of the petrochemical segment, which earned LIFO-based EBIDTA of PLN 678m, up 38% year on year. The positive effect of favourable macroeconomic developments in the polymer and monomer margins was limited by a drop in the sales volumes of those products, as customers optimised their stocks. At the same time, weather conditions stifled demand for fertilisers, which was then partly offset by a growth in PVC volumes.
The refining segment's LIFO-based EBIDTA for Q1 2013 was PLN 276m, down 11% year on year. However, after elimination of one-off factors, it is higher by approximately PLN 200m.
The retail segment's EBITDA grew by 7% relative to the previous year, although it was strongly affected by the year-on-year deceleration in the GDP growth rate across all of PKN ORLEN's markets, as well as the significantly lower consumption of fuels. In Q1 2013, the demand for gasolines decreased by 6-10%, depending on the market, and the demand for diesel oil fell by 2-4% (except in the Czech Republic, where it expanded by 2%). These market conditions translated into a 4% decline in the retail segment's sales, offset by revenue from sale of non-fuel products and some improvement in margins in Poland. As at the end of the quarter, EBIDTA stood at PLN 123m.
The Company's financial ratios are at a safe level. While the Company's debt did grow in Q1 2013, chiefly on account of the repurchase of a batch of mandatory stocks and translation differences on the remeasurement of foreign currency borrowings, the financial leverage remained flat year on year, at the safe level of 26.9%.
"Despite the market challenges seen in the first months of the year, at the end of the first quarter we successfully maintained our sound financial position. . This enabled us to recommend, for the first time in five years, distribution of dividend in the amount of PLN 1.5 per share," said Sławomir Jędrzejczyk, Vice-President of the Management Board and ORLEN's Chief Financial Officer.
The production asset investment programme provided for in the Group's strategy until 2017 ammounted to more than PLN 300m in Q1. As part of the tasks performed in individual areas, the construction of the Flue Gas Desulphurisation Unit in Płock was begun. We are also continuing construction of a vacuum flasher at ORLEN Lietuva. Thanks to the application of advanced technology, the first of these projects will reduce sulphur dioxide emissions from the CHP plant by 97%, while the other project will boost the refinery's fuel yield by more than 2pps. In the petrochemical segment, the Ammonia Unit at Anwil is being modernised and work on the Olefin and Suplhuric Acid units in Płock is ongoing. Purchases of technology licences for the Phenol and Metathesis units have commenced, and efforts are being made to reduce the energy intensity of the Olefin and PX/PTA units. The retail segment is developing and sales Network optimisations are under way. Q1 saw the launch of four new service stations in Poland, ten locations were modernised (nine in Poland and one in Germany), and six were closed. Likewise, 108 new Stop Cafes and Stop Cafe Bistros were launched during the year, bringing their number up to 800.
PKN ORLEN is preparing to drill further exploratory wells, to be performed in Q2 and Q3 this year. The Company also completed its sixth borehole into unconventional reservoirs, and is preparing the next two, as well as its first ever fracturing, in the Wierzbica and Lubartów licences.
This year, PKN ORLEN also has plans focusing on conventional exploration for natural gas and crude oil. Work is under way on the second appraisal well, located in the Polish Lowlands, and on preparation for the first drilling in the Latvian shelf, planned for the second quarter of this year.
