PKN ORLEN’s consolidated financial results for Q3 2016
STABLE PERFORMANCE DESPITE CHALLENGING ENVIRONMENT AND MAINTENANCE LIMITATIONS. RECORD-BREAKING QUARTER FOR RETAIL.
For Q3 2016, PKN ORLEN reported LIFO-based EBITDA of PLN 2.2bn, up PLN 200m yoy. The result was supported by record-breaking performance of the retail segment, depreciation of the złoty against foreign currencies, and recognizing of subsequent instalment related to the Steam Cracker fire in Litvinov, the Czech Republic. Factors weighing down on performance included a decline in downstream margin and maintenance shutdowns. In Q3 2016, PKN ORLEN generated operating cash flows of PLN 2.1bn and, in line with earlier announcements, paid out dividends of PLN 2 per share. In July, the Company released its second integrated annual report, showing the interplay between financial and non-financial aspects of its business, which was recognised by the WSE as the best CSR report.
For Q3 2016, PKN ORLEN reported:
- LIFO-based EBITDA of PLN 2.2bn
- Operating cash flows of PLN 2.1bn
- Total sales volumes up by 1%
LIFO-based EBITDA reached PLN 2.2bn despite weaker downstream margin (down USD 4.5/bbl relative to Q3 2015), and lower sales volumes of high-margin petrochemical and refining products, resulting from an industrial failure at Unipetrol. The adverse effect of these factors was mitigated by, among other things, the weakening of the złoty against the dollar (3%) and the euro (4%) yoy, higher retail margins, and recognizing of subsequent installement (PLN 350m) for damage caused by the Steam Cracker fire in Litvinov. Relative to the same period of 2015, in all its home markets, PKN ORLEN saw increased diesel oil consumption, whereas gasoline consumption was lower only at German market.
Key events in Q3 included the launch of construction of the metathesis unit in Płock, and signing of a contract with PGNiG to secure stable gas supplies over the next five years. “PKN ORLEN’s stable performance is mainly driven by our consistent efforts to enhance its competitive strengths. On the one hand, we pursue projects of strategic importance for the development of our product portfolio, such as construction of the metathesis unit. On the other hand, we are committed to securing feedstock supplies vital for the operation of our production plants in Europe,” said Wojciech Jasiński, President of the Management Board of PKN ORLEN.
In Q3 2016, the retail segment reported record-high LIFO-based EBITDA of PLN 619m, up PLN 80m yoy. The result was achieved on higher fuel margins in Poland and Germany, and improved non-fuel margins across all markets. At the same time, the overall sales volume rose 2% yoy, driven primarily by higher sales in Poland (up 6%) and the Czech Republic (up 11%), with increased market shares on those markets. In Q3 2016, PKN ORLEN’s non-fuel offering was further expanded − at the end of the quarter, the Company had 1,652 Stop Cafe and Stop Cafe Bistro outlets, including 1,479 in Poland, 150 in the Czech Republic, and 23 in Lithuania.
The downstream segment’s LIFO-based EBITDA amounted to PLN 1.7bn, with diesel oil and PTA sales up 3% and 2% yoy, respectively. The performance was supported by weakening of the złoty against both the dollar and the euro, as well as recognizing of subsequent instalment related to the Steam Cracker fire in Litvinov. The effect was offset by a decline in downstream margin by USD 4.5/bbl (29% yoy), caused mainly by lower margins on light and middle distillates and petrochemical products, as well as a decline in sales volumes, mainly in high-margin petrochemical and refining products, caused by an industrial failure at Unipetrol.
In the power generation segment, the industrial cogeneration projects in Włocławek and Płock were continued. In Q3 2016, a two-month adjustment operation phase was completed on the unit in Włocławek. The resulting power output was used by PKN ORLEN for its own needs, with the surplus sold to the National Power Grid. Simultaneously, the project contractors procured spare parts and resources necessary to make repairs of the unit. Following the hot commissioning, the unit was shut down for repairs. Another round of warranty measurements, trial run and commissioning of the unit are scheduled for Q1 2017. In Płock, intensive installation work was started in Q3 2016, including on the turbine generator, boiler, steam extraction system, cooling tower, gas station, and water treatment station. Also in that period, most of the process modules for the unit were delivered and the construction of a 400 kV unit line began.
In Q3 2016, PKN ORLEN remained firmly on track with its strategic goals for the upstream segment. Operations on its Canadian assets included 1 fracturing treatment (1.0 on a net basis) and included into production of 3 wells (2.4 on a net basis). Construction and installation work continued in the Ferrier area (Gas Plant). In Poland, PKN ORLEN continued with the processing of 3D seismic data from the Lublin and Mazovia regions, and commenced work, together with a project partner, on the acquisition of 3D seismics within the Bieszczady project area. In addition, a new well was drilled within the Edge project area, well production tests were performed within the Bieszczady project area, an exploration well was spudded, and construction/completion work required to bring on stream a new well within the Płotki project area came to an end. A new licence for hydrocarbon exploration and appraisal in the Carpathian Mountains (Skołyszyn licence) was also secured. The average daily production from PKN ORLEN assets in the period reached 14.2 thousand boe.
In the past quarter, PKN ORLEN remained on a solid financial footing, reducing its net debt by PLN 0.1bn (q/q) on positive net cash flow from operating activities of PLN 2.1bn, less PLN 1.1bn of net cash used in investing activities and PLN 0.9bn paid out as dividends. The financial leverage was kept at a safe level of 18.3%. The averaged repayment deadline for financing was Q4 2020.
“We invariably maintain a sound financial position regardless of broader macroeconomic pressures. At the same time, we do not forget about our strategic commitments to shareholders, consistently delivering on our declared dividend policy. The past quarter also brought with it an upbeat sales outlook as new regulations were introduced to curb the grey market. We hope the new regulations will continue to be effectively enforced,” said Sławomir Jędrzejczyk, Vice President of PKN ORLEN, CFO.