PKN ORLEN’s consolidated financial results for Q4 2016

PKN ORLEN’s achievements in 2016:

• LIFO-based EBITDA of PLN 9.4bn (operating profit before depreciation and amortisation, net of non-cash effect of inventory revaluation and impairment of non-current assets)
• Total sales volume up by 2%
• Record-high fuel sales of 10bn litres
• Another dividend distribution to shareholders, of PLN 2 per share, in line with the Company’s commitment to progressive dividend.

In the fourth quarter of 2016, LIFO-based EBITDA grew PLN 0.8bn yoy, to PLN 2.65bn, led by a combination of higher sales volumes, wider retail margins on fuel and non-fuel products, compensation received for fire damage to the Steam Cracker in Litvínov, and depreciation of the Polish currency. The overall positive effect of these factors was reduced chiefly by the negative impact of tighter yoy margins on refined products. The model downstream margin stayed at a stable level of USD 12/bbl in the period, with the average crude oil price inching up USD 5/bbl yoy, to USD 49/bbl. In the fourth quarter, all markets served by PKN ORLEN except Germany saw rising volumes of diesel oil and gasoline consumed, with diesel oil consumption in Poland up 24% yoy.

“Our record-breaking financial performance in 2016 is an indisputable success of the entire ORLEN Group. A clear mark of our strength, it was achieved with contribution from all business segments and home markets. Looking back at the past year, we must also mention the enormous success in combating the grey market, reflected tangibly in fairer competition finally restored to the fuel market. We were able to excellently leverage this opportunity, and I am convinced that further legislative changes, combined with the consistent pursuit of our recently adopted strategy, will help further entrench our position on the market,” said Wojciech Jasiński, CEO and President of the PKN ORLEN Management Board.

The fourth quarter of 2016 was another record period for the retail business, with LIFO-based EBITDA of PLN 440m, on aggregate sales volumes up 1% yoy (as the combined effect of a 4%, 15% and 8% growth, respectively, in Poland, the Czech Republic, and Lithuania, and an 8% fall in Germany). In the period, fuel margins in Poland and Germany were on the rise yoy contrary to narrower yoy margins in the Czech Republic and Lithuania, with margins on non-fuel products rising yoy in Poland, Germany, and the Czech Republic. PKN ORLEN continued to expand its non-fuel offering, launching 39 Stop Cafe and Stop Cafe Bistro outlets in the fourth quarter of 2016, with a total of 1,691 locations operating at the end of the year, including 1,500 in Poland, 168 in the Czech Republic, and 23 in Lithuania.

In the fourth quarter of 2016, the downstream segment’s LIFO-based EBITDA came in at PLN 2.3bn, up PLN 0.7bn yoy. The growth was driven by a 7% yoy rise in the volume of crude processed as Unipetrol’s Steam Cracker and Fluid Catalytic Cracker were put back online after emergency shutdowns, and a 7% yoy growth in total sales volumes, including sales of diesel oil (up 13%), polyolefins (up 32%), fertilizers (up 12%), and PVC (up 5%). The segment’s performance was further supported by PLN 0.3bn in compensation received for fire damage to the Steam Cracker in Litvínov, as well as PLN 0.2bn in net effect of inventory revaluation (NRV) and lower margins on refined products. Downstream performance was dragged down by narrower petrochemical and fertilizer margins coupled with lower yoy sales of gasolines (down 3%), olefins (down 38%), and PTA (down 2%).

In Q4 2016, PKN ORLEN made further headway on its power generation projects. As part of the CCGT project in Włocławek, assembly work after repair of the gas turbine is currently in progress. The CCGT unit is scheduled for re-commissioning in Q1 2017 and is planned to come on-stream in Q2 2017. In the similar project run in Płock, where the unit is expected to be placed in service in Q4 2017, all process modules were delivered to the site and intensive assembly work began. In Q4 2016, all easements for the 400 kV unit line were secured.

In the upstream segment, work was continued on the Group’s Polish and Canadian assets. Under Polish licences, seismic surveys were carried out and a production test was performed on a well within the Bieszczady project area. Simultaneously, production was launched from a new well operated jointly with PGNiG (Karmin field). As regards progress on the Canadian assets in Q4 2016, a gas treatment system was placed in service in the Ferrier/Strachan area, and initial drilling was made for seven wells. Additionally, two wells were brought on-stream and one fracturing operation was carried out. The upstream segment’s Q4 2016 EBITDA came in at PLN 128m, with capital expenditure of PLN 125m.

In 2016, PKN ORLEN maintained a very sound financial standing, reducing its net debt and financial leverage, while diversifying its sources of funding. At the end of 2016, the Company’s net debt was PLN 3.4bn, having decreased by PLN 1.6bn qoq on positive net operating cash flows of PLN 2.5bn, less PLN 0.8bn of net cash used in investing activities and PLN 0.1bn of foreign exchange losses on foreign currency loans and measurement of debt. The financial leverage stood at 11.5%.

“Last year, we continued to deliver very financial performance, while maintaining focus on growth. Among projects supported with the capital expenditure of PLN 4.1bn in 2016 were the Polyethylene Unit in the Czech Republic, the Metathesis Unit in Płock, and acquisition of some of OMV’s Czech retail assets. With our consistent pursuit of growth-oriented projects, the ORLEN Group’s competitive position is consolidating, making us perfectly placed to face future challenges,” said Sławomir Jędrzejczyk, CFO and Vice President of the PKN ORLEN Management Board.

2016 was marked by further strengthening of PKN ORLEN’s innovation friendly corporate culture. Initiatives in this area included the launch of ‘Innovations, Start-ups’, an online cooperation and knowledge sharing platform dedicated to new technology solutions. Also the crowdsourcing contest, closed in 2016, to find a technology for recovery and utilisation of low-temperature heat, attracted keen interest from innovators the world over.

Like in previous years, PKN ORLEN won the trust and acclaim of a number of expert organisations − for the third consecutive year it was awarded, as the only firm in Poland, the prestigious title of The World’s Most Ethical Company. It was also distinguished in the Top Employer Polska contest. Finally, PKN ORLEN’s 2015 Integrated Report was given the historically highest score and won four prizes in The Best Annual Report contest.