Good performance despite weaker macroeconomic environment
In the first quarter of 2019, PKN ORLEN earned LIFO-based EBITDA of PLN 2bn, an increase of more than PLN 100m year on year. The result was achieved despite a more challenging macroeconomic environment (y/y), affected chiefly by the declining Brent/Urals differential. LIFO-based EBITDA in the Downstream segment came in at nearly PLN 1.4bn, and the Retail segment reported a solid PLN 676m. In retail, PKN ORLEN also delivered a 3% year-on-year increase in sales volumes and expanded its respective shares in all markets.
PKN ORLEN continued to diversify its supply sources by signing a contract with Saudi Aramco for the supply of Saudi crude oil. The contract is accompanied by a contract for the supply to Aramco of heavy fuel oil produced in Mažeikiai, the first such arrangement in the Company’s history.
The PKN ORLEN Management Board recommended that the Company pays the highest ever dividend, at PLN 3.5 per share.
For Q1 2019, PKN ORLEN reported:
- LIFO-based EBITDA of PLN 2bn, including PLN 676m in the Retail segment
- Increase in total sales volumes by 2% (y/y), including in retail by 3% (y/y)
- 9% y/y revenue growth
In the first quarter 2019, the model downstream margin decreased by (-) 1.4 USD/bbl (y/y). The average exchange rate of the złoty to the euro and the US dollar fell during the period. The positive GDP growth in PKN ORLEN’s all four home markets supported higher consumption of diesel oil on those markets. Consumption of gasoline grew in Poland and the Czech Republic, remained stable in Lithuania and declined in Germany.
“Strong sales and high revenue were supported by, among other factors, the recently implemented effective management and operational processes as well as cost rationalisation measures. All our activities must be oriented towards a single goal – driving PKN ORLEN’s growth and building its value in all areas of our business. We can boast not only robust financial performance but also swift progress made in preparing major projects across the entire Group. Further diversification of our crude supplies is of particular importance. All these efforts are expected to bear fruit in the future,” said Daniel Obajtek, CEO and President of the PKN ORLEN Management Board.
Q1 2019 LIFO-based EBITDA in the Downstream segment came in at PLN 1.4bn. This result was achieved despite the negative impact of the macro environment, attributable chiefly to the lower Brent/Urals differential as well as lower margins on light distillates, olefins and polyolefins. These factors were partly offset by improved margins on middle distillates, heavy refining fractions, PTA, fertilizers and PVC, as well as the depreciation of the złoty against foreign currencies.
The Retail segment posted a LIFO-based EBITDA of PLN 676m in Q1 2019, an increase of PLN 212m year on year. This solid performance was partly attributable to the growing sales volumes, which overall increased by 3% year on year, including by 2% in Poland, 5% in the Czech Republic, 6% in Lithuania, and 6% in Germany. Last quarter, the Company expanded across all its markets, including by 1.6pp y/y in the Czech Republic following full integration of the service stations acquired from OMV into the Company’s network, and by 0.5pp y/y in Poland. During the period, the Company also continued to work consistently towards developing its non-fuel offering and opened 31 food and beverage outlets. At the end of the first quarter, there were 2,047 outlets in operation, including 1,669 Stop Cafes in Poland, 276 Stop Cafes in the Czech Republic, 23 Stop Cafes in Lithuania, and 79 Star Connect stores in Germany. In April, the Company has opened its first service station on the Slovak market under the Benzina brand. By the end of 2019, PKN ORLEN will open a further 10 service stations in the country, with the offering and service standards on par with their Czech counterparts.
In the first quarter 2019, the Company’s average upstream production increased by 1.7 kboe/d year on year. The segment’s LIFO-based EBITDA for the period was PLN 94m, having increased by PLN 26m year on year. In Poland, the drilling of the Czarna Dolna-1 well continued and the acquisition of the Rusocin and Bystrowice II seismic data was completed. Preparatory work was completed for the drilling of the Bystrowice-OU2 well. In Canada, four boreholes were spudded and fracturing was performed in five wells. Three wells were brought on stream in the Kakwa and Ferrier areas.
In the first quarter 2019, the Company reduced its net debt by PLN 0.5bn q/q, mainly thanks to positive operating cash flows of PLN 1.2bn, and managed to bring down its financial leverage ratio to a safe level of 13.9%. Taking into account the Company’s stable financial condition and the current development plans, the PKN ORLEN Management Board recommended a dividend of PLN 3.5 per share, the highest amount in the Company’s history.