Solid results posted by PKN ORLEN for 2018, in line with market expectations

The solid results, corresponding to the market consensus range, were achieved amid macroeconomic challenges, with an average annual increase in crude oil and natural gas prices by over 30% (y/y) and 29%, respectively. Also relevant was the impact of scheduled maintenance, performed every two to three years, at the refineries in Kralupy and Mažeikiai, and the petrochemical sections of PKN ORLEN and Unipetrol. Another record-high LIFO-based EBITDA of PLN 2.8bn was delivered by retail, underpinned by 7% growth in total sales volumes (12M/12M). The 2018 retail performance was largely driven by the fourth quarter results, with an increase in ORLEN Deutschland’s fuel margin reflecting supply constraints on the German market caused by a disruption along the logistic chain.

Last year also witnessed a number of crucial investment projects and business decisions, all geared towards building PKN ORLEN’s long-term value. For example, the Company embarked on a process to acquire control of its major domestic peer Grupa LOTOS, launched its Petrochemicals Development Programme, squeezed out minority interests from Unipetrol, strengthened its foothold in Lithuania, commissioned the CCGT unit in Płock, and continued its efforts to diversify crude oil supply directions. In 2018, PKN ORLEN retained its high rating of BBB- with a stable outlook from Fitch and, as announced, paid out PLN 1.3bn in dividend (PLN 3.00 per share). The 2019–2022 strategy update was released in December.

• PKN ORLEN’s achievements in 2018:
• Strong LIFO-based EBITDA of PLN 8.3bn
• 15% revenue growth (12M/12M), to PLN 110bn
• Record-high crude oil throughput of 33.4m tonnes and sales volumes of 42.9m tonnes
• All-time best LIFO-based EBITDA of over PLN 2.8bn in retail, underpinned by a 7% increase in total sales volumes (12M/12M)
• Net profit of PLN 5.5bn.

“We turned in a robust performance despite a highly challenging macro environment, as manifested for instance in an over 30% average annual increase of oil prices. The results we achieved showcase our consistent pursuit of goals and effective management across all levels of the organisation. What makes us especially proud is the fact that, against this challenging background, we made a number of strategically important business decisions, which in the long run will entrench the Company’s position in the competitive market, with added benefits for the entire Polish economy. The key ones were to commence the merger process with Grupa LOTOS and launch the Petrochemicals Development project,” commented Daniel Obajtek, President of the PKN ORLEN Management Board.

Q4 2018 saw an increase in model downstream margin by USD 0.6/bbl (y/y), while the average Brent price went up by USD 8/bbl (y/y), to USD 69/bbl. Over the period, the average exchange rates of the Polish currency depreciated relative to both the US dollar and euro. Fuel volumes consumed rose in Poland and the Czech Republic, but declined in Germany. On the Lithuanian market, consumption of diesel oil fell, while the volume of gasoline consumed was on the rise.

In Q4 2018, PKN ORLEN’s retail segment posted another record-breaking quarterly LIFO-based EBITDA of PLN 917m. The earnings figure was underpinned by growing sales volumes, which overall went up by 6% (y/y), including 5% in Poland, 7% in the Czech Republic, 11% in Lithuania, and 8% in Germany. The Company saw its market shares expand across all markets, including by 2.1pp (y/y) in the Czech Republic as a result of taking over OMV service stations and integrating them fully into ORLEN’s retail network. Over the period, fuel margins grew across the Polish, German and Czech markets, while non-fuel margins improved (y/y) in Poland and the Czech Republic. The Company also continued to roll out its non-fuel range, having opened 69 new food & beverage outlets, bringing their total number to 2,016. Overall, there were 1,667 Stop Cafes in Poland (including 354 O!SHOP convenience stores), 270 Stop Cafes in the Czech Republic, 23 Stop Cafes in Lithuania, and 56 Star Connect outlets in Germany. At the end of 2018, the Company’s service station network comprised 2,803 locations, a year-on-year addition of 20. In Q4 2018, PKN ORLEN made further progress with its project to promote electric mobility, by launching an EV charger at its service station in Siewierz. Thus, the Company commenced the installation of charging stations as part of a project which is to deliver 50 such facilities by the end of 2019.

PKN ORLEN’s downstream LIFO-based EBITDA for Q4 2018 came in at PLN 1.3bn. The result was delivered on the back of an increase in total sales volumes by 1% (y/y), including 3% (y/y) in the case of diesel oil (8% (y/y) increase in Poland). The overall macro impact in the period was positive (y/y), mainly on account of the widening Brent/Urals differential, improved margins on middle distillates, heavy ends of petroleum processing and olefins, as well as the Polish złoty weakening against foreign currencies. These favourable developments were partly offset by higher costs of internal consumption driven by the rising oil prices, coupled with lower margins on light distillates, polyolefins and PVC. The segment’s Q4 performance was also affected by scheduled maintenance of the olefins unit and shutdown of the PTA plant at PKN ORLEN, as well as prolonged downtime of Unipetrol’s steam cracker following its periodic overhaul in Q3 2018.

PKN ORLEN’s upstream LIFO-based EBITDA for Q4 2018 reached PLN 66m. The average production of hydrocarbons in the period grew by 25% (y/y), to 20.2 thousand boe/d. Work within the Polish licence areas included the drilling of three boreholes (Bystrowice, Miłosław and Komorze), and spudding of the Czarna Dolna borehole under the Bieszczady Project. In addition, acquisition of 3D seismic data over the Chełmno area was completed. As part of ORLEN’s Canadian operations carried out with partners, the drilling of seven wells began, seven wells were fractured, and ten new wells were brought on stream. Within the Kakwa area, another stage of work was completed to expand the gas pre-treatment facilities and construct a water storage system.

In 2018, PKN ORLEN remained on a sound financial footing, while diversifying its sources of funding. At the end of 2018, PKN ORLEN’s net debt amounted to PLN 5.6bn, with the financial leverage at a safe level of 15.7%.

In 2018, PKN ORLEN won the trust and acclaim of a number of expert organisations − having been again awarded the prestigious titles of The World’s Most Ethical Company and Top Employer Poland. In 2018, it again topped the ‘500 List’ of the Rzeczpospolita daily, ranking the largest Polish companies, and was also listed in the 45th place among the world’s largest energy companies in the S&P Global Platts TOP250 ranking. Key marketing events of 2018 included official partnership with the F1 Williams Racing team, and sponsorship of the volleyball world champions team, a number of leading Polish athletes and the Polish Olympic Committee.