PKN ORLEN’s consolidated financial results for Q2 2019
STRONG PERFORMANCE DELIVERED IN A CHALLENGING MACRO ENVIRONMENT
In the second quarter of 2019, PKN ORLEN earned LIFO-based EBITDA of PLN 2.7bn, an increase of more than PLN 600m y/y. Earnings improved despite a more challenging macroeconomic environment, affected chiefly by the declining Brent/Urals differential (down by USD 1.7/bbl y/y). The Group’s LIFO-based EBITDA was driven mainly by robust performance in Downstream and Retail, of nearly PLN 2bn (up by over PLN 400m y/y) and PLN 859m, respectively. Although oil supplies via the Druzhba pipeline were temporarily halted, the Group’s crude throughput in the second quarter reached 8.3 million tonnes, resulting in a 9pp y/y increase in refinery runs. This was achieved largely on the back of consistent efforts to diversify oil supply sources, giving the Group more flexibility in its procurement decisions. The high processing volume coupled with y/y growth in product consumption translated into a 2% y/y increase in sales.
At the beginning of July, PKN ORLEN filed a formal application for the European Commission’s approval of its proposed acquisition of Grupa LOTOS.
In Q2 2019, PKN ORLEN recorded:
- PLN 2.7bn in LIFO-based EBITDA, representing a y/y increase of over PLN 600m
- 2% y/y growth in overall sales volumes
- 4% y/y growth in retail volumes and y/y market share expansion across all markets
- 9% y/y rise in revenue.
In the second quarter of 2019, the model downstream margin went down by USD 1.3/bbl (y/y). The average exchange rate of the złoty against the euro and the US dollar fell during the period. The Polish and Czech markets saw consumption of both diesel oil and gasoline grow, as opposed to Germany, where consumption fell. The Lithuanian market, on the other hand, consumed more gasoline but less diesel oil.
“Another quarter of solid results demonstrates that PKN ORLEN is well positioned to operate in a more challenging macro environment. Notably, despite the disruption in the supply of Russian oil, our plants were running smoothly. We even managed to increase refinery runs, achieve further growth in sales volumes, and expand market shares of our retail network across all markets where we are present. This was accomplished thanks to our consistent policy of diversifying oil supply sources, which allows us to flexibly respond to market challenges, while ensuring the security of supplies for the ORLEN Group and the country,” said Daniel Obajtek, President of the PKN ORLEN Management Board.
The Downstream segment’s Q2 2019 LIFO-based EBITDA was PLN 2bn, with sales volumes up 2% (y/y), including 11% for gasoline, 2% for diesel oil, 30% for olefins and 10% for PTA. Earnings were buoyed by stronger refinery margins on light and heavy distillates combined with wider petrochemical margins on olefins, polyolefins, PTA and fertilizers (y/y). Falling natural gas prices supported profit margins on the cogeneration business, which contributed ca. PLN 200m to segment earnings. The effect of these factors was partially cancelled out by the USD 1.7/bbl reduction in the Brent/Urals differential and deteriorated margins on middle distillates and PVC (y/y). In the second quarter of 2019, the metathesis plant in Płock was finally brought on-stream, solidifying ORLEN’s lead on the propylene production market. As announced, the Group also commissioned a PPF splitter with an annual capacity of 80,000 tonnes of propylene. The project will deliver the first petrochemical stream of the Group’s Lithuanian refinery in Mažeikiai, extending its value chain.
The Retail segment’s Q2 2019 LIFO-based EBITDA came in at PLN 859m, up PLN 182m (y/y). This solid performance was partly attributable to the growing sales volumes, which overall increased by 4% y/y, including 3% in Poland, 6% in the Czech Republic, 2% in Lithuania, and 6% in Germany. Last quarter, the ORLEN Group expanded across all its markets, including by 1.3pp y/y in the Czech Republic as the service stations acquired from OMV had been fully integrated into the ORLEN network, by 0.3pp y/y in Poland and Germany, and by 0.2pp y/y in Lithuania. During the period, the Group also continued to work consistently towards developing its non-fuel offering, having opened 22 food and beverage outlets. At the end of the second quarter of 2019, there were 2,069 such outlets in operation, including 1,673 Stop Cafes in Poland, 282 Stop Cafes in the Czech Republic, 23 Stop Cafes in Lithuania, and 91 Star Connect stores in Germany. The Group’s first service station in Slovakia was launched in April this year under the Benzina brand.
In the second quarter, the Group’s Upstream business generated LIFO-based EBITDA of PLN 83m, a level similar to that recorded in the same period last year, on average daily production of 17,800 boe. In Poland, drilling of the Bystrowice OU-2 well commenced, drilling of the Czarna Dolna-1 well continued and preparatory work began to drill the Bystrowice OU-3 well. In Canada, one borehole was spudded and fracturing operations were performed in four wells. In addition, four wells were brought on stream in the Kakwa and Ferrier areas.
The Group reduced its net debt by PLN 2.7bn q/q in the second quarter, thanks mainly to positive operating cash flows of PLN 3.5bn. It also managed to bring down its financial leverage ratio to a safe 6.6%, far below the target set in the strategy. The General Meeting approved the Management Board’s proposal to pay dividend of PLN 3.5 per share from profit earned in 2018.