PKN ORLEN’s consolidated financial results for Q1 2020

“In the first quarter of this year, which was already affected to some extent by the crisis caused by the coronavirus pandemic, we delivered robust financial performance across all areas of our operations. Thanks to our previous optimisation efforts, we are well prepared for various scenarios. We are monitoring the situation and flexibly responding to the changes in market environment. PKN ORLEN’s financial condition allows us to continue the strategic growth projects and acquisitions with a view to enhancing the Company’s resilience to macroeconomic factors. This is one of the objectives behind the acquisition of the ENERGA Group, now being finalised, and of Grupa LOTOS,” said Daniel Obajtek, President of the PKN ORLEN Management Board.

For Q1 2020, PKN ORLEN reported:

• LIFO-based EBITDA of PLN 1.6bn (before impairment losses on non-current assets of PLN 0.5bn, related mainly to the Upstream segment)
• Sales of 9.4 million tonnes
• Revenue of PLN 22bn
• Capacity utilisation at 88%

As at the end of Q1 2020, PKN ORLEN held PLN 5.1bn in cash, and maintained its net debt at a safe level of PLN 4.2bn and financial leverage at 11.5% (the maximum level set in the strategy is 30%). However, considering the macroeconomic forecasts and the Company’s growth plans, at the beginning of May the PKN ORLEN Management Board revised downwards the dividend recommendation from PLN 3 to PLN 1 per share.

Despite the solid LIFO-based EBITDA performance in all segments, the Company reported a net loss of PLN 2.2bn. The net result was directly affected by the decision to recognise impairment of the Upstream segment’s non-current assets and to write down inventories to current prices in the Q1 2020 consolidated financial statements. The impairment losses and write-downs totalled PLN 2.5bn. Recognition of impairment losses and write-downs is a non-cash accounting procedure with no effect on PKN ORLEN’s current liquidity position. It was necessitated by the difficult situation in the sector following a sharp decline in oil prices in global markets caused by, among other things, the coronavirus pandemic. Write-downs and impairment losses were also recognised in the first quarter by the largest fuel and energy companies. Factoring out the impairment losses and write-downs, the Company’s net profit was PLN 0.3bn.

In the first quarter of 2020, the model downstream margin decreased by 1.1 USD/bbl (y/y). Average PLN/EUR and PLN/USD exchange rates fell by PLN 0.29 and PLN 0.35m, respectively. Consumption of diesel oil and gasoline went down, respectively, by 1% and 1% in Poland, by 9% and 10% in the Czech Republic, and by 3% and 1% in Germany. It rose in Lithuania: by 2% and 5%, respectively.

The Downstream segment delivered LIFO-based EBITDA of PLN 901m. It was achieved on the back of higher sales of fertilizers (up 1% y/y), PVC (up 3% y/y) and PTA (up 3% y/y), despite a drop in sales of gasoline (down 11% y/y), diesel oil (down 12% y/y), LPG (down 14% y/y), olefins (down 6% y/y) and polyolefins (down 28% y/y). The effect of macroeconomic conditions, including a 13 USD/bbl fall in crude oil prices and a 2.2 USD/bbl increase in Brent/Urals differential, was offset by lower sales volumes and remeasurement of the crude oil and petroleum product inventories.

The Retail segment posted a LIFO-based EBITDA of PLN 706m, an increase of PLN 30m year on year. This strong performance was delivered with stable year-on-year sales volumes, growth of the market share in the Czech Republic, and stable shares in other markets. In the first quarter, work continued on the development of the range of non-fuel products and services. Relative the corresponding period of the previous year, the number of food service outlets grew by 108, to 2,155 at the end of March, including 1,700 Stop Cafes in Poland, 307 Stop Cafes in the Czech Republic, 24 Stop Cafes in Lithuania, and 124 Star Connect stores in Germany. In line with the strategy, PKN ORLEN’s European service station network is being adapted to sell alternative fuels. At the end of the first quarter, electric vehicle chargers were available at 70 service stations, 55 more compared with the same period in 2019. The cobranding process was continued to gradually strengthen the ORLEN brand visibility in the Company’s European network.

The Upstream segment reported LIFO-based EBITDA of PLN 219m, up PLN 125m year on year. Average hydrocarbon production increased by 1.4 thousand boe/d, or 7%, year on year. In Poland, work continued on the design and formal and legal aspects of the development of the Bystrowice, Bajera, Tuchola and Chwalęcin fields, as well as drilling of the Pławce and Dylągowa wells. Decisions awarding two new exploration licences in the Edge area were obtained. In Canada, four boreholes were spudded and fracturing was performed in five wells. Seven wells were brought on stream in the Kakwa, Lochend and Ferrier areas. Given the slump in oil prices on the global markets and the COVID-19 pandemic, analyses are being conducted on an ongoing basis to decide on possible changes in the schedule of investment projects planned in 2020.

As announced, the Company proceeded with growth projects and acquisitions. The procedure to select the design provider for the off-shore wind farm project in the Baltic Sea began, and the construction of a Visbreaking unit in Płock was launched. As part of PKN ORLEN’s largest petrochemical asset development programme to date, a licence and front-end engineering design agreement was signed for the expansion of phenol production capacities. At the Trzebinia production plant, owned by ORLEN Południe, work continued on the construction of Europe’s largest unit for the production of eco-friendly propylene glycol. In March, the ORLEN Południe plant in Jedlicze started to produce hand disinfectant. The Group also consistently pursued the development of its fertilizer production capacities at ANWIL of Włocławek. It also completed the construction of the main part of the polyethylene unit in the Czech Republic.