PKN ORLEN's consolidated financial results for 1Q2021
In the first quarter of 2021, the ORLEN Group generated LIFO-based EBITDA of PLN 2.4bn and net profit of ca. PLN 1.9bn, with the consolidation of strong EBITDA delivered by the Energa Group of PLN 0.8bn as a major performance driver. Revenue came in at PLN 24.6bn despite a year-on-year drop in oil throughput (down 19%) and sales (down 11%) and lower fuel consumption attributable to the COVID-19 pandemic. Key growth projects were continued during the first quarter, with PLN 1.8bn allocated to the projects. In line with the ORLEN2030 Strategy, the PKN ORLEN Management Board recommended a dividend payment of PLN 3.5 per share for 2020.
‘The ORLEN Group’s robust financial performance delivered in an extremely harsh market environment confirms that our strategic directions are well chosen. Also, our safe financial management allows us to thrive and successfully pursue ambitious growth projects. Both retail and petrochemicals reported solid results for the first quarter of 2021, but we are particularly happy with the record-high earnings posted by our power generation segment, with a strong contribution from the Energa Group. As a result, we can effectively diversify our revenue sources, consolidate our position on global markets and create value for shareholders. The ORLEN Group is strong, increasingly resilient to macroeconomic shocks and well prepared for the strategic challenge of expanding into a multi-utility business,’ says Daniel Obajtek, President of the PKN ORLEN Management Board.
In the first quarter of 2021, PKN ORLEN was consistently building value and competitive advantage. The Group successfully pursued its oil supply diversification policy and signed a contract with ExxonMobil for the supply of American crude oil, which contributed to enhancing Poland’s energy security. The Group also decided to maintain its business relationship with Rosneft under a new two-year contract. Key power generation projects were progressing as planned, with priority given to the construction of an offshore wind farm in the Baltic. In early 2021, PKN ORLEN secured an industry partner for the project – Northland Power of Canada. Another important step was taken towards acquiring the PGNiG Group. In March 2021, the European Commission resolved to refer the concentration case to the President of the Office of Competition and Consumer Protection (UOKiK) for consideration. In the first quarter of 2021, PKN ORLEN unveiled and launched its new retail format ‘ORLEN w ruchu’ (‘ORLEN in motion’). It also began the rollout of a network of parcel pick-up points and courier services, investing in own parcel lockers. These projects are expected to generate several hundred million złoty in additional profit over the next five years.
In the first quarter of 2021, the ORLEN Group reported:
- LIFO-based EBITDA of PLN 2.4bn
- Net profit of close to PLN 1.9bn
- Sales of 8.4 million tonnes
- Revenue of PLN 24.6bn
In the first quarter of 2021, the ORLEN Group’s net cash from operating activities reached an impressive PLN 3.9bn. The Group managed its debt effectively, as evidenced by a decline in the net debt to EBITDA ratio from 1.27x at the end of December 2020 to 0.91x at the end of March 2021. In March, PKN ORLEN carried out its second sustainability bond issue in the last three months. The bonds bear interest tied to the ESG rating from MSCI ESG Research Limited. The issue comprised ten-year bonds worth PLN 1bn, adding a stable long-maturity instrument to the debt financing portfolio that will help to improve the Group’s financial security. The PKN ORLEN Management Board’s recommendation to pay a dividend of PLN 3.5 per share for 2020 is a testament to the robust financial footing of the Group, which outperformed most of its oil and gas peers last year, and an effect of consistent implementation of growth projects across all business segments.
The refining segment improved its net result in the first quarter of 2021 by PLN 162 year on year, with LIFO-based EBITDA at PLN (-)191m. The business continued to be significantly impacted by unfavourable macroeconomic conditions, mainly lower margins on middle distillates, Brent/Urals differential narrowing USD (-)0.9/bbl and the złoty appreciating against the dollar. Other major factors included the negative impact of cash flow hedging transactions related to crude oil purchases and sales of products, higher cost of own consumption led by a USD 11/bbl increase in oil prices, and maintenance shutdowns. These adverse impacts were partially offset by wider margins on light distillates and heavy refinery fractions. Crude throughput reached 6.2 million tonnes, with sales at 5 million tonnes.
In the past quarter, the petrochemical segment generated LIFO-based EBITDA of close to PLN 660m, including earnings delivered by ANWIL of PLN 93m and gross profit on PTA sales of PLN 56m. The effect of macro factors was positive year on year, driven by stronger margins on polyolefins, fertilizers and PVC, and a depreciation of the złoty against the euro. These positive effects were partly offset by the negative impact of lower margins on olefins and cash flow hedging transactions related to sales of products. Sales totalled 1.3 million tonnes, with a significant rise reported for Lithuania (up 42% year on year) and the Czech Republic (up 16% year on year).
The power generation segment consolidated its strong position with LIFO-based EBITDA of just under PLN 1.1bn reported for the first quarter, over a twofold increase year on year. Consolidation of the Energa Group’s results was a driver of this growth. During the period, the Group had installed power and heat generation capacities of 3.2 GWe and 6.1 GWt, respectively. Electricity production amounted to 2.7 TWh (with over 60% coming from RES and gas-fired sources), and heat production totalled 13.4 PJ. At the beginning of the year, the Kanin wind farm with a capacity of 20 MW was added to ORLEN Group’s portfolio of renewable energy sources. Also, the Company was granted consent to acquire three onshore wind farms in the Pomerania region, with a total capacity of approximately 90 MW. Once the transaction is closed, the Group will own 353 MW of installed wind power capacity in Poland, becoming the fourth largest wind power producer on the home market. These acquisitions and the construction of an offshore wind farm in the Baltic are in line with the ORLEN2030 Strategy, which provides for strong development of zero-carbon power generation, both through construction of own capacities and acquisition of already operating assets.
The retail segment generated LIFO-based EBITDA of PLN 548m for the first quarter of 2021 despite a 13% year-on-year drop in sales volumes led by subdued fuel demand attributable to the COVID-19 pandemic, and year-on-year declines in fuel margins recorded in Poland and the Czech Republic. The segment performance was supported by a year-on-year rise in fuel margins in Germany and wider non-fuel margins in Poland, the Czech Republic, and Germany. The Group continued to expand its non-fuel sales network, with 74 Stop Cafe/star Connect outlets added to the chain year on year. At the end of first quarter of 2021, 2,229 locations were in operation, including 1,729 in Poland, 313 in the Czech Republic, 146 in Germany, 28 in Lithuania and 13 in Slovakia. In line with its strategy, PKN ORLEN is consistently adapting its service station chain to sell alternative fuels. As a result of these efforts, the number of alternative refuelling points increased by 111 (yoy), to 225, including 180 EV charging stations, two hydrogen refuelling stations and 43 CNG stations. Most of them are located in Poland (144 stations). Seventy-two stations operate in the Czech Republic and nine in Germany.
The upstream segment delivered LIFO-based EBITDA of PLN 14m, reflecting mainly the negative impact of hedging transactions and a 24% year-on-year drop in sales volumes. Average production was 16.2 thousand boe/d, including 1.4 thousand boe/d in Poland and 14.8 thousand boe/d in Canada. In Poland, after production startup on the Bystrowice field, commissioning of the surface facilities has commenced. Under the Edge project, development work is continuing on the Tuchola and Bajerze fields based on a development plan providing for generation of electricity from nitrogen-rich natural gas. PKN ORLEN collaborated with PGNiG to perform design work and formal and legal work necessary for development of the Chwalęcin natural gas field, as well as administrative and tender-related work associated with development of the Sieraków-2H well. In Canada, progress was made on the development of existing assets. In the Ferrier area, the drilling of one well was completed and three hydraulic fracturing operations were performed, enabling production startup from the wells.