ORLEN Group posts best results ever
For the second quarter of 2021, the ORLEN Group posted record-high LIFO-based EBITDA of PLN 3.2bn, up by a remarkable PLN 1.2bn y/y. The Group’s strong market position has also been confirmed by its net profit of PLN 2.2bn and 73% y/y growth in revenue, to PLN 29.4bn. The main contributors to the Group’s impressive performance were power generation and petrochemicals. More than half of the ORLEN Group's sales revenues come from foreign markets.
LIFO-based EBITDA delivered by the power generation segment was in excess of PLN 1.2bn, while petrochemical production generated solid LIFO-based earnings of over PLN 1bn, representing a fourfold y/y increase.
“The record-breaking financial figures booked by the ORLEN Group prove that our vision of turning into a strong multi-utility player diversified across multiple sectors is coherent, effectively pursued and designed to address all the contemporary challenges faced by Oil&Gas. Despite the challenging environment our results were even better than in the record years of 2015−2018, which were marked by strong macroeconomic tailwinds for the refining market. As a result, we are on a firm financial footing keeping us safely on track to meet our business objectives. PKN ORLEN, as the leader of the energy transformation, is now engaged in its largest investment programme geared towards strengthening all business areas. The benefits are already being seen in the profitable growth of each segment and their active contribution to furthering our strategic vision. Add in the safe green finance framework and our continued commitment to sustainable development, and you will get a full picture of the modern ORLEN2030, which we are consistently working towards. Without investing to bolster the Polish business and economy, consolidating key capabilities of Polish companies and fast-tracking research and development efforts, we will not be able to follow through with the envisioned energy transition for Poland,” says Daniel Obajtek, President of the PKN ORLEN Management Board.
In the second quarter of 2021, the ORLEN Group reported:
- all-time high net profit of PLN 2.2bn; PLN 1.9bn y/y increase
- LIFO-based EBITDA at a historically record level of PLN 3.2bn; PLN 1.2bn y/y increase*
- sales of 9.3 million tonnes; 9% y/y increase
- revenue of PLN 29.4bn; 73% y/y increase
In the second quarter of 2021, the ORLEN Group generated record-high operating cash flows of PLN 5.1bn, which helped it reduce net debt by PLN 2bn (q/q), despite substantial capital expenditure of PLN 2.4bn.
Following the success of its domestic bonds, in the second quarter of 2021 PKN ORLEN took intensive steps to tap foreign sources of finance. To that end, it established a euro medium-term note (EMTN) programme with a total value of up to EUR 5bn, as part of which it carried out its first EUR 500m issue of green seven-year notes bearing a coupon of 1.125%. This benchmark issue of green euronotes, blazing a trail not only for ORLEN but the entire Polish market, attracted huge investor interest, with 234 subscription orders placed for a total of nearly EUR 3bn. This means that PKN ORLEN’s green notes were six times oversubscribed relative to the planned issue size.
The investments undertaken by PKN ORLEN to create added value for the Company were well received by its Shareholders, who granted liability discharge to all members of the Management and Supervisory Boards. They were also in favour of the proposed dividend payment of PLN 3.5 per share, as recommended by the Management Board, which would result in total shareholder distributions of close to PLN 1.5bn.
In the second quarter of 2021, power generation again posted a robust EBITDA figure in excess of PLN 1.2bn, largely on the back of an improved performance of the Energa Group, acquired by PKN ORLEN in 2020. The Energa Group’s Q2 2021 EBITDA came in at PLN 797m, up PLN 537m y/y. Contributing positively to this performance were gains on the measurement and settlement of CO2 futures held in a separate trading portfolio. Over that time, the ORLEN Group’s total power generation volume reached 2.6 TWh, of which some 70% came from RES and gas-fired sources. The ORLEN Group currently has 3.4 GWe in installed capacities, including more than 1.4 GWe at the Energa Group. During the second quarter of 2021, further progress was made on strategic projects to develop zero-carbon power generation sources, including offshore wind assets in the Baltic Sea. The Energy Regulatory Office granted support for the Baltic Power project in the form of a 25-year Contract for Difference (CfD). Under the CfD, the project owner is entitled to receive payments covering any negative balance of electricity generated offshore and fed into the grid, which means that the regulator will make up for the potential difference between the market price of electricity and the cost of its generation.
In the previous quarter, the petrochemical business generated solid LIFO-based EBITDA of more than PLN 1bn, representing a fourfold increase y/y. It reflected record-high petrochemical margins, gains on the measurement and settlement of CO2 futures held in a separate trading portfolio and a depreciation of the Polish currency against the euro. Over the period, margin growth was recorded across all PKN ORLEN’s petrochemical products. Following the scheduled shutdown of the Olefins unit in Płock for routine maintenance, sales volumes in Poland fell 27% y/y, with sales in the Czech Republic and Lithuania up 58% and 367%, respectively. The total volume of sales in the second quarter of 2021 reached 1 million tonnes, down 4% year on year, including (-)69% in the case of olefins, (-)22% in the case of PVC, (+)23% in the case of polyolefins, (+)12% in the case of fertilizers, and (+)3% in the case of PTA.
Q2 2021 LIFO-based EBITDA delivered by retail amounted to PLN 828m, up 14% y/y. Over the period, fuel margins declined year on year in Poland, the Czech Republic and Germany, staying relatively unchanged on the Lithuanian market, with non-fuel margins up across all markets. Retail volumes grew 13% (y/y), including 19% in the case of gasoline, 11% in the case of diesel oil and 13% in the case of LPG. At the end of the second quarter of 2021, the ORLEN Group’s retail network comprised 2,854 outlets, a net y/y addition of 22. As many as 2,239 service stations (approximately 80% of the entire network) are already complete with the StopCafe/star Connect non-fuel format, including: 1,730 in Poland, 315 in the Czech Republic, 151 in Germany, 29 in Lithuania and 14 in Slovakia. PKN ORLEN was also rolling out alternative fuel infrastructure, increasing its availability by 104 points (y/y). As a result of these efforts, the number of alternative refuelling points available to customers grew to 278, including: 232 EV charging stations, 2 hydrogen refuelling stations and 44 CNG stations.
In the second quarter of 2021, LIFO-based EBITDA earned by the refining segment came in at PLN 298m. Over the period, sales of gasoline, diesel oil and JET rose by 15%, 12% and 119%, respectively, with sales of LPG down 6% and of heavy fuel oil down 5%. The segment’s performance continued to be affected by adverse macroeconomic developments, including lower margins on diesel oil and heavy refining fractions, an appreciation of the Polish currency against the US dollar, the effect of cash flow hedges and an increased cost of internal consumption led by rising oil prices. These unfavourable factors were partially offset by the positive impact of a widening Brent/Urals spread, higher margins on gasoline and JET fuel, as well as gains on the measurement and settlement of CO2 futures within a separate trading portfolio. In the second quarter of 2021, crude oil throughput rose 10% y/y, to 6.8 million tonnes.
In the second quarter of 2021, the upstream segment booked LIFO-based EBITDA of PLN 60m, reflecting mainly the supportive macroeconomic environment (y/y), with the prices of hydrocarbons (crude oil, natural gas and NGL) on an upward trend, and negative contribution from hedging transactions. The average production volume in the period was 17.9 thousand boe/d, including 1.1 thousand boe/d in Poland and 16.8 thousand boe/d in Canada. The combined y/y decrease in the average production volume of (-)0.9 thousand boe/d translated into a 9% y/y drop in the segment’s sales. In Poland, field development work was under way on the Miocen and Edge assets as well as projects carried out jointly with PGNiG. Drilling work included well pad construction for the Pruchnik-OU1 well (Miocen project), as well as design and preparatory work for future wells (Płotki project). As part of seismic surveys, the Koczała-Miastko 3D seismic data was processed and passed on for interpretation (Edge project), and the interpretation of 2D seismic profiles (Karpaty project) was completed. In Canada, work was continued to develop the Group’s upstream assets within the Ferrier and Kakwa areas. A fracking job was performed with two wells brought on stream (Kakwa) and one new well was spudded (Ferrier). Currently, site preparation work is afoot to drill further wells. The process of acquiring new licence rights for the most prospective part of Lochend, adjacent to the existing licence area, was also successfully completed.
Capital investments and acquisitions Over the first six months of 2021, the amount allocated by the ORLEN Group to investments came to PLN 4.2bn. In the second quarter of 2021, the capital investment and acquisition processes carried out by PKN ORLEN entered the crucial phase. The construction of a Research & Development Centre was completed to facilitate more efficient development of new technologies and products, allowing the Group to build up in-house know-how and secure patents for innovative solutions. At that time, PKN ORLEN launched a new project under its Petrochemical Development Programme – the Olefins III Complex, expected to add some PLN 1bn annually to the Group’s operating profit. The contractor for what is Europe’s largest petrochemical project in two decades is a consortium of Hyundai Engineering and Técnicas Reunidas. In the second quarter, PKN ORLEN also took some key steps making significant progress towards its goal of zero-carbon power generation and improved energy security for Poland. It signed a cooperation agreement with Synthos to jointly develop and deploy zero-emission nuclear energy technologies based on micro and small modular reactors (MMRs and SMRs). To advance the efforts of transitioning Poland’s energy system, PKN ORLEN continued its project to build a gas-fired power plant in Ostrołęka.
An amendment to the existing contract was signed by CCGT Ostrołęka, a special purpose vehicle of Energa (part of the ORLEN Group), with GE Power, the project’s general contractor, whereby the coal-based power plant concept was replaced with a CCGT technology. For four years now, the ORLEN Group has been hard at work transforming itself into a multi-utility powerhouse. In May 2021, the Polish Ministry of State Assets, PKN ORLEN, PGNiG and Grupa LOTOS confirmed the non-cash structure of the intended merger, which would guarantee financial stability to the combined strong group, with due regard given to the needs of shareholders (including minority interests) of all the companies involved. The leading role of PKN ORLEN in the transaction was also guaranteed.
The Group’s fast-paced growth led to an over twofold increase in the value of the ORLEN brand, to PLN 10bn, compared with the previous edition of the Rzeczpospolita ranking of the most valuable Polish brands.
* comparing results excluding non-recurring events, including, among others, gain on a bargain purchase