Record results delivered by retail and power generation segments
In 2020, PKN ORLEN posted strong LIFO-based EBITDA of PLN 12.1bn and net profit of PLN 3.4bn, including a gain on the purchase of Energa shares. Key growth projects were continued during the year. As planned, a total of PLN 9bn was spent on the projects. The retail segment delivered record earnings of PLN 3.3bn, with EBITDA LIFO posted by the power generation business also at an unprecedented level of PLN 3.4bn. Despite adverse macroeconomic impacts related to the COVID-19 pandemic, revenue came in at PLN 86.2bn. PKN ORLEN at the end of November last year ratified its long-term strategy, and in September its climate policy, providing for investments to be made until 2030 to enable the Company to achieve climate neutrality by 2050.
‘We delivered very solid 2020 results despite the macroeconomic headwinds created by the pandemic. In the fuel and energy industry, business diversification is a key to success. Therefore, we keep a close eye on trends and adequately respond to them. This approach directly translates into our financial performance. We are a global company, so our decisions and actions must be geared towards strengthening our competitive position, because, in the long run, only the strongest businesses will be able to stay in the game. The record results in retail and power generation and strong petrochemical performance demonstrate that with our decisions from three years ago to go ahead with investments and acquisitions in those segments we set the right strategic growth directions,’ said Daniel Obajtek, President of the PKN ORLEN Management Board.
In 2020, we continued efforts to build a multi-utility group. PKN ORLEN moved forward on and initiated a number of capital projects aimed at maximising profits and expanding its product mix. Progress was made on capex projects in the petrochemical segment, the project to expand ANWIL’s fertilizer capacities, and the process to transform ORLEN Południe into a state-of-the-art biorefinery, which included the construction of a green glycol unit and other projects. A visbreaker project was launched in Płock. PKN ORLEN closed the acquisition of shares in Energa, completed the acquisition of RUCH, secured conditional clearance from the European Commission for the acquisition of Grupa LOTOS and commenced the process to acquire PGNiG. In early December, PKN ORLEN launched the acquisition of the Polska Press Group, which will be used to build a modern customer communication platform. Throughout 2020, the Group worked to enhance its renewable energy capabilities, acquiring the Energa Group and making advanced preparations for the construction of an offshore wind farm, which paved the way for the selection of an industry partner for the project in early 2021.
PKN ORLEN’s achievements in 2020:
- LIFO-based EBITDA of PLN 12.1bn (before impairment losses on non-current assets and including a gain on the purchase of Energa shares)
- net profit of PLN 3.4bn
- revenue of PLN 86.2bn
In the fourth quarter of 2020, PKN ORLEN maintained a stable position, and its financial ratios were at safe levels. In the period, the Company issued corporate bonds with a total value of PLN 1bn, with the margin linked to the ESG rating assigned by MSCI ESG Research Limited. The bond issue attracted strong interest from investors – in the bookbuilding process they placed subscription orders for PLN 2.2bn worth of bonds, more than twice their total nominal value. PKN ORLEN has secured very good terms of financing – the interest rate is the lowest in its operating history and the margin is the lowest since the 2008 financial crisis.
The fourth-quarter performance of the refining segment was significantly affected by adverse macroeconomic conditions. Factors weighing on the result included contracting margins on light and middle distillates, a USD 1.4/bbl (yoy) drop in the Brent/Urals differential, and a strengthening of the złoty against the US dollar. Another major factor was the negative impact of cash flow hedging transactions related to crude oil purchases and sales of products. The combined effect of these factors was LIFO-based EBITDA of the refining segment of PLN (-)145m. These adverse impacts were partly offset by wider margins on heavy refining fractions and lower cost of own consumption led by a USD (-)19/bbl drop in oil prices. Crude throughput reached 7.4 million tonnes, with sales at 6.2 million tonnes.
The petrochemical segment posted fourth-quarter 2020 LIFO-based EBITDA of PLN 508m, up 187% year on year. All segment companies contributed to the result, benefitting from higher (yoy) petrochemical margins and a depreciation of the złoty against the euro. Sales of petrochemical products reached 1.4 million tonnes, up 17% (yoy), with polyolefins up 47%, fertilizers up 12%, PVC up 115%, PTA up 15%, and sales of olefins broadly flat. In Poland, sales went up 13% (yoy) on higher sales of ethylene, PTA, fertilizers and PVC. In the Czech Republic, sales rose 22% (yoy), driven by higher sales of polyethylene (following the launch of PE3), polypropylene and PVC. At ORLEN Lietuva sales grew by an impressive 200% (yoy) on higher volumes of propylene sold to external customers.
In the fourth quarter of 2020, PKN ORLEN’s power generation segment booked record-high LIFO-based EBITDA of PLN 1.1bn, up 192% year on year, mainly reflecting consolidation of the ENERGA Group’s results, which was further supported by a positive macro impact (yoy) of electricity prices rising faster than gas prices. During the period, the Group had installed power and heat generation capacities of 3.2 GWe and 6 GWt, respectively. Electricity output, of which more than 70% was from zero- and low-carbon sources, totalled 3.3 TWh, up 10% year on year. The increase in electricity output was mainly driven by macro conditions favourable to CCGT units, hydroelectric power plants (better hydrometeorological conditions), wind farms (improved wind conditions and Energa’s new wind farm with a capacity of approximately 31 MW placed in commercial operation), and lower volumes from biomass co-firing (co-firing discontinued in Ostrołęka). Sales of electricity stayed broadly flat year on year, whereas its distribution increased as more people in Poland switched to remote working. With a view to building new business lines in the power generation segment, PKN ORLEN is focusing on the development of offshore wind power generation. The first wind farm in the Baltic Sea will be constructed jointly with a partner selected by the Company – Northland Power of Canada.
The retail segment reported fourth-quarter 2020 LIFO-based EBITDA of PLN 827m, up 41% year on year, supported chiefly by improved fuel margins in Poland and Germany, with margins in the Czech Republic and Lithuania relatively unchanged (yoy). During the quarter, work continued on expanding the non-fuel product range. Compared with the same period of the previous year, the number of Stop Cafe/star Connect food service outlets (including convenience stores) grew by 145, to 2,290 locations at the end of December 2020. These included: 1,725 Stop Cafes in Poland (including 662 convenience stores), 385 Stop Cafes in the Czech Republic, 139 star Connect locations in Germany, 28 Stop Cafes in Lithuania, and 13 Stop Cafe outlets in Slovakia. In line with its strategy, PKN ORLEN consistently adapted its service station chain to sell alternative fuels. As a result of these efforts, the number of alternative refuelling points increased by 104 (yoy), to 212, including 167 EV charging stations, 2 hydrogen refuelling stations and 43 CNG stations. Most of them are located in Poland (137 stations). Sixty-six stations operate in the Czech Republic and nine in Germany.
The upstream segment generated LIFO-based EBITDA of PLN 50m, up 52% year on year, despite lower prices of crude oil and natural gas condensate, benefitting mainly from higher gas prices (yoy) and cash flow hedging transactions. Production averaged 1 thousand boe/d in Poland (100% gas) and 15.2 thousand boe/d in Canada (42% liquid hydrocarbons). In December 2020, ORLEN Upstream started test production of natural gas from the Bystrowice field. The drilling of the Grodzewo-1 well was completed, and production tests were run. In Canada, development projects were resumed, with three wells spudded in the Ferrier area and one in the Kakwa area. PKN ORLEN is also pursuing pro-environmental initiatives to help reduce greenhouse gas emissions and comply with all environmental requirements introduced by the federal and provincial governments in Canada.