An increased volume of fuel sales and Unipetrol’s profits had a positive effect on the ORLEN Group’s performance in Q2 2006
In Q2 2006 PKN ORLEN posted very good financial results, driven primarily by increased sales. There was also support from a positive macroeconomic environment and an increase in profits of the Unipetrol companies.
The second quarter was decidedly better for the oil industry than the difficult first three months of the year. Refining margins rose by 120%, while the Ural-Brent differential grew by 34%. However, margins on petrochemical products were lower.
PKN ORLEN’s revenue for Q2 2006 was PLN 13,545 million, while operating profit (EBIDTA) amounted to PLN 1,644 million. EBIDTA (net of the effect of negative goodwill) rose by 55% year on year. Based on comparable data, EBITDA was PLN 1,315 million, an improvement of nearly 110% on the corresponding period of 2005.
IFRS require publication of the net profit at the Group’s and the parent company’s level. The net profit at the parent company level excludes the profit of the minority shareholders in these companies where PKN ORLEN holds below 100%. The consolidated net profit totaled PLN 958 million and was by 43% higher than in the corresponding period of 2005 and by 141% higher than in Q1 2006. So far, the profit of minority shareholders slightly differed from the consolidated net profit. Following acquisition and consolidation of Unipetrol, in which PKN ORLEN holds 63% stake, the proportional economic effect of the Czech group attributable to the minority shareholders lowers the profit of the parent company shareholders. As a result, the figure stood at PLN 881 million. After net of the effect of negative goodwill (to make the figures comparable) the profit rose by 32% on yearly basis, and by 141% on quarterly basis. The Group continued to maintain its cost discipline. The parent company’s Q2 2006 fixed costs remained substantially unchanged from Q2 2005, despite the larger scale of operations (net of the costs of strategic projects and a one-off annual bonus payment). Implementation of the OPTIMA programme in line with the targets brought savings in the order of PLN 100 million.
The results achieved in the second quarter were attributable to sales-promotion initiatives, which translated into significantly higher volume sales of fuels and petrochemicals, as well as to the improved macroeconomic environment. The production units at PKN ORLEN and Unipetrol operated at full capacity in the second quarter. Wholesale sales of the ORLEN Group’s fuels and petrochemicals increased by 35.6% and nearly 72% respectively, compared with Q2 2005.
A material increase in volumes was also reported in the retail segment, of 11% in Poland and almost 16% across the ORLEN Group. The dynamic growth of sales was a result of the numerous activities pursued as part of the strategy for the development of the retail market. The growing number of BLISKA service stations (100 sites already launched and 17 sites under construction), recording sales volumes that increased by more than 25% on average, is a factor contributing to the expansion of PKN ORLEN’s share in the retail market. The popularity of Verva fuels with customers was reflected in increased sales volumes, which were markedly higher than forecast. Due to high crude prices the retail margins on these fuels are lower. The increased sales volumes entirely offset lower margins and the net result was positive, at approx. PLN 17 million. At the same time Orlen Deutschland, operating a smaller number of service stations, reported a net profit of approx. PLN 14 million.
The net profit in the refining segment was PLN 926 million, and was by 9.2 % higher substantially in line with the figure posted in Q2 2005. The segment’s performance benefited from the contribution of Unipetrol companies, which amounted to PLN 101 million. The growing efficiency of the segment was partly offset by the appreciation of the złoty (PLN), which reduced the net profit by approx. PLN 64 million, and a rise in oil prices, which translated into a higher cost of oil used for own needs (PLN 97 million).
The petrochemical segment generated PLN 223 million, an increase of approx. 18,6% (excluding one-off items). The key factor in this growth was the consolidation of the Czech company, Chemopetrol. Unipetrol’s petrochemical segment earned PLN 145 million. The development of the petrochemical business was demonstrated by an increase in sales volumes of over 120% at the parent company, PKN ORLEN, and by over 70% in the ORLEN Group as a whole. This increase in sales volume translated into a rise of approx. PLN 149 million in net profit. At the same time, net profit was adversely affected by a drop in margins on acetone, benzene, butadiene, phenol, glycols and ethylene oxide, whose combined negative effect on the net result was approx. PLN 55 million.
The chemical segment earned PLN 34 million, having improved by over 40% year on year (excluding one-off items). It is attributable primarily to the operations of Anwil, which reported a year-on-year increase in sales of PVC and PVC granulates by 41% and 60%, respectively. At the same time the revaluation of Spolana a.s.’s assets brought about a higher depreciation charge in Q2 2006. This caused the company to report a loss at the operating level and adversely affected the net result of the segment.