PKN ORLEN’s Q3 2018 Consolidated Financial Results

Q3 2018 highlights:

• LIFO-based EBITDA of PLN 2.4bn
• Record-high LIFO-based EBITDA of PLN 723m in the retail segment
• 7% year-on-year growth in retail sales volumes
• 23% year-on-year revenue growth

In Q3 2018, the average Brent price moved up USD 23/bbl (yoy), while the model downstream margin fell by USD (-) 1.1/bbl (yoy). The average exchange rate of the złoty to the euro and the US dollar fell during the period. Poland and Lithuania saw higher consumption of diesel oil and gasoline. In the Czech Republic, consumption of diesel oil increased and demand for gasoline remained stable, while in Germany consumption of both products declined.

“The excellent financial performance achieved by PKN ORLEN in the third quarter despite the weaker macro environment confirms the validity of our policy to optimise costs, improve management, and implement new projects. Our financial results provide a solid foundation for implementing our strategic projects,” says Daniel Obajtek, President of the Management Board of PKN ORLEN.
“It is worth noting that once again a record was set in the retail segment. This past quarter saw a continued increase in fuel consumption in Poland. This, combined with expanding fuel and non-fuel margins, demonstrates that our retail business is excellently positioned to take advantage of market opportunities and trends. That customers appreciate our retail range also manifests itself in the expanding market shares we reported last quarter across all markets served by our retail chain,” added Daniel Obajtek.

Downstream segment’s Q3 2018 LIFO-based EBITDA came in at PLN 1.8bn. This result was achieved despite the adverse impact of macroeconomic factors and lower sales volumes (yoy). The macro environment deteriorated compared with Q3 2017 mainly as a result of higher costs of internal consumption, driven by growing prices of crude oil and contracting margins on heavy distillates, petrochemical products, fertilisers and PVC, partly offset by higher margins on fuel products. The yoy decrease in sales volumes was mainly due to the planned maintenance shutdown of the steam cracker at Unipetrol.

In Q3 2018, the retail segment posted a record high LIFO-based EBITDA of PLN 723m, up by PLN 113m year on year. This solid performance was partly attributable to growing sales volumes, which went up 7% year on year, including by 5% in Poland, 9% in the Czech Republic, 11% in Lithuania, and 11% in Germany. In the past quarter, PKN ORLEN expanded across all its markets, including by 2.6pp yoy in the Czech Republic following full integration of the service stations taken over from OMV into its network, and by 0.4pp yoy in Poland. During the period, the Company also continued to work consistently towards developing its non-fuel offering and opened 40 food and beverage outlets. At the end of the third quarter, there were 1,947 outlets in operation, including 1,631 Stop Cafes in Poland, 248 Stop Cafes in the Czech Republic, 23 Stop Cafes in Lithuania, and 45 Star Connect stores in Germany. In October, one of the most modern service stations in Europe, equipped with drive-through facilities, was opened at the MOP Michałowice motorway service area located along the S8 freeway. Drive-through solutions significantly enhance the quality and speed of service, and help improve the efficiency and optimisation of service station operational processes.

In Q3 2018, PKN ORLEN’s average upstream production rose by 0.2 kboe/d year on year. The upstream segment’s LIFO-based EBITDA for Q3 2018 reached PLN 86m, up by more than 60% year on year. New discoveries in Poland included the Chwalęcin-1K and Bystrowice-OU1 gas fields, located respectively in Greater Poland and Subcarpathia regions. Completion of the Bajerze-2 well was followed by production tests, which confirmed the accumulation of hydrocarbons. The 2D and 3D data acquisition activities continued in Q3 2018, and drilling of the Miłosław-6H and Komorze-3H wells commenced. In Canada, six boreholes were spudded and fracturing operations were performed in three boreholes. Three wells, located in the Kakwa and Lochend areas, were brought on stream. In the Kakwa area, work was continued to expand the gas pre-treatment facilities and construct a water storage system.

The Company reduced its net debt by PLN 0.6bn qoq in Q3 2018, mainly thanks to positive operating cash flows of PLN 3.6bn, and successfully brought down its financial leverage ratio to a safe level of 10.3%, in line with the target range set in the strategy.