16.05.2005
PKN ORLEN - 1Q 2005 Results
Over the first three months of 2005 the PKN ORLEN Group achieved a net profit of PLN 631,000,000, a 72% increase on the first quarter of 2004. The return on capital employed (ROACE) was 20.5%, with EBITDA profits of PLN 1,087,000. The cost cutting programme brought savings of PLN 216,000,000 compared to PLN 143,000,000 in the first quarter of 2004.
An important factor shaping the economic conditions in the first months of the year were high petroleum prices. The price difference between 1Q 2005 compared to 1Q 2004 was an increase of nearly 49%. At the same time the Brent/Ural price differential reached 5.1 USD/b, an increase of 72% compared to 1Q 2004. The refinery margins during this period were on average 3.6 USD/b, declining 14%. The increase in domestic fuel consumption in 1Q 2005 (petrol, diesel and Ekoterm) is estimated at 1.1%. The estimated share of PKN ORLEN in liquid fuel sales in the domestic market in 1Q 2005 reached: for petrol 62.5%, for diesel fuels 47.1% and for Ekoterm 57.7%.
Company revenues in the first three months of this year were PLN 6,806,000, 7% higher than in 1Q 2004. The company earned a net profit 72% higher than in 1Q 2004. During the three month period the increase in costs was lower than the rate of revenue increase. Due to a reduction in operating costs, a decline in sales expenses by more than 10% was noted in comparison with 4Q 2004 The main source of company revenue remains the segment of refining, wholesaling and logistics – PLN 2,990,000. Owning to favourable external conditions, an increase in efficiency and overall sales in this area, an operating profit was achieved of PLN 562,000,000, 31% greater than in 1Q 2004. The cost cutting programme in this segment resulted in first quarter savings of nearly PLN 74,000,000, that is PLN 21,000,000 greater than the analogous quarter of 2004. At the same time, in comparison to 1Q 2004, the total volume of fuel sold increased by 5.7%, including petrol by 12.6%.
In the retail segment, operating profit equalled PLN 4,000,000. The operating loss at ORLEN Deutschland of PLN 36,000,000 had a large impact on this result. Despite this, the results were better than 1Q 2004, when retail announced an operating loss of PLN 16,000,000. Achievement of this result would not have been possible without the effective reduction in expenses in the order of PLN 51,000,000.
The petrochemicals segment achieved an outstanding result, recording an increase in operating profit over 55% in relation to the comparable period of the previous year. Operating profit equalled PLN 330,000,000 and is the outcome of good results from PKN ORLEN as well as at Anwil and Basell Orlen Polyolefins, resulting from the favourable economic conditions for petrochemical products.
In the opinion of Paweł Szymański, Management Board Member for Financial Affairs, the good results for the first quarter of this year are the outcome of the favourable economic conditions, in addition to operational efficiencies implemented at the beginning of the year. “With satisfaction we have noted an increase in the bottom line in all primary segments of the Company’s activity” – said Paweł Szymański.
Strategy realisation
Preparations for integration with Unipetrol, centralising purchasing, consequential implementation of corporate governance and transparent operating methods, a new remuneration system, draft restructuring of the Company as well as starting implementation of the development plan announced in March are the primary activities realised within the new corporate Strategy in the first quarter of this year.
Igor Chalupec, President of the PKN ORLEN Management Board comments
"The financial results of the first quarter of 2005 confirm that the strategy to build core values at PKN ORLEN is being realised. We have achieved significant improvements in efficiency and exceeded the planned reduction in operating expenses throughout the firm. Already visible is a strengthening of transparent functioning of the Company and the result orientation of all our activities. In the first quarter we started up a series of undertakings that will bring benefits over the next few months – the acceptance of all corporate governance guidelines, the preparation and implementation of a motivation program for management (management by objectives – MBO), preparation of a restructuring program of regional structures, initiating changes in the manner of managing the Capital Group or centralisation of purchasing."
In connection with the fulfilment of all conditions set forth in the purchase agreement for 62.99% of the shares in the holding Unipetrol a.s., the Company has developed a detailed schedule of activities for successive months of this year. According thereto, payment of amounts due to the Czech government as well as registration of stock shall take place by the end of May 2005. Acceptance of corporate control over the Czech company is set for the end of June of this year. In September, 100 days after closure of the transactions, a Unipetrol financial model and integration plan with possible synergies will be presented.
Aiming to improve efficiency, the Company is optimising costs in the Capital Group including the centralisation of purchasing. Potential savings from this drive will be included in the new cost reduction program, to be announced in June of this year. A new Purchasing Office to carry out this program has already been created.
A priority project initiated in the first quarter of this year is the preparation of a draft restructuring program of regional structures. It is a crucial element of the retail area development plan announced in the first quarter of this year. Its objective is to stop the negative trend in the declining market share and to obtain at 30% share in the retail market by 2009. The restructuring programme mainly covers the areas of retail and wholesale trade, though also includes financing, logistics and auxiliary services, adapting them to the planned new retail structure and increase operating efficiency. The purpose of the restructuring is to improve the management of the Company through decentralisation of sales tasks and centralisation of support functions. The Company has undertaken all necessary steps aimed at starting implementation of the program effective 1 July of this year – the program guidelines were presented to the trade unions, management, and directly to employees of regional offices. In order to lessen the potential consequences of the restructuring, the firm has proposed an extensive set of protection options.
The job activation programme is designated for employees wanting to start up their own business, retrain themselves or find employment at PKN, Capital Group companies or outside firms. In the framework of this programme, employees are also offered supplementary financing for training that may be required to start a new job. Persons who decide to move to cities, where regional centres or other Company services will be located, will be offered a re-location packages, containing a development fund, return of apartment rental or moving costs. The Board places particular attention on the priority of internal recruitment at the Company. Social factors will play a role with outside recruitment in regions. The next package is directed towards education and largely covers the organisation of instruction adapted to employee needs and financing this instruction. Additionally, a compensation programme is available to employees that acquire retirement or early retirement rights. A Voluntary Redundancy Program is also in place, for persons who decide to terminate their contract with the firm in exchange for a redundancy payment. The goal of the Board is for this programme to be conducted legally, transparently and in cooperation with the social partner.
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