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PSG\JAN05\EP\K2_OVERVIEW(01).PPT
Consolidated financial results of PKN ORLEN Q1 2006 (IFRS)Igor Chalupec, CEOPaweł Szymański, CFO
May 15th 2006
3
Lower Q1’06 results due to extremely unfavourable macroeconomic conditions
Key financial data
In m PLN Q1'05 Q4'05 Q1'06 y/y [%] q/q [%]
1 2 3 4=3/1 5=3/2
Net profit 668 314 365 -45% 16%
EBITDA 1 086 1 027 984 -9% -4%
ROACE (%)2 20,5% 6,0% 6,4% -14,1 p.p. 0,4 p.p.
Casf flow from operations 578 885 -557 - -
Gearing (%) 3 2,5% 15,7% 22,2% 19,7 p.p. 6,5 p.p.
Optima Program - - 54 - -
1) Refers to the PKN ORLEN Capital Group including Unipetrol, IFRS numbers unless otherwise stated 2) ROACE = operating profit after tax / average capital employed (equity + net debt)3) Gearing = net debt / equity
4
Negative effects of external environment on PKN ORLEN results, despite the improvement in volumes sold
∆
In m PLNQ1’05 Q1’06
∆
∆
∆
∆
668
11
668
8369
6854
50 7
903
(96)
793
(110)
(130)
530
(133)
392
(138) (27)
365
33
0
100
200
300
400
500
600
700
800
900
1 000
1 100N
et p
rofit
Q1'
05
Res
ults
on
finan
cial
act
ivity
Volu
me
sale
s
Uni
petro
l
Opt
ima
Fuel
s cr
acks
Gro
up c
ompa
nies
LIFO
(*)
Unf
avou
rabl
e w
eath
erco
nditi
on (*
*)
Petro
chem
ical
mar
gin
Cru
de o
il ow
n co
nsum
ptio
n
UR
AL/B
rent
diff
eren
tial
Oth
ers
Net
pro
fit Q
1'06
∆
∆
Profit accounted to minority shareholders(*) LIFO, the difference in inventory value moved to the process between Q1’05 and Q1’06(**) Unfavorable weather conditions and tense situation on raw materials market (natural gas) resulted in shortages in gas supplies and influenced negatively
∆
5
Significant increase of flues & petrochemicals volumes soldPositive effects of PKN ORLEN expansion
Key operating data
Q1'05 Q1'06 y/y [%] y/y [%]
PKN ORLEN mother comp
PKN ORLEN PKN ORLEN mother comp
PKN ORLEN PKN ORLEN mother comp
PKN ORLEN
1 2 3 4 5=3/1 6=4/2
Wholesale volume sale (kt) 1,4 1 131 1 635 1 260 2 173 11,4% 32,9%
Petrochemical volume sale (kt) 4 285 550 365 1 274 28,1% 131,6%
Retail volume sale (m litres) 2 825 962 878 1 178 6,5% 22,5%
Refinery utilisation ratio3 91,7% - 92,8% - +1,1pp -
1) Refers to gasoline, diesel, Jet, LHO2) Refers to retail sales of gasoline, diesel, LPG3) Refers to deep processing capacity at PKN ORLEN at 13,8 m t/y4) Refers to PKN ORLEN mother company excluding export
6
Considerable increase of EBITDA in comparable market conditions is a positive sign for the realization of the plan in the following quarters
EBITDA (PLN m)(same market conditions)1
1 2151 508
0
1 000
2 000
Q1'05 Q1'06
ROACE (%) (same market conditions)1
21,013,5
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
Q1'05 Q1'06
Financial assumptions for 2006 - delivery on track
• EBITDA1
• Fixed costs2
• CAPEX
• Increase by 24,1%
• Decrease by 1%
• 264 m PLN
Item Delivery after Q1’06 r. vs. Q1’05
+24,1%
-7,5 p.p.
1) Based on the same market conditions – average 2004: crude oil Brent $38.3/b,Brent/Ural differential $4.1/b, refinery margin $5.6/b, PLN/EUR 4.52; PLN/USD 3.65.PLN/USD 3,65. Assumptions vs. 2005. Negative goodwill effect excluded from 2005.
2) Excluding strategic projects.
8
Adverse conditions on refining and petrochemical market on Q1’06Sound improvement of the macroeconomic environment from the beginning of Q2’06
0
2
4
6
8
10
3 sty 3 lut 3 mar 3 kwi 3 maj
1kw 20061kw 20052006E
2,5
3,0
3,5
4,0
4,5
5,0
PLN/USD PLN/EUR
PLN/USD 2006E PLN/EUR 2006E
Refinery margin 2,56/b average in Q1’063 Decrease by 28% y/yExchange rates1
2 2
0123456789
3 sty 3 lut 3 mar 3 kwi 3 maj
1kw 20061kw 20052006E
Brent/Ural differential 3,59 $/b average in Q1’06 Decrease by 29% y/y
Q2’06
Q2’06
Q2’06
9-May9-May
Q2’06
Q2’06
2
1 Apr1 Jan 1 Feb 1 Mar 1 May 1 Apr1 Jan 1 Feb 1 Mar 1 May
2 kw.06 Q2’06
Brent crude61,79 $/b average in Q1’06 Increase by 30% y/y
0
10
20
30
40
50
60
70
80 200620052006E
9-May
Q2’06Q2’06
9-May
1 Apr1 Jan 1 Feb 1 Mar 1 May 1 Apr1 Jan 1 Feb 1 Mar 1 May
22
1)Source: NBP(Polish National Bank)2) Estimates published in PKN ORLEN Strategy
3) Calculated as: Products (88.36%) vs. Brent Dtd (100%). Products contain Premium Unl (25.21%), EN590 (23.20%), Naphtha (16.51%), LOO (15.31%), HSFO (5.44%) i Jet (2.69%)
(source: CIF NWE quotations, except HSFO FOB ARA)
9
Simplified P&L accountDecrease of operating profit y/y, although increase by 13% q/q
In m PLN Q1'05 Q4'05 Unipetrol effect Q1'06 Q1'06 y/y [%] q/q[%]
1 2 3 4 5=4/1 6=4/2
Revenues 6 806 12 969 2 804 11 331 66,5% -12,6%
Operating profit 798 400 68 451 -43,5% 12,8%
Net profit 679 340 60 398 -41,4% 17,1%
Net profit ex minority shareh. 668 314 60 365 -45,4% 16,2%
1
Revenues in 2005, excluding Unipetrol consolidation, increase by 25% y/y
Increase of revenues associated with the improvement of wholesale products sales by 33%, increase in retail sales by22% and petrochemical products by 132% y/y
Comments
EBIT excluding Unipetrol lower by 48% mainly due to the unfavourable external factors
• Decrease in Ural/Brent differential lowered operating profit by PLN 138 m
• Total effect of lower petrochemical margin decrease result of PKN ORLEN mother company by PLN 130 m
• Unfavourable weather conditions and tense situation on raw materials market (natural gas) resulted in shortages in gas supplies and influenced negatively EBIT of the Parent Company by PLN 110 m
1 ) Revenues for Q4’05 inflated by the excise tax in Unipetrol results
10
Expenses – Decrease of fixed costs vs. Q4’05Staff costs decrease by 8% y/y underpins the restructuring program at PKN ORLEN
In m PLN Q1'05 Q4'05Unipetrol effect
Q1'06 Q1'06 q/q [%]
1 2 3 4 5=4/2Raw materials and energy 3 269 7 191 1 611 6 397 -11%
Costs of goods for resale 2 197 3 069 507 2 779 -9%
External services 370 803 223 654 -19%
Staff costs 258 378 103 346 -8%
Depreciation and amortisation 288 617 212 533 -14%
Taxes and charges 92 61 1 98 61%
Others 11 128 13 50 -61%
Total 6 485 12 247 2 670 10 857 -11%
Variable costs 5 547 10 703 2 241 9 493 -11%Fixed costs 938 1 544 429 1 364 -12%Other operating costs 94 500 32 94 -81%
Change in inventories -492 96 92 63 -34%Total operating costs 6 087 12 843 2 794 11 014 -14,2%
Lower external services costs by 19% q/qDepreciation in Q4’05 inflated also due to a fair value assessment of Unipetrol assets
Comments
Increase of variable costs y/ydue to the consolidation of Unipetrol and increasing prices of crude
11
Operating profit of PKN ORLEN Petrochemical segment stands as a leader of growth
In m PLN (IFRS) Q1'05 Q4'05Unipetrol
effect Q1'06
Q1'06 y/y [%] q/q [%]
1 2 3 4 5=4/1 6=4/2
Operating profit , of which 798 400 68 451 -43,5% 12,8%
Refining1 552 352 -56 139 -74,8% -60,5%
Petrochemical 270 246 135 310 14,8% 26,0%
Chemical 65 0 6 57 -12,3% -
Retail 1 -15 -8 6 500,0% -
Others2 44 -108 -9 49 11,4% -
Non-atributable3 -134 -75 0 -110 -17,9% 46,7%
Decrease in Ural/Brent differential by 29% y/y negatively contributed to the lower results in refining segment
Petrochemical segment, excluding Unipetrol lower by 35%, due to lower cracks on petrochemical products
Comments
Increase in retail sale volume of engine fuels in the Parent Company resulted in an increase of EBIT by PLN 13 million
1) Production, Wholesale and Logistics2) Departments responsible for energetic media and social activity and services subsidiaries of PKN ORLEN3) Includes corporate centre of PKN and subsidiaries not mentioned in previous segments
12
Decrease of operating profit due to hostile external conditionsKey factor behind decrease of net results
∆
In m PLNQ1’05 Q1’06
∆ ∆
∆
∆
668
11
321
(347)(52) (4)
6464
(28)
365
33
0
100
200
300
400
500
600
700
800N
et p
rofit
Q1'
05
Ope
ratin
g p
rofit
Inte
rest
Equi
ty m
etho
d
FOR
EX Tax
Oth
ers
Net
pro
fit Q
1'06
Profit accounted to minority shareholders
13
Refining segment
552
50 37 20 33
(6) (27)(56)
(96)
(120)
(138)
(110)139
0
100
200
300
400
500
600
700
800Se
gmen
t res
ult Q
1'05
Fuel
cra
cks
Exch
ange
rate
USD
/PLN
OPT
IMA
Oth
ers
Inla
nd p
rem
ium
Volu
me
sale
s lo
wm
argi
n pr
oduc
ts
Uni
petro
l
LIFO
(*)
Cru
de o
il ow
nco
nsum
ptio
n
Ura
l/Bre
nt d
iffer
entia
l
Unf
oura
ble
wea
ther
cond
ition
(**)
Segm
ent r
esul
tsQ
1'06
In PLN m Q1’05 Q1’06
∆ ∆
∆
∆ ∆
∆
∆(*) LIFO, the difference in inventory value moved to the process between Q1’05 and Q1’06(**) Unfavorable weather conditions and tense situation on raw materials market (natural gas) resulted in shortages in gas supplies and influenced negatively
14
Retail segment
In m PLN Q1’05 Q1’06
1
32
13
127 4
(8)
(20)
(20)(15)
60
10
20
30
40
50
60
70
80
Seg
men
t pr
ofit
Q1'
05
OR
LEN
Deu
tsch
land
Vol
umes
sal
e
Oth
er o
pera
ting
activ
ity P
KN
Non
-fue
l mar
gin
OP
TIM
A
Uni
petr
ol
Fue
l mar
gin
Ret
aire
men
t pa
y an
dju
bile
e re
war
d
Oth
ers
Seg
men
t re
sults
Q1'
06
∆
∆ ∆∆ ∆
Includes dealers provision, deprecation increase and increase of
secondary logistics costs
15
Petrochemical segment
In m PLN Q1’05 Q1’06
270
13556 17
(8)(13)
(130)(17)
310
0
50
100
150
200
250
300
350
400
450
500
Segm
ent r
esul
ts Q
1'05
Uni
petro
l
Volu
me
sale
s
Exch
ange
rate
USD
/PLN BO
P
Cru
de o
il ow
nco
nsum
ptio
n
Petro
chem
ical
mar
gin
Oth
ers
Segm
ent r
esul
ts Q
1'06
∆ ∆∆
∆
∆
Includes higher depreciation of Olefins IIand higher maintenance costs
Margin decrease y/y eg.ethylene by 20%
and propylene by 10 %
16
Chemical segment
In m PLN Q1’05 Q1’06
∆
Chemical segment included operating activity of the following entities:- Anwil- Spolana- Unipetrol Trade- ORLEN PetroProfit (chemical part)
New segment - Chemicals
Increase of volumes sold in Q1’06 due to the consolidation of Unipetrol Cold winter negatively influenced operating results of Anwil
65
6
(17)
3
57
0
10
20
30
40
50
60
70
80
Segm
ent r
esul
tsQ
1'05
Uni
petro
l
Anw
il
Oth
ers
Segm
ent r
esul
tsQ
1 '0
6
17
Results of OPTIMA Program in Q1’06Breakdown by segment
In m PLN
First results of OPTIMA Program are in line with expectations
• OPTIMA Program is executed as scheduled.
• Progress at majority of segments is at satisfactory level
• Refining segment leads with the results. Also chemical segment provided with good results – including ANWIL S.A.
Retail Refining Others Total
4
13
20
17 54
Chemical
OPTIMA Program potential 2009 – examples of major initiatives
• 29,8 m PLN -reconfiguration of chloride production technology (Anwil) • 5,4 m PLN – efficiency improvements of furfurole (dissolvent) installations (Capital Group)• 9,4 m PLN – cost reduction of railway by PKP Cargo• 10 m PLN – increase of refining yield at Desulphurization of Diesel VI installation
18
Agenda
Financial results in Q1’06
Analysis of results in Q1’06 - segments
Supporting slides
Petrochemicals market – environment summary
Unipetrol
OPTIMA – the streams of cost reduction
Orlen Deutschland
19
Unfavourable conditions on petrochemical market in Q1’06*
0
200
400
600
800
1000
1200
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
PP Average spread (PP-Propylene) Propylene
347270250
17658
296376
257
Spread (Propylene-Naphta)
0
200
400
600
800
1000
1200
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
PE Average spread (PE-Ethylene) Ethylene
251352
166
357400
217312 286
Spread (PE-Ethylene)
0
100
200
300
400
500
600
700
800
900
1000
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
Ethylene Average (Ethylene-Naphta) Naphta
Ethylene
398413370
314 304322
211
398
Spread (Ethylene-Naphta)
338
0
100
200
300
400
500
600
700
800
900
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
Prophylene Average (Prophylene-Naphta) Naphta
232
290254
293
427353
211
383
Spread (Propylen-Nafta)
338 343
Propylene
in EUR/tonein EUR/tone
383
Polyethylene (LDPE) Polypropylene
272212
*The charts from January 1st 2004 to May 9th 2006
in EUR/tone
275249
Source: Market quotations
in EUR/tone
20
Unipetrol GroupSelected financial data for Q1’06 vs. Q1’05Preliminary financial results of main subsidiaries of Unipetrol a.s.
In ths. CZK (IFRS) Q1'05 Q1'06 y/y [%]Chemopetrol a.s. Revenues 7 302 886 8 408 916 15,1%EBIT 1 227 518 965 369 -21,4%Net result 1 098 535 896 716 -18,4%Benzina a.s. Revenues 1 239 140 1 443 811 16,5%EBIT 222 936 -3 217 -Net result 112 819 -208 227 -Ceska Rafinerska a.s. Revenues 2 154 153 2 235 878 3,8%EBIT 129 518 124 258 -4,1%Net result 91 251 91 341 0,1%Kaucuk a.s. Revenues 2 918 665 2 670 632 -8,5%EBIT 431 884 304 981 -29,4%Net result 288 098 211 206 -26,7%Paramo a.s. Revenues 1 659 049 2 070 747 24,8%EBIT -87 518 -97 151 11,0%Net result -92 210 28 004 -130,4%Spolana a.s.Revenues 1 599 529 1 623 316 1,5%EBIT 202 718 122 195 -39,7%Net result 170 444 95 740 -43,8%Unipetrol Rafinerie a.s. Revenues 10 643 149 13 782 846 29,5%EBIT -157 685 -454 699 188,4%Net result -177 496 -325 808 83,6%
21
Unipetrol Group Financial and Operational Results for Q1’06
In m CZK (IFRS) Q1'05 2005 Q1'06 y/y [%]
1 2 3 4=3/1
Equity b.d. 38 988 39 790 -
Total assets b.d. 76 442 74 661 -
Revenues 17 881 80 946 20 140 13%
EBIT 1 675 5 279 978 -42%
Net profit 1 223 3 407 814 -33%
Preliminary consolidated financial highlights of Unipetrol a.s. Q1’06
22
Unipetrol GroupSelected financial data in 2003 - 2006
Operational highlights from Q1’03 to Q1’06
Operating data* Q1'03 Q2'03 Q3'03 Q4'03 2003 Q1'04 Q2'04 Q3'04 Q4'04 2004 Q1'05 Q2'05 Q3'05 Q4'05 2005 Q1'06
Total sales (tt) , of w hich 110 177 720 1 135 2 142 1 024 1 195 1 204 1 269 4 692 1 118 1 326 1 400 1 320 5 164 1 186- light product sales (tt) 1 45 69 429 728 1 269 654 770 784 830 3 039 746 848 919 854 3 367 813- other refinery products sales 52 83 156 128 420 100 132 190 130 552 123 192 197 166 678 110- pet-chem sales (tt) 14 25 114 231 383 221 243 189 253 905 209 236 235 249 928 213- other product sales (tt) 0 0 21 48 69 49 50 41 56 196 41 51 50 51 192 51Retail sales of motor fuels (tL)2 110 130 137 129 507 107 130 133 120 491 104 126 136 120 486 107
Processed crude (tt) 131 143 671 978 1 922 834 898 952 1 034 3 718 874 1 022 1 134 1 122 4 151 875Utilisation3 69% 69% 67% 71% 70% 62% 65% 68% 75% 67% 64% 74% 81% 81% 75% 64%White product yield4 45% 65% 68% 71% 68% 72% 67% 74% 70% 71% 72% 69% 72% 71% 71% 74%Fuel yield5 34% 48% 59% 60% 57% 46% 56% 57% 55% 54% 52% 55% 59% 58% 56% 56%
*Refers to Unipetrol Group1) Gasoline, Diesel, LHO, Jet
2) Gasoline, Diesel, LPG3) 51% of Ceska Rafinerska, 100% of Paramo
4) Gasoline, Diesel, LHO, Jet 5) Gasoline, Diesel, LPG, LHO
23
Results of OPTIMA Program – Q1’06 The streams of cost reductionIn m PLN
First results of OPTIMA Program are in line with expectations
4
6
14
11 1,5
17,5
4
54
Procurement (BONUS)
Support functions
Retail Production Logistics TotalSubsidiaries
24
ORLEN DeutschlandSelected financial data Q1’06 vs Q1’05in m PLN (IFRS) Q1'05 Q4'05 Q1'06 y/y [%] q/q [%]
1 2 3 4=3/1 5=3/2Assets 1 432 1 309 1 445 0,9% 10,4%
Equity 462 325 327 -29,2% 0,6%IFRS in m PLN Q1'05 Q4'05 Q1'06 y/y [%] q/q [%]
Revenues 1 844 2 182 2 012 9,1% -7,8%
Cost of sale -1 806 -2 105 -2 030 12,4% -3,6%
Administrative and GA costs -88 -103 -81 -8,0% -21,4%
Profit/loss on sale -50 -25 -23 -54,0% -8,0%
Other operating revenues/cost 15 -136 21 40,0% -
Operating profit/loss -35 -162 -2 -93,1% -98,5%
Profit/loss net -22 -132 -4 -81,8% -97,0%
Retail benchmark margin in Germany – q average Retail volumes sold in Orlen Deutschland - in ths. l
344 343
0
50
100
150
200
250
300
350
Q1'05 Q1'06
-0,5%
2,68
4,27
0
1
2
3
4
5
Q1'05 Q1'06
euro cent/l
+59%