Orlen's half-year report: A large drop in net profit year-on-year

After taking into account the income tax in the amount of PLN 2 billion 773 million, the Orlen Group's net profit for the first six months of 2024 amounted to PLN 2 billion 761 million and was lower by PLN 12 billion 729 million year on year – the concern reported in a stock exchange report.

In a press release, the concern announced that the Orlen Group, despite the growing pressure from the macroeconomic environment, ended the second quarter of this year with an operating profit of EBITDA LIFO, excluding the effect of regulations, at the level of PLN 11.3 billion, up eight percent year-on-year. As emphasized, the energy segment had a positive impact on the result.

“The increase in volumes in the extraction segment also contributed to achieving a good result, which compensated for the negative impact of the macroeconomic situation,” Orlen noted at the same time. The company calculated that in the first six months of this year it allocated PLN 14 billion for investments supporting the energy transformation and increasing Poland's energy security.

As assessed by Orlen CEO Ireneusz Fąfara, in the second quarter of this year the concern showed that strengthening management competences in the short term can support achieving solid results, even in an unfavourable macroeconomic environment. “With year-on-year declines in our key indicators, including refining and petrochemical margins, the differential and electricity and gas prices, we generated over PLN 11 billion of the adjusted EBITDA LIFO result. As announced: we have accelerated” – emphasised Fąfara, quoted in the press release.

He pointed out that the Orlen Group is building “a completely new corporate governance based on transparent principles”. He also mentioned that in the first half of the year, almost all companies in the group adopted a uniform occupational safety management policy, which has already translated into a quarter-on-quarter reduction in the accident rate.

The Orlen CEO also stressed that the concern is implementing a “strategy of increasing capacity in renewable energy”. “This will not only strengthen our energy segment, but will also gradually improve the emission profile of our production in the future,” he added.

In this context, Fąfara mentioned the preliminary agreement signed in August to take over photovoltaic farms and a wind farm from the Portuguese EDPR Group. “With one decision, we have increased the Orlen Group's renewable energy portfolio by one third,” he noted.

According to Orlen, in the second quarter of this year, the refining segment generated EBITDA LIFO profit of PLN 2.6 billion. The company noted that during this period, lower refining margins and differential were offset by the strengthening of the złoty against the dollar. As it emphasized, the Orlen Group maintained a high degree of refining capacity utilization, reaching 90 percent. In Poland and Czech Republic At the same time, higher fuel yields were achieved year-on-year, with a comparable level Lithuania.

Orlen explained that the negative result of the extraction segment at the level of (-) PLN 3.9 billion was primarily influenced by the adopted regulatory solutions supporting consumers – a write-off to the Price Difference Payment Fund for the second quarter of this year (PLN 7.7 billion), as well as a drop in gas prices by 12 percent. The company also announced that by consolidating the assets of the acquired company KUFPEC in Norwayincreased hydrocarbon production by 27 percent year-on-year to approximately 208 thousand boe/d (barrels equivalent per day – ed.), thus minimizing the unfavorable impact of the macroeconomic environment on this segment.

In turn, the Orlen Group's gas segment recorded an EBITDA profit of PLN 4.1 billion in the second quarter of this year. This result – as the concern pointed out – was achieved with lower year-on-year trade margins and a negative impact of macroeconomic factors. “At the same time, the effect of higher volumes of gas sold and lower year-on-year prices of raw material extraction from storage was beneficial for the segment's result,” Orlen added. As he calculated, gas imports increased by 10% year-on-year during this time, of which LNG accounted for 48%, while gas storage reserves in Poland and abroad at the end of the quarter amounted to 17 TWh.

The company reported that the petrochemical segment, due to the persistently very difficult macroeconomic conditions, including margin pressure on all petrochemical products, achieved a negative EBITDA LIFO result of (-) PLN 180 million. At the same time, sales volumes of petrochemical products increased by eight percent year-on-year.

In the second quarter of this year, the Orlen Group's energy segment – as reported in the company's press release – recorded an EBITDA result of around two billion zlotys, and the total installed capacity there amounted to 5.6 GWe. As Orlen explained, during this time, 3 TWh of electricity was produced, less by 17 percent year-on-year as a result of planned downtime of cogeneration assets and lower demand for energy from the Ostrołęka Power Plant. The company reported that currently almost 70 percent of electricity is generated from renewable sources and in gas-fired units.

Referring to the results of the retail segment, Orlen noted that its EBITDA in the second quarter of this year amounted to PLN 893 million. The concern assessed that “the good result was achieved thanks to sales higher by 18 percent, including in Poland by over 10 percent.” As Orlen emphasized, its network expanded during the year by 348 modern fuel stations, of which the concern already has a total of 3,505 in seven European countries. “At the same time, Orlen consistently invests in alternative fueling stations, the number of which increased by 144 year on year to 816. The number of non-fuel sales points is also growing. There are currently 2,681 of them,” it was reported in a press release.

“The last quarter of this year is primarily proof that our declaration of strengthening corporate governance, communication with the market and increasing financial discipline for the benefit of shareholders did not remain unfulfilled. We are developing all areas of our operations and strengthening Orlen's position as a dividend company, sharing profits for the 12th year in a row,” declared Magdalena Bartoś, Vice President of Orlen for Finance.

As she pointed out, thanks to the review of planned works and their optimization, it was possible to rationalize the concern's investment expenditures for this year. “We expect them to amount to PLN 35.3 billion, which is 9 percent less than assumed at the beginning of the year. This does not mean a limitation of the concern's development, quite the opposite. As part of the implemented investments and business activities, we see opportunities for optimization, primarily by improving financial discipline in planning and implementing investments,” assured Bartoś.

Orlen reported that in the second quarter of this year, the concern generated PLN 6 billion in cash flow from operating activities, and the ratio of net debt to EBITDA at the end of the second quarter was at 0.07x. Orlen also mentioned that it maintained the highest ratings in history – A3 awarded by Moody's Investors Service and BBB+ awarded by Fitch Ratings.

The Orlen Group is a multi-energy concern with refineries in Poland, the Czech Republic and Lithuania, as well as a network of petrol stations, including Germanyon Slovakia, Hungary and in Austria. It also develops the oil and gas extraction segment, the petrochemical segment, and renewable energy sources. It also plans to develop nuclear energy based on small nuclear reactors SMR.