Financial security underpins Polish PKN Orlen's 2013-2017 strategy

30 November 2012 12:22  [Source: ICIS news]

PKN Orlen production facilities (source: PKN Orlen)LONDON (ICIS)--Financial security will remain the overriding priority for PKN Orlen as it rolls out its newly released 2013-2017 five-year strategy, the Polish oil and petrochemical group’s CEO said on Friday.

“Nobody rational incurs debt in uncertain times, however, we can make plans for dynamic growth as our debt has been cut by over zlotych (Zl) 8bn [$2.5bn, €2.0bn] in the past few years,” said CEO Jacek Krawiec, adding that Orlen’s net financial gearing had fallen from its 66% peak in 2009 to below 30% in 2012.

Given the uncertainty in the global economy and the fact there were no signs that this would stop overshadowing the markets in the foreseeable future, Orlen's five-year strategy - the release of which was delayed for a year given the volatile economic picture - had been based on conservative assumptions, Krawiec said.

In petrochemicals, the strategy plans for a decrease in capital expenditure (capex) from Zl 6.6bn during 2008-2012 to Zl 4.7bn during 2013-2017, with maintenance and regulatory capital expenditure (capex) accounting for around Zl 2bn of the total in both periods.

Orlen said there was still great scope for exploiting central and eastern European petrochemical markets that are yet to properly mature.

Orlen figures showed that in 2011, polyolefins annual consumption in central and eastern Europe stood at 24 kg per capita, against 32 kg per capita in Poland and 55 kg per capita in western Europe - but acknowledged in coming years it may have to compete with cheap exports of petrochemical products from the Middle East and the US produced with cheap gas.

Unipetrol, Orlen’s Czech petrochemical and refining subsidiary, would look to capitalise on the polyolefins consumption potential, and restore itself to profitability partly by “focusing on its competitive advantages such as location”, said Orlen CFO Slawomir Jedrzejczyk.

According to the strategy, yearly sales volumes of Orlen polymers should rise from 800,000 tonnes in 2012 to 900,000 tonnes in 2017, while sales volumes from the company’s new purified terephthalic acid (PTA) plant should increase from 500,000 tonnes in 2012 to 600,000 tonnes in 2017. Olefins production volumes should rise 7% in the coming five-year period, compared with the previous one, it added.

Orlen’s average model petrochemical margin, which fell from €735/tonne ($955/tonne) for the 2003-2007 period to €667/tonne in the 2008-2012 period, should rise to €812/tonne for the 2013-2017 period, company forecasting showed.

If Orlen’s forecasts prove correct, Orlen’s petrochemical earnings before interest, tax, depreciation and amortisation (EBITDA) according to Last In, First Out (LIFO) accounting should annually average Zl 2.5bn during 2013-2017 compared with Zl 1.5bn during 2008-2012, the company said.

Away from petrochemicals, the company is to invest Zl 2.4bn in shale gas exploration and production in the coming years, and it has committed to building a Zl 1.1bn power plant in Wloclawek in northern Poland.

Investment bank WOOD & Company said its initial reaction to the announced strategy was “neutral”.

“At first sight, the strategy fails to address some problematic areas, such as non-Polish assets,” the bank said in a note to investors.

($1 = €0.77, $1 = Zl3.15, €1 = Zl4.09)

By: Will Conroy
+44 20 8652 3214

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