Unipetrol announces 5-year plan, cautions limited spending power

11 June 2013 12:15  [Source: ICIS news]

Unipetrol’s steam cracker in Litvinov, Czech Republic. (Image supplied by Unipetrol)LONDON (ICIS)--Unipetrol has announced petrochemical modernisation projects including a new polyethylene (PE) plant in a 2013-2017 five-year strategy but cautioned that its spending ambitions are hindered by a vast retail fuel grey market and high energy prices on the Czech market, the company said on Tuesday.

Analysts at Prague-based investment bank WOOD & Company immediately responded that the company’s five-year financial targets did not seem realistic.

In petrochemicals, Unipetrol said its strategy aimed to increase the utilisation of its 545,000 tonne/year ethylene steam cracker by 13% with a new (PE) installation, a dicyclopentadiene (DCPD) plant and polypropylene (PP) debottlenecking. Further capacity details were not disclosed.

“We believe that our competitive advantage mainly lies in further integration of the refining and petrochemical segments,” said Marek Switajewski, CEO of Unipetrol.

The strategy also aimed to continue with the company’s agro-business restructuring, possibly including the closure of Unipetrol’s 350,000 tonne/year ammonia plant in Litvinov, in the northern the Czech Republic, it added.

Unipetrol is targeting annual earnings before interest, tax, depreciation and amortisation (EBITDA) of koruna (Kc) 5bn ($257.9m, €194.4m) in the period covered by the strategy, but WOOD & Company said it forecasts only Kc3.6bn per year.

“The financial targets appear to be far too ambitious to us,” said an analyst at the bank, Robert Rethy.

“We believe the strategy attempts to address the key problems and points in the right direction - or only reasonable - direction, nevertheless it is unlikely to trigger a change in our investment view [which currently places a ‘sell’ rating on Unipetrol shares],” he added.

Jacek Krawiec, the CEO of Unipetrol’s 63%-owner, Polish oil and petrochemicals group PKN Orlen, and chairman of the Unipetrol supervisory board, said he was “confident that the reasonable financial assumptions and flexible CAPEX [capital expenditure] planning provided for in the Orlen [five-year] strategy will work just fine for Unipetrol, which operates in an extremely challenging market environment”.

“When preparing the assumptions of the Unipetrol strategy, we considered the specifics of the Czech market, where - in addition to a vast grey market - the company has to deal with high energy prices and logistics challenges,” he added.

The retail fuel grey market in the Czech Republic is one of the biggest in the EU, running at around 15-20% of the market, Unipetrol said, adding that it hoped grey sales would be cut by at least half in five years. A grey market is the trade of commodity goods through distribution channels which, while legal, are unauthorised.

Looking at its pipeline tariff costs, Unipetrol said pipeline operators charged it fees unjustified by market conditions.

Targeting an 11% increase in its petrochemical sales volume to 1.4m tonnes by 2017, Unipetrol said it anticipated that the global demand for basic petrochemicals to grow by an average 3-3.5% over the next five years.

Petrochemical consumption in central and eastern Europe remained comparatively low, but competition from petrochemical producers using cheap ethane as feedstock created pressure on Unipetrol margins, it added.

Another five-year target for Unipetrol is a reduction of its petrochemical business’s fixed annual costs by 9%.

Annual petrochemical CAPEX should average Kc2.7bn in 2013-2017 compared with Kc1.6bn in 2008-2012, the company said. 

($1 = €0.75, $1 = Kc19.39, €1 = Kc25.72)

By: Will Conroy
+44 20 8652 3214

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