Oil firms' margins squeezed

PKN Orlen enjoyed revenues of zł.42.8 billion in 2005 - 39 percent higher than in 2004 - and made a profit of zł.2.7 billion, which was six percent more than the year before. However, these results didn't satisfy the market as the company's share price fell by over eight percent.

The fall was largely due to the company's Q4 results, which were below market expectations. Orlen made a profit of zł.340 million in the last three months of the year, while most analysts expected a result of around zł.500 million.

The company's president, Igor Chalupec, said that the result was the effect of setting up a one-off reserve to cover economic risk.

Macro problems

The lower than expected Q4 results were also the result of worsening macroeconomic factors including: falling refinery margins; a rise in crude-oil prices; and a fall in the differential between Brent (North Sea) and Ural (Russian) oil, on which Orlen depends.

A member of Orlen's management board, Paweł Szymański, admits that the macroeconomic conditions are not favorable at the beginning of 2006. "They could have a negative effect on the results in the first two months of the year," he explained.

The unfavorable macroeconomic trends are also recognized by Paweł Olechnowicz, president of Grupa Lotos, Poland's second-largest fuel company. "In terms of margins, this year will be worse than 2005," he said. He hopes that increased production will neutralize the problem. "Our production capacities at the end of the year increased to six million tonnes annually," Olechnowicz said.

The company had  revenue of zł.9.6 billion in 2005 and a profit of zł.930.3 million, both significantly higher than the 2004 results of zł.7.45 billion and zł.542.8 million respectively. Even without including profits resulting from the acquisition of three refineries in southern Poland, the company had a profit about zł.100 million higher than in 2004.

The year ahead

Olechnowicz declined to talk about expectations for this year, claiming that these will be presented in the updated strategy later in the year. Orlen's Chalupec was more forthcoming: "We expect our operating profit to rise by 15 percent ... We want to grow on the wholesale market by three percent and on the retail market by five percent."