PKN Orlen pumped up, but facing barrels of trouble
Profits last year at Poland's largest company, oil giant PKN Orlen, soared 147 percent on 2003, to zł.2.44 billion. The company also posted a 25 percent yoy increase in revenues, to zł.30.54 billion. However, company president Igor Chałupiec downplayed the possibility of pumping out the same level of profits this year.
"We predict a worsening of market conditions, which means a repeat of 2004 will be difficult," he said.
Specifically, the company foresees a reduction in the price differential between Ural crude oil and Brent crude. Orlen buys Ural crude, which is generally cheaper, and then sells its gasoline at market prices, which are dictated by the cost of Brent.
"Last year there was a record peak of the differential at the level of $4.10 [zł.12.32] per barrel," said Chałupiec. "Because 80 percent of our operating costs is the cost of crude oil, you can imagine how big an impact it has on our operating results." He added that high oil prices and the company's cost reduction program also played a large role.
While the group's refining activities accounted for the lion's share of the revenues, retail sales results were a disappointment. Thanks to zł.141 million in savings, the company managed to raise zł.49 million in the segment, despite a huge zł.87 million loss in its German arm. "This year we are going to make a decision about what to do in Germany-whether we are going to stay in this very competitive market, or whether we want to quit," said Chałupiec.
The group is experiencing difficulties on the domestic front as well. Over the past three years, foreign competition has shrunk Orlen's market share by seven percent, to 28.6 percent. In order to right the trend, the company has put together a strategy that could split Orlen's network into two separate brands.
"We want to implement a two-brand strategy," said Chałupiec. "[Orlen] will be the premium brand, addressed to clients who are first and foremost concerned with quality and a very high standard of service. We will also look for ideas for a brand for the so-called 'economy' market."
The new brand could even appear this year. Some 1,000 outlets will be assigned the premium mark, with 900 devoted to the new economy chain.
"We predict a worsening of market conditions, which means a repeat of 2004 will be difficult," he said.
Specifically, the company foresees a reduction in the price differential between Ural crude oil and Brent crude. Orlen buys Ural crude, which is generally cheaper, and then sells its gasoline at market prices, which are dictated by the cost of Brent.
"Last year there was a record peak of the differential at the level of $4.10 [zł.12.32] per barrel," said Chałupiec. "Because 80 percent of our operating costs is the cost of crude oil, you can imagine how big an impact it has on our operating results." He added that high oil prices and the company's cost reduction program also played a large role.
While the group's refining activities accounted for the lion's share of the revenues, retail sales results were a disappointment. Thanks to zł.141 million in savings, the company managed to raise zł.49 million in the segment, despite a huge zł.87 million loss in its German arm. "This year we are going to make a decision about what to do in Germany-whether we are going to stay in this very competitive market, or whether we want to quit," said Chałupiec.
The group is experiencing difficulties on the domestic front as well. Over the past three years, foreign competition has shrunk Orlen's market share by seven percent, to 28.6 percent. In order to right the trend, the company has put together a strategy that could split Orlen's network into two separate brands.
"We want to implement a two-brand strategy," said Chałupiec. "[Orlen] will be the premium brand, addressed to clients who are first and foremost concerned with quality and a very high standard of service. We will also look for ideas for a brand for the so-called 'economy' market."
The new brand could even appear this year. Some 1,000 outlets will be assigned the premium mark, with 900 devoted to the new economy chain.
