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The financial performance of the LOTOS Group in 2018 confirms its robust condition. The Group delivered a consolidated net profit of PLN 1.6bn and adjusted LIFO-based EBITDA of PLN 3.1bn, the highest figure on record. Revenue came in at PLN 30.1bn, up 24.5% on 2017, and CAPEX spending was PLN 1bn. The refinery processed the largest amount of crude oil in its history – 10.8 million tonnes. At the end of 2018, the LOTOS share price on the Warsaw Stock Exchange came close to PLN 90 per share. For the second year in a row, the Company paid dividend.
At the end of 2018, LOTOS’s net debt fell to PLN 1.9bn, by almost 25%. The ratio of net debt to adjusted LIFO-based EBITDA was 0.6x, compared with 0.8x in 2017.
The total volume of petroleum products, merchandise and materials sold in 2018 by the LOTOS Group increased by approximately 5.7% on 2017. The strongest growth was reported for diesel oils and heavy petroleum products (bitumens and heavy fuel oil).
An important factor that helped drive the LOTOS Group’s results in 2018 was the macroeconomic environment, with the strong average oil price of USD 71/bbl making a positive contribution to the Group’s upstream performance. Also the USD/PLN exchange rate remained high. The downstream segment benefited from the high model refining margin, which amounted to USD 7.41 per barrel for the entire 2018.
Upstream segment
Grupa LOTOS extracts hydrocarbons in the Polish zone of the Baltic Sea, on the Norwegian Continental Shelf, in Poland, and in Lithuania. The company owns or co-owns 36 offshore licences and 11 onshore licences.
In 2018, Grupa LOTOS’s average daily oil and gas output was 20,400 boe, which translates into an annual capacity of almost 1 mtoe. The segment reported an operating profit of PLN 1,046.2m.
As at the end of 2018, Grupa LOTOS’s 2P reserves were estimated at 89.8 mboe.
The Yme project (development of an oilfield in Norway) is underway. The work carried out in 2018 included the preparation of subsea facilities and upgrade of the Maersk Inspiro platform. Furthermore, a reinforcing structure was assembled for the caisson, subsea work was carried out to prepare the site for installing the caisson in place, and an oil loading system was prepared. As at December 31st 2018, the Yme field’s 2P reserves were estimated at 12.9 mboe. Production is scheduled to start in Q2 2020.
In 2018, under the B8 project (development of an oil field in the Baltic Sea), assembly and integration of four technological modules was completed and electrical and automation work advanced. As at December 31st 2018, 2P reserves of the B8 field were 35.9 mboe. The full-scale production from the B8 field is expected to commence in Q2 2021.
The B4/B6 project (development of an oil field in the Baltic Sea) is pending a final investment decision. The project milestones have been completed. The current project schedule assumes that the final investment decision will be made in the second half of 2019, after the risks associated with connecting the project to the onshore gas transmission network have been mitigated (a 30 km long pipeline between Władysławowo and Kosakowo needs to be designed and constructed).
Downstream segment – oil processing volumes at record high
In 2018, the Grupa LOTOS refinery operated at full capacity and processed 10.8m tonnes of crude oil, achieving a record throughput. The volume of processed oil was 12% higher than the year before. As in previous years, Russian Urals (REBCO) was the main type of crude oil processed by the LOTOS Group.
The volume of products sold by the LOTOS Group in the Downstream segment in 2018 totalled 11,690 thousand tonnes, which is the highest sales volume ever recorded by the Group.
Like in the previous years, diesel oil had the largest share in the total sales volume. The LOTOS Group sold 5,470 thousand tonnes of diesel oil, which accounted for 46.8% of total sales. The second largest item in the sales structure was gasolines, with a 14.3% share. The Group sold 1,668 thousand tonnes of gasoline, up 7.2% year on year. The last product group accounting for more than 10% of the LOTOS Group’s total sales volume was heavy products. The Group sold 2,110 thousand tonnes of heavy products in 2018, up 11.5% on 2017.
In 2018, the LOTOS Group’s Downstream segment sold 8,609 thousand tonnes of products in Poland (2017: 8,370 thousand tonnes) and exported 3,080 thousand tonnes (2017: 2,561 thousand tonnes). Domestic sales rose 3%.
2018 was also another year of growth in the domestic sales of aviation fuel, driven by higher sales posted by the joint venture LOTOS-Air BP at Polish airports. In 2018, the company significantly increased its operating scale in Poland, and reported a 16% rise in sales of aviation fuel.
Export sales rose 20% compared with 2017, chiefly on the back of higher oil processing volumes. In 2018, the LOTOS Group’s share in the domestic fuel market was 31.4%.
Retail sales hit a record high
Service station chain: record fuel sales and further standardisation
In 2018, two stations were added to the LOTOS chain, now comprising a total of 495 stations. Fuel sales reached a record high. LOTOS posted a 7% increase in retail sales in 2018.
At the end of the year, there were 91 Motorway Service Areas (MSAs) in Poland, including 20 operated under the LOTOS brand. LOTOS Paliwa’s bids were selected as the best and the company was awarded contracts for the lease of further MSAs: Golina Wielka MSA on the S5 expressway, Folwark MSA on the S5 expressway, and Rudniki Północ MSA on the S61 expressway. Additionally, five franchise contracts have been signed for new sites, currently under construction. Their inclusion in the chain is scheduled for Q2 and Q3 2019.
In 2018, the LOTOS Group took further steps to improve the quality of the service station chain. 14 CODO stations were standardised to ensure a uniform service station chain image (external and internal visual design of the service stations and modernisation of their interior).
Thanks to the Sunday trading ban and sales initiatives, store sales at CODO stations in 2018 went up by 18% year on year. At the same time, cost optimisation measures helped to push up the margin by 17%.
In 2018, seven SUBWAY restaurants were opened at LOTOS service stations (as at the end of the year, 35 Subway restaurants operated within the LOTOS chain).
EFRA Project
2019 is set to see the completion of the EFRA Project. The investment is a continuation of the refinery modernisation process and supplements the crude oil processing configuration created under the 10+ Programme. As at December 31st 2018, the EFRA project was 98.1% complete.
The delayed coking unit (DCU), the Project’s key plant, will achieve the RFSU status by the end of May 2019. The Project’s effects can already be seen today – the HVDU and HGU units enabled the Gdańsk refinery to deliver record throughput in 2018, as mentioned earlier.
The parameters of the HGU unit were guaranteed by the main contractor, KT (Kinetics Technology), and were confirmed in a test run. In carrying out the project, KT employs a number of subcontractors, some of which are companies from the Polish market.
Innovation
Growth and innovation projects are a fixed part of the investment efforts undertaken by Grupa LOTOS, encoded in its corporate DNA. The Company is open to new opportunities that come with alternative fuels.
In January 2018, Grupa LOTOS and Remontowa LNG Systems signed a letter of intent to build a pilot LNG distribution system. A little earlier, Grupa LOTOS and Gaz-System had received EU funding for a feasibility study concerning the construction of a small scale LNG terminal in Gdańsk and innovative LNG bunkering facilities.
In April, a letter of intent was signed with the Municipality of Gdynia, concerning the supply of hydrogen for fuel cell electric buses. A similar letter of intent was signed earlier with the Municipality of Wejherowo. LOTOS Asfalt and PGNiG Obrót Detaliczny signed an agreement to jointly offer an LNG vessel bunkering service (the LNG would come from the Świnoujście LNG Terminal). Grupa LOTOS also initiated cooperation with the Polish Post Office and Polish Television. The companies will support each other in research and development work and in pilot launches of solutions promoting low-emission transport.
Grupa LOTOS received a decision granting it EU funding for its Pure H2 project, comprising the construction of hydrogen purification and distribution units as well as two hydrogen fuelling points. The project financing agreement was signed during the COP24 in Katowice, allowing Grupa LOTOS to build the first two pure hydrogen filling stations.
In autumn 2018, tests of the first 12 EV charging points on the A1 and A2 motorways under the LOTOS Blue Trail project commenced. There are plans to quadruple the number of electric chargers at the LOTOS chain stations, which means that a further 38 charging points will be built and operational by the end of 2020.
In December 2018, the Management Board of LOTOS Kolej signed an agreement on financing the purchase of modern intermodal rolling stock. Nearly half of the project value, PLN 74m out of the total project cost of PLN 183m, is financed by the European Union. LOTOS Kolej’s plan is to purchase 324 railroad platform cars and two electric locomotives for a total amount of PLN 183m.
On Grupa LOTOS’s initiative, the Hydrogen Technologies and Clean Energy Technologies Cluster was established, with a mission to initiate efforts aimed at increasing the role of hydrogen technologies. At the end of September 2018, Grupa LOTOS S.A. and LOTOS Lab signed a cooperation agreement with the Warsaw University of Technology, concerning work on ionic and hydrogen cells used, among others, to construct locomotive drive prototypes.
Lotos
