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Jan. 23, 2015; No 15/2015
TOP STORY
CONTENTS
TOP STORY
Zloty gains following ECB actions could neutralize MPC's
concerns over market instability - NBP chief Belka
BUSINESS
ECONOMIC & FINANCIAL
FINANCIAL MARKETS
EQUITY MARKET
A durable zloty appreciation trend stemming from ECB quantitative easing would
clear a notable hurdle of market instability, allowing the Polish rate council to
review additional rate cuts to address persistent deflation readings, NBP
governor Marek Belka told PAP.
"A lasting tendency for zloty strengthening to the euro would be a factor neutralizing
current market instability," Belka indicated. That could assuage recently expressed
concerns that the evolving world of QE created sufficient threats of market turbulence
for the MPC to remain cautious on rates at home.
POLITICAL
WEATHER
Jan. 24, 2015
ECB asset purchases to the tune of EUR 60 bln monthly, as announced Thursday,
"should be a factor supporting zloty strengthening," Belka says. While the ECB
targets its own periphery, "we all know very well that surely this money will not fully
be spent on this goal." Poland is an obvious candidate to catch some of the spillover, he says.
Warszawa
0°C
Gdańsk
2°C 6°C 1020 hPa
Katowice
0°C
6°C 983 hPa
Kraków
0°C
5°C 988 hPa
Łódź
2°C 7°C 994 hPa
Would-be swing voters on the Polish MPC need not be entirely convinced, Belka
realizes. "Some would take this into consideration, just like they could the extension
of deflation."
Poznań
1°C 5°C 1014 hPa
For Belka, there is still room and still time for cuts on the merits.
Wrocław
0°C
While deflation is the best trigger argument, "Not everybody is concerned" about
deflation and if wage growth holds "there is no reason to panic."
5°C 1011 hPa
4°C 1007 hPa
CONTACT
Sales and Customer Care
But wage growth and ever-falling producer prices need not walk hand in hand
forever and the latest PPI reading at negative 2.5% is "a massive slide."
Monika Gałczyk
phone: +48 (22) 509 24 25
e-mail: [email protected]
Editorial
Glenn Tyrpa
phone: +48 (22) 509 27 80
e-mail: [email protected], [email protected]
"We don't know how entrepreneurs will react to persistent price declines," Belka
warns. "Will it finally get to them in the end, limiting profits and encouraging
decisions to cut wages or restrict raises?"
The growth side of the equation continues to impress and a strong-ish 5.3% growth
rate of seasonally adjusted industrial output in December "means the economy is
holding up at around 3% plus," Belka believes. "Let's hope so . . it's fantastic
considering such unfavorable external conditions."
Here, Belka has fingers crossed that the ECB bond purchasing exercise will do
more than just bring capital flows to Poland.
"We don't know how effective this policy will be," Belka admits of the ECB program.
"From our point of view we are keeping our fingers crossed that it become a growth
stimulus for the European economy."
jba/ fdu/ gty
1 / 10
BUSINESS
PKN ORLEN SWINGS TO
PLN 1.22 BLN Q4 LOSS,
DOUBLE EXPECTATION,
INCLUDING WRITE DOWNS
Listed fuel group PKN Orlen reported PLN 1.22 bln attributable net loss in Q4 2014,
twice the PLN 629 mln loss expected by analysts, in part on a PLN 331 mln
impairments, Q4 financial report out Friday morning showed.
Orlen enjoyed a strong gain in underlying earnings - a 57% increase in LIFO EBITDA
to PLN 929 mln - as refining margins surged, but saw its bottom line demolished by
PLN 1.6 bln in revaluations plus the impairments.
Q4 RESULTS VERSUS CONSENSUS & PRIOR PERIOD
Q4 2014 Consensus
Q4 q/q
PLN mln
PLN mln
%
Revenues
24 902
24 960
-14,6
EBITDA
-664
178
EBIT
-1 149
-285
EBITDA - LIFO
1 260
-40,5
EBIT - LIFO
444
1 160
-73,2
attrib Net Profit
-1 216
-629
-
Q4 y/y vs. Cons.
%
%
-9,8
-0,2
-473,0
135,5
303,2
112,8
788,0
-61,7
188,8
93,3
Orlen wrote down PLN 331 mln in outright asset impairments, including PLN 314
mln in the upstream segment also following the decline in fuel prices. All but a
fraction of that sum came on Canadian assets, management said.
Improved markets contributed PLN 668 mln towards the y/y increase in LIFO EBITDA
and volume gains added a notch more, offset by the inventory revaluation which Orlen
booked to its LIFO measure, a rare move for volatile times.
SEGMENT RESULTS
HIGHLIGHTS
EBITDA - LIFO
- downstream
- Retail
- upstream
EBITDA
Q4 2014
PLN mln
1 260
941
408
-272
-664
Q4 2013
PLN mln
592
456
324
-14
54
Q3 2014
PLN mln
2 117
1 766
441
52
1 461
Q4 q/q
%
-40,5
-46,7
-7,5
-
Q4 y/y
%
112,8
106,4
25,9
1 842,9
-
Gains in underlying earnings came in downstream operations - refining and
petchems - where margins had been very favorable as crude prices came down.
orlen also enjoyed a record quarter in retail operations.
2 / 10
Orlen doubled its LIFO-based EBITDA earnings from the full swath of downstream
operations to PLN 941 mln. A 3.6 USD/bbl increase in the model downstream margin
to USD 12.6/ bbl added a heady PLN 1.18 bln to Q4 LIFO EBITDA.
Orlen is hoping for some more of the same. Average downstream margins in 2015
could match the 2014 mark above USD 11 per barrel as H2 2014 strength runs
through H1 2015,. CFO Slawomir Jedrzejczyk said.
Total sales volumes were up 1.3%, in part on consolidation of a new stake in a Czech
refinery, but shutdowns kept those gains out of the most attractive segments.
The retail gas station segment expoanded Q4 earnings by 26% to an all-time high
with management bragging of higher fuel margins on Polish, Czech and German
markets and increasing fuel and non-fuel sales across all markets.
Unsurprisingly for the era of crashing crude prices, the infant upstream operations
proved the trouble maker. Orlen suffered a PLN 272 mln EBITDA loss the segment
and wrote a PLN 314 mln asset impairment, mainly on Canadian drilling assets, the
result of a worsened crude outlook.
While Orlen didn't offer an overall break even crude oil price for Canadian ops, a Q4
netback of CAD 29 per boe over average sales price of CAD 70 per boe (a mix of
crude and other hydrocarbons) suggests thresholds are on the horizon. The current
asset impairment was built on faith that USD 90 / barrel will be hit in crude again over
the coming years.
Mean time Orlen is reviewing its CAPEX for Canada given the less favorable pricing
levels, but neither iminishing nkor extending its appetite for new upstream assets
given the market turnaround, CFO Slawomir Jedrzejczyk assured a teleconference.
Within the group, the Lithuanian operations deepened its Q4 LIFO EBITDA loss to
PLN 296 mln. Polish and Czech operations improved earnings against prior periods.
Ex one-offs those Lithuanian operations ended 2014 USD 30 mln EBITDA LIFO
positive and FCF positive, officials claimed. if margins hold in 2015 as hoped, the
troubled Lithuanian operations should escape 2015 on a "zero-plus" level.
"But as we said, we are ready for temporary shutdowns if we risk burning money on
the macro environment," Jedrzejczyk warned. To his eye, a heady amount of
restructuring has been done and Lietuva "is starting to look very effective" from an
employment and maintenance costs point of view.
For the group, mark net financial costs at PLN 265 mln in Q4, including a PLN 269
mln negative FX revaluation.
The Orlen group ended the quarter with PLN 6.72 bln in net debt, up PLN 836 mln in
Q4 and rendering net financial leverage of 33%.
gty
3 / 10
PKN ORLEN PLANS TO
INCREASE DIVIDEND
OFFER; PLN 1.5 DPS A
BASE CASE SCENARIO FOR
2014 - CFO
Listed fuel group PKN Orlen will offer at least PLN 1.5 dividend per share from
2014 profits in its base scenario as the firm pursues its strategic goal of
increasing dividends, CFO Slawomir Jedrzejczyk said during a conference call.
PKN Orlen paid out PLN 1.44 DPS from 2013 profit and PLN 1.5 DPS from 2012
profit.
"We are looking into cash flow - our strategic goal is to increase dividend per share . .
. so in 2015 if we follow our strategic assumption you should expect at least PLN 1.5
DPS," Jedrzejczyk said. "This is our base scenario, but it is too early for the
discussion."
PKN Orlen paid out PLN 1.44 DPS from 2013 profit and PLN 1.5 DPS from 2012
profit.
gty/ ami
PKN ORLEN FUEL PLANS
PLN 3.8 BLN CAPEX IN
2015, FLAT FROM 2014
PLAN - PRESENTATION
Listed fuel group PKN Orlen plans PLN 3.8 bln in CAPEX ex-acquisitions in 2015,
flat y/y, the firm said in its Q4 2014 results presentation.
The figure includes PLN 2.5 bln for development and PLN 1.3 bln for maintenance.
Moreover, 66% of the sum is to be spent in downstream operations, 25% in
upstream and 9% in retail.
The figure does not take into account potential acquisitions, Orlen noted.
ami/ gty
PKN ORLEN EXPECTS TO
RELEASE PLN 700 MLN ON
LOWER MANDATORY
RESERVES OBLIGATION
Listed fuel group PKN Orlen expects to release PLN 700 mln in 2015 on the
reduction of mandatory crude oil reserves obligation versus a previous estimate
of PLN 1 bln, CFO Slawomir Jedrzejczyk said during a teleconference.
"We will release PLN 700 mln in reserves assuming current prices," Jedrzejczyk said.
"We had said PLN 1 bln, but prices fell."
The release will likely come in two equal tranches, one in Q1 and one in Q2, the
official added.
"The full release should happen in H1 2015," Jedrzejczyk said.
As of 2015, fuel firms are obligated to keep mandatory reserves in the amount of 68
days of production versus 76 days in 2014. In case of Orlen, the regulatory burden
stands at some 0.4 mln tons, the firm said.
gty/ krba/ ami
4 / 10
Business News in Brief
PKN Orlen expects
downstream margin
stabilization in 2015 at
above USD/11 bbl
PKN Orlen fuels eyes PLN
0.4 bln CAPEX and 8.9k boe
avg daily production in
Canada in 2015
Banking lobby ZBP wants
banks to accept negative
LIBOR, but rules out
negative total interest on
CHF mortgages
Listed fuel firm PKN Orlen expects
its model downstream margin to
stay at comparable levels y/y in
2015 or above USD 11 per barrel, a
result of low crude oil prices and
growth of consumption in fuels and
petrochemical products, the
company communicated Friday.
Listed fuel group PKN Orlen plans
some PLN 0.4 bln CAPEX and
average daily production of 8.9k
boe in its Canadian upstream
operations in 2015, the firm said in
its Q4 results presentation and
during a conference call. The 2014
CAPEX plan was completed
according to schedule, the official
also said.
FUEL / PKN ORLEN
Listed fuel group Orlen expresses
stable appetite for upstream M&A
transactions and will continue to
seek investment opportunities,
CFO Slawomir Jedrzejczyk told an
earnings teleconference.
FUEL/ PKN ORLEN
Listed fuel groop PKN Orlen treats
its PLN 600 mln upstream CAPEX
as a ceiling and might optimize
spending both on Polish and
Canadian upstream operations,
PKN Orlen CFO Slawomir
Jedrzejczyk told an earnings
conference.
CHEMICALS/ GRUPA AZOTY
Listed chemicals conglomerate
Grupa Azoty has no shortage of
investment ideas and welcomes
cheaper financing prospects, CEO
Pawel Jarczewski told TVN24 BiS
in Davos.
MEDIA/ CYFROWY POLSAT
Poland's TV ad market may grow
some 3% in 2015, that is at a
similar pace as in 2014, media
house Mindshare Polska partner
Paulina Sobieszek told PAP.
SHALE GAS
Poland will have a new
assessment of the size of shale
gas deposits this year, based on
the information from investors
conducting exploration works,
Environment Minister Maciej
Grabowski told PAP.
EQUITY/ OPINION
Analysts at Wood & Co. remain
largely bullish on Polish equity for
Q1, talking up attractive valuations
and dividend yields, while playing
down the hit taken from evercostlier CHF-mortgages. The ECB's
long awaited venture into QE could
also provide some flows and
perhaps the growth boost to
further that effect, they say.
Poland's banking lobby ZBP wants
banks to accept negative LIBOR,
but with positive total interest,
lower FX spread, no-fee currency
conversion at average NBP rate for
CHF-denominated mortgages as
means to help borrowers hit by
sudden appreciation of the Swiss
franc, ZBP officials told a news
conference.
5 / 10
BANKING/ ING BSK
Bank ING BSK is calculating
instalments of clients with CHF
mortgage loans at the rate of midNBP fixing, ING said in a press
statement.
BANKING / BNP PARIBAS, BGZ
BNP Paribas Bank Polska and BGZ
bank will hold EGMs on February 25
to seal their merger, both banks
said in market filings.
SHIPOWNER/ PZB
Poland admitted three companies Denmark's DFDS, Germany's
Fahrdienste TT-Line and Finland's
Finnlines Oyj - to the next stage of
the privatization of Polish ferry
operator PZB, the Treasury
Ministry announced.
BANKING
Polish banks would suffer a one-off
loss of around PLN 34 bln if CHF
mortgages were converted into
PLN, and a few of the banks would
require capitalization to the tune of
some PLN 9 bln, Trigon DM
analysts estimated.
EQUITY/ PKO BP, ALIOR, TAURON,
PKN ORLEN
Banks PKO BP and Alior Bank as
well as fuel group PKN Orlen and
power utility Tauron are Wood &
Co.'s overweight picks among
Polish large-caps, the brokerage
said in its equity strategy report.
CONSTRUCTION/ ERBUD
Listed construction firm Erbud saw
its PLN 299 mln road construction
bid for a section of the S7
expressway on formal grounds,
road authority GDDKiA announced.
The contract was won by Strabag.
FUEL/ SERINUS
Listed oil & gas upstream company
Serinus recorded an average daily
production of 5.41k barrels of oil
equivalent in Q4 2014, down from
5.64k boe in Q3, the firm said in a
market filing.
IT/ CUBE.ITG
Consortium of listed IT firm
cube.ITG and MGGP filed the best
PLN 13.4 mln for a GIS system for
national grid firm PSE, PSE said in
a statement.
ECONOMIC & FINANCIAL
POLAND'S ANNUAL RETAIL
SALES GROWTH IN
DECEMBER SEEN
"CLEARLY" BETTER THAN
IN PREVIOUS MONTHS GUS
Poland will enjoy a significant boost in annual retail sales growth in December as
compared to previous months, stats office GUS Vice-President Halina
Dmochowska told PAP.
"We can safely say that retail sales in December in annual terms was clearly better
than in the previous months," Dmochowska said, citing December readings in
industrial output and wage growth.
The improvement will come on the back of households' rising purchasing power,
Dmochowska believes.
"Households' purchasing power in Q4 was 4% higher than in the prior-year quarter
and in December alone that annual difference hit 4.7%," she said. "It's a significant
change over the course of the year."
What is more, wages grew across all sectors, she added.
Wage growth was recorded across sectors and included pensions and - slightly
lower - in the agriculture sector, she said. "That makes better retail sales vis-a-vis
prior months highly probable."
6 / 10
Stats office will publish December retail sales data on Tuesday, January 27.
nik/ ami
POLISH CONSUMER
SENTIMENT IMPROVES
SLIGHTLY IN JANUARY,
SAVE FOR LABOR MARKET
OUTLOOK
Polish consumer sentiment improved again in January, with current confidence,
leading confidence and propensity to make major purchases indicators rising, and
only job outlook edging down from prior month levels, a Central Statistics Office
(GUS) survey showed.
All readings nevertheless remained in negative territory.
The current confidence indicator edged up by 0.8 pts to -11.7 pts, while the major
purchases indicator increased by 3.1 pts to negative 8.3 pts.
The leading confidence indicator moved up 1.4 pts m/m, but the job outlook indicator
inched down by 0.3 pts to -27.2 pts after a heady gain of 6.4 pts in the previous
month.
CONFIDENCE INDICATORS
Jan'15 Dec'14 Nov'14 Oct'14 Sep '14 Aug '14
Current confidence
Jan'14
-11,7
-12,5
-14,9
-14,1
-14,2
-19,5
-20,2
-8,3
-11,4
-9,8
-11
-10,2
-13,3
-15,3
Leading confidence
-16,5
-17,9
-22,2
-19,3
-20,6
-25,0
-25,7
job outlook
-27,2
-26,9
-33,3
-28,4
-32,1
-34,9
-37,4
major purchases
ami/
Economic & Financial News in Brief
President Komorowski signs
2015 budget with deficit at
PLN 46.08 bln
President Bronislaw Komorowski
has signed Poland's 2015 budget
act with a deficit of PLN 46.08 bln,
presidential chancellery
announced on Friday.
QE from ECB changes little
in fundamental outlook for
growth or prices - rate
setter Winiecki
QE from the European Central Bank
does nothing to notably alter the
fundamental outlook for prices or
growth in the eurozone or Poland,
Monetary Policy council member
Jan Winiecki argued during a
studio interview for broadcaster
TVN24BiS.
Deflation in Poland to
persist until Q1/Q2 - GUS VP
Deflation in Poland will likely last
until the turn of Q1/Q2, but might
persist a little longer, stats office
GUS VP Halina Dmochowska told
PAP. Deflation is not a threat for
the economy for now,
Dmochowska said.
7 / 10
GDP, UNEMPLOYMENT/ OPINION
Poland's FY2014 GDP growth
should reach some 3.4%, with the
Q4 reading posing no threat for
sporting such a GDP reading, stats
office GUS VP Halina Dmochowska
told PAP. The pace of
unemployment declins seen in
2014 may continue this year,
Dmochowska added.
INFLATION/ FUELS
Polish average retail gasoline
prices came down by PLN 0.07 per
liter and diesel by PLN 0.07 per liter
in the week ending January 22, a
study by the Reflex brokerage
showed.
COAL, REGULATOR
Poland's restructuring plan for
Kompania Weglowa coal mines
complies with EU rules provided
that during the notification
procedure the European
Commission confirms that
restructured mines are allowed to
continue output, anti-monopoly and
consumer protection body UOKiK
said in a statement.
FI FUND FLOWS
Emerging markets suffered USD
1.21 bln net outflows from the FI
market in the week ended on
January 21, EPFR data cited by
UniCredit showed.
HOUSING
Poland's apartment transaction
price index fell by 0.3% m/m and fell
marginally (0.03%) y/y, a report by
Open Finance financial market
intermediary and Home Broker real
estate firm showed.
GDP/ OPINION
Poland's GDP may benefit from the
ECB decision to launch QE as well
as from low crude oil prices, Bank
of America/Merrill Lynch
economists believe, hiking their
GDP forecast for Poland to 3.5% in
2015 and 3.7% in 2016 versus 3.3%
and 3.4% previously.
FINANCIAL MARKETS
POLISH ZLOTY CONTINUES
TO GAIN ON ECB DECISION,
BONDS CALM DOWN, BUT
MARKETS SEEN
STABILIZING NEXT WEEK
Poland's zloty continued to gain throughout Friday to EUR/PLN 4.216, as good
moods prevail after ECB decision on asset purchases, also bonds gained in the
morning, then corrected, with 5Y bond yield at 1.74%; markets are expected to
stabilize next week, local players told PAP.
While markets will still enjoy remains of ECB-triggered enthusiasm, "a lot is clear
now so the situation will calm down," BPH FX dealer Marek Cherubin told PAP.
"Surely, foreign events will have more impact on the zloty than what happens here."
Of the local factors, retail sales reading for December may prove a driver, but only if it
differs largely from consensus, Cherubin believes. The data will be published on
Tuesday, January 27. PAP consensus is for a 2.2% y/y growth.
In coming weeks, the zloty will "rather" see upward pressure, the dealer believes.
The bond market enjoyed strong readings in the morning, then corrected, but may
continue gains next week, with 10Y papers potentially heading for yield levels below
2%, Bank Millennium FI trader Mateusz Milewski said.
"We were close to breaking it, but in the second part of the session the market
corrected somewhat earlier gains," Milewski said. "But attempts for breaking this
level seem inevitable."
8 / 10
SPOT FX PRICES & BENCHMARK YIELDS
Fri
Fri
Thu
16.10
9.32
15.50
EUR/PLN
4,216
4,248
4,268
USD/PLN
3,748
3,747
3,717
CHF/PLN
4,273
4,303
4,31
OK0716
1.61
1,55
1,59
PS0719
1.74
1,7
1,8
DS0725
2.09
2,1
2,2
mbn/
EQUITY MARKET
WARSAW STOCKS GAIN
FRIDAY, AS EUROPEAN
STOCKS ENJOY
CONTINUED BOOST FROM
ECB DECISION
Warsaw stocks gained Friday, particularly mid- and small-caps, as European
stocks enjoy continued boost from ECB decision to launch an asset purchase
program. The large-cap WIG20 index closed up by a mere 0.01% to 2,320 pts, but
broad-market WIG index gained 0.38%.
MOST ACTIVES
TOP GAINERS
TOP LOSERS
INDEXES
3M WIG
3M WIG30
9 / 10
POLITICAL
Political & Government News in Brief
JOB APPROVAL
Poland's President Bronislaw
Komorowski maintains its longlasting lead as Poland's most
trusted politician, with 78% of
respondents expressing trust to
the Head of State, a 2 pps increase
since December, a survey by
pollster CBOS showed. PM Kopacz
is second with 49%.
PAP Business Daily is based on PAP's Market Insider, the English-language economic service covering equity & financial
markets, macroeconomic and policy issues and key company news, as published by the Polish Press Agency PAP.
Copyright © PAP SA 2012.
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