Profits plunge 96% at Polish state energy giant Orlen, prompting opposition criticism

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Notes from Poland is run by a small editorial team and is published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

Polish state energy giant Orlen has reported a sharp decline in quarterly profits, posting net earnings of 188 million zloty (€43.3 million) for the third quarter of 2024, a drop of nearly 96% year-on-year.

The opposition Law and Justice (PiS) party and Daniel Obajtek – Orlen’s CEO when PiS was in government – said that the figures are evidence that the company’s new management – installed under the current government – is “screwing up”.

However, the firm rejected such criticism, arguing that it “has posted robust operating performance” in a difficult macroeconomic environment and claiming that, if certain one-off events and accounting factors are excluded, net profits so far this year would have been higher than in the same period of 2023.

The market, meanwhile, welcomed the release of Orlen’s results with optimism, with the firm’s share price rising by more than 3% on Thursday morning.

Revenue for the third quarter came to 67.9 billion zloty, down from 75.9 billion zloty in the same period last year. Net profits amounted to 188 million zloty in the third quarter, down from 4.5 billion zloty last year – a nearly 96% year-on-year decrease.

In the first nine months of this year, Orlen’s net profits amounted to just over 3 billion zloty, compared to 20 billion zloty in the same period last year.

The company says, however, that the net results reflect significant economic headwinds, citing a 65% drop in refining margins compared to a year earlier and the appreciation of the zloty against the US dollar as “key factors impacting performance”.

It also notes that its third-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) at the LIFO level (a method of inventory accounting where the most recently produced items are recorded as sold first) adjusted for one-offs and regulatory impacts was similar to last year’s level of 8.6 billion zloty (€1.98 billion).

“Despite tough macro conditions, we delivered financial results that are on a par with last year’s,” said Orlen’s CEO, Ireneusz Fąfara.

During a press conference, he also noted that extraordinary profits in previous years resulted from, among other things, the war in Ukraine, which drove up fuel prices.

“That [time] is over, normalisation has come. We are going back to pre-war times,” he said, quoted by financial news service Money.pl.

However, Fąfara’s predecessor, Obajtek – who ran the company for six years under PiS before being dismissed in February and who is now an elected PiS politician – did not share the new CEO’s interpretation and called Orlen’s results “disastrous”.

“The screwing up of Orlen continues at full speed,” he wrote on X.

In response to Obajtek’s post, Orlen’s press office published an infographic claiming that “Orlen’s net profit, excluding accounting effects, state payments and past management errors,” would have reached 14 billion zloty (€3.2 billion) in the first nine months of 2024, up from 12 billion zloty (€2.76 billion) the previous year.

Obajtek rejected the argument, accusing Orlen of “creative accounting” and inconsistency in taking certain factors into account.

Meanwhile, a former minister in the PiS government, Janusz Cieszyński, responded to the infographic by pointing out that, over the past year, Orlen’s shares have fallen by nearly 18%.

“As a minor Orlen shareholder, I have a question: could you buy back shares from me at the price of a year ago? Since the company is earning more, it would certainly pay off,” he asked ironically.

At midday on Thursday, following the publication of results on Wednesday evening, Orlen shares were up nearly 3.2% on the day, indicating that investors have taken a favourable view of the information published by Orlen.

Krzysztof Kozieł, an analyst at Pekao SA, noted that the development was consistent with the preliminary results, “so there are no surprises on this side”.

“The drop in net profit alone is due to asset write-downs of 3.5 billion zloty (€806 million). If it were not for this, the year-on-year net result would be higher,” he told Notes from Poland. He also added that, in the case of companies such as Orlen, the “market looks at the EBITDA line and cash flow”.

He attributed today’s positive movement in Orlen’s stock price to a recent further cut in capital expenditures, the possibility of additional capital expenditure reductions, and the company’s commitment to maintaining its dividend payout.

Speaking yesterday, Magdalena Bartoś, Orlen’s vice president responsible for finance, noted that the firm’s expenditure on capital projects this year will be around 5 billion zloty less than previously estimated.

At yesterday’s press conference, Orlen also announced that it will inform the public by 10 December about the future of the company’s biggest investment, the construction of a petrochemical plant in Płock named Olefin III.

The company will decide between either optimising or stopping entirely the project, the cost of which has ballooned from the planned 8.3 billion zloty (€1.91 billion) in 2018 to up to 51 billion zloty (€11.75 billion) estimated now.

Notes from Poland is run by a small editorial team and published by an independent, non-profit foundation that is funded through donations from our readers. We cannot do what we do without your support.

Main image credit: Orlen Press Pack