UNIPETROL announces its results for H1 2008
The Unipetrol Group reports net profit of CZK 708m for the first half of this year. As in the first quarter of this year, UNIPETROL also suffered from high crude oil prices, very low petrochemical margins, and strong Czech currency in the second as well.
These external factors were mostly responsible for pushing the net profit for Q2 down to CZK 302m, significantly less than in the same period of the previous year, when the market conditions were extremely good and allowed UNIPETROL to report record quarterly earnings.
The revenues in the first six months of this year amounted to CZK 49.230bn, which means an 8% y/y increase. Although the industry benefited from an improvement of petrochemical margins and stabilisation of the exchange rates in July and August, the mid-term development is hard to predict.
Comments on H1 2008 results:
Profitability of the petrochemical segment, which was the main driver of UNIPETROL's good financial results last year, was affected the most by the unfavourable macroeconomic trends.
The growth trend for virgin naphtha prices from the first quarter continued into the second quarter as well. Virgin naphtha is the main feedstock for petrochemical production and as the selling prices of petrochemical products are fixed with the customers for the entire quarter, the feedstock price increase lowers the margins.
This negative trend culminated in June. For instance, the model olefin margin, calculated on the basis of the average European price, was 280 EUR/t in Q2 2008, compared to 376 EUR/t the year before.
Moreover, as the prices of petrochemical products, even those sold domestically, are quoted in EUR, therefore the strengthening of CZK against EUR (an average rate in Q2 2008 was 24,8 CZK/EUR compared to 28,3 CZK/EUR a year before) ate up an additional part of potential earnings.
On the other hand the refining segment showed good recovery in Q2, significantly improving both margins (especially q/q) and sales volumes (both q/q and y/y). This allowed the refining segment to record solid results and become the strongest contributor to the total H1 2008 EBIT.
Retail traditionally performed well and brought y/y growth in the first six months of this year (EBIT grew by 10%).
Outlook for the rest of 2008:
“We came through a very difficult period in the first half of this year. We had to face historical growth of crude oil prices together with record speed of strengthening of the local currency.
Now we see a chance for improvement – oil prices are going down and exchange rates also seem to stabilise. However, the macroeconomic development is still hard to forecast”, says François Vleugels, CEO of UNIPETROL.
According to Mr. Vleugels, as soon as the market conditions improve on a more stable basis, the company will start generating strong cash again, as in the previous year.
Although the company is in a very good condition internally, the management decided to respond to the macroeconomic situation with several initiatives resulting in further operating cost savings, better management of capital expenditures, and reduction of net working capital by the end of this year.