Strongly profitable Czech petrochemical maker Unipetrol puts cracker explosion behind it

By bne IntelliNews July 21, 2017

Unipetrol looks to have finally got over the August 2015 fire and explosion that wrecked its steam cracker, an indispensable installation in the production of ethylene feedstock needed to manufacture plastics. Its second-quarter net profit rose to CZK3.57bn from CZK3.11bn a year ago on substantially higher petrochemical sales achieved following the restart of operations at the reconstructed facility in Litvinov, the Polish-controlled Czech company reported on July 21.

Revenues grew an eyecatching 52% y/y to CZK31.18bn, while operating profit in the second three-month period of the year jumped to CZK5.36bn from CZK3.77bn in Q2 last year, Unipetrol, 63%-owned by Polish state-directed oil, gas and petrochemicals group PKN Orlen, added.

Also on an annual basis, Unipetrol's petrochemical sales volumes grew by 120% to 500,000 tonnes in the second quarter, with the 545,000 tonne/yr cracker having been operated at 89% of capacity in the period compared to 0% in the second quarter of 2016. At that point, work was still under way on rebuilding the installation.

Central European petrochemical companies, including Hungary's MOL, Slovakia's Slovnaft (owned by MOL) and Orlen have for the past two years enjoyed healthy petrochemical margins, largely thanks to low or restrained oil prices and unexpected shutdowns suffered by producers in Western Europe. Unipetrol said its petrochemical model margin remained firm in the second quarter at €843/tonne, against €877/tonne in Q2 of last year and €825/tonne in Q1 this year.

What's more, Unipetrol's has remained rosy in the cheeks thanks to insurance it took out on any damage or lost sales that might be caused by the loss of production at the cracker. Insurance payment instalments in relation to the cracker incident are expected to amount to somewhere near CZK14bn, according to Prague-based investment bank WOOD & Company. Insurance has also lately paid out on serious stoppages suffered last year at Unipetrol's Kralupy nad Vltavou refinery, which like the cracker was hit by a blast.

In a press release on the Q2 results, Unipetrol CEO Andrzej Modrzejewski said: “This quarter was very successful for us. Thanks to a favourable macroeconomic environment, high utilisation of production capacities and growing sales in all segments, we have achieved excellent economic results.”

In a note to investors, WOOD & Company said: “Unipetrol holds a net cash position of CZK1.4bn (down from CZK4.5bn in Q1 17 due to investing activities), which leaves the company enough reserves to achieve its investment strategy, while increasing the DPS [dividend per share] from the estimated 2017 profit at the same time, in our view.”

June of last year saw Unipetrol approve its first payment of a dividend in almost a decade. The lack of dividends has long irked minority shareholders who believe they have been mistreated by Orlen sitting on Unipetrol's strong cash position while not investing in replacing obsolete installations.

Even though the company is now making major investments in new plastics production units, the minority shareholders, spearheaded by Slovak-Czech J&T Financial Group, which acts on behalf of investors who hold 23.7% of Unipetrol, still think there is room for higher payouts. J&T has run a furious battle against the Polish management of the company, accusing it of poor strategy, value-destructive deals and holding back distribution of profit.

J&T has previously indicated the 23.7% stake could be available to Orlen “at the right price”. There is no little speculation that the financial group may have made itself as awkward as possible in order to force a buyout offer. No offer has yet been forthcoming.

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