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Despite difficult macroeconomic conditions in Q2 2014, LOTOS posted close to PLN 7.2bn in revenue, up by 18% year on year. In H1 2014, the Company’s revenue rose 8% year on year, to over PLN 14.3bn.

General

Despite difficult macroeconomic conditions in Q2 2014, LOTOS posted close to PLN 7.2bn in revenue, up by 18% year on year. In H1 2014, the Company’s revenue rose 8% year on year, to over PLN 14.3bn.

As in Q1 2014, the financial results were under continued pressure from deteriorating crack margins on key products (particularly diesel oil, aviation fuel and light fuel oil) and a decline in the model refining margin, which was driven down to USD 4.97/bbl (-1.6% quarter on quarter and -18.3% year on year) in the period under review.

However, it should be stressed that, having completed the 10+ Programme, LOTOS now has one of the world's most advanced refineries, which gives it a substantial competitive advantage. According to a benchmark report published by Total (European Refining Margin Indicator), the average margin for refineries located in north-western Europe was a mere USD 1.48/bbl in Q2 2014.

Net profit/loss for Q2 2014, of PLN -122.5m, was further affected by the impairment loss recognised on investment in the YME field development project. The estimated effect of the impairment on net profit/loss for H1 2014 was PLN 191m.

LOTOS to raise around PLN 1bn for development

The Extraordinary General Meeting of Grupa LOTOS S.A., to be held on September 8th 2014, will decide whether to approve increasing the Company's share capital by issuing new shares, which would be offered to the Company’s existing shareholders. LOTOS expects to raise approximately PLN 1bn through the issue. The proceeds will be used to finance the Company’s strategy, which envisages further investments to increase the refinery's complexity and step up hydrocarbon production.

“Today, LOTOS is not only a pillar of Poland's energy security, but also an engine of the country's economic growth,” says Paweł Olechnowicz, CEO of Grupa LOTOS S.A. “By pursuing investment projects in Poland, we intend to foster industrial growth, create new jobs, and improve Poland's competitiveness on international markets. Following the successful implementation of the 10+ Programme, investments in state-of-the-art liquid fuel production technologies and development of our hydrocarbon exploration and production operations will be key to the Company's success.

How much money is obtained from the issue will depend on the macroeconomic climate, capital market conditions, demand for the shares, and final terms and conditions of the offering.

In connection with the proposed share capital increase, Grupa LOTOS S.A. will offer PLN 55m new ordinary shares to its existing shareholders holding pre-emptive rights to acquire the shares. The proposed record date for the pre-emptive rights is November 18th 2014.

Norwegian assets contribute to increased output

The upstream segment's revenue for Q2 2014 totalled PLN 240m, up by approximately 94% year on year, mainly on the back of production and sales of condensate and gas from the Heimdal assets acquired in 2013, as well as increased sales of Rozewie crude. In H1 2014, LOTOS sold a total of 1,965 thousand boe (97% more than in H1 2013), including 884.5 thousand boe from Norwegian deposits, 747.5 thousand boe from Poland and 333 thousand boe from Lithuanian fields.

Baltic Sea production in Q2 2014. LOTOS Petrobaltic continued to produce crude oil and natural gas from the B3 field. On May 23rd 2014, the Ministry of Environment amended licence No. 108/94, allowing crude oil and natural gas production from the B3 field to continue for 32 years from the licence issue date, i.e. until July 29th 2026.

Lithuanian companies AB LOTOS Geonafta and UAB Genciu Nafta maintained stable production of crude oil from the Girkaliai, Kretinga, Nausodis and Genciu on-shore fields, and UAB Manifoldas − from the Auksoras, Liziai and Veziaciai fields.

Stable operation of LOTOS refinery

In Q2 2014, the Gdańsk refinery utilisation was adjusted to accommodate difficult market conditions. The refinery's capacity utilisation rate in the period was 91% (up 3.3% quarter on quarter). With its operations stable, the refinery maintained throughput of 2,379 thousand tonnes (up by 5.0% quarter on quarter).

In Q2 2014, liquid fuel consumption in Poland declined by 2.8% year on year. Despite the shrinking domestic market, LOTOS maintained its sales on a level comparable to that achieved in the same period last year, while expanding its market share in H1 2014 by 1.3pp, to 33.8%.

LOTOS retail network profitable and growing

LOTOS remains one of Poland’s fastest-growing networks of service stations. As at the end of H1 2014, 430 service stations operated under LOTOS brand, including 158 LOTOS Optima stations (42 more than in the same period last year). In H1 2014, the retail segment reported an operating profit of PLN 6.1m, compared with a loss of PLN -22.3m in H1 2013. One of the factors that contributed to the improved performance was successful implementation of solutions designed to enhance the network's operational efficiency.

Communications Office
Grupa LOTOS S.A.
ul. Elbląska 135,
80-718 Gdańsk,
tel. 58 308 87 31, 58 308 83 88, 58 308 83 55,
e-mail: media@grupalotos.pl

Legal disclaimer:

This material is not for release, publication or distribution, directly or indirectly, in the United States, Australia, Canada, and Japan.

This material has been prepared by Grupa LOTOS S.A. (“Company”) for information purposes only, it does not constitute an offer or a solicitation of any offer, and it is not to be relied on in making investment decisions to buy the Company's securities. This material is not a promotional or advertising material within the meaning of Art. 53 of the Polish Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies. The final decision to increase the Company's share capital has not yet been made. The Extraordinary General Meeting of the Company which has a resolution to increase the Company's share capital on the agenda was convened for September 8th 2014 (“General Meeting”). A notice of the General Meeting was published on August 12th 2014 in Current Report No. 13/2014. On the same day, a draft General Meeting resolution on the share capital increase was published on the Company's website (www.lotos.pl). If the General Meeting passes the resolution to increase the Company's share capital through the issue of new shares (“Shares”) on a pre-emptive basis, the Company will apply to the Polish Financial Supervision Authority (“PFSA”) for approval of a prospectus (“Prospectus”), which will be the sole legally binding document containing information about the Company and the public offering of the Shares in Poland (“Offering”). The Company may proceed with the Offering only after the General Meeting has passed the resolution and after the Prospectus has been approved by the PFSA. The Prospectus will be made available to the general public in compliance with applicable laws.

This material is not a recommendation within the meaning of the Minister of Finance’s Regulation on information which constitutes recommendations concerning financial instruments or their issuers, dated October 19th 2005.

This material (and any information presented herein) does not contain or constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States, Australia, Canada, Japan or in any other jurisdiction. The Company's securities have not been and will not be registered under the United States Securities Act of 1933, as amended (“US Securities Act”), and they may not be offered or sold in the United States unless they are registered under the US Securities Act or unless they are exempted from the registration requirements of the US Securities Act. The Company's securities will not be publicly offered in the United States.

To the extent permitted by applicable laws, the Company makes no representations, declarations or warranties, express or implied, as to, and no reliance should be placed on, the reliability, accuracy, completeness and correctness of any information and opinions contained herein. Any forward-looking information, opinions and statements contained herein may be subject to change without notice.

The Company, its subsidiaries and other related entities disclaim all liability for any loss or damage arising from the use of this material, any part hereof or any information contained herein, or for any loss or damage arising otherwise in connection with this material.