The past year ushered in a series of challenges for the companies in the fuel sector. The decisions made by us have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
The segmental management model we have implemented enhances management efficiency, delivering cost and revenue synergies across the organization.
2014 ushered in a series of challenges for the companies in the fuel sector. The decisions made by the LOTOS Group have demonstrated that we are able to take rapid steps to adapt to a demanding environment and ensure the desired profitability for our projects.
The key factor that had a strong impact on both the global and Polish petroleum markets in 2014, with significant consequences for the LOTOS Group’s performance, was the price of crude oil, which also determined the price of petroleum products.
The LOTOS Group’s Strategy is designed to strengthen our position as a strong, innovative and efficient business which plays a major role in ensuring national energy security.
Our operations consist in crude oil production and processing, as well as wholesale and retail sale of petroleum products, among which are: fuels (unleaded gasoline, diesel oil and light fuel oil), heavy fuel oil, bitumens, aviation fuel, naphtha, propane-butane LPG and base oils.
At the LOTOS Group, we identify a range of diverse risks, which may affect all areas of our business. The key risks in terms of their impact on our operations are the financial risks as well as risks affecting the exploration and production area. In the analysis of the risks, we also factor in issues related to sustainable development.
With revenue of ca. PLN 28.5bn in 2014, we rank fourth in the group of 500 largest businesses in Poland.
Grupa LOTOS shares have been listed on the Warsaw Stock Exchange since June 9th 2005. In 2005, 78,700,000 ordinary Series A shares with a par value of PLN 1 per share and 35,000,000 ordinary Series B shares with a par value of PLN 1 per share were introduced to public trading under the Issue Prospectus.
Following the issue of Series B shares, on June 28th 2005, an increase in the Company’s share capital to PLN 113,700,000 was registered.
The issue price was set at PLN 29. After trading had started, the market price rose to PLN 32, i.e. by 10.34%.
Grupa LOTOS raised proceeds of PLN 1,015,000,000 through the public offering. These were applied towards the acquisition of shares in Rafineria Czechowice (80.04% ownership interest), Rafineria Jasło S.A. (80.01%), Rafineria Nafty Glimar S.A. (91.54%) and Petrobaltic S.A. (69%).
On July 17th 2009, another increase in Grupa LOTOS’ share capital was registered after the issue of 16,173,362 ordinary Series C shares covered by a non-cash contribution in the form of shares in LOTOS Petrobaltic, LOTOS Jasło and LOTOS Czechowice.
In 2014, Grupa LOTOS issued 55,000,000 Series D ordinary bearer shares in a public offering. The issue price of offered shares was set at PLN 18.10 per share. The issue proceeds will be applied towards co-financing of the EFRA Project (i.e. construction of a delayed coking unit at the Gdańsk refinery) and towards the development of the B4 and B6 gas fields in the Baltic Sea.
The total number of Company shares as at December 31st 2014 is 129,873,362.
On January 9th 2015, Grupa LOTOS’ share capital was increased from PLN 129,873,362 to PLN 184,873,362, effected through the issue of 55,000,000 ordinary shares.
Grupa LOTOS share price performance vs. index performance
2014 was a successful year for investors trading on stock markets in the U.S. and South Asia. Key stock exchange indices in the U.S. climbed by over 10%, with S&P 500 and Nasdaq up by 11.4% and 13.4%, respectively. These high rates of return were driven by positive signals from the American economy. However, the highest rates of return in 2014 were brought by equities listed on the Chinese Shanghai Stock Exchange, where the Shanghai Composite Index rose by 52.9%, also on the back of positive information from the Chinese market.
At the same time, global capital shifted away from emerging markets, whose sluggish economic growth, growing political risk, and weaker local currencies discouraged investments (China being the sole exception). Given the geographical location of Poland in the vicinity of Russia and Ukraine and lower liquidity of the stock exchange market, the year saw only slight movements in the WSE indices.
The index of all companies listed on the Main Market, WIG, gained 0.3%, and the annual change in WIG-20 was negative at -3.5%. The lowest rate of return was delivered by the WIG250 small-cap index, which was down 16.8%.
Looking at stock performance by sector, the best-performing WIG-ENERGIA power sector index gained 23.5%, with the WIG-PALIWA fuels sector index up 5.2%.
The RESPECT corporate social responsibility index increased by over 4.4% during 2014.
The price of Grupa LOTOS shares followed general market trends in H1 2014, but later fell sharply when the Board announced plans to issue new Series D shares. Throughout the year Grupa LOTOS shares traded within the PLN 24.05–40.96 range, and closed the year at PLN 25.50.
In 2014, the average number of LOTOS shares changing hands in a trading session was 203,839, down 11% year on year. The total value of trading in the stock was in excess of PLN 1.6bn, representing 0.7% of total WSE trading, with an average of 851 trades per session.
The Company’s market capitalisation as at the end of 2014 was just over PLN 3.3bn.
Grupa LOTOS shares
|Free float shares (million shares)||129.87||129.87||129.87||129.87||129.87||129.87|
|Price of Grupa LOTOS shares (PLN)|
|Rate of return at end of period (%)||166.11||14.31||-35.9||76.82||-13.96||-28.07|
|Trade in Grupa LOTOS shares|
|Trading value (PLN m)||3,642.56||3,684.33||3,299.07||2,013.15||2,211.43||1,588.52|
|Share in trading volume (%)||1.11||0.88||1.31||1.07||1.00||0.77|
|Average trading volume per session||381,938||234,464||377,048||282,163||229,877||203,839|
|Average number of trades per session||945||699||967||810||877||851|
|Market capitalisation at end of period (PLN m)||4,130.80||4,720.80||3,026.00||5,351.00||4,603.89||3,311.69|
|Book value (PLN m)||6,846.20||7,513.50||7,782.40||9,066.40||9,189.60||8,258.50|
|EV (PLN m)||9,513.72||10,679.70||10,232.00||11,642.30||10,319.79||9,627.39|
|Earnings per share (PLN)||7.44||5.23||5.03||7.11||0.30||-|
Source: In-house analysis based on WSE and Company data.
* EV (Enterprise Value) − market capitalisation plus debt, non-controlling interests, and preferred shares, minus cash and cash equivalents.
* P/E – Price/Earnings.
* P/BV – Price/Book Value.
* EV/EBITDA − Enterprise Value/EBITDA.
Dividend distributions under the 2011−2015 business strategy depend on the optimisation of the financing structure of the LOTOS Group. Grupa LOTOS’ financial strategy provides for distribution of up to 30% of net profit as dividend.
The Grupa LOTOS Board proposed to fully cover the 2013 net loss of PLN 14,774,128.10 from the Company’s statutory reserve funds.
Taking into consideration the Board’s proposal, on June 30th 2014, the General Meeting resolved to fully cover Grupa LOTOS’ 2013 net loss of PLN 14,774,128.10 from the Company’s statutory reserve funds.
Dividend and dividend yield (PLN)
|Financial year||Dividend||Dividend per share||Share price at year end||Dividend yield|
Source: In-house analysis based on Company data.
* Dividend yield – dividend per share to price per share.
Historical dividend per share
|Financial year||Dividend per share||% of net profit||Dividend record date||Dividend payment date|
|2006||0.4||10.1||Jun 11 2007||not later than Jul 31 2007|
Source: In-house analysis based on Company data.
* Dividend record date – the date on which the list of shareholders entitled to receive dividend for a given financial year is determined.
* Dividend payment date – the date on which dividend is paid to the Company’s shareholders.
Brokers’ recommendations on Grupa LOTOS shares
Recommendations on Grupa LOTOS shares are issued by 16 investment houses (including brokerage houses and investment banks):
|Based in Poland||Based abroad|
|DM mBanku||Erste Bank|
|DM BZ WBK||Raiffeisen Centrobank|
|DM BOŚ||Societe Generale|
|DM PKO BP||Wood & Co.|
|Espirito Santo Investment Bank|
|Trigon Dom Maklerski|
To the Company’s knowledge, brokers issued 18 recommendations on the Company shares in 2014:
- 9 BUY recommendations
- 6 HOLD recommendations
- 1 REDUCE recommendation
- 1 SELL recommendation
- 1 NEUTRAL recommendation.
In addition, two brokers initiated coverage of Grupa LOTOS.
* BUY – total expected rate of return will exceed 15% in 12 months
* HOLD – total expected rate of return will be between -5% and +5% in 12 months
* REDUCE − total expected rate of return will be between -5% and -15% in 12 months
* SELL − total expected rate of return will be more than -15% in 12 months
The target price of Grupa LOTOS shares in brokers’ research reports fluctuated from PLN 25.80 to PLN 54.07, compared with PLN 29.50 to PLN 56.30 in 2013. The average target price in 2014 was PLN 37.90 (2013: PLN 37.70).
Grupa LOTOS shares traded within the range from PLN 24.05 to PLN 40.96. The year-end closing price in 2014 was PLN 25.50.
Grupa LOTOS in the RESPECT Index
On November 19th 2009, the Warsaw Stock Exchange launched the first Central and Eastern European index of socially responsible companies − the RESPECT Index (Responsibility, Ecology, Sustainability, Participation, Environment, Community, Transparency). The index was designed to promote responsible management among listed companies and investors, encouraging the development of a socially responsible investment market in Poland.
Grupa LOTOS has been continuously included in the index since its inception, and each of the values included in the ‘RESPECT’ name is reflected in the Company’s everyday business practices.
The RESPECT Index is composed of WSE-listed companies which meet the compliance criteria in the area of corporate governance, information policy and investor communication. This is consistent with global trends, which assume that transparent reporting of environmental, social and corporate governance data positively affects a company’s valuation.
As of the beginning of 2014, the rules governing admission to the RESPECT Index and the frequency of surveys have changed. At present, the verification process covers three areas − environmental, social and governance, and the index is updated once a year. The RESPECT Index constituents are chosen from among the largest companies listed in the WIG30, mWIG40 and sWIG80 indices, but in its new form, the Index is also open to foreign companies.
The Company’s responsible approach to business and policies based on ethical values allow Grupa LOTOS to gain the trust of its neighbours, customers, trading partners and shareholders. For our stakeholders, continued presence in the prestigious RESPECT Index is proof that Grupa LOTOS operates in compliance with the highest standards and minimises investment risk.
Areas reviewed in the RESPECT Index qualification process:
In 2014, Grupa LOTOS underwent an external review of compliance with the index’s criteria. Since December 18th 2014, we have been included in the 8th RESPECT Index, which is composed of a record-breaking number of 24 companies.