Lotos Profit Exceeds Estimates on Financial Gains

(Bloomberg) -- Grupa Lotos SA, Poland’s second- largest oil refiner, reported better-than-estimated profit in the fourth quarter as gains from financial operations offset negative market conditions.

Net income was 223.6 million zloty ($76.9 million), compared with a record loss of 882 million zloty a year earlier, the Gdansk, Poland-based company said in a regulatory statement today. That compares with the 126 million-zloty median estimate of six analysts surveyed by Bloomberg.

“Lotos showed mixed results” with “poor quality,” due to negative market conditions, “distorted by massive one- offs,” Pawel Burzynski, an analyst at Bank Zachodni WBK SA, wrote in a note today. “Regardless of the extremely poor refining macro conditions in the fourth quarter Lotos bridged the profitability gap by higher volumes.”

Profit from financial operations reached 151.4 million zloty. The value of Lotos’s foreign borrowing fell after the Polish currency strengthened against the dollar and the company reversed some provisions in its Energobaltic unit, generating a one-time gain.

Earnings before interest and taxes, or Ebit, were 86.2 million zloty, compared with a loss of 665.4 million zloty in 2008, missing analysts’ estimates of 145 million zloty. The figure was reduced by a 25 million-zloty provision for a possible dry well. Profit was buoyed by oil prices, which rose during the quarter, increasing the value of fuel in the company’s storage tanks.

Ebit Forecast

Ebit for the first quarter this year may be similar to the 111 million zloty the company would have reported for the fourth quarter without the writedown, Chief Financial Officer Mariusz Machajewski told reporters in Warsaw.

Sales rose to 4.02 billion zloty from 3.75 billion zloty in 2008, and were lower than the 4.25 billion-zloty median estimate. Volume sales rose 3 percent to 2.07 million tons as the refining margin shrank 87 percent to $0.93 a barrel, Lotos said.

Lotos’s shares fell 1.5 percent to 26.8 zloty at 2:23 p.m. in Warsaw trading today. The benchmark WIG20 Index lost 0.6 percent.

Lotos’s record loss in the last quarter of 2008 was caused by plunging oil prices and a drop in the zloty that raised the value of its dollar-denominated loans. PKN Orlen SA is Poland’s largest oil refiner.