Strong finish to a challenging year for Supply and Trading
In the wake of low margins during the first three quarters of the year, the Supply and Trading segment managed to recover by the end of the year, with a result of SEK 2.5 billion almost reaching its earnings target for 2016. Supply and Trading laid a stable foundation for coming years by raising sales on neighboring markets, optimizing the entire value chain and sharpening its focus on inventory management.
The Supply and Trading segment controls Preem’s entire flow of goods from purchases of crude oil, renewable and other raw materials to the optimization of refinery production and logistics to customers and depots. Supply and Trading also accounts for 80 percent of Preem’s sales, with the majority comprising exports.
Low margins for the first three quarters of the year
The UK is Preem’s largest geographical market after Sweden and will remain important. However, the past trend of substantial gains in European standard diesel sales to the UK was reversed slightly during the year, mainly due to increasing competition from Asia in particular with high volumes at low prices. The volatile price levels of crude oil posed a challenging year for Supply and Trading, and the year was characterized by very low margins in the first three quarters. However, our margins climbed to high levels in the fourth quarter, both due to the world market trend but also to our own optimization efforts. Thanks to the recovery in the fourth quarter, our overall performance met our target for the full year. The results we achieved were driven by several separate factors:
Satisfied customers and employees
This year's customer survey revealed that the customers of Supply and Trading are highly satisfied. We achieved better results compared to last year’s survey on all customer satisfaction index questions, with all indexes exceeding 80, which is a result of more clear-cut customer offerings and close dialogs with customers. Employee satisfaction also reached the highest levels Preem has ever seen, in part as the result of extensive work put into Preem’s values.
New crude oil selections
We tested a number of new crude oil qualities from different parts of the world during the year to create an excellent crude oil mix with greater production profitability. These included imported Iraqi crude oil, which was purchased for the first time in the third quarter of 2016.
Green investment program
An extensive, long-term investment program was initiated at Preem’s depots to raise flexibility, and to enable the handling of greener products and significantly faster product range transitions. This will improve profitability and enhance our capability to provide green fuels.
Interesting outer neighboring markets
Ireland is an interesting region in our outer neighboring market where we increased our sales by nearly 50 percent in comparison to last year. Preem’s flexible customer offering is a good fit for Ireland with its small ports and slightly more complex customer requirements in terms of logistics solutions.
New tanker on long-term charter
Tern Ocean, an LNG vessel for which Preem signed a long-term charter starting in the second quarter of 2017, was christened in 2016. The vessel is the first of its kind in the world to be powered by LNG, a natural gas. This, along with a revolutionary hull design, cuts atmospheric emissions of sulfur by 99 percent, of nitrogen by 97 percent, of carbon dioxide by 40 percent and of particle emissions by 99 percent compared to a conventional vessel.
Continuing growth in 2017
The changing world around us places greater demands on our flexibility, on our refineries and on our logistics, but also on how we develop our customer offering and take it to the next level to even better satisfy the needs of our customers. In the future, we will focus strongly on our performance to further raise customer satisfaction. We see two major challenges for Preem in the future that require much energy and attention:
Securing renewable raw materials and renewable products
The demand for renewable products is rising sharply and two thirds of our Scandinavian customers want Preem to offer renewable products to a greater extent. The most important sustainability question for the segment is thus how we secure procurement of sustainable raw materials for our production facilities, but also procurement of sustainable and traceable finished products that meet our high standards.
Achieving higher value chain efficiency
The second major question we are constantly working to solve is how to raise efficiency and profitability throughout the value chain. This entails constant improvement where we systematically find more efficient solutions in our production and logistics, and especially our customized solutions that add value for customers.