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ORLEN Group 2016 Integrated Report

II nagroda specjalna w kategorii Raport Zintegrowany | Najlepszy raport on-line

Strategy implementation in 2014-2016

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With PKN ORLEN’s record-breaking performance and all-time high market capitalisation, 2016 was an exceptional year for us. We are very pleased with these results, and motivated to set more and more ambitious targets, as evidenced by the Group’s new strategy announced last year. The primary strategic directions were outlined in response to the global challenges related to alternative energy sources, technological progress and social changes. We intend to further strengthen PKN ORLEN’s market position and pursue key growth-oriented projects. This would not be possible but for our talented and fully committed staff, as well as modern management culture. We will also seek to foster innovation with a view to building a strong competitive position of both PKN ORLEN and the Polish economy in general.

Wojciech Jasiński
President of the Management Board

a) Summary of strategic activities in 2014−2016

Over the past three years, PKN ORLEN has consistently delivered on its strategic objectives, exceeding the annual average LIFO-based EBITDA target for 2014−2017 by PLN 2.3bn, with the actual figure averaging PLN 7.4bn in 2014−2016. The stable financial position allowed the Company to put in motion growth projects and progressively increase dividend payouts, which totalled PLN 2.2bn in 2014−2016. At the same time, the financial ratios were kept at safe levels. The robust financial performance was appreciated by the market – on November 21st 2016 PKN ORLEN for the first time topped the list of the most valuable companies on the Warsaw Stock Exchange.

b) Strategy implementation by segment in 2016

Downstream

  • Record LIFO-based EBITDA: PLN 8.1bn*
  • High volumes of crude processed: 30.1 million tonnes, and high sales volumes: 30.7 million tonnes
  • White products yield at the ORLEN Group at 78% and a nearly 1pp yoy reduction in energy intensity ratio
  • 8.1pp yoy growth of share in the Czech wholesale fuel market following the acquisition of interest in Česká Rafinérská
  • High production potential of the ORLEN Group refineries maintained, despite increased scope of maintenance shutdowns and emergency shut down of the Kralupy refinery
  • Execution of a contract for the construction of a metathesis unit in Płock

* Before impairment of non-current assets: PLN 0.3bn in reversals of impairment losses on Unipetrol’s refining assets.

Retail

  • Record EBITDA: PLN 1.8bn
  • Increase in sales volumes of 2.5% yoy, including 5.6% yoy in Poland and 14.8% yoy in the Czech Republic
  • Improvement in fuel margins in the Polish and German markets
  • Completion of the process to rebrand BLISKA service stations to ORLEN (in the CODO channel)
  • Opening of 133 new catering outlets in Poland and the Czech Republic in 2016
  • Launch of Stop Cafe 2.0, a new catering format

Upstream

  • Increase in total oil and gas reserves (2P) to 114m boe
  • 2016 average output of 13.6 thousand boe/d

 

Downstream
Value of the Downstream sector (refining, petrochemicals, power generation) is created through the extension of the integrated value chain, consistent development of the product portfolio, and an increase in the conversion ratio. A number of development projects are being carried out to increase the competitiveness of the sector. In 2016, Unipetrol started the construction of a new polyethylene unit (PE3) at the Litvínov plant in the Czech Republic; the new unit will be one of Europe’s most advanced facilities of this kind. PKN ORLEN continued to pursue two large power generation projects: construction of the 463 MWe CCGT plant in Włocławek and construction of the 596 MWe CCGT unit in Płock, both aimed to bring benefits from industrial cogeneration. Another milestone in the Downstream sector was the Supervisory Board’s approval of the construction of an advanced metathesis unit in Płock.

Value creation initiatives undertaken in the Downstream sector added to achievement of a LIFO-based EBITDA of PLN 8.1bn in 2016, with a capex of PLN 3.5bn allocated to the sector in 2016.

Retail
Value creation in the Retail segment is achieved through the development of a network of modern CODO service stations, the development of the DOFO channel, as well as growth in fuel sales in the Group’s home markets (Poland, the Czech Republic, Lithuania, Germany) and higher non-fuel sales. By the end of 2016, the ORLEN Group operated a network of 2,726 service stations, which posted a 2.5% year-on-year increase in sales volumes.

A range of initiatives were undertaken in the Retail segment, including the launch of new products and services and the implementation of a new catering format called Stop Cafe 2.0. In the Czech Republic, further growth was observed in fuel sales volumes (incorporation of 20 out of the 68 stations acquired from OMV in 2015), as well as in non-fuel sales (37 new Stop Cafe outlets).

Value creation initiatives in the Retail segment contributed to the segment’s EBITDA of PLN 1.8bn. The Capex allocated to the segment amounted to PLN 0.5bn.

Upstream
In 2016, the ORLEN Group continued to restructure its portfolio of assets in Poland, this process included the acquisition of new areas for exploration (Poręba – Tarnawa licence, Skołyszyn licence, Edge area) and the abandonment of less promising licence areas (further exploration work to focus only on selected areas of Lublin Shale, Karbon, Mid Poland Unconventionals, and Karpaty projects).

Furthermore, the ORLEN Group, via its subsidiary ORLEN Upstream Canada, conducts production operations in the Alberta province in Canada, using horizontal drilling and hydraulic fracturing technologies. In 2016, a gas treatment system was placed in service in the Ferrier/Strachan area. The ORLEN Group also holds production assets in New Brunswick and a share in a project to construct the Goldboro LNG terminal.

The ORLEN Group has oil and gas 2P reserves totalling 114m boe, and its average daily output in 2016 was 13,600 boe, with the average daily production in Q4 2016 reaching 13,900 boe.

c) Key success factors of the 2014–2017 strategy

  Unit Actual performance in 2014 Actual performance in 2015 Actual performance in 2016
Financial KPIs        
LIFO-based EBITDA (before impairment losses) PLNbn 5,2 8,7 9,4
Downstream PLNbn 4,2 7,8 8,1
Retail PLNbn 1,4 1,5 1,8
Upstream PLNbn 0,2 0.0 0,3
Financial leverage % 33.0 28,1 11,5
Net debt/EBITDA LIFO (before impairment losses) X 1,29 0.73 0,35
KPIs − DOWNSTREAM        
Share of Polish fuel market1 % 61 58 55
Refining capacity utilisation % 84 90 86
Olefins production capacity utilisation % 83 74 47
Crude processing at the ORLEN Group million tonnes 27,3 30,9 30,1
Fuel yield at PKN ORLEN % 76,9 79.0 79.0
KPIs − RETAIL        
Share of fuel sales in home markets1 % 14,4 14,5 14,7
Sales per service station million litres 3,8 3,6 3,8
Number of service stations effectively in operation1 x 2 566 2 612 2 673
KPIs − UPSTREAM        
Hydrocarbon production million boe/year 2,1 2.6 5.0
Hydrocarbon reserves million boe 50 98 114
Number of new wells (net share) x 24,7 12.6 18.1
  1) Data as at the end of the period.

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