Annual Report Orlen 2019

FUELLING THE FUTURE

Summary of 2019

We stepped up our efforts to build a multi-utility group in 2019. We aspire to become a leader of energy transition in Poland, which means we need to create a strong corporate group with diversified sources of revenue and profit, one that is resilient to risks and market fluctuations. To that end, we continued the process to acquire Grupa LOTOS, which will help us to strengthen our position in international markets and increase our production and investment capacities. Initiated last year, the process to take over the ENERGA Group was completed in April 2020. The transaction will enable more efficient use of the companies’ potential, further growth of their existing business lines, including electromobility, and entry into new business projects, including off-shore wind farms. Our optimisation measures and growth projects contributed to strong financial performance, with our net profit at PLN 4.3bn. We are well prepared for various scenarios. PKN ORLEN’s stable financial position, as confirmed by valuations from international rating agencies, allows us to carry on with acquisitions and strategic projects, such as the Petrochemicals Development Programme, expansion of refinery assets and efforts to strengthen the Group companies.

Daniel
Obajtek CEO, President of the Management Board

Summary of 2019

Through organic growth and acquisitions, we are solidifying PKN ORLEN’s position as a leader in the region’s fuel and energy industry. First of all, we are working to increase the ORLEN Group’s exposure to the prospective petrochemical sector by pursuing our largest ever capex programme (‘Petrochemicals Development’, designed to extend the olefins plant and build a phenol and aromatic derivatives complex), plus a number of projects across the Group, including Polyethylene 3 at Unipetrol, a project to step up fertilizer production at ANWIL and a propylene glycol plant at ORLEN Południe, which will be at the cutting edge of innovation in Europe. As part of the refinery business, our efforts are focused on improving the efficiency of existing assets through the Visbreaking and MaxEne projects, upgrade of the hydrocracker unit at PKN ORLEN, and project to increase the refining conversion rate at ORLEN Lietuva, to name just a few examples.
In parallel with efforts to support the long-term potential of our entire Downstream segment, PKN ORLEN is running the R&D Centre project, scheduled to be launched later this year. Relying on its new R&D facilities, PKN ORLEN will be able to further enhance processes, while developing and implementing its own technologies and solutions, which will deliver measurable financial benefits in the future.

Zbigniew
Leszczyński Member of the Management Board, Development

Summary of 2019

In our production processes, we seek to increase feedstock use efficiency and optimise production, all in order to enhance our competitive advantage in international markets. Last year, our record-high crude oil throughput of 2018 was again exceeded by nearly 500,000 tonnes. We also maintained a high capacity utilisation rate of 96% and reported a significant improvement in fuel yields. We launched the construction of a visbreaker unit under a project that is of key importance to our Płock site, which will effectively respond to the growing demand for high-margin products. We also developed a modern, environmentally-friendly hydrogen production technology. Owing to our investments in renewable energy sources, we are now at an advanced stage of planning for the construction of off-shore wind farms and PV power generation systems. We also joined the effort to advance electromobility in Poland with a project to build an electric vehicle charging network at our service stations. In the coming years, we aim to strengthen our production assets in order to extend the value chain for the benefit of the entire Group, our shareholders and the national economy.

Józef
Węgrecki Member of the Management Board, Operations

Summary of 2019

Last year, we made further progress on a programme to develop our service station network, both in Poland and abroad. In Germany, we have already established a retail presence in all states. We were also preparing to launch our first service station under the ORLEN brand near Berlin, opened in early 2020. We made a successful entry into a new market, Slovakia, with ten stations opened in just the first year.
In all markets, we were working to upgrade our existing retail locations. We increased fuel sales and expanded our non-fuel range, focusing mainly on products of Polish origin.
We sought to grow the share of non-conventional ways of powering cars by upgrading our service station network to sell alternative fuels. As we want our business to be driven by innovation, we were forging links with start-ups and implementing new solutions, including the VR technology for staff training, predictive diagnostics in production and mobile cashier services within the retail network.

Zobacz więcej

Patrycja
Klarecka Member of the Management Board, Retail Sales

Summary of 2019

2019 was another consecutive year with record-high downstream sales figures, with nearly 33m tonnes of refinery and petrochemical products sold across our home markets. Strong cooperation between the production, logistics and sales functions enabled us to smoothly deliver on our trade commitments. We strengthened our relationships with existing customers and actively sought out new sales markets. We stepped up our sales efforts in Poland and in international markets, which generate over 60% of our revenue. Our robust sales performance was underpinned by strong economic growth in Poland and favourable climate on the labour market.

Pokaż

Michał
Róg Member of the Management Board,
Wholesale and International Trade

Summary of 2019

We sought to further mitigate our environmental impact in 2019. We adapted operations to the LVOC BAT conclusions. Our companies are required to take pro-environmental measures in the legal, investment and organisational spheres of its operations. These measures include the deployment of a leakage detection and repair (LDAR) system in our units and facilities. With respect to refining facilities, the first verification measurements were carried out as part of the LDAR system maintenance, confirming high leak tightness of the facilities. Further BAT conclusions, this time for waste incineration, were published late last year. They entail a challenging task of analysing the requirements and making any necessary adjustments.

Zobacz

Armen Konrad
Artwich Member of the Management Board,
Corporate Affairs

Summary of 2019

Despite macro headwinds, we delivered a strong operating performance in 2019, with LIFO-based EBITDA at PLN 9.2bn and net profit at PLN 4.3bn. We consistently exploited the potential of our retail business, which delivered LIFO-based EBITDA at an unprecedented level in excess of PLN 3bn, driven by a 4% growth in sales volumes, higher market shares in Poland, Germany and the Czech Republic, and a mid-teen rise in non-fuel margins. The power generation segment contributed PLN 1.6bn to earnings last year, which demonstrates our plan to build a strong multi-utility group is highly relevant. The Group is on a stable financial footing, as its net debt was reduced by nearly PLN 3.2bn, to PLN 2.4bn, with the financial leverage of 6.3%. PKN ORLEN is committed to sharing profits with shareholders. In 2019 we paid the highest-on-record dividend of PLN 3.5 per share, or almost PLN 1.5bn in total. The Group has a robust financial position, and we think about it in the long term, implementing efforts that will further strengthen our competitive advantage in the future.

Jan
Szewczak Member of the Management Board,
Finance

Summary of 2019

The ORLEN Group is a globally present business. Our products are already available in 116 countries across six continents, with 60% of our revenue generated abroad. This is why we engage in efforts to reinforce the ORLEN brand recognition. We want to fully leverage our potential, but this goal calls for a coherent brand image. Last year, we made a strategic decision to build a single brand internationally. We launched a co-branding process, the first step towards full rebranding of our network. We also adopted global channels for our communication drive. Hence our decision to get involved in Formula 1 and partner as a sponsor with Robert Kubica, the only Polish driver competing in the world’s most high-profile races. This was a good decision, as demonstrated by the benefits it has delivered – in 2019 alone, the TV advertising value equivalent of our brand’s exposure (during F1 races only) was in excess of PLN 173m. Seeking to further enhance the communication of our brand message and its positioning, in 2019 we set up a media house, Sigma BIS, in partnership with PZU, the leading Polish insurer. In line with the global trend of building in-house marketing capabilities, this step has increased the efficiency of our marketing spend and generated tangible savings.

Adam
Burak Member of the Management Board, Communication and Marketing

Daniel
Obajtek CEO, President of the Management Board

Zbigniew
Leszczyński Member of the Management Board, Development

Józef
Węgrecki Member of the Management Board, Operations

Patrycja
Klarecka Member of the Management Board, Retail Sales

Michał
Róg Member of the Management Board,
Wholesale and International Trade

Armen Konrad
Artwich Member of the Management Board,
Corporate Affairs

Jan
Szewczak Member of the Management Board,
Finance

Adam
Burak Member of the Management Board, Communication and Marketing

Key results in 2019

LIFO-based EBITDA

Revenue

We think of the Group’s financial condition in the long term, implementing efforts that will continue to strengthen our competitive advantage in the future. We are investing in modern petrochemical assets, enhancing production efficiency and expanding our retail network across the region. The significant contribution of power generation to PKN ORLEN’s earnings demonstrates that our choice of a path towards building a strong multi-utility group is based on a compelling rationale.

9.2 PLN bn

Operating cash flow

5.5 PLN bn

Capital expenditure including the effect of IFRS 16

>3 PLN bn

Retail’s record-high LIFO-based EBITDA, before impairment of assets

2.4 PLN bn

Net debt

6.3 %

Financial leverage

1.5 PLN bn

Dividend paid
(PLN 3.50 per share)

Record-high oil throughput

Record-high sales volume

2019 saw a number of crucial investment projects and business processes, all geared towards building PKN ORLEN’s long-term value. The metathesis project in Płock and the PPF splitter in Mažeikiai were completed. Work began to expand fertilizer production capacity and build a propylene glycol unit, a licence and front-end engineering design were purchased for the second generation bioethanol unit, progress was made on the Petrochemicals Expansion Programme and the visbreaking unit project was launched. Further steps were taken as part of preparations for the offshore wind project.

>2,800 service stations

CEE’s largest retail network

1.8 GWe

of installed power generation capacity

197.3 million BOE

of total oil and gas reserves (2P)

>50

refining and petrochemical products

> 110

export markets

6 home markets

Poland, Canada, Germany,
Czech Republic, Lithuania, Slovakia

PKN ORLEN employee satisfaction rate

Reduced energy consumption – power generation units

Implementation of best practices in ESG (Environmental, Social and Governance performance) is an integral part of the ORLEN Group’s business strategy. We are committed to providing our Stakeholders with highest-quality products and services while striving to achieve maximum environmental neutrality, energy efficiency and superior security standards.

0.90

Combined Total Recordable Rate (TRR) for employees and contractors

>4,000

employees trained in
anti-corruption practices

corporate foundations

483

projects completed under the Responsible Care Programme since 1997

>2 bn m³

of water reused at the ORLEN Group

700 thousand

beneficiaries of the
‘My Place on Earth’ grant programme dedicated to local communities

How we develop our business

Technological development

Petrochemicals Development Programme
Scheduled for completion in 2023, the Programme involves construction of an aromatic derivatives complex, extension of the olefins plant, expansion of the phenol capacities and construction of the Research and Development Centre. The Programme is valued at ca. PLN 8.3bn.
Investment in infrastructure to produce hydrogen fuel
By the end of 2021, a hydrogen hub will be built in Włocławek, comprising a plant for the production of fuel-cell grade hydrogen, logistics infrastructure, and hydrogen refuelling stations. Similar infrastructure is being built in Płock. The Group is also developing hydrogen technologies at its ORLEN Południe bio-refinery in Trzebinia.
Investment in bio-refining assets
ORLEN Południe is being transformed into a modern bio-refinery. The construction of a plant for making bio propylene glycol in Trzebinia is under way. A licence and front-end engineering design to build a next generation bioethanol unit in Jedlicze have also been purchased.
Construction of a visbreaking unit
The unit will significantly increase the yield of light products: gasoline and diesel oil. As a result, the Płock refinery will be able to achieve higher conversion rates and increase fuel yields per barrel of oil.
Expansion of fertilizer production units
The investment project carried out at ANWIL involves the construction of a nitric acid unit, a unit for the production of ammonium nitrate solution, and a unit for the production of fertilizers based on drum granulation. It will increase by half ANWIL’s fertilizer production capacity.
Offshore wind power generation
PKN ORLEN is well advanced with the process to build offshore wind farms in the Baltic Sea, with a maximum capacity of up to 1,200 MW.

Scheduled for completion in 2023, the Programme involves construction of an aromatic derivatives complex, extension of the olefins plant, expansion of the phenol capacities and construction of the Research and Development Centre. The Programme is valued at ca. PLN 8.3bn.

By the end of 2021, a hydrogen hub will be built in Włocławek, comprising a plant for the production of fuel-cell grade hydrogen, logistics infrastructure, and hydrogen refuelling stations. Similar infrastructure is being built in Płock. The Group is also developing hydrogen technologies at its ORLEN Południe bio-refinery in Trzebinia.

ORLEN Południe is being transformed into a modern bio-refinery. The construction of a plant for making bio propylene glycol in Trzebinia is under way. A licence and front-end engineering design to build a next generation bioethanol unit in Jedlicze have also been purchased.

The unit will significantly increase the yield of light products: gasoline and diesel oil. As a result, the Płock refinery will be able to achieve higher conversion rates and increase fuel yields per barrel of oil.

The investment project carried out at ANWIL involves the construction of a nitric acid unit, a unit for the production of ammonium nitrate solution, and a unit for the production of fertilizers based on drum granulation. It will increase by half ANWIL’s fertilizer production capacity.

PKN ORLEN is well advanced with the process to build offshore wind farms in the Baltic Sea, with a maximum capacity of up to 1,200 MW.

Acquisitions

Energa Group
In 2019, a tender offer was announced by PKN ORLEN to buy up all shares in the Energa Group. The transaction was closed in 2020. The transaction is in line with PKN ORLEN’s strategy to develop into a strong multi-utility player, including through further expansion of its power generation business. The Energa Group owns more than 50 RES generation assets (i.e. more than 30% of the total generation volumes) and a large distribution network spanning northern and central Poland.
LOTOS Group
PKN ORLEN’s acquisition of Grupa Lotos is in line with a wider trend of building consolidated, multi-utility groups across Europe and worldwide. The aim of the transaction is to create a strong player well-placed for international expansion, effectively competing on all markets. If the process is followed through, it would also increase the combined entity’s ability to finance large projects, including investment in zero and low-emission energy sources, such as the planned offshore wind farm development.
RUCH S.A.
PKN ORLEN will acquire a 65% stake in RUCH S.A., becoming its majority shareholder, responsible for the company’s development. In line with its strategy, PKN ORLEN is planning to open retail and food service outlets outside its chain of service stations, as a platform for generating synergies with RUCH. This will bring benefits in an expanded customer base, wider range and availability of products and services, and procurement synergies.

In 2019, a tender offer was announced by PKN ORLEN to buy up all shares in the Energa Group. The transaction was closed in 2020. The transaction is in line with PKN ORLEN’s strategy to develop into a strong multi-utility player, including through further expansion of its power generation business. The Energa Group owns more than 50 RES generation assets (i.e. more than 30% of the total generation volumes) and a large distribution network spanning northern and central Poland.

PKN ORLEN’s acquisition of Grupa Lotos is in line with a wider trend of building consolidated, multi-utility groups across Europe and worldwide. The aim of the transaction is to create a strong player well-placed for international expansion, effectively competing on all markets. If the process is followed through, it would also increase the combined entity’s ability to finance large projects, including investment in zero and low-emission energy sources, such as the planned offshore wind farm development.

PKN ORLEN will acquire a 65% stake in RUCH S.A., becoming its majority shareholder, responsible for the company’s development. In line with its strategy, PKN ORLEN is planning to open retail and food service outlets outside its chain of service stations, as a platform for generating synergies with RUCH. This will bring benefits in an expanded customer base, wider range and availability of products and services, and procurement synergies.

Innovation

Published in 2019, the document defines strategic areas of investment in innovation, new technologies and business models that are key to strengthening the Group’s competitive position until 2030+. The Agenda is a tool which translates the goals of PKN ORLEN’s business strategy into specific areas of research, development and innovation activity.

The key project implemented under the Petrochemicals Development Programme. The R&D Centre in Płock will enable PKN ORLEN to develop and implement its own technologies. Its activities will include testing performed to streamline industrial processes, improve products and optimise costs. The Centre will also serve as a modern platform for cooperation between PKN ORLEN and the world of science and business.

2019 saw the launch of preparations for the construction of a 2G bioethanol production unit at the Jedlicze refinery. The aim of the investment is to strengthen the Group’s position on the biocomponent market and meet the challenges posed by EU regulations requiring Poland to use renewable fuels and biocomponents in transport. The annual capacity of the unit will be 25,000 tonnes of bioethanol, to be made from non-food raw materials (mainly straw).

PKN ORLEN’s development strategy provides, among other things, for preparations to launch sales of alternative fuels. The Group has already commenced a project to build a hydrogen purification unit, which will enable its marketing as a fuel for motor vehicles by 2021. A hydrogen hub will be built in Włocławek. The Group has already signed letters of intent on collaboration in advancing hydrogen-powered public transport services with the Metropolitan Association of Upper Silesia and Dąbrowa Basin, Krakowski Holding Komunalny, Miejskie Przedsiębiorstwo Komunikacyjne of Kraków, and the City of Płock. Also, the Group has signed a letter of intent with PESA Bydgoszcz to develop a hydrogen-powered locomotive.

Expansion of the service station chain

Co-branding and entry into the Slovak market
In 2019, PKN ORLEN, as the largest business in the CEE region and owner of the most valuable Polish brand, embarked on a co-branding process assuming the presence of local brands: Benzina (in the Czech Republic and Slovakia) and Star (in Germany) in combination with the ORLEN Group logo. To raise awareness of the ORLEN brand, the combined logotypes have been displayed on fuel pumps, price totems, and screens inside the service stations. The ORLEN Group’s retail network expanded also into Slovakia, with ten service stations operating on that market at the end of 2019.
Alternative fuels
PKN ORLEN is implementing a project to construct EV charging stations. The Group’s range of 39 fast charging stations for electric vehicles (as at the end of 2019) across Poland and chargers at 18 Benzina stations in the Czech Republic was expanded in 2019 to include our German service stations in Berlin, Hamburg and Lübeck. The ORLEN chain also sells other types of alternative fuels. Our service stations in Germany have two refuelling stations for hydrogen-powered cars. In addition, 42 ORLEN stations in the Czech Republic sell CNG.
ORLEN’s presence in Formula 1
In 2019, PKN ORLEN entered the most exclusive motor sports discipline – Formula 1, becoming a sponsor of the Rokit Williams Racing team. The car was driven by Robert Kubica, the only Polish driver in F1. The Company’s decision to sponsor this sports discipline was prompted by its strong foreign expansion, the need to support international recognition of the ORLEN brand and the co-branding of its service stations in the Czech Republic and Germany. In 2020, the Company signed a new sponsorship agreement with the Alfa Romeo Racing ORLEN team.

In 2019, PKN ORLEN, as the largest business in the CEE region and owner of the most valuable Polish brand, embarked on a co-branding process assuming the presence of local brands: Benzina (in the Czech Republic and Slovakia) and Star (in Germany) in combination with the ORLEN Group logo. To raise awareness of the ORLEN brand, the combined logotypes have been displayed on fuel pumps, price totems, and screens inside the service stations. The ORLEN Group’s retail network expanded also into Slovakia, with ten service stations operating on that market at the end of 2019.

PKN ORLEN is implementing a project to construct EV charging stations. The Group’s range of 39 fast charging stations for electric vehicles (as at the end of 2019) across Poland and chargers at 18 Benzina stations in the Czech Republic was expanded in 2019 to include our German service stations in Berlin, Hamburg and Lübeck. The ORLEN chain also sells other types of alternative fuels. Our service stations in Germany have two refuelling stations for hydrogen-powered cars. In addition, 42 ORLEN stations in the Czech Republic sell CNG.

In 2019, PKN ORLEN entered the most exclusive motor sports discipline – Formula 1, becoming a sponsor of the Rokit Williams Racing team. The car was driven by Robert Kubica, the only Polish driver in F1. The Company’s decision to sponsor this sports discipline was prompted by its strong foreign expansion, the need to support international recognition of the ORLEN brand and the co-branding of its service stations in the Czech Republic and Germany. In 2020, the Company signed a new sponsorship agreement with the Alfa Romeo Racing ORLEN team.

Headed for Responsibility

Society

We support the development of local communities, counteract social exclusion and engage in initiatives designed to ensure equal opportunities. We are committed to safety and protection of human health; we cultivate national heritage.

More than 500

scholarships awarded by the ORLEN Foundation

More than 10,000

medical consultations and examinations under the ‘Health City’ campaign

800

employees participating in employee volunteering projects

Environment

We optimise our environmental impact, protect biodiversity and raise the environmental awareness of our employees and stakeholders.

More than 1.5 million

bees live in bee-hives located in the vicinity of our plants

117

peregrine falcons hatched on the premises of our plants

Nearly 8,000

fish stocked into rivers

Employees

We ensure safe and fair working conditions and eliminate inequalities. We foster employee development and help our employees successfully combine their personal, career and social goals.

More than 22,000

ORLEN Group employees

8.9%

Employee turnover at the ORLEN Group

The TOP Employer Polska and the World’s Most Ethical Company titles

Customers

We are committed to their safety and health, respond to their expectations, work to improve the accessibility of our facilities, and inspire them to act responsibly.

More than 1,300

ORLEN service stations feature facilities for the disabled

Over 45 million

Vitay programme and Yanosik application points donated by customers for social causes

Fairtrade-certified coffee available at over 1,600

Stop Cafe outlets within the ORLEN retail chain

Business partners

We seek to instil responsibility in, forge stronger ties with, and promote responsible attitudes among our business partners.

25,000

ORLEN Group suppliers

100%

All of our suppliers declare compliance with the ‘PKN ORLEN Supplier Code of Conduct’

More than 3,000

participants of the ‘ORLEN in Your Portfolio’ scheme

FUELLING THE FUTURE

Summary of 2019

Summary of 2019

Summary of 2019

Summary of 2019

Summary of 2019

Summary of 2019

Summary of 2019

Summary of 2019

Key results in 2019

How we develop our business

Headed for Responsibility

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