Letter from the Chairman of the Supervisory Board

Ladies and Gentlemen,

Throughout the past year PKN ORLEN was consistently pursuing its adopted strategy, which was a source of value creation and competitive advantages. The Group was developing and growing its petrochemical production, further integrating its refinery assets and getting involved in low-carbon power generation projects. Strong focus was also placed on expanding the retail business and continued engagement in upstream projects. Importantly, the pace of R&D and implementation work, supporting all areas of the Group’s business, was accelerated. Pursuing these ambitious tasks, PKN ORLEN managed to keep all its financial ratios at safe levels.

Attesting to the Group’s robust financial condition were the performance figures it posted in 2019. LIFO-based EBITDA came in at PLN 9.4bn, an increase of PLN 1.1bn year on year. The result was achieved on record-high crude oil throughput of 33.9m tonnes and record-high sales at 43.2m tonnes. LIFO-based EBITDA delivered by the retail and power generation segments was at an all-time high in 2019, at over PLN 3bn and PLN 1.6bn, respectively. The Group’s net profit reached PLN 4.5bn, while its net debt was reduced by PLN 3.2bn, to PLN 2.4bn at the year’s end. Leverage remained safe at 6.3%. Resting firmly on a sound financial footing, PKN ORLEN was not only able to run a number of important projects, but also to attract more retail shareholders and develop the ORLEN IN YOUR PORTFOLIO scheme.

Crucial business decisions and investments made last year are set to drive PKN ORLEN’s vigorous growth over the coming decades. The primary goal is to turn the Group into a strong multi-utility player with an established international position, resilient to changing macroeconomic factors. This will benefit both PKN ORLEN’s Shareholders and Customers, providing a significant boost to the Polish economy. This is why it was so important to embark on a process to acquire control of the LOTOS Group and announce a tender offer for 100% of shares in the ENERGA Group, the latter transaction having been successfully completed in April 2020.

Another equally important initiative was a series of key investment projects spanning the Group’s strategic business areas, such as petrochemicals, oil refining and power generation, including from low-carbon sources. Within the next several years, PKN ORLEN wants to become a leading producer of clean energy, which is increasingly in demand. To this end, last year the Group was engaged in a project to build offshore wind farms with a maximum capacity of up to 1.2 GWe, as well as a photovoltaic farm located in Włocławek.

Also, another milestone was reached in its strategic Petrochemical Development Programme, designed to bring a capacity addition of at least 30 per cent. Under the prevailing macroeconomic conditions, EBITDA is expected to grow by some PLN 1.5bn annually after the project is completed.

Aware of the future role of hydrogen as a major transport fuel, PKN ORLEN is stepping up work on alternative fuels, solidifying its leading position on this demanding market. In the second half of 2019, the Company signed a letter of intent with the Metropolitan Association of Upper Silesia and Dąbrowa Basin for cooperation in the development of a zero-emission hydrogen-powered public transport service. Moreover, an agreement for cooperation in the development of zero-emission freight transport was concluded with Pesa Bydgoszcz. This year, PKN ORLEN is continuing such activities, having signed a letter of intent for cooperation with the Municipality of Płock, as well as with the public utility Krakowski Holding Komunalny and Miejskie Przedsiębiorstwo Komunikacyjne of Kraków. In these two cities, the Group will be developing hydrogen-powered zero-emission public transport. In addition, a hydrogen hub is to be built in Włocławek, followed by a similar project in Płock. At the same time, a hydrogen purification unit is being built at the ORLEN Group’s biorefinery in Trzebinia.

In 2019, PKN ORLEN’s efforts were additionally focused on diversification of crude oil supplies, which helped significantly enhance Poland’s overall energy security. Further diversification of crude supply sources for the Płock refinery was an effect of business relationships forged with oil producers from outside Europe, including Africa and the Persian Gulf.

One of the priorities was also to strengthen the ORLEN Group companies. For example, ORLEN Południe is being transformed into an advanced biorefinery. As part of these efforts, a project to build Poland’s first unit for the production of propylene glycol was launched last year at the Trzebinia-based plant. ORLEN Południe also signed an agreement to purchase a licence and front-end engineering design for a 2G bioethanol production unit in Jedlicze. Another Group company ANWIL commenced the construction of two out of three nitrogen fertilizer units in 2019.

The Company also took up initiatives designed to further strengthen the position and recognition of the ORLEN brand abroad. To this end, a cobranding strategy was implemented to standardise the service station chain image on foreign markets by adding the ORLEN Group logotype to the local brands (Star in Germany and Benzina in the Czech Republic and in Slovakia). In addition, a project was commenced to build a pilot station near Berlin under a single brand name of ORLEN, which was opened in 2020. The cobranding process was supported by the Company’s involvement in Formula 1 and sponsorship of Robert Kubica. The racing driver’s participation in its promotional campaign contributed to the retail segment’s record performance in 2019.

This year, PKN ORLEN is making further progress on its major growth projects, crucial for the Group’s future. I am confident the coming months will see further initiatives, translating into even better results of the ORLEN Group and benefits for the Shareholders.

Wojciech Jasiński
Chairman of the Supervisory Board

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