PKN ORLEN Group – company overview
March 2011
1 Agenda
Company overview
Key segments
New businesses entry
Summary
2 Leading refining & petchem company operating in the biggest market in CEE
PKN ORLEN – POLISH KEY PLAYER IN CEE LEADING DOWNSTREAM COMPANY Strategically located on key pipeline network. Access to the crude oil terminals in Gdańsk (Poland) and Butinge (Lithuania). Operates 7 refineries in Poland, Lithuania and the Czech Republic, including the largest and highly advanced one. Capable of processing in all refineries any kind of crude oil . Currently the most economic is REBCO. Petrochemical assets fully integrated with the refining operations. Operates ca. 2 600 retail sites in Poland, Czech Republic, Germany and Lithuania.
SHAREHOLDERS STRUCTURE KEY FACTS
State Treasury PRODUCTION: Refining ca. 30.0 mt/y 27,52% Petrochemical ca. 3.5 mt/y
FINANCIALS IN YEAR 2010: 72,48% Revenues PLN 83.5 bn Free float EBITDA PLN 5.5 bn Net profit PLN 2.5 bn
3 The strategy for 2009 2013 assumes further core business development, divestment of non core assets and entry into new attractive business areas
Main objectives of PKN ORLEN Group Priorities
Debt Release of capital employed through reduction working capital optimisation, assets 2009 – 2010 disinvestment in chemical and telecom segments, solving the issue of obligatory Preparation for further reserves growth : actions to improve financial performance, increase Efficiency Efficiency improvement as well as efficiency, reduce debt 2011 – 2013 improvement development and extension of the and finalize investments in and key value chain in core areas of activity core areas of activity investment s refining, retail and petrochemical Further efficiency of execution segments core assets, investments in new segments in order Entry into to increase the Diversification of activities , new strengthening the Group by limiting company value business areas the downstream contribution to the business
4 Agenda
Company overview
Key segments
New businesses entry
Summary
5 Refining segment
ASSETS NELSON COMPLEXITY
Supersite (Plock)
Gold Mazeikiu (10.2; 10.3) Silver (MN, Litvinov)
Bronze (Kralupy)
Niche Plock Litvinov (5.5, 7.0) (15.1; 9.5) Trader
Trzebinia (0.5) Speciality (Paramo) Kralupy (3.4; 8.1) Jedlicze (0.1) Closure Candidate Paramo (1.0) N/A (Trzebinia, Jedlicze)
Refinery (production capacity mt /y; Nelson complexity index) Refinery classification according to Wood Mackenzie (2007)
KEY FACTS PKN ORLEN processing capacity: ca. 30 mt/y (Plock plant in Poland – 15.1 mt/y, Unipetrol – 5.3 mt/y and ORLEN Lietuva – 10.2 mt/y). Market share*: gasoline (PL: 65%, CZ: 35%, LT: 79%) and diesel (PL: 60%, CZ: 28%, LT: 84%). Nelson complexity index: Plock 9.5, Kralupy 8.1, Litvinov 7.0, ORLEN Lietuva 10.3. Refinery flexibility to process many kinds of crude oil. Fuel production in line with 2009 Euro standards in all refineries.
* As of 31.12.2010
6 Petrochemical segment
ASSETS CORE BUSINESS – GROWTH DRIVERS
Strengthening position through full PX/PTA integration with refinery. Investments in world class assets. Polyolefins Building regional leader position. NON STRATEGIC BUSINESS EXIT Limited synergies with refining activity. PVC Release of capital employed through Anwil sale. Fertilizers
KEY FACTS PKN ORLEN production capacity: ca. 3.5 mt/y (Plock 1.9 mt/y, Unipetrol 1.6 mt/y). Full integration of petrochemical assets with refining facilities. Depending on the product we have between 40% to 100% of market share in domestic consumption. Polyolefins sales within Basell network. PX/PTA technological start up is pending (start of products sales in 2q2011). Planned capacities: 400 kt and 600 kt respectively.
7 Retail segment
ASSETS OPERATING DATA 2008 2009 2010 EBIT PLN m 6% 641 880 825
Sales volumes + 5% th t 6 229 6 713 7 025
KEY FACTS
Biggest retail network (no of filling stations)*: Poland 1714, Germany 515, Czech Republic 337, Lithuania 35. Market share*: Poland 32%, Czech Republic 14%, Lithuania 4% and Northern Germany 9%. Two tier branding strategy (premium and economy) „FLOTA POLSKA” & DKV/ORLEN fleet card for corporate customers; and „VITAY” loyalty card for individual customers – ca. 8 m participants*
* As of 31.12.2010
8 Agenda
Company overview
Key segments
New businesses entry
Summary
9 „Multi utility” is a foundation for further PKN ORLEN’s value growth
Strategic rationales Concept of „multi utility”
PKN ORLEN faces serious barriers for the further dynamic growth in the oil sector... Upstream (E&P) New The dynamic growth through acquisitions and segments geographic expansion in 2002 2006 Electric power Focus on organic development and efficiency generation improvement Strong competitive pressure and high volatility in Refining margins
…hence the perceived growth opportunities in Petrochemicals Current PKN the new areas of growth… ORLEN’s Higher profitability areas of Logistics Stable cash flows activities Strong competitive pressure and high volatility in Sales of fuel and margins petrochemicals Operational synergies and diversification of activities PKN ORLEN’s security Integrated fuel energy company
10 Growth of PKN ORLEN in upstream segment is based on three pillars
Regional Organic and Cooperation with focus inorganic growth partners
Limitation of (mostly geopolitical) risks Gradual development of diversified Opportunity for rapid growth of Building capabilities in stable assets portfolio know how and competencies environment Acquisition of mainly minority equity Participation in existing projects, Targets Adjustment of activities to the stakes including cooperation with external available budget partners
Central and Eastern Europe Current exploration and production North Africa (?) projects
Examples North America
Limitation of Focus on most project risk prospective assets
11 At present, PKN ORLEN is involved in a relatively small number of E&P projects and of limited risk, but the project portfolio is to grow
Description of selected projects Shale gas exploration licenses
1 Off shore project on Baltic shelf (Latvia) on one of the biggest oil fields in the Baltic Sea Large hydrocarbon reserves: 250m bbl Project is being realized in cooperation with a Middle East partner the biggest private E&P company from Kuwait 2 On shore E&P project in Poland (Lublin area) of exploration activities conducted by the biggest oil companies: Chevron and ExxonMobil
On shore E&P project in Poland (Sieraków area) JV with PGNiG 3 The most prospective exploration area in Poland, next to the largest discovered reserves of oil and gas in Poland Exploitable resources up to 26m bbl KAMBR project 4 Shale gas exploration project in Poland Five exploration licenses secured by PKN ORLEN in the most prospective areas (Lublin province and the southern part of Mazovia) PKN ORLEN aims to engage with an experienced partner for further exploration (letters of intent already signed with about 15 companies) Wood Mackenzie’s estimations of 1.36 trillion m 3 of unconventional gas stretching across northern and central Poland (Poland’s annual gas consumption is 14 bn m 3, 72% of gas imported)
12 Building new segments
UPSTREAM PROJECTS ENERGY Latvian shelf – work out data from exploration gathered so Advanced preparation of investment in Włocławek, final far. decision to make in 3q 2011 The drill is planned at the turn of 2011/2012. Process of the power plant builder selection is in Polish lowland – exploratory drill has been started. progress. Next 2 appraisal drills are planned at the turn of We have the environmental decision and agreement for 2011/2012. connection to the energy network. Lublin region – seismic and hole data integration is finished. Decision about the selection of the contractor to be made at the turn of 3/4q2011. Data analysis and choice of drills’ locations is in progress. Start up of building in Włocławek in 2012. The drill is planned in the 2 half 2011 and next one in 1H2012. Start up in 2014, investment at the level of PLN 1,5 billion.
Shale gas – seismic works are started. First analysis findings in mid 2011. Drills planned in 2H2011.
13 PKN ORLEN is developing Energy segment through engagement in new projects and efficiency increase of existing assets
Implementation of strategy
Involvement in new projects in the energy sector through co participation in the construction of new generating units A construction of a new gas fueled power plant Strategy’s directions in Włocławek (460 MW) Potentially other unit in Płock Achieving maximum synergies with refining part Efficiency improvement of existing assets thanks to optimization of current activities Assurance of energy safety of PKN ORLEN Investment program in power plant in Płock (~1 bn PLN), which will improve efficiency, meet Infrastructure adaptation to more environmental standards (emitted emissions are stringent environmental to be reduced by ~ 90%), lead to the increase in requirements power capacities (up till 2017 planned 20% Modernization of current increase in electricity production capacities and infrastructure for further 7% in thermal power) and balance the needs of PKN ORLEN development of energy activity Restructurization and modernization of energy assets in Unipetrol Optimalization of repairs in other foreign assests
14 Agenda
Company overview
Key segments
New businesses entry
Summary
15 PKN ORLEN is an attractive investment
STRENGTHS DEVELOPMENT OPPORTUNITIES
Attractive market of new EU countries with growth Efficiency improvements through operational potential . excellence and integration of assets. Leading position in the Central and Eastern EU Further development in the core business and region in the downstream refining and value chain extension. petrochemical . Release of capital employed through the sale of World class refinery assets integrated with non core assets. petrochemical business . Development of new segments through The largest retail network . cooperation with sector partners. Strategically located on key pipeline network. Access to the crude oil terminal in Gdańsk (Poland) and Butinge (Lithuania).
We take pole position for further growth
16 Thank You for Your attention
For more information on PKN ORLEN, please contact Investor Relations Department: telephone: + 48 24 256 81 80 fax: + 48 24 367 77 11 e mail: [email protected] www.orlen.pl
17 Agenda
Supporting slides
18 From domestic leader to EU regional player
Domestic Business to 2002 „Internationalization” 2002 2005 Regional Business 2006+
Estonia Estonia Estonia
Latvia Latvia Latvia Lithuania Lithuania Lithuania
Poland Poland Poland Germany Germany Germany
Czech Republic Czech Republic Czech Republic
1999 2002 2006 + Merger of Petrochemia Plock (Polish Expansion into German retail market. Acquisition of Lithuanian refinery Mazeikiu Nafta (renamed in 2009 into largest refinery) with CPN (Polish largest Joint venture with Basell – ORLEN Lietuva). retailer) created PKN. Basell Orlen Polyolefins. IPO of 30% of equity on Warsaw Stock Implementation of segmental Exchange and London Stock Exchange. management. 2005 Introduction of the new brand ORLEN. Implementation of two tier branding Acquisition of majority stake in Unipetrol strategy in retail segment in Poland and (Czech holding). the Czech Republic. 2000 Introduction and start of PKN ORLEN New strategy of PKN ORLEN Group for Second public offer of PKN ORLEN on Retail Sales Development Plan for 2009 2013. WSE and LSE increased free float up to Poland. CAPEX, OPEX, working capital and 72%. Introduction and start of Unipetrol headcount optimization. Partnership Program.
19 Supply Routes Diversification Sea Oil Terminals in Gdansk and Butinge Guarantee Alternative Supply Routes
Sea terminal [capacity] (70) Primorsk [Ca Kirishi 6 Oil pipeline [capacity] 0] Yaroslavi Projected Oil pipeline [Ca 78] (18) Ventspils
[Ca 45] Refinery of PKN ORLEN Group Butinge DRUZHBA (14) [Ca 18] Mazeikiai [Ca 34] Naftoport (10.2; 10.3) Novopolotsk
Refinery (capacity m tonnes p.a.; Rostock (30) (8.3; 7.7)
[ [ Nelson complexity index) Holborn 22] Ca C a (3.8; 6.1) Schwedt Gdansk 25 (10.7; 10.2) (10.5 ; 10.0) ] Harburg 30] [Ca Mozyr DRUZHBA (4.7; 9.6) (15.7; 4.6) Ca 120] [Ca 27] 0] [ Plock [Ca 55] [Ca 8 Leuna (15.1; 9.5) Litvinov ( 5.5 , 7.0) 4] (11.0; 7.1) 3 TrzebiniaJedlicze Ca Kralupy Drogobich [ Ingolstadt (3.4 ; 8.1) (0,5) (0,1) Brody IKL [Ca 10] (3.8; 3.0) [Ca (5.2; 7.5) 2 2 Bratislava DRUZHBA ] Burghausen [Ca 9] [Ca 20] Kremenchug Bayernoil (6.0 ; 12.3) ] Lisichansk (3.5; 7.3) 4 [Ca 9] (17.5;2 3.5) (12.8; 8.0) [Ca 3,5] (8.5; 8.2) Tiszaojvaro a [ Ca 29] Schwechat C
s [ (10.2; 6.2) Duna Petrotel Rafo ADRIA (8.1, 10.6) (2.6 ; 7.6) (3.4; 9.8) Yuzhniy Kherson Rijeka Petrobrazi Odessa(ex 4) (6.7; 3.1) Triest Novi Sad (4.4; 5.7) ADRIA (3.4; 7.3) (3.8; 3.5) Sisak (4.0 ; 4.6) Arpechim (ex 12) (3.9; 4.1) (3.6 ; 7.3) Pancevo Petromidia Novorossiys (4.8; 4.9) (5.1; 7.5) k Neftochim (ex 45) (5.6; 5.8)
Thessaloniki Izmit (3.2; 5.9) (11.5; 6.2) Kirikkale Izmir (5.0; 5.4) Elefsis (10.0; 6.4) Aspropyrgos (4.9; 1.0) (6.6; 8.9) Batman Corinth (1.1; 1.9) (4.9; 12.5)
Source: Oil & Gas Journal, PKN Orlen own calculations, Concawe,Reuters, WMRC, EIA, NEFTE Compass, Transneft.ru
20 Unipetrol – continuation of operating efficiency improvement
ASSETS
e thylene
Litvínov 5.5 mt/y
Kralupy IKL Pardubice Pipeline 3.2 mt/y 1.0 mt/y 10 mt/y
Druzhba Mero Crude oil pipelines pipeline CEPRO production pipelines 9 mt/y CEPRO depots KEY FACTS Ongoing strict cost control, leading to positive free cash flow and similar level of CAPEX as in 2009. Continuation of the long term trend in staff reduction. Steadily growing market share in Czech retail to over 14% from below 10% in 2005. Revival of demand in 2010 is fuelling some optimism to polyolefins, with continuous substitution of traditional materials by plastics.
21 ORLEN Lietuva maximizing the possessed potential
ASSETS
Sea terminal Ventspils (20,0 mt/y) (1 Latvia 4,3 m t/y) Pump station ) /y Illukste t Terminal m 0 (16,4 mt/y) ,, Sea terminal 4 Joniskis Polock (1 Biržai Storage depot Butinge MaOrlenžeiki ų Lietuva (14,0 mt/y) RefineryNafta Crude pipeline KlaipedaKlaipeda Products pipeline (9,0 mt/y) Rail transport Lithuania
KEY FACTS
ORLEN Lietuva manages ca. 500 km of pipelines in the territory of Lithuania (both crude oil and product pipelines). Access to the strategically important crude oil import / export terminal at Butinge. Products supply within Lithuania is managed by use of railway or tankers. The potential product pipeline to Klaipeda would improve logistics of final products. Costs optimization – among others, main turnaround moved to 2011.
22 Relatively low rate of energy consumption per capita and need for new power plants indicates high potential for growth in the energy generation sector Forecast for supply and demand for peak power in Electricity consumption in Europe, 2000 2007 Poland, 2005 2020, GW
Developed PKN ORLEN’s Rest Demand 1 2 countries markets Supply
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30 Electricity consumption Electricity consumption 28 CAGR 2000 2007, % per capita , 2007, ths. KWh 4,1 6,8 26 2,1 3,9 1,5 2,7 24 2005 2010 2015 2020 Currently energy consumption per capita on PKN ORLEN’s market is by ~ 40% lower than in developed countries 1. Forecasts indicate 2 3% increase in the electricity demand in Poland until 2030 p.a. The profitability of the sector is increasing in the result of the expected imbalance between supply and demand 44% of existing power plants in Poland is over 30 years. Old units of 11 15 GW (~30 40% existing capacity) have been planned to be closed. Power capacities increase planned until 2020 of ~20 GW (includes both modernization of existing and construction of new plants). Top Polish energy companies (i.e. PGE, Tauron, Enea, Energa) have announced plans of extensive capital investments into increase of capacities, summing up to ~90 bn PLN Despite the current economic slowdown, an increase in the wholesale electricity prices is expected in the coming years 1) Developed countries comprise: EU 15, Norway, Switzerland and Slovenia. 2) PKN Orlen’s markets comprise: Poland, Czech Republic, Source: EIA, IMF, PKN ORLEN analysis
23 New power plants are mostly required in the northern Poland
Existing and planned generation capacity until 2015 Concentration of generation sources
Cable from Power Plant Gdańsk (Lotos, PGNiG, Energa) Brown coal power stations Sweden (200 MW) Hard coal power stations Planned capacity El. Szczecin (800 1000 MW) Planned LNG terminal El. Opalenie PGE (800 MW) (1600 MW) Dolna Odra Energa PGE ZEDO OstrołękaOstro le ka Włocławek Energa Jamal gas pipeline (1000 MW) PKN ORLEN PAK Płock refinery PAK Northern Poland has a Enea Kozienice historical power deficit . PGE Kozienice (833 MW) Enea PGE Be lchat ów (2000 MW) PGE The current production capacity Bełchatów (1600 MW) PGE Electrabel is concentrated mainly in the Tur(500ów MW) BOT PołaniecPo laniec Tauron south of the country. PGE Opole Tauron Tauron Wola (2000 MW)PKE PKE PGE Turów (400 MW) BlachowniaBlachownia Some of the planned PGEOpole ŁagiszaLagisza Tauron SierszaSiersza (920 MW) HalembaHalemba JaworznoJaworzno Stalowa Wola greenfield capacities are ŁaziskaLaziska EdFRybnik /EnBW located north, near Anwil plant Rybnik CEZ Skawina Rybnik CEZ (900 1000 MW) Skawina in Włocławek. (400 MW) RWE (800 MW)
24 Dividend policy: PKN ORLEN aims to pay dividends equal or higher than 50% of FCFE
Net profit + amortization Reference point for dividend policy – PKN ORLEN investment goals and opportunities:
Debt structure taking into account mergers and adjusting to optimal level acquisitions FCFE allowing for maintaining the optimal capital structure determined by the
Capex following ratios: Covenant: Net Debt/EBITDA max. Net working 3.5 capital change Gearing: Net Debt / Equity of 30% 40%
Dividend payout ratio 1999 2009 Dividend per share 1999 2009 50 3 40,0 40 2,5 2,13 30,0 2 1,62 30 25,1 20,3 1,5 20 15,4 1 0,65 0,14 10 3,3 3,0 0,5 0,12 0,0 0,0 0,0 0,0 0,05 0,05 0 0 0 0 0 0 1999 2001 2003 2005 2007 2009 1999 2001 2003 2005 2007 2009
25 Polkomtel Non core investment of significant value
Shareholders’ structure Dividends
Dividend for the year: Paid in: PLN m 21.83% 24.39% 2006 2007 202 4.99% 2007 2008 245 24.39% 24.39% 2008 2008/09 305 2009 2009/10 137 2010 2010 123 PKN ORLEN Vodafone KGHM Węglokoks PGE
PKN ORLEN has 24.39% stake in Polkomtel as a non core investment. PKN ORLEN’s intention is to dispose all shares h old in Polkomtel. Polish Shareholders, i.e. KGHM Polska Miedz S.A., PKN ORLEN, PGE Polska Grupa Energetyczna S.A. and WĘGLOKOKS S.A. currently hold in total over 75% of registered capital of Polkomtel S.A.
26 Effective execution of two tier branding strategy as a response to market polarization
PKN ORLEN branding strategy
PREMIUM ECONOMICAL Successful rebranding of heritage network of mixed brands into premium ORLEN and Poland economical BLISKA networks.
Market research is to help to determine the final branding strategy. Czech Republic Building a solid foundation for the future development of high quality ORLEN network. Lithuania
Focus on economical STAR network with competitive prices and superior customer service. Germany
27 Disclaimer
This presentation (“Presentation”) has been prepared by PKN ORLEN S.A. (“PKN ORLEN” or “Company”). Neither the Presentation nor any copy hereof may be copied, distributed or delivered directly or indirectly to any person for any purpose without PKN ORLEN’s knowledge and consent. Copying, mailing, distribution or delivery of this Presentation to any person in some jurisdictions may be subject to certain legal restrictions, and persons who may or have received this Presentation should familiarize themselves with any such restrictions and abide by them. Failure to observe such restrictions may be deemed an infringement of applicable laws.
This Presentation contains neither a complete nor a comprehensive financial or commercial analysis of PKN ORLEN and of the PKN ORLEN Group, nor does it present its position or prospects in a complete or comprehensive manner. PKN ORLEN has prepared the Presentation with due care, however certain inconsistencies or omissions might have appeared in it. Therefore it is recommended that any person who intends to undertake any investment decision regarding any security issued by PKN ORLEN or its subsidiaries shall only rely on information released as an official communication by PKN ORLEN in accordance with the legal and regulatory provisions that are binding for PKN ORLEN.
The Presentation, as well as the attached slides and descriptions thereof may and do contain forward looking statements. However, such statements must not be understood as PKN ORLEN’s assurances or projections concerning future expected results of PKN ORLEN or companies of the PKN ORLEN Group. The Presentation is not and shall not be understand as a forecast of future results of PKN ORLEN as well as of the PKN ORLEN Group.
It should be also noted that forward looking statements, including statements relating to expectations regarding the future financial results give no guarantee or assurance that such results will be achieved. The Management Board’s expectations are based on present knowledge, awareness and/or views of PKN ORLEN’s Management Board’s members and are dependent on a number of factors, which may cause that the actual results that will be achieved by PKN ORLEN may differ materially from those discussed in the document. Many such factors are beyond the present knowledge, awareness and/or control of the Company, or cannot be predicted by it.
No warranties or representations can be made as to the comprehensiveness or reliability of the information contained in this Presentation. Neither PKN ORLEN nor its directors, managers, advisers or representatives of such persons shall bear any liability that might arise in connection with any use of this Presentation. Furthermore, no information contained herein constitutes an obligation or representation of PKN ORLEN, its managers or directors, its Shareholders, subsidiary undertakings, advisers or representatives of such persons.
This Presentation was prepared for information purposes only and is neither a purchase or sale offer, nor a solicitation of an offer to purchase or sell any securities or financial instruments or an invitation to participate in any commercial venture. This Presentation is neither an offer nor an invitation to purchase or subscribe for any securities in any jurisdiction and no statements contained herein may serve as a basis for any agreement, commitment or investment decision, or may be relied upon in connection with any agreement, commitment or investment decision.
28 For more information on PKN ORLEN, please contact Investor Relations Department: telephone: + 48 24 256 81 80 fax + 48 24 367 77 11 e mail: [email protected] www.orlen.pl
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