PKN ORLEN Capital Group
December 2012
1 Agenda
} PKN ORLEN – history and growth strategy
Refining / Petrochemical / Retail – core business
Upstream / Energy – growth segments
Summary
2 From domestic leader to international 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 + } PKN was created as a merger of } Expansion into German retail market. } Acquisition of Lithuanian refinery - Mazeikiu Nafta (from 2009 ORLEN Lietuva). Petrochemia Plock (Polish largest } Joint venture with Basell Orlen refinery) with CPN (Polish largest Polyolefins. } Implementation of segmental management. retailer). } Implementation of two-tier branding } IPO on Warsaw Stock Exchange and strategy in retail in Poland and the Czech London Stock Exchange - 30% equity. Republic. 2005 } Introduction of the new brand ORLEN. } CAPEX, OPEX, working capital and } Acquisition of majority stake in Unipetrol headcount optimization. (Czech holding). 2000 } Launch of petrochemical PX/PTA complex. } Implemantaion of PKN ORLEN Retail } Strategy of ORLEN Capital Group for 2013- } Second public offering on WSE and Sales Development Plan for Poland. LSE increasing free float up to 72%. 2017.
3 Leading refining & petchem company operating in the biggest market in CEE
PKN ORLEN – POLISH KEY PLAYER IN CEE LEADING DOWNSTREAM COMPANY
} Strategic location: on key pipeline network with an access to the crude oil sea terminals in Gdańsk (Poland) and Butinge (Lithuania). } 7 refineries: Poland (the largest and highly advanced in Plock), Lithuania and the Czech Republic. } Processing REBCO crude oil (the most economic), but capable to process any kind of crude oil in all refineries. } Petrochemical assets fully integrated with the refining. } Ca. 2 700 filling stations: Poland, the Czech Republic, Germany and Lithuania.
SHAREHOLDERS STRUCTURE KEY DATA
State Treasury OPERATIONAL (mt/y): } Throughputcapacity ca. 31.0 27,52% } Petrochemical production ca. 6.5
FINANCIAL (PLNbn): 2010 2011 9M12 } Revenues 83.5 107.0 88.9 72,48% Free float } EBITDA 5.5 4.4 4.4 } EBIT 3.1 2.1 2.7 } Net profit 2.5 2.0 2.6
4 PKN ORLEN vision
Upstream
Energy
Downstream
PKN ORLEN in 2008… … 2012… … 2017… … and in 2022
5 Pillars of PKN ORLEN strategy 2013 - 2017
Shareholders Value creation
up to 5% over 40%
Systematic dividend yield increase Cash flow from operations increase*
Financial standing
below 30%
Maintaining gearing at safe level ORLEN. Fuelling the future.
*Increase in average cash flow from operations in 2013-2017 comparing to 2008-2012
6 Agenda
PKN ORLEN – history and growth strategy
} Refining / Petrochemical / Retail – core business
Upstream / Energy – growth segments
Summary
7 Refining
HIGH-CLASS ASSETS COMPETITIVE ADVANTAGES ‹ Refinery in Plock classified as a super-site (acc. to WoodMackenzie) considering the volume and depth of processing, integration with petrochemical operations.
‹ Modernized refining assets in Lithuania and in Litvinov.
‹ Prepared for regulatory and market trends changes thanks to investment projects execution.
KEY DATA UTILISATION RATIO % ‹ Processing capacity: 31.0 mt/y (Plock refinery – 16.3 mt/y, ORLEN Lietuva – 10.2 mt/y, Unipetrol – 4.5 mt/y). 96 88 89 ‹ Market share*: gasoline (PL: 60%, CZ: 37%, LT: 91%) ; diesel (PL: 54%, CZ: 31%, LT: 95%).
‹ Flexibility to process many kinds of crude oil. Ca. 90% of processed crude oil in 2011 was REBCO.
‹ Fuel production in line with 2009 Euro standards in all refineries.
2010 2011 9M12 * Data as of 30.09.2012
8 Petrochemical
INTEGRATED ASSETS COMPETITIVE ADVANTAGES ‹ The largest petrochemical company in Central Europe*.
‹ New units, including PX/ PTA, polyolefins, butadiene.
‹ Integration with refinery giving a good position on the cost curve.
KEY DATA ANWIL – CHEMICAL COMPANY ‹ PKN ORLEN production capacity: 6.5 mt/y (Plock – 3.1 mt/y, Unipetrol – 3.4 mt/y).
‹ Depending on the product we have 40% up to 100% market share in domestic consumption. ‹ Fertilizers and PVC producer. ‹ Polyolefins sales within Basell network. ‹ PKN ORLEN S.A. has 100% stake in Anwil S.A. ‹ Launch in 2Q11 the most advanced in Europe petrochemical complex PX/PTA with 600 kt/y of PTA production capacity. ‹ Limited synergies with refining activity. ‹ Analysis of potential business lines split.
* Poland, Lithuania, the Czech Republic
9 Retail
ASSETS COMPETITIVE ADVANTAGES ‹ The largest retail network ~2 700 of fuel stations in Central Europe. ‹ Leader on the retail market in Poland , strong position in the Czech Republic and regionally in Germany. ‹ ORLEN brand – strong, recognizable and the most valuable in Poland (PLN 3,8 bn). ‹ Successful rebranding of fuel stations strengthening increase of market share. ‹ Implementation of modern concept of Stop Cafe and Bistro Cafe. ‹ Confirmed by consumer research the highest quality of service among fuel stations customers in Poland in 2012. KEY DATA EBIT (PLN m) Market share (%) - 47% ‹ No of filling stations*: Poland - 1759, Germany - 566, the Czech Germany Czech Rep. Republic - 335, Lithuania - 35. 825 Lithuania Poland 439 550 6 ‹ Market share*: Poland - 34%, the Czech Republic - 13%, Lithuania - 5 5 4 4 4 4%, Germany - 6%. 2010 2011 9M12 14 14 13 ‹ The largest group of loyal customers in Poland - 2,5 m of active Sales volumes (kt) customers VITAY and FLOTA programs. + 5% 31 32 34 7 025 7 345 5 600
* Data as of 30.09.2012 2010 2011 9M12 2010 2011 9M12
10 Agenda
PKN ORLEN – history and growth strategy
Refining / Petrochemical / Retail – core business
} Upstream / Energy – growth segments
Summary
11 „Multi-utility” is a foundation for further PKN ORLEN 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 Petrochemicals Current PKN in the new areas of growth… ORLEN’s } Higher profitability areas of Logistics } Stable cash flows activities } Operational synergies and diversification of activities Sales of fuel and } PKN ORLEN’s security petrochemicals
Integrated fuel - energy company
12 UPSTREAM Conventional and unconventional projects
ASSETS COMPETITIVE ADVANTAGES ‹ Organic projects in exploration phase. ‹ Stable geopolitical regions: focus on Central Europe and optionally North America. ‹ Potential strategic partnerships. ‹ Access to production assets through optional M&A projects. ‹ Advanced unconventional gas project on ‘Lublin Shale’ concessions.
KEY DATA ‹ 10 unconventional gas concessions on the area of ca. 9 th km2 Status of projects: ‹4 wells completed (3 vertical and 1 horizontal) ‹Next horizontal one in progress. 101010 999 ‹ 3 conventional projects (crude oil and gas) in Poland and Latvia (off-shore). Status of projects: ‹1 appraisal drill completed (Polish Lowland).
* Data as of 30.09.2012
13 ENERGY New projects and improvement of efficiency of held assets
ASSETS COMPETITIVE ADVANTAGES ‹ Power plant in Plock (345 MW, 1970 MWt) – the biggest industrial block in Poland. ‹ Heating oil, refining gas and natural gas - fuels used for energy and heat production in Plock and Wloclawek plants. ‹ PKN ORLEN the biggest gas consumer in Poland and active participant for natural gas market liberalization. ‹ Favorable perspectives for energy market eg. increase of electricity demand not addressed by new projects, increasing supply-demand gap resulting from closures of old units and low- emission of gas.
KEY DATA Building a gas fired power plant 463MWe in Wloclawek Plans for blocks closures # block as a % of total, 2012-2040 ‹ Start-up in 4Q15. CAPEX PLN 1,4 bn. 78% ‹ Energy produced in cogeneration with steam also for Anwil Group 80 and PKN ORLEN needs. 43% 29% ‹ 50% of energy will be sold on the market. 24% 44 30 Concept of building CCGT plant in Plock 25 ‹ Concept analysis of the selected option was finished. ‹ Feasibility study of the selected option (450-600 MWe) completed. 2017 2025 2030 2040
* Data as of 30.09.2012
14 Agenda
PKN ORLEN – history and growth strategy
Refining / Petrochemical / Retail – core business
Upstream / Energy – growth segments
} Summary
15 PKN ORLEN competitive advantages
Refining ‹Integrated, high-class assets and strong position on competitive market
Petchem ‹New units and attractive portfolio of products offered on developing markets
Retail ‹Modern and the largest sales network in the region with strong and recognizable brand
Energy ‹Best locations and synergies of gas-fired power generation with other segments
Upstream ‹Perspective licenses and advanced unconventional gas projects
Further PKN ORLEN growth
16 Mission and Corporate Values
„We discover and process natural resources to fuel the future”
RESP ONSIBILITY We respect our customers, shareholders, the natural environment and local communities
PROGRESS We explore new possibilities
PEOP LE We are characterized by our know-how, teamwork and integrity
ENERGY We are enthusiastic about what we do
DEPE NDABILITY You can rely on us
17 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
18 Agenda
} Supporting slides
19 Supply Routes Diversification Sea Oil Terminals in Gdansk and Butinge Guarantee Alternative Supply Routes
o Sea terminal [capacity] (70) Primorsk o [Ca Kirishi Oil pipeline [capacity] o 6 (30) Ust-Luga 0] Yaroslavi Projected Oil pipeline [Ca 78] (18) Ventspils o BPS2
[Ca 45] Refinery of PKN ORLEN Group Butinge DRUZHBA (14) [Ca 18] Mazeikiai [Ca o 34] Naftoport (10.2; 10.3) Novopolotsk Refinery (capacity m tonnes p.a.; Rostock o · o (30) (8.3; 7.7) [ C [
Holborn 22] Ca [C a Nelson complexity index) a Schwedt Gdansk 5 (3.8; 6.1) 25 0 ] ]
(10.7; 10.2) (10.5 ; 10.0) 30] [Ca Harburg Mozyr · · · · DRUZHBA (4.7; 9.6) (15.7; 4.6) [Ca 120] [Ca 27] 80] Plock [Ca 55] [Ca Leuna (16.3; 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 (17.5;2 3.5) (12.8; 8.0) [Ca 3,5] [Ca 9] (8.5; 8.2) Tiszaojvaro a [ Ca 29] C
Schwechat 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(exo 4) (6.7; 3.1) Triesto Novi Sad (4.4; 5.7) ADRIA (3.4; 7.3) (3.8; 3.5) Sisak (4.0 ; 4.6) Arpechim o (ex 12) (3.9; 4.1) (3.6 ; 7.3) o 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 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). } Crude oil deliveries via sea from Primorsk to 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. } Long-term contract until the end of 2024 for reloading of petroleum products with Klaipedos Nafta was signed in 2011. } Costs optimization and improvement of operating parameters.
21 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 KEY FACTS 9 mt/y CEPRO depots
} Ongoing strict cost control including staff reduction. } Growing market share in the Czech retail from below 10% in 2005 to over 14% in 2011. } Negative free cash flow due to weaker profitability caused by unfavourable macro environment and higher capital expenditures dedicated mainly to maintenance as well as development projects during the cyclical turnaround in 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 ELECTRICITY CONSUMPTION IN EUROPE, 2000-2010 POWER IN POLAND, 2005-2020, GW
Developed PKN ORLEN’s Rest Demand 1 2 countries markets Supply 38
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34
32
30
28 Electricity consumption Electricity consumption CAGR 2000-2010, % per capita , 2010, th. kWh 26 3,2 1,9 6,5 24 1,1 3,5 2,5 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, Baltics Source: EIA, IMF, PWC, 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
Focus on creating solid financial standing forced no … but in coming years cash flow from operations dividend payout in 2008 – 2012 … will secure cash for both growth and for Shareholders …
‹ Gearing decrease dividend yield increase up to 5% ‹ Refinancing
‹ Rating improvement
2008 - 2012 2013 - 2017
… based on clear dividend policy.
‹ Gradual increase in dividend payout up to 5% dividend yield We assume dividend payouts at levels recognized as good market ‹ With reference to average share price from previous year practice
‹ Taking into account strategic targets achievement, financial standing and macro environment
25 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
26 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.
27 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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