Annual Report 2007 Key Figures
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Annual Report 2007 Key Figures Selected Financials PLN m 2007 2006 2005 Sales revenue 16,652 15,198 12,560 EBIT 852 1,470 1,398 EBITDA 2,282 2,766 2,800 Net profit 916 1,328 881 EPS [PLN] 0.16 0.22 0.17 DPS [PLN] 0.191) 0.15 0.10 Assets 28,402 30,677 30,364 Equity 21,022 21,153 20,768 Net debt (1,446) (1,082) (742) 1) Dividend will be paid on 1st October of 2008. Financial Ratios 2007 2006 2005 Net profitability on sales 5.5% 8.7% 7.0% ROE 4.4% 6.3% 4.2% ROA 3.2% 4.3% 2.9% Current ratio 1.8 2.7 2.3 Quick ratio 1.4 2.2 2.0 Debt to total liabilities 26.0% 31.0% 31.6% Debt to equity 35.1% 45.0% 46.2% 2 PGNiG in numbers Gas and oil reserves Natural gas imports Natural gas sales Oil and condensate sales Length of distribution No. of customers network* 787 58.5 86.2 3.97 107 6.5 mboe mboe mboe mboe ths km million (9.3 bcm) (13.7 bcm) (542 ths. tonnes) * excluding connections The PGNiG Group is the leader of the Polish natural The Company owes its competitive edge on the while distribution is now handled by six Distribu- Given its revenue and profit streams, the Company gas market, as well as the only vertically integrat- gas market, which is now in the process of de- tion System Operators belonging to the PGNiG ranks among the largest and most profitable en- ed gas company in Poland. Its parent undertak- regulation, chiefly to the natural gas and crude Group. terprises in Poland. In 2007, it posted PLN 16.7bn ing is Polskie Górnictwo Naftowe i Gazownictwo. oil production. The core business of the PGNiG in revenue and PLN 916m in net profit. With the Formation of the Group’s enabled coordination of Group includes trade in and distribution of natu- On September 23rd 2005, PGNiG floated its shares headcount of approximately 30 thousand, PGNiG is the upstream and downstream operations – from ral gas. Following the separation of its gas trade on the Warsaw Stock Exchange, in the largest pub- also counted among Poland’s largest employers. exploration and production, to storage, to trade business from the operation of the gas distribu- lic offering in 2005. The Company’s main share- and distribution of gaseous fuels. tion network – completed in 2007 – the entire holder is the State Treasury, which holds 84.75% trading business has been taken over by PGNiG, of its shares. Table of Contents Letter from the President of the Management Board 4 PGNiG on the Warsaw Stock Exchange 8 Management Board 12 Letter from the Chairman of the Supervisory Board 14 Supervisory Boards 15 Calendar of Corporate Events 16 Corporate Governance 18 Strategy 20 Operating risks 29 Regulatory environment 30 Exploration and Production 32 Trade and Storage 44 Distribution 52 Public Relations 56 PGNiG Group 76 Consolidated Financial Statements 92 2 3 Table of Contents » Letter from the President » PGNiG on the » Management » Strategy » Exploration » Trade and Storage » Distribution » Public Relations » PGNiG Group » Consolidated of the Management Board Warsaw Stock Exchange and Supervisory and Production Financial Statements Boards Letter from the President of the Management Board Dear Ladies and Gentlemen, In 2007, we continued along The year 2007 was a breakthrough one for our on assets improved from 4.8% to 9.1%, while net the path of value growth. Amid Group. Under the EU directive and the Polish Energy sales margin widened from 9.1% to 14.3%. Law in effect since May 2005, July 1st 2007 marked pressures related to the mas- the deadline for full deregulation of the electricity Our Group posted a 31% year-on-year decline in sive organisational change, and gas markets in the EU member states. Since consolidated net profit, which in 2007 dropped to that day, all citizens of the EU have been free to PLN 916m. This change was largely attributable to PGNiG SA reported a net profit choose their own suppliers of electricity and gas. the Distribution segment’s operating loss of PLN of PLN 2.2bn, which represent- The date represented a landmark for consumers of 1.3bn, incurred due to the necessity to revaluate gas and electricity and for the entire industry. To the non-current assets of the Distribution System ed a 96.4% improvement year comply with the requirements imposed by the new Operators while, on the other hand, it was due to on year. laws, our Group undertook an organisational and le- the separation of gas distribution from trading ac- gal separation of its transmission network and gas tivities. Net of the revaluation effect, our profit for trading business. 2007 would have roughly doubled year on year. Designated as “integration of gas trade”, the project The financial markets perceive PGNiG SA as a sta- involved a dozen or so thousand employees, main- ble company, striving to improve its business ef- ly at the field units of the PGNiG Group. This ex- ficiency across the board. Our financial credibil- tremely difficult – yet unavoidable – task was suc- ity has been confirmed by the credit rating from cessfully completed. Simultaneously, throughout Standards&Poor’s, which was upgraded to BBB+ 2007 we continued to implement complex projects (stable outlook) on February 5th 2007. aimed at exploring new development opportunities and positioning our organisation for entry onto the In 2007, we continued to implement a series of Europe-wide gas market. The strong market posi- projects aimed at enhancing the Company value. tion and financial standing of our Group will serve Our activities in the area of exploration, as well as a springboard for its further growth and contin- as geophysical and geological work are particu- ued implementation of its pipeline of upgrade and larly worth noting. One of the cornerstones of our investment projects. A quantifiable measure of our Group’s strategy focused on expanding its oil and success was the profit earned by the PGNiG SA and gas reserves outside of Poland has been PGNiG’s in- the 2007 dividend paid out to our shareholders. volvement in the project on the Norwegian Conti- nental Shelf. In 2007, PGNiG SA concluded an agree- In 2007, we continued along the path of value ment with Mobil Development Norway A/S and growth. Amid pressures related to the massive or- ExxonMobil Production Norway Inc., providing for ganisational change, PGNiG SA reported a net profit the purchase of a 12% interest in the combined re- of PLN 2.2bn, which represented a 96.4% improve- serves of the Skarv, Snadd and Idun fields. PGNiG ment year on year. The sales and gas production Norway A/S of Norway was established specifically volume were not appreciably different from the lev- for that purpose. els seen in 2006, whereas revenue on sales of gas went up by 26.5%. The Company’s improved finan- On April 19th 2007, PGNiG SA and Energinet.dk cial standing is reflected in its key profitability ratios signed a letter of intent concerning the Baltic Pipe – return on equity rose from 6.6% to 12.1%, return construction project. On November 15th 2007, 4 5 Table of Contents » Letter from the President » PGNiG on the » Management » Strategy » Exploration » Trade and Storage » Distribution » Public Relations » PGNiG Group » Consolidated of the Management Board Warsaw Stock Exchange and Supervisory and Production Financial Statements Boards Energinet.dk, PGNiG SA and OGP GAZ-SYSTEM SA business made it easier for the Company to put its to expand the working capacity of the gas storage dedication and competencies our success would not concluded a trilateral cooperation agreement, which business philosophy into practice. The key premise facilities in Wierzchowice, Mogilno and Strachocina, have been possible. It cannot be denied that chang- represented one of the project’s milestones. In June on which that philosophy rests is a customer-orient- and preparations were started to build an under- es in the PGNiG Group have required and will require 2007, we obtained access to reserves from the Egyp- ed approach, which finds its particular expression ground gas storage facility in Kosakowo. a shake-up of the employment structure, as well as tian Bahariya field. In the same month, we joined in the focus on service standardisation, continuous organisational streamlining needed to better exploit a consortium formed to construct the Skanled gas- improvement of the service quality and provision of Throughout 2007, the PGNiG Group’s drilling and the existing synergies. This is always an immense transmission pipeline, which is to connect Norway’s tailor-made solutions. We never cease to look for geophysical subsidiaries were conducting explo- effort which puts an organisation and its person- Kårstø with Sweden and Denmark and acquired, for new business opportunities, pinning great hopes ration and prospecting work in three regions of nel to a test. However, the changes are designed to no consideration, a 15% interest in the project. on the power industry development, as well as the Poland: the Carpathian Mountains, the Carpathian help the Group achieve a financial and market suc- projects launched by PGNiG SA’s strategic custom- Foreland and the Polish Lowlands. Our efforts aimed cess, which in turn will enable its employees to lead In December 2007, we won a tender in Libya, thus ers operating in the petrochemical, construction at acquiring access to new exploration and licence more comfortable and settled lives. On behalf of PG- acquiring the right to conduct exploration work in and metallurgical industries.