ORLEN Capital Group – company overview
July 2012
1 Agenda
General overview
Core segments
Upstream and energy
Summary
2 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 (from 2009 ORLEN Lietuva). largest refinery) with CPN (Polish largest Joint venture with Basell – retailer) created PKN. Basell Orlen Polyolefins. Implementation of segmental management. IPO of 30% of equity on Warsaw Stock Implementation of two tier branding Exchange and London Stock Exchange. strategy in retail segment in Poland and the 2005 Introduction of the new brand ORLEN. Czech Republic. Acquisition of majority stake in Unipetrol Strategy of ORLEN Capital Group for 2009 (Czech holding). 2013. 2000 Introduction and start of PKN ORLEN CAPEX, OPEX, working capital and Second public offer of PKN ORLEN on Retail Sales Development Plan for headcount optimization. WSE and LSE increased free float up to Poland. Launch of petrochemical PX/PTA complex. 72%. Introduction and start of Unipetrol Partnership Program.
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 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 PARAMETERS
State Treasury OPERATIONAL: Throughput capacity ca. 31.6 mt/y 27,52% Petrochemical production ca. 6.5 mt/y FINANCIAL (PLN ): 2010 2011 Revenues 83.5 bn 107.0 bn 72,48% Free float EBITDA 5.5 bn 4.4 bn EBIT 3.1 bn 2.1 bn Net profit 2.5 bn 2.0 bn
4 The strategy for 2009 2013 assumes further core business development, divestment of non core assets and entry into new segements
MAIN OBJECTIVES OF PKN ORLEN GROUP PRIORITIES
Debt Release of capital employed through reduction working capital optimisation, assets 2009 – 2010 disinvestment in chemical segment, solving the issue of obligatory reserves Preparation for further 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
5 Agenda
General overview
Core segments
Upstream and energy
Summary
6 Refining
ASSETS NELSON COMPLEXITY
Supersite (Plock)
Gold Mazeikiu (10.2; 10.3) Silver (MN, Litvinov)
Bronze (Kralupy)
Niche Plock Litvinov (5.5, 7.0) (16.3; 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
Processing capacity: ca. 31.6 mt/y (Plock plant in Poland – 16.3 mt/y, ORLEN Lietuva – 10.2 mt/y, Unipetrol – 5.1 mt/y). Market share*: gasoline (PL: 61%, CZ: 36%, LT: 92%) and diesel (PL: 54%, CZ: 32%, LT: 91%). Nelson complexity index: Plock 9.5, ORLEN Lietuva 10.3, Kralupy 8.1, Litvinov 7.0. 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.
* As of 30.06.2012
7 Petrochemical
ASSETS CORE BUSINESS Strengthening position through full PX/PTA integration with refinery. Building regional leader position. Polyolefins Launch of petrochemical PX/PTA complex. ANWIL - NON CORE ASSET
PVC Release of capital employed through Anwil sale. Fertilizers Limited synergies with refining activity.
KEY FACTS
PKN ORLEN production capacity: ca. 4.1 mt/y (Plock 2.5 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% market share in domestic consumption. Polyolefins sales within Basell network. Launch of Europe’s most advanced petrochemical PX/PTA complex with PTA production capacities of 600 kt/y.
* As of 30.06.2012
8 Retail
ASSETS OPERATIONAL DATA EBIT (PLN m) Market share (%)
10 47% 9 825 4 439 4 14 14 2010 2011 Sales volumes (th t) 31 33 + 5% 7.025 7.345 2010 2011 Germany Czech Rep. KEY FACTS 2010 2011 Lithuania Poland
Biggest retail network (no of filling stations)*: Poland 1752, Germany 567, Czech Republic 337, Lithuania 35. Market share*: Poland 34%, Czech Republic 14%, Lithuania 4%, Germany 6%. Two tier branding strategy (premium and economy) „FLOTA POLSKA” & DKV/ORLEN fleet card for corporate customers; and „VITAY” loyalty card for individual customers – ca. 8,5 m participants*
* As of 30.06.2012
9 Agenda
General overview
Core segments
Upstream and energy
Summary
10 „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
11 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
12 UPSTREAM Shale gas – 8 exploratory licenses / 6,75 th km 2
Lublin Shale Project: 2 vertical wells are finished (Wierzbica and Lubartów). In 2012, up to 7 wells (including up to 2 horizontal) on Wierzbica, Lubartów and Garwolin are planned. 2 drilling rigs, for works that are planned in 2H12, were contracted. Wierzbica 1st vertical well is finished. 1st horizontal well (end of 3Q12) and 2nd vertical well (end of 4Q12) are planned. Lubartów 1st vertical well is finished. Ongoing analysis of measurements and core samples testing. 2nd vertical well (begining of 4Q12) is planned. Depending on the results, the decision about drilling 1st horizontal well will be taken. Garwolin Start up of 1st vertical well in July 2012. Depth ca. 4000m, duration ca. 60 days. Lublin Shale Project:: Information and education actions for local communities and for local 1.Lublin, 2.Garwolin, 3.Lubartów, 4.Wierzbica, 5.BełŜyce and regional authorities were conducted. Hrubieszów Shale Project:: Hrubieszów Shale Project: 6.Hrubieszów In 2012, obtaining and interpretation of geological data is planned. Mid-Poland Unconventionals Project:: Mid-Poland Unconventionals Project: 7.Sieradz, 8.Łódź In 2012, reinterpretation of preparation of methodology for acquisition of new seismic data in 2013 is planned.
13 UPSTREAM Conventional projects – crude oil and gas
1. Latvian shelf off shore project on Latvian shelf is realized with Kuwait Energy. 2 exploration and upstream licenses. For 2012/2013 up to 2 drills are planned. Status of project: Analysis of 3D seismic data and choice of drills’ locations were done. Analysis of geotechnical tests of the sea bottom in the area of planned drills were conducted. Contract for a semi submersible drilling rig, which will be placed within the Latvian economic zone of the Baltic Sea, was signed. 1st drill is planned in the period 4Q12 1013.
2. Lublin region exploration project in Poland (Lublin) is realized by ORLEN Upstream . 5 exploration licenses covering area of 4 700 km2. 1 drill is planned in 2012. Status of project: Verification of the most perspective drills’ locations (Garwolin and Lubartów). 1st drill is planned (end of 4Q12).
3. Polish Lowland exploration and upstream project in Poland (Sieraków) is realized with PGNiG S.A. (PKN ORLEN owns 49% of shares). 1 exploration and upstream license. 1st appraisal drill (Sieraków 5) is finished. 2nd appraisal drill (Sieraków 3) is planned (end of 3Q12). Status of project: Preparation works to select drill contractor (Sieraków 3) are in progress.
14 ENERGY New projects and improvement of efficiency of assets held
1. Building a gas power plant ~500 MWe in Włocławek Advanced preparation of investment: we have the environmental decision, the permission to build energy block, the agreement with GAZ SYSTEM for building a pipeline and the agreement with PSE Operator for connection to the energy network. Power plant sales will be commercial as well as Anwil energy and steam needs. Block building is planned for 4Q12. Start up at 2015. Estimated CAPEX is ca. PLN 1,5 bn. Project status: Final stage of the tender to select the power plant contractor in „turn key” formula.
2. Concept of building a gas power plant in Płock Concept analysis of the selected option are finished. Feasibility study of the selected option (450 600 MWe) was done. Works for Environmental Impact Report and connection of utilities (new block – Płock Plant) has began. Selection process of the contractor for connection the block to plant and national electric grid is finalized. Gas supply issues were agreed with Gaz System.
15 Agenda
General overview
Core segments
Upstream and energy
Summary
16 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 region Further development in the core business and value in the downstream refining and petrochemicals . chain extension.
World class refinery assets integrated with Release of capital employed in non core assets. petrochemical business . Development of upstream and energy segment. The largest retail network , gaining market share.
Strategically located on key pipeline network. Access to the crude oil terminal in Gdańsk (Poland) and Butinge (Lithuania).
Pole position for further growth
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
Sea terminal [capacity] (70) Primorsk [Ca Kirishi Oil pipeline [capacity] 6 (30) Ust-Luga 0] Yaroslavi Projected Oil pipeline [Ca 78] (18) Ventspils BPS2
[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) [ 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(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 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. Long term contract until the end of 2024 for reloading of petroleum products with Klaipedos Nafta was signed in 2011. The potential product pipeline to Klaipeda would improve logistics of final products. 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
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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: 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 adjusting to optimal level taking into account mergers and acquisitions FCFE allowing for maintaining the optimal capital structure determined by the following ratios:
Capex Covenant: Net Debt/EBITDA max. 3.5 Gearing: Net Debt / Equity of 30% Net working 40% capital change
Dividend payout ratio 1999 – 2011 Dividend per share 1999 – 2011 50 3 40,0 2,5 40 2,13 30,0 2 30 25,1 1,62 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 0,0 0,0 0,05 0,05 0 0 0 0 0 0,00 0 0 1999 2001 2003 2005 2007 2009 2011 1999 2001 2003 2005 2007 2009 2011
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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