ORLEN ORLEN Group 2017
Integrated Report

Opportunities

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The vision for the growth of PKN ORLEN fits well with global trends in the use of energy sources (e.g. use of crude oil, alternative fuels, energy storage), technological progress (e.g. smart everything, Internet of Everything, advanced robotics, 3D printing) and social shifts (e.g. changing social behaviours, urbanisation, demographics), which are bound to create new consumer behaviours and expectations.

Global changes have been gathering pace in recent years and have a growing, yet unpredictable, impact on the world around us. To respond to those processes, the ORLEN Group will consistently adapt its business model across all its segments:

Integrated assets and strong market position of the Downstream segment
With integrated assets in three Central European countries, over 30 million tonnes of various crude oil types processed every year, and a portfolio of over 50 refined and petrochemical products sold to more than 90 countries across the globe, the ORLEN Group is perfectly placed to further expand its Downstream business.

Key activities to be undertaken in the Downstream segment over the period covered by the 2017−2021 Strategy will be aimed at ensuring security of feedstock supplies, further improvement of the operational excellence, and strengthening of the Group's market position.

In the area of feedstock supply security, the ORLEN Group will seek to diversify its oil supply sources and secure natural gas supplies. The ORLEN Group’s refineries in Poland, the Czech Republic and Lithuania will continue to strive for greater integration, more flexibility in how to respond to market and regulatory challenges, and increased yield of high-margin products. Growth of the share in home markets (e.g. through attractive product portfolio) and expansion of the infrastructure which facilitates reaching customers have been identified as the two pillars that will support reinforcement of the Group's market position.

Development of the product and service range and high customer satisfaction in the Retail segment
The Retail segment comprises almost 2,800 service stations, making up the largest retail chain in Central Europe. They handle around 1.5 million transactions daily. In Poland alone, they sell 7.1 billion litres of fuel every year, with substantial volumes bought by customers actively participating in the Vitay loyalty scheme and fleet customers.

The key growth drivers in the Retail segment are the modern service station network, ensuring unique procurement experience, and further operational excellence improvement.

PKN ORLEN will develop its network of CODO and DOFO stations (nearly 200 new sites by 2021), plans to introduce quality fuels, and is getting ready to sell alternative fuels. In Poland, PKN ORLEN is implementing a charging stations project, which by the end of 2019 is expected to enable electric vehicle drivers to cross the entire country by major communication routes. About 50 charging stations are to be launched in this time horizon by the Company. A total of 150 locations were selected along transit routes and in cities where the charging points are to be constructed.
By undertaking a number of initiatives, the Retail segment will transform to provide customers with unique purchasing experience. It plans to launch new products and services, leveraging its competitive advantages and business experience (large and dense network of service stations and a sizeable customer base). In the coming years, PKN ORLEN intends to develop upgraded Stop Cafe 2.0 catering outlets. 180 such outlets operated at the end of 2017, and the concept was well received by customers. Tailored offering (based on Big Data) and development of the loyalty scheme will help increase customer satisfaction. As part of its optimisation efforts, the ORLEN Group will implement a number of initiatives to cut costs and boost revenue (e.g. customer satisfaction surveys, optimisation of land assets, optimisation of the network cost, more service stations with premium fuels).

Cautious continuation strategy in the Upstream segment
Growth of the Upstream segment helped to build a solid asset portfolio, with potential for further growth. In previous years, PKN ORLEN took a number of steps to increase its production potential in Poland (acquisition of two licences from Deutsche Erdoel AG, entering into a joint operating agreement with PGNiG, securing new licences from the Ministry of Environment, and acquisition of FX Energy) and Canada (acquisition of the first Canadian subsidiary TriOil Resources, followed by two other transactions: purchase of Birchill Exploration and Kicking Horse Energy). The ORLEN Group has a strong asset base for value creation: production of 15.6 boe per day in 2017, 2P reserves of 152 mboe, and assets to effectively increase production and steadily improve cost efficiency.

Under the current 2017−2021 strategy, the ORLEN Group will build its value in the Upstream segment based on cautious continuation of the current efforts, i.e. increasing production in Poland and Canada and further improvement of operational excellence. The ORLEN Group will closely watch and flexibly respond to developments in the oil and gas market. Consistent improvement of key performance indicators (e.g. better well economics, optimised scope of work) and synergies within the segment in Poland and Canada (e.g. transfer of know-how from Canada, one of the most technologically advanced oil and gas markets) are key elements for the operational excellence improvement in the Upstream segment.

Innovations that create value
The ORLEN Group's innovation management model brings together all aspects of the Group's strategy and the innovations themselves are understood to mean much more than development and implementation of new products only. Product-, process- and sales-related innovations are high on our agenda. Projects related to the current value chain are given priority. The ORLEN Group offers its employees and innovators certain forms of support which are not easily available and can tip the scales for the commercial success of innovative projects – from specialist laboratories up to a vast retail network. Because of the role of intellectual capital in modern economy, strong focus is put on development of staff competencies. We consistently build our team of experts, especially in the area of R&D, and develop a system to support our leaders.

The innovation strategy relies on external and internal innovations supported with an advanced management model. To stimulate external innovation, the ORLEN Group carries out projects facilitating cooperation as part of an external ecosystem of innovations, successful application of state-of-the-art commercial solutions and use of special tools for project implementation. Internal innovations are efforts to streamline technological and organisational processes, develop the portfolio of R&D projects, and tap synergies within the ORLEN Group. In addition to its consistently pursued R&D strategy, PKN ORLEN is also working to develop a concept for the expansion of its research infrastructure through the construction of a Research and Development Centre.

The ORLEN Group supports the culture of innovation to fully benefit from innovative ideas developed in house and externally. Innovation is promoted as the desired attitude across the organisation, and the dedicated decision-making process for innovative projects ensures ability to flexibly respond to market needs. What is more, in 2017 projects were under way to develop a knowledge-based organisation and unleash the internal potential in order to foster the culture of innovation. Examples included the continued programme to support innovation among employees, intended to encourage employees to propose their ideas and to enable identification of highly-innovative solutions (such as ORLEN Insight (a knowledge-sharing platform), Opportunities Market (a project platform), or the most innovative project of the year competition).



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