ORLEN ORLEN Group 2017
Integrated Report

Strategy Implementation in 2017

GRI INDICATORS:
Capitals:

In 2017, PKN ORLEN continued to pursue its strategic objectives. Actual average full-year LIFO-based EBITDA1 came in at PLN 10.4bn, PLN 1.6bn above the strategic target. PKN ORLEN was once again awarded the titles of ‘The World’s Most Ethical Company 2017’ and ‘Top Employer Poland 2017’.

Robust financial position allowed the ORLEN Group to pursue expansion projects and progressively increase dividend, which in 2017 was PLN 3 per share.

1 Before net impairment losses on property, plant and equipment recognized in 2017 in the amount of PLN (169)m, including mainly impairment losses recognized on the ORLEN Upstream Group’s exploration assets in Poland of PLN (140)m.


DOWNSTREAM

Value levers

Security of feedstock supplies

  • Diversification of crude oil supplies.
  • Securing natural gas supplies.

Operational excellence

  • Integrated management of production assets in Poland, the Czech Republic and Lithuania.
  • Increasing flexibility to meet market and regulatory challenges by further improving key performance indicators; increasing conversion rates and high-margin product yields.

Strong market position

  • Increasing share in home markets by providing an attractive product offering.
  • Expanding infrastructure to reach customers more quickly and to strengthen competitive advantage.

Actual performance in 2017

Sales and logistics

  • 2pp growth of share in the fuel market.
  • Significant impact of leveraging the opportunities created by reduced grey market in Poland (an 18% year-on-year increase in the volumes of diesel oil and gasoline sold in Poland).
  • Electricity sales: over 4.8 TWh.
  • Logistics: unit cost improvement by 2%.

Refining

  • Projects underway:
    • PKN ORLEN: metathesis unit in Płock; completion of CCGT project in Włocławek; construction of CCGT in Płock.
    • ORLEN Lietuva: PPF Splitter: project in progress.
    • Unipetrol: Polyethylene 3: project in progress.
  • Improvement of key indicators:
    • Record-high volume of crude processed, at 33.2m tonnes, up 3.1m tonnes vs 2016.
    • Stable white product yield.

LIFO-based EBITDA growth [PLNbn]

1 At the same time ORLEN Asfalt (PLN 8) million and Unipetrol Group (PLN 6) million.

Capital expenditure [PLNbn], annual average

* The figures do not add up to the total due to the rounding effect

 

RETAIL

Value levers

Modern network of fuel stations

  • Continued development of the network of own (CODO) and franchised (DODO) stations.
  • Commercial launch of fuels with better parameters thanks to the use of improved fuel additives.
  • Preparations to launch sales of alternative fuels.

Unique shopping experience

  • Launch of new services and products.
  • Tailored offering based on Big Data.
  • Improving customer satisfaction and further development of the loyalty programme.

Operational excellence

  • Consistent improvement of the break-even point.
  • Use of state-of-the-art technologies.

Actual performance in 2017

Modern network of fuel stations

  • 57 new service stations added to the retail chain.
  • 0.4pp growth of share in the fuel market.
  • Opening of a hydrogen station in Germany.

Unique shopping experience

  • Stop Cafe outlets: up by 102 year on year; dynamic growth of a new catering format: 180 service stations with the new O!SHOP stores in Poland.
  • A 14% non-fuel margin growth.
  • New products and services:
    • Launch of the new, advanced Efecta 95 and Efecta Diesel fuel products at ORLEN Group service stations in the Czech Republic, which replaced the previously sold gasoline and diesel oil.
    • Launch of own brands: O! in Poland and Star in Germany.
    • Launch of car sharing service in Poland (in partnership with Traficar).

Operational excellence

  • Continuous improvement in cost efficiency of service stations.
  • Unit margin kept stable.

  LIFO-based EBITDA growth [PLNbn]

Capital expenditure [PLNbn], annual average

 

 


UPSTREAM

Value levers

Increased hydrocarbon production in Poland and Canada

  • Increasing production and 2P reserves.
  • Focus on quality assets and most profitable projects.

Prudent continuation

  • Flexible responding to changes in the oil and gas market.
  • Adjusting capital expenditure plans to the macro situation.

Operational excellence

  • Continuous improvement of key performance indicators.
  • Leveraging segment synergies in Poland and Canada.

Actual performance in 2017

Increased hydrocarbon production in Poland and Canada

  • A 17% year-on-year average production increase, to 15,600 boe/d, i.e. by 2,300 boe/d
    • Poland: 0,100 boe/d.
    • Canada: 2,200 boe/d.
  • Increase in 2P hydrocarbon reserves by 38.4 mboe, to 152 mboe
    • Poland: 11 mboe.
    • Canada: 141 mboe.
  • Number of wells (net) up by 24:
    • Poland: 7 wells.
    • Canada: 17 wells.

Operational excellence

  • Optimisation projects, including netback improvement

LIFO-based EBITDA growth [PLNbn]

Capital expenditure [PLNbn], annual average


 

Key success factors of the 2015–2017 strategy

  Unit of measure Actual performance in 2015 Actual performance in 2016 Actual performance in 2017
Financial KPIs        
LIFO-based EBITDA (before impairment losses) PLNbn 8.7 9.4 10.4
Downstream PLNbn 7.8 8.1 8.7
Retail PLNbn 1.5 1.8 2.0
Upstream PLNbn 0.0 0.3 0.3
Financial leverage % 28.1 11.5 2,2
Net debt/LIFO-based EBITDA (before impairment losses) X 0.73 0.35 0.07
KPIs − Downstream        
Share of Polish fuel market 1 % 58 55 54
Refining capacity utilisation % 90 86 94
Olefins production capacity utilisation % 74 47 78
Crude throughput at the ORLEN Group million tonnes 30.9 30.1 33.2
Fuel yield at PKN ORLEN % 76.9 79.0 78.3
KPIs – Retail        
Share of fuel sales in home markets1 % 14.5 14.7 15.2
Sales per service station million litres 3.6 3.8 4.1
Number of service stations effectively in operation1 X 2,612 2,673 2,742
KPIs − Upstream        
Hydrocarbon production mboe/year 2.6 5.0 5,7
Hydrocarbon reserves mboe 98,0 114,0 153,0
Number of new wells (net) X 12.6 18.1 17.5

1Data as at the end of the period.

  • ORLEN Group's EBITDA − EBIT before depreciation and amortisation.
  • Net financial leverage − net debt to equity ratio (based on average values in the period) x 100%.
  • Net debt – long-term borrowings + short-term borrowings - cash and cash equivalents.
  • Share of Polish fuel market − the ratio of the volume of fuels (petrol, diesel oils and light fuel oils) sold by PKN ORLEN to the total volume sold on the market.
  • Olefins production capacity utilisation – the ratio of theoretical production capacities to actual output.
  • Olefin unit − steam cracking unit, where in a high temperature, in the presence of steam, alkanes (saturated hydrocarbons with single bonds only between carbon atoms) are transformed into alkenes (hydrocarbons with one carbon-carbon double bond), Alkenes are classified as olefins, which has given the unit its name. The process consists in transforming ethane propane, butane and lower gasoine fractions (or even heavy fuel oil and hydrocracking residuum) mainly into ethene (commonly known as ethylene) and propene (propylene). The by-products are post-pyrolysis fractions: c4, post-pyrolysis gasoline and post-pyrolysis oil. Ethylene and propylene may later be used in various processes to manufacture a wide array of products, from polyolefins (polyethylene and polypropylene), to various plastics, to PVC (polyvinyl chloride) or glycol (antifreeze liquids).
  • Refining capacity utilisation − the ratio of processing capacities of a refinery to actual throughput.
  • Crude throughput at the ORLEN Group − total volume of crude oil processed by the ORLEN Group's refineries.
  • Fuel yield – aggregate medium and light distillate yields.
  • Share of fuel sales in home markets − volume of fuels sold by the ORLEN Group at service stations in Poland, Germany and Lithuania.
  • Sales per service station − average sales of fuels and non-fuel products and services (shops and food services) per service station.
  • Hydrocarbon production − total volume of hydrocarbons (including natural gas, crude oil, condensate and the other liquid hydrocarbons – ethane, propane and butane) produced from fields and treated to the extent enabling them to be transported and sold.
  • Hydrocarbon reserves − those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. In addition, reserves must meet four criteria under defined development projects: they must be discovered, recoverable, their production must be commercially viable, and, at the effective date of the evaluation, must remain in the subsurface. Reserves are further classified depending on the level of estimation certainty and may be divided into subclasses based on the degree of completion of a given project and/or its degree of development and production progress. 


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