| ORLEN Group strategy update for 2019-2022
Regulatory announcement no 108/2018 dated 20 December 2018
PKN ORLEN S.A. (“PKN ORLEN”, “Company”) hereby announces that on 20 December 2018 the Management and Supervisory Boards of PKN ORLEN approved ORLEN Group strategy update for 2019-2022 (“Strategy update”).
The approved document updates “PKN ORLEN growth strategy” dated 15 December 2016 in respect of PKN ORLEN directions of development, refers to the level of realization of targets determined for 2017-2018 and sets the Company’s financial and operating targets for the next two years, ie. 2019-2020. The need for the update arose due to high volatility of macroeconomic factors and the need to present the targets for the next two-year period.
The presented material takes no account of the Grupa Lotos acquisition and integration process. Once the European Commission clearance is secured and a controlling interest in Grupa Lotos is acquired, a new strategy for the ORLEN Group will be unveiled.
PKN ORLEN assumed following operating and financial targets for years 2019-2020:
• EBITDA LIFO (before impairments) annual average PLN 10,3 bn,
• CAPEX annual average PLN 6,8 bn,
• Financial gearing below 30%,
• Net debt/EBITDA covenant below 1,5,
• maintaining of investment grade rating,
• regular dividend payment, reflecting current financial standing of PKN ORLEN.
Table 1. Financial targets
Financial target Target
2019-2020 Estimates
2017-2018
EBITDA LIFO annual average
(before impairments, PLN bn) 10,3 9,2
CAPEX annual average
(PLN bn), including: 6,8 4,6
- growth 3,9 2,7
- maintenance and regulatory 2,9 1,9
Financial gearing below 30% 7,1%
Net debt/EBITDA below 1,5 0,3
Table 2. Financial targets – breakdown by operating segments
Operating segment
EBITDA LIFO annual average
(before impairments, PLN bn) CAPEX annual average
(PLN bn)
Target
2019-2020 Estimates
2017-2018 Target
2019-2020 Estimates
2017-2018
Downstream 8,3 7,4 4,9 2,9
Retail 2,4 2,2 0,7 0,7
Upstream 0,5 0,3 0,7 0,8
Corporate functions -0,9 -0,7 0,5 0,2
Table 3. Operating targets
Operating target Unit Target
2022 Change
target 2022 vs estimates
2018
DOWNSTREAM
Crude oil throughput m tonnes 33,7 0,3
White products yield % 80,6 1,8 p.p.
Energy Intensity Index (EII based on Solomon methodology) point 85,6 0,5 p.p.
Electric energy production TWh 8,6 1,2
Wholesales of fuels ( diesel oil, gasoline, jet) m tonnes 20,1 2,1
Petrochemical sales m tonnes 6,2 1,1
RETAIL
Non-fuel margin index 130 30%
Number of filling stations item 2 959 150
Market share in fuels market % 18,4 2,4 p.p.
Unit fuel margin index 103 3%
UPSTREAM
Production of hydrocarbons boe/d 25 th. 7 th.
Share of liquid hydrocarbons % Poland 6%
Canada 49% Poland 6 p.p.
Canada 3 p.p.
Net number of wells item 13,8 (-) 6
Netback PLN/boe 75 7
Table 4. Macroeconomic assumptions
The above targets are presented with the following macroeconomic conditions assumptions:
Macroeconomic factor Unit Average
2017-2018
(estimates) Average
2019-2020
Model Downstream margin USD / bbl 12,2 13,5
Brent/Ural differential USD / bbl 1,4 3,1
Model refining margin with differential USD / bbl 7,1 8,6
Model petrochemical margin EUR / t 900 808
Brent crude oil price USD / bbl 64 73
Canadian Light Sweet crude oil price CAD/ bbl 66 73
Natural gas price in Poland EUR/MWh 22,6 20,0
AECO gas price CAD/GJ 1,8 1,8
CO2 emission certificates price EUR/t 11,3 16,1
Electric energy price – wholesales (base) PLN/MWh 179,9 211,5
USD/PLN exchange rate USD/PLN 3,69 3,70
EUR/PLN exchange rate EUR/PLN 4,26 4,17
Definitions:
Upstream
Netback (PLN/boe) – average realized price less costs of production (transport, marketing and production costs) and production taxes per barrel of oil equivalent.
Production of hydrocarbons (boe/d) – daily oil and gas production volume in barrels of oil equivalent (boe).
Downstream
Energy Intensity Index (EII based on Solomon methodology) (point) - Solomon Energy Intensity Index (EII) permits to compare a refinery’s energy efficiency against the best performers in the industry. The higher the indicator value, the lower the efficiency.
Crude oil throughput (m tonnes) – volume of crude oil processed by the ORLEN Group refineries.
White products yield (%) – yield of dry and wet gas, gasoline, fuel fraction, diesel and light heating oil (LHO) to crude oil throughput.
Retail
Unit fuel margin (gr/l) – net revenue from fuel sales at service stations less wholesale cost of fuels per unit of fuel.
Market share in fuels market (%) – volume of retail fuel sales in Poland, Germany, the Czech Republic and Lithuania, divided by the total retail consumption in these markets. Gasoline and diesel oil only.
Change in non-fuel margin (%) – period-on-period change in non-fuel margin. Non-fuel margin comprises store margin, bistro margin, revenues from suppliers (contributions), car wash and other revenues and services.
Data for 2018 and 2017-2018 averages are estimates based on the Q3 2018 actuals and Q4 2018 estimates, and are subject to change. Information and data relating to future periods are estimates prepared on the basis of assumptions and may differ from the actual data published in PKN ORLEN financial statements in the future.
Some numbers presented herein, ie. totals and sub-totals are rounded. As a result the presented totals and/or sub-totals may not equal to the arithmetic calculations.
The Strategy update does not include the impact of potential transactions of acquisitions, disposals and effects of other projects realization within the organic growth that may appear in next years.
It also does not include an impact of macroeconomic situation scenario other than assumed, one-off events or change in regulations that may appear in place of the current ones.
The Strategy update does not include an impact of the potential change in the level of write-offs according to IAS 36 “Impairments of assets”. Impairment tests will be conducted on the base of the realised financial data during work on the future financial statements of PKN ORLEN.
The Strategy update does not include an impact of the potential adjustments due to implementation of IFRS 16 “Leasing”. Reliable estimates of IFRS 16 implementation effect will be known by the end of the current year for the purposes of preparing the yearly financial statement for 2018.
This announcement has been prepared pursuant to Art. 17 item 1 of the Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC.
PKN ORLEN Management Board
| |
