Strategy for ORLEN Deutschland
Advanced restructuring and development constitute the main assumptions of the strategy for ORLEN Deutschland for the years 2006-2009. The forecast ROACE under this concept is equal to 18.4%, including favourable SWAP transactions. The preferred scenario does not exclude disposal of assets in the future.
The German retail market is characterized by a decline in volumes and profit margins as well as high competitiveness. Players in that market focus on maintaining profitability under increasingly adverse conditions. In the face of such a situation, the Management Board of PKN ORLEN approved a strategic development plan for ORLEN Deutschland for the period to 2009, which assumes the necessity to restructure the station network and management system as well to increase market share.
At the stage of designing the strategy, 3 concepts were considered: market exit (disinvestment), restructuring, and restructuring with a development option.
Analyses show that exit from the German market through the sale of assets to a competitor would result in a serious accounting loss. A crucial assumption was the maintenance of favourable SWAP transactions as, without them, the operations of ORLEN Deutschland would be negative.
The restructuring option, in the form of the optimisation of station costs, changes in the management formula and exclusion of unprofitable stations from the network, assuming a stable retail margin in the economy segment (4.5 eurocent per litre), would yield a ROACE at a level of 14.7%. In line with the company's strategy, this option does not meet the requirements concerning the expected return.
The criteria required by PKN ORLEN can be, however, fulfilled by another concept analysed - restructuring + development, ensuring the attainment of ROACE at the 18.4% level. Similarly to option number two, this scenario assumes the restructuring of the management structures of ORLEN Deutschland, optimisation of the operating costs of stations, exclusion of several dozen unprofitable stations from the network, enhanced economy of scale effects through the procurement of facilities in new sites, and - as a result - obtaining a 10% market share in northern Germany. This option does not preclude the possibility of selling assets on beneficial terms.
One-off costs of the implementation of all assumptions of the recommended option (restructuring + development), are estimated at EUR 81 m, including EUR 50 m for the procurement and re-branding of the taken-over facilities. The potential for the improvement of the results ensuing from performance of the planned measures in terms of cost optimisation as well as from restructuring the network and headquarters is estimated at EUR 11.2 m per annum.
- Restructuring and development with the SWAP transactions in force are the best available scenario for ORLEN Deutschland, operating in the difficult conditions of the German market. It will ensure adequate value growth for shareholders, and will let PKN ORLEN carry its economic guidelines efficiently - stated Wojciech Heydel; Vice-President Retail & Commercial Sales.
