Value Creation, People and Financial Strength to remain the keystones of PKN ORLEN’s strategy
PKN ORLEN’s new strategy remains focused on Value Creation, People and Financial Strength as the key pillars of growth until 2021. The vision for growth set out in the new strategy fits well with global trends in energy sources, technological progress and social shifts, which are bound to create new consumer behaviours and expectations. PKN ORLEN aims to focus on strengthening its market position, becoming more customer-oriented, exploiting the integrated value chain, with a growing role of the petrochemical business, and cautious continuation of upstream projects. A strong focus on innovation with value-creating potential is another vital element of the strategy.
Over the past three years, PKN ORLEN has consistently delivered on its strategic objectives, exceeding the average annual LIFO-based EBITDA target for 2014−2017 by PLN 2.3bn, with the actual figure averaging PLN 7.4bn in 2014−2016. The sound financial position has allowed the company to put in motion key growth projects and progressively increase dividend payments, with a total of PLN 2.2bn distributed to shareholders in 2014−2016. At the same time, financial ratios have been kept at safe levels, with 2016 year-end financial leverage projected at 18%. The robust financial performance has been appreciated by the market – on November 21st 2016 PKN ORLEN for the first time topped the list of the most valuable companies on the Warsaw Stock Exchange, with its market capitalisation surging by PLN 13.8bn from July 23rd 2014 (the strategy announcement date) to November 21st 2016.
PKN ORLEN is very well positioned for further growth. It owns state-of-the-art integrated infrastructure capable of processing more than 30 million tonnes of various types of crude oil per annum, and 2P oil and gas reserves estimated at over 100 million boe at the end of 2016. Its offering encompasses over 50 top-quality petrochemical and refining products sold in more than 60 countries. Products are marketed through a service station network ranking as the largest in the CEE region and generating 1.4 million transactions every day. PKN ORLEN also remains the most valuable Polish brand.
The rapidly changing business environment has forced the company to adjust its planning horizon. Consequently, its goals and aspirations are presented differently in the new strategy. The time horizon for strategic directions is five years, but specific financial and operating targets cover only 2017 and 2018 given the strong volatility of the macro environment. In addition, PKN ORLEN will be regularly updating and announcing plans for subsequent periods.
Like the previous strategy, PKN ORLEN’s 2017−2021 strategy rests on three pillars: Value Creation, People, and Financial Strength. The shifts taking place in its business environment necessitate a disciplined and flexible approach, therefore the company’s priorities for the coming years are to:
1. In Downstream: pursue operational excellence, grow fuel market shares, extend the petrochemical value chain, and optimize the refinery for an optimum product slate − with a supporting role of advanced industrial power generation.
2. In Retail: offer a broad selection of products and services, create unique purchasing experience, consistently improve customer satisfaction − with a supporting role of state-of-the-art technologies and advanced data analytics.
3. In Upstream: cautiously continue to develop Polish and Canadian assets to be able to flexibly respond to the situation on the oil and gas market.
In 2017 and 2018, PKN ORLEN plans to spend an average of PLN 5.4bn a year on capex projects, of which PLN 3.7bn in Downstream, PLN 0.6bn in Retail, and PLN 0.8bn in Upstream. Annual LIFO-based EBITDA in the period is expected to average PLN 8.8bn.
“Our strategy remains focused on three strategic pillars: Value Creation, People, and Financial Strength. Our priority for the coming years will be to further strengthen our market position and implement key investment projects. Naturally, People remain a key element of the strategy. We believe that our top talent and modern organisational culture will help us continue on a growth path. Our strategy is strongly geared towards innovation that creates value. In a spirit of patriotism, we also want to forge partnerships with Polish entrepreneurs, scientific research institutions and other state-owned companies,” said Wojciech Jasiński, CEO and President of the PKN ORLEN Management Board.
In Downstream, PKN ORLEN will build up the capacity of its integrated refining assets, e.g. through the construction of a visbreaker in Płock. Aware of the assets’ market potential, the company will continue to strengthen its position in petrochemicals. Projects to construct a polyethylene unit in the Czech Republic and a metathesis facility in Poland are in the pipeline. Work will also be undertaken on a future development concept for the petrochemical business. As regards industrial co-generation, PKN ORLEN plans to bring into commercial operation its new CCGT units in Włocławek and Płock. In Retail, planned activities include further development of the service station chains on home markets, greater leverage of the loyalty scheme, and launch of new products and services, including financial services. In the Upstream segment in Poland and Canada, work will be continued to increase production volumes and 2P reserves.
A keystone of the company’s strategy is to preserve solid financial foundations, by securing financing and keeping debt levels safely under control. PKN ORLEN will also strive to progressively increase dividend payments. By keeping financial ratios at safe levels, the company will be able to capture potential non-organic growth opportunities.
Key objectives of the PKN ORLEN strategy in 2017-2018:
- Average annual LIFO-based EBITDA of PLN 8.8bn
- Average annual capital expenditure of PLN 5.4bn
- Financial leverage maintained below 30%
- Steady growth of dividend per share.
“We keep an unwavering focus on solid financial foundations, which will underpin further growth and provide a cushion against any external risks. We are committed to our investment grade rating, as it ensures access to diverse sources of funding. We assume the delivery of our strategic objectives will support a progressive dividend policy, depending on our financial position,” said Sławomir Jędrzejczyk, CFO and Vice President of the PKN ORLEN Management Board.
The new strategy provides for a continued focus on the security of feedstock supplies. Based on a new contract signed in September with PGNiG, PKN ORLEN has secured supplies of natural gas for the next five years. As for oil supplies, it plans to tighten or forge new relationships with the world’s major oil producers. The company’s refineries are now supplied with oil under long-term contracts with Rosneft, Tatneft and Saudi Aramco, with additional volumes purchased on the spot market. With its technological configuration, PKN ORLEN’s plants can process more than 80 types of oil from different parts of the world.
Looking at global trends in the social sphere, including developments on the labour market and expectations towards business, PKN ORLEN has decided to further strengthen its human capital, as a pillar of its future sustainable growth. The company’s key priorities will include continued commitment to the highest standards of occupational safety, zero tolerance for accidents, but also raising staff qualifications by consistently enhancing professional development opportunities and access to training. The strategic objectives will be pursued with an important agenda: respect for the environment.
Poland’s competitive position relies mainly on cost advantage, which has however been largely exhausted. Aware of the ongoing changes, PKN ORLEN, as Poland’s largest business, will look for growth opportunities by actively pursuing innovative projects. In order to identify value-driven innovations, we will focus both on the ORLEN Group’s core business and complementary development directions.
“The energy market is evolving, but in the foreseeable future crude oil is set to remain the key feedstock in fuel and petrochemical production. The fact that PKN ORLEN’s business environment is in a state of flux and we need to be well-positioned for any future changes remains a major challenge. This is why our strategic vision is focused on innovation, promotion of employee initiatives, and development as a knowledge-based organisation,” said Wojciech Jasiński.
Presentation of PKN ORLEN's strategy for 2017-2021 is available at: https://www.orlen.pl/pl/en/about-company/media/press-releases/2016/PKN_ORLEN_Growth_Strategy_for_2017_2021.pdf