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ORLEN Group strategy

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Our current corporate strategy was adopted and published by the end of 2008. Because the strategy was developed at a time when the current economic crisis began, it had to protect the Company against the effects of economic recession, but at the same time ensure a good and safe starting point for the Company’s further development.

In terms of macroeconomic conditions, 2009 was the most difficult period in the entire history of the Company. The major challenges at that time included a slump in refinery margin and differential. However, thanks to a set of programmes aimed at improving the Company efficiency, launched at the very beginning of the year, we managed to reduce the negative impact of the crisis situation significantly, and PKN ORLEN gained additional PLN 6 bn in cash.

Despite the difficult market situation, last year, PKN ORLEN earned PLN 5 bn in cash on its business operations, which was PLN 1.5 bn more than in 2008. Thus, all our goals were achieved, and our revenue from operations exceeded our capital expenditure. We reduced our net debt by PLN 2.3 bn, to the level of PLN 10.3 bn.

In the report period, we focused mainly on three aspects of our business:

  • Improved efficiency of our core business;
  • Divestment of non-core business;
  • Making way for the Company development in new areas: energy and upstream sectors.

One of the key measures in 2009, aimed at improving the efficiency of our core business, was investment projects at the Płock refinery sector, the purpose of which was to increase the rate of medium distillates production and crude oil processing, and the processing of charge for the petrochemical section. We will be able to benefit fully from the effects of those projects after the Diesel Desulphurisation (HON) and Paraxylene (PX) units are started up. By the end of 2009, our fuel output rate went up by 3 percentage points compared to 2008, which was due to more efficient crude oil processing.

While improving the efficiency of our processes, we worked to strengthen the assets of our core business. We focused, among others, on our logistics assets, which are an important element of our competitive advantage. In 2009, we worked to increase the operational performance of the existing underground crude oil and fuel storage facilities, and to increase our storage capacities because of the Company’s growing needs.

The key strategic objective of our wholesale sector in 2009 was to maintain its leading position in the respective countries of our operation. One of the major achievements of the latter sector was the distribution of over one-third of the entire volume through its own retail network.

In the case of the retail fuel sales, our strategy focused on strengthening the brand and increasing sales effectiveness at fuel stations, and raising the margin on non-fuel sales. One of our important achievements in 2009 was an over 6% increase in retail sales volume and a growth dynamics at a higher rate than the market rate, as a result of which our share in all markets went up by 1 percentage point on average, while in Poland the market share went up by 31%. Moreover, as a result of our retail (foodservice and shops) strategy, we increased our non-fuel margin by 20%.

We reported equally good results in petrochemical sales, which went up by 2% compared to 2008. Our petrochemical sector was influenced by investments in new products and further improvement of performance. The most important investment projects in the petrochemical sector were the Paraxylene (PX) and purified terephthalic acid (PTA) production units in Płock. The project is progressing as planned, the progress rates for the respective units at the end of 2009 being 97 % and 81%. We plan to complete works in 2010.

Last year, PKN ORLEN achieved one of its strategic objectives, namely we concluded several new longterm crude oil supply contracts. Following negotiations with our contractors, we agreed on very good financial conditions. The total value of those contracts amounted to PLN 45 bn, which is a historic result on the Polish market. The recent contracts have a very important advantage over the previous ones, namely they contain provisions which fully guarantee the security of supplies.

While focusing on our core business in 2009, we continued divestment of assets in the chemical sector (ANWILl) and telecommunications sector (Polkomtel). In terms of capital investments, we bought minority shares in several companies not related with the areas of business in which we operate.

Aware of the challenges that face us – namely the need to ensure the security and diversity of supplies and the growing energy prices, we continued our upstream operations. In 2009, in cooperation with Kuwait Energy Company, we started an upstream project on the Baltic Shelf. Together with PGNiG, we established an exploration and production JV company operating in the region of Wielkopolska.

We also develop our energy production sector, taking advantage of the current favourable conditions on the electrical energy market. To that end, we intend to get involved in the construction of a power plant in Włocławek. We will continue our projects in the upstream and energy sectors both individually and in collaboration with local and foreign business partners. An important step forward in the integration of our corporate goodwill is the construction of a multiutility company with a diversified portfolio of operations.

 


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