Ladies and Gentlemen,
At the onset of 2014, probably no one imagined the scale of challenges that the global economy would be faced with. During the year, the price of oil more than halved, although it had been expected to continue growing not that long ago. At the same time, we witnessed some unprecedented geopolitical turmoil as an armed conflict – previously believed to be a near impossibility in modern Europe – became a visible element of our reality, defining the challenges facing the global economy. For companies in the fuel and energy segment, including PKN ORLEN, these consist primarily in highly unpredictable and volatile prices of commodities and the uncertainty of long-term investment plans. Operation in this unstable economic and geopolitical environment is a test of how well a company is prepared to take on the challenges faced by the industry. We believe that PKN ORLEN has passed the test – we have been successful in implementing our strategy and taken additional steps to further build the Company’s value.
To successfully pursue our business objectives, we place much emphasis on a modern management culture based on a codified set of values. Last year, we continued to reinforce it throughout the ORLEN Group, adopting a comprehensive CSR strategy to support the process. We are well aware that, in these turbulent times, confidence that the needs of all our stakeholders – shareholders, employees, customers, suppliers, and local communities – are satisfied wherever we carry out our business is of particular value. We believe that a responsible and ethical approach across all our operating areas is just as important as sound financial foundations and well-designed investment projects, because it allows us to create lasting value for PKN ORLEN over the long term. In line with this philosophy, this year we have prepared a report in the integrated format, presenting our financial performance in 2014 alongside matters related to corporate governance, stakeholder dialogue, labour practices, environmental factors, and examples of our CSR initiatives. This publication shows detailed relationships between individual areas of our activity, underlining the resulting benefits to the Company and its stakeholders. We believe that this new practice, consistent with international standards, will illustrate our comprehensive and advanced approach to acting out our corporate credo: ORLEN. We fuel the future. We are glad to see that the Company’s ethical and sustainable approach to business has been recognised by global organisations – PKN ORLEN has been the only company in the region to be awarded The World’s Most Ethical Company title by the US-based Ethisphere Institute.
Last year saw us revise the PKN ORLEN strategy for 2014–2017, under which we intend to further diversify our revenue sources and focus on the most promising markets. The strategy’s key objective is to minimise risks and ensure stable growth for the Company in any macroeconomic scenario that may materialise. In the first year of the strategy, PKN ORLEN generated a LIFO-based EBITDA (operating profit before depreciation and amortisation, net of non-cash effect of inventory revaluation and impairment of non-current assets) of PLN 5.2bn, with positive contributions from all business segments: Downstream, Retail and Upstream. As the Company’s strategy reflects the suppressed consumption of fuels, refining overcapacity and the mounting pressures on margins caused by the shale revolution in the United States, we resolved to adjust our planned cash flows to reflect the actual market conditions, which led to the recognition in 2014 of impairment losses on non-current assets of approximately PLN 5.4bn, including PLN 4.2bn on the ORLEN Lietuva Group’s assets. These non-cash operations had no effect on day-to-day activities of the ORLEN Group.
Considering our stable financial position secured in recent years, by 2017 we plan to spend more than PLN 12bn on investments, principally in growth-oriented projects. Importantly, many of these projects are already running. With the CCGT unit in Włocławek scheduled to come online this year, a similar facility to be constructed in Płock, and upgrade of existing installations, the capacity of the ORLEN Group’s power generating assets in Poland will exceed 1.5 GWe in three years. In the petrochemical segment, we seek to strengthen our position through such initiatives as the Metathesis Unit project. We have also been taking consistent steps to develop our retail sales network, which for years now has positioned us as an undisputed leader in the region. In an effort to diversify our operations, we are also developing the Upstream business, regularly monitoring opportunities to acquire upstream companies in North America. Last year, we acquired Birchill Exploration, a Canadian company, doubling our 2P oil and gas reserves to some 50 million boe and expanding the know-how necessary to carry out hydrocarbon exploration projects in Poland.
However, the successful pursuit of our strategic business objectives would not have been possible without a simultaneous effort to maintain sound financial ratios. By diversifying our financing sources, we were able to build a strong platform for the implementation of our ambitious investment plans for the coming years and reinforce our reputation as a reliable partner on financial markets. This is confirmed by the current valuation of our shares – an effect of the steps taken as part of our strategy, under which we had committed to achieving an average LIFO-based EBITDA of PLN 5.1bn and a steady growth of dividend per share.
I would like to express my gratitude to our employees, whose commitment is the driving force behind the steady growth in our Company’s value. I would also like to thank members of the Supervisory Board for their support, and our Shareholders for the trust they invariably place in PKN ORLEN. At the same time, let me stress that at PKN ORLEN we concentrate not only on growing our business, but also on fostering the confidence placed in us by stakeholders, as demonstrated by this new reporting format. We hope that with your feedback we will be able to further improve our report, setting new standards in integrated reporting and enhancing the Company’s communication with its various stakeholder groups.
CEO, President of the PKN ORLEN Management Board