Orlen S.A. (PKN) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, welcome to the conference call of PKN ORLEN. At our customer's request, this conference will be recorded. [Operator Instructions] I will now hand you over to Mr. Konrad Wlodarczyk, IR Director. Sir, you may now begin.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to the conference call regarding PKN ORLEN long-term strategy until 2030. The presentation that was e-mailed to you and is available on our website will be delivered by Karol Wolff, Head of Strategy; me; and Michal Perlik, Executive Director for Finance Management. After the presentation, as usual, there will be a Q&A session. So during this session, several directors from PKN ORLEN will be ready to take your questions. And with no further delay, I hand over to Karol. Karol, floor is yours.

Thank you, Konrad. Good morning, good afternoon. Today, we are presenting our 2030 strategy. This is a very important moment for the ORLEN Group. We are setting the direction that will shape our company in coming years. We transformed ORLEN's downstream oil and gas player into a new multi-energy company, able to compete in the space of [ great ] energy transition. We aim to actively manage our business portfolio and build selective account particulars, maximizing performance of our existing business lines, developing strategic projects and investing in the future with reliance on new technologies and business models. And in the first section, we describe our aspiration and we describe our vision for our business in 2030. So let me start with Slide 4, where we describe the trends that are reshaping our environment. There are new trends that challenge our business. For a long time, the fuel -- for the long time, the fuel and energy sector has faced so many factors that are reshaping their environment in general. The main drivers of the energy transition are new technologies. Growing cost effectiveness of renewables make investments in this segment more profitable. Second aspect are changing customer expectations which require us to deliver increasingly efficient and environmentally friendly products and solutions. Furthermore, rising public awareness necessitates the mitigation of the impact we exert on [ natural ] environment and external stakeholders. Just as one example, the U.K. regulatory policy is very ambitious for greenhouse gas emission reduction. We know that there is no turning back from the energy transition. ORLEN Group has strength, capabilities and extensive experience to lead this process. We consider it as a great growth opportunity for our company. Going further, we show our ambition, and ORLEN's ambition is to become a business leader of sustainable energy transition in Central Europe. In 2030, with a presence in more than 10 countries and extended value chains, we want to generate a 2.5-fold increase in EBITDA operating profit. By the end of the decade, our renewable energy capacity will increase to 2.5 gigawatts. As a result, we will become as one of the region's largest producers of clean energy. We aim to become a supplier of integrated solutions to customers and we will considerably expand our nonfuel offering. We will grow our network both domestically and outside Poland while deploying new formats beyond service stations. We want our retail network to ultimately comprise over 5,000 -- 3,500 stations. We also want to be open for new mobility with over 1,000 EV fast chargers. Our operations will be underpinned by sustainable development. We will invest in clean technologies designed to deliver environmental benefits. The ORLEN2030 strategy will put us well on track to achieving our long-term objective of carbon neutrality by 2050. For years now, ORLEN has been one of the fastest-growing players on the market, delivering attractive results for its shareholders. We are poised to maintain the momentum with our envisaged transformation as the key growth trend. We are building a multi-energy integrated approach based on robust and well-diversified business segments, as well as responsible financial policies. We also aim to share the profits with our shareholders. Starting from next year, we will distribute dividends of PLN 3.5 per share or more. Going on Slide #6, we want to catch -- we want to show how we are implementing these changes. Especially taking into account that in the long term, the processing of crude oil for the need of transport fuels with loss is important. Hence, we must maximize profit from our current set of core assets and develop strategic segments around the company. They will drive our transformation and the process of building new business areas. How do we want to achieve these goals? We want to actively manage the portfolio of our current and future business activities. Therefore, by formulating the ORLEN2030 strategy, we adopted an approach based on 3 main strategic fields of play with respective CapEx allocation. They include: maximization of profits and value of the current business segment with against 20 -- 40% of total CapEx; strategic development -- development of strategic projects for which we allocated about 50% of the CapEx pool; and finally, investing in the future, including new business models and new technologies, accounting for up to 10% of the CapEx pool. And going on Slide 7, we -- let me describe to you how the strategic logic defines the key directions of each business area. Firstly, we will aim to maximize profits from our existing business segments. We are realigning our upstream portfolio. We are ramping up the efficiency of our current downstream assets. We are investing in low-carbon conventional power generation. We are expanding our fuel retail network and offering. Secondly, we are entering into new promising areas. As I said, about half of our investments will be spent on building new development areas. Renewable and low-emission energy sources as well as modern petrochemicals are of key importance. The latter will be crucial source of revenues for crude oil processing in the coming years. We will also develop nonfuel retail as a strategic piece of play. Our focus will be on the rollout of new formats for retail customers. And as the last, third pillar, we will spend approximately 10% of our total CapEx on investments in the future. These are -- this will include new mobility, hydrogen, recycling, research and development as well as digitalization. Investments in this area will provide us with a basis for future product growth and development beyond 2030. Page 8. We want to underline that our strategy is underpinned by sustainable development. This is why we directly spent over PLN 30 billion, almost EUR 7 billion. That is almost 1/3 of our entire development capital budget to advance this goal. Sustainable development is not only about reducing emissions. It's also about harnessing renewable energy, expanding biofuel capacities and selling of alternative fuels. These areas, we have already -- in these areas, we have already built strong capabilities, but we are set on developing them further. We realized that sustainable development is not only our duty, but can also be a source of healthy returns. Page #9. In this context, we reaffirm our commitment to reduce emissions with a target of net zero carbon by 2050. Two months ago, in September this year, ORLEN, as the first oil and gas fuel company in Central Europe, announced its ambition to become carbon neutral. Our 2030 strategy is the main stepping stone towards this target. With the coming decade, we will reduce CO2 emissions from our existing refining and petrochemical assets by 20% and from power generation by 33%. We have developed directions for our decarbonization strategy and the pipeline of calibrated initiatives. We have 6 investment projects designed to reduce carbon emissions. And finally, on Slide #10, we share our financial effect of this strategy. ORLEN2030 long-term strategy should deliver significant value to our shareholders. The implementation of our strategic objectives will contribute to more than 2.5x increase in EBITDA operating expense. A significant part of it, around PLN 4 billion, will be the result of conducted and finalized acquisitions of ENERGA Group and LOTOS Group. However, new investments based on the long-term technological, consumer and environmental trends will be of key importance for the development of ORLEN. This -- they should add additional PLN 30 billion to our operating results. Thanks to sustainable business model, ORLEN2030 will generate approximately PLN 26 billion in EBITDA in 2030. We perceive this amount not as [indiscernible], but as an obligation towards our shareholders. And going to the next section, we wanted to share some thoughts about our goals so far. On Slide #12, we wanted to compare our results with the median for our most important competitors. Over the last decade, ORLEN has been one of the fastest-growing players in oil and gas, more than doubling its EBITDA within the period. Furthermore, in the face of pandemic, our company turned out to be more resilient than the competitors. We want to maintain this upward trend in the future. The key to achieving this objective is transformation. Slide #13. ORLEN is changing because it has solid grounds for it. We have consistently implemented our previous strategy and delivered the financial results which allow us to invest in the future. We have delivered on our key operational and financial targets declared 2 years ago in our strategy update from 2018. Operating profits and CapEx investments are in line with our assumptions. We maintained financial parameters on safe and [indiscernible]. Currently, we are operating a difficult unstable environment, but with a solid financial fundamental -- financial foundation for further growth. On Slide 14, we consistently implemented our strategic objective and conducted development investments. We have taken a number of actions to prepare ORLEN for the changes that are happening around us. We acquired ENERGA Group with a significant pocket of renewable energy assets. We have gained access to extensive distribution network and a large number of individual customers. We have launched and are determined to follow through the process of acquiring full control of LOTOS Group. We have already secured conditional appearance from the European Commission, and we are at the advanced stage of implementing the [ terms ]. We have also initiated the process of acquiring PGNiG, [ Polskie Gazownictwo ]. We have made very good progress in the application for our largest power generation project yet, the construction of offshore wind farms at the Baltic sea. We are developing our retail business. We are also exploring new solutions to solidify ORLEN's position as the leader in the retail area. The acquisition of RUCH, ORLEN's widest retail chain, will be a key factor here, expanding our retail presence beyond the service station network, optimizing the cost of logistics and allowing us to extend the range of products and services for our customers. Now slide #15. As a result of this action, ORLEN has built a solid, well balanced base for further growth. We are a leading refining player in the region with 6 refineries, processing over 33 million tonnes of crude oil every year. For our petrochemical assets, we are producing 40 products, delivering to our -- delivered to our customers from over 60 countries. We have also 3.2 gigawatt installed generation capacity, of which, 0.5 gigawatts are renewables and 1.1 are gas-fired capacity. ORLEN operates over 2,800 service stations across 5 counties, serving over 15 million customers. Finally, we process approximately 200 million barrels -- 2P reserves of hydrocarbon. Our environment is changing, and the world in which we operate undergoes fundamental changes. On Slide #17, we show some of them, which have the most significant impact on the energy sector. First, we can observe slowing growth of crude oil demand, driven by increasing energy efficiency, development of alternative fuels and higher share of biocomponents. Furthermore, factors such as COVID-19 fund mix caused disturbances in oil and gas market. On the other hand, new energy sources become more and more competitive due to growing scale and logistical development. They are additionally driven by increasing environmental awareness and new regulations focused on energy transition. Finally, we witnessed evolving customer expectations, which includes preference for digital distribution channels and tailored offer. Slide #18. These fundamental changes and the implications can be particularly visible in evolution of energy mix. International Energy Agency forecasts that the upcoming year demand for the energy generated by renewable energy sources will be growing the fastest, more than 3x faster than any other source. And Slide #19, the market schemes that are varied globally are especially important for Eastern Europe. Eastern Europe countries follow the same market developments as older member states of the European Union a few years later. This provides both challenges and opportunities. As late adopters, the pace of transition in the sea and [indiscernible] and some countries behind Western Europe. However, late adoption provides opportunities for market expansion and the most different innovative and cost-effective technology. ORLEN Group, being aware of this change, is looking to utilize this and build its strategy based on this new business opportunities. And on Slide #20, we show the opportunities in new business areas that offer ORLEN Group attractive growth prospects. And in view of the direction taken by the energy transition, renewable energy, in particular, wind and solar power, is a naturally most attractive business opportunities. Moreover, gas generation being a perfect complement to the future energy mix provides additional -- as additional attractive business area here. Finally, we are also -- there are also many areas that will become key for our future development and key areas of competition among energy players. We are talking about alternative fuels and recycling or hydrogen. So let me hand over now to Konrad who will share our approach towards 2030.

Okay. Thank you, Karol. And now I will describe the section ORLEN2030. So I think that we should ask the question how we're going to deliver on our ambitions. And what we can say, ORLEN further growth will be driven by strengthening position within existing business lines and expansion into new promising areas, as already Karol mentioned. First of all, we want to maximize profits from our current assets. And therefore, we're going to modify our portfolio of upstream assets, increase efficiency of our refining and petrochemical assets, invest in low-carbon conventional power generation and expand our retail offer. Secondly, we entered into new promising areas via substantial investments into renewable energy sources, alternative fuels, recycling as well as biofuel components and hydrogen. We will also focus on new formats and services for retail customers. ORLEN2030 will be a company anticipating and proactively responding to customer needs. All investment projects and M&As will led us to increase the base of customers. And of course, customers are the most important for us, and we have the potential to fully meet their expectations. We operate in many areas simultaneously, and we are confident that this is a recipe for the success. We have a clear target and we know how to further develop ORLEN growth. We have also a huge experience and skilled people, which will allow us to successfully execute our strategic plan. Now let's move to Slide #23. To build a strong multi-utility [ ORLEN ], we must further invest in our main areas of business to increase the scale and improve efficiency. We will focus on further consolidation and integration of our refining and petrochemical assets. We will squeeze maximum value from each barrel of oil and expand our capacities in petchem. We will continue to do what we do the best. So following the successful launches of our CCGT power plants, we will keep investing in low-emission gas-based power generation. We will further develop our fuel and nonfuel retail business. And finally, we will strengthen our resource base via upstream investments. Simultaneously, we will enter into new promising areas within our existing operational segments. We will supplement our refining business with major investments in bio and alternative fuels, including hydrogen. Similarly, our basic and advanced petchem business shall shortly be complemented by the growing capabilities in mechanical and chemical recycling. Within our Power segment, we will be strongly investing into 0 emission renewable energy sources, which are set to become an integral part of ORLEN Group business in the future. Our retail offer will be broadened with new services and formats, all under strong and more recognizable brand, ORLEN. And in Upstream, we will follow the market and create a diversified portfolio of sustainable assets with a strong focus on natural gas. Those are pillars of ORLEN Group's growth and transformation until 2030. Next slide, Slide #24 shows first of our segments. So ORLEN Group definitely have a strong and well-established position in the refining industry and going to keep that way. So integrated assets of our -- are our competitive advantage. We operated now 6 refineries in Poland, Czech Republic and Lithuania, processing, roughly speaking, 33 million tonnes of crude oil on the yearly basis, which makes us a leader in the region. Refineries will remain our key assets till 2030. In order to maximize the value of our refining business, we need to have the most efficient assets in the Central Europe. To that end, we will seek to get the most from each barrel of oil. Therefore, we plan selective upgrades and reconfiguration improvements, continued efforts to maximize energy efficiency, cost optimization and oil conversion and development of initiatives for reducing emission. Within the coming decade, we will reduce CO2 emission for our existing refining and petchem assets by 20%. We also expect a lot of refineries to sharply become a part of our group. That's why we aim to effectively leverage integration synergies, both in the production and logistic level of the group. Given the changing EU regulatory environment, we have to invest in new green technologies like biofuel and biocomponents projects, which will allow us to increase biofuel production capacities more than 6x to the level of 2 million tonnes in 2030. We are also building hydrogen generation and distribution capacities. The consistent implementation of our automotive-grade hydrogen production plant has already positioned us as a market leader. No doubt, hydrogen is a fuel of the future. Therefore, we will make hydrogen fuel dispensers available to our customers at our fuel stations. Our target is to reaching the refining segment EBITDA at the level of PLN 7 billion in 2030, which is more than 2.5x higher comparing to the results from 2019. Total EBITDA generated by Refining segment in years 2021, 2030 is estimated at the level of, roughly speaking, PLN 56 billion. Till 2030, we're going to spend, roughly speaking, PLN 24 billion of CapEx. Our main targets for refining segment are presented on the next slide, Slide #25. Now let's move to Petchem segment, so Slide 26. Petrochemicals will be a priority growth area of PKN ORLEN until 2030. We aim to become one of the Europe's largest integrated petrochemical producers within the next decade. Our strategic goal is to steadily grow the share of specialized petrochemicals in the group's product portfolio and establish a strong foothold in the recycling market. So this is our response to the global and regional trends. Our 2030 goal for petchem business is to expand the production capacity of basic petrochemicals by development of olefin complex. This should serve a base for developing specialized products such as automatic derivatives and phenol. Once these plans materialize, the share of specialized products in ORLEN Group portfolio will rise from today's 16% to around 25% in 2030. We will also drive up the group's share in the promising Polymer segment. So our strategy until 2030 envisions extension of polymers value chain and enter into compounding and concentrate. In a parallel effort, we will strive to establish strong footholds in the developing market of plastic waste recycling and biomaterials. By 2030, PKN ORLEN will recycle plastic waste via both mechanical and chemical processes, and we'll make an entry into the biomaterial segment. We will launch a plastic waste recycling facility with a total capacity of around 300,000 up to 400,000 tonnes per year. Our target is to reaching the Petchem segment EBITDA at the level of PLN 7 billion, so comparable level to the Refining segment, which is more than 3x higher comparing to the results from 2019. Total EBITDA generated by Petchem segment in years 2021, 2030 is estimated at the level of roughly speaking, PLN 48 billion. Total CapEx till 2030 will reach up to PLN 44 billion. Our main target for Petchem segment are presented on the Slide #27. So now let's move to Energy segment, Slide 21 -- 28, sorry. Within the coming decades, PKN ORLEN will be the leader of energy transition in Poland and Central Europe. Power generation will be the key driver for a stronger ORLEN Group until 2030. We will continue to build our position by further growth of renewable and low-carbon power generation business. The growth of power generation will be based on renewable sources. So we plan major investments in offshore wind farm projects, adding 1.7 gigawatts of capacity and onshore wind farms and solar PV systems, adding 0.8 gigawatts. I mean that our energy production capacity will increase up to 2.5 gigawatts in 2030, so 5x more than less capacity in 2019. Complementing renewable power will be projects expanding the capacity of our gas-fired power plants with plants located in Ostroleka, possibly in Gdansk, but also in Litvinov. So I'm talking about new CCGT units. Total gas-fired power generation capacities of ORLEN Group should exceed 2 gigawatts. Simultaneously, we plan to expand our distribution assets, complementing them with innovative solutions such as pilot energy storage facilities that will help to optimize electricity distribution costs. Our target is to reach in Energy segment EBITDA at the level of PLN 7 billion. So I think that we like 7, which is more than 4x higher comparing to the results from 2019. Total EBITDA generated by Energy segment in year 2021, 2030 is estimated at the level of, roughly speaking, PLN 48 billion. Till 2030, we're going to spend PLN 47 billion of CapEx. Our main target of Energy segment are presented on Slide 29. So now let's move to our Retail segment, Slide 30. Retail is definitely the most recognizable part of our business of ORLEN Group. So we are currently running 2,800 fuel stations across 5 markets in Central Europe. Over the next decade, we will seek to expand our network, particularly outside Poland, to the level of 3,500 fuel stations. So this will help to consolidate our leading position in the region and provide a stable source of revenues. The share of fuel stations outside Poland should increase to over 45% in 2030 from current 37%. We are investing heavily to expand our nonfuel offer at the fuel stations and beyond. We will launch retail outlets outside our fuel stations in Poland and the Czech Republic next year. Seeking to the support for those plans, we have acquired RUCH. We will also grow our network of parcel pickup points and e-commerce business. We expect that these initiatives will deliver a 50% increase in our gross nonfuel margin by 2030. Additionally, integration with ENERGA Group is a very good starting point in building comprehensive B2C and B2B service centers, covering such areas as fuel and electricity sales and distribution of energy. We are also committed to provide advanced and comprehensive services. We aim that our customers of fuel stations will be able to refuel a vehicle by CNG, LNG and hydrogen. We are set to have over 1,000 electric vehicle fast chargers by 2030. We are constantly working to improve the quality of our services for customers, implementing best sales practice to boost the profitability of our business. Our target is to reach in Retail segment EBITDA at the level of PLN 5 billion in 2030, which is more than 1.5x higher comparing to the results from 2019. Total EBITDA generated by retail segment in years 2021, 2030 is estimated at the level of PLN 42 billion. Till 2030, we're going to spend, roughly speaking, EUR 11 billion of CapEx in the retail segment. Our main targets for Retail segment are presented on the Slide 31. So now let's move to Upstream segment, Slide #32. We may say that sustainable growth of our upstream portfolio should support our downstream and gas-fired power generation business. In the coming years, we plan to carefully expand our portfolio of hydrocarbon assets, focusing on natural gas. We plan to increase total hydrocarbon production up to 50,000 BOE per day in 2030. By that time, 20% of ORLEN's group gas demand is to be covered from our own production. Therefore, our strategic goals are to optimize the Upstream portfolio following integration with Grupa LOTOS and to focus on stepping up natural gas production. One comment, if the PGNiG acquisition is successfully completed, the business expansion materialized, we will review our upstream portfolio. Our target is to reach in Upstream segment EBITDA at the level of PLN 1 billion in 2030, which is more than 4x higher comparing to the results from in 2019. Total EBITDA generated by Upstream segment in years 2021, 2030 is estimated at the level of PLN 10 billion. Till 2030, we're going to spend circa PLN 9 billion of CapEx. Our main target for Upstream segment are presented on the next slide, Slide #33. So let's summarize our goals and move to Slide 34. We may say that in 2030, ORLEN will be a multi-utility leader in the region, bigger and more diversified. In the Refining, we're going to increase our throughput capacities from current 35 million tonnes of crude oil per year up to 45 million tonnes crude oil per year. Biofuel production will increase up to 2 million tonnes. In terms of Petrochemicals share of specialized petchem products in our portfolio will reach, roughly speaking, 25%. We will also have installed recycling capacities at the level of 0.3 million, 0.4 million tonnes. In Energy segment or power generation, installed renewable capacity will increase up to 2.5 gigawatts, and we are also going to have gas-fired capacities at the level of 2 gigawatts. In Retail, the number of fuel stations will increase above 3,500 fuel stations in 7 markets. And we will also develop, very quickly, a number of fast charging points for electric vehicles that may achieve in 2030, the number of 1,000. In Upstream, daily production of hydrocarbons will increase significantly from current 18,000 BOE per day to even above 50,000 BOE per day. And as I've mentioned before, we would like to have covered our internal demand for gas at the level of 20%. You may say that those goals are ambitious, yes, but we will do our best to deliver them. But to deliver this goal, there is a need definitely for some major changes within the organization described on the Slide #35 up to 38. So in line with PKN ORLEN strategy, organized changes will be an integral part of each business segment growth. Data aim will be to streamline and speed up processes. We will increase spending on innovation, including green technology projects. They will play a key role in developing new areas of our business and our expansion towards increasingly more specialized products and services. Ultimately, we intend to spend 3% of CapEx on innovation, research and development. This will amount to a total of PLN 3 billion over the next 10 years, putting us on a strong footing in relation to our peers. These funds will be allocated to the development of the corporate venture capital fund and our R&D center, among other projects. A killer element of ORLEN Group's transition will be digital transformation of its business, integrating all segments and internal processes. This will keep unlocking the previously inaccessible sources of added value and better leverage of capacities and assets. We will deploy integrated and flexible digital solutions and substantially improve the efficiency of our production and distribution processes, reduce our environmental footprint and foster customer relationships. In order to support the delivery of our strategic goals and pure integration processes, ORLEN Group will implement advanced governance model. We will align it with the scale of our business, taking into account the various aspects of sustainable development. Our business growth and diversification goals require human capital with extensive knowledge and competencies. Therefore, talent and human capital development will be another prerequisite in the ORLEN Group transformation. We want to build an organization that relies on knowledge and versatile competencies. Finally, sustainable development initiatives will be an essential part of our strategy. And I would like to elaborate a little bit more on this because ESG is on the radar of many investors, rating agencies, et cetera. So let's move to Slide #39. And here, we may say that ORLEN Group's set ambitious ESG and sustainable development goals supporting by implementation of its business strategy until 2030. As you may have already noticed, sustainability goals are integrated into business segment strategies here. So we are turning the challenges of climate change into opportunities for sustainable development in the new strategy by investing in renewable energy sources, biofuels, recycling and improving our asset performance. We also analyzed our climate impact and adapt our business model to changes in the environment. The priority of this strategy is well-known commitments of the decarbonization strategy to reduce emissions and to achieve climate naturality. The social side of ESG and our interaction with communities has traditionally been strong at ORLEN. So here, we will strive for business excellence, improving local communities programs. ORLEN has important purchasing power in Central Europe, which we want to use to leverage ESG goals along the supply chain. The new approach involves strengthening sustainability management in the supply chain by monitoring ESG area, integrating environmental objectives and education on ORLEN's group values and health as well as safety rules. We take pride of our strong governance mechanism. We want now to promote the best ESG practices among our suppliers in the same way top companies in the world do so. Everything we do in ORLEN Group is underpinned by our values presented on the Slide #40, like responsibility, development, people, energy and reliability. So that's all from my side. Thank you. And now I hand over to Michal, who will give you more color on financials. So Michal, the how floor is yours.

Thank you very much, Karol and Konrad, and good afternoon, everybody. Let's talk a little bit about the financial foundation. So starting with Slide #42. As you can see in our strategy, our ambition is to be one of the fastest-growing multi-utility companies in Europe. In order to achieve this goal, we have established a solid financial framework. We have defined 3 pillars of our financial foundations for the next decade: efficient investments, sustainable financing and stable balance sheet. Let's dive into the details on this triangle. We have very ambitious investment plans for the next 10 years. Our goal, our aim is to select the investment project which will contribute the most to the group's value. For this, we will invest only in the projects meeting our ambitious IRR criteria. PLN 85 billion out of PLN 140 billion of CapEx planned for the next decade will be assigned to projects in new areas of the group's activity, mainly strategic development and investing in the future. Sustainable financing is our second pillar. We want to be an active issuer of green and sustainable bonds, and we want to efficiently use an alternative funding sources as well. We will maintain our balance sheet stable throughout the whole period of the strategy, just moderate debt level, not higher than 2.5 net debt-to-EBITDA. We will keep strong investment-grade credit rating. These 3 pillars, mainly efficient investment, sustainable financing and stable balance sheet, will be cornerstones for the value creation of ORLEN Group. Our EBITDA at the end of the case will grow by approximately 2.5x. Our ROCE will reach double-digit levels starting 2025. Not only we want to create value to our shareholders in the long term, but we will also share our profit with shareholders on an annual basis. We will pay dividend of minimum PLN 3.5 per share starting 2021. Now moving to Slide 43. This one is presenting state of CapEx over the next decade. Approximately PLN 55 billion will be invested in our current core business assets, mainly in the Refining segment, Fuel retail segment and Energy distribution, in order to maximize their performance and secure financial resources for investments in 2 other group of projects. Strategic development projects will be critical for creation of the group's value over the next decade. Because of this fact, investments in petrochemicals, low and 0 emission energy resources and nonfuel retail will constitute over 50% of our total CapEx. In those 2 group of projects, I mean, maximizing performance and strategic development, our intention is to achieve the return on investment of at least 3 percentage points above the weighted average cost of capital, which we calculate individually for each segment and project time for the project which returns are not regulated. We do not forget about the projects, which will drive our value in the long term beyond the time horizon of the strategy. This is why we will invest around PLY 10 billion in new mobility, hydrogen technologies, recycling, R&D and digital transformation. Slide 44 is presenting the time line for key groups of -- for CapEx on key groups of projects. Majority of our investment projects in our current core business and plan -- are planned to be completed in the first half of this decade. Proper timing for these investments will be critical for the efficiency. Most of these projects shall not be postponed due to the life cycle of traditional business. Investments in renewables and sustainable projects will be realized throughout the whole period of the strategy. On Slide #45, we are presenting more details about our balance sheet and funding sources. The stable balance sheet and well-balanced funding structure will be the foundation for our growth. Our investment plans are well aligned with our financial capacity throughout the period of the strategy. We estimate that we'll be able to cover most of the investment and cash spending with current operating cash flow within the next decade. In order to be efficient, we also plan to leverage our balance sheet to the optimal extent. As I said, our goal is not to exceed 2x net debt-to-EBITDA ratio in the long run. With maximum level of 2.5x in short periods of time, especially when recording high accumulation of organic investments and major acquisitions. I would like to underline here that our base scenario for LOTOS and ENERGA acquisition and takeover is on the [indiscernible] In line with the EBITDA growth, our debt capacity will grow as well. We estimate that with PLN 26 billion of EBITDA in 2030, the debt capacity will be higher even by PLN 40 billion, PLN 50 billion by the end of this decade. We plan to balance our funding sources through establishment of EMTN program in first quarter 2021. It will give us maximum flexibility in terms of timing and scale of bond issues on international markets, especially in euro market. It is also our intention to be a frequent issuer of green and sustainable bonds, both on the domestic and foreign market. We also actively use all the native source of funding in our activity, including limited record project finance, particularly in the power generation and petrochemical projects, EU funds dedicated to sustainable and innovative projects and co-funding of selected projects with strategic investments, like we do, for example, in offshore wind farms. Potentially, we can also use hybrid bonds to the extent they meet rating criteria. Slide 46. We will grow and diversify our EBITDA in a way which will make it more resilient to macro environment, mainly through increase of contribution of Petchem and Energy segment. Both segments should bring additionally PLN 10 billion in total to group's EBITDA by 2030. We believe that more resilient EBITDA in combination with conservative debt level will translate to strong investment-grade credit ratings. Last but not least, Slide 47. Transparent and stable dividend policy. We want our shareholders to benefit both from a long-term value creation and from the short-term cash flows. We come back to the previous dividend path. Next year, we will pay at least PLN 3.5 per share. In the following years, the dividend will be at the same level or higher. That's all from my side. I'll hand over.

Yes. So I think, operator, that now will finalize the presentation, so we can kick off the Q&A session. So we are ready to take questions.

[Operator Instructions] Our first question is from Ekaterina Smyk, Bank of America.

Yes. Hello, everyone. I have several questions. The first one is in terms of time frame of CapEx and EBITDA growth. I can see Slide 44 where you have put an illustration of the time frame of investments. In terms of the new [indiscernible] sort of share of CapEx that can be spent before 2025. From this chart, most of the investments already started in 2021. So does it mean that your CapEx can go straight to PLN 13 billion, PLN 14 billion per annum from -- already from next year? And same question on the EBITDA growth. I understand that most -- the EBITDA growth will be mostly backloaded. But what share of the growth we can see before 2025? The second question, on dividend. Do you plan to have a dividend policy in place that will have a formal progressive dividend policy of at least PLN 3.5 per share? Or that is still your intention to pay? And the last question in terms of leverage targets. You mentioned 2x net debt to EBITDA in the long term, 2.5x maximum threshold in the short term as you go through the CapEx. If -- in case -- is that a strict target in case you are approaching your maximum target, can you scale down investments? Or it will be more of a medium-term target? And fluctuations from the year-to-year would be possible?

So I can take the first question, Konrad Wlodarczyk speaking about the CapEx. So as you said, the first half of the decade will be fully packed with CapEx. So the peak CapEx probably will be in 2024. Of course, we will, let's say, adjust the CapEx to the macro conditions and our financial possibilities. In terms of EBITDA, you may assume that it will gradually grow over those 10 years, yes? So taking into consideration that some of the projects are to, let's say, to deliver this PLN 26 billion must be done right now or never. You may assume that majority of those big investment projects will be a part of Energy segment, petchem, but as well as refining business.

And as regards to your other questions, I hope [indiscernible] you asked about the dividend. This is our goal. We want to pay at least PLN 3.5. Of course, the final decision belongs to the shareholders, but we want to provide our shareholders with a clear transparent dividend strategy. And at the same time, we want to keep a safe level of the debt, as I said, and you look at quality mentioned. It will be, in general, 2x net debt-to-EBITDA at a short time, short period of time with accumulated investments, organic investments or become a nice -- we can exceed this level and come up to 2.5x net debt-to-EBITDA. I mean, we have a couple of tools which will enable us to keep this target. We can either shift some investments. We can use limited recourse project finance and keep part of the investments of the balance sheet. We can look for the partners to work together with us some strategic investments. Last but not least, we can also consider hybrid bonds, which would also deleverage our balance sheet. So we feel confident that we can pay the dividend that we have described. We'll keep the fair level of the debt presented in this strategy and realize the CapEx plan at the same time.

Maybe one comment from my side. Please be informed that this presentation, so the figures based on the consolidation of PKN ORLEN, ENERGA and LOTOS figures. It does not include PGNiG due to the fact that PGNiG is on the very initial stage of the process. So after we complete the PGNiG transaction successfully, the strategy will be updated.

Understood. And maybe follow-up on the PGNiG. It looks like PGNiG doesn't really fit within new 2030 and 2050 vision. To what extent this transaction PGNiG and ORLEN wants to do this transaction and is working to finalize it? Or we may still see cancellation of the transaction given such ambitious investment program ahead of the group?

Okay. Karol Wolff here. We wanted to make this strategy open for PGNiG. So in the value maximization part or in the value maximization field of today, we included energy and gas distribution as our area. We focus on gas upstream in our upstream section. So we want to keep this strategy open for PGNiG. We do not cancel the process. And as Konrad said, we are now in the initial stage of acquiring the approval for PGNiG acquisition. And we want to update our strategy when we will be more advanced or when we will be -- when we will have the approval.

[Operator Instructions] Are you still on mute, Mr. Patricot?

Yes, Henri Jerome Patricot from UBS. A couple of questions, please. The first one, just to follow up on the financial framework to clarify. So in terms of the flexibility in the framework, it sounds like if the macro turns out to be weaker than expected, then you look to let it to be a rise to 2.5x and then you look into a postponing some projects, if I understand correctly. And then conversely, what happens if we see stronger macro than you expect? Does that mean then faster dividend growth, would you return that excess cash flow to shareholders? And then secondly, I wonder if you could give us a bit more details around the growth that you expect in petrochemicals, which is the largest contributor with power generation. It looks like a good part of it is driven by a much higher benchmark margin. So I was wondering what's driving this bullish expectation around the model petchem margin, especially in the late part of 2020s? And if you can give us an indication perhaps around the volumes growth that you're expect in Petchem?

So let me start with your first question. Michal Perlik. Yes, your understanding is correct. We can consider shifting of some investments if the macro will be not as we are expecting to be in order to pay the dividend. Regarding your question whether the dividend can be higher than the macro is correct. It will depend whether in the past, we would need to shift some investment or not. So we have to look at it in total. But what we want to communicate and we want to give an assurance to our shareholders that it will be not less than PLN 3.5 per share. If we are able to generate more operating cash flow and [indiscernible], then we can consider higher dividends in the obvious the case as well.

Okay. Wojciech, can you take the second question?

So with regards to the macro assumptions to the petrochemical business, we do assume some cost of a weaker margin in the next few quarters. And that's the reason why we see some weaker assumptions for the short and mid term. This is the way the situation is also viewed by all the market players now. Longer term, we assume the macro to be not excessively good, but to the growth in the last 20 years, on average. So we assume the margin to be -- we will be quite [ awesome ]. And this profitability results from the program fund of this the business is slightly [indiscernible]. And the ongoing business and the growing demand for petrochemicals, the prime products, needs to be high enough to get financing and can improve for the growth projects to be realized. When the growth projects are realized, then we see some macro rationalization, then with growing demand, we see once again growing share, growing pricing. So this is like our approach to the macro on the best can we see. With regards to the [indiscernible] chart on the -- just on the monomers, polymers side, we expect -- I do not -- we will be too much precise with that, but we do expect some [indiscernible] increase in the ones. But what is more important, we would like to first build some petrochemical base products. So we use the value and the volume of basic petrochemicals. And that standard base petrochemicals into advance -- of the advanced petrochemical and into polymer. Then all advance interest in the product value, the higher the margin, the higher the profitability of the project. But the more advance you would like to be, it is more difficult to get there. You need to get the technology, you need to get the market. And what I can say here is that we do perceive each of the growth projects both from the own projects. So from the -- let's say, our own project for [indiscernible], but simultaneously, we always analyze both on acquisitions and look for the best solutions for the profitability side.

Our next question is from Igor Kuzmin, Morgan Stanley.

This is Igor Kuzmin from Morgan Stanley. First question for me is, I would like to just clarify in terms of the dividends. Is there any scenario under which the dividends can fall below the PLN 3.5 per share? Or is it basically unconditional no matter what happens to the macro situation or the CapEx intensity or whether you're going to acquire, PGNiG, at price above or below the sort of targeted levels or desirable levels? I just want to make sure how solid this floor is PLN 3.5 per share. Is there any scenario, I would like to possibly -- possible to explain whether it potentially might unfold? The second question, I would like to just to maybe understand a bit in terms of the covenants, gearing clear -- given targets clear, can you just maybe explain a little bit what are your covenants and what are the [ impact to ] sort of thresholds and on what parameters this is based on? Another question I've got is in terms of the Upstream business. So your business is getting bigger, that's clear. Do you feel strongly about retaining the Upstream business, especially given your focus on decarbonization and given the focus of the markets on cleaner businesses, et cetera. So refining is your core business, downstream is the core business. That's great. But in terms of the Upstream business, the really -- how do you see the sort of some of the upstream businesses, which are potentially, well, not really fully integrated like the business in Northern America, for example, et cetera. Do you foresee this scenario where potentially get kind of dispose those businesses or is it difficult to say now? So these 3 questions for me.

Okay. we so don't see a scenario under the current strategy that we don't pay dividend, that we have declared here. Something dramatic would need to happen on the market, but that would probably force us to review the whole strategy, not only the dividend strategy. And in this -- under this analysis, under the comment, we don't see scenario negative enough not to pay the dividend and the amount that we declared. As regard to the leverage, I understand you want more details about the compounds and yes, so we are calculating the net debt and the EBITDA, yes, it's correct?

No, no, I'm sorry, just to be clear about covenants. Do you have any sort of specific covenants attached to this target, like on your -- any credit lines of bonds, et cetera?

Well, in terms of bank covenants, the maximum level we have is 2.5x EBITDA. And our rating agencies, they plan -- they like to see us below 2, 2.5x EBITDA in order to keep the rating at the current level. These are the thresholds we have.

Okay. Sorry, 2.5 is what times EBITDA, sorry, what is the...

Yes. Net debt to EBITDA is the bank covenants.

And regarding your first question on Upstream business. Comparing the strategy, we worked under the assumption that we have our upstream portfolio at Poland. So the portfolio that gives us about 20-kilo of [oil] daily. And portfolio of LOTOS, which is of similar size. And we are aware that when we are talking about integration with portfolio of PGNiG, which is 2x, 2.5x larger than combined portfolio of -- portfolios of ORLEN and LOTOS, then the level of -- upstream level would be very different. So our strategy now is to focus on this portfolio that we have, to focus more on natural gas and to revise or to prepare a new strategy for upstream portfolio after acquisition of PGNiG.

Our next question is from Oleg Galbur, Raiffeisen.

Yes. I have a few questions. First, let's say, a group of questions. 10 years is a long period of time. Therefore, I wonder if you have any, and are willing to share with us any of your intermediary targets that would help us better assess your 2030 strategic objectives. For example, it would be useful to know how much of the growth projects that you target, have already or are close to a final investment decision, just an example. Can you talk more about your growth ambitions in the renewable energy generation? How much of the targeted 2.5 gigawatts should be developed over the next 5 years? The second question refers to your macro assumptions, which, at least in my opinion, look a bit optimistic and above the current market consensus. It would be useful if you could present us a sensitivity analysis so that we understand how would the projected EBITDA be impacted by the change in the macro environment. And rather a follow-up on dividends. Still, I'm not sure I fully got it. Provided that you are successful in acquiring the PGNiG. What should be -- or what kind of impact should we expect on the targeted dividend of 3.5%. Would these acquisitions rather allow you to revise upwards your dividends? Or can it put a pressure and force you to lower this level of PLN 3.5 minimum dividend?

Let me start with the last question. As Karol mentioned before, when we would be closer to the PGNiG acquisition, we completed this acquisition, it will require us to revise the whole strategy, including the dividend strategy. So this strategy is not covering PGNiG acquisition. So the dividend policy is also not covering the PGNiG acquisition. So once we will complete this acquisition, we will review both the strategy and the dividend cost.

And building on that answering to your first question about 10-year horizon. We wanted to show longer, all right, for the first time of PKN ORLEN Group because we are aware the challenges that are in front of us. Our challenges that require long-term investments and long-term investments done. But at the same time, we are consistently planning [ power ] planning, of course, shorter terms. And what is important here is that we want to cyclically update the strategy and update our [ directions ]. As we said -- as we did it earlier and to 1, 2 years and currently, the current market environment is very difficult to forecast in short term. So all the factors that are implied by COVID pandemics and market -- short-term market trends make it very difficult to plan for 1 or 2 years in the trends. So that's why we haven't decided to show the short-term market at the time.

Our next question is from Tamas Pletser.

Yes. I think most of my questions were answered already by you, only 2 remain on my side. Hello? Can you hear me well?

Yes, we can hear you.

Okay. Great. So I got 2 questions only. The first question is, is your strategy includes the disposal of the assets? Does it include the potential impact from the sale of those assets which you should do when you merge with Lotos Group. That would be my first question. And my second question is that it's still not clear for me, why you come up with a strategy without PGNiG and why you come up with a new strategy potentially a year from now. If everything goes well, then you'll apply PGNiG. So can you shed a little bit more light about the rationality to issue a strategy right now?

Okay. Answering your second question about PGNiG. The old strategy was a bit outdated, and we wanted to share our view from current perspective. And at the same time, as we said, we are too early to show the picture of our business with PGNiG. We wanted to -- we wanted to have more details on the business. And regarding your first question on disposal of assets, we do not exclude that. But we haven't made any decisions so far.

Yes, we don't have a big disposals in our base case scenario and strategy. But as Karol mentioned, we do not exclude it.

Okay. And when did you calculate your target? Did you include those assets which you have to dispose due to this merger with LOTOS are they excluded from this estimate?

These assets that are report in [ sources ] of implementation of [PGNiG] are included in the [deduction].

Sorry, you're saying you assume that you could keep those assets. Am I correct with this?

No, no, no, we mean that we take them into consideration -- we exclude them and calculate the targets.

Our next question is from Mr. Dzieciolowski, Citibank.

It's Piotr Dzieciolowski of Citibank. I have a couple of questions. So The first one is on the dividend. I have to come back to this. So correct me if I understood it correctly, really. You have to now make a share swap with PGNiG. And you say you promised to pay to PLN 3.5 up until this transaction happens. And thereafter, it's quite open because you will work on your strategy. And in this context, what is your thinking given LOTOS will be your subsidiary? Will you keep paying dividend out of LOTOS or up until the transaction and thereafter, minorities cannot [count on the past ]. So that's a fair question on the kind of a dividend in the context of this deal.

Piotr, yes. You clearly understand that once the transaction with PGNiG will be concluded, then we, of course, have to return to the dividend policy because at the moment, we don't know precisely how the transaction structure will be, and it might be that it will change also the number of shares we have. So because of that, we need to then revise the strategy. But it is our intention to keep paying the dividend later on, yes.

And why did you decide to pay PLN 3.5? What justifies this amount?

Because we recognize the need to continue the part that we initiated before COVID times, and that was the starting point for us.

Okay. I also have a question on strategy because in your presentation, you say that you want to be a leader in sustainable business, play in energy transition and have a carbon-neutral company. And yet, when I think about dividend structure with PGNiG, assuming that happened, how much of your business, I think, in 10 years from now will be exposed to CO2 related to upstream, power generation, refining and so on. And how do you feel that there will be a right amount out there? And then on the same subject, at what point in time do you think [ LOTOS ] and NAFTA can actually stop operations because of the energy transition process? Is there any time point in your strategic thinking that you don't -- you no longer need it happen. We will no longer need it.

Okay. Thank you for these questions. Regarding our decarbonization and sustainability. As we said, we want to achieve a target of 20% decarbonization of our current theme -- our current assets by 2030, and we want to do that via -- in energy efficiency and in renewable energy. In our strategy, we want to strongly increase the share of renewable energy in our portfolio. We want to increase the installed capacity of renewable energy 5x to 2.5 gigawatts. And we want to focus on that direction in coming years. At the same time, we want it to treat the oil and gas business as the source of profit for financing these investments. So as you can see, this will have a transition strategy that will allow us to build further on the carbon metal businesses after 2030. So we show the path how we want to achieve that. And regarding...

In terms of ORLEN [indiscernible], so yes, we always clearly said, this is one of our key assets. 50% of import of the diesel done by PKN ORLEN comes from ORLEN Lietuva, and our aim is to strengthen ORLEN Lietuva position by doing investment in hydrocracking installation. Of course, how big this investment...

I'm sorry to interrupt. I did understand, I understand the logic of what you say. I'm just asking, if we have an energy transition and we have at carbon-zero 2050, there must be a point at which you shut it off. And I just ask you, when is the point you're going to [ cite ] this decision or you don't think about using that kind of can create a certain impact on your [ next stop, next buy ], and then it will work forever.

In the horizon of the strategy in 10 years, there are no such plans to dispose this of.

Okay. And just last question from my side, please. I just want to talk just -- you're targeting double-digit returns on invested capital in the second half of a decade. And a big part of your investments actually go towards renewables. And the main levers of renewable developments in Europe actually say they're coming to low single digits, whether that's offshore, onshore or solar impact in a very commoditized market. How -- what gives you confidence you can actually outperform the peers by such a high margin on knowing that they're going to be double digit? And what are the other areas where you see such strong double-digit returns?

Well, you are right that we will most likely not be able to reach double digits in renewable. But please remember that we are talking both about the massive investment in other segments and about our current assets, which are also generating a substantial part of the profit. So it will take into consideration both the current assets and the future investments in Other segments, for example, petchem or CCGT, energy production sources, which are able to generate double-digit returns.

Our next question is from Michal Kozak, Trigon.

Yes. I have 3 questions. Maybe the first one. You presented forecast of model refining margin that amounts to $4.9 per barrel since 2026. Am I right that this does not include the differential? And why did you have some higher than long-term average margins in spite of a tough environment in the following years?

Okay. Wojciech?