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

[Interpreted] Ladies and gentlemen, welcome very cordially. Good morning. It's a true pleasure for me to welcome you at the press conference devoted to presenting to you the strategic development of ORLEN Group. On behalf of Daniel Obajtek, the CEO of ORLEN and host of today's event, I would like to welcome Mr. Jacek Sasin, minister responsible for state assets; and Prime Minister of the Republic of Poland. Hello, sir. I would like to welcome the ambassador of Hungary to Poland, Madame Orsolya Zsuzsanna Kovács. Good morning. Together with us, we also have His Excellency, the Ambassador of Saudi Arabia to Poland, Mr. Saad Saleh Alsaleh. On behalf of Mr. Obajtek, I would also like to welcome our partners together with us. We have the VP of Saudi Aramco responsible for downstream, Mr. Mohammed Al Qahtani with his same. Welcome. We'd like to welcome you very cordially. Cordially, I would like to welcome the delegation of MOL headed by Mr. Zoltan Aldott, the Head of the Supervisory Board of MOL; and Mr. Oszkar Vilagi, the VP of MOL Group. I would like to welcome Wojciech Jasinski the Chairperson of PKN ORLEN and other representatives of the Supervisory Board of ORLEN. I'd like to welcome members of the Board of PKN ORLEN, Zofia Paryla the Head of the Board of LOTOS Group and other representatives of the Managing Board of LOTOS. I would like to welcome representatives of the trade unions and the employees' council. I would like to welcome representatives of the media and everyone who was invited to the event. Ladies and gentlemen, without further ado, let's watch a short clip. [Presentation]

[Interpreted] And I would like to give the floor to the CEO of PKN ORLEN, Mr. Daniel Obajtek.

[Interpreted] Mr. Prime Minister, Ms. -- all the ministers, Ms. CEO -- Mr. CEO, trade unions, guests and media, we welcome you to this historical day. It is a day which is very important for our economy and also very important for the economy of the whole region. Climate policy and the market fluctuations, the pressure of legal framework and the market requires transformation. We have to act quickly and move fast in order to transform. Only a subject which is diversified, a subject which has combined can go through the transformation. This requires resources and engagement, requires technology. PKN ORLEN took into account -- when creating this strategy, we took into account the pillar of fuel, the petrochemical pillar, the energy pillar and the pillar related to retail. We've begun big investment processes in the 4 pillars. The processes, which we've begun related to acquisition are related to decarbonization, not only to decarbonization, but also new technologies, new possibilities. We've launched also acquisition processes. We've already conducted several of these, but we still are going to face more to come. We have to balance out the competitive concern, which will be setting trends and standards in business. We right now are taking all the LOTOS Group. It is a critical moment of the plan of transformation. We've started 4 years ago. It looked completely different in -- the business in Europe and around the world looked completely different by the time. The energy transformation and the times of pandemic also changed the approach of the business. All that happens since we've started with process is strengthening the process is justifying it. It's giving even more reason for all those connections. Today -- well, of course, before we've had approval of the European Commission in many months of very hard difficult negotiations. That's [ one element ] and other one is the structure of transaction. The structure is a combination by merger. It is a structure where we are not cashing the transactions. We are not spending the cash. Therefore, the State Treasury is increasing its share in the integrated concern. That was also a very important event. And today, ladies and gentlemen, we have one more event, and I underline it will be a historical date. Today, we want to present the partners in that remedial measure who are going to also give the momentum for development. It's not only about meeting the remedial measures, but it is about the further development of our company not only in Poland but also abroad. Ladies and gentlemen, I have the honor of presenting a strategic partner who is going to take 30% of Gdansk refinery, who is going to take the wholesale, who is going to take all over -- a part of the jet fuel, it is Saudi Aramco Company. Saudi Aramco is not following trends. Saudi Aramco is deciding on the trends to come. It is setting trends in Europe and around the world. Technical trends and trends for development of many pillars, Saudi Aramco is a world producer of all crude oil. It is the biggest producer around the world. It's the leader of development of modern petrochemicals, global leader in the branch of oil -- of crude oil and gas. It has access to modern technologies. It has thousands of patents for technical solution. It has an R&D base all around the world. Ladies and gentlemen, I want to underline that it's not only us wanting to meet the remedial measures. We also have signed 3 other contracts, very important ones, strategic ones, as meaningful or maybe even more meaningful than the remedial measures. This is the framework agreement in the question of analysis and investment in petrochemicals. This agreement is very important to us. Petrochemical industry is an industry which has the vast future and a long future to come. Saudi partners of ours have plenty of solutions, which we have to introduce also in here. I will give you one example. For 13 years in Europe, we've closed 30 refineries. In the last years, they closed 5 more refineries. Today, the crude oil has to be more and more directed into petrochemical. Today, refineries have conversion on petrochemicals around 13% to 15%. Saudi Aramco has the conversion for petrochemicals about 25%. And in their labs and R&D, they are working on conversion for petrochemicals at the level of 80%. So the question of this -- so this can solve our problem. It's not only this. The most modern catalyzers. This also plenty solutions for zero emissions because both PKN and ORLEN want to be zero emission. And also, the huge global company announced the same zero emissions declaration. It is supposed to be a healthy zero emissions based on technologies, which are not going to be a burden for market and for clients, technologies which we can afford, which our clients will be able to afford, which the world will be able to afford. Saudi has such technologies, which we also will be using. I underline that today they have R&D bases all around the world, and they spend billions of dollars for R&D, also in processes where we jointly will be interested. We are going to be beneficiaries of those processes and this investment in R&D. Another agreement which we are signing is with the scope of R&D. It Is a question of research and development. It is an agreement which we have signed with a company SABIC, an integral part of Saudi Aramco. It's a company which also is global in the scope of petrochemicals all around the world. In order to maintain the level of development of petrochemicals which we already began, in order to maintain the quality of fuel, we've signed a third very meaningful contract. It is related to economy of region. It is an agreement for crude oil deliveries. That's very important is the quality of -- the quality of crude oil and the quality of -- and the grades of the crude oil. We have signed the agreement for up to 400,000 barrels per day. So a unified concern is working through 30 -- 40 million tonnes of crude oil, which is going to be sent in different directions. Of course, it will go to the refinery of LOTOS. It will go to the refinery in the port. It will go to the Mažeikiai. I want to underline that refinery Mažeikiai is securing Latvia or Estonia part of Ukraine and also in a big part is securing Polish market when it comes to supplies to 2 refineries in Czech Republic, which are securing products for Czech Republic and partially for Slovakia, partially for, also, we have 30% of market in Hungary, but also we have a share in the market by owning fuel stations in Germany. So this is how we have a part in the German market. The crude oil is a very crucial element in the whole process. If we want to proceed with more crude oil -- process more crude oil, then we had to build our petrochemicals further. If we want to maintain the refineries, we have to use new technologies. If we want to have alternative fuels, then the Saudi side is already far advanced in this scope, and we soon will have to implement in our economy those solutions because there is no time to waste anymore. Saudi Aramco is not only going to be present in the region, but they are also present all over the world. Wherever they are, they bring in their high business culture. They not only develop companies. They give a technological boost to the local economies. Another partner of ours that I would like to mention when it comes to retail stations is MOL. First, we went to the decision of the European Commission, we are to divest around 400 retail stations. And we are doing that to the benefit of MOL. MOL is divesting 200 stations to the benefit of ORLEN, 150 in Hungary, over 40 in Slovakia. 400 retail stations when compared to the 200 that we are taking over represents a similar EBITDA level. Let me underscore that, a similar EBITDA level. However, that's not everything. The measures that we are receiving for the divestment will be used to acquire another 100 or so stations in the region. We are on the last mile of the negotiations related to that. Apart from the stations that we are divesting and acquiring, we still have over 100 retail stations of LOTOS. Wherever there is no micro concentration on the market, these stations will be rebranded and will be ORLEN stations. Well, we cannot have one station just next door to the other. That's not an economic approach. We are present in the region, we have own refineries, we have a wholesale market, a wise company is also developing its network of retail stations in the region to transform volumes also into retail and to boost the development of retail in that region, and that's precisely what we are going to embark on. We will increase the concentration or the saturation of our stations in the region. Another partner of ours when it comes to logistics. And [indiscernible] is a Polish company with Polish capital. The company is working in the field of bio additives with great experience when it comes to [ MBM ]. Last but not least, I would like to say a big thank you, thank you to all those who believe in the process. I can go back in my memory 4 years ago when I started that process. People around me were saying, "No, that's not possible. It's not going to work." For 3 years, we have not been able to balance out these companies. For 30 years, the Polish state and Polish economy has been incurring losses because we were not able to balance out our purchases of crude oil, we were not able to balance out affiliate, and we were not able to tap into the potential of the 2 companies. But thanks to the engagement of many people, thanks the commitment of wonderful advisers, thanks to the engagement of international and Polish law firms, thanks to the commitment of employees of ORLEN, of LOTOS, the Management Board of ORLEN and LOTOS, thank you, friends. And thanks to the engagement of support of Prime Minister Sasin and thanks to all those who contributed to that process, we made it. We arrived at this glorious day. And the time when we live show us that this is the right direction to pursue. We have to balance out the business as quickly as possible so that we can go through the transformation process to stay on the market and not to be a company that pulls away from the market. That would have happened automatically if we didn't have the right technology. We would simply have to withdraw. It wouldn't be based on our decisions. It would be based on our technological weaknesses. Stability of the economy, stability of the region requires new solutions, new products. And it's not only pure business. We're talking about state security, the security of our economy and the security of our customers. We want to produce innovative goods, innovative fuels. We want to invest in many areas, like we've been doing for a dozen of years or so. We're taking care of the good of the market, the wealth of the region. I've shown to you the locations of our refineries already, which is a proof of our presence. And indeed, the process was not easy. It was hard to get here where we currently are. However, we are not giving up. We are not resting on our laurels. We will go on. We'll pursue and persevere. We will embark on another process to balance out gas supply in our company so that we can be an entity of PLN 220 billion of revenue, a company that will transform the market for the benefit of our clients and customers. Once again, let me say thank you. Thank you for accepting our invitation to this conference. Thank you once again.

[Interpreted] Thank you very much, indeed. Now I would like to hand over to Mr. Mohammed Al Qahtani, VP of Saudi Aramco responsible for Downstream. Sir, the floor is yours.

Good morning, ladies and gentlemen, and thank you very much. I must tell you that Warsaw, with your beautiful old town and rich history, the city I have long wish to visit. So to join you as we mark this important agreement is a tremendous privilege. I must admit, however, I always imagine myself visiting Warsaw in June, not in January. But I'm happy to say the winter weather is more than offset by the warmth of our reception. So we thank you for your hospitality. My long admiration for Poland and the Polish people is driven by its nation's incredible resilience, its history of reinvention. And this is important because we in the oil and gas industry find ourselves at a point of transformation, where resilience and reinvention have never been more important. At Aramco, we are reimagining the future of downstream and the value it will bring, not only to our business but to the world. Our goal is to build the chemicals business that is a global leader on par with our position in oil. And our acquisition of a 70% stake in SABIC has been key creating integrated solutions from crude oil supplies, refined products and chemicals to lubricants and advanced nonmetallic products. Today, we are proud to announce our partnership with PKN ORLEN, which marks another very important step in this journey. Our relationship with PKN ORLEN began in 2016 when crude oil sales that marked Aramco's entry into the Baltic market and ORLEN's first long-term contract with supplier from the Gulf region. That relationship has grown. And the partnership we announced today will see Aramco and ORLEN working together in a variety of ways to bring value and innovation to Poland's energy markets. Through this partnership agreement, Aramco will acquire a 30% equity interest in Gdansk refinery, 100% equity interest and the associated wholesale business and a 50% equity interest in a jet fuel marketing joint venture with BP. Alongside the partnership agreement, we are signing a memorandum of understanding between Aramco, SABIC and ORLEN, through which we will explore petrochemical opportunities in Poland and Central and Eastern Europe, including a focus on liquids to chemicals pathways. Additionally, an MOU is being signed between Aramco and ORLEN to explore numerous opportunities in research and development. Aramco is already one of the largest integrated refiners in the world. And this partnership bolsters our strong position with their placement of up to 400,000 barrels per day of Arabian crude oil into ORLEN's system, serving a vibrant Polish energy market. Moreover, it's a partnership that simply makes good sense. Aramco brings to the table a commitment to reliability that has been forged over nearly 90 years of service to our customers around the world. Through SABIC, we are pursuing game-changing opportunities in petrochemicals. We are driving technologies of the fourth industrial revolution to enhance value and increase safety. And we have prioritized sustainability, not just through the low carbon intensity of our oil and advanced R&D but through our net zero ambitions going forward. And all of these efforts perfectly complement the strengths and ambitions being brought to the table by our colleagues at ORLEN. This partnership moves our companies forward on many fronts. So I'd like to thank our colleagues at ORLEN as well as the team from SABIC for their extraordinary efforts to bring this deal and these MOUs to reality, especially in light of the many challenges related to COVID-19 restrictions. In fact, while today is symbolic of a new phase in our partnership, we hope we can come together again with an even bigger event in a few months once all the formalities and approvals are in place. But we wanted to join you in person today for a very simple reason. In a city that has taught the world so much about resilience, it is meaningful that we come together here to build the resilience of our businesses and our industry in a powerful way. Thank you once again for your hospitality. Thank you.

[Interpreted] Now I invite you to symbolic signing of the documents by PKN ORLEN's CEO, Daniel Obajtek. Please approach the table. Vice President of Saudi Aramco, Mohammed Al Qahtani. Thank you very much. Now I invite Mohammed Al Qahtani, the Vice President of Saudi Aramco to take his seat at the audience. Thank you very much. Mr. Al Qahtani, thank you very much. If I may ask you to take your seat. Once again, I invite CEO Daniel Obajtek to the floor. And I also invite Mr. Oszkár Világi, the Vice President for of MOL Company. Thank you very much. Thank you very much. And now I invite to the floor Mr. Zoltán Áldott, please. The floor is yours.

[Interpreted] Mr. CEO, Mr. Prime Minister, Ambassadors, dear partners and dear guests, in fact, I am happy today, I am today with you. It is not the first time as it was said by the Vice President of Aramco, we already have plenty of opportunities at [indiscernible] ORLEN. It is a great pleasure to [indiscernible] after so many years. [indiscernible] take a part in such [indiscernible] I congratulate, CEO for such transaction and with such a volume and indeed [indiscernible] going to track the leadership position for [indiscernible] And at the same time, we are starting new partnerships, international partnerships, which in my -- our opinion can be a new potential, a possibility of [indiscernible] I congratulate Aramco and MOL that they are coming back after so many years [indiscernible] Europe. It is here set forward. It is now joining to our [indiscernible] which is here in the region. When it comes to the [indiscernible] in Poland and Hungary, they always have some common points where we [indiscernible] those you know culture and history know it very well. We Hungarian and Polish are [indiscernible] only by past and present, but also in future. It is our goal to support when [indiscernible] in the domain of sustainable development. It is said that we are meeting in affinity and that's indeed is happening for also is happening we've been working to [indiscernible]. Today, our history's meet again. And after large, long talks, we now have the agreement that we are signing to the benefit of both sides. We are going now to have a shared bullish retail by acquiring 400 fuel stations. And also, as Mr. CEO mentioned, PKN ORLEN is entering Hungarian and Slovakian markets. In the previous decades, MOL and ORLEN -- there were attempts to weaken our position, but we've managed because our region without our two companies wouldn't be the same anymore. I am convinced that those 2 companies are going to be shaping the crude oil market in Central Europe. And I really think that we are indispensable in our region. Not only our shareholders are happy but also our customers are happy with that. The corporation and also competition between us is all the time encouraging us from reaching out to more and more innovation. [indiscernible] for more means much more than just the 40 million market we want to co-operate. We want to focus on employees. We want to focus also on our other agreement that we've signed, it also has strategic meaning. Because in 2016, we've begun a strategy which meets the demand of the market. It takes into account the climate crisis. And last year, in February, we switched to an even higher speed when in our new strategy we've decided to take even more ambitious goals. And we've immediately start the transformation of our company. Only a year -- and it's not even a year, we already have 4 of such transactions and acquisitions where we increased our share in the market and we influence the shape of the market in the region. So we cannot wait to enters as actors to the market in Poland in order to get closer to our Polish partners and customers. That will be an added value for the customers and for our shareholders. We are aware that we are about to face a very important task, which is in front of us. Right now, it is a milestone next to acquiring new investments in Kazakhstan and in Hungary, building a new refinery in Hungary leads us to another step. Right now, it's our 10th country, and we can keep on strengthening in the Middle East. So Mr. CEO, today's meeting of 2 companies, which have in the heart, in the future of our region. We know what the word is heading. We know also that only through innovation and through running forward we can make it. And we've been working for the region all this time. We've achieved today what we could have done before already. The success of 2 companies is a success of Poland and Hungary. We showed that we can make another plant in [indiscernible], but also before that. We have huge expectations when it comes to our cooperation of ORLEN, and we have -- we want to thank very much to our partners in ORLEN. And thank you for signing the agreement today.

[Interpreted] Thank you very much for taking the floor. And now I invite the Prime Minister and Minister for State Assets, Jacek Sasin to the floor. The floor is your, Prime Minister.

[Interpreted] Excellencies, ambassadors, honorable members of managing bodies of companies which matter so much globally and in our region. Indeed, we meet on a historic day, it is true what has been said by Mr. Obajtek at the beginning of this conference. We've been waiting for that day. We've been working for that day for years. The projects of merging LOTOS and ORLEN was born more than a dozen years ago. Today, I go back to that moment in time when Lech Kaczynski our President, he was the father, the originator of the idea of that merger. Back then, he saw that 2 companies operating on a limited market -- in Polish market while the leading shareholder is the [indiscernible] joint forces should work hand in hand should combine your potential so that they can develop much more quickly and work to the benefit of the development of our country in our region. Then that was just an idea, an idea that seemed hard to implement, an idea that would require tremendous effort, arguments that had to be presented in Poland and on the international arena, an idea that was not sure to get the approval of the appropriate EU bodies in the context of market concentration. It was only in 2016 when the [indiscernible] take took over the responsibility for Poland that we were able to kickstart our work and our works gained tremendous momentum when Mr. Obajtek became the CEO of ORLEN. Let me take this opportunity to say thank you for bringing us here where we are right now. There we can say with satisfaction, ORLEN -- lot of our companies that can acquire such strategic partners like Saudi Aramco. The company indeed a global player, great producer of fuel, an absolute leader when it comes to the chemical market and modern technologies. That would not have been possible had it not been for this idea, this tremendous development that we have been experiencing here at ORLEN in the recent years. This is a boost for the Polish chemical and chemical -- petrochemical industry. Ladies and gentlemen, the new company that is in its nascency today, the new chemical and petrochemical entity, the huge chance of Poland, a huge chance for Polish economy, an opportunity to successfully face the challenges that are ahead of us right now, challenges related to energy transformation, challenges related to global transformation, new sources of energy, new sources of fuel. It is a chance for the region to become truly independent. The region has for decades been an area where local companies were just a background to the operations of multinational and tycoons for abroad. This region is bringing about an important entity at play. Those activities will not only be visible in Poland or in the CEE region, a player that has the muscles to be an international player to play on international markets. I'm very happy. Thanks to the agreements and the decisions that were taken, this will be possible. Thanks to our agreement with MOL, ORLEN will be able to enter markets in the CE region. That has been mentioned by Mr. Obajtek. He spoke about ORLEN retail stations in Hungary and Slovakia together with the Czech Republic, Germany, Lithuania and Poland indeed this year we have the true territorial reach. The eagle ORLEN will be present in the entire CE region, a region that really needs quick development and needs the right pace of investment, needs access to modern technologies to be able to catch up with other European countries, which face the different historical twists and turns are more developed than we have right now. I sincerely hope that the decisions that were taken correctly, and I'm sure that the decisions that we're taking will serve that purpose. And we will be able to serve the region. And more fully, Saudi Aramco has been present in the global arena up until now. For us, working with you, working together with you as a channel to make the best use of that time, to tackle the potential that open up for us to develop more quickly to build the power and wealth of our citizens and citizens of the region. As have been said by my full speaker, I'm sure that and -- this makes sense for both, not only for ORLEN, not only for LOTOS, not only for the new entity, the big ORLEN will become a fact of reality, but also for Saudi Aramco, this complements your global presence, the expansion endeavors that you have been continuing for years. And I'm sure that this agreement will build also a source of satisfaction for you that you will feel it good business. Because at the end of the day, it's a business matter, isn't it? This event is above all business event, but I cannot but -- think about the national dimension of it. As the minister responsible for state assets, I'm responsible for what has been part of the process from the very beginning -- from the very beginning being with being in close contact with the management and the Supervisory Board of ORLEN and LOTOS. And I'm truly very satisfied that we are here. We're meeting here to say that this is the last mile to make this tremendous project, a visionary project of late President Lech Kaczynsk for it to take shape and become reality. We endorse who will come here to be successors, future generations, will feel that today Poland joined a group of countries that are -- have an internationally recognizable brand, a company that we can be proud of, a company that is not only local, but is a truly global and international player. Congratulations. Congratulations on all the decisions that were taken today. I would like to take this opportunity to thank all those who have made it possible through their hard work. I would like to thank those who were brave enough to take difficult business decisions. I would like to thank the Presidents and CEOs of 4 companies. Don't forget about LOTOS. You are an important player in that process. I would like to thank the members of the Management Board, the Supervisory Board. And congratulations -- congratulate you once again, it's a truly is historical day, a tremendous achievement for the Polish economy, for the European economy, something that will be remembered for others. Thank you very much.

[Interpreted] Thank you, sir. Ladies and gentlemen, indeed it is a daylight -- historical moment. That's why it deserves to be commemorated. Now I would like to -- the following people to join me on the stage. First the host of today's event, CEO of PKN ORLEN, Mr. Daniel Obajtek. I would like to invite you to the floor. Prime Minister Jacek Sasin. I would like to invite the delegation of Saudi Aramco headed by Mr. Mohammed Al Qahtani. If I may invite all of you, thank you very much. I would also like to invite the delegation of MOL and the entire management board of PKN ORLEN and the Members of the Supervisory Board. I invite the Management Board of LOTOS Group. There's plenty of guests for our picture. Let's wait a bit more for everyone together on the stage. Ladies and gentlemen, it looks like we have to stand closer to one another to -- I am afraid that there is not going to be room in the picture for everyone. It is indeed a historical moment. Ladies and gentlemen, now everyone is on the stage, so it's a moment for photographers to take a picture. We thank you very much. Thank you. Thank you very much. Thank you for that. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]