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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the PKN Orlen strategy update 2006-2009 conference call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions.) Just to remind you all, this call is being recorded. And I would now like to hand over to today's chairperson, Mr. Dariusz Grebosz. Please begin your meeting, sir, and I will be standing by.
DARIUSZ GREBOSZ, IR, PKN ORLEN: Thanks, operator. Ladies and gentlemen, welcome at PKN Orlen's strategy conference call. Thank you for your time and interest paid to our company. Following the [best] corporate governance [processes], today we are happy to present you our updated strategy as well as delivery of the last year. The message will be delivered to you by CEO of our Company, Mr. Igor Chalupec, who will go over the strategy development and the update, as well as Mr. Pawel Szymanski, CFO of our Company. Following the presentation, which will take about up to 30 minutes, we will open before for the Q&A session.
Without any further delay, I will give the floor to Mr. Igor Chalupec.
IGOR CHALUPEC, PRESIDENT, CEO, PKN ORLEN: Thank you. Good afternoon everyone. It's a pleasure to speak to you on behalf of the management board of PKN Orlen. The beginning of February last year -- the new management board of PKN Orlen announced the vision and strategic goals for our Company for the period 2005-2009. We are almost a year since the event, and we have the pleasure to present to you the implementation status of this strategy as well as the updated plans for the years 2006-2009. We shall present during the presentation that basic development strategy as well as our view more ambitious financial targets.
Passing to slide three, I would like to shortly remind the three main elements of the current strategy of the group. The first pillar comprises initiatives aimed at changing the corporate culture of PKN Orlen, find a solution to the problems that the Company had in the past, improving the group's management practices, efficiency enhancement, preparation and execution of the restructuring process in relevant areas, as well as preparation of a development plan for the next years.
The first pillar was our primary focus in the first stage of strategy implementation in order to build solid and sound foundation for expansion plans assumed in the pillar two for home markets and in the pillar three for new market.
Passing to the slide 4, as I have mentioned, changing the corporate culture, the politicization of the Company, and the introduction of modern management practices were the starting points for the implementation of the PKN Orlen strategy. We have changed the human resources management policy. We have changed how the group is managed by redefining the missions and functions of supervisory and management boards at the group subsidiaries, and implemented management by segment in order to conform PKN Orlen with the world standards. We have finally completed the long integration process of Petrochemia Plock with CPN, and PKN Orlen has a fully integrated structure today.
Passing to slide 5, PKN Orlen has also redefined its role in the Polish energy security system. We have taken for this reason a number of actions. In all [padders], we have improved [the] certification of crude oil sources to increase the number of suppliers and decrease in share of long-term contract and supply systems structure. In our plans, we also take into account the possibility to utilize -- which does not mean, of course, to invest in -- but to utilize the outcome of the Odessa/Brody lines -- pipeline construction project.
As you also remember, in February last year, we said that we'd like to consider seriously the upstream strategy for PKN Orlen. Today, having gone through the [serious] analogies of this issue, we are completely convinced about the legitimacy of our conclusions, which are drawn from this analysis. And we shall present our growth and target in this area.
On the slide 6, we present this short [names] of the [register] of the Company. Unfortunately, we had to spend a lot of time last year on solving the problems related to the troublesome history. We have taken a number of steps here in order to mitigate the situation and to put the Company on this good track of the sound management processes. We have to bear in mind that in some of the [difficult] issues, such as the contracts with Agrofert Holdings and ConocoPhillips, irregularities at other group companies, and potential tax liabilities, these problems have already necessitated, but may still necessitate creating provisions and perfect the group's financial performance.
On slide 7, mentioning the most important [pro-]efficiency activities, one of the most important ones was the preparation and implementation of the retail network restructuring and development plan. Thanks to these activities, we have stopped the retail market share decline at the level of approximately 27%, and we expect to start rebuilding our market position in 2006 for the first time in many years. We have progressed in the investment program according to the plans that envisage [upgrading] and building over 100 stations, including more than 40 new ones. I would like to point out that the previous years on average only seven [to new] to 10 new stations a year became operational. We have recorded a 1.4% increase in nonfuel sales. The first year of implementation of the retail network development plan allows us to be very optimistic about the achieving the assumed operating targets for 2009.
Slide 8, as to our company, Orlen Deutschland, we have closely evaluated the alternatives of its operations into the future. The criteria [of the] taken when evaluation -- when we were evaluating the possible financial effect in various scenarios, they have brought us to the conclusion that the optimal scenario follows the restructure and develop Orlen Deutschland activity. This strategy is to provide the maximum financial efficiencies to our shareholders. I would like also to underline that this does not exclude the possibility of the sale of business in the future if we are able to make a [sale] conditions of such sale.
Slide 9 -- another key event in the past year was the taking the control Unipetrol, and subsequently the introduction of the partnership program. We presented to you the assumptions and objectives of this integration program in October last year. I will reiterate that we expect to boost the Unipetrol EBITDA by at least 625 million zlotys by 2008. However, as we said then, the partnership in Unipetrol should also yield additional synergies for PKN Orlen of at least 157 million zlotys assuming the constant economic environment of 2004. We expect to achieve  (technical difficulty) already in 2006.
Slide 10, cost reduction has been an important source of PKN Orlen efficiency enhancements. Preliminary estimates indicate that the previously announced cost savings under the existing cost reduction program has exceeded the expected level of 800 in 2005 by 38 million. In addition, on January 1st, we embarked on a new cost reduction program with Optima which will cover the whole PKN Orlen [as the] group.
On slide 11, we are also presenting the efficiency project. [Apart], we are also presenting the development project which were pursued in addition to the efficiency projects which I described before. We participated also in the tenders for acquisition of selected assets, whereby we were applying the assumed rate of return required by PKN Orlen.
I can also state, as you can see on the slide 12, that we [have] satisfaction that our actions were very well received and recognized, which is reflected in some awards received in 2005.
And now I would like to present to you our updated strategy directions for the next years. It's presented on the slide 14, coming right in the first stage of strategy execution. We explain the implemented change in the group's managing principles has contributed to restructuring, which was the foundation of pillar 1 of the strategy. The group's updated strategy assumes that the efficiency-oriented actions will be continued through pillars 2 and 3, including especially the M&A activity, which will now become of key importance in the future years, particularly in view of the fact that competition will move into the M&A activity as growth potential from restructuring is limited.
PKN Orlen intends to actively participate in mergers and acquisitions in the refining and marketing sector. PKN Orlen dedicates for the these activities at least EUR3 billion, having in mind that the group of potential targets has been narrowing, due to the continued consolidation
of the oil sector in the region. Therefore, we are expecting high competition in that area.
Within the next years, our goals in the Ukraine and [Holsa] will remain varied in Poland as well as in the Czech Republic and in Germany. On the other hand, we are developing -- we want to develop more actively in the petrochemical segment. Favorable macroeconomic trends and consumption forecasts in this segment combined with our integrated petrochemical refining models are an important element of our competitive advantage, especially strengthening our position of influence in development to resolve the Unipetrol -- of Unipetrol, but Chemopetrol with Unipetrol group acquisition.
PKN Orlen intends to develop also upstream expertise in the next years. As I mentioned at the beginning of the presentation, this is a breakthrough moment for the Company, which reflects the first so-called leg so far that production and access to [oil deposits].
We are going to monitor acquisition opportunities in the downstream sector in Central, Eastern, and southern Europe. And you can see some of the map of the landscape of the oil industry in Central Europe on slide 16. We will pursue processes that can create value for our shareholders and …