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LOTOS Conference Call - 15.12.2016 - Strategy 2017 - 2022


mp3 LOTOS Conference Call - 15.12.2016 - Strategy 2017 - 2022
pdf Stability and sustainable growth. LOTOS Group strategy 2017 - 2022 EN

“Stability and safe growth” – implementation over two time horizons.

2017−2018; phase 1:

  1. cash flow stabilisation,
  2. debt reduction,
  3. continuation of investment projects in progress.

2019−2022; phase 2:

  1. a new investment programme based on best (most profitable) projects from the growth projects portfolio,
  2. the programme objectives and specific projects will be presented in 2018,
  3. the programme will be financed with profits generated by completed projects and funds obtained through cost discipline, cost saving, and other measures.

The Company will seek to gain the position of:

- producer of premium quality fuels and chemicals, with an optimum degree of vertical integration,

- provider of specialist logistics and maintenance services, and

- leader implementing innovative projects in its core business

with a view to ensuring stable shareholder value growth of the LOTOS Group and supporting Poland’s energy security.

Grupa LOTOS has identified the following five strategic objectives:

  1. Effective use of production licences, further optimisation of refining technologies, launch of new products and alternative fuels, and commitment to quality,
  2. Consistent and repeatable reduction of operating expenses and optimisation of margins along the value chain,
  3. Readiness to develop and embrace innovation based on dedicated funding, an advanced model of cooperation with research institutions and creative engagement of employees,
  4. Flexible response to risks, perceived through potentially offered business opportunities,
  5. Greater responsibility for security at large in accordance with Poland’s economic, environmental and energy policies (diversification of feedstock and fuel supplies, OHS, cyber security, social responsibility).

In the period covered by the Strategy, the Management Board will seek to achieve and maintain Grupa LOTOS S.A.’s ability to pay dividends.

Key target metrics of the Grupa LOTOS S.A. Strategy for 2017−2022:

  1. twofold increase in average annual LIFO-based EBITDA in 2019−2022, to around PLN 4bn,
  2. reduction of net debt/LIFO-based EBITDA to no more than 1.5,
  3. execution of investment projects worth a total of PLN 9.4bn over six years,
  4. securing 2P (proved and probable) oil and gas reserves of no less than 60 million boe,
  5. hydrocarbon production at some 30,000–50,000 boe/d (barrels of oil equivalent per production day),
  6. expansion of the LOTOS retail chain to comprise 550 service stations,
  7. maintenance of LTIF (Lost Time Injury Frequency) below 3.

In the upstream business, Grupa LOTOS will optimise financing sources and consistently build a sound and balanced asset portfolio, based on projects in the pipeline. The Company intends to pursue more field development projects, capture market opportunities to enhance its portfolio of upstream assets and reduce the share of licences covering mature fields in its overall portfolio.

In the refining business, the Company is set to maintain its cutting edge in technology in Central Europe and compete in innovation. In phase 1, the Strategy will be implemented through the EFRA investment programme. The Company is contemplating three potential directions of building further competitive advantage based on newly developed refining assets − more details will be provided during the presentation of our Strategy.

In the retail business, the Company plans to optimise customer service and sales, revamp its loyalty scheme, and introduce innovative products and services. The Company will improve service quality and strive to win leadership in new generation fuels (CNG, LNG, electricity and hydrogen) as part of the LOTOS Energy Hub project.

Innovation

Grupa LOTOS will develop new models of collaborative interaction with research institutions and start-ups based on joint research agendas and a dedicated innovation fund.

CAPEX in 2017−2022:

  • PLN 2.0bn for projects in progress,
  • PLN 4.1bn for projects pending FID (mainly in the upstream segment),
  • PLN 3.3bn planned as additional expenditure after 2018 – for alternative projects ultimately selected in 2018, depending on their economics and market developments.

More details on the planned capex programme, including principal macroeconomic assumptions and main objectives for future margins on key refining products, will be provided by the Management Board during the Strategy presentation.