LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD

Ladies and Gentlemen,

The ORLEN Group started the year 2020 full of optimism fuelled by its earlier achievements and strong financial performance, with a concrete plan to boost further dynamic growth. Quite unexpectedly, that plan had to factor in certain new challenges, posed to us as well as the entire global economy by the COVID-19 pandemic. However, the stable position of PKN ORLEN combined with the prudent decisions of its Management allowed the Group to smoothly adapt to the new reality, turning the challenges into a success. The extraordinary situation did not alter or halt the pursuit of the Group’s ambitious investment and acquisition plans. On the contrary, they were fast-tracked.

In April 2020, PKN ORLEN closed the acquisition of the Energa Group and, in the months that followed, integration of both Groups’ assets began to best exploit the synergies offered by the merger. In July 2020, PKN ORLEN signed a letter of intent with the Polish State Treasury to acquire a controlling interest in the PGNiG Group. At that time, it also secured the European Commission’s conditional clearance of the acquisition of the LOTOS Group. Intensive work is now under way to satisfy the conditions set by the Commission with a view to maximising the potential of both merged companies. The merger will put them on a path of further strong growth, enabling PKN ORLEN to build a solid and diversified multi-utility group capable of effectively competing on the global markets in the face of major transitions.

We are aware of the challenges posed by these developments and realise that the business segments being the Group’s strongest suit today will need to undergo a profound transformation. Hence the consistent steps to effectively strengthen the ORLEN Group and prepare it for the upcoming transformation. The chosen direction of changes is set out in the ORLEN2030 strategy unveiled in November 2020, where strong emphasis is placed on advances in energy efficiency and development of zero- and low-carbon energy sources. Projects implemented in these areas will build the ORLEN Group’s value in the coming years, positioning it as a leader of the energy transition in Central Europe, with net zero carbon emissions to be achieved by 2050.

Even today, electricity produced by the ORLEN Group comes largely from zero- and low-carbon sources. However, the Group intends to further increase their share in its energy mix, which is why in 2020 it continued preparations for wind farm development in the Baltic Sea, while investing in onshore wind assets and solar photovoltaic projects. Both in Poland and abroad, the Group also pressed on with development of the environmentally friendly hydrogen technology to ultimately launch the production of hydrogen as an alternative fuel. Last year, the construction of a hydrogen hub began in Włocławek, with Płock being the planned site of another such project. The technology is also being developed at ORLEN Południe in Trzebinia. Agreements with local governments as potential customers for the hydrogen output have already been signed.

While engaging in new areas, the Group was also developing its core business segments of crude oil refining and petrochemicals. The construction of the visbreaking unit, a project of strategic importance to the ORLEN refinery in Płock launched last year, is progressing on schedule and will be completed in December 2022. In 2020, the Petrochemical Development Programme was also ongoing, designed to increase the Group’s petrochemical capacity by at least 30%. As part of the programme, a Research and Development Centre was opened in Płock in May 2021 to drive innovation across the entire Group. A project was also launched to expand the Olefins Complex at the Płock Production Plant.

Strengthening of the ORLEN Group companies is a priority objective. For example, ORLEN Południe is being consistently transformed into an advanced biorefinery. Construction of Poland’s first unit for the production of the environmentally friendly propylene glycol was continued last year at the Trzebinia-based plant. The Włocławek-based company ANWIL proceeded with the nitrogen fertilizer capacity expansion programme started in 2019.

Another pillar of PKN ORLEN’s business is the retail segment, which has delivered record-breaking results in recent years. It is crucial to maintain this momentum by attracting new customer groups with a wide and integrated non-fuel offering and other initiatives. As a significant step towards this goal, last year we acquired RUCH, a chain of newsagents based on which the Group is developing its new food and convenience store formats under the ‘ORLEN w ruchu’ (ORLEN in Motion) brand and the ‘ORLEN paczka’ (ORLEN Parcel) courier service segment.

In 2020, PKN ORLEN posted a robust LIFO EBITDA before impairment of PLN 12.4bn and net profit of PLN 2.8bn, including gain on bargain purchase of the Energa Group. Record high operating performance was delivered by the Retail and Power Generation segments, with EBITDA before impairment of PLN 10.7bn. Despite adverse macroeconomic impacts related to the COVID-19 pandemic, revenue came in at PLN 86.2bn.In 2020, PKN ORLEN posted a robust LIFO EBITDA before impairment of PLN 12.4bn and net profit of PLN 2.8bn, including gain on bargain purchase of the Energa Group. Record high operating performance was delivered by the Retail and Power Generation segments, with EBITDA before impairment of PLN 10.7bn. Despite adverse macroeconomic impacts related to the COVID-19 pandemic, revenue came in at PLN 86.2bn.

Ahead of us are new challenges and growth opportunities created by the acquisition of control over the LOTOS and PGNiG Groups once these two transactions are closed, and with them continued work towards our multi-utility vision. The process will undoubtedly benefit the entire ORLEN Group, its Employees, Shareholders, Business Partners and Customers. I strongly believe that when summing up the year 2021 we will be able to proudly present our further successes.

Wojciech Jasiński
Chairman of the Supervisory Board
PKN ORLEN S.A.

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