Polski Koncern Naftowy Orlen SA
WSE:PKN
Polski Koncern Naftowy Orlen SA
WSE:PKN
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Good afternoon. Still may not past 12. So it is already afternoon. My name is Jakub Frejlich, you just dialed in for the Orlen Group Q4, 2024 Investor Presentation. Let me introduce the speakers today, Magda Bartos, company's CFO; myself, Jakub Frejlich, Head of IR, Konrad Wlodarczyk, [indiscernible] and Tomasz Grodzki we have [indiscernible] who dialed in.
Offshore, let's put it that way. Without further ado, we had a media meeting today in the morning. Some of you, I believe had the chance to see that. We will review the presentation shortly with some additions with some more details in operations and financials and then we'll give the floor smoothly to yourself for you to ask questions.
We shall be kicking off, Magda. The floor is yours.
Thank you, Kuba, and hello, everyone. Good afternoon. It is my pleasure to welcome you again in our quarterly update call. And at this time, we will review not only the quarterly results, but also year-to-date full year results of 2024. Let's kick it off then with the first content page of our presentation. I'll start with the very general message that we are really pleased with the operational results of 2024. It hasn't been easier. It wasn't an easy year.
The regulatory environment, the macroeconomic environment and all the challenges that we spoke about during our update calls throughout the year. And just to mention the key impact, be it model refining margin down by strong double digits, moving in a completely different territory of low teens or for the last quarters of the year in high single digits. The gas prices or electricity prices, those 2 moved by a strong double digit down as well.
But all in all, we delivered almost PLN 36 billion of EBITDA LIFO. And then it also supported by the high quality of operational cash flow, our cash flow from operations exceeded PLN 36 billion for the year and allowed us to finance, among others, our investment plan of PLN 32.4 million. Leverage remains very modest, I would say, increasing but still quite immaterial. But it was a very busy year, when it comes to us working on the diversification of funding. And just to mention a few of the most critical transactions that we worked on that was the European Investment Bank loan and loan from BGK from respective European funding both to support distribution grade of electricity. We also closed an RCF deal earlier in the year and most recently, but the ones that we are probably most proud of, we issued bonds in the U.S. dollar market of USD 1.25 billion.
Both Fitch and Moody's confirmed our financial standing and with strong operations, strong cash flow generation, strong financial spending, we felt confident today to propose a dividend of PLN 6 per share that we will put forward to the Supervisory Board and the General Shareholders' Meeting later in the year to approve.
Let's move on and take a look about general composition of our results for the year. Still, we remain in the full year results. And why do you see the composition of EBITDA on the left-hand side of the page with all of our segments contributing solidly to the results for the year, with 2 segments, particularly impacted petrochemicals by macroeconomic environment and upstream by the regulatory good write-offs. I will rather focus on the right-hand side of the page. And here, we would like to discuss with you a bridge from last year's or 2023 EBITDA LIFO to 2024 EBITDA LIFO. And there are 3 buckets of impacts that are worth noting and discussing and of nonoperational nature.
So obviously, first is the macroeconomic environment, and we spoke about it on the earlier page that impacts our financial results went down and as such, impacted our top line and bottom line as well. But then we also -- 2024 was the second year of the regulatory regime related to gas write-offs and compensations for limited gas and electricity prices, but 1 is truly worth noting is that the difference was PLN 16 billion year-over-year. So we had more compensations of PLN 16 billion in 2023 than in 2024.
And lastly, it is the so-called PPA, so Purchase Price Allocation related to the acquisition of PGNiG and more than PLN 7 billion of an adjustment in 2023 supporting the results, so a positive adjustment obviously missing in 2024 as we move on and the impact gets less and less material.
There's 1 more amount, but I will discuss that on the next page that relates to the results. But 1 more thing to mention on this page. Those 3 negative impacts were largely compensated by the operational. We call it excellence. But in fact, these are simply our commercial efforts and margins realized both on wholesale, retail and sales and also volumes.
Volumes in particular, related to gas with upstream and supply upstream delivered almost PLN 3 billion of positive volume impact and gas trading, PLN 1 billion. All that together had significant positive impact to full year's EBITDA. And what we especially value about that is that those are results of our operational activities, decisions and the efforts of our teams.
And let's move on, I mentioned that there is 1 more number to discuss. On the full year, we adjusted our EBITDA by those either nonoperational or noncomparable amount. One more amount that was accounted for in the last quarter of 2023 was PLN 7 billion of change in the valuation of our hedges related to LNG imports. And when adjusting our operational EBITDA for those, we end up presenting PLN 43.5 billion of adjusted operations related EBITDA in 2024, and that compares to almost PLN 40 billion a year, the previous year and a start to an increase of more than 2/3, even of our result in 2024, that adjusted result was delivered by gas and upstream segments. The diversification of our EBITDA generation is key for us going forward, but we already have got very strong segments that support the results of the group.
And another information to discuss or another piece of information to discuss is rationalization of CapEx versus the trends is only reported by the group at the start of 2024. We already mentioned in the previous results presentations that we were working on the rationalization of our CapEx decisions. We already reported some decreases of forecast. And today, I'm happy to share that we delivered on the forecast. We delivered PLN 32.4 billion of CapEx that is PLN 6 billion less compared to the initially reported forecast.
When thinking, I believe that also of interest to you, what part of it essentially abandonment and what part is just simply facing and we can figure out from some of the details that we presented here. There's definitely more than PLN 1 billion of that change in the development in the growth CapEx relates to -- or is simply a term, on an decrease of investment and the rest is probably more of a phasing nature.
With CapEx -- maintenance CapEx, we are down by 2.7% due to changes in scope schedules some abandonment of lower budget projects. And when thinking about what's permanent, what's of temporary, we would rather work not on the particular phasing, but an average of maintenance CapEx in the strategy presentation, we mentioned PLN 8 billion to PLN 9 billion of maintenance CapEx as a regular recurring exactly delivered in 2024 that's probably the best estimate for the future as well.
And let's move on to the next page, which we see is another summary of our results, but put more in a kind of tabulatory form for better comparison. A few things to mention here. Fourth quarter of 2024, is -- was the quarter with the highest adjusted EBITDA throughout the year. So that was the best performing quarter for the group, and we delivered more than PLN 12 billion of EBITDA compared to PLN 9 billion the year earlier.
There were obviously those one of our nonrational major transactions that we have. So I'm not going to bother you with that anymore. We're only discussing the Q&A. But another element or another line here that I would like to draw your attention to is cash flow from operations, more than PLN 10 billion cash flow delivered in the fourth quarter of 2024, very strong quarter in terms of cash flow generation, especially given seasonality. And lastly, indebtedness and our financial standing discussed that in the first page as well but here, just for the sake of numbers, 0.3x of net debt to EBITDA are still a very moderate low indebtness level.
And let's move on to quarterly results. First, we'll start with the general composition of the results. PLN 12.6 billion of EBITDA LIFO for the fourth quarter and with all segments delivering strong and solid operational results. Petrochemicals is obviously still under pressure, and we'll take a look into more details here. We take some restructuring measures as well to make sure we respond to the macroeconomic environment. But all of our other segments delivered in line with what we believe was the best operational performance.
Refining continues to adjust to the new normal in terms of refining margins. We also had a one-off benefit of not having write-offs related to receivables or prepayments to be precise that related to the OTS. You might remember this was quite a well -- a publicized event in the Q4 of 2023. Energy simply delivered a very strong operational results. I will give you a brief overview of that in a moment. Upstream here is a very good simplification of what upstream segments of Orlen actually can deliver in the quarter. So we had a strong operational quarter with strong volumes delivered and no regulatory burden that's made it difficult to interpret the results in the past -- in the previous quarters.
And gas segment here, again, or similarly to the refining segment, we're searching for the new normal in terms of gas prices, but also in terms of spread being realized on those will spend a moment discussing that a bit later for a year-on-year comparison, what's critical to keep in mind PLN 7 billion related to LNG contract hedges that inflated the results of the previous quarter. So that's the negative difference related to business would have been significantly smaller, if not for the transaction.
And now details about the refining segment. And I think that there is no other way to start here the macroeconomic environment and the searching for the new normal, as I said. The refining margins for the quarter, together with the differential went down by a 1/3, so a 30% drop which represents a global normalization of the refining margins and cracks, but also increase supply of products related to the Dangote refinery in Nigeria [ Bonny Light ] at capacity of volumes that's an interesting one.
So volumes went down in terms of tons, but the volume effect is positive in terms of money. And that relates to changes in the sales structure for refining products and also is a consequence of quite an aggressive sales or commercial strategy in the third and fourth quarter of 2023. This year or in 2024, we saw more products as compared to more owned production, that's then compared to the imports or trade products, and we obviously deliver full margins on our own production of both production margin and commercial trade margin.
When it comes to the operational results of our refineries, very strong performance with throughput increasing in Poland and Czech Republic. There is a slight decrease in Lithuania related to our planned maintenance shutdown, but mostly to shift in crude supplies related to weather conditions in the Butinge terminal therefore, we have to limit throughputs in our refinery in Lithuania.
2 more elements that I would like us to note here. One is we successfully managed another round of negotiations with insurers and received compensation another compensation installments for the desulphurization unit. We call it H-Oil. All right. And just a reminder, we spoke about it already the previous year's quarter includes a write-down of PLN 1.5 billion, obviously, are not on the books in this year. Therefore, you've got others at the largest contributing components here, but essentially consisting of those 2 adjustments.
Petrochemicals, continued to struggle, but the trouble that we have started navigating proactively. Definitely, the macroeconomic environment and the market pressure is still there. We delivered strong volumes and sales. You may notice that each of our product groups delivered strong sales growth but that didn't translate to any improvement of the results.
Simply, the economic -- macroeconomic environment is too tough to enable us respond to that with the volumes growth. But the good news is that the operational performance and supply of products was strong. There's 1 more good news, even though in the negative territory, and that's the restructuring accrual related to Spolana plants restructuring. We made decisions towards the end of quarter 4 related to restructuring plans of Spolana unit and closing or shutting down certain production units there and also making significant redundancies. That is an estimate of 0 point score one-off costs, but surely aimed at improvement in the segments in the future quarters.
Energy segment, solid operations. There are 3 business lines that contributed visibly to the result of almost PLN 2.3 billion of quarterly EBITDA for the energy segment. The distribution, the peak production and there is electricity production, each of those business lines delivered more than PLN 500 million of EBITDA to the results. Production, electricity production, specifically by our CCGT units benefited enjoyed lower contracted gas prices and our heat production business line, obviously performs better in the winter season therefore has unexpected results.
When it comes to volumes and production of electricity. One thing to mention is renewables production, renewables, even though a much more difficult quarter, when it comes to weather conditions still contributed solidly to the total results of energy. And as a result of our transactions -- M&A transactions, we improved or increased installed capacity in renewables up to 1.5 gigawatts.
And just lastly, you mentioned for the sake of record energy segment in the fourth quarter was not balanced by the regulatory write-offs those are discontinued. And as you can see, benefit or those discontinued and service benefited by PLN 0.6 billion in the fourth quarter, when it comes to operational results.
Retail segment. And the good news here is that across all of our retail markets, we delivered strong operational results, strong margins on fuels and non-fuels, strong volumes. We are growing the number of stations and the number of fuel stations increased year-over-year for the fourth quarter, but that's a result of M&As in Austria and Hungary, something we already introduced and spoke about.
But the non-fuel sales points also grew by 103 and alternative fuel stations also grew by 135 points. The largest positive impact obviously comes from fuel margins and nonfuel margin and that's across all segments, but there is 1 thing to keep in mind, Polish market simply reestablished to the fuel margin.
In the fourth quarter of 2023, we had abnormally low fuel margins in the Polish market as a result of that aggressive commercial policy or strategy that also impacts the refining segments. Polish zloty gaining against key currencies. Therefore, there is some negative results related to the foreign operations in retail and as we grow our network fixed costs grow as well, therefore, you've got some negative impact on the result of the segment, but all in all, very solid performance.
Next is upstreams. And the upstream is all about volumes as well. We grew volumes by 17% in terms of hydrocarbon production, and that's mainly an effect of increased production in Norway. In Norway, as a result of our Kufpec Assets acquisition we managed to grow production volumes by 30 BOEs a day that represents a 40% increase compared to last year.
Again, I will mention that, because that really requires proper significant attention there was no more gas write-down related to upstream operations. And this we will discuss in the outlook section as well. There is none in place. And therefore, we believe this is a good example of -- a good exemplification of what the results of upstream might be in the future.
Just 1 reminder, in total, gas write-offs were very similar for 2024 and 2023, roughly PLN 16.5 billion, but in 2024, timing was different and we have all of that write-down accounted for in the first half of the year. An additional element to keep in mind is the increase of gas prices by 9% for the fourth quarter, because for the full year, we had a drop in gas prices but that was compensated by strong appeal against specifically Norwegian kroner and the U.S. dollar.
And lastly, production in Norway, I mentioned the growth. There was 1 quite a significant event in our Norwegian assets and namely Sleipner B fields we had or a country will called it fields, probably there's a better English for that. But our Sleipner B assets happens to be a victim of a fire and let's put it this way. We had to stock production, but we managed to compensate for that lost production, increasing production in other fields. Therefore, all in all, we managed to increase production in the fourth quarter, very close to the maximum levels or highest observed levels of [ 2,150 ] BOEs per day.
And then gas trading comes as the last one of our segments. We increased volumes sold to industrials and retail customers, industrial total sales. So for the fourth quarter of 2024 went up by 5% or 2% for the full year. As a result, our distribution volumes grew as well. That represents a growth of 10% and all those significantly improved the results or impacted the results of the segment.
There is 1 notable phenomenon here to keep in mind, when thinking about outlook for the segment and that's narrowing spread for sales -- for contracted sales of gas. And we have observed the narrowing spreads for the last year and that also remains in place for 2025. And again, but I will only very briefly noted that keep in mind the PLN 7 billion positive impact for the fourth quarter of 2023 in the gas segment that is no longer in place in 2024. Therefore, distorted comparability of the numbers.
And on the next page, we will talk about our investment plan. I shared with you on the first part of our presentation that 2024 ended up -- we ended up spending PLN 32.4 billion into our asset base. We expect 2025 to -- we expect it to be PLN 35.3 billion in 2025. There are 3 large investment categories here obviously upstream and supply, downstream and energy. Key projects for upstream and supply remain to be Norwegian assets and the exploration production projects for Yggdrasil, Tommeliten Alpha and Fenris. There are some other investments in Poland and Canada, but the Norwegian ones remain a key priority for 2025.
For the downstream segment there, we continue to deliver the products we already spoke about, our investments we already spoke about, that includes the new chemistry product and the units of hydrocracking in Mazeikiai also hydrocracking oil, unit in Gdansk, but also our biofuel units like bioethanol and -- oil press unit, I'll leave it with that.
When it comes to energy, there are 2 key areas of investment. We continue delivering CCGTs in Grudziadz and Ostroleka and obviously are investing heavily in distribution grid, especially that we just obtained the financing from BGK of PLN 7.5 billion, an extremely favorable on the prices with extremely favorable commercial conditions. Therefore, we would like to maximize utilizing those.
Consumers and product investments are all about expanding our network to nonfuel sales and alternative fuel stations obviously working on the quality of our fuel stations as well. One other thing to mention here is lease in financing. We spoke about the diversification of financing. We are also utilizing leases for the purposes of financing our investment plans. And leases are expected to grow in 2025 from PLN 1.9 billion to PLN 3.6 billion as we are, as we just started our shifts in 2025.
And outlook, to summarize our presentation. I'll give you some more thinking behind the impact here or the key elements here. Onstream and supply segment will surely have it easier in 2025 because of lack of the regulatory burdens or the lack of the gas write-off that impacted the results of 2023 and 2024.
What's more to keep in mind here is gas prices and the movements of spreads. So we expect spreads to be tighter between the selling and contracting price in our gas trading contracts, but we expect improving or increasing gas prices to support the results of the upstream and supply segment as we see production coming in according to the expectations. And obviously, favorable import spread, if that continues, gives us a benefit on the results as well.
When it comes to downstream, we spoke about searching for new normal in terms of refining margins. And I think this is exactly going to be the year of managing the 2. Impact from the adverse or maybe not adverse, but less favorable macro environment in terms of petrochemicals probably adverse as well. But then we expect significant improvements in terms of operations. Grease braking and desulfurization unit should be online in 2025 in ports as such improving the yields of middle deflate.
And we expect that to support the results of the group. But we will continue to operate in a market that will be more comparable of '25 to '24, but probably still quite difficult to navigate.
Energy, in terms of energy segment, our key expectations or actually already not even enough expectation, but already known is increase in distribution tariffs. We will record better results from distribution. We also expect increase in electricity production as our renewables portfolio grows and contributes to the results of the segment. negative gas prices, increase in gas prices will obviously have a negative effect on the energy cost base and impact the segment here. For consumers and products, I think it's going to be exactly another year of focusing on our customer needs, the quality of our work with the customers. So we expect that to translate in higher sales and higher margins.
But please also keep in mind that we will be changing the composition of the segment and energy and gas retail will being incorporated into the consumers and segments or has been already incorporated into our consumers and product segment that will add to the result of the segment, but we expect it also to improve the results compared to year-on-year.
We expect the full year's EBITDA to be somewhere in the similar territory to this year's EBITDA. We see definitely the potential upsides. But as we are still in the very early of the year, we simply want to be cautious and conservative with our expectations. We've got a very good base for 2025. We see no surprises on the horizon for the time being. Therefore, we are moving on, delivering the results hopeful for the better, but still when talking about the expectations, we would rather remain cautious and moving the territory similar to this year's EBITDA, which, by the way, significantly exceeded expectations. So that's also worth keeping in mind.
This concludes my presentation for today. We will be happy to take your questions right now and together with the team in the room here at our online headquarters. Please go ahead.
Despite ordinary token we have, I'll let you ask questions according to who came first. And by all means, first was Anna.
Can you hear me? Hello.
Yes.
Okay. I have several, if I may, starting with the investments. So you provided the CapEx guidance, but you also were flagging the range of total investments, including M&A for '25, '27 in the strategy. Do you have already clarity of what level of potential M&A can we see in 2025 and whether would you target a positive free cash flow for the year or still a bit of a negative free cash flow in 2025 including M&As. That would be my first question.
The second question around Venture Global contribution. You expect the first cargoes to be delivered in April. Could you command what contribution could have on your trading business? And maybe more broadly, you already commented on the direction for the trading business, but maybe you have some numbers you can share in terms of what EBITDA contribution from trading, would you expect for 2025. And finally, a quick question around, do you see any risks to kind of the upstream product from the tariffs discussion?
From what discussion? I'm not sorry, I didn't get that?
Tariff.
All right. Let me start with the M&A. That's probably the easiest one. We are -- as we communicated during the strategy, indeed, taking into consideration both investment streams. So the capital outlays for the asset base were developments and maintenance of the assets versus the buy decision.
However, for a particular year, that would be rather impossible unless all those transactions or some transactions would be at the stage that are already announced. So since we do not have any transaction announced I find it difficult to give an indication of the potential M&A outlay for 2025. We are working on a number of deals today. We spoke about during our press conference about the 1 that you also always ask or question that's the polyolefins in [ Politza ], but we are also focusing significantly on renewables acquisitions. If there is a deal that comes close to fruition, we will obviously talk about numbers, but since M&As are simply a different animal than CapEx that you need to plan well ahead, contract well ahead and you've got much more visibility on CapEx. It's very difficult to talk about the estimates today for the year.
When it comes to -- when it comes to Venture Global and -- 2 comments here. Venture Global itself, what we know today is that they informed us about the first cargoes and deliveries expected for April 2025. And until it happens, it's really difficult to comment anything. We need to make sure that we received that cargo. We've got some more visibility on the cooperation with the vendor with the supplier. So far, the credibility of the supplier has obviously been impaired. So let's please give us some time until April -- and then we will comment more probably with the first quarter results.
We would rather avoid speaking about single segment contributions. We also asked on about EBITDA from the segment, but we discussed the territory or, let's say, movements there's a lot in the upstream and supply segment that makes us optimistic about 2025. I mentioned the lack of regulatory burden. I mentioned improving gas prices. There is the fed that we need to be cautious about and some probably market-driven volatilities that still might be difficult to navigate. But all in all, we are optimistic about the upstream and supply segments for 2025.
And Canada tariffs I'm probably a bit less prepared to discuss that one. So I'm trying luck with the team. And if not, we will.
Well, I would comment to speak, I would say. So that -- well, looking on the Canada operation in terms of upstream, so the activities are quite small over there, yes. So the contribution to EBITDA is between PLN 300 billion up to PLN 500 million on the yearly basis. So having in mind that's combined segment upstream and the gas, we've delivered significant results in 2025. I think that Canada upstream is negligible.
Jonathan, the floor is yours.
We have 2 questions, if we may. The first 1 is about the new segments. You mentioned that the way the segments are going to be structured it's not just for presentation matters, but also because you're going to think about them in a more synergistic way and we were wondering, if you could provide more details and color about the potential of synergies and cost efficiencies and maybe ballpark estimates of what the numbers might be?
And then second is about dividends. This year, you paid very large dividend per share and it's higher than your free cash flow generation. And we were wondering, if you would be willing to do that in the future as well. So the dividends being higher than free cash flow?
Yes. I'll start with the dividend, and thank you for the question because I actually would like it to be heard that we are very serious about our commitments to shareholders, and the commitment is that we will share our operational results and the operational cash flow with the shareholder obviously each year evaluating where we stand. And we made this evaluation where we stand quite recently. We delivered strong results for the fourth quarter, exceeded the expectations, managed to raise very favorable funding.
We also see no significant as of yet threat or impact to our results going forward. And there is a check on all the parameters that we set to the site how much we can share with our shareholders still in order to be responsible -- on the responsible side of the matter.
So yes, we are willing and we are serious about our dividend policy. Each year, we will, again, in a responsible manner evaluate the spending of the company and operational performance and cash flow generation profile, but we changed the parameters. We are not talking about free cash flows, allowing us to share with the shareholders because we know on the launch investment plan is of rather abnormal nature, so we would normally not expect several years to go with negative free cash flows, but we are a very strong business that of diversified nature. We believe we can generate cash flows that will allow us to keep the strong balance sheet position of the company, but share attractive dividends or dividends with the shareholders that are simply comparable to other players in the industry as well. So that's my statement on the dividend.
On the segment compositions, on the segment composition, yes, Kuba you may drive us to the page, where we -- on a very high level, of course. I understand we will need to provide more details in this promise that will come with the full year financial report, mid-April to be expected. But how we grouped the segments and what synergies we believe -- it's not the matter belief -- what synergies are there between the segments.
Upstream and supply simply consolidates all of the activities that supply commodities to our doorsteps. So that might be upstream, that might be supply of commodities to other business segments, so to downstream and to energy. That's the kind of logic here. And then the downstream segment takes an input from the upstream and supply and processes that input into final products and those final products go to consumer end product or on sales of the downstream segment.
Energy obviously takes the inputs, too. There's some more happening there in the energy segment, different sources or different ways to produce energy, but also distribution assets will both gas and electricity we put in the energy segment. In consumer products, that will -- that segment will consolidate all activities facing our clients. We want to make sure we have the right organizational focus on the integrated offering for our consumers on the consumer insights into product development. All that we believe are synergies currently not tackled and we're just tackling and that will help build an even more loyal consumer base for the future. So I hope that on a high level of synergies, I've seen here and kind of logical numbers will come with the bridge how to translate 2024 numbers into the new segments.
Tamas, please.
3 questions on my side. First of all, retail accounting changes, you mentioned that you changed the accounting principles, how you treat your retail business. What would be the result or what will be the growth of this segment without this accounting? Because I believe that this comparison, you showed it's not like-to-like comparison. Basically, I saw that volumes increased, margins increased, but your results went down. That's my first question.
Second question is what is the outlook for the refining and the Petchem margins? And do you see any upside for example, in the petrochemical activity in margins or in volumes? And finally, can you tell us what is your net sensitivity on the gas prices? So is higher gas prices improve your results per se? Or do you -- are you more like neutral to the change of the gas price generally?
I will need to follow-up on the mentioned accounting adjustments or change in accounting treatment for retail. Because I don't recall any segment related accounting adjustments. We did several accounting policy adjustments for this year. But you will always have the base year adjusted. So the comparables are always adjusted and the reporting year is adjusted. We believe what we propose today, and that relates to interest for late payments and FX for receivables. As it's more related to operations and financing therefore, we moved it above the EBITDA, but again you will always have it adjusted for both the reporting year and for the comparable year.
Our outlook for refining margins, we expect refining margins to be in the territory of high-single-digits, somewhere between 8 and 9. That's what we currently observe slightly better than what it was for Q3 and Q4 of 2024. And that's the assumption that we are internally working with. On the Petchem margins, we don't expect any significant movements. The situation remains dire. There's still a strong supply of cheaper products from overseas. And there are still issues from kind of local European level to monitor the inflow of goods such as fertilizers and how local production can be supported. We don't think any of those would translate into any visible significant impact on the results of the segment.
And the net sensitivity to gas prices, I will start with team, please complement and then actually, there is no easy answer because it's not only about the net sensitivity, but it's also about the magnitude of volatility and timing of the volatility. There are some pretty easy answers when it comes to segment, so for the downstream segment, growing gas prices is negative -- is a negative effect because that is an input into electricity production.
For energy, that depends what drives the energy price, but in general, you may assume that energy price going up has a negative impact on the energy segment results. But for upstream and supply, it is not an easy case. For upstream business, obviously growing gas prices with the volumes or multiplied by the volume that simply give better return on the upstream operations.
But supply business is then about contracting. And we contract sales of gas for the next year and we obviously contract them or hedge our position on the supply side. And when the volatility is significant, or there is a sudden movement in the gas prices, it's very difficult to manage the contracting position in order to benefit best from the movement in the global prices. That would be my answer unless there is anything you'd like to add to.
Yes. This is [ Mateusz Witczynski ] speaking. Please remember that. So when it comes to supply of gas, what is crucial to observe in the forthcoming months is the spread between the Henry Hub and the TTF pricing. This will be a significant factor behind the results in upstream and supply due simply to the fact that nowadays the margins that can be generated on the LNG coming from United States on the Henry Hub basis is very profitable and to hope that we can be a part of this environment and generate margins on our long-term contracts.
So this will be a key driver for this trading part of the upstream and supply business. In case of upstream cost, here, we have very direct connection to the spot market as this is a basis to settle the gas that we are producing and we are transparent within the company. So that's probably to comment right now.
In terms of retail, you were talking about changes in the accounting policies. So let's say, the initial year, Q4 2023 has already been changed. So the change that you see, so Q4 2024 comparing to Q4 2023. And this change is presented on the others minus PLN 300 million out of this. But roughly speaking, half of it comes from the fact that there was a change in FX differences. So due to, let's say, stronger PLN. And we put this from below EBIT and added to the operational results. So that's the change.
Correct. But it is not the change that drives the difference in numbers, it is the change of FX that drives the difference in numbers, simply stronger Polish zloty.
Okay. Can I ask a follow-up on this issue because that's not really clear. So you say that it's mostly the FX impact, which push down the results. Is this more like a temporary phenomenon? Or do you expect these FX changes to be permanent, yes? Because I think it's more like a one-off or a kind of a negative move in the FX rates. Do I understand this correctly?
That will largely depends or only depends on the movements of FX and Polish zloty over the last quarter significantly improved against -- specifically against euro, but also some other currencies of the region reporting an earnings in euro like Germany or Slovakia or Austria, that's translated into weaker or into a negative impact. But if the currencies remain stable, then you shouldn't see any significant impact to the results.
But simply put, it was below EBIT, now it's in EBIT. So it's ordinary exposure to FX.
In EBIT for both of the years, again, so not really -- not too much to discover.
Moving forward, Lukasz, please. Lukasz Prokopiuk.
Hello, this is us Lukasz Prokopiuk, DM BOS. I would like to ask a follow-up on LNG imports, could you please tell us if all goes according to plan, what are your expected LNG volumes imports based on Henry Hub this year and next year. That will be my first question.
Tim, I don't have the percentage immediately on hand. Mateusz?
So let me start with what we have in our long-term contracts. We have Cheniere that's a 195 BCM per year and this is a fully utilized contract. On the other hand, we have the Venture Global long-term contract for the deliveries coming from Calcasieu pass. And this is up to 2 billion cubic meters per year and starting from 2025, we expect that this contract if the promises coming from the Venture Global will realize, this will be fully utilized. We cannot say what about the volumes in 2024, I'm sorry, in 2025, as we are still expecting the first delivery.
So the well for the known volumes of LNG coming from the U.S. PLN 1.9 billion pushing it.
Yes. And also, starting from 2026, we should expect the deliveries coming from Plock [ lines ]. This is the second terminal operated by -- owned by Venture Global and similar case, depending on the first delivery then we should expect how big the volume should be. The contract was signed for 5.5 billion cubic meters per year.
Okay. So but the contract with Venture Global, the 1 that is set to come online in April, it suggests that you should have like over 9 billion cubic meters this year is the delivery is -- if the delivery arise, yes?
Till now up to 2 bcm for this year of '25. So 2-plus unknown pro rata, probably number of the -- within '25, so it's a Second Venture Global. And then the Third Venture Global with roughly 5 bcm annually starting from '26. However, dependent on when it kicks off and calculated pro rata.
Okay. That's precise. Can you tell us anything about polymer. How much EBITDA do you think it can generate in a normalized environment? Or can you tell us anything about this asset?
Yes. I think at this stage, all we can comment really is that we are heavily engaged in the due diligence process and working on the evaluation and the financial business case. You probably are all well aware and probably communication of Grupa Azoty as well that the polyolefins asset in [indiscernible] has been through some struggles over the past quarters with the construction process still not finished with the supplies of propane and utilization of capacity.
We don't have reliable path to be commenting on the future performance of the asset. So there is a lot of life that we are doing right now with our advisers, financial technical advisers in order to understand what's the expected recurring performance of the asset.
And then we've got also our commercial advisory team to model what might be -- what demand and pricing we can expect in the near term and in the midterm. And only when we've got all that information, we were being able to or in the position to discuss what we expect from the asset to look a bit too soon. We understand there is a lot of interest, and we are working on proper disclosure. But first of all, we need to see whether there is a transaction or not and what might be the parameters of the transaction.
Okay. Should we expect more insurance for the HOG unit in the future?
There is still a lot of work that we need to do with the insurers. So currently, the 2 installments that we received were, let's say, of a no-brainer nature, but obviously, much more to come. It's been quite a long business interaction. Just to remind you, started in 2020 -- in September 2023 or yes, 2 years -- more than 2 years ago. So that's definitely most periods unit interruptions. Therefore, I would expect more installments to come. Difficult to comment on the amount yet, but yes, we'll keep you updated.
Perfect. One last question or a few question related to 1 topic. Could you please show Page 19 about the changes in segment reporting. The 4 segments we see here, do you consider showing costs by type in the 4 segments? Cost by type, I mean salaries, services, raw materials used yes, per segment. Have you considered it?
It's a difficult question to answer because we will provide the information that we believe is relevant, right? So if there is relevance in adding disclosure on the cost, that shouldn't be an issue. Obviously, on a general level, the segment reporting is what it is. It is defined by the international reporting standards, and it's on a repeated basis included in our financial statements and disclosure but our key objective is to make sure that our reporting is relevant, provides better understanding of the business and the business drivers. So if there is merit then we'll obviously share that information with you.
I think there definitely is in the merit.
Yes, I was just about to mention that. We discussed it just for the sake of others. We discussed it with Lukasz offline once. And we believe that there's a worthwhile and critical discussion to follow before we publish a full year. And we will be getting back to you for your feedback. To some extent, reasonable when providing the data. So this is to come shortly in a couple of weeks from us before we publish full year to make sure that we are all aligned to what we have reported here.
Okay. And 1 -- and another question regarding the segments. Like will you show any EBITDA contribution from the new segments? I mean, well, okay, downstream is a big segment but will you show refining EBITDA, petchem EBITDA, I don't know, fertilizer EBITDA, PTA EBITDA will show the contributions just like you show in the energy segments, all those -- the waterfall graph, where you show renewables, heat and distribution and so forth.
Now that's an excellent example. We will provide the necessary disclosures for our investors and analysts to understand the business and the business drivers. And we found it useful for the energy segment. Therefore, we are presenting it right now. If -- and when we report the next quarters, and we find another set of data useful to understand the business and the business drivers, we will certainly provide that disclosure.
Okay. Very good. Sorry, 1 last question. When you publish the first quarter, yes, it will be under the new segment regimes. But will you show the whole year, all the quarters of 2024 changed? Or it would be like it will take the whole year to -- for us to see the changes you reporting each quarter individually?
Our ambition for the sake of better understanding the business composition going forward, we will provide a bridge from full year results of '24 to -- from the old segments to the new segments. We will not be recalculating the quarter's for the year-end reporting, we will go obviously provide quarterly new segments for the purposes of comparison of results of quarters of 2025. So with the first quarter of 2025 results, you will see the results of the current reported quarter according to new segments and comparables for the previous year according to the new segments.
Okay. But what I urge you to do or it would be highly appreciated if you -- in the first quarter, if you showed all the historical quarters changed because we will wait a whole year to understand what is happening in the company with the new accounting rules.
Let's call it these off-line. Your point is noted. Let's debate it. Let's see what is actually the right kind of balance of effort and value to be derived.
Noted, recorded and prospected. Now we will move on to Tomasz.
Tomasz Krukowski, Santander. 3 questions, if I may. The first 1 is on your guidance. When you discussed EBITDA guidance for 2025 as a basis you are referring to 2024, but the one which you reported, which was 35 or the one which we showed in the presentation, the adjusted figure with the impact of the -- all those regulatory measures, 44, I believe?
What is the difference between the 35 and 44 is probably to be analyzed. But our thinking on a kind of daily basis and the way we work with the business is on the EBITDA LIFO basis. So the 35 -- and that's also how we communicated with you in the past.
The next question is on working capital. In the past 2 years, we saw quite significant decrease in the working capital, which supported operating cash flow generation. So the working capital level, which we right now see in the balance sheet. This is something which we should expect to be stable going forward, or you expect any changes on this front?
We work in the commodities business. So a lots of the working capital changes comes from changes in the macroeconomic environment. Therefore, that needs to be kept in mind. We believe there is upside coming from working capital management and integration of our businesses as well. There's even a special initiative around by [ coming ] under Strategy Finance team to provide simply a work plan for improvements in the working capital. So the kind of operational managerial front we're doing a lot to improve working capital. But the large kind of grand scheme changes are often a result of volatility in the macro environment.
Got it. And the last question is on the leases. You mentioned during the presentation that you expect your releases to increase over the course of 2025 and in the figure, which I believe you referred to was nearly PLN 4 billion, it was the increase in the balance sheet amount of the leases which you book? Or this is the increase in the cost or the lease payments, which you book into that cash flow statement? And if you can elaborate a little bit on what is the nature of the increase in the latest?
So there is an increase from 1.9 to 3.6. 1.9 includes various arrangements related catalysts as well, making downstream production. The outside or up the increase in the amount relates to shipping kind of leases. So -- and what it represents, it represents the value of the assets. So it represents leases value that finance the asset not the payments.
I don't know how do you manage those squeezing before Piotr, but I will then give the floor to Piotr, since I believe, others deserve credit of asking questions.
Piotr have waited for a while.
Piotr, please.
Congratulations on the results. I have a couple of questions. So the first 1, I wanted to ask you is about your dividend because I think finally, market tries to get that grip on the minimum base dividend to a maximum level. So when you decide on a PLN 6, whether this year or you will decide next year for the next year, how -- to what extent this is a forward assessment of the business and your confidence?
And can you help us understand your thinking how you read that in mind this figure because what I'm trying to get out of this question is really, if we go into the next year or a year after, and we will, at the moment, market things only about the base dividend. But maybe we should be just thinking about PLN 5, PLN 6, whatever the estimate is. So can you help us understand how you drive the PLN 6 per share number?
That's a fair question. And there was actually a very clear kind of thought process behind it. So first, obviously, we analyze the quality of our operational cash flow generation and expectations going forward. We believe especially the last quarter, proved. So the quarter that was more business driven than regulations-driven, are delivered fairly strong performance and there is an expectation for the business to continue with good cash generation for 2025. So we felt confidence in you. But then we did simply peers analysis as well, where we stand in terms of the total return to shareholders, where we stand in terms of yields, where we stand in terms of our evaluations and how we can sensible steps to catch up with the peers.
So that was another consideration and we ended up suggesting to the both team that we should go with the 20% payout of the operational cash flow, reaching almost 10% of the dividend yield. That already makes us, let's say, at ex-par or very close to some of the -- some of the European peers, but also gives us some, let's say, or helps us keep the pace of catching up with the dividend payout. So that was essentially logic behind our thinking.
And I think it has led us to a decision that internally, we all digested and accepted, and that's how I would like to keep things going in the future.
Okay. Understand. And can you maybe guide us a little bit to what extent the cash conversion of EBITDA, which you guided may be different in '25 versus '24. I'm basically trying to get a sense whether the cash flow, like what is the maximum amount on the current EBITDA guidance you can generate per share basis that could theoretically be a top floor for a dividend?
So the dividend conversion in 2024 was actually very satisfying, right? And what helped us here. It's obviously more kind of business-driven result of the business. So in 2023, we have those large volumes of PPAs, noncash items. And they were simply absent in 2024 and we will be working on the quality of the results for 2025 as well. We currently do not have any noncash adjustment on kind of on the horizon that we would need to discount.
Something to keep in mind going below the operational cash flow, but I would expect you would compare EBITDA to cash flow generation on the operational cash flows, but something to keep in mind in terms of cash flow forecasting is obviously an increase in CapEx and increase in financing costs as we take up on leverage on our balance sheet, but that's below the operational financing or cash generation, sorry.
Okay. And the last very quick 1 from my side is on your CapEx for '25. Do you think this could theoretically surprise to the downside that you could have some delays in some of the projects and the actual execution comes lower than the number you gave us today?
There's always a risk to manage throughout the year. Look this PLN 35 billion CapEx, it's quite a massive program management exercise. There are lots of projects for all of our segments. And it is a complex business to manage those. We did our homework. So we were really diligent preparing our funds and budgets. Having our long discussions with the business, making sure that there are proper schedules, making sure that there are proper teams managing those products, but there is always a risk of delay sometimes out of our control.
I could give you some examples of projects being delayed because of permitting. It happens in the large infrastructure businesses. When we -- the moment we see that, the moment we noticed that, we will keep you updated with the next quarter's results.
We will be going towards the end. However, we do have a couple of minutes, so Oleg please.
I have a few. So first, with the upstream segment being back in the game. Can you talk in more details about your expectations for the upstream production in '25 and '26? What level of growth do you expect in crude oil and natural gas growth will decline.
Secondly, most of oil and gas producers are confronted, but with high cost inflation, I know that Orlen does not report OpEx per BOE, maybe you can do that in the future. But hopefully, you can provide some comments on the cost inflation last year and whether you have some efficiency improvement initiatives on the table. And the same question would apply also to the retail segment, since most of retails, including Orlen are facing high cost inflation.
So if you have any cost-cutting initiatives here as well. Maybe you can provide some examples, that would be very helpful. And lastly, does the change in segments reporting aim at increasing the efficiency or generating some synergies going forward and if yes, of which nature?
I'll start with the last one is the easiest one. Change in accounting policy does not create any efficiency. It is simply a better representation of the operational results. So what used to be treated as an item financing the business is actually a result of operations and therefore should be included in the operational results. That's the rationale behind that change, but it will not in itself create any efficiencies.
When it comes to few segment, Mateusz you will take this one up?
Let me start with the volumes. Taking into account what's happening on the slide there and slightly lower volumes that what we recorded in the fourth quarter. We should assume that in terms of gas production, we will have to wait until 2026 to see some significant improvement and for 2024, we should see the volumes of gas production flat. We didn't expect to cover the loss of Sleipner with increases in production from other fields, what has already been done in the fourth quarter.
In terms of crude oil, we assume a natural decline of the production of around 8% to 10% next year. And in case of 2026, here in comparison with 2025 and so rather flat volumes production in terms of gas. In 2026, we expect an increase thanks to the investments that we are right now conducting on the foundries and double it in Alpha mainly and Yggdrasil area. So we expect total gas output to increase by 10%.
And in terms of crude oil, we do not see the potential to reverse the natural decline. So here, we are rather seeing flat production numbers, when you're thinking about '26 compared to 2025. So that's what the production plants look or look that's what -- how we see the production plans. In terms of our unit production costs.
In fact, we saw those, especially in Norway to be rather flat. So we managed to not to inflate the cost. In terms of Polish production, we -- I think that it's fair to assume that there are -- is also a similar correlation to the simply inflation that we saw in the last year. So we are happy with the performance in Norway, where in fact, the unit cost per barrel decreased by 1% last year with Polish production costs we will be looking into.
Yes, cost in retail, correct. And whether we've got any kind of formal cost initiatives in the retail segment. I think the focus in retail is different. The focus is efficiency, not really, I mean, cost cutting. So obviously, we are cautious and aware of the cost base increases. And any time it happens, it receives a lot of attention from our FP&A teams and international team. But what we want to make sure is that we deliver maximum value of the fuel and nonfuel network. Therefore, it's rather working with the margins, it's working with the consumers. It's making sure we grow volumes than particular cost-cutting initiatives.
So what you are saying is that out of PLN 300 million impact of other cost items in retail, year-over-year, not all of it refers to higher operating costs at fuel stations?
Now just like Konrad mentioned, roughly half of that, if I remember correctly, was the FX impact and the rest was an increase in costs related to our operations. But 1 kind of word of caution do not attempt to model the full year with 1 quarter results, take some longer period into consideration, business is seasonal in terms of retail sales and also quarter 4 tends to be a tricky 1 to use as a recurring base for the future. We take also to stock currency in quarter 4 that might have impacted the results of particular cost lines.
Also the Q4 was not comparable in terms of a number of stations. So this is something that you need to bear in mind that we have those listed in the table. You see that the number of petrol stations expanded by 7% with M&A, we had some year-on-year -- year-over-year, this PLN 300 million half is attributable to FX. And roughly I would doubt if more than half out of the half, so a quarter would be the increase in the number of petrol stations that drove the cost base. So again, as Magda said, this is not apples when comparing to the apples.
And last, but not least, Michal Kozak. After Michal, we will be concluding the very productive meeting. So without -- I'm giving you a notice that it's the last one.
2 topics, short topics from my side. The first one, should we expect LNG deliveries from the Calcasieu since April this year to be realized at the current TTF Henry Hub spread or did you hedged the spread at a lower level earlier?
I think, first, we need to have some clarity, when it comes to volumes and deliveries I wouldn't rather discuss the particular hedges or cargoes whether hedged or not, we evaluate our position on a global open position not on particular cargos. That's our approach in the policy for commodity hedging.
The second and last 1 about dividends. What was the exact number, exact value of operating cash flow minus financing costs for 2024, which is the basis for the payment of higher dividend up to 25% of that line indicated in the strategy?
Yes. It's an easy math. So all you need to do is take a look at our cash flows from operations in the financial segment. That's PLN 36,634 to be very precise and costs related to loans and leases, and that's a number close to PLN 1 billion. So that's how we arrived at the base for the calculation.
Okay. And how does CapEx affect this decision? If CapEx is higher than OCF minus financing, there will be no excess dividend, right?
Our dividend close is not linked to our CapEx in direct manner. So we were very clear that we will share operational cash flow less cost of financing. There is, of course, an indirect impact, right? So we will always evaluate when evaluating the position of the product. Whether we are on track, whether there is some significant risk that we need to take into consideration, any significant delays for us that are expected to produce retailers in the nearest time. So there is a lot of consideration there but kind of no direct link of our dividend payout to CapEx delivery or local delivery.
Replacing and comparing quickly. Old policy refers to free cash flows, new policies refers to operating cash flows minus cost of financing. So we are strongly underlining this significant change.
Thank you, Jakub and thank you, everyone, for joining. It was great catching up with you today. If any questions for our team, as always, we are ready to address those, and I'm even happy to connect with everyone so please do not hesitate to shout out. And we now have arise this 2024. I look forward to 2025 for our next meeting in May. Thanks a lot. Bye-bye.
Thank you very much for spending this.