Our strategic plan for years 2017-2022 is the result of the intense analytical work carried out in 2016 with the active participation of the Supervisory Board and as part of extensive consultations carried out throughout the LOTOS Group. The strategy was based on the following assumptions:
- permanent return to dividend payments,
- effective and stable development of complementary segments of our activity,
- optimization of the integrated margin,
- Poland’s energy security, supported by diversified sources of raw materials.
We have adopted two time horizons for its implementation. By the end of 2018, we focus on stabilizing cash flows, reducing debt, and continuing launched investment projects. The second stage of the strategy implementation, covering the years 2019-2022, schedules the implementation of a new investment program based on the best development projects, effective construction of the mining assets portfolio and further development of the fuel station network and implementation of innovative projects building the future value of the LOTOS Group.
By implementing the adopted strategy, we want to continue to build our position of:
- optimally vertically integrated manufacturer of high quality fuels and chemical products,
- supplier of specialized logistic services and other services
- the leader of implementing innovations within the scope of the core business.
At the same time implementing the strategy „Stabilization and safe development” is a guarantee of a stable increase in value for the shareholders and an important role in ensuring the country’s energy security.
Strategic goals of the LOTOS Group
As part of the strategy, we have set the five main strategic goals, the implementation of which will enable the stable development of the group:
- effective use of assets: conducting activities under extraction licenses, further technological optimization of refineries, introduction of new products and alternative fuels, and care for quality standards,
- successive and repeatable reduction of operating costs and optimization of margin in the entire value chain,
- readiness to develop and implement innovations with a dedicated fund, a modern model of cooperation with research centers and creative involvement of employees,
- flexibility in responding to emerging risks that the LOTOS Group also sees through the prism of business opportunities,
- care and development of talents in the organization, improving broadly understood security (work, infrastructure and information systems) and greater social responsibility.
Main measures of strategy implementation
We have adopted the following key parameters for implementing the strategy:
- doubling the average annual LIFO EBITDA result in 2019-2022 to the level of approx. PLN 4 billion,
- reduction of the debt ratio: net debt / LIFO EBITDA to the level not higher than 1.5x,
- implementation of investment projects for the total amount of PLN 9.4 billion within 6 years,
- possession of the 2P crude oil and gas reserve base (certain and probable) at the level not less than 60 million boe,
- reaching the level of hydrocarbon production at the level of approx. 30-50 thousand boe per day (i.e. barrels of oil equivalent for the day of extraction),
- expanding the sales network to 550 petrol stations,
- keeping the LTIF (Lost Time Injury Frequency) below 3.
Implementation of the strategy in 2017
In 2017, we carried out intensive work on the strategy operationalization and the implementation of an effective system for monitoring the objectives implementation. We launched a cyclical process of monitoring the implementation of individual strategic initiatives and set up a cross-functional forum for discussing the key challenges and development directions of the Group.
A new, safer concept for the development of a sustainable extraction portfolio
The year 2017 was intended for the reorganization of the extraction segment and preparation of a plan for the construction of a balanced asset portfolio. A new company was established – LOTOS Upstream, which will eventually acquire extraction and exploration activities, while LOTOS Petrobaltic will operate in the field of services for extraction companies.
Highest competitiveness thanks to technological innovations and new products
The main investment of Grupa LOTOS S.A. is the EFRA Project (Effective Refining), which, by the construction of one of the most advanced installations of delayed coking, will enable deeper processing of crude oil. The project will contribute to the increase in the model margin by approx. USD 2 / bbl. The progress of the whole EFRA Project implementation at the end of December 2017 amounted to 90%.
At the same time, the analytical and preparatory activities have been undertaken regarding the portfolio of further development projects. Three possible directions for the further development of the refinery are considered:
- oil block for the production of Group II and III base oils,
- gasoline complex for the production of motor gasolines from raw gasoline,
- olefin complex along with production of ETBE.
The decision to launch another project will be made in the second half of 2018.
LOTOS Energy Hub in retail and care for high quality standards
Retail trade at the LOTOS Group is carried out by LOTOS Paliwa, responsible for managing the fuel stations network.
In 2017, we continued work on the standardization of the service station network in terms of unifying its image: external and internal visualization as well as optimization of service quality at petrol stations. In the general satisfaction ranking from the national fuel station network, the LOTOS station network achieved the highest result among the competition.
Concurrently to expanding the network, we develop and improve the non-fuel offer, including catering, groceries and additional services (car washes, trailer rentals). This is also accompanied by opening new Subway points of sales.
The LOTOS service station network is also preparing for challenges related to the development of electromobility. In the last year, we have selected 50 stations on the TEN-T roads (motorways and expressways in Poland) that are to be equipped with electric vehicle charging points.
At the same time, using the EU funds, we implement a pilot implementation of the first 12 charging points. The aim is to allow free passage of electric vehicles on the Gdynia – Gdańsk – Warsaw route.
We launched the Effectiveness Improvement Program, which aims to optimize cost management and streamline processes within the organization.
In the published results of Solomon Associates for 2016, Grupa LOTOS S.A. confirmed its competitive advantages, being in the first quartile for the areas of Process Utilization, Energy Intensity Index, Return on Investment.
The implementation of the strategic objective also requires actions on the commercial side, including the optimization of the integrated margin and the diversification of raw materials. In 2017, over 20% of crude oil processed at the Gdańsk refinery came from a direction other than the one from the east. Material diversification is an important measure in the process of ensuring stable crude oil supplies to the Grupa LOTOS S.A. refinery and improving the efficiency of its processing. At the end of 2017, Grupa LOTOS S.A. signed a derivative contract for the supply of American crude oil to the refinery in Gdańsk. The contract provides for the delivery of a minimum of 5 crude oil by sea in 2018.
In 2017, we focused our main efforts in the field of innovation on the implementation of new models of cooperation with research units and start-ups, creating joint research agendas. Grupa LOTOS S.A. has joined projects including Space3ac start-up acceleration – a pilot project within the government program Start in Poland, the effect of which is to commercialize innovative solutions, including products and services.
We have also initiated a program for supporting the internal innovativeness, the LOTOS Inspiruje program, which created a framework for the functioning of the process of notification of innovative ideas by employees and the evaluation of these ideas.
LOTOS Vera (a subsidiary of LOTOS Lab) will implement innovative and development projects for Grupa LOTOS S.A.
In the near future, it is planned to set up an incubator for innovative projects, what will allow for the full use of innovation potential.
We have also undertook actions to launch a corporate innovation support fund (Corporate Venture Capital fund), which will seek and acquire innovative projects to improve the operations of the LOTOS Group, and to build new business areas.
We have developed a new approach to managing risks and opportunities at the LOTOS Group. Particularly noteworthy is the new categorization of risks, defining 4 main categories of risks in operations: strategic, operational, financial and reputation and compliance with regulations. At the same time, we are developing methodology and strengthening our competences in the area of searching and defining business opportunities, allowing us to eliminate identified risks and create value for shareholders.
Caring for talents as the key element of competitive advantage
We have taken the initiative to build a knowledge management system in the organization based on modern channels (e-learning platform). This solution will allow the effective transfer and sharing of knowledge and will support systemic development of employees’ competencies necessary to implement current and prospective business goals.
Projects aimed at the development of managerial staff are aimed at the preparation for efficient functioning in the organization and construction of a culture of continuous improvement.
Confirmation of involvement in employee matters and professional management of human resources is granted in 2017, for the third time in a row, by the Polish Human Resources Association for Grupa LOTOS S.A., the Certificate of HR of the Highest Quality.
