Orlen SA
PSE:PKN
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Earnings Call Analysis
Q1-2024 Analysis
Orlen SA
In the first quarter, the company displayed robust operational performance despite challenging macroeconomic and regulatory environments. The company is focusing on diversifying its energy production and stepping up its investment in renewable energy projects. Earnings and profitability were impacted by macro and regulatory factors, but strategic initiatives are being taken to stabilize and grow future earnings.
The group's EBITDA was PLN 0.4 billion, which is a decline year-over-year, driven by macroeconomic effects and regulatory costs. Despite this, the company generated a solid operational cash flow of nearly PLN 12 billion and closed the first quarter without any debt. Fitch and Moody's have confirmed stable outlook ratings for the company. A dividend payout of PLN 4.15 per share has been recommended .
The company's operations are spread across six segments: Refining, Retail, Gas and Power, Upstream, Petrochemical, and Trade. The Refining and Retail segments delivered EBITDA of PLN 2.3 billion and PLN 0.5 billion, respectively. The Gas segment reported a strong EBITDA of nearly PLN 8 billion, while the Power segment delivered PLN 2.4 billion. However, the Upstream and Petrochemical segments faced challenges due to lower commodity prices and higher regulatory costs, with the latter managing just to break even .
Capital expenditures (CapEx) for the first quarter stood at PLN 6.4 billion, focusing chiefly on the Energy segment. Investments in gas-fired units and renewable energy projects will continue. The company is revising CapEx plans, especially in the Petrochemical segment, to identify growth opportunities. In 2024, CapEx is expected to reach PLN 38 billion, with around two-thirds earmarked for growth projects .
The company's performance has been significantly influenced by the regulatory and macroeconomic environment. Lower prices of gas and electricity, due to increased security and availability, provided relief, while the gas windfall charge had a major negative impact. The refining margin declined by 13% to USD 16 per barrel, yet remained solid historically .
Looking ahead, the company aims to accelerate its momentum in line with the ongoing energy transition. It plans to enhance renewable energy capacities and maintain a commitment to low or zero-emission asset production. The goal is to reach 1 gigawatt of installed renewable capacity. The management is focused on aligning the company with decarbonization goals, optimizing investments, and returning value to shareholders via regular dividends .
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Ladies and gentlemen, welcome Mateusz Witczynski, and I have the pleasure of being a new spokesperson -- spokesman for ORLEN. And I would like to welcome all of you very warmly at the earnings call, which will summarize our performance after the first quarter of 2024.
We have representatives of the Management Board of the group with us: Mr. Ireneusz Fafara, CEO and Management Board president; as well as Magdalena Bartos, VP for Finance -- CFO.
I would also like to welcome the representatives as well as directors of the individual units of the company as well as representatives of the media and all of our guests.
We will start the earnings call by the -- with the presentation of the CEO, Management Board President. Ireneusz Fafara, the stage is yours.
Good morning. As far as technicalities are concerned and I request from me and Magda, we are here for the first time. So if something goes wrong when we have a certain hiccup or maybe we'll omit something by mistake, please be -- bear with us and be patient with us.
I'd like to welcome all of you at this very special place. [ In my career ], I have been involved with the Warsaw Stock Exchange. I have a broker's license, very low number, by the way, in terms of the registration number. And the Warsaw Stock Exchange in general, has always been something very valuable for the capital market, a symbol of corporate governance, openness, transparency and building the value for shareholders.
And the fact that ORLEN came back to the Warsaw Stock Exchange is very important for me personally, but also as the Management Board. As employees of the company, in general, we treat it as a commitment towards you, towards the shareholders. So I'm very happy to be here.
We'll move on to the presentation and discussion of our quarterly results. But before we move on to that part of the earnings call, I'd like to tell you a couple of words about our vision after a very short time with the company because we are talking about only 2 months, maybe some of us even shorter with the company. And we'll talk about how we plan to run this company, to manage this company and put certain accents on the growth of the company.
And since we are here, we agreed with the management Board to be with you today, the analysts and everybody who looks at the company, we'll ask you to listen to us and [ handling ] carefully, but most of all, to take us -- or keep us accounted for it, maybe not within 1 quarter or 2, but after some time to look at our promises, at our commitments today because our commitment, first of all, is to accelerate or gather momentum.
Why do we want to accelerate? Because we want to keep up with the energy transition. It actually exceeds the forecast, for instance, presented by the International Energy Agency. If we look at the growth in capacities installed across all of Europe, you can see quite clearly that it is faster than expected. It is real business, not ideology.
We want to take part in this real business environment. First of all, we can make money on it. But secondly, it is good for us because we will create a better environment, live in an environment. We want to, therefore, create a business and build a business and not ideology.
We know that ORLEN can become one of the key players of energy transition in Central and Eastern Europe. And we are doing our best in order for ORLEN to be that player. However, we must remember that it is our challenge.
If we look at the forecast for -- or by 2050, we will either achieve it with the new technologies that are being implemented, but they can also be only in the planning sphere. Therefore, the challenge that is ahead of us is a major one: why do we gather momentum and accelerate?
If we look at the group level, we want to accelerate because decarbonization goals are declared in our strategy, ORLEN strategy. They are still up-to-date and valid, and they are in keeping with the transformation directions. And we want to make sure that we keep up with it, but we see certain delays.
We see that in a number of areas we need to catch up in order to eliminate delays that occurred in previous years. And when it is -- we are unable to do that -- and where we are unable to do that, we need to revise our strategy -- revise our goals to make it up to date. We are accelerating where we can accelerate when it is still economically viable. We want to step up on our growth projects, and whenever we are in doubt, we can revise them and we will do that.
We can accelerate in certain areas -- in a number of areas. First of all, renewable energy sources. Our strategy envisages that we will increase the capacities installed in this area tenfold. This is an ambitious goal, but is doable mainly through the selection of our partners in order to implement those projects and looking at new projects.
We will be actively operating onshore. We will be looking for projects and partners. And looking at the countries, our home countries and also are member countries, we are talking about half of Europe. This is where we will look for new opportunities. We will consistently develop gas-based energy or power generation. We have 2 projects, CCGT in Ostroleka and Grudziadz. We are working on the almost ready project concept for [indiscernible] so as to make sure that we eliminate coal-fired sources by 2050.
Being aware of the fact that fossil fuels will go down in history soon, and we believe that, we are adjusting our sales network to that trend. We are doing our best. We're working on it and we will achieve it soon, hopefully, that our network is the most modern retail sales network in CEE. And also it will include EV vehicle chargers and will also have a very solid nonfuel offering as a driver to our growth.
In terms of biofuel projects as well as renewable hydrogen projects as well as carbon capture and storage, we want to step up on our activity and increase it twofold. We know that we will -- by doing that, we will drive down our emissions, both for petrochemicals and other units of our production in order to also meet the decarbonization goals.
Hydrogen is of major importance to us. As you probably have seen over the past couple of days. We have received the highest coal financing under the Clean Seas project, the EU project. And we want to follow that path. Both hydrogen and also EU projects are important to us, and we want to work on both these areas.
But talking about it, I have to mention 2 major projects which make everybody emotional and very interested and that is SMRs and petrochemicals. The strategy of our group envisages that, by 2030, we will have one SMR brought onstream. We know that, that deadline given the stage of the progress of that technology and also the regulatory environment and the permits that we need is very challenging.
However, we do want to emphasize clearly that we do see the need to develop that technology. We will develop it. We are looking very carefully around the world to keep a watchful eye of what is going on in the SMR area. And this is why we started negotiations with our partners on a new formula for this project. We started those negotiations, as I said, and I do hope that for this -- in the sake of that project, but also for the sake of Poland, those discussions will be meaningful and they are to be completed shortly.
Obviously, the petrochemicals projects and development of the petchem area is also important. It evokes a lot of emotions. You do know that the quarters presented in the reports, we communicated or -- the amounts we communicated were very much different from initial assumptions. We made major -- recognize major write-downs.
This is not the way to proceed with such an important project. We want to streamline that project and announce the new petchem strategy still this year.
The scale of our business, the know-how, the expertise we accumulated in this company. Thousands of amazing specialists and experts we employ, some of them are with us today, but they usually just sit behind their desk or work on production units make us recognizable. And we can be recognized as a leader of energy transition in the CEE region.
We will build solid foundations for this particular market position by verifying the paths on our road map, by verifying and revising both the schedules and the outlays in order to make sure that we avoid certain situations that happened recently. For instance, to make a write-down on a project that hasn't been implemented and finalized. And only in this way can we be reliable and trustworthy for the market and for the investors, for the shareholders.
What are our goals? In reference to what I said at the beginning, first of all, we need to put corporate governance in the company in the right place, in the center. We will make sure that all decisions taken in the company, within the group, are based clear-cut defined criteria. This is where we want to and how we want to shape our internal corporate strategy irrespective of the fact that we want to also focus on the environmental strategy and also keep good relations with our environment, business environment.
Paradoxically speaking, maybe, but this is something that makes me proud. ORLEN has become a company whose managers are held accountable for the performance of the company, and I do believe that this has only happened recently where the metrics for performance of our managers has become the only viable and important metrics. We want to make sure that this company will not be forced to recognize millions in write-downs, as I said before.
The next element is related to the safety of our staff. By our staff, I mean, the employees of the ORLEN Group and also our associates. Their safety -- security has been and will always be our priority and my priority personally. I worked for -- or at [indiscernible] refinery for 8 years. And when we went there for the first time, we saw that this refinery deviated -- and the work at this refinery deviated greatly from the standards of work.
After a couple of years of implementation of the safety first program, we managed to achieve unbelievable results, 500 or even more than 500 days without any accident. I'm talking about it because the health and safety and life of our employees will be and will remain our company's and mine major priority.
When we manage the ORLEN Group, we will focus on the most promising key areas of our businesses, the most promising technologies and projects. Every single penny that we invest must be invested rationally, must yield a return on investment within the schedule and within the budget. This is something that we will take no exceptions from.
And all the elements I'm talking about will be reflected in our strategy, which we want to present still this year. As a recap of the strategy, let me tell you that our ambition is to, first of all, look at a regular payout of a dividend and also a growth of our value to shareholders.
Ladies and gentlemen, we came back to the stock exchange, Warsaw Stock Exchange. Our ambition is also to make sure that ORLEN is associated again with an image of a reliable and honest, trustworthy company. We want to make sure that these two traits of this company will be the real fuel for our growth and our acceleration.
Thank you very much for your attention.
Thank you very much. And we would like to welcome to the stage Ms. Magdalena Bartos, Vice President for Finance, who will discuss in more detail our financial performance.
Good morning, ladies and gentlemen. It is a great pleasure and a great pride for me to be here with you again after many years in this room at the Warsaw Stock Exchange.
I'd like to discuss -- present our financial performance after the first quarter of the year. And as my predecessor, Ireneusz mentioned, this is quite difficult for me because these are the results and performance, we cannot really take the full ownership for, but we want to present them and we want you to understand what we are presenting as well as we can.
Let me start by summarizing our financial performance after the first quarter at a very general level. The group delivered the performance in this quarter that we can say it was very solid in a very challenging environment, more challenging than in previous years especially year-on-year in terms of both macro and regulatory environment.
Our EBITDA, that is the earnings that reflect our earnings as managers as well, came in at PLN 0.4 billion, which was down year-on-year. However, this decline was driven by 2 elements. First of all, the negative effect of macro that shaped our prices as well as the cost of our inputs that we use in our production units, and we are talking about [ PLN 6.6 billion ].
And secondly, the so-called gas windfall charges, our contribution to the regulatory funds on production of hydrocarbons. And we paid PLN 7.7 billion in the first quarter under the gas windfall charge, representing PLN 4.2 billion of an upward trend year-on-year.
We generated quite a lot of cash. We're talking about a healthy cash generation from operations, we're talking about nearly PLN 12 billion.
And as a result of our solid financial performance and a very reasonable management of our current assets, we closed the first quarter without any debt in the bottom line. This makes us pretty comfortable in the context of what Ireneusz has said that is before the review of our investment project, CapEx projects, for the acceleration of our energy transition.
This solid balance sheet bottom line also reflect to -- are reflected in the two ratings confirmed by both Fitch and Moody's. We're talking about historically record-breaking figures with a stable outlook.
In line with our dividend policy, we recommended the payout of PLN 4.15 per share, and this is the decision that we will -- or recommendation that we'll discuss with the general meeting of shareholders.
The major impact on our performance was brought by the so-called macro factors. And I would like to discuss and explain our approach to the definition of macro elements and their impacts on each segment of our group. We are talking about 4 major macro elements that shaped our performance.
First of all, refining margin in the first quarter. It went down by 13% to USD 16. Looking historically, this is still a very solid result. However, it was down compared to the previous periods, in the previous quarters specifically, and also year-on-year, that is versus the first quarter of 2023. This effect of a declining margin is expected to continue.
I would like to discuss the outlook for the coming year and the full year of 2024 later on, but we are talking also about the availability of refining products. We saw a number of attacks on Russian refineries in the first quarter of this year. We had certain breakdowns in terms of the shipment of -- the deliveries through the Red Sea. This all -- however, that's obviously affected our margins, but this still remained quite solid.
Brent crude oil, this is a cost for us, and this cost actually stabilized within a very narrow range around USD 80-plus per barrel. We saw a number of major drops in terms of the prices of gas and electricity. Those prices are going down, as a result, truthfully speaking, of the rising security and also availability of the product in Europe. We had quite a mild winter. The demand was quite sluggish. It's not recovering as expected. The stock levels are high. Therefore, as a result, the prices are going down.
The price of electricity -- we are talking about gas prices whereas in terms of the price of electricity, obviously, they're impacted by the gas prices, but also by the prices of coal and CO2 emission allowances, which were lower year-on-year.
Before we move on to more details, I would like to, first of all, recap our performance by segment. I've mentioned the regulatory and macro environment and I mentioned that the first quarter of this year was very much challenging year-on-year.
But still, our business is well diversified. We are talking about 6 segments in the first quarter of the year. The 4 segments yielded very solid results, especially in terms of our Refining segment and the Retail segment, which delivered the performance that was up to our expectations. We're talking about EBITDA at PLN 2.3 billion for Refining segment and PLN 0.5 billion for Retail. Gas and Power segment -- or Energy segment are the 2 segments that actually exceeded our expectations in terms of their performance. And the price of gas and electricity, as we said before, was at around 40% -- 50% lower year-on-year, which represents a major drop, and we still reported solid results. We are talking about nearly PLN 8 billion EBITDA in the Gas segment and for PLN 2.4 billion in EBITDA in the Power segment.
The major challenge in terms of our management and our performance was the Upstream segment. This is a segment that tackled 2 elements, that is the low electricity -- I'm sorry, gas price and a very challenging macro environment, but also the regulatory environment. We're talking about gas windfall charge that had to be recognized in the cost base of this particular segment.
And the Petrochemical segment, obviously, was impacted by the macro situation, and the macro situation for the petchem segment was very challenging. And still the segment managed to reach a break-even line.
Looking at the Refining segment, let me summarize the performance of the segment by saying that we had strong utilization and strong performance in the normalized margin environment. We have to remember that the macro indicators for the first quarter are more challenging year-on-year. However, they are still quite attractive. We're talking about a quite still attractive environment in this segment, macro environment. PLN 2.2 billion was the decline for the performance of this segment, this is due to macro factors, we're talking about EBITDA level, including PLN 800 million in terms of a change of crude processing structure.
Throughout the past 4 quarters, we went from REBCO processing, some of our assets in the Czech Republic still process REBCO. However, we need to remember about the loss in terms of the differential between REBCO to brand and we make less money on that.
We also changed the structure of our yield structure of our operations and this also has a negative volume effect. However, the yields across all our company and all our units went up, which is a natural consequence of moving towards a higher-quality crude processing, which brings higher margins in terms of the products. So these are the elements that kind of mitigates the negative effects of the change in throughput structure processing of crude.
Lower Refining margins. We're talking about an effect of minus PLN 500 million in EBITDA. We are producing products that offer lower margins. They're still attractive, as I said before.
Utilization of our assets was very solid. We reported 9.5 million tons in throughput, and we achieved 90% of utilization. All our units operated as planned practically. And as I said before, we also achieved higher yields. So operationally speaking, the first quarter of the year was quite solid in the Refining segment.
Moving on to the Petchem segment. This is a business, as I said, that was impacted by a very challenging macro situation. All petrochemical margins for all our products were lower year-on-year. Even though we saw the logistical restrictions in the Red Sea, that the imports of cheaper petchem products to Europe from farther markets, from the markets far away, went down, however, we had lower margins still. Therefore, our sales did not contribute to our EBITDA in this segment as planned.
The Power segment or the Energy segment. We have a couple of good news here and we would like to share it with you. We reported nearly 70% of production of electricity from low or zero-emission assets. And as you heard from Ireneusz at the beginning, we are consistently developing the portfolio of our assets, renewable energy assets, based on gas but also on renewable energy, especially onshore wind farms.
The production in the Energy segment went up by 12% as a consequence of cheaper gas, higher production of gas-fired units, but also higher installed capacity in renewable energy sources.
This is where we focus on. We are focusing on energy transition and not on the development of fossil fuel forces. We focus on renewable forces. We achieved a major milestone. We reported 1 gigawatt of energy installed in renewable energy sources, I'd love to share that news with you. Lower prices obviously impacted our performance. We are talking about the loss of EBITDA by about PLN 1 billion on account of lower energy -- electricity prices, but this was partially compensated by lower cost of CO2 emissions.
The next segment is Retail. This is a segment that reported a solid, robust quarter and this shows the effect of our work in this segment. We stepped on the volumes of our sales in this segment, both in Poland and also in other markets. We increased our retail and fuel -- nonfuel margins as a result of a very effective work, but we also increased our business. We upscaled our business because from the very beginning of the year, we have been consolidating a few stations in Austria. So this team, the Retail team, really worked hard in this quarter and this obviously impacted the performance.
Obviously, the cost of operation of fuel stations is higher in the context of competitive pressures and inflation pressures, the pressures on salaries and wages, the increase in minimum wage, but also this is the effect of upscaling of our network. So naturally speaking, the cost of operation of our fuel stations network must be higher.
Moving on to the Upstream segment. This is a segment where we saw major challenges in the first quarter. We're talking about gas prices and -- lower gas prices, but also higher cost of regulations -- regulatory costs.
Our Upstream business in the first quarter of the year fared well. Since the beginning of the year, we have been consolidating KUFPEC, we're talking about Norwegian assets on the Norwegian Continental Shelf. But we also stepped on the production of Tommeliten Alpha, one of our fields. This enabled us to report to 100,000 barrel of oil equivalents per day. So this is another milestone for the group.
Today, Norwegian assets and the production from Norwegian assets and the Norwegian Continental Shelf represents 54% of our total production across the group. Obviously, lower gas prices mean that we make less money on it on the produced gas, and we are talking about 1/4 of our production here.
As I said before, regulatory costs are another element. What does it mean actually? In the first half of the year, we will be talking about more than PLN 15 billion of the so-called gas windfall charge. That is a charge that we have to pay to the regulators, to the manager of the settlements in order to finance support programs. In the first quarter of the year, we were talking about PLN 7.7 billion, up [ 4.7 ] year-on-year.
Taking these two factors into account, you can see the big picture what impacted our performance in the Upstream segment comparing this to the first quarter of the previous year.
And the last segment, last but not least, we're talking about Gas, trade and storage as well as distribution. This segment delivered the highest EBITDA for the group. We're talking about almost PLN 1 billion and 96 terawatt hours of energy in terms of sales. We're talking about a decline of 2% year-on-year. However, what is the most important to us and it's most promising to us is the fact that sales to our wholesale customers went up, and this is a good sign for the future whereas the sales for other customer groups remained stable.
Lower gas prices obviously impacted our revenue in this segment, putting a burden on our financial performance here. However, in this case, in the case of the Gas segment, to a large extent, we were able to deliver our security policy, and also the strengthening PLN versus U.S. dollar supported our financial performance in this segment. Therefore, this effect was very much mitigated by our trade and risk management efforts.
Moving on to our capital expenditure. As a reminder, so to speak, I'd like to remind you that the group declared CapEx figure at PLN 38 billion in 2024, of which around 2/3 are growth CapEx projects. In the first quarter, CapEx stood at PLN 6.4 billion.
But moving back to our prospects for the entire year in reference to the information presented by the CEO, Ireneusz, I'd like to start with the Upstream segment. In 2024, the Upstream segment is supposed to have the highest contribution in terms of our capital expenditure given our consistent focus and work on the Norwegian Continental Shelf. We're talking about the development of our production efforts, but also we are also talking about our new efforts, new projects for Alpha, Fenris and Yggdrasil. These are the priorities for our Upstream segment efforts.
The Energy segment is a segment that reports good progress in terms of the CapEx. We invested in gas-fired units in Ostreleka and in Grudziadz. We also invested in capacity in renewable energy sources, but we also worked intensively on our onshore wind farm projects. So these are the CapEx efforts that will be still made in the Energy segment.
In the Petrochemical segment, we are talking about a year of intensive CapEx spending. Let me go back to the olefins projects and the revision of the olefins project that is a major project in the Petrochemical segment. We're talking about the development of our capacities at the olefins units at Plock.
We can expect this year that those CapEx figures will be higher year-on-year. However, we will leave some room here in order to come back to you with the results of our revision process during which we'll provide our CapEx projects.
We are supporting our refining projects. We're talking about the quality of those projects, for instance, the hydrocracking unit in Lithuania. But this is one of our strategic goals as well the development of our production capacities and biofuels. And we're talking about 2 promising growth projects here, HVO at Plock and bioethanol generation unit or production units in ORLEN Poludnie in the south of Poland.
Last but not least, something we want to discuss with you today, the outlook for this year, mainly against the background of our macro environment. We're talking about the regulatory environment. You probably know the regulatory environment for this year, more or less. You probably know the proposals -- heard about the proposals from the government.
In terms of the macro environment, we focus on the basic elements that are drivers of our performance. The Brent crude, as we said before, it moves in a very narrow range. in terms of a trend, we do not expect any major movements, especially given the demand globally speaking. This obviously will affect the cost to some extent, but this all boils down to geopolitics and the management of supply.
In terms of natural gas, we do not see any signals that would cause a spike in the cost of natural gas. We have solid stock levels. The demand is still sluggish. It is being -- it is recovering slowly.
The Refining margins, obviously, as a consequence of the lower availability of those products globally speaking, we're talking about solid double-digit figure.
In terms of electricity, this will be obviously shaped by the prices of CO2, the availability and the productivity of renewable energy sources. We expect that also, in this particular element, the situation will normalize.
And last but not least, the Petrochemical margins. We are very hopeful for the future. We are looking for recovery. We are expecting a recovery -- a rebound, maybe a slight rebound on the back of higher demand and also a recovery in Europe and also the gas prices, and the lower gas prices will impact our Petrochemical margins positively.
So that will be all from me. As a recap of my presentation, let me tell you that we have seen a solid quarter, solid performance in a very challenging environment. Some of the elements of this environment were very difficult to manage, especially in the context of the prices, global prices, of feedstocks and products but also a major pressure in terms of the gas windfall charge in the Upstream segment.
Thank you very much for your attention.
Let us now move on to the Q&A session. In this part of our earnings call, we will have questions. From our webcast viewers, we will show them on screen and we will show you the answers to those questions at the end of our earnings call.
This part will be hosted by Konrad Wlodarczyk, IR Director. So let us welcome now on stage. Please give us a second to sort out some technicalities.
And also, let me remind you that in this part we need to use microphones.
So let me again welcome to the stage Mr. Ireneusz Fafara, CEO and Management President; and Mrs. Magdalena Bartos, CFO, VP for Finance. Mr. [indiscernible] will start the Q&A session.
[indiscernible], Energetyka 24. I have a question on the SMR project. I'd like to ask you what do you not like in terms of the current formula? It will be revised as you said. We're talking about [indiscernible] green energy and maybe some technology partners. What are the recommended adjustments to this formula so as to make it acceptable for the company.
Thank you very much for this question. The answer will be very short. We are at a very initial stage of these negotiations, and at that point, I would not like to go too much into any details.
Since I'm here in this part of the room, Puls Biznesu, a question from Magdalena Graniszewska. A question to Ireneusz Fafara. You know the group very well, but the period before those major M&A transactions, looking very freshly on the structure of this group, which, in the meantime, entered some new sectors of the economy, deviating very much sometimes from your core business.
Can you tell us your opinion about the presence of ORLEN in this very broad spectrum of the economy and maybe the prospects for the future? I'm not talking about my plans for the entire Management Board.
Well, you are right. I joined the group that I knew in the past. In the past, it was quite simple: we bought -- we produced -- we bought crude. We produced petrochemical products. We sold those products and retail products and fertilizers. We started production only. Right now, we're talking about major corporations with a lot of site businesses. And since -- or the goal of that is, let me put it diplomatically, quite doubtful.
I'm not sure if ORLEN should be in publishing business, for instance, as an example. So these are the elements that we want to include in the strategy, a strategy that we want to release by the end of the year. Simply speaking, I would say that we want to streamline this business to focus on what's the most important -- the core business for this group.
[indiscernible] Three questions. First of all, why did the company decide to set the dividend payout date at the end of the year, Christmas time where usually we would have that date well ahead before. So we're talking about, for instance, September. This caught me by surprise.
First of all, the savings on crude imports for the first quarter of the year due to the introduction of E10, that is the increase in the share of biofuels in the structure.
And thirdly, do you want to continue on ORLEN Swiss trading operations?
Let me start from the last question. So far, so good, yes. We are in the middle of the audits I have mentioned before. So we will see what the effects of those audits will be. But as a rule, corporations such as ours do have their own trading units in addition to our headquarters.
And the goal of those units, that is, the trading company, is to make money on the intermediary activities on trade. So this was the idea behind this particular company. Where it went through, I'm not really -- I don't really want to discuss it until the audits are closed. But so far, yes, we will continue with these operations.
We have a couple of these companies. For instance, those that we inherited, so to speak, from PGNiG. Obviously, you can think about whether it makes sense to actually keep those companies all around Europe, those trading companies that are into the trade of petrochemical production for us.
So we will be verifying it. Right now, we are auditing this particular area especially in terms of how we can recover the money that was pumped into dishonest intermediary business partners.
So 2 questions -- 2 other questions. In the context of the dividend payout date, the date is in line with all the mandatory schedules or time lines, and of course, with the code. So if we want to look at the balance sheet, there is no reason, obviously, for us to postpone it.
But since I wasn't part of the decision, I was not the decision maker, I can only guess that the Management Board wanted to give sufficient time for the new Management Board, for the new managers that will be responsible for this particular thing. And this is, in my opinion, the only explanation -- or the viable explanation.
In terms of your other question, biocomponents are usually more expensive. So the increase in terms of the share of biocomponents in our products means that we will pay higher cost. So this is not something that we can save any money on in terms of imports.
The bio cost in the first quarter stood at around PLN 400 million, an addition -- a side note.
And maybe something I would like to add to your question concerning the dividend payout date. I was behind this idea actually. We thought that since we would have the new managers, financial managers, coming up and joining us, we decided to postpone the payment date as long as possible.
A question on changes in your employment. Business Insider says that 100 people had to be let go, those were connected with the previous management in the Law and Justice Party. Is it all done? Are you still be doing this structure, changing the structure of your employment?
The only measure and the metrics of the performance here is the quality of work. This is something I mentioned before. This is the only area that we assess our personnel on. If we decide that their contribution to the value of this company is insufficient, we will be letting them go.
From this perspective, any change in any company is an ongoing process. But I do hope that this process will have the least impact possible. But I'd like to ask you about, for instance, the release of the son of [indiscernible] or a relative of Mrs. [indiscernible]. Is this competence based? Or is it politics based?
I actually did not know that we hired those people. This was not the driver behind our decision.
[indiscernible], Radio ZET. I'd like to ask about the audits. How many audits do you have ongoing? And what areas do they focus on, marketing, for instance, and whatnot? And when can we expect them to finalize within the next quarter or maybe later on? So this is the first question.
The second question, what is your assessment of the efficiency of and the operation of the previous Management Board headed by Daniel Obajtek? The media reported a number of irregularities and problems. You have been at the helm of the company for quite some time. Maybe you have reviewed the document. What is your assessment of the previous government headed by Daniel Obajtek?
In terms of the audits, I do expect that you are talking about the audits of the activities of the previous government, right? But we have a number of other audits as well. I do believe that you asked about the first ones, I mean the audits concerning the operation of the previous government -- previous Management board.
We're talking about 8 to 9 such audits and they relate to the areas that was discussed by the press, the media and I'd like to discuss them. But we have no hidden areas here. We are talking about the spending. We are talking about the reasonability and viability of costs. We're talking about everything that is connected with OTS sponsoring. So that would be it.
The second question is, on one hand, it is simple, on the other hand, is quite complicated. It's complicated because the previous Management Board was at the helm of the company for at least 6 years in terms of its term of office. And those were the turbulent times, let me put it this way.
I can say quite clearly that had I been at the helm of the company at that point, I would have done it differently. Definitely differently. And that's my answer.
[indiscernible]. This question has been asked before, but let me go back to it. Maybe you'll give me more details. Do you know what happens to prepaid money for crude oil for [indiscernible] trading Switzerland? What do you do to recover that money? And at what point did they go missing? So you said that this is quite a complicated thing and a network is quite complicated, but maybe you could give us some more details.
You might not believe me, but it's true. It's not something that we deal with on a day basis. We dealt with it at the beginning of March. We appointed the teams to handle that problem. We reported the issue to the relevant services. We hired good advisers. And we are obviously receiving reports on that matter.
Obviously, I cannot give you all the details because those are confidential information and investigation is going on. But let me put it quite frankly, that the fact that the company such as ORLEN, one of the major players across Europe, 43rd player in Europe, one of the major refining companies around the world, we're probably among the 100 players, made some prepayments for the products that were supposed to be brought to the company is a scandal. And if somebody came to me today with such a proposal, I would take it as an insult.
And this is something I would like to stress very much, and Magda, you would probably agree with me and this is the opinion of the entire Management Board. We do our best leveraging on the human resources brought to us from the major experts. We're talking about legal firms. If you ask how and when will we recover all that money, I'll tell you I'm not really able to answer that question at that point, but this will be definitely a difficult task.
[indiscernible] Two questions. First of all, the decline in profits. The former CEO of ORLEN tweeted today about 70% decline in net profit. How can you comment on that? What is the source of those differences quarter-on-quarter according to the Management Board?
And also, I'd like to ask you about the negotiations with the Americans in terms of the delays and the lack of supplies of LNG to the gas board signed by PGNiG. What is the stage of those negotiations with American partners?
And also, you mentioned about 8 to 9 audits that are ongoing in the company. As far as I understand, we're talking about the audits within the letter of the law, not the reviews that you hired auditors for that are supposed to verify all the documents. We're talking about legal audits, right?
Let me start by the last question. The definition of an audit, it's not really well defined. What you asked about are the audits that are internal audits by our employees and also by our employees supported by external officers or globally recognized law firms and some units that are experts in forensics. So this is a mixture of audits, simply speaking.
Magdalena will probably answer the question about the decline in net profit. As you probably have noticed, we never comment on the comments made by our predecessors. We want to focus on our business and our operations. We need to focus on what we do.
But let me take this opportunity maybe to have one comment on that. Yes, we can have a decline in net profit. But what we see is a car that has been driven very fast. And when you put a brake on it and change direction, obviously, you can have certain delays on the way. So that's my answer. Magdalena will answer your other questions.
I will just show you that whole truth. Our operating profit went down year-on-year by PLN 11.1 billion. That's the whole truth, nothing but the truth. You can see that on the lower chart, of which PLN 6.6 billion attributable to macro and market conditions, lower margins, lower prices of gas, lower price of electricity, lower differentials.
The remaining PLN 2.4 billion is attributable to our contribution to the support system in the form of the gas windfall charge. This is organized by the state, by the regulator. And these 2 elements explain the decline in our profit. That's all.
Any questions from the room?
[indiscernible] I have 2 questions on your financial performance. In your opinion, what are the standard annual performance of ORLEN? What is the level of profit that is repeatable, a medium level within the, let's say, 5 years?
And in terms of the settlements with the fund and the compensations, what will be the net effect this year?
Let me start with the first question, so the prospects, midterm prospects, and a normalized level of our profits. As part of our communications on the revision of our strategy, the company said that after this expected normalization period, we were talking about around PLN 50 billion in terms of normalized profit.
However, it is difficult for us to comment on it today. As Ireneusz mentioned before, together with the Management Board, we'll be looking at each and every individual investment in our CapEx plan. We will be looking at both cash flows and returns on investments. This can have an effect on amount that I mentioned, the amount of expected profits. But we will definitely address this question when we communicate the revised strategy.
In terms of the second question, could you please repeat it? I did not jot it down.
Yes. You were talking about the [ PLN 15 million ] in gas windfall charge. What is the net effect in the prospects of 1 year in terms of the settlements with the fund? So you'll pay PLN 15 million, what will you get in terms of the compensations?
In the first quarter, in the trade segment, we're talking about Retail trade, we're talking about PLN 2 billion or more than PLN 2 billion, and total compensation is at PLN 3.1 billion for the year.
However, we look at the gas windfall charge in a different way. We received those compensations because we have a lower tariff. That means that in standard [ macro environment ], our tariff would be higher. So this effect would be generated by the group at the level of revenue in the Retail segment.
But the effects related to costs and gas windfall charge is an increment cost that is added to our cost base, and we are talking about PLN 15 billion.
Let me go back to your question on the standardization of your performance. Looking at the market consensus for this year, EBITDA LIFO prepared by the analysts, we're talking about around PLN 30 billion. And this figure actually includes a negative impact of a gas write-down of PLN 15 billion. So we are close to around PLN 50 billion as the CFO mentioned.
But EBITDA is not something that we base the dividend on. I do not like to use EBITDA as a metric. I asked about net profit. So we're talking about PLN 50 billion in EBITDA LIFO, but my question was about net profit.
No. We talked about PLN 50 billion in LIFO-based EBITDA.
[indiscernible] A question on your communication in terms of investments on CapEx. So on the one hand, you said that you are stepping up on it. But on the other hand, you are revising your CapEx projects, for instance, in the Petchem segment. What could the net effect be in terms of the level of your investments in the years to come?
So is the fact that you will be accelerating, does it mean that the CapEx will grow next year? Maybe it will stay at the same level or maybe it will be lower. For instance, if you decide to stop investments in the Petrochemical business. And what will be the effect on the dividend those decisions if they are taken?
If the CapEx is lower, does it mean that you will be able to pay out a higher dividend than the dividend that you planned in the strategy?
I think it's too early to actually answer such detailed questions. If we look at the investments, we are looking at the investments and we are revising them. We're not really sure which investments will be continued. Some of them will require higher spending. What the effect on the future net profits and on the future dividend will be is difficult to tell.
But as we said before, and [ Robert ] mentioned it, we are upholding the declaration from our strategy that we will pay out a dividend of PLN 4.15 on a yearly basis.
Our dividend is defined as a percentage of free cash flows, but it also reflects a minimum dividend policy. And at that point, the minimum dividend is at PLN 4.15 and the minimum level of the dividend should go up by PLN 15 [ gross ] year-on-year. And we are keeping to that promise stated in our strategy.
[indiscernible] I'd like to know whether you filed new applications, [ standard ] applications, for gas as of July 1? And what is the expected in tariffs, a revision in tariffs for gas for households, but also for gas delivered in terms of the distribution charge?
[indiscernible] investment relations office, the tariff process will start because, as of July 1, the tariff that is used right now will be eliminated. So we are preparing the group for the process.
It is difficult to talk about the levels and the tariff amounts, depends on the contractual situation of PGNiG [ OD, ] the open position that the company has based on which the level of tariffs will be calculated and as we later negotiated with the President of the Energy Regulatory Office.
At that point, therefore, we cannot give you any amounts we can expect new regulatory decisions. So yes, the application will be filed and will be analyzed.
A technical comment. I will go back to Mrs. [indiscernible] and after answering that question, we'll move on from the room to [ another ] part of this earnings call and we'll have our directors and Management Board available to you for unofficial discussions.
A question from [indiscernible]. About LNG, the contracts with the U.S. partners in terms of the delays because I did not hear any answer to that question. In terms of the contracts, we are in the process of arbitrage as we speak.
Thank you very much to all of you for the participation in this earnings call. And right now, we'll have a couple of words for behind the scenes unofficial meetings. Thank you very much for the participation in this earnings call, and goodbye.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]