Orlen SA
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Ladies and gentlemen, welcome to the conference call of PKN ORLEN. At our customer's request, this conference will be recorded. [Operator Instructions]
I will now hand over to Mr. Konrad Wlodarczyk, IR Director. Sir, you may begin.
Thank you, operator. Good morning, ladies and gentlemen. Welcome to the conference call regarding PKN ORLEN consolidated financial results for the fourth quarter 2020. The presentation that was mailed to you and is available on our web page will be delivered by me and Michal Perlik, Executive Director for Finance Management.
After the presentation, as usual, there will be a Q&A session. So during which several, directors from PKN ORLEN will be ready to take your questions.
And as usual, I may say so, Q4 results is always a good moment to summarize the whole year. Therefore, let's move quickly to Slide #3 to see how last year looked like. So we may say that 2020 was definitely tough and challenging, yes. So COVID had significant negative impact on the downstream margin, which decreased by, roughly speaking, 32% year-on-year to the level of USD 7.3 per barrel. Lower demand for fuels had a direct impact on the crude oil throughput, which decreased by 4.4 tonnes compared to the last year to the level of 29.5 million tonnes, which means that we utilize our facilities at the level of 84%. Sales amounted to 38.3 million tonnes, so decreased by, roughly speaking, 12% year-on-year.
Despite this EBITDA LIFO for the whole year amounted to the level of PLN 12.1 billion. And of course, this is the result before impairment of assets, and this result includes also profit on the bargain purchase of ENERGA sales in the amount of PLN 4.1 billion.
So it means that all in all, it's a quite good result, which shows that only integrated and diversified content is strong and resistant to macro fluctuations. Retail and energy generated record high results and petchem significantly reduced the loss recorded in the refining segment.
We maintained our financial strength, which was confirmed by Moody's agency, raising its rating outlook from negative to positive and maintaining the rating at Baa2.
We generated PLN 7.6 billion cash flow from operations. We realized CapEx at the plant level of PLN 9 billion. Our net debt at the end of Q4 was PLN 13.1 billion, which means that gearing was slightly above 30%. And the covenant net debt to EBITDA is 1.3.
We also secured financing by signing a revolving credit facility agreement up to EUR 1.75 billion and issuing 5-year corporate bonds in the amount of PLN 1 billion.
Additionally, as usually every year, we pay the dividend to our shareholders.
In this difficult times, we continued M&A processes that we have already started. In terms of LOTOS, we are involved in talks with potential partners to meet remedies negotiated with European Commission.
In terms of ENERGA Group, we took over almost 91% of capital. We are working on concentration application to the European Commission, and we are simultaneously carrying out due diligence process in PGNiG. And we also acquired 65% of RUCH shares and initiated the acquisition of Polska Press.
We have completed 100% of planned level of CapEx. We have started construction of Visbreaking unit. We started modernization of HDS and hydrocracking installation import with continuous works related to expansion of fertilizers production capacity in Anwil, and we also selected a designer for an offshore wind farm on the Baltic Sea and at the beginning of this year, also industry partner. Start of this investment is planned in 2023, and commissioning is scheduled for 2026.
Additionally, we signed a letter of intent with PGNiG regarding potential cooperation in the construction of CCGT plant in Ostroleka and development of biogas plants. We also started process of selecting care contractor for hydrogen hub in Wloclawek.
In retail, as you remember, we introduced ORLEN brands at foreign stations of the concern, increased the availability of alternative fuels on our stations, and we are further developing the network of fuel stations in all our markets.
In 2020, market definitely appreciated our actions. So the chosen direction regarding the reduction of carbon dioxide emission by 2030 as well as our aspiration to achieve emission neutrality in 2050, PKN ORLEN was appreciated by the Sustainanalytics agency, which raised ESG rating for PKN ORLEN. We took fifth place out of 86 companies from oil and gas refining and marketing sector.
PKN ORLEN won the first place among certified employees in Poland. The company has been at the forefront of this prestigious ranking for 10 years. And this year, we also received the Top Employer Polska 2021 awards from the experts and independent Top Employers Institute for meeting the highest global standard in the field of personnel policy.
For the next time in row, we also awarded the best integrated report, and we received Polityka Golden CSR Leaf.
Now I will go into the details of our Q4 results starting from the macro environment. So let's move to Slide #5.
Macro environment remains demanding, I may say so, in Q4, similarly as it was in Q3. Downstream margin was at the level of USD 5.4 per barrel, so lower by USD 3.7 per barrel comparing to the previous year. This was mainly the effect of a significant decline in the refining margin due to lower fuel demand, so COVID impact and lower BU differential.
As a result of crude oil price decrease by USD 19 per barrel year-on-year, we recorded lower cost of our own consumption.
Diesel and gasoline crack decreased by 71% and 44%, respectively, at increasing cracks on heavy fuel oil by 68% year-on-year.
Operating results were supported by weaker Polish zloty versus euro.
Next slide, Slide #6, shows GDP and fuel consumption. So we may say that in Q4, we expect lower fuel consumption year-on-year, definitely, and it will be visible in all domestic markets, which is a consequence of restrictions in movement related to the ongoing pandemic in Europe. And lower fuel consumption is reflected in lower GDP dynamics, which is clearly visible on the graph.
Next slide, Slide #8. Financial results. In Q4, we recorded a decrease in revenues by 16%, mainly due to a lower quotation of refining and petchem products resulting from crude oil price decrease and also lower sales volumes. We achieved over PLN 2.4 billion EBITDA LIFO, which means increased by PLN 1.2 billion year-on-year, mainly as a result of positive impact of higher retail margins, reversal of write-offs on inventories net realizable value, consolidation of ENERGA Group results and one-off effects of settlement of CO2 contracts. Above effects were partially limited by negative macro impact, lower sales volumes and higher fixed and labor costs.
Positive impact of net realizable value in Q4 amounted to the level of PLN 358 million. The impact of changes in crude oil prices on the valuation of inventories in Q4, so LIFO effect, amounted to minus PLN 0.1 billion, which caused a decrease in reported EBITDA to the level of PLN 2.3 billion.
Net financials amounted to the level of minus PLN 0.3 billion due to negative impact of net FX differences, net settlements and valuation of derivative financial instruments and interest costs.
So taking all into account, in Q4, we achieved almost PLN 600 million net results, so comparable results year-on-year.
Next slide, Slide #9, present split of EBITDA LIFO by segment. Refining generated minus PLN 145 million, so decreased by PLN 0.4 billion year-on-year due to a negative effect of macro deterioration and lower sales volumes, limited by positive impact of inventory revaluation and lack of provisions for inventory shortages created in Q4 '19.
Petchem, PLN 0.5 billion, so increase by PLN 331 million year-on-year, mainly due to positive impact of macro and higher sales volumes. Energy, PLN 1.1 billion, so increased by PLN 730 million year-on-year, mainly due to positive impact of the consolidation of ENERGA Group results and penalty from GE and positive impact of macro and sales volumes. Retail, almost EUR 830 million, increased by PLN 242 million year-on-year due to positive effects of higher fuel margins limited by lower sales volumes and lower nonfuel margins.
Upstream PLN 50 million, increased by PLN 17 million year-on-year as a result of lack of provision for tax liabilities created in Q4 '19 and savings in overhead at negative macro effect and lower sales volumes.
Corporate functions, higher by PLN 267 million year-on-year, mainly due to one-off effects of settlement of CO2 contracts in the amount of PLN 382 million at higher labor costs and expenses to reduce effects of COVID.
Now let's go deeper into the details. So Slide #10. Refining. Refining in Q4 was, in red, minus PLN 145 million, EBITDA LIFO, which is lower by PLN 412 million year-on-year. As you can see at the bottom of the slide, the main reason for this was: negative macro effect of PLN 930 million due to decrease in cracks on light and medium distillates; lower BU differentials by USD 1.4 per barrel; strengthening of Polish zloty against U.S. dollar; and negative impact of hedging transactions made on crude oil purchases and sales of products.
The above-mentioned effects were partially emitted by the positive impact of higher cracks on heavy refining fractions and lower cost of own consumption as a result of a decrease in crude oil price by USD 19 per barrel.
Volume effect was circa PLN 90 million. We recorded a decrease in sales in the refining segment by a 12% year-on-year due to lower sales of gasoline, diesel, LPG, jet and heavy fuel oil.
Others include mainly: PLN 0.4 billion effect of inventory revaluation; and PLN 0.2 billion lack of provision for inventory shortages created in Q4 '19.
Slide #11 shows operating data of refining segment. So in Q4, PKN ORLEN processed 7.4 million tonnes of crude oil, which is 1 million tonne less than in comparable result last year, mainly due to the fact that we had more maintenance shutdowns, and we had also lower utilization of all refineries due to challenging macro and also lower demand for fuels due to restrictions against COVID.
In ports, lower capacity utilization by 7 percentage points year-on-year, mainly as a result of maintenance shutdown of CDU unit, hydrocracking, hydrogen plant and H-Oil and reduction of capacity utilization of some other installations.
In Unipetrol, lower capacity utilization by 11 percentage points as a result of lower demand for middle distillates and maintenance shutdown of CDU unit, Visbreaking, FCC and PE3 installation. In ORLEN Lietuva, lower by 13 percentage points due to unfavorable macro situation.
Going in those sales split market by market. In Poland, lower sales by 7% year-on-year, including lower diesel sales by 2%; gasoline, minus 6%; jet fuel minus 68%; and LPG, minus 30%; bitumen, minus 6% year-on-year.
In the Czech Republic, sales decreased by 18% year-on-year as a result of lower sales of LPG, minus 25%; diesel, minus 16%; gasoline, minus 24%; and jet minus 90%.
In ORLEN Lietuva, volumes decreased by 15% as a result of lower sales of gasoline by 18%, just minus 64%; diesel, minus 10%; and bitumen minus 32%.
Next slide, Slide #12. Petchem. In Q4, Petchem segment delivered over PLN 500 million EBITDA LIFO, which is almost 3x higher comparing to the previous year. Positive impact of macro is circa PLN 190 million. So the effect of higher margins on polyolefins and propylene as well as weakening of Polish zloty against euro partially limited by lower margins on ethylene and negative impact of hedging transactions.
Positive effect of volumes, roughly speaking, PLN 160 million due to higher sales volumes by 17% year-on-year, including; increase in sales of polyolefins by 47%; fertilizers, 12%; PVC, more than 100% at comparable sales of olefins. 30% of petchem results was made by Anwil, PLN 85 million EBITDA and the result on the sale of PTA in the amount of almost PLN 100 million.
Slide #13 shows operational data in petrochemicals segment. In Q4, there was a higher utilization of PVC and PTA units in Wloclawek and higher olefin production. In Plock, by 6 percentage points, and in Unipetrol by 15 percentage points. So this translated into increasing sales.
In Poland, we had higher sales by 13% as a result of higher sales of ethylene, PTA fertilizers and PVC. In the Czech Republic by 22%, mainly as a result of higher sales of polyethylene, launch of PE3, propylene and PVC. Lithuania by 200% as a result of higher external sales of polypropylene.
Slide #14, energy. In Q4, energy generated over PLN 1.1 billion of EBITDA LIFO, which is nearly 3x higher than in the previous year mainly due to consolidation of ENERGA Group results in the amount of PLN 511 million and faster growth in electricity prices compared to gas prices. In addition, despite the pandemic, we recorded increase in electricity sales volumes in ORLEN Group. Others, include above-mentioned impact of consolidation of ENERGA results which are described in the supporting section, Slide #37 and PLN 0.2 billion of penalty from GE for not fulfilled contract obligations according to CCGT in Wloclawek and lower variable costs, so cheaper natural gas.
Let's move to selected energy segment data, so Slide #15. This slide confirms that we are focused on developing low- and zero-emission energy sources. In Q4, ORLEN Group, including acquired ENERGA Group produced more than -- produced more electricity by 10% due to favorable macro conditions for gas-fired units, hydropower and wind power. Total production amounted to 3.3 terawatt hours, of which 70% comes from renewables and gas-fired plants. Sales amounted to 7.5 and distribution to 5.7 terawatt hours.
As a result of consolidation, current group's installed capacity is circa 3.2 gigawatts electrical. Of which, 1.8 gigawatts in ORLEN Group and 1.4 gigawatts in ENERGA. CO2 emission from energy segment in ORLEN Group amounted to 1.9 million tonnes. Data does not include ENERGA figures.
Slide #16, retail. Retail generated over PLN 800 million, which is higher by 41% year-on-year. In Q4, we recorded increase in fuel margins, especially in Polish and German markets with comparable margins in the Czech and Lithuanian markets. Retail sales volumes decreased by 14% year-on-year, of which gasoline, minus 13%, diesel, minus 14% and LPG minus 21%. Nonfuel margin in Q4 was lower year-on-year on Polish market, especially in sales of hot snacks and beverages. And the Czech market at higher margins in German and comparable margins in Lithuanian market.
We expand our fuel stations network to increase availability of alternative fuels. Currently, we have 212 points with alternative fuels, which means nearly 2x more than last year.
It's also worth to remind you that we are constantly support Polish economy, full cooperation with Polish producers. Currently, around 85% of products available at ORLEN fuel stations were produced in Poland domestically.
Next slide, Slide #17 shows operating data of retail segment. At the end of Q4, we were running 2,855 fuel stations, of which over 80% were equipped with nonfuel concept Stop Cafe. Number of fuel stations increased by 19 year-on-year. We opened new stations on all markets we operate in, except Germany.
Due to drop in fuel consumption as a result of COVID, retail recorded sales volumes decreased by, roughly speaking, 14% year-on-year. So lower sales was observed on all our markets. Market share increase in Czech and Slovak market at comparable level in Germany and drop in Poland and Lithuania.
It's also worth to highlight the future dynamic growth on nonfuel sales. In Q4, another 109 locations were opened. At the end of Q4, we were running 2,290 coffee corners, which means increased by 145 year-on-year, and this includes 662 convenience stores.
We do not forget definitely about the future trends. We have just connected 29 new fast chargers to the network and launching next few is planned for the near future. At the end of Q4, our clients could use 167 chargers, almost 140 in Poland, 23 in Czech Republic and 7 in Germany, which means higher by 72 charges year-on-year.
We have also 2 hydrogen storage stations located in Germany and 43 CNG stations in the Czech Republic, which gives us in total 212 locations that I've mentioned previously.
Slide #18. Upstream in Q4. Upstream delivered PLN 50 million EBITDA LIFO, which is higher by 52% year-on-year. This is mainly due to positive hedging transactions at negative macro impact resulting from the decrease of crude oil price NGLs at higher natural gas prices year-on-year.
Moreover, we recorded minus 12% sales volume decrease as a result of drop in average production by 2,500 BOE per day year-on-year, of which minus 0.2 in Poland and minus 2,300 BOE per day in Canada.
Slide #19, some details regarding upstream segment. We have circa 190 million BOE 2P reserves of crude oil and gas. Average production in Q4 was slightly above 16,000 BOE per day. CapEx in upstream spend in Q4 amounted to EUR 135 million and were split 1/3 in Poland, 2/3 in Canada.
When it comes to operating activities realized in Q4, in Poland, among others, we continued works related to Miocene, Edge and Plotki projects. At the end of December, a first fully operated by ORLEN upstream, Bystrowice Natural Gas Field commenced the production. Projects and legal works for development of Chwalêcin, so Plotki projects are continued.
In Canada, in Q4, there were resumed further development of the core production assets and related investment activities, including drilling of 3 wells in Ferrier and 1 well in Kakwa area.
Technical consolidation of Strachan's productive assets with Ferrier's transportation and processing infrastructure created the consolidated area and resulted in significant reduction of operating costs through using our own infrastructure.
Pro-environmental activities conducted to reduce the greenhouse emission and meet all environmental requirements introduced by the federal and provincial government of Canada, including, for example, limiting flaring and counteracting methane emissions.
Now I hand over to Michal to describe cash flow and financials. So Michal floor is yours.
Thank you very much. So let's go to Slide #21. The group has generated PLN 1.6 billion of operating cash flow in fourth quarter. EBITDA, excluding LIFO effect, was contributing PLN 2.3 billion. We recorded increase of working capital over this quarter by PLN 0.9 billion. It was mainly related to decrease of payables, which was driven mainly by lower purchase of crude oil at the end of the year. Partially, it was offset by decrease of receivables mainly driven by prepayments from our business partners as of the end of the year.
Net outflow from investment was PLN 2.4 billion. Out of which, CapEx for fourth quarter was PLN 3.5 billion. It was offset by PLN 1.1 billion of total amounts, including: acquisition of ENERGA shares; PLN 0.4 billion net flows from loans; PLN 0.2 billion recognition of rights to use of PLN 0.5 billion, this is mainly related to leasing agreements for transplantation means and perpetual throughput related to new gas stations; and change in investment liabilities, PLN 0.6 billion.
The net debt has increased over the last 12 months by PLN 10.7 billion. We have 2 big negative elements influencing this increase. The first one was acquisition of ENERGA. This transaction brought all together minus 9.3 to net debt, out of which 3.1 was related to payment for the shares. And we also consolidating 6.2 net debt related to consolidation of ENERGA Group on our consolidated balance sheet.
We spent PLN 9 billion on CapEx in 2020. In a moment, Konrad will give you more details on this position. On the other hand, we generated PLN 5.6 billion of EBITDA, excluding LIFO effect and profit on bargain purchase of ENERGA shares. And due to lower prices of crude oil and the products, we decreased working capital by PLN 2.2 billion over the 12 months or as compared to the end of December 2019.
On the next slide, we are showing more details about our debt structure. We slightly changed this presentation. Net debt to EBITDA. However, this is exactly how we are calculating this for the banks, for the covenants. End of last quarter, this ratio was at the level of 1.32. As you might remember, the maximum bank covenant we have in our RCF facilities, 3.3, and the maximum level set in our strategy is 2.5. So we still have a sufficient space in terms of indebtedness.
We also slightly changed the chart showing total net debt due to the fact that for the calculation of the covenant, we are not taking into account product limiters, recourse product finance and hybrid bonds. We are showing here the split for hybrid bonds and the rest of net financial liabilities. As you can see in end of 2020, we have [ all together ] PLN 13.1 billion of net debt, out of which PLN 1.1 billion was related to hybrid bonds.
In fourth quarter, we issued ESG rating-linked bonds domestically on the Polish bond and denominated in Polish zloty for PLN 1 billion value with 5 years tenor. This transaction was very positively met by the market. We have over 2x subscription, and we achieved the lowest margin since 2008, 90 basis points over 6 months [indiscernible].
No substantial change in terms of debt structure and maturity. We are still working on our EMTN program establishment, and we expect, according to what we have announced in our strategy, to finish this process by the end of first quarter.
That's all from my side. Thank you very much. I give the floor back to Konrad.
Thank you, Michal. So now we are going to Slide #23, CapEx. In 2020, we realized CapEx at the level of PLN 9 billion according to the plan of which ENERGA Group spent PLN 1.3 billion. Over 30% of CapEx was dedicated to the refining segment and 20% for petchem and energy each, 50% for retail and 5% for upstream.
Main growth projects realized in Q4 are in the refining: construction of Visbreaking unit in Plock; construction of propylene glycol in ORLEN Poludnie.
In petchem segment, construction of units under petrochemical development program, and extension of fertilizers production in Anwil.
In energy, preparation for construction of offshore wind farm on the Baltic sea; modernization of TG1 turbine set in CHP in Plock; and projects in ENERGA Group focused on production and distribution.
In retail, we opened 26 new stations, 11 closed and 6 modernized. And we also opened 109 Stop Cafe or Star Connect locations including convenience stores. The last section describes market environment.
So Slide #25. Downstream margin in Q1 increased by USD 0.50 per barrel to the level of USD 5.9 as a result of the differential increase and higher petrochemical margin. Crude oil price increased by USD 5 per barrel quarter-on-quarter with an average USD 55 per barrel, mainly as a result of worldwide vaccination program against COVID. OPEC+ decision to extend the current reduction in crude oil production to February and March, so 7.1 million barrels spent per day. And additional reduction in crude oil supplied by Saudi Arabia in February and March by 400,000 barrels per day, drop in the U.S. crude oil inventories to 480 million barrels and also high enthusiasm of investors for USD 2 trillion stimulus package.
So all in all, this increased the crude oil prices I've mentioned at the beginning by USD 5 per barrel.
Diesel trucks increased by 3% quarter-on-quarter with an average USD 34 per tonne. So mainly as a result of reduced imports to Europe from U.S., Asia and the Middle East. Gasoline trucks increased by, roughly speaking, 20% quarter-on-quarter. Average USD 85 per tonne, mainly as a result of increase in export shipments to the U.S. and West Africa and the decline in inventories in ARA region.
HSFO cracks decreased by, roughly speaking, 30% quarter-on-quarter. Average minus USD 106 per tonne, mainly as a result of lower demand for HSFO from Europe and the U.S. and increasing inventories in ARA region due to product inflow from Russia and Finland.
BU differential increased by USD 0.5 per barrel quarter-on-quarter with an average USD 0.6 per barrel, mainly due to higher supply of ural crude oil imports in January and low demand on the European market.
Petchem margin increased by EUR 44 per tonne. Average EUR 889 per tonne, mainly as a result of the increase in polymer prices.
Slide #26. So CapEx for this year. We're going to spend slightly more than last year. So roughly speaking, PLN 9.5 billion, of which PLN 7.7 billion in ORLEN Group and PLN 1.8 billion of ENERGA Group. The largest CapEx we plan to spend in petchem: circa PLN 2.9 billion in the refining; PLN 2.6 billion in energy; PLN 2.3 billion in retail; PLN 1 billion and signing CapEx in upstream due to our cautious approach, PLN 0.3 billion this year.
The main growth projects this year are in the refining segment. Construction of Visbreaking unit in Plock and construction of propylene glycol in ORLEN Poludnie. So we are continuing the projects that we started in 2020.
In petchem segment, extension of fertilizer production in Anwil and also project of extension of olefins production in Plock and construction of DCPD unit in Unipetrol. So this is the cyclopentadienyl, which is a feedstock for the production of specialized plastics, such resins, rubbers copolymers that are used in the paint, automotive and shipbuilding industries.
In energy, we're going to develop projects for construction of offshore wind farm on the Baltic Sea, construction of PV farms in ENERGA Group, modernization of existing assets and connection of new customers in ENERGA Group and development of EV chargers network. So we're going to increase this network by additional 17 new chargers.
In retail, we plan to open 50 fuel stations, of which 30 own stations and further develop nonfuel sales via 140 new Stop Cafe and Star Connect locations as well as launching new products and services like, for example, parcel lockers.
Slide #27. So last slide. This shows our expectation about the macro in 2021. In terms of crude oil, we expect that Brent crude oil to increase in comparison to average from 2020, mainly due to effect of forecasted strong demand growth on fuels in the second half of this year as a result of vaccination program. From the beginning of the year, Saudi Arabia reduced significantly production of crude oil by 1 million barrels per day, limiting also crude oil access on the market. Above-mentioned factors translated into increase in price expectation by, roughly speaking, USD 10 per barrel. So we expect that crude oil price in Q1 will be, roughly speaking, USD 55 per barrel, increasing 'till the end up to the level of USD 60 per barrel.
As for margins in the refining, there are definitely must be some adjustment to significantly lower demand similarly to those that we saw on the crude oil market. So we expect increase of the refining margin comparing to the average from 2020. However, this increase will be slow until global production potential will be reduced by, roughly speaking, 3.7 million barrels per day. Out of which, half reduction in Europe, which may take from our point of view, several quarters.
We expect petrochemical margin to remain at circa EUR 800 per tonne. Petrochemicals, of course, depend on economic situation, which is under the pressure. However, in Europe, which is an important of many base petrochemicals, opportunities for local production have opened due to slump in the import.
On the demand side, we expect increase in fuel demand that I've mentioned at the beginning as a result of economic recovery after COVID.
In terms of regulations, National Index Target is set for this year at the level of 8.7%. However, PKN ORLEN will be able to take advantage of reduction of this ratio to the level of 5.7%. And moreover, it's worth to underline that since 1 January 2020, retail tax was implemented.
So that's all from my side. Thank you very much for the attention, and we are ready to take the questions.
Operator Instructions] We have the first question from Henri Patricot from UBS.
I have three questions, please. Two on investments and one on retail. So the first one, I want to clarify on the CapEx outlook for 2021 and the PLN 9.5 billion, how much would we expect that to be in terms of cash CapEx for '21? Because I noticed it was quite a bit lower in 2020, I don't know to what extent. Some of the cash CapEx is slipping into 2021.
And then secondly, on projects, I was wondering if you could give us an update on the latest expectation for the start up of some of these projects, such as the Visbreaking unit, the increase in fertilizers production and perhaps a sense of the increase in power generation capacity in '21.
And then finally, just on retail, another very strong performance this quarter primarily in the higher fuel margins there, is that something that is sustainable in your view? What should we expect for 2021 and the first quarter in particular?
Okay. Thank you, Henri, for the questions. So mainly in terms of trading margins. Maybe just for your information from the beginning of 2021, we changed the pricing formula for fuel sales. So currently, we rise the whole sales of fuels on the spot transaction. So currently, what we observe right now, trading margins are on the slightly higher levels comparing to the last year in terms of gasoline is 8%, in terms of diesel is 2%. How it will develop during the whole year? It's hard to answer this question because we just finished, finished January. However, this is definitely our intention to maximize the trading margins.
In terms of CapEx, I confirm PLN 9.5 billion for this year. I don't know if I catch your question. If this, let's say, referred also to the CapEx that we provided in our strategy. If yes, we said so that on the yearly basis, we're going to spend an average PLN 14 billion. However, please bear in mind that the calculation is a little bit different because in strategy, we also include in this CapEx spending, let's say, investments on M&A. So this, let's say, potential M&As are not included in the CapEx, let's say, calculated here in the presentation.
In terms of projects on the petchem side, you asked about the extension of fertilizers production. So everything is going according to the schedule. The project is advanced at the level of 30%. This year, we're going to spend, roughly speaking, PLN 0.3 billion. And also in terms of petchem projects, we're going to, let's say, kick off the project of extension of olefins production in Plock. So this is one-off element of this big petrochemical program development. So up to PLN 0.6 billion is going to be spent to this project.
Okay. Like a quick follow-up there. On the CapEx question, I was actually asking to compare with the cash outflow for CapEx because in 2020, I think it was PLN 7.6 billion to be compared to the number you mentioned of PLN 9 billion. So wondering what we should expect with regards to 2021 cash outflow for CapEx?
So Michal Perlik speaking. In 2021, we expect that the CapEx -- the cash flow -- the cash outflow from -- related to the CapEx can be even more, let's say, presented on the chart due to some advanced payments related to newly started investments that we are planning this year.
Okay. So more than 9.5 [indiscernible]?
Yes. Yes.
The next question is from Michal Kozak from Trigon.
I have two questions. The first one, could you refer to your recent most change wholesale formula in refining? How should that affect your results in the segment? And the next question, do you plan other M&A transactions within media segments? What is your ambition?
We changed the pricing formula due to the fact that, let's say, the previous formula, which was based on plus quotation, plus premium due to, let's say, high fluctuations on the crude oil market, well, hard to predict. So on the spot prices, we have, let's say, better control on the sales purchase -- all the sales prices. And in terms of media...
We're not planning such acquisitions near those [indiscernible].
Michal, are you online?
Yes. I asked, do you plan other M&A transactions within media to what is your ambition?
No. We just confirmed that we are not planning such acquisitions.
The next question comes from Ildar Khaziev, HSBC.
Just a quick question on the gain which you booked on the CO2 allowances in the fourth quarter. Could you please explain a bit in more detail why did you decide to postpone the purchases of the allowances? And basically, also remind us how does it affect the financials? Is it part of the operating cash flows or it's also affecting CapEx management?
Ildar, Michal speaking. So let me try to answer these questions. So generally, we are using CO2 like power contracts for CO2 emission, however, it's for our own use to secure the CO2 allowance, which we use to build a provision, which is further, remission in April every year.
Last year, we had around 15 million CO2 allowances in contracts and forward contracts with the delivery date end of 2022. In order to manage our liquidity position, our debt position, we decided to postpone the delivery of these contracts, partially 'till mid -- end of March 2021. It was related to around 10 million CO2 allowances, which we need to create a provision -- which we need to emission in April this year. And the remaining EUR 5 million we decided to postpone until December '21. It will be dedicated to redeem in 2022, in April 2022.
So far because we were using these forward contracts for CO2 emission allowance for our own use, we were able to use, let's call it, MSSF 9 release or [ exemption ], allowing us not to value the contracts on every reporting period. But due to the fact that this time, we decided not to purchase the allowances on the settlement date. We have to treat this particular for what contract as a regular derivative and settlement and present the result in our P&L.
We recognize it as a one-off, let's call it, one-off transaction. It doesn't have any influence on our cash flows because anyway, we recognize the same cash flow on this instrument. It doesn't matter whether we use this MSSF 9 exemptions or not. The main difference is that we didn't spend cash on purchase of this CO2 emission allowance end of 2020. Instead of this, we will buy them, we'll purchase them partially end of March 2021 and partially end of December 2021. So we simply postponed spending of cash for this PLN 15 million allowances.
And due to the fact that postponing this purchase with closing this contract and opening new positions, opening new contract, was cheaper than the interest rate that we would pay when taking additional debt for purchasing these contracts, we simply make this decision.
And it will also have one more effect in the first quarter in terms of our P&L. When purchasing the -- because we did not purchase the contract in December, we did not have a trigger to recalculate our CO2 provision with new weighted average cost of CO2 emission allowances. We will do it in March this year. And we estimate that this recalculation will be around PLN 350 million. So from the accounting perspective, we should offset both elements. I mean the profit recognized this quarter and the increase of CO2 provision next quarter.
We are not planning to, in the future, to further postpone the contracts that we have currently open. We are in the discussion with our auditor whether we can still continue to use this exemption, MSSF exemption. If yes, then we will not recognize such results related to forward settlement, CO2 forward settlement in the future.
Just one related question. When you purchased the allowances, is that going to be part of the break in cash flow?
Yes, because this is the moment where we are paying for the allowances. Of course, based on the price, which was set at the opening of the contract.
[Operator Instructions] The next question comes from Alexander from Renaissance Capital.
I have two questions. So first, on CapEx. I was wondering if you could put next year's guidance somewhat in the context of your 2030 strategy that was recently presented. You had an average CapEx spend of around PLN 14 billion in that strategy presentation. And so your current guidance for the next year is substantially below that average estimate. So can you perhaps talk a little bit about the profile of that 2013 strategy? Did you always expect to have a low start to CapEx and sort of increase that CapEx spend over the years? Or is this a change? Did you reduce your estimates in the last few months, maybe because of the effects of the pandemic or any other reason? So if you could just talk a little bit about that, please. And also maybe also mention what your current plans are for the hydrocracking units at Lithuania Refinery. We haven't heard about that for a while.
And another question that I had is on the market performance in January. So obviously, in the fourth quarter, there was a slowdown in the market demand due to reduced viability, as you said in your presentation. I was wondering if you could explain to us what trends you saw in January and whether the markets improved somewhat over the trends continued.
Okay. So maybe I will start from the market and how it looks like and how much crude oil we're going to spend. So as I said during the conf call, the macro is still challenging. So definitely, we will adjust the throughput to the demand and the macro. In Q1, we've gone a process, roughly speaking, 6.7 million tonnes of crude oil, which is equivalent of 78% of utilization ratio, including 87% in PKN ORLEN, slightly above 60% in Lithuania and almost 80% in Unipetrol. Besides that, we've got some planned maintenance shutdowns of refining facilities, especially in PKN ORLEN, like hydrocracking maintenance shutdown in February.
In terms of volume, so definitely a high number of COVID cases in Poland and which means, let's say, introduction of some of restrictions makes it still huge pressure on sales volumes of fuels. So we may say that the sales drop in Q1 year-on-year is comparable in terms of dynamics that we observed in Q4. So in January, sales of fuels in Poland is lower by, roughly speaking, 15% year-on-year, including wholesale dropped by 13%, where we observed drop on the gasoline minus 9%; diesel minus 5%; and the jet fuel minus 80%. And in retail, we have got dynamics minus 18% year-on-year, lower sales of gasoline minus 15% and the diesel minus 20%. In terms of petrochemicals, we may say that sales is on the comparable level.
Now first question. So CapEx spendings that we presented today. So PLN 9.5 billion comparing to average that you calculated from the strategy at the level of PLN 14 billion. So we confirm our target, strategic targets at this level. However, as I've mentioned during the conf call, the calculation is a little bit different, yes. So the CapEx in strategy includes M&As, yes, potential M&A. However, the CapEx that we present in strategy is based on the memory, also it does not include any investment in terms of potential M&A. Therefore, there could be mismatch in the numbers. And of course, also, we were preparing the strategy from the mid of last year, yes. So currently, we've got a better knowledge, and we postponed a little bit some of the projects. However, everything still is going according to the schedule. So we do not change, let's say, our ambitious target of spending PLN 140 billion of CapEx during next 10 years.
And if I may, at something, please also bear in mind that 2 big investments, which will substantially contribute to the CapEx in the near future. I mean offshore wind farms and our petrochemical development on olefins -- including olefines, are in the preparation plan, the phase still in 2021. So they will, for sure, contribute substantial amounts, but probably in '22 -- starting '22, '23.
The biggest projects we've mentioned on the slide. So as you see on the Slide #26, you've got the main growth projects in 2021. And so you see that we're going to spend PLN 9.5 billion. Out of which, PLN 5 billion is going to be spent for growth projects. So in the refining, we selected 2 projects. So all the projects that you see on the slide has a value above PLN 100 million or their strategic from, let's say, our point of view, like let's say, project for construction of offshore wind farms or development of EV chargers. So this is a very, let's say, initial stage. However, they're very important from the strategic view.
So in the refining, if you look you may say that both construction of Visbreaking unit and propylene glycol. So roughly speaking, PLN 500 million, petchem projects. So extension of olefins, extension of fertilizers and these new projects, DCPD in Unipetrol, roughly speaking, PLN 1 billion.
Energy, the biggest chunk, of course, is for the modernization of existing assets and connection of new customers in ENERGA Group. So we're, roughly speaking, PLN 1.4 billion; retail, 0.5, and upstream, 0.3. So if you sum it up, you've got PLN 2.8 billion out of, let's say, PLN 5 billion growth CapEx for this year. So roughly speaking, 60% is clearly explained.
The question on the Lithuania hydrocracker. When do you plan to take a final investment decision on that one?
We are still analyzing this project. No final investment decision has been made so far. But this is still under the [ nominal assets ].
Our next question from Igor Kuzmin, Morgan Stanley.
So first question is in regards to the timing of the potential completion of the LOTOS and PGNiG transactions, are we still sort of potentially looking into the end of 2021? Or has that sort of timing expectation around this timing evolved or changed? So that's question number one.
Second question is -- and apologies if I missed it. What sort of utilization rates in the refining petrochemical segments do you expect this year? And finally, I think it would be good to sort of understand whether your sort of thinking evolved in regards to the upstream assets in Canada. I mean now that the commodities prices are higher, I mean, maybe a favorable moment to think about maybe disposing this as sort of given that you're changing the strategy, but maybe not, just wanted to check what -- does it evolve this year.
[indiscernible] CEO [indiscernible] department.
Thank you for the question regarding the LOTOS Group and the PGNiG. Maybe let me remind you that in July 2020, we obtained the positive but still conditional decision of the European Commission on taking control over the Grupa LOTOS. And during this [ 2020 ] amounts, I would like to [indiscernible] requirements regarding the remedies approved by commission. And during next 6 months, we should be ready to finalize the takeover. So we still believe that it will be possible to finalize the transaction on Grupa LOTOS by the end of this year.
And with regard to PGNiG, first step we have to do with this process is to obtain a similar decision. We'll -- we assume that we will be able to deliver a notification to the European Commission in the first quarter of 2021, and it is likely that the commission will pass the decision to Polish office of competition and consumer protection. And in such a case, we believe that we will be able to complete also this transition by the end of this year.
In terms of utilization, it's hard to answer this question precisely. So we may say that in terms of refining assets, it depends on the market situation, yes. So how the situation will develop? It means demand for fuels, margins, et cetera. So as I said in Q1, when we've got such a harsh environment, the throughput is even below 7 million tonnes of crude oil, which is roughly speaking below 80% of utilization.
Last year, we processed 29.5 million tonnes, which was 84% of the utilization. So if there will be, let's say, expected rebound in the fuel demand from the, let's say, second half of this year, definitely, we will adjust accordingly the utilization of refining facilities.
In terms of petrochemicals utilization, we may expect that the utilization of petchem assets will be slightly lower year-on-year because in the second quarter, we are planning a big maintenance shutdowns of PKN ORLEN petrochemical assets, including olefins, metathesis, polyethylene units and polypropylene in BOP, PVC. So all this will last almost whole quarter and definitely significantly decrease the utilization of petchem units. Of course, we also have some planned maintenance shutdown of PX PTA units in the mid of Q3 and Q4. So from this point of view, you should expect that utilization of petchem units should be lower than in 2020.
And regarding to your question on upstream [indiscernible] strategy. Regarding to our strategy, one of our goals in upstream is maximizing value for [indiscernible] upstream production. And especially regarding Canada, we are still in production in line with the financing project. So in this area, we faced a significant change of our portfolio after the merger with LOTOS and potentially with PGNiG. And our strategic logic behind any move portfolio -- move in upstream portfolio are gather after acquisition of LOTOS and PGNiG.
So we first want to merge upstream portfolio of our key companies and then decide whether to divest or [indiscernible].
We have the next question from Piotr from Citi.
So the first one would be on offshore. When do you expect to find out the price you will be getting for the assets? And what is the condition of your partner if he doesn't like the price that you're going to negotiate with the government? How does this look like from the perspective of the partner?
And second, on the pricing, I would like to go back a little bit to this changing of formula that you apply for, the kind of pricing based on the spot market. If you were to back track it, what would be the impact on the segment of the results for the last year? Basically, what are you trying -- like which way will it shift the result? I still don't get it based on the assets you provided.
And the third question, I wanted to ask you about the parcel package program. We've just seen the IPO of imports valuing the simple parcel, a very significant amount of money. And what is your ambition to make in this space? How many points you already have? And can you provide any financials as to how much this shipping parcel business can provide to you?
And then the last question, on this acquisition of a media, can you provide any numbers? How much you paid for it? How much it makes, how many people is employed? Anything on this, whether is this really business or politics, will be helpful.
Piotr, Konrad Wlodarczyk speaking. So in terms of trading margins, so as I said at the beginning, all the yearly contracts with our key customers are currently based on the spot formula instead of, let's say, quotations plus premium that we've got in the previous years. Of course, as I said, this definitely mitigates the [ rise ] of big fluctuation in crude oil prices. And of course, our main goal is to maximize the margin as usual. So definitely, it should be better reflected in the result of refining segment.
Okay. And can we talk about this offshore project?
Yes. This [ Justyna ] speaking from energy. Could you please repeat the question on offshore? [indiscernible].
Yes. What is that price do you expect for -- to get? And when we will find out what is the conditions and we can then try to get the view on what is the IRR you achieve. And what is the -- your partner view on the potential IRR? Is he just a side party? Or he has something to say? Or at certain level of return, he will not participate in the project?
Okay. So right now, the discussions regarding the price, the CFD price, are being taken in the government. And so we are, of course, part of the discussion, but I cannot reveal any information regarding that. So we are waiting for the public information from the government.
With respect to the IRR -- with respect to the IRR process, this is a confidential information. However, you should note that we are going to develop the project and implement the project, the [indiscernible] projects together with the partners. And so the expectations also comes on the [indiscernible] and the operating decision will be taken together with the partner. But we cannot reveal the expectations of the IRR and [indiscernible]. Is there anything else?
Well, I want to talk you about this parcel package business. How big is it at the moment for you? I know you can pick up a parcel in any of your locations, but are you including RUCH in it as well? Will you combine it? And how many parcel boxes you will put in? And what kind of traffic can you generate on the back of it? Any details would be helpful.
Yes, of course. Yes, as Piotr Kearney said, we offer parcel pickup possibilities at our station already as all of crude oil [indiscernible] network in Poland. As well, we'll offer the same possibility as [indiscernible] outlet. So the missing element of this offer is the parcel machines network, which we plan in our strategy and plan to develop in the next quarter. As we announced, we plan to put about 2,000 parcel machines in the network at the locations either at our [ crystal ] stations are close to new outlets or in other parcel stations.
We -- [indiscernible] negotiate cooperations with e-commerce, e-commerce platforms or e-commerce especially. But at the same time, we work on developing our own e-commerce platform connected with our offers and we'll offer our [indiscernible] program. So I think that's it, we can share today. We will update you about the progress of the project.
We now receive another question that is from Robert Maj of IPOPEMA Securities.
Yes. So I would like to follow up on the offshore program. What kind of CapEx do you expect for this one -- 2 gigawatts, which you plan to build? Recently, I guess one of the representatives are saying that this will be above PLN 10 billion. I just wonder whether this would be closer to PLN 10 billion, PLN 15 billion or even higher.
And coming back to the price per megawatt hour, what kind of price is it justified to cover all your cost and cost of capital, et cetera, to make the project economically viable? And would you consider abandoning the project in case the maximum price announced by the regulator is not sufficient?
Mr. Wlodarczyk, we can't hear you at the moment. Maybe you're still on mute.
Hello. Can you hear me?
Yes, we can.
Okay. I just asked the question. Was it hearable for all of you guys?
It was, but maybe we have a problem in the line with Mr. Wlodarczyk. So just a second please. The conference will continue shortly.
[Technical Difficulty]
So Piotr, we are not sure if you heard all our answers because we went silent from some time. If you did not hear what...
Yes. I did not hear the answer. I had the answer about the parcel. And then you didn't answer the question about the Polish Press acquisition, whether you can provide any details on the amount of money you paid for this business, how many people it employs? And what is the financial position of this company?
Okay. So basically, the transaction hasn't been settled yet. So we're still in the process, so we cannot provide such information at this moment. If you ask about the conditions of this company, well, we also can't share with you the results for the '21, but -- for 2020 but their results for 2019 are available in KRS. So you could probably already did check it out. For example, the revenues of this company for the 2019 were almost PLN 400 million.
From our perspective, it is a very healthy company. It fits perfectly with PKN ORLEN's plans regarding the e-commerce market and the improvement of retail customer satisfaction. And development of nonfuel, new formats and sales just what actually strategy director, Karol Wolff, told you about a question ago. This group portfolio includes somewhere around 500 online sites. It will perfectly fit our needs. If we're trying to build it from the scratch, it would take a lot of time and money. This was quite a bargain for us.
We also identified many synergies regarding this transaction. For example, we can cut the cost of our sigma base and marketing activities. We can increase the attractiveness of this acquisition by using their printers and storage houses for our internal needs. Also, their client base is approximately 17.4 million Internet users, and this perfectly fits our needs regarding the e-commerce business that we are going to present in the future. We also plan to use its potential to promote the development of e-commerce services, as I said, but also increase the effectiveness of the marketing budget, cost savings, which means cost savings for PKN ORLEN by -- for example, being able to redirect some of the local advertising expenditures or reduce the printing by external entities, which generate some additional margins for us.
So all in all, we have identified over 30 synergies. I just gave you a few main synergies. And as long as this transaction hasn't been settled which we cannot actually provide with any more information.
So next -- I can ask you about the price?
Well, I'm not sure if you will be able to ask us about the price because the transaction may be confidential. So...
Then we now go to the next question of Robert Maj of IPOPEMA Securities.
I'd like to come back to this offshore topic. What kind of price in megawatt per hour do you see justified to cover all your costs and the cost of capital to make it economically viable? And in case the price published by the government is not sufficient, do you consider the possibility of abandoning the project? This is number one.
And number two, one of your representatives were speaking over the media a few days ago about the CapEx, and this was above PLN 10 billion. Can you confirm the number whether this is closer to PLN 10 billion or PLN 15 billion? What kind of number can we expect here? And do you -- are you going to pay also for the grid connectivity to PSE? Or are they going to buy it back from you? How does it look like?
[indiscernible]
Okay. So the price, the CFD price for offshore, I believe that EUR 80 per metal [ authority's ] number, which is going around in the market. And so we think that this is a reasonable price. However, it doesn't mean that if the price would be below EUR 80, [indiscernible] the project, we will have to optimize the project at the -- [indiscernible] a reasonable IRR.
So second question. And the second question was about CapEx. The side. Could you repeat the second question?
Yes. What kind of CapEx do you expect to spend on your wind -- offshore wind farm? This is 1 spot 2 gigawatts. So what kind of numbers are you speaking about?
The CapEx will depend on the final capacity of the wind farm because as you know, it's project now -- the 1.2 gigawatts is the maximum capacity for the wind farm, and we are analyzing what should be the optimum capacity. This will also depend on a CFD price. So we are waiting for the [indiscernible] price to finally decide what will be the capacity.
Another information still needed for deciding about the CapEx are the ongoing research that we are doing for the wind farm. So if the capacity is actually close to 1.2 gigawatts, then we expect the CapEx is above PLN 10 billion but it can be a bit lower than that, if the capacity is somewhat reduced. So [indiscernible] from that on the final capacity of the wind farm.
Sure. Understood. Just wonder if the capacity is really 1 to 2. And you mentioned it's above PLN 10 billion. Is it rather a PLN 15 billion? Or is it just above PLN 10 billion? Just what kind of range are you speaking about?
That's above PLN 10 billion.
Just above that PLN 10 billion, okay. And what kind of way of financing of this project do you expect, I mean, in terms of debt ratio, debt-to-equity ratio and PFR? You mentioned over media recently that PFR may support this project. What kind of support could you really expect from, I don't know, PFR in this case?
This CapEx is -- or will be discussed with our partners. As soon as the partner is onboard because we have signed an agreement with the partner [ last week ]. However, we still need to get the [indiscernible]. So we expect that the partner will be onboard probably in April or something like that. And all the discussions with regard to financing, the offshore wind farm will be even -- will be then -- they will be done with the partner. And our partner has a considerable experience in nonrecourse project finance, and we think this is a good start for our discussions regarding the financing of the wind farms, but it is too early to provide you with the details.
Maybe Justyna, [indiscernible] Michal Perlik speaking that also on our side, limited project finance is probably a preferred way of financing this transaction. It's quite common way of financing such investment. And usually, around 70% can be final if we adapt -- if we compare other offshore investments finance with [ limited ] across project finance.
Sure. And one last question. When the majority of the CapEx would sold this project, you mentioned recently that PLN 290 million will be spent in 2021. And what is the -- what are the next step? Ultimately, the wind farm is going to be ready, closer to 2030, right?
We expect to start the construction in '23. So the biggest CapEx is expected in '24, '25, yes. This is the timeline. And we expect to start operation in '26.
As there are no further questions, I would like to hand back to you.
Thank you, operator. Thank you for your kind assistance. If there are no more questions, I think that we can conclude, and let's say, end our call. Thank you very much for being with us. All the best, and goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.