Integrated Annual Report 2020

Letter from the Chairwoman of the Supervisory Board

Dear Sirs and Madams,

the year 2020 made an impact on the global economy as a whole. The coronavirus pandemic and the resulting high volatility on the oil market also affected the operations of the Grupa LOTOS S.A. However, the financial results for this period indicate the company’s high resilience to this turmoil, thanks to which the concern survived the pandemic much better than many players in the fuel sector in Europe.

LIFO-based EBITDA for one-off events in 2020 was positive and amounted to PLN 1.36 billion. The company generated some of the highest operating cash flows in its history — at the level of PLN 2.87 billion. In addition, the Grupa LOTOS paid out a dividend of PLN 1 per share and maintained the debt ratios at a secure level. It should be emphasised that it was possible to maintain the company’s good standing thanks to quick adaptation to new conditions and optimisation of the operations of the Gdańsk refinery, which, despite the decline in fuel demand, worked nearly at its full capacity. Despite the difficult situation, the Grupa LOTOS maintained not only the continuity of production and extraction, but also of operations of petrol stations and the supply of products.

Since the beginning of the pandemic, the Grupa LOTOS has actively supported medical and uniformed services in the fight against the coronavirus. Through Foundations, LOTOS allocated over PLN 12 million for this purpose until May 2021. Thanks to these measures, it was possible to purchase specialised medical, transport or sanitary protection equipment for many medical facilities in Poland. The Company also became involved in the construction of a temporary hospital in the AMBEREXPO halls in Gdańsk.

Despite additional restrictions, investment plans were also implemented in 2020. In the Gdansk refinery, a Hydrogen Recovery Node or the fourth top loading arm were started up. The completion of the CEMS project, which enabled continuous measurement of air pollutant emissions, was also an important step. Ensuring reduction of the carbon footprint and the investments carried out within this scope place the LOTOS refinery at the forefront of the best European refineries in terms of the lowest CO2 emissions.

The Grupa LOTOS is also contributing to the fulfilment of key objectives of the European Union’s energy transition policy. In 2020, the company continued to implement the Pure H2 project and initiated the Green H2 project, as part of which it wants to build a large-scale installation for ecological production of hydrogen in the electrolysis process and for electricity generation from this raw material. We have taken up this challenge within the Grupa LOTOS — this is why innovative projects are a fixed part of our investments. They also involve the necessity to look towards the future of a company, when activity will not rely on oil but on a vision of a world of transport powered by a mix of alternative fuels.

2020 also defined the foreseeable future. The European Commission has granted a positive conditional approval for the takeover of the Grupa LOTOS’s capital by PKN Orlen. This means that the company needs to optimise the structure of the Group and prepare for the implementation of the model of remedial measures necessary for the takeover of the group by the concern from Płock. Directional activities within the organisation have already been adopted by the Management Board of the Grupa LOTOS. A merger of such large entities as the Grupa LOTOS, PKN Orlen and PGNiG is a major challenge for these companies, but also for the market environment. Finally, this also means completely new opportunities for development within a single multi-energy concern which will, above all, improve Poland’s energy security.

2020 turned out to be the year of tests, which the Grupa LOTOS passed with flying colours. We are facing further challenges that will bring new and interesting prospects for the company. I believe that our Employees, Shareholders, Counterparties, Partners, Customers as well as the Polish economy as a whole will benefit from this.

Yours faithfully,

Beata Kozłowska-Chyła
Chairwoman of the Supervisory Board, of the Grupa LOTOS

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