Financial and operating results

Profit or loss

Sales revenues of the ORLEN Group for the 2022 amounted to PLN 277,564 million and was higher by PLN 145,223 million (y/y). The increase of sales revenues (y/y) reflects higher by 18% volume sales in tonnes in all operating segments and the inclusion in 2022 as part of the new gas segment volumes sales of natural gas in the amount of 109.6 TWh and CNG gas in the amount of 4.7 million m³. The increase in volumes results mainly from the recognition in consolidation companies from the former LOTOS Group and former PGNiG Group.

Additionally, the level of revenues was affected by the 43% (y/y) increase in crude oil prices and consequently, also the quotations of the main products. In the 2022 in comparison to the same period of 2021 the prices of the fuel increased by 53%, diesel oil by 81%, light heating oil by 76%, aviation fuel by 80%, heavy heating oil by 25%, ethylene by 28% and propylene by 28%.

The operating expenses totally increased by PLN (117,928) million (y/y) to PLN (239,839) million, mainly s a result of including the costs of the companies of the former LOTOS Group in the amount of PLN (18,548) million and former PGNiG Group in the amount of PLN (32,297) million and an increase in the prices of basic raw materials and energy as a result of the ongoing Russian-Ukrainian war.

The result of other operating activities amounted to PLN 3,399 million and was lower by PLN (520) million (y/y) mainly due to recognition of a provisional gain on a bargain purchase of the LOTOS Group and the PGNiG Group in total amount of PLN 14,166 million, the value of which may change as a result of the fair value measurement of individual acquired assets and liabilities of the LOTOS Group and PGNiG Group as part of the merger settlement process using the acquisition method in accordance with IFRS 3 (additional information in note 7.3.), the change of net positions of valuation and settlement of derivative financial instruments related to operating exposure (non-designated instruments for hedge accounting purposes) in the amount of PLN (5,870) million and the recognition of net impairment allowances of property, plant and equipment and intangible assets, goodwill and other assets in the amount of PLN (6,330) million (additional information in note 14.4) and recognition in other operating costs the result on the sale of 30% of shares in Rafineria Gdańska in the mount of PLN (527) million additional information in note 7.4). Negative operating results in the Gas segment result mainly from the sale of part of gas volumes at fixed prices, lower than the current costs of obtaining gas at market prices.

As a result, profit from operations amounted to PLN 41,093 million and was higher by PLN 27,223 million (y/y).

Net finance expenses in the described period amounted to PLN (486) million and included mainly net foreign exchange loss in the amount of PLN (643) million, net interest expenses in the amount of PLN (494) million and settlement and valuation of derivative financial instruments in the amount of PLN 513 million.

After the deduction of tax charges in the amount of PLN (6,963) million, the net profit of the ORLEN Group for the 2022 amounted to PLN 33,630 million and was higher by PLN 22,442 million (y/y).

Statement of financial position

As at 31 December 2022, the total assets of the ORLEN Group amounted to PLN 272,327 million and was higher by PLN 165,573 million in comparison with 31 December 2021.

As at 31 December 2022, the value of non-current assets amounted to PLN 153,117 million and was higher by PLN 84,411 million in comparison with the end of the previous year, mainly due to increase in property, plant and equipment and intangible assets and right-of-use assets by PLN 74,173 million mainly due to takeover of control of non-current assets of former LOTOS Group and former PGNiG Group in the amount of PLN 59,146 million (additional information in note 7.3) and other assets by PLN 3,323 million, mainly due to restricted funds accumulated on separate accounts in connection with securing future costs of decommissioning mines and deposits and advances for construction in progress.

The change in balance of property, plant and equipment and intangible assets by PLN 69,497 million (y/y) comprised:

• investment expenditures in the amount of PLN 17,717 million including development of fertilizer production capacities in Anwil, construction of the Visbreaking and HVO (Hydrotreated Vegetable Oil) Installation in Płock, construction of the Bioetanol 2nd Gen installation in ORLEN Południe, construction of the new hydrocracking in Lithuania, expenditure of the production capacity of the Olefin installation in Płock, projects in the Energy segment related mainly to the modernization of existing assets and the connection of new customers, construction of CCGT Ostrołęka and projects in Retail and Upstream segment;
• depreciation and amortisation in the amount of PLN (6,099) million;
• purchase of CO₂ allowances and energy certificates in the amount of PLN 6,452 million;
• amortisation of CO₂ allowances and energy certificates in the amount of PLN (6,127) million;
• allowances received free of charge in the amount of PLN 3,400 million;
• recognition of net impairment allowances on assets mainly in the Refinery segment in the amount of PLN (6,330) million;
• effect of recognition of new assets at the date of acquisition of former LOTOS Group and former PGNiG Group in the amount of PLN 4,143 million and 51,246 million, respectively;
• effect of differences in balance on translating foreign operations in the amount of PLN 276 million.

Increase in the balance of right-of-use assets by PLN 4,676 million results mainly from the taking control of companies from the former LOTOS Group and former PGNiG Group in the amount of PLN 839 million and PLN 2,918 million.

The value of current assets as at 31 December 2022 increased by PLN 81,162 million in comparison with the end of the previous year, mainly as an increase:

• in inventories by PLN 26,717 million,
• trade and other receivables by PLN 22,864 million,
• balance of cash by PLN 18,560 million,
• other assets by PLN 9,887 million, which mainly related to the increase in margin deposits by PLN 8,509 million due to hedging transactions concluded on commodity exchanges (detailed information in note 14.10). The increase in the balance of margin deposits results mainly from the consolidation of deposits of the former PGNiG Group.

The increase in value of inventories is the result of an increase in crude oil and petroleum product prices and the recognition of the former LOTOS Group and former PGNiG Group inventories in consolidation. The increase in trade receivables results mainly from higher sales in term of value and quantity and the recognition of the former LOTOS Group and former PGNiG Group receivables in consolidation.

As at 31 December 2022, total equity amounted to PLN 136,959 million and was higher by PLN 84,381 million in comparison with the end of 2021, mainly due to recognition of net profit for the 2022 in the amount of PLN 33,630 million, recognition of the recognition of the issue of merger shares created for the purposes of the merger with LOTOS Group and PGNiG Group in the amount of PLN 46,146 million decreased by the costs related to the issue of shares in the amount of PLN 52 million, impact of the change in hedging reserve in the amount of PLN 5,435 million, the impact of exchange differences on translating foreign operations in the amount of PLN 573 million dividends paid to ORLEN’s shareholder from previous years' profits in the amount of PLN (1,497) million.

The value of trade and other liabilities increased by PLN 20,446 million compared to the end of 2021 mainly due to increase of trade liabilities by PLN 9,393 million, tax liabilities by PLN 2,058 million and investment liabilities by PLN 3,275 million and other liabilities in the amount of PLN 1,696 million and the unfulfilled obligation towards GAZPROM in the amount of PLN 2,249 million in connection with the issuance of the Decree on a special procedure for the performance of foreign buyers' obligations towards Russian suppliers of natural gas in Russia on 31 March 2022 and the decision of the Minister of the Interior and Administration in Poland on 28 September 2022 and, as a consequence, blocking by GAZPROM the possibility of making payments by the Company according to the existing rules specified in the contract.

The increase in trade liabilities results from the higher prices on the markets and the recognition of the former LOTOS Group and former PGNiG Group liabilities in consolidation.

Value of provisions as at 31 December 2022 amounted to PLN 20,896 million and was higher by PLN 12,790 million in comparison to the end of 2021. The increase resulted mainly from:

• the recognition in the statement of financial position of the ORLEN Group provisions due to merger with LOTOS Group and PGNiG Group in the total amount of PLN 8,116 million (mainly environmental, property rights, jubilee bonuses and post-employment benefits and other provisions relating to disputes);
• the recognition of a provision for the onerous contracts in the ENERGA Group in the amount of PLN 1,068 million in connection with the introduction of the act on freezing energy prices from 2023;
• settlement of the balance of the net provision for estimated CO₂ emissions and energy certificates in the total amount of PLN 2,159 million, mainly as a result of net creation of provisions in the amount of PLN 8,286 million based on the weighted average price of allowances and certificates held and their use due to redemption of rights for 2021 in the amount of PLN (6,127) million.

Value of the net deferred tax liabilities increased by 1,783 million compared to the end of 2021 and resulted mainly from the acquisition of net deferred tax liabilities of the former LOTOS Group and former PGNiG Group in the amount of PLN 1,659 million and the recognition in 2022 deferred tax asset from the impairment of refining and upstream assets in the amount of PLN 281 million.

Derivatives non-current and current as at 31 December 2022 amounted to PLN 17,452 million and were higher by PLN 16,286 million, mainly due to the recognition of cash flow hedging instruments and derivatives not designated as hedge accounting in the amounts of PLN 12,141 million and PLN 4,137 million, respectively. The increase results mainly from the recognition of commodity swaps hedging natural gas derivatives not designated as hedge accounting in the amount of PLN 3,003 million and cash flow hedges in the amount of PLN 12,325 million. The occurrence of derivatives hedging natural gas at the end of 2022 is a consequence of the merger with the PGNiG Group.

Other short-term liabilities were higher by PLN 1,864 million in comparison to the end of 2021 and amounted to PLN 2,002 million, and related mainly to liabilities due to settled derivatives (settlement of commodity swaps) amounted to PLN 1,394 million and deferred income in the amount of PLN 423 million.

As at 31 December 2022, net financial indebtedness of the ORLEN Group amounted to PLN (2,258) million and was lower by PLN (14,533) million in comparison with the end of 2021 mainly due to the net outflows, including inflows and repayments of loans, and borrowings and redemption of bonds in the amount of PLN (11,424) million, an increase in balance of cash by PLN (18,560) million, short-term deposits in the amount of PLN (27) million and the net effect of valuation and revaluation of debt due to foreign exchange differences in the total amount of PLN 807 million and recognition of the debt resulting from the merger with LOTOS Group and PGNiG Group in the amount of PLN 14,671 million.

Statement of cash flows
Proceeds of net cash from operating activities for 2022 amounted to PLN 30,951 million and comprised mainly result from operations increased by depreciation and amortisation (EBITDA) in the amount of PLN 48,009 million adjusted by:

• the negative impact of increase in a net working capital by PLN (11,302) million mainly related to increase in crude oil prices and prices of products, which translated into the value of inventories, receivables and liabilities, decreased by paid income taxes in the amount of PLN (5,077) million,
• gain on investing activities in the amount of PLN (7,379) million mainly related to recognition of a gain on a bargain purchase of LOTOS Group and PGNiG Group in the total amount of PLN (14,166) million, and recognition of net impairment allowances of property, plant and equipment and intangible assets, goodwill and other assets in the amount of PLN 6,330 million,
• change in provisions in the amount of PLN 9,451 million mainly as a result of creation of provision for CO₂ emission,
• other adjustments in the amount of PLN (2,428) million related mainly to security deposits for the settlement of transactions with the commodity markets in the amount of PLN 3,468 million and settlement of grants for property rights in the amount of PLN (2,931) million,
• share in profit from investments accounted for using the equity method in the amount of PLN (284) million,

Net cash from investing activities for 2022 amounted to PLN 1,517 million and comprised mainly net cash flows for the acquisition and disposal of property, plant and equipment, intangible assets and right-of-use asset in the amount of PLN (20,113) million, cash in the acquired companies of the former LOTOS Group and former PGNiG Group at the time of the merger in the amount of PLN 17,128 million and proceeds from the sale of shares in connection with the implementation of REMEDIES and sale of 30% of shares in Rafineria Gdańska in the amount PLN 4,654 million.

Net cash flows used in financing activities for the 12 months of 2022 amounted to PLN (14,569) million and comprised mainly the net repayment of loans and borrowings in the amount of PLN (10,598) million, C and D series bond redemption in the amount of PLN (826) million under the second public retail bond issue program, dividends paid to ORLEN’s shareholder in the amount of PLN (1,497) million interest paid in the amount of PLN (864) million and liabilities under lease agreements in the amount of PLN (892) million.

Following inclusion of the revaluation of cash due to exchange differences, the cash balance in 2022 increased by PLN 18,560 million and as at 31 December 2022 amounted to PLN 21,456 million.