Thank you very much, Konrad. Welcome everyone. Good day. Thank you for joining the Conference Call today. We have an important update to you, because we have achieved a very significant milestone in creating the multi-energy company. I'm happy to announce that today the Management Teams of ORLEN and PGNiG have agreed and signed a Merger Plan which was published early morning to the public domain. The combination of the businesses is a natural step in creating an integrated and diverse multi-energy company, and follows the previously announced Mergers with Lotos and Energa. As announced before, the transaction will be a share for share Merger at an agreed exchange ratio, and will be registered following voting at general assemblies.
According to the agreed Share Exchange Ratio , of every share of PGNiG, the shareholders will receive 0.0925 new shares of PKN ORLEN. From my perspective, the Merger, which we are discussing right now, will assure the Polish energy security, especially given current macroeconomic and geopolitical headwinds, but at the same time will deliver significant synergies. Couple of details behind the share swap ratio. As far as the premiums are concerned, premium paid to the spot price, which we calculate based on yesterday's closing, is at the level of 15.4%. Premium paid on three-month VWAP, we calculate at 13.4%. As far as the methodologies applied to agree on an exchange ratio, we used commonly accepted valuation methodologies. We used spot quotations of the shares of both companies.
We used market multiples of traded peers on a global basis and for respective segments. We used also some of the parts calculations. We used, of course, we verified the approach provided by the brokers. We analyzed all the available reports provided by the analysts covering both companies. Maybe just one comment to the valuation. Of course, you know, we are right now living in an extraordinary macroeconomic and geopolitical environment, and actually we are facing a huge market volatility. That there were a lot of challenges when discussing the exchange ratio. Nonetheless, we think that the number which was agreed between the Management Teams of ORLEN and PGNiG is a fair proposal for all of the shareholders, both of PGNiG and PKN ORLEN.
On the next slide, there is an illustrative shareholding structure, which is number one. Thank you. We are showing here, so that the State Treasury at the end is expected to hold the majority stake in the combined group, which is not a surprise for anyone. The fact that the existing shareholders of all three companies, ORLEN, PGNiG, and Lotos, will retain significant influence in the combined business is something really important from the perspective of the shareholders and the group work going forward. If you take a look, there is one important information, which is an implication of the exchange priority right now, is the fact that the State Treasury will exceed 50% in the shareholding.
In general, while this is an independent decision of the State Treasury, State Treasury has the time from today until the registration of the Merger, which is expected to happen in October, November this year, to manage their stake in the combined entity based on all the information in the public domain. I cannot speak for the State Treasury. Nonetheless, I would assume with a high probability that within that period between today and the registration of the Merger by appropriate court, the State Treasury will handle the situation with the stake of at least 2.5% in the shareholding of the combined group. On the next slide, we're presenting the timeline of the transaction. Ahead of us, there are quite a significant steps.
First of all, we do expect that there will be a published opinion on the Merger from the statutory auditor. We expect that in September this year, there will be a general assembly of PKN ORLEN. Then the publication of the prospectus will take place. Following the clearance received from the financial authority, there will be a general assembly of PGNiG. Our goal is to have the Merger registered by the end of October, beginning of November, this year.
I will give the floor right now to Karol Wolff, who is head of the strategic projects in PKN ORLEN, to give you more color on the strategic rationale, the expected synergies going forward, and in general, a better understanding of the challenges which we are facing right now, given the macro and geopolitical situation, from the perspective of PGNiG, PKN ORLEN, and the Polish economy.
Thank you, Ireneusz. Good afternoon, everybody. Yeah, I would like, first, to describe a bit more the strategic alignment of this transaction to PKN ORLEN or ORLEN's strategy. Next, I would like to discuss the key value creation levers of this transaction to the value of the group in the future. Going to slide number seven, as many times before, depicts the key challenges that our groups are facing right now. As our Merger project started, we treated energy transformation as our main challenge. We described energy transformation as larger challenge for our groups.
Now, another aspect is important, and this is the change in supply on oil and gas market due to war in the Ukraine. Geopolitical events are driving the need to rethink supply chain and pressure to be self-sufficient in terms of oil and gas production. This is additional factor that drives the Merger right now. Going into slide number eight, we as ORLEN Group in response to the market challenges have adopted and implemented strategy that is complemented by the Merger with PGNiG. Let me describe our approach to the strategy, which is kind of portfolio management of several business lines. We want to maximize the value in our core business.
We want to develop our strategic projects, and we want to invest in future business lines. In all those key areas, we see potential where PGNiG may foster our development and may speed up the strategy implementation. Let me focus your attention on maybe some few examples. In terms of development maximization, we see a huge importance of upstream segment of PGNiG, which is the largest of our big groups of PGNiG, ORLEN and Lotos, and which will be the key competence center of upstream in the combined entity. In terms of strategic development, we see large potential in cooperation between power generation, especially gas power, gas-fired power generation plant, and gas distribution.
In the future investment or future projects, hydrogen technology, implementation of hydrogen, both in industry and transport, will be beneficial for both PGNiG and ORLEN in the combined entity. Going to next slide, so slide number nine. As I described, we see the Merger is going to accelerate the strategy implementation. The Merger contributes to faster achievement of our strategic goals. Most important here, which I think is the scale, because after the Merger, we will be the largest company in Central Europe. We will exceed other competitors few times.
We will be European scale energy player with a combined oil and gas and energy segments, together with petrochemicals and new investments. The scale will it's one of the most important factors that will drive two other aspects of the strategy. The energy transition and the customer integration. As a large company, we will be able to invest heavily in Renewable Power and other low and zero-emission energy sources, as well as we will be able to offer the integrated services of oil and gas and power to our customers.
At the same time, we will be able to invest heavily in sustainable growth and in other new kind of projects that will transform our company. Finally, we should keep our stable position as a source of attractive return for our shareholders. We are in the process of updating our strategy, and we will update our dividend policy together with our strategy by the end of the year. Going to slide 10, the key levers of our value creation and transformation come from transformation. We see four main areas of them. The first area, as I said, is the possibility of faster and stronger transformation.
Second area is about security of energy supply. First area is about operational synergies that we see as a direct potential from the Merger. Fourth area are value chain upside that we see from integration of different segments within one company. Going to the first area of the enhanced transformation potential, we in few details show here what I just described in the previous slide. Due to our diversity, stability, and strong financial position, we should be able to accelerate the development of low and zero-emission power generation projects, as well as chemical projects in the latest new technologies.
We should be able to smooth our business cycle exposure, and we should be able to develop gas-fired power plants as the additional source of energy in the power system. All of that should sum up to ensuring long-term sustainable growth of the company, and should keep us resilient towards economic shocks that we experienced right now. Let me pass the voice over to Jacek. Jacek Ciborski, head of the strategy in PGNiG, who describes the second aspect of the value creation level.
Thank you, Karol. Good morning. Ladies and gentlemen, let me give you a few words how PGNiG as a part of multi energy group sees contribution to the fulfillment of strategic goals of Polish energy sector arising from the energy transformation. First of all, we all observe the demanding and challenging environment that currently is on the market. We as a company face long-term challenges of transformation and short-term need for securing the energy supplies. We can see as on slide number 12 that there is an increasing demand for electricity for Polish industry and transport in the near future. It is of national importance to have a key dependable supplies within the Polish economy. Natural gas is expected to increase and be a part of transition fuel of various emissions reduction.
Okay. Sorry. I will try to speak a little bit louder still. I hope that I'm better hearable right now.
Natural gas demand is increasing and natural gas is expected to be the transition fuel within the transformation of Polish energy economy. This is why Poland is expected to be more self-reliant and self-sufficient over time. We believe that the Merger of ORLEN together with PGNiG will accelerate this process. However, we are facing also some challenges on the market, and as you can see on the first chart on this slide, since the second half of previous year, we can observe the Russian activity in the gas market that is aimed at disturbing European energy market. We currently see that this is a part of the wider plan of Russia to attack Ukraine. As a result of such activity, we can see the increase of natural gas prices on the market.
It started in the half of last year, but it's still very influencing the market. Currently after the limitation of natural gas supply under the pretext of maintenance works on the Nord Stream gas pipeline, we face the gas price rise, and the quotation on European exchange markets rise to the level of around or even above EUR 200 per MWh. This is why Poland is actually making big progress to make less dependent on Russian resources.
Plenty of development projects were implemented in the market. Extension of pipelines allows new partners to supply natural gas and other resources to the country, which will increase the security and improve Poland's negotiation power. However, we believe that the combined entity will have the right... That only the combined entity will have the right scale to help Poland be less dependent on Russian supplies. It is crucial for the future and for the Polish economy in general. Okay. Karol?
Yeah. So continuing and maybe going just into slide number 15, where we show the next area of our value creation from the Merger. Value creation levers are the synergies. We have identified several areas of synergies between our companies. Most important of them are located in few business segments, which I want to underline right now. The first aspect are the synergies of organizational efficiencies in upstream segment. As a combined group, we will combine upstream activities of PGNiG, ORLEN, and Lotos in one organization. We should generate scale effects on exploration and production of hydrocarbons.
Here we see the large upside potential for the group. Another areas are retail segment, where, as I said, we want to combine activities in energy and gas distribution, as well as heat production, where we have heat generation units or CHP, both in Energa and in PGNiG. In the future, we see potential by combining those assets into one organization. Finally, synergies that we identified and want to utilize are connected with the storage of gas and fuels, especially underground storage in caverns. Both ORLEN Group and PGNiG possess the cavern.
It should work. Sorry for some delays. We had some technical problems. I hope that everyone hear us now clearly.
Okay. Shall I keep it the synergies slide or? Yeah?
Yes. Yes, please.
Okay. Going to slide number 15. Here we show the main synergies that we have identified and want to utilize as the effect of the Merger. Let me describe most important of them, which we see as crucial for the merged company. The first area is upstream segment. In combining scope we will combine upstream activities of ORLEN, PGNiG and Lotos. With such upstream organization, we will be able to utilize synergies and efficiencies both in exploration and production area, as well as all the upstream services that are now conducted by our entities.
The second area where we see synergies is retail segment. As I said before, we want to offer integrated services to our customers. Here we see potential in combining gas and energy distribution, as well as possibility of offering other products to our customers. Next area where we identified and see the potential for further optimization is heat distribution. We possess CHP assets in Energa and PGNiG Termika.
The combination of those assets in one organization may be beneficial for the cost structure and maybe good for further development of the business line. Finally, the final area where we have identified significant synergies potential is storage, especially underground storage of gas, oil and fuels in underground caverns. Both ORLEN Group and PGNiG possess those assets which are even located close to each other. Joint operation or combining operations in terms of fuel and gas caverns of our companies may bring us significant benefits.
Not only cost synergies are important to the Merger. On slide number 16, we showed upside potential that we think may be unlocked by combining different segments within the same one organization. We have a vision that we will be able to generate additional revenue synergies due to combination of robust business segments of ORLEN Group, PGNiG, Lotos, and Energa, especially through the whole value chain of energy from upstream to retail customers. We see potential in current businesses and new business developments and new business projects that may be developed based on the portfolio of those assets. Some of the projects are already identified. Some may be identified in the future after the Merger.
Integration, we believe, creates value for the company. This will be the important driver for the future development. This is from my side. I'm going back to Ireneusz for the last few words on the future next steps.
Yes.
[inaudible].
Thank you very much. This is the summary slide, actually, and maybe a general comment at the beginning. As I said at the beginning of our presentation, we treat this Merger as a natural step in creating a multi-energy company with significant footprint in the region and the potential to expand as well. This is important because Poland and the surrounding countries are already too small for the combined entity, and the combined entity will have a strong balance sheet and the potential to expand its footprint in a broader perspective. As you can see on the left-hand side of the slide, the combined entity actually ticks all the boxes for a diversified energy player. Our goal right now is to deliver the value following the Mergers.
Thanks to our track record of M&A and integration processes, we already have a roadmap for successful integration in place. These work streams have been progressing already in cooperation with PGNiG and Lotos. We are preparing the companies for the day one and to post-Merger integration, with the main focus on value creation process in order to deliver value for the shareholders. This is our key perspective going forward. Thank you very much for listening to the presentation. This is it from our side, and we are happy to ask any questions you may have.
Now we open a Q&A session. If you want to ask the question, just, please unmute your microphone.
Hi. Michał Kozak, Trigon. Can I ask questions?
Yeah.
Yeah.
Thank you. Maybe the first part of my questions. Will all upstream licenses of PGNiG be transferred to ORLEN without tender procedures and without extra payments?
Hello. Artur Cieślik speaking from PGNiG. According to the amendment of the law, we have new possibilities. The new law, I would say in Polish, will give a new opportunity to file motion of the Merging Company , and it's resolving this problem.
Actually you have general succession, and we have no any difficulties in terms of the Merger to benefit from the change of the law. Actually, there are no outstanding issues with regards to the licenses in upstream business.
Okay. Understood. The next question. Could you please present the synergies calculation with PGNiG, in which areas and what is the scale?
Of course we have the calculations, but the problems which we are facing is more or less the same which we have in case of Lotos. Actually, the macro environment is so challenging that even the synergies are, you know, going up and down. At this stage of the process, and I cannot confirm what will happen in the future, but at this stage of the process, we are not presenting the absolute numbers.
Okay. The next question. After the Merger, State Treasury will exceed 50% as a shareholder. How do you see avoiding risk of 100% tender offer for PGNiG by the state? Do you think that selling this 2% stake to, for example, PERN, will mitigate this risk?
It's difficult to say on behalf of State Treasury. Nonetheless, I think that I'm not wrong when saying that they are not willing to announce a tender offer for 100%. Actually, we don't know to whom they will sell, what the procedure will be. At the end, the ultimate goal is not to exceed the 50% from the perspective of the State Treasury. We need to give the floor to the State Treasury to decide on the mechanism, how they would like to do it. I'm pretty sure that they are not willing at all to announce a tender offer, but they will mitigate the risk.
Thank you. The next one, is there a risk of contractual penalties between PGNiG and its customers, in the scenario that PGNiG cannot deliver gas to its clients, due to high gas price environment or lack of gas in Europe? Would it be possible to apply force majeure clause?
Grzegorz Magiewicz, PGNiG. We cannot disclose the contractual provisions. This case will be investigated when we'll be in a position to do it. Thank you.
Understood. Okay, maybe the last one. Do you think about changing dividend policy in the merged entity? Is the minimum goal of PLN 3.5 per share policy still valid, taking into account the increase in the number of shares in the combined entity?
As I said, and Karol said, and we said it the same when presenting the Lotos ORLEN Merger, we are updating the strategy, and the works are in progress, actually. Well, at the end of the year, beginning of the next year, we'll announce the strategy. The key pillar behind the update of the strategy is to stay as a dividend-paying company. In terms of the value, you need to give us some time to be able to present it to the public domain.
You know, our goal is to be an attractive company for the shareholders. At this stage, this is something that we can disclose. These are only a couple of months from when we'll be ready to update the strategy and present the dividend policy. I just want to assure you that the fundamental pillar behind is to really stay as a dividend paying company and be an attractive company for the shareholders.
Okay. Sorry for this. It will be my last question. What valuation methods were used to calculate the PGNiG value? In what form the potential risk scenarios were priced? Considering risk scenarios, I mean, deterioration of situation with gas consumers, and its clients, and potential problems with financing the working capital in case of potentially full stop of gas flow by Nord Stream 1. Did you, for example, increase beta of PGNiG in the WACC rate? Thank you.
Of course, we will not disclose the details of the valuation methodologies. Actually, we went through all of the brokers' report, and actually, Michał, we analyzed also yours. We took into the consideration many different scenarios going forward, and I think that the fundamental thing is that the transaction is not for the one year only. Yes, PGNiG is facing the challenges in terms of the working cap. On the other hand, if the situation stabilizes, the situation changes then, and it becomes much more positive for the PGNiG. When discussing the ultimate share swap priority between the Management Teams, yes, we discussed the risks. We discussed the different scenarios, different methodologies in terms of valuation. Yes, we applied the risk factors to calculations. Forgive me, but we'll not disclose the details.
Sure.
I can assure that the managements of both companies took into consideration the risks going forward.
Sure. Thank you very much.
Next question, please. Any other questions? Please remember to unmute your microphone if you want to ask the question.
Maybe if there are no questions, I have a couple of ones.
Okay, go ahead.
Thank you. How much may the WACC rate increase in the merged ORLEN after the acquisition of PGNiG in relation to the pre-transaction structure?
Yeah, very challenging question, but I think that both companies are more or less in the same sector. Actually, who will stay with a stable capital structure? I think that the balance sheet of the combined entities will be stronger altogether. Of course, we understand the challenges with regards to the working capital, but in the long run, we would rather expect that the financial firepower of both companies will be rather stronger. My perspective is that it should be rather neutral or at least neutral.
Okay. Do you assume zero Urals import in the merged entity from the beginning of next year, which means cancellation of Rosneft and Tatneft long-term contracts?
No. Yeah. Okay. Let me answer it this way. First issue is the contractual provisions and expiry dates, right? We do not foresee as of today extension on one of these contracts. Second expires in a couple more years. Depending on sanctions imposed or not, we will continue or not. However, as of today, we, ORLEN is not buying, not importing any seaborne cargoes to the system. We are consistent, and we are working together with all participants of the European market, and with them in this respect. Thank you.
Thank you. The last question. Could you please present the import structure of diesel and gasoline in Poland in the first half of this year? What is the % of Russian diesel import to Poland? Do you think that Russian refining products, for example, diesel, will be fully banned from the beginning of the next year by European Commission? Thank you.
There was no Russian diesel import by PKN ORLEN in the last month. We have stopped importing Russian diesel. We know that the market does it, but it's not done by PKN ORLEN. I cannot say more because we haven't prepared ourselves for competing topics. We have prepared ourselves for the Merger conference today, and we are not able to discuss the competing topics in more detail.
If you would like, we will check, let's say the details, and we will come back to you offline. Recently, definitely once you look on the market, we see some deterioration in diesel cracks. As you said, recently we observed a higher import of the diesel to Europe from Asia, Middle East, Russia, and U.S. Definitely this makes some pressure on diesel cracks.
Okay. Fair enough. Thank you.
Just a quick addition. As for the imports that are being realized for the diesel, these are less than 30% in total. As my colleague said, we do not know what the other regions they are importing from. I guess for the best information you would have to wait for the POPiHN report.
Kamil Kliszcz , mBank. Can you hear me?
Yes, Kamil.
I have one question actually regarding the Lotos transaction. Could you please give some more color on the schedule of closing these remedies transactions? I mean the especially the transactions on the refining business. What will be the schedule of closing this with Saudi Aramco regarding these adjustments of net debt and the current profit that Lotos is generating that will be still on your balance sheet after the transaction? I'm just wondering whether it is the end of Q3 or what schedule can be expected here.
It's rather closer to the end of Q4, so Q4 rather than sooner.
Okay. Thank you very much.
We should benefit quite significantly from the adjustments to net debt.
Okay, understood. Thank you.
Hello, can you hear me?
Yes, we can hear you.
Hello, Raphaël Dubois, Société Générale. Just a couple of questions, please. Can you say what sort of gearing you would like to operate under once the Merger is finalized? Also just going back to the synergies, can you state how costly will that be to achieve them and maybe quantify and give us an idea of the phasing of those synergies? Thank you.
As of today, as PKN ORLEN, we have gearing at. In our strategy, we have gearing at the level of 30%. Actually, you know, it will be the target, actually the maximum target in our probably updated strategy. As of today, nothing is changing with regards to this approach. As I said, you know, we'll update the strategy at the end of the year, beginning of the next year. It will provide the assumptions behind financial gearing too. As of today, I wouldn't expect any significant changes. As far as the synergies are concerned, I have to refer to our initial response. We are not providing the data behind the synergies at this stage.
It means that we are not providing the data related to the positive and negative results along the Merger. What I can say actually, because we have the calculations, they are of course positive and there is a significant potential going forward.
Thank you.
Any other questions? Okay. If there are no more questions, I would like to thank you for the participating in the conference call. This concludes our conference call. Have a nice day and goodbye.
Goodbye.