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Integrated Annual Report 2012
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Grupa LOTOS S.A. - Integrated Annual Report 2012

Achievements

 

Source: The LOTOS Group in-house data.

In 2012, the LOTOS Group sold in excess of 10.1 million tonnes of products, which represents a 1% rise on the previous year. This was chiefly led by stronger sales volumes of heavy fuel oil, LPG and naphtha. Similarly to 2011, the volumes of petroleum products sold outside Poland were also on the rise. Increased exports were recorded chiefly for diesel oils, aviation fuels, engine gasolines, and heavy fuel oils. We also posted sales of crude oil from the Lithuanian deposits, which were supplied to external customers.

 

 

 

 

 

Sales of engine fuels

In the context of sagging domestic demand for gasoline (down 5.4% in 2012), increased sales of the product reported by the LOTOS Group (up 1% on 2011) were a success. We also recorded a 14% growth (of 48,000 tonnes) in sales to customers outside Poland, including in Scandinavia and Great Britain.

Driven by a decline in domestic demand for diesel oil (down 9.4% in 2012), the LOTOS Group's domestic sales of the product were down 8% compared with the previous year. Another factor pushing sales down was sharp growth in the retail price of diesel oil. Our achievements included winning Shell as a customer with us as the principal supplier, as well as continued cooperation with Statoil and BP.

In the period under review, we recorded a three-fold increase in diesel oil export volumes, which account for more than 10% of the LOTOS Group's total export sales. Our diesel oil was sold to customers in Great Britain, Germany, France, Finland, the Czech Republic, Denmark, and the Russian Federation.

Source: The LOTOS Group in-house data.

Source: The LOTOS Group in-house data.

Sales of diesel heating oil

Source: The LOTOS Group in-house data.

A slide in domestic demand for diesel heating oil by approximately 13.9%, to the benefit of more competitive heating fuels, caused our 2012 sales of the product to shrink 16% year on year. As in the previous years, diesel heating oil was sold exclusively on the domestic market.

Sales of aviation fuel

Source: The LOTOS Group in-house data.

Relative to 2011, the total sales volume of JET fuel by the LOTOS Group grew by 40%. Our principal distribution channel for the product was sales by sea, to Sweden, Russia and Lithuania. The product was also sold to customers in the Czech Republic. At home, aviation fuel sales were made to end customers, wholesale customers and airports. In 2012, the key customer for our aviation fuel was Petrolot, a distribution company with a national reach, and the airports in Wrocław and Rzeszów. On the domestic market, we provided supplies to wholesale customers operating in the aviation industry. We were successful in growing sales to retail customers operating their own aircraft or active in flying clubs or small-size airports and airfields.

Sales of oil products

Source: The LOTOS Group in-house data.

The total volume of oil products sold in 2012 remained broadly flat on 2011, amounting to around 260,000 tonnes.

The two principal distribution channels were wholesale, including through Authorised Distributors and LOTOS Oil Partners, and direct sales.

As part of the wholesale distribution system, which is our most important sales channel, we established the Authorised Trade Distributor for Shippers sales force in late 2012 and early 2013, which enhanced the channel's efficiency.

The main foreign markets for LOTOS Group's oil products were the EU countries, as well as countries in Central and Eastern Asia, the Middle East, and Africa. In 2012, partners in Turkmenistan, Macedonia and Jordan joined our customer base. An important business event in this period was the signing of a letter of intent in Azerbaijan with KIA Motors representatives, concerning possible sales of LOTOS products through authorised dealers.

Sales of bitumens

Source: LOTOS Group in-house data.

There was a 24% year-on-year drop in total bitumen sales in 2012. This decrease was attributable to the weaker financial performance of construction companies, as well as the economic crisis prevailing in the EU and the related decline in infrastructure investment.

Similarly to previous years, road bitumen had the largest share in total bitumen sales which amounted to 80%. The remaining volume of bitumens sold included modified bitumens and bituminous emulsions.

The main export markets were the EU states of Finland, Romania, Sweden, Switzerland and the Czech Republic.

In 2012, we maintained the leading position in sales of technologically advanced modified bitumens, traded under the name MODBIT, which were given the Najwyższa Jakość Quality International award.

Sales of heavy fuel oil

Source: LOTOS Group in-house data.

In 2012, the total volume of heavy fuel oil sales grew by 18% year on year. Domestic and export sales were up by 3% and 20%, respectively. Heavy fuel oil was shipped mainly to Rotterdam, Scandinavian ports and countries on the Baltic Sea, with power companies being key customers.

Sales of LPG

Source: LOTOS Group in-house data.

In 2012, LPG sales increased due to the higher demand for cheaper substitute fuel (LPG), in response to the growing prices of other engine fuels. Another driver in the LOTOS Group’s increased sales was the introduction of high-pressure natural gas from the new pipeline to the refinery's network.

Chain of LOTOS service stations

In 2012, work continued on expanding the LOTOS service station chain by adding new stations under two business models, i.e. own stations (CODO) and partner stations (DOFO). Within both models, new LOTOS service stations in the premium segment (under the LOTOS brand) and in the economy segment (under the LOTOS Optima brand) were launched.

As at the end of 2012, the LOTOS service station chain comprised:

Premium segment
  • 152 own stations (CODO)
  • 124 partner stations (DOFO)
  • 28 patronage stations (DODO)
Economy segment
  • 71 own stations (CODO)
  • 30 partner stations (DOFO)

Source: In-house analysis by LOTOS Paliwa.
Legend: DODO – Dealer-Owned Dealer-Operated, patronage stations,
DOFO – Dealer-Owned Franchise-Operated, partner stations,
CODO – Company-Owned Dealer-Operated, own stations.

Other achievements in the service station chain segment in 2012 include:

  1. Expanded cooperation with foreign car fleets at selected LOTOS own stations;
  2. The addition of a new feature to the LOTOS Biznes range, enabling settlement of road tolls in Western Europe and viaToll payments in Poland;
  3. Implementation of a new Premium segment visualisation concept for the own and partner networks;
  4. Implementation of the Café Punkt food service concept;
  5. Acquisition of five new locations for motorway service stations;
  6. The launch of the fourth edition of the LOTOS Navigator loyalty programme

 

Non-fuel sales are a material area of operations of the LOTOS service station chain. In this respect, the key directions in 2013, similarly to last year, will include:

  • Continued development of the Cafe Punkt food service, 
  • Expansion of the range of food product,
  • Development of the range of car wash services, including with respect to touch-free car washes.

LOTOS Optima after one year of operations

At the end of 2012, the LOTOS Optima chain comprised 101 sites, doubling the number of LOTOS Paliwa’s economy stations relative to 2011. The one hundredth LOTOS Optima station was opened in Białogard, in the Province of Szczecin. At present, LOTOS Optima outlets operate across the country. LOTOS Optima stations sell diesel oil, 95 and 98 unleaded gasoline, as well as a segment-specific range of non-fuel products and services.

Maciej Szozda

Vice-President of the Grupa LOTOS Board

A successful year for LOTOS Optima

In 2012, the LOTOS Optima chain expanded, doubling the number of economy service stations in the chain. This is a great success for LOTOS Paliwa, achieved in spite of the difficult conditions on the fuel market.

It was more than two years ago that we first assumed that the economy segment would see dynamic growth. Even though our predictions were met with scepticism on the markets, we executed our plan in full, while breaking the Polish record for the number of new additions to a service station chain in a single year. We take great pride in the fact that we managed to repeat that feat in 2012, which was not an easy year.

Customers choose LOTOS Optima because its service stations offer quality fuels at competitive prices. In the current economic climate, that is a very powerful advantage. Our recipe for success is in the combination of our quality fuels with conveniently located stations, a good selection of products and the high quality of our services.

To our trade partners, we offer favourable terms of cooperation and an attractive franchising system which involves competitive licence fees and a good investment package. Another key element in our offer is the guarantee that LOTOS Paliwa will perform fuel quality tests at its own expense, ensure stable supplies of LOTOS fuels and enable the implementation of an optimum pricing policy based on tools provided by a global industry leader. Our experience has shown that prospective partners attach great importance to the possibility of promoting their own brand, which we also provide. Service stations have a uniform design, but we allow our dealers to promote themselves by displaying their names and logos on the forecourt totems next to the LOTOS logo.

LOTOS Optima is targeted at all companies interested in cooperating with LOTOS Paliwa, including those that already operate in the Premium segment. If these companies seek to diversify their services under a franchise agreement, they can open one or several LOTOS Optima service stations and expand their portfolio by adding economy segment products.

Despite the difficult conditions prevailing on the fuel market, we intend to continue dynamically developing this segment of our offering. The year 2012 confirmed the assumption that the development of economy service stations has been the right decision, which is why we intend to maintain this course in 2013. Our success is not only the growing number of service stations, but also the quality of our product and service offering and professional customer service. Those three key parameters were at the top of our agenda in 2011-2012, and will remain a priority in 2013.

Meanwhile, the growing number of our service stations is driven by the expanding road network, the construction of new stations and adaptation of existing facilities. It should be noted that all stations have a uniform interior design, which makes them stand out from other service stations operating in the economy segment. For our service stations, we chose a modern silhouette and pastel colours. Paired with the yellow lettering, this combination is not only unique on the Polish market, but also well-received by our customers, who consider it up-to-date, attractive and suitable for the segment in which LOTOS Optima operates. The stations are relatively small, but tailored specifically to cater to areas with lower potential.

I am certain that in 2013 our service station development model will once again prove to be a success.

Logistics

Grupa LOTOS is making intensive efforts to steadily enhance the logistics and distribution of products, raw materials and components. Actions taken include optimisation of the fuel terminal network and road, sea and rail transport (taking into account customer expectations), and seasonal changes in sales, as well as efforts to reduce costs throughout the logistics chain.

In 2012, we extended the scope of our logistics services by implementing new IT systems for data exchange, broadening the fuel distribution offer and significantly improving the process of secondary logistics management. At the same time, we conducted preparatory work to achieve full automation and centralisation of driver service processes at our own depots. Planned for completion in 2013, this project will help us satisfy customer's needs, standardise work and improve cost efficiency.

The smooth operation of the logistics system has ensured the security of product distribution in the LOTOS Group, helped meet statutory requirements on the creation, maintenance and turnover of mandatory stocks, and enabled the LOTOS Group to attain the National Indicative Target for marketed bio-components.

In 2012, Grupa LOTOS earned additional revenue from sales of logistics services to third-party customers, including quality inventory exchange and the stock ticket service, consisting in the fee-based maintenance of mandatory reserves of fuels.

Sea transport

Freight transport by sea is a vital element of the LOTOS Group's logistics chain. We enjoy the considerable advantage of having direct access to the product pipelines linking the Gdańsk refinery to the liquid fuel handling facilities at Port Północny. Maritime transport is the Company's main mode of exporting petroleum products and supplying a significant portion of the raw materials and components used in production. The number of tankers carrying the Company’s imports and exports was slightly reduced in 2012, relative to 2011, primarily as a result of optimisation of the volume of cargo moved (larger export of petroleum products, particularly heavy fuel oil) and changes in the structure of biocomponent suppliers (a significant share of supplies from domestic companies).

The liquid fuel handling terminal owned by Naftoport handles tankers with a maximum draught of 15 metres and the capacity to load up to 150,000 tonnes of crude oil or petroleum products. This allows Grupa LOTOS to export surplus products and sell them on the Scandinavian, Northern and Western European markets, and the Baltic states. The direct connection to the port also makes it easier to conduct import deliveries of petroleum products, mainly diesel oil and light fuel oil components.

Grupa LOTOS enjoys the advantageous position of having a refinery at a short distance from a cargo handling terminal, which allows it to diversify its supply sources and facilitates the shipping of crude oil from own reserves under the Baltic Sea and in Lithuania, and - in the future - crude oil produced from reserves under the North Sea.

We are consistent in our efforts to take over the management of cargo transportation by sea, or to control the transportation process on the longest possible section of the supply chain, from the affreightment of ships to the formal handling of sea transport. This ensures greater control and helps streamline the planning process as regards cargo handling at sea ports, allowing us to reduce the frequency of ship detention and optimise related costs. In 2012, Grupa LOTOS took over most of the activities related to securing vessels for sea transport on its own, cutting out third-party intermediation services.

Financial standing

In 2012, we launched preparatory work related to the comprehensive modernisation of the Poznań fuel depot. The project, which will be financed with our own funds, is scheduled for completion in 2014.

Also in 2012, we continued design work on the construction of the sea cargo handling terminal in Martwa Wisła, in the immediate vicinity of the Gdańsk refinery. The aim of the project is to enable handling of component and product loads with a unit volume of up to 5,000 tonnes for exports and imports on Grupa LOTOS' own wharf.

In 2012, LOTOS Kolej operated rolling stock of ca. 3,600 rail cars and nearly 100 locomotives, including some of the most advanced electric locomotives: a Bombardier TRAXX MS/DC, and a Siemens ES64F4, as well as TRAXX DE Diesel locomotives.

Rail transport

In order to ensure the most effective use of their assets, LOTOS Group companies commission rail transport services from LOTOS Kolej, providing a comprehensive transport solutions. LOTOS Kolej covers all stages of freight rail transport, including technical maintenance services for rolling stock, and is the only private operator in Poland able to offer both full-train and single-car freight services, which is a significant competitive advantage on the market.  The company operates an innovative rail logistics system of real-time monitoring of the location and technical and commercial parameters of every train being started. The company is among the market leaders in terms of using the most modern locomotive fleets in Poland, which increases the efficiency of its transport services, guaranteeing their high quality.

As a result of its continuous development, LOTOS Kolej has the potential to fully satisfy the transportation needs of LOTOS Group companies and, increasingly, to render transport services to third-party customers.

In 2012, LOTOS Kolej transported a total of ca. 10.6m tonnes, including cargoes of over 4.4m tonnes hauled for third-party customers.

LOTOS Kolej is one of the leading freight rail carriers in Poland, ranking second with a market share of 8.21%.

Source: In-house analysis based on data sourced from the LOTOS Group.

Source: In-house analysis based on the Office of Rail Transportation data, January 2013.

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