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Petrom S.A. – Benchmarking with Investment Grade Companies


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Presentation by Sorana Baciu at TBLI CONFERENCE EUROPE 2008.

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Petrom S.A. – Benchmarking with Investment Grade Companies

  1. 1. Petrom S.A. – Benchmarking with Investment Grade Companies Sorana Baciu Director Corporate Development and Investor Relations November 13, 2008 – TBLI Conference Europe 2008, Amsterdam
  2. 2. Presentation outline <ul><li>The Romanian Macro Environment </li></ul><ul><li>Petrom in Romania </li></ul><ul><li>Petrom’s Role in Sustainable Development </li></ul><ul><li>A New Way of Looking at Things </li></ul>
  3. 3. Romanian macro environment: Economic growth to continue despite volatility <ul><ul><li>EU member since 2007 </li></ul></ul><ul><ul><li>Continuous economic growth; 8.6% in 1H/08 </li></ul></ul><ul><ul><li>Large inflow of EU funds (EUR 33 bn estimated by 2013 i.e. >25% of 2007 GDP)‏ </li></ul></ul><ul><ul><li>Romanian market risk </li></ul></ul><ul><ul><ul><li>Perceived to be relatively high due to the large C/A deficit and scarcity of global credit </li></ul></ul></ul><ul><ul><ul><li>Low level of public debt; relatively small budget deficits </li></ul></ul></ul><ul><ul><ul><li>Volatile FX environment; </li></ul></ul></ul><ul><ul><ul><li>Inflationary pressures still remain </li></ul></ul></ul><ul><ul><li>Reform process supported by EU accession and all parties aligned </li></ul></ul><ul><ul><li>Current government has only 20% of electoral support; elections in November 2008 </li></ul></ul>Sources: EC Spring Economic Forecast, Eurostat and Petrom 1 0 4 8 12 16 Jan. 05 Jul. 05 Jan. 06 Jul. 06 Jan. 07 Jul. 07 Jan. 08 EU-27 Romanian CPI Romanian PPI Romanian and EU-27 GDP development Romanian and EU-27 inflation rates in % 0 2 4 6 8 10 2005 2006 2007 2008 2009 2010 0 40 80 120 160 200 GDP in EUR bn (RHS)‏ EU-27 Romania
  4. 4. Sustainable Development in Romania <ul><li>Romania has to overcome the economic and social disparities with the other EU members, and also to assimilate and implement the principles and the practices of sustainable development in the context of globalization </li></ul><ul><li>Progress in recent years, however the </li></ul><ul><li>economy is still based on intensive </li></ul><ul><li>consumption of resources, with a </li></ul><ul><li>natural capital affected by the risk of </li></ul><ul><li>irreversible deteriorations </li></ul><ul><li>An updated version of the National </li></ul><ul><li>Strategy on Sustainable Development, </li></ul><ul><li>in line with the objectives set by EU, </li></ul><ul><li>currently under development </li></ul>
  5. 5. Presentation outline <ul><li>The Romanian Macro Environment </li></ul><ul><li>Petrom in Romania </li></ul><ul><li>Petrom’s Role in Sustainable Development </li></ul><ul><li>A New Way of Looking at Things </li></ul>
  6. 6. Petrom has a high degree of physical integration Exploration and Production Refining and Marketing Gas and Power <ul><li>4.7 mn t oil production </li></ul><ul><li>5.8 bcm gas production </li></ul><ul><li>894 mn boe P1 reserves </li></ul><ul><li>5.9 mn t crude oil processed </li></ul><ul><li>807 filling stations </li></ul><ul><li>4.6 mn t marketing sales </li></ul><ul><li>5.3 bcm gas sales volumes </li></ul><ul><li>860 MW power plant planned </li></ul>All figures from 2007
  7. 7. Continuous financial performance <ul><li>All P&L figures according to RAS, translated from RON to EUR at avg exch rate </li></ul><ul><li>All BS figures according to RAS, translated from RON to EUR at end year exch rate </li></ul>
  8. 8. Privatization in 2004 was critical for competitiveness and sustainable development Challenges prior to privatization Restructuring and modernization Current position Increasing efficiency and competitiveness in all business segments Improved processes and safer operations Improved profitability Improved compliance and HSE standards Consolidated position in the domestic market Expansion into the international market Diversification of value chain Comprehensive and focused strategy Significant investments State-of-the-art systems: Petrom Solutions, SAP Integration into OMV – transfer of know-how Improved management structure Acquisitions and growth: Shell Gas, Ring Oil, OMV and MOL retail stations, Petromservice activities Sustainable development: Power, Future Energy Fund Obsolete assets Outdated equipment Operational inefficiency Lack of IT Underinvestment Bureaucracy Excessive regionalization Overstaffing Massive HSE deficits Government interference
  9. 9. Petrom: Significant economic influence in Romania Substantial impact on other sectors of the economy (over 5,600 suppliers)‏ 3.1% of Romanian gross fixed capital formation Employment Approx. 27,000 employed by Petrom SA (total maintained employment of 90,000 = 2.2% of Romania’s employment)‏ Capital investments Support of economic growth <ul><li>Petrom is the largest Romanian company by: </li></ul><ul><li>Turnover and </li></ul><ul><li>profit </li></ul><ul><li>No.of employees </li></ul><ul><li>Stock market capitalization </li></ul><ul><li>Contributions to the state budget </li></ul>Petrom sales to GDP ratio 3.8% (total 7.8% including indirect effect)‏ Government budget contributions 11.7 % direct contribution to state budget (RON 5.7 bn)‏ Output Data as of December 31, 2007 and referring to Petrom SA
  10. 10. Petrom - Role Model Company in Romania <ul><li>Performance journey </li></ul><ul><li>Management commitment </li></ul><ul><li>Size and impact on the Romanian economy </li></ul><ul><li>We have to lead the way towards sustainable development in Romania </li></ul>
  11. 11. Presentation outline <ul><li>The Romanian Macro Environment </li></ul><ul><li>Petrom in Romania </li></ul><ul><li>Petrom’s Role in Sustainable Development </li></ul><ul><li>A New Way of Looking at Things </li></ul>
  12. 12. Petrom – the road towards corporate sustainability <ul><ul><li>Corporate Governance </li></ul></ul><ul><ul><li>Codes of Conduct and Compliance </li></ul></ul><ul><ul><li>Stakeholders dialogue </li></ul></ul><ul><ul><li>Petrom Future Energy Fund </li></ul></ul>Triple Bottom Line <ul><ul><li>Energy efficiency investments </li></ul></ul><ul><ul><li>Brazi Power Plant </li></ul></ul><ul><ul><li>Petrom Future Energy Fund </li></ul></ul><ul><ul><li>Corporate Social Responsibility </li></ul></ul><ul><ul><li>Corporate Social Responsibility </li></ul></ul><ul><ul><li>Health and Safety </li></ul></ul><ul><ul><li>Human Capital Development </li></ul></ul>Economic Environment Social
  13. 13. Questions 1: <ul><li>What is the relation between the corporate governance and the sustainability strategy of a company? </li></ul>
  14. 14. First things first: Improved corporate governance in Petrom <ul><li>Complex current ownership structure </li></ul><ul><ul><li>Property Fund (state-owned) to be listed on BSE </li></ul></ul><ul><ul><li>8% of Petrom to be sold to employees by AVAS (state-owned) </li></ul></ul><ul><li>No golden share </li></ul><ul><li>Privatization agreement provides for certain shareholder rights of the Romanian state </li></ul><ul><li>Dual management system (Supervisory Board with 3 state shareholding representatives)‏ </li></ul><ul><li>Improved stakeholders relationship </li></ul><ul><li>Management focus on core businesses, divestment of non core assets </li></ul><ul><li>Financial discipline </li></ul>Triple Bottom Line economics environment social
  15. 15. Petrom corporate governance structures <ul><li>Elects Supervisory Board </li></ul><ul><li>Decides upon capital measures and dividends </li></ul><ul><li>Releases Articles of Association </li></ul><ul><li>Appoints the Executive Board </li></ul><ul><li>Controls the Executive Board </li></ul><ul><li>Supports the Executive Board in its decisions </li></ul><ul><li>Decides upon conflicts of interests </li></ul><ul><li>Determines the strategy </li></ul><ul><li>Directs the business </li></ul><ul><li>Determines structure and organization </li></ul><ul><li>Implements corporate regulations and reporting systems </li></ul><ul><li>Actively meets public relations demands </li></ul><ul><li>Prepares meetings of supervisory board and submits reports </li></ul><ul><li>Informs and negotiates with representatives of the work force </li></ul>Triple Bottom Line economics environment social
  16. 16. Corporate Governance: Open communication to investors – the premises for a liquid capital market <ul><li>Petrom provides ad hoc and regular information on financial and non-financial topics: </li></ul><ul><ul><li>Company strategy </li></ul></ul><ul><ul><li>Directors dealings in company’s securities (shares, bonds, derivatives, etc.)‏ </li></ul></ul><ul><ul><li>Financial situation (according to IFRS etc)‏ </li></ul></ul><ul><ul><li>Conflicts of interests – related party transactions </li></ul></ul><ul><ul><li>External mandates/functions </li></ul></ul><ul><ul><li>Independence and its criteria for supervisory board </li></ul></ul><ul><ul><li>Social performance report </li></ul></ul><ul><ul><li>HSE performance and systems </li></ul></ul>Triple Bottom Line economics environment social
  17. 17. Code of Conduct – living our values <ul><li>Petrom Corporate Governance System </li></ul><ul><li>is based on: </li></ul><ul><li>Company values: Pioneering, Professionalism, Partnership </li></ul><ul><li>Own statutory requirements </li></ul><ul><li>UN Global Compact Framework, by the adherence to the OMV Group Code of Conduct </li></ul><ul><li>Austrian Corporate Governance Code </li></ul><ul><li>Petrom actively participates in adopting a </li></ul><ul><li>Corporate Governance Code in Romania </li></ul>Triple Bottom Line economics environment social
  18. 18. Dedicated resources to promote future energy <ul><li>Dedicated team in Petrom with clear tasks regarding the identification and the financial project support </li></ul><ul><li>Strong partnership with OMV Future Energy Fund </li></ul><ul><li>Main directions of actions: </li></ul><ul><ul><li>Renewable energy (e.g. geothermal, wind, solar, biomass)‏ </li></ul></ul><ul><ul><li>Reduction of GHG (e.g. carbon capture and storage combined with enhanced oil recovery)‏ </li></ul></ul><ul><ul><li>Energy efficiency (e.g. nanotechnology)‏ </li></ul></ul>Green light for five projects: geothermal potential in Romania, CO2 capture combined with EOR, nanotechnology, low energy building, biogas Triple Bottom Line economics environment social
  19. 19. Corporate social responsibility – the core of our sustainability <ul><li>Main goal: Become a responsible company that acts as a role model in Romania </li></ul><ul><li>CSR strategy aligned to business strategy, embedding the corporate vision, values and objectives </li></ul><ul><li>Management support and involvement </li></ul><ul><li>Budget: approx. around EUR 20 m during 2006-2008 </li></ul>Triple Bottom Line economics environment social Highest commitment for corporate responsibility projects in Romania
  20. 20. Improving health and safety <ul><li>Focus on safety (personnel and operations)‏ </li></ul><ul><ul><li>Personal protection equipment: 90% changed over last 3 years </li></ul></ul><ul><li>Change of mentality </li></ul><ul><ul><li>300,000 hours on HSE training and campaigns in 2007 </li></ul></ul><ul><li>Compliance: Investments, integrated pollution prevention and control, environmental management accounting, Annex P </li></ul><ul><li>Carbon management and CO 2 trading: Challenge and opportunity </li></ul>Triple Bottom Line economics environment social Total number of lost working days incidents (LWDI) and fatality incidents for Petrom and contractors, 2005 - 2007 50 50 31 3 6 3 62 47 49 7 7 5 0 20 40 60 80 100 120 140 2005 2006 2007 Petrom LWDI Petrom fatality Contractor LWDI Contractor fatality
  21. 21. Developing an efficient organization <ul><li>Redefine corporate culture: </li></ul><ul><ul><li>Develop and implement company value: Pioneering, Professionalism, Partnership </li></ul></ul><ul><ul><li>Code of conduct </li></ul></ul><ul><li>Manage change project: </li></ul><ul><ul><li>Increase cooperation across the businesses and consolidate change </li></ul></ul><ul><ul><li>Define matrix management principles followed by successful implementation </li></ul></ul><ul><li>HR - staff and management: </li></ul><ul><ul><li>Further initiate and implement development programs (focus on local managers); </li></ul></ul><ul><ul><li>Programs to attract and retain talent </li></ul></ul><ul><ul><li>Significant training budget </li></ul></ul>Triple Bottom Line economics environment social
  22. 22. Achieving potential and securing the future Security of supply Sustainability Competitiveness <ul><li>Stabilize and increase production </li></ul><ul><li>Step up exploration efforts </li></ul><ul><li>Regional E&P expansion </li></ul><ul><li>Expand gas storage capacities </li></ul><ul><li>Access to international gas markets (Nabucco)‏ </li></ul><ul><li>High Romanian market coverage with high quality oil products </li></ul><ul><li>Significant investments for restructuring and modernization </li></ul><ul><li>Efficiency potential </li></ul><ul><li>Competitive refinery </li></ul><ul><li>EU quality standards for products and services </li></ul><ul><li>Improved HSE performance </li></ul><ul><li>Energy efficiency </li></ul><ul><li>Closing the performance gap of refineries </li></ul><ul><li>Biofuels blend </li></ul><ul><li>Gas-fired power plant </li></ul><ul><li>Entry in renewable energy market/ leverage large asset base </li></ul><ul><li>Reduce carbon intensity </li></ul>
  23. 23. Questions 2 & 3 <ul><li>Is sustainability an investing criterion for the companies listed on less developed capital markets? </li></ul><ul><li>Is a Sustainability Index possible at BSE? </li></ul>
  24. 24. Capital markets reward sustainability <ul><li>Petrom fact sheet </li></ul><ul><li>Market capitalization on October 30 th , 2008: RON 9.5 bn ( EUR 2.6 bn ), 18.2% of BSE market capitalization; </li></ul><ul><li>Closing price on October 30th, 2008: RON 0.1670 (67% down YoY)‏ </li></ul><ul><li>Highest market capitalization: EUR 10.3 bn (February 1 st , 2006)‏ </li></ul>John Prestbo, President of Dow Jones Indexes: “Companies pursuing growth in the triple bottom line tend to display superior market performance with favourable risk return profiles” Petrom shares and BET index evolution (Dec. 2007 – Oct. 2008)‏
  25. 25. Presentation outline <ul><li>The Romanian macro environment </li></ul><ul><li>Petrom in Romania </li></ul><ul><li>Petrom’s Role in Sustainable Development </li></ul><ul><li>A New Way of Looking at Things </li></ul>
  26. 26. Our journey has just started
  27. 27. Thank you!