PKN ORLEN earns a record profit

Throughout 4Q 2003 PKN ORLEN has generated record consolidated results:
Operating profit of PLN 1,328m, representing an 81.7 per cent increase over the corresponding period in 2002
Net profit of PLN 1,041m, an increase of 147 per cent over 2002.

This strong result follows mainly from the cost cutting programme, the rebranding of the retail network, as well as the implementation of the first stage of the restructuring of the ORLEN Capital Group. Moreover, the strong financial result was also attributable to external factors, such as higher refinery margins, the first signs of economic growth in Poland and growing demand for fuel.

When they were originally announced, PKN ORLEN's cost cutting initiatives were initially expected to reduce costs in 2003 by PLN 80 - 130m. After six months of the programme, PKN ORLEN succeed in securing savings worth PLN 144, of which as much as PLN 120m was achieved in the production and logistics area.

In 2003, PKN ORLEN operated in a favourable Oil and Gas environment, where crude prices rose by an average of 15.3 per cent, and the refinery margin grew from USD 1.04 per barrel to USD 3.06 per barrel. The performance was also positively affected by domestic market factors. Although the unemployment rate remains high, the GDP index increased by 3.7 per cent, indicating noticeable economic growth, translating into a 16 per cent increase in sales of new cars and domestic fuel consumption.

In the retail segment, PKN ORLEN's performance in 2003 was achieved thanks to the stronger brand, further progress in sales of non-fuel goods and successful margin optimisation. As a result, the retail segment's figures rose in the last three quarters of 2003 by PLN 117m, which translated into a PLN 66m increase compared with that recorded in 2002. At the same time, PKN ORLEN recorded a growing interest in LPG and diesel, the share of total sales of which is continuously growing, offsetting the falling petrol consumption .

The VITAY loyalty programme also enjoyed growing interest - the target figure of 4.3 million clients was exceeded by 100,000. 2004 is expected to attract a further 700,000 individual clients to the programme.

Excellent results were also achieved by ORLEN's retail network in Germany. After ten months of operations, the network recorded an extra PLN 5m net profit, which is particularly noteworthy as a positive performance had not been anticipated for the initial period. Moreover, in this period fuel sales in Germany fell by nearly 3 per cent over 2002. In addition, the swap contracts with international operators in Poland and Germany are estimated to increase ORLEN fuel sales in Poland by some 400,000 tonnes and the synergy effect from the swap contracts is forecast at around EUR 10m.

In line with its customer-oriented policy, PKN ORLEN reflects changes in market demands both in production and wholesale. Similarly to retail, these two segments showed the growing substitution of petrol with diesel and LPG during 2003. Growing demand for diesel could be satisfied due to the completed renovation of the Hydrotreatment Plant. As a result of margin optimisation and the favourable fuels quotation, the 2003 refining and wholesale result increased by 150 per cent over the same period in 2002, calculated with the LIFO method. Though the volumes of crude processed in Plock declined by 5.7 per cent in 2003, PKN ORLEN increased its white products yield by 1.3 per cent and the fuel yield by 1.7 per cent.

The petrochemical segment's result across the ORLEN Capital Group grew by 109 per cent. This result was primarily attributable to better sales of fertilisers and monomers, a 300 per cent increase in the net profit of Anwil, as well as the contribution of assets to Basell Orlen Polyolefins.

In addition, measurable effects follow from the implementation of the restructuring programmes in the ORLEN Capital Group. In compliance with its principles, PKN ORLEN disposed of 25 non-core companies in 2003, which resulted in a headcount reduction of over 1,500 employees. A further 21 companies are planned for sale in 2004, with another 1,600 employees to be reduced. PKN ORLEN has also initiated the process to sell its stake in Polkomtel in a consortium with other Polish stakeholders.

Zbigniew Wróbel, President and CEO, said:

"For PKN ORLEN 2003 was a period of hard work, with the implementation of ambitious projects and investments, which secured the expected results. Due to favourable market conditions, and the efforts and commitment of our employees, we were able to earn a record profit.

We are, however, still facing new challenges. We signed a Memorandum of Understanding with MOL, which opens the way to close cooperation, and further to the equity consolidation of the two companies. We have also placed bids in the privatisation processes of Unipetrol in the Czech Republic and Petrom in Romania. These initiatives are a part of our consistent efforts towards ensuring a strong position for the Company at the centre of the region and delivering further growth in shareholder value."

Press Office
PKN ORLEN