Consolidated financial results of PKN ORLEN - Q3'2005

High crude oil prices were a significant factor in the macroeconomic environment shaping business conditions in the third quarter this year. The average Brent price was USD 61.63 per barrel, and the differential between Q3'2005 and Q3'2004 quotations reached 48%. In the same period the Brent/Ural differential was at a level of USD 4.50 per barrel. The average refinery margin in that period was USD 6.09 per barrel, which translates to a 11% increase over the corresponding quarter of last year.

- We view the improvement in results with satisfaction, although the business outlook was not beneficial to all segments of our operations - comments Paweł Szymanski, the Chief Financial Officer in PKN ORLEN. We owe the achieved results mainly to consistent implementation of our programmes of cost cutting and improvement of effectiveness" - stresses Paweł Szymański.

In order to assess the impact of the restructuring and efficiency improvement measures from the beginning of this year, for better understanding the company's results should be analysed assuming last year's macroeconomic environment and excluding Unipetrol (with its associated negative goodwill) and the provision for business risk made in Q2 2005. Under comparable conditions, EBITDA after 9 months of 2005 grew by 13.5%. Such an increase also affects ROACE which, under 2004 conditions and after 9 months of 2005, would have been 23.6%, ie. 3.6 percentage points above last year's figure.

The company's revenues in the period July - September amounted to PLN 13,075 m and were 54% higher than in Q3'2004. The Group attained operational income of PLN 1,195 m - over 20% higher than in Q3'2004. Net profit equalled PLN 980 m - over 17% higher than in Q3'2004.

The results of the ORLEN Group in the third quarter were significantly affected by the impact of the Unipetrol consolidation on the results of individual segments. The share of the Czech holding company in the group's revenues in this period reached PLN 3,656 m. The effects on operational income amounted to PLN 132 m, with the most pronounced effects in the petrochemical and refining segments. Unipetrol's share in net profit was at PLN 60 m.

As a result of operating cost cutting, the Group achieved economies of PLN 228 m in Q3'2005. In addition to the results of previous quarters, the KPRKO has given 2005 savings of PLN 655 m, which amounts to 82% of the annual cost cutting plan estimated at PLN 800 m.

The main source of the PKN ORLEN's revenues in Q3'2005 was the segment of refining, wholesale and logistics - PLN 7,084 m (including PLN 2,248 m from Unipetrol). Due to the advantageous market conditions, and the growth of effectiveness and sales volume, the group achieved in this area an operating profit of PLN 1,132 m (including PLN 74 m from Unipetrol), i.e. almost 49% more than in the previous year. After three quarters of 2005 the result of this segment equalled over PLN 3,2 bn, over 83% higher than the results of the same period of 2004. The improvement in this year's results was also affected by negative goodwill of acquired assets over the acquisition price.

The cost cutting programme in this segment generated savings of over PLN 68 m. In comparison to Q3'2004. the volume of sales in this segment rose by 33%, and its value went up by almost 72%. The company recorded much higher - compared to the same quarter last year - sales of fuel oils (64.9%), petrol (30.9%) and aviation fuel (17.5%).

In the retail segment in Q3'2005, revenues rose by 28% (excluding Unipetrol - 13%) compared to the same period last year and amounted to PLN 3,999 m (the effect of Unipetrol consolidation - PLN 464 m). Results from operating activities, however, were lower than in Q3'2004 and equalled PLN 59 m (including Unipetrol - PLN 2 m). This results, amongst other things, from a steep rise in the prices of fuel products in September due to Hurricanes Katrina and Rita, which resulted in a drop in fuel consumption and thus smaller sales volumes. This affected the segment's results to the order of PLN 10 m. This segment is additionally encumbered with a reserve of PLN 16 m related to the closing of fuel stations.

The KPRKO programme generated savings of over PLN 58 m. Total savings generated during three quarters of this year were at the level of almost PLN 281 m against PLN 49.6 m generated in the same period last year.

Poorer results were recorded in Q3'2005 by the petrochemical segment. Despite a significant rise in revenues by 62% to PLN 1,781 m ( including PLN 940 million from Unipetrol), the segment's operating profit dropped by 29% against Q3'2004 - to PLN 158 m (Unipetrol - PLN 88 m). The results were an effect of the weakening of profit margins for petrochemical products (PLN -119 m). Additionally, due to the planned maintenance outage of the Olefin II plant and the start-up of new, intensified installations, there was a negative quantitative effect on sales of petrochemical products of PLN 89 m. The planned outage of the hydrocracking also had an adverse effect on the segment's results. Implementation of the KPRKO programme in this segment generated savings of almost PLN 10.5 m.

- In October we announced the programme of integration with Unipetrol, presenting specific goals regarding the scope of optimisation of operations. We also prepared roadmap for ORLEN Deutschland. The Supervisory Board approved a PLN 2.3 bn project for a new investment - the construction of paraxylene and terephthalic acid installations, whose deployment will extend the chain of value creation into the petrochemical segment - added Igor Chalupec, the President and Chief Executive Officer of PKN ORLEN.