PKN ORLEN Q4 2006 results

The Group’s Q4 reported operating result includes an accounting loss of PLN 230m as a result of the divestment of Kaucuk a.s. Despite the accounting loss, this transaction is advantageous in the context of the long-term contract with Firma Chemiczna Dwory S.A., and the fact that Kaucuk’s operations were not part of the PKN Orlen’s core business, and its development would have required further investment.

Refining margins in Q4 2006 were an average of $2.73/b, which represents a 48% reduction compared to the same period last year. The Ural-Brent differential in Q4 2006 dropped 2% compared to the same period in 2005 and achieved an average of $3.56/b. Such levels of the basic macroeconomic indicators constitute a significant deterioration in the Group’s operating environment.

PKN ORLEN’s financial results in 2006.

In 2006, the PKN ORLEN Group generated PLN 52,870m in revenue which represents a 28.4% increase compared to 2005. Despite a significant deterioration in the macroeconomic environment, the Group reported an EBITDA of PLN 5,021m; with the exclusion of the one-off negative goodwill effect, this represents a 4% increase in EBITDA compared to 2005.

Consolidated net profit (excluding negative goodwill) dropped 12% year-on-year and amounted to PLN 2,406m. Net profit attributable to shareholders of the holding company (excluding negative goodwill) dropped 13.2% to PLN 2,330m.

All installations (excluding the Mazeikiu refinery) operated at full capacity to accommodate the sharp increase in demand in 2006. The Group’s annual processing volume in Poland in 2006 grew 8% to 13,612,000 tons. The capacity utilization index in 2006 of the Płock-based refinery was 98.6% which represents a 5.5 percentage point increase. Crude processing in the Czech-based refineries owned by the ORLEN Group grew 3% to 4,281,000 tons. The fire in the Mazeikiu refinery reduced its annual processed volume to 8,028,000 tonnes, which represents a fall of 13% compared to the previous year.

In 2006 the Group consistently enforced cost discipline measures. The OPTIMA program generated in Q4 2006 PLN 84m in additional savings, . The largest cost reductions in Q4 2006 were generated in Refining (PLN 30.5m) and Chemical (PLN 21.5m) segments. Total savings in 2006 was PLN 299.3m.

As a result of the implemented restructuring strategy, in 2006 the retail segment reported a six-fold increase in results, generating PLN 573m. This result was achieved, among other means, by increasing the Group’s sales volume, which resulted in a year-on-year improvement of PLN 125m; the Group also strengthened its cost effectiveness (the OPTIMA program implemented in the retail segment in 2006 yielded PLN 80m). It should be noted that non-fuel product margins grew and contributed to a PLN 40m improvement in this segment’s 2006 results.

The Refining segment generated the highest result in 2006 – PLN 1,762m. Nevertheless, this represents a 40% drop compared to 2005 (excluding negative goodwill). 2006 refining margins dropped 28% compared to 2005. The company also reported a 6% reduction in the Ural-Brent differential compared to the same period last year. The negative effect of the refining margin reduction was PLN 85m, and the Ural-Brent differential reduction resulted in a PLN 88m drop. The strengthening of the Polish zloty to the US dollar reduced the segment’s 2006 results by PLN 195m.

The Petrochemical segment generated PLN 842m, which represents a 18.8% increase compared to 2005. This was helped by the high sales volume, which translated into segment growth of PLN 452m compared to 2005; the consolidation of Unipetrol yielded PLN 207m. These indicators demonstrate the management efficiency of the PKN ORLEN Group.

The Chemical segment also reported a 50% improvement, generating PLN 226m in 2006. These good results were primarily attributable to Anwil’s profit, which generated a positive result of PLN90m.