PKN ORLEN – consolidated financial results for 1st quarter 2010

 Such good results are the outcome of a significant improvement in the results of the petrochemical segment, the optimization of costs and an increase in crude oil prices. They compensated the burden related to the decrease in fuels consumption in the period of an exceptionally hard winter, higher taxes in the Czech Republic and in Poland, as well as the negative impact of low fuel margins.

All markets in which the Holding company operates reported an improvement of GDP indicators in the first months of the year. This did not however result in demand for fuels, the consumption of which decreased in the 1st quarter this year in comparison to the same period last year in Poland by 1% and in Germany by 2%. A serious reduction in demand was observed in the Czech Republic – by 12%. Only on the Lithuanian market, which within one year (Q1 2010/Q1 2009) reported a significant improvement of GDP, a slight increase of 1% in fuels purchases occurred. It should be stressed that with a lower demand observed in Q1 2010 the Holding company increased retail sales volumes by 4%.

- Despite constantly unfavorable macroeconomic situation, we obtained very good financial results. An improvement in the results of the petrochemical segment is visible. The completion of sales of part of the obligatory reserves of fuels – the first transaction of this kind in Poland also had a positive influence on the Holding company’s condition. Good effects were also achieved by the continuation of optimization actions. It is a clear signal that both the strategy implemented by us and operating actions undertaken in the time of the economic slowdown were efficient and bring the expected results – Jacek Krawiec, CEO of PKN ORLEN said.

Improvement of results in the refinery and petrochemical segment
The most measurable improvement in EBIT was observed in the refinery segment, which in comparison to the similar period last year reported a 542 million PLN higher result. Unfavorable market factors, including continually lower refinery margins in comparison to the last year, were neutralized by a positive influence of crude oil prices and savings programmes in the scope of fixed costs and salaries. An increase in margins and volumes in the petrochemical segment resulted in a significantly higher operating result than a year ago at the level of 105 million PLN.

Increase in retail sales despite decrease in fuels consumption on the market
The retail segment operated in the 1st quarter in the difficult market conditions , struggling with a general decrease in consumption due to unfavorable weather conditions (an extremely long and harsh winter), higher tax burdens in the Polish (fuel surcharge) and Czech markets (excise), and a strong pressure on fuel margins in Poland and in Germany. Despite the above, thanks to active commercial activity, which brought an increase in retail sales volumes by 4%, and an effective management of non-fuel sales, EBIT of ORLEN Group remained at the level of 75 million PLN.

Keeping a safe level of debt
In the last 12 months the Holding company reduced debt by 4 billion PLN to a safe level of 10.3 billion PLN. In the 1st quarter the Holding company executed the first transaction in the Polish market of the sale of a part of the obligatory reserves of fuels for 800 million PLN. Operations of this kind enabled the reduction of debt, as well as reinforced resistance to the impact of changeable crude oil prices on PKN ORLEN’s result. Together with prolongation of payments for crude oil and acceleration of the flow of receivables it facilitated a reduction of working capital by 2.2 billion PLN. At the same time the Holding company is still supporting works on the targeted change of rules regarding the keeping of obligatory reserves in Poland.

Improvement of the Group’s efficiency and further growth
In the first months of the year PKN ORLEN consistently implemented actions increasing the value of the Group. ORLEN Lietuva focused on reducing fixed costs, improvement of working capital and conducting necessary repairs in the most efficient way possible. The Czech Unipetrol thanks to a larger sales of polyolefins, stabilization of retail margins and improvement of efficiency, for the first time since over a year, obtained positive results both in net and operational profit.

Actions regarding the sale of selected assets are continued consistently and according to schedule. The process of the sale of Anwil SA entered another stage of negotiations - ZA Puławy was granted exclusive negotiations. In the case of Polkomtel, following PKN ORLEN, other shareholders chose transaction advisors.

Also key investments are proceeding according to schedule. In the third quarter of the year, another installation of the diesel oil hydrodesulphurization will be launched in Płock, and at the end of the year new installations will start operating in the petrochemical segment – PX in Płock and PTA in Włocławek.

Works are also conducted in the scope of upstream projects in Poland and in the Baltic shelf. Actions in the scope of exploration for resources of unconventional gas (so-called shale gas) are intensified. ORLEN Upstream commenced another stage of exploration works for resources of crude oil and natural gas in the Lublin region. These works are being conducted on concession blocks: Bełżyce, Garwolin, Lublin, Lubartów, Wierzbica and comprise undertaking field, reflexive seismic 2D surveys. In the area of Lublin, on concessions belonging to PKN ORLEN there are Low Paleozoic structures (Silurian, Ordovician) with relatively low vessel parameters, which may contain shale gas.

In the framework of the development of the energy segment, the Holding company continued preparatory actions for the construction of the power plant. In the 1st quarter the decision regarding the attachment to the energy network in Włocławek was obtained.