Another successful year for PKN ORLEN – record-breaking financial and operating performance

There was a significant year-on-year improvement in PKN ORLEN’s operating and financial performance. In 2010 sales revenue grew by 23%, while operating profit (EBIT) and net profit rose by PLN 2bn and PLN 1.2bn, respectively, on the 2009 levels.

At the same time, PKN ORLEN increased its crude oil throughput to 28 million tonnes, which – helped by the recovery on each of its home markets – translated into sales volumes at the all-time high of 34 million tonnes. The refining and retail segments recorded a growth of, respectively, 1% and 5%, which offset the effect of declining volumes of the petrochemical segment (down by 2%), translating into a 2% increase in the total sales volumes relative to 2009. These successes, combined with operational optimisation, cost savings and remeasurement of inventories, resulted in the best  operating profit of PLN 3.1bn and net profit of PLN 2.5bn in five years.

- Our financial and operating results posted in 2010 are the best proof that the decisions we made in the period of slowdown laid down the groundwork for effective operation as the macroeconomic climate improves. Thanks to the carefully thought-out and consistently implemented optimisation and investment efforts, the Company achieved the highest efficiency on record and is well positioned for further growth, including development of new business segments and transformation into a multi-utility - said Jacek Krawiec, CEO of PKN ORLEN.

Secure financial standing

As part of its cash release efforts, following a change in the rules governing mandatory stock-holding, last year PKN ORLEN carried out two crude sale transactions, which generated cash of PLN 1.7bn. Furthermore, PKN ORLEN continued to implement working capital reduction measures launched in 2009, which brought an additional cash inflow of  PLN 4.3bn by the end of Q4 2010 (PLN 1.9bn in 2010 alone).

Increased operational efficiency and optimisation efforts further reduced the Group’s indebtedness – by PLN 2.5bn year on year. Such reduction in debt enabled the Company to achieve the target financial leverage of 39% envisaged in its strategy. In addition, the ratio of net debt to operating profit before amortisation/depreciation and dividend from Polkomtel was reduced to the safe level of less than 1.5. Fitch and Moody’s recognised the Company’s consistent and successful efforts, changing the Company’s outlook from negative to stable.

- Over the past twelve months we have launched a number of projects and initiatives, which contributed to greater stability and secure financial standing. These were the objectives of our strategy adopted in 2008. Successful implementation of the objectives demanded considerable effort from all of us, particularly in the context of the global crisis and economic slowdown which created additional obstacles. Today our liquidity position is very good: in the prior year net cash provided by operating activities totalled PLN 6.1bn and liquidity available under credit facilities is EUR 1bn. We are ready to start preparing for the implementation of the scheduled development projects - said Sławomir Jędrzejczyk, Vice-President of the Management Board in charge of finance.

Value-creation efforts

In 2010, PKN ORLEN completed the planned investment and development projects. The Płock production plant saw the launch of a diesel oil hydrodesulphurisation unit (HON VII), which boosted the plant’s annual diesel oil production capacity by 1 million tonnes. Last year also saw the start-up of Europe’s most advanced PX/PTA unit (paraxylene/purified terephthalic acid), which as of Q2 2011 will enable the Company to expand its petrochemical product mix and ensure more efficient utilisation of gasoline fractions.

PKN ORLEN was also engaged in a number of projects in the upstream segment, and the group of potential partners and exploration sites came to include Ukraine. In addition, the Company made detailed preparations for the launch of the Włocławek power plant construction project. In December 2010, once the environmental impact assessment was completed, a final environmental permit for the project was obtained.

In the retail segment, PKN ORLEN focused its efforts on further increasing its market shares and network optimisation. A major success last year was the acquisition by ORLEN Deutschland of 56 stations from OMV, as a result of which the number of STAR service stations operating within ORLEN Deutschland’s network rose to 571.

The Company’s key operational goals for 2011 include in particular maintaining the crude oil throughput, processing efficiency, sales volumes and market shares at current levels in the context of strong competition and retail margin pressures. Cost cutting efforts will also be continued. The Company plans to implement a more comprehensive turnaround schedule compared with 2010. The schedule covers four major units at the Płock plant and provides for temporary shut-downs of the refineries in Lithuania and the Czech Republic.

In the petrochemical segment, PKN ORLEN will focus on meeting the throughput and sales targets on the new PX/PTA unit and on fulfilling deliveries under contracts for the supply of finished products to customers in Poland and abroad.

Given that the planned sale of the Company’s shareholding in Polkomtel is at an advanced stage, we believe that the transaction will be completed in the first half of 2011. Work on the potential sale of Anwil will also be continued. To obtain more free cash, the Company is looking into the possibility of selling another portion of mandatory crude stocks.

The year 2011 will witness intensive efforts to develop the new upstream and power segments. Exploration work and wells are being planned under all licences held by PKN ORLEN, both on the Baltic Shelf and in the provinces of Poznań (Sieraków) and Lublin. Furthermore, as part of the shale gas project, seismic surveys will be performed and sites for drilling boreholes will be selected (the first such borehole is expected to be drilled late this year). The Company is also well advanced with the work on the construction of a power plant in Włocławek, a project worth PLN 1.5bn. Once the grid connection approval and the essential environmental permit were obtained, the RFP process to select the general contractor commenced. The winner will be announced at the end of Q3 and beginning of Q4 2011. The construction work is to be launched in 2012.