1
PSG\JAN05\EP\K2_OVERVIEW(01).PPT
PKN ORLEN audited consolidated financial results: FY 2005 (IFRS)
Paweł Szymański, CFO April 28th 2006
2
Audited consolidated financial results 2005The highest ever results of PKN ORLEN following restructuring and corporate culture changes; supported by market conditions1
The highest ever net profit of PKN ORLEN
After Q4'05 in PLN m 2004 2005unadited adited audited
22.3% ROACE (%)2 16.5% 21.8% Ex. negative goodwill** 13.5%
6 797 EBITDA* 4 037 6 728 EBITDA ex. negative goodwill** 4 834
4 724 Net profit* 2 538 4 638 Ex. negative goodwill** 2 744
3 634 Cash flow from operations 3 637 3 664
15.7% Gearing (%) 3 3.5% 17.0%
882 Cost cutting 637 8821) Refers to the PKN ORLEN Capital Group including Unipetrol, IFRS numbers unless otherwise stated 2) ROACE = operating profit after tax / average capital employed (equity + net debt)3) Gearing = net debt / equity
* Due to creation of on-off provisions for business risk, restructuring, write-off receivables and company protection package – including PLN 149 m at ORLEN Deutschland - 4q’05 results were depressed by app. PLN 282 m. ** Unipetrol results consolidation is resulting in one-off effect of negative goodwill accounted in 2005 to another operating costs in amount of PLN 1 894 m.
3
Dividend proposalPotential acquisition of Mažeikiu Nafta determines the decision of the Management
In case of PKN ORLEN ongoing participation in the tender offer for Mažeikiu Nafta, the Management would like to propose to account all of the net income - reduced by write-off for Labour Social Service Fund - to retention fund
PLN 2 522 mPotential investment in Mažeikiu Nafta represents a more significant value creation potential for the shareholders than the dividend payment
In the situation of PKN ORLEN final termination of participation in the tender for Mažeikiu Nafta, Management of PKN ORLEN would like to adopt new dividend policy starting already from 2006 (from the 2005 net profit) and propose dividend of PLN 4,50 per share. The proposed amount translates to:
76% of PKN ORLEN net income of 2005PLN 1 925 m50% free cash flow to equity (FCFE)
Free Cash Flow to Equity (FCFE)
Accelerated implementation of new dividend policy published in January in Strategy Update 2006-2009Dividend payment of 50% of Free Cash Flow to Equity
takes into account capital expenditures & mergers and acquisitionsallows for maintaining the optimal capital structureNet prof it +
D&ACAPEX Net w orking
capital changeBank loans
changeFCFE
4
Conclusion of the Unipetrol transaction Calculation of negative goodwill effect in PKN ORLEN consolidated financial report FY2005
Final calculation of negative goodwill associated with Unipetrol acquisition (accounted to other operating costs) amounted in 2005 to PLN 1,89 bn
In PLN m
31.05.2005Compound calculation of neg. goodwill= PLN 2 025 m
Additional adjustments
(acquisition price, change in equity in accordance with the audited 2005 Unipetrol results)
NEGATIVE GOODWILL
Audited results 31.12.2005 – negative goodwill = PLN 1 894 m
1 894
1,2- 258126
2 0252 0252 006
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NEGATIVE GOODWILL31.05.2005
Valuation of Ceska Rafinerska
Impairement test Paramo and Kaucuk
Additional retained earnings of Unipetrol
In PLN m Difference: - PLN 131 m
Negative goodwill of PLN 1 894 m in 2005 audited results as a consequence of:• compound valuation of Unipetrol equity as at 31.05.2005• increase in valuation of Ceska Rafinerska assets (fair value methodology)• impairment test of Paramo and Kaucuk assets
Initially estimated
„negative goodwill”published in preliminary 4Q’05 results
NEGATIVE GOODWILL31.12.2005
As promised the final transaction closing was concluded by the end of 2005.
5
Financial results 2005Sound financial results of PKN ORLEN were achieved even after exclusion of one-off items
Major one-off items in 2005 consolidated results of PKN ORLEN
Negative goodwill - resulting from acquisition and consolidation of Unipetrol1
Business risk provision -agreements concerning the sale of some Unipetrol assets –Q2’052
Protection package provision –Q2’05 (PLN 54 m) and Q4’05 (PLN 112 m)
ORLEN Deutschland - provision for business risk and write-off of receivables – Q4’05 (PLN 137 m, PLN 12 m)
+ 1 894
In m PLN
- 376
- 1661
- 149
One-off effect on P&L
49%
7%
4%
40%
Business risk provision - ORLEN DeutschlandOther business risk provisionProtection package provisionReceivables write-off - ORLEN Deutschland
21
137 112
12
Major one-off negative items in Q4’05consolidated results of PKN ORLEN
TOTAL: PLN 282 m
In PLN m
Clean net result Q4’05*: PLN 610 m Clean net result 2005*: PLN 3 426m
1) Total gross amount. Protection package of PLN 36.7 m was utilized in 2005.* Pro forma calculation
6
Simplified P&L accountIncrease of EBIT by 9% excluding negative goodwill effect*
Unipetrol 7m'2005 2005 difference difference % change
2005/20041 2 3 4 5=4-2 6=5/2 7=4/1
Revenues 30 680 42 804 7 368 41 188 -1 616 -3,8% 34,3%
Operating profit 2 687 5 060 176 4 948 -112 -2,2% 84,1%
Net profit 2 538 4 724 96 4 638 -86 -1,8% 82,7%Net profit ex minority shareholders 2 482 4 670 96 4 585 -85 -1,8% 84,7%
audited2004
after Q4'05 28.02.2006IFRS, PLN m
adjustment of negative goodwill - 111*adjustment of hedging instruments - 26change of provisions 41others 11
Key differences between audited and preliminary results of 2005 (in m PLN):
Revenues in 2005 excluding 7 months of Unipetrol consolidation increase by 10% y/y.
EBIT result excluding Unipetrol consolidation and one-off negative goodwill, increases by 9% y/y
* Unipetrol results consolidation is resulting in one-off effect of negative goodwill accounted to another operating costs in amount of PLN 1 894 m. Proforma calculationCommnets regarding the difference between 111 m PLN and 131 m PLN on slide 4 (initially estimated 2 006 m PLN negative goodwill)
7
EBIT of PKN ORLEN by segments Significant improvement of operating results
IFRS basis, PLN m 2004 Unipetrol 4kw'05
Unipetrol 7months 2005
2005 y/y
Operating profit , of which 2 686 66 176 4 947 84,2%
negative goodwill 1 894
operating profit (excl.neg. goodwill) 3 053
Refining1 2 248 53 165 2 947 31,1%
Retail -6 -13 -11 78 -
Petrochemicals 881 40 70 858 -2,6%
Others2 -32 -14 -48 -98 206,3%
Non attributable3 -405 0 0 -732 80,7%
Comments
The differences between Unipetrol results and the consolidated numbers of Czech company accounted in PKN ORLEN resulted from the asset revaluation of Unipetrol - in accordance with IFRS 3
Depreciation of Unipetrol in PKN ORLEN books for the period June-December 2005 - 538 m PLN Depreciation of Unipetrol in PKN ORLEN books for the period of Q42005 - 269 m PLN
1)Production, Wholesale and Logistics2)Departments responsible for energetic media and social activity and services subsidiaries of PKN ORLEN4) Includes corporate centre of PKN and subsidiaries not mentioned in previous segments
8
Macroeconomic environment in 2005Variable and volatile refining and petrochemical sector
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200520042006E
02468
10121416
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200520042006E
2,5
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5,0
3-Jan 3-Mar 3-May 3-Jul 3-Sep 3-Nov 3-Jan 3-Mar
PLN/USD PLN/EUR
PLN/USD 2006E PLN/EUR 2006E
2006
Refinery margin 5.12 $/b average in 20053 Decrease by 9% y/y2.56 $/b average in 1q20063 Decrease by 30% y/y
Brent/Ural differential4.20 $/b average in 2005 Increase by 2% y/y3.63 $/b average in 1q2006 Decrease by 29% y/y
Brent 54.48 $/b average in 2005 Increase by 42% y/y61.78 $/b average in 1q2006 Increase by 30% y/y
Exchange rates average1
1) Source: NBP2) Estimates published in PKN ORLEN Strategy Update 2006-2009
3) Calculated as: Products (88.36%) vs. Brent Dtd (100%). Products contain Premium Unl (25.21%), EN590 (23.20%), Naphtha (16.51%), LOO (15.31%), HSFO (5.44%) i Jet (2.69%)
(source: CIF NWE quotations, except HSFO FOB ARA)
01020304050607080
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200520042006E
2 2
Since January 2006 r.
2006
2006 2006
Since January 2006 r.
Since January 2006 r. Since
January 2006 r.
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AgendaSupporting slides
Supporting slides
Segments waterfall charts q/q
Petrochemicals market – environment summary
Unipetrol
Retail market in Poland
10
Refining segment
496
142
5452
53
30 14 6 6 5
(1)(71)
(90)
(98)
(201)(46)
351
0
100
200
300
400
500
600
700
800
900
Segm
ent r
esul
t 200
4
LIFO
Res
ult o
n ot
her o
per.
activ
ity o
f PKN
Sale
s vo
lum
es
Uni
petro
l
Inla
nd p
rem
ium
Cos
t cut
ting
prog
ram
me
USD
/PLN
exc
hang
era
te
OR
LEN
Asf
alt
Ref
inin
g m
argi
n
OR
LEN
Deu
tsch
land
Fair
valu
e ad
j.
Inte
rnal
sal
es re
sult
Cru
de o
il ow
nco
nsum
ptio
n
Ura
l/Bre
nt d
iffer
entia
lan
d ex
chan
ge ra
tes
Oth
ers
Segm
ent r
esul
t 200
5
PLN m Q4’04 Q4’05
∆
∆
∆
∆
∆ ∆ ∆ ∆
∆∆
∆ ∆
∆
∆
11
Petrochemical segment
278
90
5940
273 3
(6) (11) (12) (19)(22)
(50)
(91)
(86)203
0
100
200
300
400
500
Segm
ent r
esul
t 200
4
Inte
rnal
sal
es re
sult
Sale
s vo
lum
es
Uni
petro
l
Res
ult o
n ot
her o
per.
activ
ity o
f PKN
USD
/PLN
exc
hang
era
te
Cos
t cut
ting
prog
ram
me
Fair
valu
e ad
just
men
t
Cru
de o
il ow
nco
nsum
ptio
n
Hed
ging
Con
solid
atio
nad
just
men
ts
Anw
il
BOP
Petro
chem
ical
mar
gin
Oth
ers
Segm
ent r
esul
t 200
5
PLN m Q4’04 Q4’05
∆
∆
∆
∆
∆ ∆
∆ ∆
∆
∆∆
∆
∆
12
Retail segment
-54
62
20
12
2
(14)
(18)
(66)
14
-42
-70
-50
-30
-10
10
30
50
Seg
men
t re
sult
2004
Ret
ail m
argi
n
Res
ult
on o
ther
ope
r.ac
tivity
Cos
t cu
ttin
gpr
ogra
mm
e
Non
-fue
ls p
rodu
cts
mar
gin
Uni
petr
ol
Sal
es v
olum
es
OR
LEN
Deu
tsch
land
Oth
ers
Seg
men
t re
sult
2005
PLN m Q4’04 Q4’05
∆ ∆
∆
∆
∆
∆
∆
13
Petrochemical market from 1 January 2004 to mid April 2006
0
100
200
300
400
500
600
700
800
900
1000
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
Ethylene Average (Ethylene-Naphta) Naphta
Ethylene
398413370
314 304322
211
in EUR/tone
398
Spread (Ethylene-Naphta)
338
0
100
200
300
400
500
600
700
800
900
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
Propylene Average (Propylene-Naphta) Naphta
232
290254
293427
353
211
in EUR/tone
383
Spread (Propylene-Naphta)
338389 349
Propylene
Source: Market quotations
0
200
400
600
800
1000
1200
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
PP Average spread (PP-Propylene) Propylene
347270250
17658
296376257
Spread (Propylene-Naphta)
in EUR/tone
0
200
400
600
800
1000
1200
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
PE Average spread (PE-Ethylene) Ethylene
in EUR/tone
251352
166
357400
217312 286
Spread (PE-Ethylene)
Poliethylene (LDPE) Polipropylene
275240272
201
14
Unipetrol GroupSelected audited financial data for FY2004 vs. FY2005
Audited financial results of main subsidiaries of Unipetrol a.s.in 000 CZK 2004 IFRS* 2005 IFRSChemopetrol a.s. Revenues 28,899,450 31,181,618
EBIT 2,743,604 3,157,240 Net result 1,952,507 2,616,366 Equity 13,033,302 14,174,200Total assets 28,533,029 28,381,695
Benzina a.s. Revenues 20,700,329 11,426,602 EBIT 487,891 -9,361 Net result -1,053 -499,103 Equity 323,532 1,123,429Total assets 8,323,622 7,657,185
Ceska Rafinerska a.s. Revenues 9,103,977 9,292,780 EBIT 489,963 468,191 Net result 321,396 325,834 Equity 17,805,918 18,131,752Total assets 28,332,362 24,906,135
Kaucuk a.s. Revenues 10,202,929 10,395,443EBIT 561,906 535,593Net result 277,711 439,068Equity 6,340,241 6,795,322Total assets 9,211,038 8,909,922
Paramo a.s. Revenues 9,136,966 11,073,141EBIT 285,72 -103,499Net result 157,137 -207,411Equity 1,596,225 1,897,487Total assets 3,419,894 4,351,747
Spolana a.s. Revenues 5,070,504 5,757,796 EBIT 250,250 291,884Net result 118,527 183,071Equity 884,528 1,067,599Total assets 3,782,827 3,870,302
Unipetrol Rafinerie a.s. Revenues 59,252,192 76,321,599EBIT 1,365,415 978,333 Net result 1,061,731 578,353Equity 827,805 1,406,159Total assets 9,531,005 13,263,227
*restated data
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Unipetrol Group Audited financial and operational results for 2005
Audited consolidated financial highlights of Unipetrol a.s. 2004-2005
in '000 CZK 2004 IFRS* 2005 IFRS
UNIPETROL a.s. Equity 32 825 771 38 988 043
Total assets 72 143 595 76 441 640
Revenues 71 097 589** 80 946 337***
EBIT 5 846 248 5 279 069
Net result 3 709 728 3 407 111
* restated results *** revenues without excise tax
The excise tax in 2005 amountsto 19,508,980 ths CZK
** revenues without excise tax
The excise tax in 2004 amountsto 15,159,302 ths CZK
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Unipetrol GroupSelected financial data for FY2003 vs. FY2005
Operational highlights for years 2003-2005
Operating data* Q1'03 Q2'03 Q3'03 Q4'03 2003 Q1'04 Q2'04 Q3'04 Q4'04 2004 Q1'05 Q2'05 Q3'05 Q4'05 2005
Total sales (tt) , of which 110 177 720 1 135 2 142 1 024 1 195 1 204 1 269 4 692 1 118 1 326 1 400 1 320 5 164
- light product sales (tt) 1 45 69 429 728 1 269 654 770 784 830 3 039 746 848 919 854 3 367
- other refinery products sales (tt) 52 83 156 128 420 100 132 190 130 552 123 192 197 166 678
- pet-chem sales (tt) 14 25 114 231 383 221 243 189 253 905 209 236 235 249 928
- other product sales (tt) 0 0 21 48 69 49 50 41 56 196 41 51 50 51 192
Retail sales of motor fuels (tL)2 110 130 137 129 507 107 130 133 120 491 104 126 136 120 486
Processed crude (tt) 131 143 671 978 1 922 834 898 952 1 034 3 718 874 1 022 1 134 1 122 4 151
Utilisation3 69% 69% 67% 71% 70% 62% 65% 68% 75% 67% 64% 74% 81% 81% 75%
White product yield4 45% 65% 68% 71% 68% 72% 67% 74% 70% 71% 72% 69% 72% 71% 71%
Fuel yield5 34% 48% 59% 60% 57% 46% 56% 57% 55% 54% 56% 60% 61% 56% 58%
*Refers to Unipetrol Group1) Gasoline, Diesel, LHO, Jet
2) Gasoline, Diesel, LPG3) 51% of Ceska Rafinerska, 100% of
Paramo 4) Gasoline, Diesel, LHO, Jet
5) Gasoline, Diesel, LPG, LHO
17
9759
2954
Domestic production of petrols and ON(thousand t.)Import of petrols and ON (thousand t.)
27,0
6,8
29,5
36,7
PKN Orlen
Economy segment (Neste, Jet,hypermarkets)Foreign groups (BP, Shell,Statoil)Other stations (Lotos Group,private stations)
Retail consumption of fuels in Poland in 2005 (in thousand tonnes)Estimated dynamics 2005-2004
Balance sheet of motor oils in Poland in 2005 Estimated share in the retail market (%)
PKN Orlen is not a dominant entity on the retail market
Foreign groups and otheroperators have a significantmarket share
• Poland is an importer ofmotor fuels
23%
77%
Retail fuels market in Poland
Petrol Diesel oil LPG Total of fuels
4 029 5 127 1 775 10 931
- 5.3% + 5.7% + 23.3% + 3.6 %
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Fuel pricingInternational conditions of crude oil price growth
Limited relationship between quotation rise and actual crude oil demand and supplySignificant premium for political (international) riskMainly political – and not economic – factors of price rise
Domestic market conditions
Average gross retail profit margin on the market lower by over a dozen percent than a year agoIncreasing market competitiveness (hypermarket stations etc.)Growing interest among customers in Bliska economy brand (sales growth year-on-yearexceeds 30%).Lowering profit margin threatens existence of many private stations.
19
Retail pricing structure for Pb95 in the period January – April 2006.
0%
20%
40%
60%
80%
100%
120%
Gross retail profit margin
VAT
Fuel fee
Excise duty
Land premium
Crack profit margin
Brent Crude Oil Price
SPOT
Platts
Costs to be covered with the gross retail profit margin:
1) Operating costs of a petrol stationincluding - transport costs
- staffing costs- materials and energy- taxes and charges- refurbishing services
2) Marketing costs3) Sales support costs4) Appreciation of the petrol station
Retail price structure
20
Starting from mid March PKN Orlen S.A. has been relieving the adverse outcomes of the growth in crude oil price by decreasing the unit fuel gross margin in Retail
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3
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01.03.200
6
03.03.200
6
05.03.200
6
07.03.200
6
09.03.200
6
11.03.200
6
13.03.200
6
15.03.200
6
17.03.2
006
19.03.200
6
21.03.200
6
23.03.200
6
25.03.2
006
27.03.200
6
29.03.200
6
31.03.200
6
02.04.2
006
04.04.200
6
06.04.200
6
08.04.200
6
10.04.200
6
12.04.200
6
14.04.200
6
16.04.200
6
18.04.200
6
20.04.200
6
22.04.200
6
24.04.200
7
47,0
52,0
57,0
62,0
67,0
72,0
Cena detaliczna SPOT Brent (Dtd) w USD/bbl Cena detaliczna
Retail price
Retail price
Bre
nt o
ilqu
otat
ions
[US
D/b
arre
l}
Brent oil quotations
Retail price Brent (Dtd) in USD/bbl
Retail price
Net
reta
ilpr
ice
[PLN
per
litre
}
21
Pb95 gasoline prices on ORLEN sites in 2006 are lower or equalto prices in the competing Premium stations across Poland
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