PKN ORLEN FY2008 consolidated financial results (audited) Update on corporate developments. Jacek Krawiec, CEO Sławomir Jędrzejczyk, CFO - PDF

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PKN ORLEN FY2008 consolidated financial results (audited) Update on corporate developments Jacek Krawiec, CEO Sławomir Jędrzejczyk, CFO 30 April Agenda 1) Settlement with banks regarding credit

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PKN ORLEN FY2008 consolidated financial results (audited) Update on corporate developments Jacek Krawiec, CEO Sławomir Jędrzejczyk, CFO 30 April Agenda 1) Settlement with banks regarding credit agreements 2) Put option execution with Government of Lithuania 3) Assets allowance - IAS 36 4) FY2008 consolidated financial results (audited) 5) Mazeikiu Nafta development program 6) Estimates of PKN ORLEN operating data for 1Q2009 2 PKN ORLEN S.A. signed settlement with banks regarding credit agreements AREA ACTION SETTLEMENTS SIGNATURE On 27 April 2009 PKN ORLEN signed settlements with the banks with which PKN ORLEN holds debt agreements for financing of its operations, the provisions of which could be breached referring to the debt ratio expressed as debt net/ebitda on the day of publishing PKN ORLEN s consolidated financial statements for BANKS ALLOWNACE On the basis of the settlements, the banks have agreed to a temporary breach by PKN ORLEN of the financial ratios for the periods ended 31 December 2008 and 30 June 2009 as acceptable under the debt agreements. Thanks to that, the Company got back the option to utilise the unused debt limits within the terms of those agreements. CONDITIONS PKN ORLEN has committed itself not to exceed the budgeted level of investment expenditure in PKN ORLEN has committed not to recommend to the Company s shareholders the dividend payments until the Company achieves the debt level acceptable by the debt agreements. COSTS PKN ORLEN agreed to pay a one-off waiver fee. The amount of the waiver-fee meets the market standards of this kind of agreement. PKN ORLEN agreed for an increase in debt margins from the day the settlements come into force. The increased debt margins do not exceed the level of 3.00 percent. Increase in debt margins is offset mainly by drop in basic interest rates. 3 PKN ORLEN has unused credit lines on the level of EUR 1 bn Debt and unused credit lines Net debt at the end of 2008 amounted to PLN 12.6 bn. Foreign debt at the end of March 2009 is not significantly different from the debt at the end of At the end of 2008 as well as at the end of March 2009 PKN ORLEN s unused credit lines were at the level of EUR 1 bn. Influence of credits revaluation Debt structure as of 31 December 2008 At the end of 2008 PKN ORLEN gross debt amounted to PLN 14 bl, in which debt in EUR and USD constituted 83%. Effect of revaluation of debt in USD, due to investment in Mazeikiu Nafta, is recorded in equity. Effect of revaluation of debt in EUR is recorded directly in the income statement. PLN; 12% CZK; 6% USD; 37% EUR; 46% 4 Acquisition of AB Mazeikiu Nafta (MN) shares from the Government of Lithuania (GOL) under terms of put option agreement Schedule of transaction signature of conditional Put Option Agreement with GOL (GOL entitled to sell PKN ORLEN its th Mazeikiu Nafta shares) acquisition of MN shares from GOL and Yukos International UK B.V after fulfilling the condition GOL notification regarding option execution settlement with GOL regarding the schedule of option execution payment of the first instalment (20% of price) payment of the second instalment, transaction completed Consequences of transaction PKN ORLEN owns shares representing 100% of Mazeikiu Nafta s registered capital and can solely make corporate decisions regarding company operations Expired are the GOL s rights to: appoint one of nine members of the Supervisory Board of MN appoint one of seven members of the Management Board of MN veto corporate decisions in MN request that PKN ORLEN sells all its shares in Mazeikiu Nafta (in certain circumstances) first refusal over MN shares Transaction parameters Shares acquired ordinary MN shares (ca 9,98% of registered capital) Price USD per one share, i.e. USD in total On 29 April 2009, as a result of realizing the put option agreement with GOL dated 9 June 2006, PKN ORLEN become the sole shareholder in Mazeikiu Nafta. 5 IAS 36 Impairment of assets International Accounting Standard (IAS) 36 impairment of assets In accordance with IAS 36 tangible assets are carried at no more than their recoverable amount, as of balance day (value higher of two: fair value or value in use). Reasons to make impairment test in PKN ORLEN in 2008: worsening of macroeconomic situation due to the world crisis decrease in crude oil prices and pressure on refining and petrochemical margins drop in the price of PKN ORLEN shares quoted on the Warsaw Stock Exchange below their book value 75 kurs akcji PKN jednostkowa wartość księgowa/1 akcję skonsolidowana wartość księgowa/1 akcję PKN ORLEN unit book value/share consolidated book value/share shares price number of shares: m liczba akcji: 427,7 mln Group capital: PLN 19.7 bn PLN 46/share kapitał Grupy : 19,7 mld PLN 46 PLN / 1 akcję PKN kapitał capital: PKN: PLN 16, mld bnpln 39 PLN / 1 akcję PLN 39/share /30/ PKN ORLEN reported results (consolidated) for 2008 are influenced by inventory allowance to the amount of PLN 2.4 bn PLN m 2008 (unaudited) Mazeikiu Nafta allowance Inventory allowance - other companies Other 2008 (audited) 2 1 Revenues EBIT Financial operating Net profit Tangible and intangible assets Net debt The main changes in relation to the data presented in 4 quarter 2008 report refer to impairment tests effects in 2008 results, conducted in accordance to IAS 36 and finished after publication of quarterly data. Inventory allowances at the level of Group results refers to tangible and intangible assets. The inventory allowance refered mainly to Mazeikiu Nafta. The inventory allowances were also made to Jedlicze Refinery, Trzebinia Refinery and Spolana. The other changes refer mainly to the update of assumed costs estimates in PKN ORLEN reported results (unconsolidated) for 2008 are influenced by inventory allowance to the amount of PLN 1.7 bn PLN m 2008 (unaudited) Mazeikiu Nafta allowance Inventory allowances - other companies Other 2008 (audited) 2 1 Revenues EBIT Financial operating Net profit Shares Net debt The main changes in relation to the data presented in 4 quarter 2008 report refer to impairment tests effects in 2008 results, conducted in accordance to IAS 36 and finished after publication of quarterly data. Inventory allowances at the level of PKN ORLEN results refer mainly to effects of impairment tests on 90% of Mazeikiu Nafta shares. The reversal of inventory allowances refers mainly to Orlen Deutschland. The other changes refer mainly to the update of assumed costs estimates in Up to now actions of profitability improvement in Mazeikiu Nafta After acquisition of Mazeikiu Nafta the Value Construction Programme (VCP) was started. The Programme was concentrated on increasing of profitability, improving operational efficiency and modernization of production units. Realization of VCP Programme brought many tangible benefits: Building of FCC Unit was finished adjustment to EU requirements regarding sulphur content in gasoline General renovation was conducted (refinery shutdown for 6 weeks in 2007) Vacuum Distillation Unit ( VDU), which was destroyed by fire in 2006, was rebuilt. New Hydrogen Unit, which will ensure necessary amount of hydrogen for modernized Fuels Desulphurization Units, was built. Modernization of two Diesel Hydrodesulphurization units was finished full production capacity of diesel with low sulphur contents (below 10 ppm) Competence in sea trading was being strengthened improvement of commercial terms thanks to elimination of non-optimal contracts with agents Operating costs reduced through employment reduction, decrease of energy intensity, reduction of own losses In years capital expenditure amounted to USD 800 m and consolidated EBITDA result USD 300 m. Result achieved by the Company was below the assumed plans, mainly due to fire on VDU column, suspension of direct crude oil deliveries by pipeline and efficiency improvements not fully achieved. 9 Further actions in value growth of Mazeikiu Nafta Recent years allowed us to gain a lot of experience and prepare a plan of further actions adjusted to the current macro situation. Initiatives targeted at improvement of financial results will be realized within the frame work of the started second phase of VCP. Efficiency improvement Optimal finish of modernisation plan Focus on logistics improvement Strengthening of segmental management, i.e. further integration of common operating actions, for example central purchasing system Full implementation of SCM (supply chain management) common process of planning in production, logistics and sales Increase of efficiency of sea sales Consistent improvement of operating ratios Capital expenditures optimization through improvement of contracting process and projects realization Projects realization among others in processing depth and light fractions yield, improvement of refining furnaces efficency, sulphur graining Preparation and carrying out of general maintenance shutdown in 2010 Access to the sea terminal Building of production pipeline Optimization of railway transport conditions Potential restart of direct deliveries by pipeline By 2012 a significant improvement of EBITDA at Mazeikiu Nafta is planned. Full potential of VCP 2 will be estimated with the current and forecasted macro situation. 10 Macroeconomic situation in 2009 Fwd Brent Ural differential Refining margin and URAL/Brent differential in 2009 Refining margin Model 2009 Variable macroeconomic environment in 2009 Stable crude oil price at the level of USD 40-50/bbl means lower cost of fuel consumed for own energy needs PLN depreciation influences positively on operating results and negatively on financial costs Ural/Brent Differential lower in1q2009 vs. 1q2008 Model refining margin is higher in 1q2009 in comparison to 1q2008 Volumes could be the significant factor for PKN ORLEN results. Our target is an increase above market average. Impact of environment on key segments in 1Q2009 REFINERY Neutral impact of total effect of differential and model refining margin in foreign currency Positive influence of higher volumes and depreciation of PLN in comparison to foreign currencies Negative impact of maintenance shutdowns and temporary technical problems PETROCHEMICALS Decrease of model petrochemical margins on olefins and polyolefins Drop in volume sales 11 Change in model margins: refining and petrochemical Starting from 2009 PKN ORLEN introduces new way of presenting model margins for PKN ORLEN Group so as to better reflect PKN ORLEN operating results in refining and petrochemical segment. Refining margin Model 2009 ` Petrochemical margin Model 2009 ` Revenues (93,5% products = 36% gasoline + 43% diesel + 14,5% HHO) - costs (100% input, i.e. crude oil and other feedstock). Total input is calculated in accordance with Brent quotations. Spot market quotations. Simplifying assumptions: 36% gasoline (simplified model) = 19,8% gasoline + 2,3% LPG + 14% naphtha 43% diesel (simplified model) = 35,4% diesel + 3,0% HHO + 3,3% JET + ca 1% oils (remaining part) 14,5% HHO (simplified model) = 7,8% HHO + 3,0% bitumen + ca. 4 % others (without oils) Revenues (98% products = 44% HDPE + 7% LDPE + 35% PP Homo + 12% PP Copo) - costs (100% input = 75% naphtha + 25% LS VGO) market quotations contract. Own consumption in model margins Model 2009 ` 12% own consumption and losses / input of crude oil - 1% change of benchmark base of own consumption and losses from the crude oil to crude oil and other feedstock = 11% own consumption and losses / total input (crude oil + other feedstock) 6,5% own technological consumption and losses ascribed to refining segment 1,0% own technological consumption and losses ascribed to petrochemical segment 3,5% consumption of own feedstock in the process of production of electric energy and steam 12 Thank you for your attention For more information on PKN ORLEN, please contact Investor Relations Department: telephone: fax Disclaimer Statement This presentation ( Presentation ) has been prepared by PKN ORLEN S.A. ( PKN ORLEN or Company ). Neither the Presentation nor any copy hereof may be copied, distributed or delivered directly or indirectly to any person for any purpose without PKN ORLEN s knowledge and consent. Copying, mailing, distribution or delivery of this Presentation to any person in some jurisdictions may be subject to certain legal restrictions, and persons who may or have received this Presentation should familiarize themselves with any such restrictions and abide by them. Failure to observe such restrictions may be deemed an infringement of applicable laws. This Presentation contains neither a complete nor a comprehensive financial or commercial analysis of PKN ORLEN and of the PKN ORLEN Group, nor does it present its position or prospects in a complete or comprehensive manner. PKN ORLEN has prepared the Presentation with due care, however certain inconsistencies or omissions might have appeared in it. Therefore it is recommended that any person who intends to undertake any investment decision regarding any security issued by PKN ORLEN or its subsidiaries shall only rely on information released as an official communication by PKN ORLEN in accordance with the legal and regulatory provisions that are binding for PKN ORLEN. The Presentation, as well as the attached slides and descriptions thereof may and do contain forward-looking statements. However, such statements must not be understood as PKN ORLEN s assurances or projections concerning future expected results of PKN ORLEN or companies of the PKN ORLEN Group. The Presentation is not and shall not be understand as a forecast of future results of PKN ORLEN as well as of the PKN ORLEN Group. It should be also noted that forward-looking statements, including statements relating to expectations regarding the future financial results give no guarantee or assurance that such results will be achieved. The Management Board s expectations are based on present knowledge, awareness and/or views of PKN ORLEN s Management Board s members and are dependent on a number of factors, which may cause that the actual results that will be achieved by PKN ORLEN may differ materially from those discussed in the document. Many such factors are beyond the present knowledge, awareness and/or control of the Company, or cannot be predicted by it. No warranties or representations can be made as to the comprehensiveness or reliability of the information contained in this Presentation. Neither PKN ORLEN nor its directors, managers, advisers or representatives of such persons shall bear any liability that might arise in connection with any use of this Presentation. Furthermore, no information contained herein constitutes an obligation or representation of PKN ORLEN, its managers or directors, its Shareholders, subsidiary undertakings, advisers or representatives of such persons. This Presentation was prepared for information purposes only and is neither a purchase or sale offer, nor a solicitation of an offer to purchase or sell any securities or financial instruments or an invitation to participate in any commercial venture. This Presentation is neither an offer nor an invitation to purchase or subscribe for any securities in any jurisdiction and no statements contained herein may serve as a basis for any agreement, commitment or investment decision, or may be relied upon in connection with any agreement, commitment or investment decision. 14
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