A N N U A L
R E P O R T
mission statement
Aiming to become the regional leader,
we ensure long-term value creation for our
shareholders by offering our customers
products and services of the highest quality.
All our operations adhere to “best practice”
principles of corporate governance
and social responsibility, with a focus on care
for our employees and the natural environment.
Credo
• Accepted corporate governance principles recommended by the Warsaw Stock Exchange.
• Joined the movement against financial corruption and embezzlement “Partnership against Corruption”. • Co-financed the purchase of an autograph of Etude cis-moll op. 10 no. 4 of Frederick Chopin and presented
it as a gift to the F. Chopin Memorial Museum in Warsaw. • Ended the sales of the U-95 universal petrol.
• Presented shareholders of PKN ORLEN with the strategy for “Building Corporate Value for the years 2005-2009”. • Granting the “Bulls and Bears” statue by the “Parkiet” stock exchange magazine for top quality investor
relations.
• Presenting the strategy for winning the regional sales leadership in the Retail Sales Development Plan in Poland for the years 2005-2009.
• Launched the process of reorganizing regional structures.
• Obtained consent of the European Commission to purchase 63% of the Unipetrol a.s. holding.
• Won the first position in the ranking of the “Parkiet” stock exchange magazine and the “Rzeczpospolita” daily – top 500 companies in Poland.
• Won for the fourth time the award of Trusted Brand, the largest European consumer opinion poll, in the “petrol station” category.
• PKN ORLEN becomes a holder of 63% shares in the Unipetrol a.s. holding, thus launching the construction of a strong regional fuel group with a big potential for value creation.
• The Supervisory Board of the Company approved the remuneration system for managerial staff of PKN ORLEN based on Management by Objectives (MBO).
• The team of Wisła Płock sponsored by PKN ORLEN won championships and the Polish Cup in handball. • Took corporate control of Unipetrol a.s. in the General Meeting of the Czech Company.
• Accepted by the General Meeting of PKN ORLEN corporate governance principles presented by the Management Board (except for rule no. 20 referring to independent members of the Supervisory Board). • Passed a decision by the General Meeting of PKN ORLEN on changing the employer structure of the Company. • The General Meeting of PKN ORLEN passed a resolution on paying a dividend, at the highest amount in the
history of the Company, of PLN 2.13 per share.
• Signed an agreement with trade unions ending a collective dispute on reorganizing the regional structures of the Company. A new regional structure was launched.
• Presented assumptions for improving cost and investment effectiveness of the ORLEN Group in the new cost containment programme called OPTIMA, aimed at 2 x PLN 600 million worth of savings.
• Obtained consent of the Czech SEC to call for shares of Unipetrol a.s., Paramo a.s. and Spolana a.s. • Sponsored the production and screening of the film “Battle for Warsaw” on 61st anniversary
of Warsaw Uprising outbreak.
• Sponsored a celebration of 25th anniversary of Solidarity held in Brussels.
• Marketed of the VERVA petrol and diesel oil of the latest generation, being an element of the premium brand of ORLEN, into the Polish market.
• The price of a PKN ORLEN share at the Warsaw Stock Exchange reached PLN 69.90, being the record price in the history of the Company.
• Presented business assumptions of investments in Unipetrol a.s. in the programme “Partnership for Central Europe”.
• Processed a jubilee – 400-million ton of oil in the Production Plant in Płock.
• Launched the modernised complex of Wytwórnia Olefin II in the Production Plant in Płock. • Granted the prestigious title of The Best Refinery 2005 in CEE to PKN ORLEN
by The World Refining Association.
• As patrons of Polish culture and sponsor of XV Chopin Contest a scholarship for Rafał Blechacz, the best Polish pianist and the winner of the contest.
• Launched new systems for polyethylene and polypropylene production by Basell Orlen Polyolefins Sp. z o.o. in Płock.
• Management Board of PKN ORLEN aproved a new organisational structure of the Company based on the segment management concept.
• Inaugurated the Academy of Business, aimed at improving management competence of the managerial staff of the Company.
• Opened the first petrol stations in the BLISKA economy brand for customers expecting good quality of fuel for a competitive price.
• Accepted the restructuring plan for ORLEN Deutschland AG.
• Successful completion of the Comprenensive Cost Cutting Programme.
• Accepted the “Code of Ethics of PKN ORLEN” containing key values and rules of conduct for employees of the Company.
2005 Calendar of Major Events
January
February
March
April
May
June
July
August
September
October
november
December
KEY FInAnCIAl FIGuRES FOR THE YEARS 2002-2005
IFRS
1) Net debt = short-term and long-term interest liabilities – (cash + short-term securities).
2) Acquisition of tangible fixed assets and intangible fixed assets.
3) Including headcount of Unipetrol a.s. as at the end of 2005 on the level of 6 534.
4) Financial leverage = net debt/equity.
5) ROACE = EBIT after tax at the applicable rate/average (equity + net debt).
Assets 14,087 14,383 15,073 17,149 20,869 33,404
Equity 7,766 8,353 8,741 9,937 13,631 19,313
Net debt (1) 2,542 2,549 2,341 2,402 478 3,285
Net operating cash flows 1,073 2,112 1,292 1,707 3,637 3,664
Investments (2) 1,459 1,533 967 1,337 1,824 2,026
Headcount in the ORLEN Group (3) 13,342 17,582 17,818 15,133 14,296 20,805
EPS 2.15 0.89 1.00 2.35 5.93 10.84
Operating cash flow per share 2.55 5.03 3.07 4.06 8.50 8.57
Assets per share 33.53 34.23 35.87 40.75 48.79 78.10
Equity per share 18.48 19.88 20.80 23.61 31.87 45.15
Financial leverage (4) 32.7% 30.5% 26.8% 24.2% 3.5% 17.0% ROACE (5) 10.8% 4.2% 4.8% 7.9% 16.5% 21.8% 2000 2001 2002 2003 2004 2005 PLN m PLN m PLN m PLN m PLN m PLN m 222 222 222 959 959 959 2,330 2,330 2,330 3,762 3,762 3,762 421 421 421 987 987 987 2,538 2,538 2,538 4,638 4,638 4,638 2002 2002 2002 200320032003 200420042004 2005*2005*2005* 500 0 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
net earnings (LIFO) net earnings (weighted average)
nET EARnInGS
IFRS, Pln m
* Consolidation of the Unipetrol a.s. result is connected with a one-off effect of recording – in 2005 – estimated surplus of the fair value of acquired assets over their acquisition price of PLN 1 894 million as other operating costs.
2000 2001 2002 2003 2004 2005 PLN m PLN m PLN m PLN m PLN m PLN m Income 18,602 17,038 16,902 24,412 30,680 41,188 EBITDA 2,335 1,706 1,891 2,503 4,037 6,728 EBIT 1,425 617 731 1,267 2,687 4,948 Net earnings 902 376 421 987 2,538 4,638
Profit of minority shareholders 23 15 29 34 55 53
• Accepted corporate governance principles recommended by the Warsaw Stock Exchange.
• Joined the movement against financial corruption and embezzlement “Partnership against Corruption”. • Co-financed the purchase of an autograph of Etude cis-moll op. 10 no. 4 of Frederick Chopin and presented
it as a gift to the F. Chopin Memorial Museum in Warsaw. • Ended the sales of the U-95 universal petrol.
• Presented shareholders of PKN ORLEN with the strategy for “Building Corporate Value for the years 2005-2009”. • Granting the “Bulls and Bears” statue by the “Parkiet” stock exchange magazine for top quality investor
relations.
• Presenting the strategy for winning the regional sales leadership in the Retail Sales Development Plan in Poland for the years 2005-2009.
• Launched the process of reorganizing regional structures.
• Obtained consent of the European Commission to purchase 63% of the Unipetrol a.s. holding.
• Won the first position in the ranking of the “Parkiet” stock exchange magazine and the “Rzeczpospolita” daily – top 500 companies in Poland.
• Won for the fourth time the award of Trusted Brand, the largest European consumer opinion poll, in the “petrol station” category.
• PKN ORLEN becomes a holder of 63% shares in the Unipetrol a.s. holding, thus launching the construction of a strong regional fuel group with a big potential for value creation.
• The Supervisory Board of the Company approved the remuneration system for managerial staff of PKN ORLEN based on Management by Objectives (MBO).
• The team of Wisła Płock sponsored by PKN ORLEN won championships and the Polish Cup in handball. • Took corporate control of Unipetrol a.s. in the General Meeting of the Czech Company.
• Accepted by the General Meeting of PKN ORLEN corporate governance principles presented by the Management Board (except for rule no. 20 referring to independent members of the Supervisory Board). • Passed a decision by the General Meeting of PKN ORLEN on changing the employer structure of the Company. • The General Meeting of PKN ORLEN passed a resolution on paying a dividend, at the highest amount in the
history of the Company, of PLN 2.13 per share.
• Signed an agreement with trade unions ending a collective dispute on reorganizing the regional structures of the Company. A new regional structure was launched.
• Presented assumptions for improving cost and investment effectiveness of the ORLEN Group in the new cost containment programme called OPTIMA, aimed at 2 x PLN 600 million worth of savings.
• Obtained consent of the Czech SEC to call for shares of Unipetrol a.s., Paramo a.s. and Spolana a.s. • Sponsored the production and screening of the film “Battle for Warsaw” on 61st anniversary
of Warsaw Uprising outbreak.
• Sponsored a celebration of 25th anniversary of Solidarity held in Brussels.
• Marketed of the VERVA petrol and diesel oil of the latest generation, being an element of the premium brand of ORLEN, into the Polish market.
• The price of a PKN ORLEN share at the Warsaw Stock Exchange reached PLN 69.90, being the record price in the history of the Company.
• Presented business assumptions of investments in Unipetrol a.s. in the programme “Partnership for Central Europe”.
• Processed a jubilee – 400-million ton of oil in the Production Plant in Płock.
• Launched the modernised complex of Wytwórnia Olefin II in the Production Plant in Płock. • Granted the prestigious title of The Best Refinery 2005 in CEE to PKN ORLEN
by The World Refining Association.
• As patrons of Polish culture and sponsor of XV Chopin Contest a scholarship for Rafał Blechacz, the best Polish pianist and the winner of the contest.
• Launched new systems for polyethylene and polypropylene production by Basell Orlen Polyolefins Sp. z o.o. in Płock.
• Management Board of PKN ORLEN aproved a new organisational structure of the Company based on the segment management concept.
• Inaugurated the Academy of Business, aimed at improving management competence of the managerial staff of the Company.
• Opened the first petrol stations in the BLISKA economy brand for customers expecting good quality of fuel for a competitive price.
• Accepted the restructuring plan for ORLEN Deutschland AG.
• Successful completion of the Comprenensive Cost Cutting Programme.
• Accepted the “Code of Ethics of PKN ORLEN” containing key values and rules of conduct for employees of the Company.
2005 Calendar of Major Events
January
February
March
April
May
June
July
August
September
October
november
December
KEY FInAnCIAl FIGuRES FOR THE YEARS 2002-2005
IFRS
1) Net debt = short-term and long-term interest liabilities – (cash + short-term securities).
2) Acquisition of tangible fixed assets and intangible fixed assets.
3) Including headcount of Unipetrol a.s. as at the end of 2005 on the level of 6 534.
4) Financial leverage = net debt/equity.
5) ROACE = EBIT after tax at the applicable rate/average (equity + net debt).
Assets 14,087 14,383 15,073 17,149 20,869 33,404
Equity 7,766 8,353 8,741 9,937 13,631 19,313
Net debt (1) 2,542 2,549 2,341 2,402 478 3,285
Net operating cash flows 1,073 2,112 1,292 1,707 3,637 3,664
Investments (2) 1,459 1,533 967 1,337 1,824 2,026
Headcount in the ORLEN Group (3) 13,342 17,582 17,818 15,133 14,296 20,805
EPS 2.15 0.89 1.00 2.35 5.93 10.84
Operating cash flow per share 2.55 5.03 3.07 4.06 8.50 8.57
Assets per share 33.53 34.23 35.87 40.75 48.79 78.10
Equity per share 18.48 19.88 20.80 23.61 31.87 45.15
Financial leverage (4) 32.7% 30.5% 26.8% 24.2% 3.5% 17.0% ROACE (5) 10.8% 4.2% 4.8% 7.9% 16.5% 21.8% 2000 2001 2002 2003 2004 2005 PLN m PLN m PLN m PLN m PLN m PLN m 222 222 222 959 959 959 2,330 2,330 2,330 3,762 3,762 3,762 421 421 421 987 987 987 2,538 2,538 2,538 4,638 4,638 4,638 2002 2002 2002 200320032003 200420042004 2005*2005*2005* 500 0 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
net earnings (LIFO) net earnings (weighted average)
nET EARnInGS
IFRS, Pln m
* Consolidation of the Unipetrol a.s. result is connected with a one-off effect of recording – in 2005 – estimated surplus of the fair value of acquired assets over their acquisition price of PLN 1 894 million as other operating costs.
2000 2001 2002 2003 2004 2005 PLN m PLN m PLN m PLN m PLN m PLN m Income 18,602 17,038 16,902 24,412 30,680 41,188 EBITDA 2,335 1,706 1,891 2,503 4,037 6,728 EBIT 1,425 617 731 1,267 2,687 4,948 Net earnings 902 376 421 987 2,538 4,638
Profit of minority shareholders 23 15 29 34 55 53
AnnuAl RepoRt
2005
You are invited to read our Annual Report. We will take you on a graphical tour of the topic of road safety. On the follo-wing pages of the report, we will tell you about ourselves – about road users and about our conduct. We all want to feel safe. We buy good cars, pay attention to their perfor- mance, thoroughly examine their accessories. Let us not forget though that it is not only technology that determines safety. Safety is about our imagination, our ability to anticipate, our responsibility. No one and nothing will ever replace us, not even electronic systems, mechanical reinforcements or legal regulations. Safety is us.
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 3 C O N TE N T S PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5 3
C O N T E N T S
page
Supervisory Board of PKN ORLEN 4
Letter from the Chairman of the Supervisory Board 5
Letter from the President of the Management Board 6
Management Board of PKN ORLEN 12
Our strategy 16
ORLEN brand 26
We are changing our company 30
Relations with outside parties 42
Retail segment 58
Wholesale segment 66
Refining segment 72
Petrochemical segment 78
Logistics 84
Integration with Unipetrol 90
ORLEN Group 96
Auditor’s opinion 116
Consolidated Financial Statements 118
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 U P E R V IS O R Y B O A R D O F P K N O R LE N PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5 D a r i u s z D ą b s k i
Chairman of the Supervisory Board A n d r z e j O l e c h o w s k i
Deputy Chairman of the Supervisory Board M a c i e j M a t a c z y ń s k i
Member of the Supervisory Board, Secretary R a i m o n d o E g g i n k
Member of the Supervisory Board Z b i g n i e w M a c i o s z e k
Member of the Supervisory Board W o j c i e c h P a w l a k
Member of the Supervisory Board
C O M P O S I T I O N O F T H E S U P E R V I S O R Y
B O A R D O F P K N O R L E N S A *
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 5 LE T TE R F R O M T H E C H A IR M A N PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5 5 The Supervisory Board exercises ongoing supervision over the Company’s operations in all areas of its activity.
Its particular competencies are defined by the Code of Commercial Companies and the Statute of PKN ORLEN. In the business area, one of the most significant events of 2005 was the publication of the strategy for “The Creation of the Company’s Value for the years 2005-2009”. It underlyingly focuses on the development of ORLEN Group in Poland, the Czech Republic and Germany, providing at the same time for the continuation of performance impro-ving programmes and the implementation of investment projects in key business areas. The Company will continue to actively participate in mergers and takeovers, and to develop competencies in the upstream business.
The Supervisory Board is happy to see a favourable change in the way PKN ORLEN is perceived by investors and customers, where such a change is a result of consistent actions serving to ensure compliance with the principles of corporate governance. The fact that in 2005 ORLEN was ranked among the group of the best companies respecting the principles of corporate governance in Poland is a confirmation of the effectiveness of measures undertaken by the Company with the Supervisory Board’s approval.
It is with great satisfaction and hope that I am witnessing commitment to the promotion of ethical behaviour in the Company. I believe that the introduction of the Code of Ethics as a signpost of honesty, reliability and good mutual relations will unite such a huge entity as PKN ORLEN.
Yet, we are not going to rest on our laurels. In 2006, we will continue to implement the adopted development strategy, put into effect new carefully analysed market ideas, not forgetting to streamline all other activities having impact on the Company’s bottom line.
Striving to achieve the maximum profitability of our operations, we will ensure effective and stable operating con -ditions for the Group and tangible benefits for the shareholders.
I would like to extend my words of gratitude to all Group employees for their great effort put into the Group’s development, and to all of you – for the trust you have placed and continue to place in the Company.
Dariusz Dąbski
Chairman of the Supervisory Board PKN ORLEN
L E T T E R F R O M T H E C H A I R M A N
O F T H E S U P E R V I S O R Y B O A R D
O F P K N O R L E N
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 LE T TE R F R O M T H E P R E S ID E N T PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5
The year 2005 was one of the most important years in the history of PKN ORLEN Capital Group. For over 14 months, we have been implementing a strategy for a two-fold increase in the Company’s value by 2009. We wish to achieve this objective by fundamentelly changing the Company’s corporate culture, modernising management methods, improving performance, and making new investments.
Proceeding with its expansion plans, on 26 May 2006 PKN ORLEN signed a contract to acquire, from Yukos Interna-tional UK B.V., a 53.7% stake in the share capital of AB Mažeikių Nafta, of Lithuania. Simultaneously, the Company initiated the process to purchase 30.66% of the MN shares owned by the Lithuanian government.
This marks Poland’s largest foreign investment ever, making ORLEN the undisputed leader in Central & Eastern Europe. The territory of the Company’s core markets, i.e. Poland, Czech Republic and Germany, will now expand to include the Baltic states – Lithuania, Latvia and Estonia – where Mažeikių Nafta satisfies a major part of the fuel demand.
Until now, the Company’s biggest foreign investment, and unprecedented in the history of the Polish economy, was the 2005 acquisition of control over the fuel & chemical holding Unipetrol a.s., the Czech Republic’s third largest company in terms of revenue.
Soon after taking over control, we took measures aimed at increasing the value of the Czech company. The Part-nership Programme implemented in Autumn 2005 covered key business and function areas and envisaged support offered by both partners. 26 teams consisting of Czech and Polish experts developed nearly 200 initiatives. The targets planned for 2005 were met, while the first outcome of the Partnership Programme was EUR 28m in extra income and savings. PKN ORLEN’s actions, as a strategic investor, were appreciated by the capital market. In the period from 24 May 2005, the day we took up shares in the Czech holding, until 31 May 2006, the value of the shares increased by 33.31%, from CZK 144.10 to CZK 192.10.
L E T T E R F R O M T H E P R E S I D E N T
O F T H E M A N A G E M E N T
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 7 LE T TE R F R O M T H E P R E S ID E N T PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5 7 Our experience in completing refinery integration and modernisation projects will help us make full use of the
restructuring possibilities and development potential of the acquired Lithuanian assets with a view to increasing the Company’s value for the shareholders.
In early 2005, PKN ORLEN adopted for implementation the strategy for “The Creation of the Company’s Value for the years 2005-2009”. Its assumptions were based on three pillars: continuation of performance enhancing mea-sures, strengthening of core operations in home markets and active searching for new development possibilities in new markets, including mergers and acquisitions.
Under the first pillar, which played a major part at an early stage of the strategy implementation, particular empha -sis was put on measures relating to the restructuring of the retail network. The Company launched a new chain of economy stations BLISKA, and also launched a new fuel brand VERVA – to be sold through ORLEN premium network. We have thoroughly reorganised regional retail sale structures by implementing a sales management programme, centralising and improving the support function, as well as streamlining employment. Thanks to decisive actions we have managed to prevent a further drop in the market share at the level of 27%. At the same time, sales of non-fuel products grew by 1.4% versus the year before, as did the number of participants in the Flota loyalty scheme – by 20%.
In Q4 2005, we also presented the assumptions of the strategy for ORLEN Deutschland AG for the years 2006-2009, based on in-depth restructuring and concurrent development of the network. We opted for the concept ensuring the fulfilment of strict economic criteria and the achievement of the adopted financial targets (ROACE of 18.4%) over the next four years. Although we approved this strategy variant for implementation, we have not ruled out the possibility of selling German assets on favourable terms.
We have completed a number of key investment projects relating to petrochemical operations, including the modernisation of the Olefins Plant II and the construction of the polyethylene and polypropylene plant at Basell Orlen Polyolefins, a company from our Capital Group. Our Production Plant processed 12.569m tonnes of crude oil – 3.1% more than in 2004. It is worth noting that in October we processed the 400 millionth tonne of crude oil, symbolising the 42 years of accomplishments of the refinery in Płock and the output of a sizeable segment of the Polish petroleum industry.
Last year, we carried out the first independent professional assessment of the Production Plant in Płock within the context of the Salomon Study. The aim of this assessment was to benchmark the refinery’s operations against competitors. PKN ORLEN was ranked among world’s best, the so-called first quartile, both in comparison with all Study participants and when benchmarked against competitors from Western Europe in the following areas: return on investment, net margin, repair index. As regards operating expenses, we were ranked in the second quartile. In other areas (utilisation of the refinery’s capacity, mechanical availability, personnel index, energy index), in com -parison with all Study participants and Western Europe, the Company was classified into the fourth quartile. This signalled the need to initiate actions aimed at improving performance in these areas.
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Last year, we started to implement new projects which will ensure continued development and further growth of the Company’s effectiveness. These include the cost optymisation programme OPTIMA, subsequent stages of the retail network development and ventures relating to the streamlining of our Capital Group’s operations, including the implementation of segment management.
The most important restructuring projects include a plan for the consolidation of “southern assets” covering Ra -fineria Jedlicze SA, ORLEN Oil Sp. z o.o., Ra-fineria Trzebinia SA and Paramo a.s. The aim of those measures is to optimise the production of oil and lubricants by those companies.
Beginning in 2005, we implemented a uniform consistent and transparent remuneration and incentive system for Members of Management Boards and managerial staff based on the MBO system (Management by Objectives). Following the example of the best corporations, we have had Shareholders Value Added (SVA) parameter calcula -ted for the entire Capital Group, the most important element of the manager assessment system. It helps to assess the performance of managerial staff as a team and motivates one to look at decisions and projects from the point of view of the entire corporation.
Within the context of the implementation of the second pillar of the strategy, over the following years we are planning to increase considerably capital expenditure, which on average will amount to PLN 3.4bn per year until 2009. The Company’s ROACE will increase above 18.5% relative to reference macroeconomic conditions prevailing in 2004. The expenditure will be targeted at ventures with high rates of return and will be spent on projects, inter alia, in the petrochemical segment – on the construction of the Paraxylene and Terephthalic Acid Plants and on increasing the capacity of the Olefin Plant in Chemopetrol. In the refining segment, investment spending will cover the following projects: Diesel Hydrodesulphurisation (HON VII), the Ostrów Wlk – Wrocław product pipeline and hydrocracker intensification in Unipetrol. Other projects include the construction, modernisation and rebranding of petrol stations in Poland and activities relating to the implementation of the restructuring plan for ORLEN Deutschland AG.
One of the most important elements of the updated strategy, making up its third pillar, is the launch of upstream operations, a move which is to prospectively ensure own material resources for the Company. By implementing these plans and extending the existing PKN ORLEN value chain to include the exploration and production sector (upstream), it will be possible to achieve a considerable increase in the Company’s value and to strengthen its competitive edge.
In 2005, even after making deductions for a one-time effect of recording the surplus of the share of the fair value of Unipetrol’s consolidated net assets over their purchase price (surplus occurred as a result of purchasing shares in Unipetrol), we still achieved record financial results. Inclusive of the surplus originating as a result of purchasing shares in Unipetrol, PKN ORLEN Capital Group generated consolidated net profit in the amount of PLN 4 ,638m. Excluding the effect of the surplus produced by purchasing shares in Unipetrol, the net profit amounted to
N A S Z E R E LA C JE Z O TO C Z E N IE M PK N O R LE N S A R A PO R T R O C Z N Y 2 0 0 5 9 LE T TE R F R O M T H E P R E S ID E N T PK N O R LE N S A A N N U A L R EP O R T 2 0 0 5 9 The growth of turnover by nearly 35% was a result of the consolidation of Unipetrol’s results from June 2005 on
-wards, higher sales and favourable market conditions for refining and petrochemical products.
The operating costs reduction programme envisaged for the years 2003-2005 ended up in a success, bringing in the total of PLN 882m in operating savings. We thus exceeded the set targets by 10%. Fixed costs in the Company (excluding Unipetrol) fell by nearly 4% versus 2004, while payroll costs fell by nearly 8% (given lower employment level).
The statement of the last year’s results shows that in 2005 PKN ORLEN recorded a 66.7% growth in effectiveness measured by EBITDA in comparison with 2004, while after deductions have been made for the effect of market conditions to make them comparable to those prevailing in 2004 and for fair value, EBITDA grew by 22.6%. There -by, the Company exceeded its commitment made to investors at the beginning of 2005, when it declared a growth of at least 14% under conditions comparable to those prevailing in 2004.
The Company reported equally good performance at the level of ROACE, which in 2005 amounted to 21.8%, and under conditions comparable to those prevailing in 2004 and net of fair value – to 14%.
Having taken account of the effects brought so far by the implemented programmes and new initiatives underta-ken in 2005, we have updated the assumptions of the Company’s strategy for the years 2006-2009. We increased our financial targets, expecting EBITDA calculated under stable macroeconomic conditions of 2004 to achieve the level of PLN 10bn in 2009. The Company’s ROACE will increase above 18.5% under stable macroeconomic con -ditions prevailing in 2004.
Updating our strategy, we also outlined the assumptions for changing the dividend disbursement policy. The change will make it possible to maintain an optimal equity structure based on the Company’s investment undertakings and possibilities, taking account of acquisitions. The basic measure to use for calculating dividend is to be “Free Cash Flow to Equity” (FCFE). Our objective will be to pay out dividend at the level of at least 50% of FCFE.
By fulfilling declared targets and undertakings in a consistent and effective manner and making ambitious assump -tions for the future, PKN ORLEN has now become the strongest Polish brand and one of the most desirable employ-ers, which, alongside financial performance, is a proof of the extent and speed of introduced changes.
This is evidenced, among other things, by the fact that in 2005 PKN ORLEN was ranked among top companies most strictly observing the principles of corporate governance recommended by the Warsaw Stock Exchange. In the ran-king prepared on the initiative of the Polish Corporate Governance Forum, the Company received the ‘A -‘ grade. We also received a special award in the annual prestigious ranking published by Gazeta Parkiet daily. The organisers recognised the top quality of investor relations presenting the Company with a special award “Bulls and Bears” 2005.
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In 2005, the Production Plant in Płock received the title of “The Best Refinery 2005 in Central and Eastern Europe” awarded by the international community in recognition of the Company’s strategy, infrastructure, technological in-novativeness and development plans. It is a distinction and honour for us. Even more so because such an acclaimed title was awarded by representatives of our industry during the eighth edition of the Central European Conference of the Refining and Petrochemical Sector.
Our active involvement in the life of the local community, including regular support for the Sports Club Wisła Płock, the Płock Industrial and Technological Park, or – through ORLEN Dar Serca Foundation – to charities reaching out to the poor is a manifestation of our responsibility for the environment in which we operate. We have also established the “Grant Fund for Płock” Foundation, whose main objective is to support NGOs from Płock.
For years, PKN ORLEN has played a role of a sponsor of cultural events and a patron of artists. In 2005, we awarded a scholarship to Rafał Blechacz, the best Polish pianist, the winner of the 15th Frederic Chopin International Piano Competition.
The year 2005 was a happy time for us not only because of financial achievements. As a starting point for all mana -gerial activities launched in Autumn 2004, we embraced depoliticization and internal restoration of our Company. Consistent changes in human resources management, the Capital Group, external and internal communications, and, first of all, embarking on a process seeking to change the corporate culture by, inter alia, implementing a simple and transparent Code of Ethics, all these developments are a notable example of combining business aims with ethical and social objectives.
Being ranked among the leading Polish companies entails responsibility. PKN ORLEN must be associated not only with good financial performance, but also with high ethical standards. For this reason, one of the priority projects seeks to change the corporate culture and implement Key Corporate Values. In order to meet the set business ob-jectives, last year we started to work on building such relations in the Company that would restore the Company’s credibility in relation to its own employees and at the same time would enhance their involvement and creativity. Last year, we focused on preparing basic documents. Following in-depth analyses, work on internal regulations and unwritten standards applicable in the Company and after numerous internal and external consultations, we have completed work on the Code of Ethics. At the same time, we worked on Key Corporate Values. Professiona-lism, honesty, persistence in pursuing objectives, co-operation, responsibility and entrepreneurship, all these are attitudes we promote. They mark not only a new corporate culture model, but also a direction of the Company’s development. It is also a declaration of what we want to be and what we are striving for.
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of the organisational structure. The general provisions of the Code constituted a point of reference for the work on PKN ORLEN’s Best Practices documents, which are our declaration – made to customers and to all partners – of measures we will undertake to achieve the highest standards of provided services and the highest quality of manufactured products.
Responsibility for ensuring compliance with the provisions of the Code of Ethics lies with the Ethics Compliance Officer. Launched in 2005, the grass-roots process seeking to elect the Officer ended in April this year with the pledge to the flag of PKN ORLEN. The election of the Ethics Compliance Officer enjoyed great popularity among the entire corporate community. Nearly 2,500 employees took part in the vote, i.e. 48% of PKN ORLEN’s workforce. The main task of the Officer and the Ethics Team supporting him or her is to shape proper relations in the Company, encourage and support measures aimed at changing the corporate culture.
We are trying to make the values and principles laid down in the Code of Ethics viable in order to ensure that our employees follow them and thus build a positive image of our Company.
Our strategy is clear: we are striving to become a better and better company. To this end, we are constantly chan-ging, searching for the best social and technological solutions.
Ladies and Gentlemen,
Summing up, I wish to thank all Employees of PKN ORLEN Capital Group for their day-to-day effort in building the value of our Company. I also wish to extend my words of thanks to the Supervisory Board for their intensive work, substantive support and trust, allowing the Management Board to carry out the Company’s mission.
I count on further support of Shareholders, the Supervisory Board and Employees, as well as continued kindness and loyalty of our Customers.
With complements
Igor Chalupec
President of the Management Board PKN ORLEN
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C O M P O S I T I O N O F T H E M A N A G E M E N T B O A R D
O F P K N O R L E N S A
P a w e ł S z y m a ń s k i Member of the Management Board Chief Financial OfficerJ a n M a c i e j e w i c z
Vice-President of the Management Board Head of Cost Management
C e z a r y S m o r s z c z e w s k i Vice-President of the Management Board Head of Capital Investment
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President of the Management Board Chief Executive Officer
W o j c i e c h H e y d e l
Vice-President of the Management Board Head of Sales
C e z a r y F i l i p o w i c z
Vice-President of the Management Board Head of Upstream & Crude Procurement
K r z y s z t o f S z w e d o w s k i Member of the Management Board Head of Organisation & Capital Group
Road
works
Road
works
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O U R S T R A T E G Y
Update of the Strategy for “ The Creation of the Company ’s Value for the year s 2006 -2009”At the beginning of 2005, we approved for implemen-tation “The Strategy for the Creation of the Company’s Value for the years 2005-2009”, which was updated in January 2006. The strategy is based on three pillars: continuation of performance enhancing measures, strengthening of core operations in home markets and active searching for new development possibilities in new markets, including mergers and acquisitions. The updated strategy provides for achieving increased financial targets in 2009. The more ambitious targets are the result of taking account of such factors as the effects of Unipetrol’s consolidation, a change in the method of consolidation of Basell Orlen Polyolefins Sp. z o.o., additional restructuring reserves, effects of the sales development plan and the implementation of the upstream programme, as well as the plan for restructuring ORLEN Deutschland AG and the OPTIMA savings programme. The changes also resulted from the inclusion in the capital expenditure plan of initia-tives such as: the diesel hydrodesulphurisation plant HON VII together with hydrogen plant, the butadiene
1) FCFE – Free Cash Flow to Equity. This will be calculated by adjusting net profit and depreciation for capital expenditure, change in the value of net work -ing capital and change in the level of loans. PKN ORLEN will seek to pay out dividend at the level of at least 50% FCFE, while maintain-ing the optimum capital structure and taking account of plans and investment possibilities in the area of mergers and acquisitions.
2) Additional important financial and operational information: • Relative to macroeconomic conditions prevailing in 2004. • All financial data pertain to ORLEN Group according to IFRS
• Based on macroeconomic assumptions for 2009: Brent crude oil price 29.6 USD/bbl, Brent-Ural spread 2.95 USD/bbl, Rotterdam refining margin 4.46 USD/bbl, PLN/EUR 4.10, PLN/USD 3.38
• Based on macroeconomic assumptions for 2004: Brent crude oil price 38.3 USD/bbl, Brent-Ural spread 4.1 USD/bbl, Rotterdam refining margin 5.6 USD/bbl, PLN/EUR 4.52, PLN/USD 3.65
• Deprecation (annual average 2005-09) PLN 2.0bn; for PKN ORLEN (parent company) CAPEX and depreciation (annual average 2005-09) respectively at the level of PLN 2.1bn and PLN 1.1bn, does not include potential capital expenditure incurred in the M&A process
3) EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization 4) CAPEX – Capital Expenditures
5) ROACE – Returns on Average Capital Employed
production plant, the paraxylene (PX) plant and the terephthalic acid (PTA) plant.
Together with the update of the strategy, the Mana-gement Board of PKN ORLEN presented a draft poli-cy for disbursement of dividend, which is to amount to the minimum of 50% of free cash flow to equity (FCFE) (1).
Financial targets to be achieved in 2009(2) according to
the updated strategy:
•EBITDA (3) PLN 10bn
•CAPEX (4) annual average 2006–2009 PLN 3.4bn
•ROACE (5) 18.5%
•Financial leverage 30% – 40%
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Improvement of ef ficienc y and
investments as a par t of organic grow th During the first stage of the implementation of PKN ORLEN’s strategy we focused on improving the effi -ciency and organic growth. This way, we have ma-naged to carry out, as a priority, many undertakings from this area, including in particular:
• change in corporate culture,
• restructuring of ORLEN Group and implementation of segment management,
• restructuring and optimisation of the retail network,
• implementation of a new cost optimisation programme OPTIMA,
• successful integration of Unipetrol a.s.,
• implementation of ORLEN Deutschland AG development plan,
• completion of investment projects with high rates of return in key areas of activity.
In accordance with the best world standards, we have implemented a new management methodology ba-sed on segment management in ORLEN Group, which from 2007 will also cover Unipetrol Group. We have improved external and internal communications. A new performance-linked staff assessment and moti-vation system has been put in place.
Striving to attain the set goals, we have prepared and implemented a retail sales development plan, closely following recent changes shaping the Polish fuel mar-ket. These changes brought about a clear-cut division of the market according to customer needs criteria. In
consequence, this generated demand for two types of petrol stations: high standard stations and lower, economy standard stations.
In order to strengthen competitiveness and operatio-nal efficiency of the retail network, we have imple -mented a strategy for two brands: a premium seg-ment under ORLEN brand and economy segseg-ment under BLISKA brand. This allowed for alternative posi-tioning of the customer offer. The premium segment represents a high standard of services, competitive and diversified product offerings and a wide range of non-fuel products. By assumption, the economy seg-ment competes on prices with minimum outlays and costs allowing for optimisation of the retail margin. It is planned that by the end of 2009, the Company’s chain of stations will have included approx. 1000 sta-tions operating under ORLEN brand and approx. 900 stations operating under BLISKA brand.
As a result of the implementation of the 2005 invest-ment plan, the retail network was expanded to include 40 new petrol stations, while 64 outlets were modernised.
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In September 2005, responding to market needs, we developed and launched the sale of new VERVA fuels offering superior quality. Over the first months follo -wing the launch, sales of VERVA fuels have exceeded the planned targets by some 10%.
Further actions relating to the restructuring of the retail network will seek to implement strategic guide-lines for the retail division, i.e.:
• market share at the level of 30% (including 35% share in the fuel market),
• annual volume of retail sales - 4.9bn litres per year,
• annual average sales of fuels to CODO (6) stations
– 2.5m litres per year,
• share of margin on non-fuel products in the total retail margin – 30%.
As a part of measures aimed at improving the efficien -cy, we are continuing to implement savings program-mes. In 2005, the Comprehensive Operating Costs Reduction Programme (KPRKO) ended up in a success, brining in PLN 882m in savings, thus exceeding the programme’s target by over 10%. Presently, we have launched a new optimisation programme OPTIMA envisaging the reduction of operating costs and capi-tal expenditure by further 2 x PLN 600m, respectively. The new programme is being implemented through measures such as centralised procurement, the pro-duction assets efficiency improvement programme, the lowering of retail network operating costs and the introduction of service centres for the entire ORLEN Group.
In 2005, one of PKN ORLEN’s priorities was integra-tion with the Czech holding Unipetrol a.s. The imple-mentation of the Partnership Programme developed as a part of the integration process generates extra
PKN ORLEN and Unipetrol are involved in the work of interdisciplinary teams virtually in all areas of the Company’s activity. The programme has identi-fied PKN ORLEN’s potential for generating synergy which is estimated at over PLN 157m, of which about PLN 90m is already achievable in 2006.
As a result of streamlining and aligning Unipetrol’s operations with ORLEN Group companies, by 2008 Unipetrol’s EBITDA will have increased by at least EUR 138m (based on macroeconomic indicators prevailing in 2004).
Following a thorough analysis of different options, we have made a choice and started to implement a restructuring plan for ORLEN Deutschland AG, a company managing the Company’s German assets. As a part of ORLEN Group restructuring, we are plan-ning to continue to sell non-core assets, including Polkomtel’s shares. PKN ORLEN is going to sell the shares in Polkomtel in accordance with the adopted strategy. In the wake of ownership changes, TDC Mo-bile International A/S has offered to sell a block of Polkomtel’s shares to other shareholders. PKN ORLEN has signed an agreement with the Polish shareholders providing, inter alia, for taking joint action with a view to selling all shares held in Polkomtel.
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Searching for new development possibilities in new areas and markets
The Company’s updated strategy envisages that over the following years, more emphasis will be put on non-organic development. We are going to actively participate in mergers and acquisitions, although the number of potential targets is limited due to progres-sing consolidation in the industry. The Company will turn its attention to the markets of Central, Eastern and Southern Europe. We will implement investment projects and make acquisitions forming the basis for the growth of value, only if strict investment assess-ment criteria are fulfilled.
Equit y investments
In 2005, within the context of the implementation of the strategy for the development of operations in new markets with a considerable growth potential, we continued to look for new attractive investment targets in the field of refining assets.
The Company was actively involved in the process of privatisation of the Turkish refining company TÜPRAŞ (Türkiye Petrol Rafinerileri AS). Having thoroughly Strengthening of core operations
in home markets
Performance enhancing measures undertaken in 2005 were accompanied by development projects. After modernisation, we opened Olefins Plant II, thus doubling ethylene and propylene production capa-city. In Basell Orlen Polyolefins, a new polyolefins production plant was opened, having the total pro-duction capacity of over 700,000 tonnes per year. We have modernised the Aromatics Extraction plant, which allowed for the optimisation of aromatic fraction management. Another project in the pipe-line in this field is the construction of the paraxylene and terephthalic acid plants. At present, the constru-ction of the FCC Naphtha Desulphurisation plant is underway. In 2005, we also started work on the mo-dernisation of HON VI plant. Financial estimates put capital expenditure until 2009 at PLN 13,6 bln. In the Czech market, our priority is to put the assets portfolio in order and sort out all disputes arising from agreements entered into by the previous Ma-nagement Board. We will also seek greater influence in the key Unipetrol Group company - Česka Rafiner -ska. We are considering purchasing additional logi-stic assets in order to strengthen our position in the Czech market.
In the Polish market, we will focus on the continua-tion of investments in the retail sales segment in or-der to streamline the network and increase sales per station. In the Czech market, we are going to take advantage of the production opportunity to increase the scale of operations in the retail segment.
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analysed the company’s situation and the transaction terms during the final auction stage of the bid, the Company decided not to raise its binding price bid, finding the higher price bracket to be unattractive from the point of view of the expected return on in-vestment and the creation of value for shareholders. In September 2005, PKN ORLEN was invited by Yukos International UK B.V. to participate in a bid to buy a block of 53.7% shares in the Lithuanian refinery AB Mažeikių Nafta. After long months of efforts, inten -sive negotiations and talks held concurrently with the two largest shareholders, i.e. the Lithuanian govern-ment and Yukos, on 26 May 2006 PKN ORLEN and Yukos International UK B.V. finalised the bidding by signing a contract to sell a 53.7% stake in the share ca -pital of AB Mažeikių Nafta to the Polish Company. At the same time, the Management Board of PKN ORLEN signed and delivered to the Lithuanian government a complete set of documents containing an agreement for the purchase of 30.66% of shares – the block owned by the Lithuanian government.
The value of the ORLEN - Yukos contract reached USD 1,492m, while the transaction with the Lithuanian go-vernment is worth USD 852m.
PKN ORLEN will finalise the deal with its own funds as well as with the existing and newly-secured cre-dit lines. The key new sources of funds will include: a loan to be subsequently refinanced with the funds obtained through an issue of bonds in the Polish and European markets, and a new bank credit.
Mažeikių Nafta is the only refinery in the Baltic States to rely on extensive exports to Western Europe and the USA. Its annual throughput capacity stands at 10 million tonnes of oil. The company also owns and
operates a pipeline system to transport petroleum and refinery products in Lithuania and an export & import cargo handling terminal on the Baltic Sea (the Butinga Sea Terminal). It also owns a small network of 27 retail stations, which forms the basis for expan -ding the retail segment.
The inclusion of Mažeikių Nafta in ORLEN Group of -fers great opportunities, e.g. possible synergies in such areas as joint oil purchases, margin and cost op-timisation, and sales activities. Development of retail sales and petrochemical production is also planned. The investment programme adopted by ORLEN for Mažeikių Nafta requires expenditures of USD 720-950m within the next 5 years. Under the programme approx. USD 228m will be earmarked for investments to improve the fuel quality and make adjustments to the environment protection regulations. Approx. USD 212 m will be spent on modernisation of installations to process heavy crude oil fractions, USD 55m will be invested in the Klaipeda product pipeline, while ap-prox. USD 45m will be expended for increasing the throughput capacity of the existing installations up to 11 million tonnes per year. PKN ORLEN will also
EBITDA 2009 (1) EBITDA 2009 (as of Febuary 2005) EBITDA 2009 (as of January 2006) OPTIMA Other initiatives,
additional investments and efficiency 10.0 7.9 0.6 1.5 0 2 4 6 8 10 PLN m
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Crude oil exploration and produc tion (Upstream)
A follow-up to the Company’s updated strategy is a plan for expanding upstream business in order to se-cure own material resources in the long-term, achieve a growth of the Company’s value and strengthen its competitive edge. The primary reason for entering the crude oil exploration and production sector is the po-ssibility of generating sizable income from the invest-ment and ensuring economically viable supplies from different geographic locations in the long term. By di-versifying supplies, PKN ORLEN becomes an inherent part of Poland’s energy security policy. The program-me for developing upstream operations provides for a gradual establishment of organisational structures in this area. The first stage of the programme envi -sages building competencies on the basis of isolated transactions involving the purchase of assets, in par-consider construction of a polypropylene production
block for approx. USD 230m providing that this in-vestment is economically feasible. Thanks to the said programme, Mažeikių Nafta will raise its fuel quality, ensure the fuel compliance with ecological standards, increase the plant’s operating efficiency and largely improve its economic performance.
Combining the resources and potential of the two partners, i.e. PKN ORLEN Capital Group and AB Mažeikių Nafta, will allow to build the largest fuel concern in Central & Eastern Europe in terms of the key parameters that determine a company’s position in the sector, such as: the volume of crude oil proces-sing, number of fuel stations and level of revenue. In 2006, we are planning to look for other investment opportunities in the crude oil processing sector. Also envisaged are the first initiatives relating to the bui -lding of competencies and the Company’s presence in foreign markets in the crude oil exploration and production sector. The plans for 2006 also provide for investments in the domestic market. Slated for imple-mentation is, inter alia, a project seeking to establish a company manufacturing ethyl benzene, jointly with Chemical Company Dwory SA.
What gives PKN ORLEN a strong competitive edge is its long-term development of petrochemical ope-rations discussed in the updated strategy. Positive macroeconomic trends and consumption forecasts for this segment, coupled with the integration of our petrochemical and refining operations constitute an essential element of our competitive advantage.
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ticular in countries such as Kazakhstan, Russia or Iraq. During this period, acquisitions will target assets with low risk profile, with preference given to projects im -plemented as joint ventures. At this stage, PKN ORLEN intends to purchase minority stake without assuming the role of an operator and instead taking advantage of partners’ competencies. The second stage of the programme provides for a gradual assumption of the role of an operator and engagement in the explora-tion of new deposits, including the development of
(milion tonnes) 0 5 10 15 20 25 30 2007 2010 2015 3.2 7.6 27.7 Reserves 0 5 10 15 20 25 2007 2010 2015 0.4 1.2 4.3 17.6 19.3 20.9 Production Processing
Planned production and expected processing of crude oil
(million tonnes per year) Reserves
technical skills and the construction of organisational structures making use of local human resources.
Objec tives under the upstream opera-tions development programme in PK N ORLEN
Crude oil production volume targets envisage a gra-dual increase in the volume of the raw material from 0.4m tonnes in 2007 to 4.3m tonnes in 2015. Invest -ment outlays required to imple-ment the programme are estimated at USD 130m per year between 2007-2009, and at USD 438m annually for another five years thereafter.
Should a particularly attractive opportunity come up in the upstream sector, which will meet the set boun-dary conditions, we will allow for speeding up of the implementation of our strategy for this segment.
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PKN ORLEN IN THE C APITAL
MARKET
PKN ORLEN’s shares are listed on the Warsaw Stock Exchange and as Global Depositary Receipts (GDR) on the London Stock Exchange. Depositary receipts are also traded in the USA on the OTC market. PKN ORLEN’s shares were quoted for the first time in No -vember 1999. The share capital of the Company is divided into 427,709,061 ordinary bearer shares with the nominal value of PLN 1.25 each.
The depositary of the Company’s depository receipts is the Bank of New York. A trading unit on the London Stock Exchange is 1 GDR representing two shares in the company.
PKN ORLEN’s share price (WSE)
Shareholding structure as at 31.12.2005
* Percentage share held in the share capital of PKN ORLEN by the above-mentioned shareholders corresponds to the percentage share in the voting rights at the General Meeting of PKN ORLEN
Wspólna
droga
Common
Way
Common
Way
GRUPA ORLEN
Wspólna
droga
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O R L E N B R A N D
ORLEN brand has been present on the market for six years and during this time has attained the status of one of the most valuable Polish brands.
At present, in order to ensure consistent corpora-te identity of companies belonging to the holding, 29 subsidiaries use ORLEN designation in their na-mes, while 9 associated companies use the words “ORLEN Group” as a part of their own designations. By adopting such a solution, ORLEN brand has beco-me an elebeco-ment of the image of individual companies and their products. The Company’s pride is its chain of petrol stations operated under ORLEN brand. Apart from building new locations, over the recent years we have also rebranded selected CPN and Petrochemia Płock petrol stations. The outlets were given a new visual identity and standards consistent with the re-quirements attached to ORLEN brand. Currently, PKN ORLEN has nearly 2,700 petrol stations in Poland, Germany and the Czech Republic.
Also carrying ORLEN logo are engine oils and opera-ting fluids, car lubricants, car cosmetics and a wide range of car chemical products.
Continual growth of the brand’s value is an essential element of creating value of the entire holding and this aspect is an inseparable element of all measures planned and implemented by us.
We are doing it with ever greater care the more so that one of the major problems we had to face in late 2004 and early 2005 was a crisis of the Company’s image sparked off primarily as a fall-out of the activity of the Parliamentary Investigation Committee, popu-larly known as “ORLEN Committee”. Even though ac -cusations appearing in the media were not levelled at the Company itself, but only at people working in its environment, this information still had a considerable negative impact on the Company’s image.
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many occasions the Company took measures aimed at neutralising the negative impact of the Committee’s work on its own image and its brand image, inter alia, by making an appeal requesting that the common and misleading name “ORLEN Committee” be no longer used. We addressed an open letter to the mass media and the general public asking them not to overuse the Company’s name in the context of the Committee’s po-litical actions. As a counterbalance to communications relating to the Investigation Committee, we openly communicated the findings of audits and inspections and information about “self-cleansing” of the Company. We also approached the media directly offering expert assistance with clearing up all irregularities and doubts. The Company quickly and decisively responded to unfa-vourable groundless media reports, originating from the work of the Committee by placing disclaimers, making statements and engaging in polemics.
An image survey conducted in 2005 showed that the adopted own value creation strategy and honest communication of the results of the strategy helped to achieve the desired result.
A tangible result of the strategy was a growth of the value of ORLEN brand. In the ranking published by Rzeczpospolita daily and prepared in collaboration with Ernst & Young and AC Nielsen in 2005, ORLEN brand was valued at PLN 1,961.5m and ranked second according to value. In comparison with the results of the same ranking published in 2004, the estimated value of the brand rose by PLN 374.5m.
The position of ORLEN brand was further consolida-ted by the award in 2005 of the marketing Oscar. The Independent Brand Council, comprising leading figu -res from the Polish marketing community awarded to PKN ORLEN the title of Superbrands Polska in the Automotive Industry category.
ORLEN brand is also highly recognisable and liked by Polish customers.
In 2005, we received the title of the Trusted Brand in the most extensive European consumer survey carried out by Reader’s Digest publishing house. The success is even greater as ORLEN received the gold statuette in the “petrol stations” category already for the fourth time. This title is a token of trust which customers place in ORLEN brand, but at the same time it is an obligation to maintain the highest quality of products and services offered by our petrol stations.
ORLEN brand has great worth to us and is a source of great pride. We take care of its image and credibility. Even though it has been present on the market for relatively short time, it stands now in Poland for world class products and the model expansive enterprise.
