Puławy, February 3th 2009

Press Release

Company’s Financial Performance Better than Expected

After two quarters of the financial year 2008/2009, Zakłady Azotowe Puławy S.A. posted very good financial results, showing an improvement on its performance in the corresponding period of the previous year. The operating profit reached nearly PLN 258m, up by 103% on the previous year.
The Company earned nearly PLN 147m, almost PLN 17m more than in the corresponding period of the previous year. ZA Puławy S.A. recorded EBITDA of PLN 291.4m, up by 80%, and its sales revenue exceeded PLN 1.2bn, up by 7%.
The performance in the first two quarters of the current financial year reached record-high levels, despite the fact that the results in October–December 2008 remained unchanged from the corresponding period of 2007. It needs to be noted that in Q2 of the financial year 2008/09, the Company outperformed the market expectations: according to consensus analysts’ forecasts, the average net profit, operating profit and EBITDA were estimated at PLN –62.9m, PLN 53.6m at PLN 65m respectively, whereas the actual results were PLN –10.2m, PLN 72.9m and PLN 90m respectively.
“The global economic crisis and reduced gas supplies had no effect on the Company’s strong fundamentals in production and sales. We continue implementing the investment projects aimed at expanding our production capacities. We are also in the process of preparing new, major projects with a view to improving the supply of key materials to the Company. In addition, to generate cost efficiencies, we are reviewing our technological and production capacities and the consumption of feedstock and utilities in our installations. We are analysing the possibilities to reduce the costs of their operation,” says Mr Paweł Jarczewski, President of the Management Board of ZA Puławy S.A.
Last quarter, the Company entered into a strategic agreement with Lubelski Węgiel Bogdanka S.A. regarding implementation of projects involving the use of hard coal. In December, ZA Puławy S.A. executed an agreement with Vattenfall Poland concerning construction of a conventional power plant with a capacity in excess of 1,400 MW. In January 2009, the Company entered into an agreement with Polskie Górnictwo Naftowe i Gazownictwo S.A. regarding joint implementation of investment projects involving the use of natural gas.
Work on the Coal Gasification project is in progress, with the feasibility study (prepared by American company BECHTEL) due to be completed within the next few days.

Situation in the Fertilisers Market
In the last months of 2008, the falling prices of urea in the global markets put a downward pressure on the prices of other nitrogen fertilisers. Limited access to credit facilities, due to the intensifying financial crisis, and the accumulated stock of fertilisers and crops, reduced the purchasing power. In October and November, all European producers either cut their production of fertilisers or temporarily shut down their production facilities. However, we can see that the situation on the global markets is gradually improving. Urea prices will no longer fall as the farming season starts in February 2009 and other market segments increase their urea consumption. Another positive factor is that according to the Polish Agency for Restructuring and Modernization of Agriculture (ARiMR), the planned subsidies will be distributed to Polish farmers by the end of March 2009, which means they will have more funds at their disposal.

Situation in the Chemicals Market
Q2 2008/2009 was beneficial for the producers of melamine in Poland and in Europe. In October and November 2008, the demand on the market remained steady. The Christmas and New Year were traditionally seasons of less intense activity on the melamine market.
In connection with the introduction of the new EURO 5 emission standard in October 2008, the demand for AdBlue is expected to continue growing. Having completed its investment project, Zakłady Azotowe Puławy S.A. increased AdBlue production from 30 thousand tonnes to 100 thousand tonnes annually, strengthening its leading position among the producers of this chemical in Central Europe.
Q4 2008 saw a slow down of the Chinese economy, which is the largest consumer of caprolactam in the world. The demand from the car and textile industries decreased on the back of the financial crisis.
Throughout 2008, global consumption of caprolactam was 2%–3% lower than in 2007. However, the structural fundamentals of the chemicals market are solid.