Debica, October 31, 2008 - The net profit of TC Debica SA increased over 62 percent y/y while operating profit was higher by PLN 8.6 M in Q3 2008. Such performance, consistent optimization of the output level and the effects of the agreement between Tire Company Dębica S.A. and Goodyear Tire & Rubber Company enabled the largest tire maker in Poland to maintain net profit forecast of PLN 90 million for 2008.

Despite the further deteriorating economic situation in the tire business and shrinking demand in the European markets, T.C. Dębica S.A. generated in Q3 2008 sales revenues at the level of PLN 402.3 million which was up by 3.5 percent compared to the same period of the previous year. As opposed to 2007 the total net profit after 9 months of 2008 amounted to PLN 49.6 million, up by 16.6 percent. Net profit in Q3 totaled PLN 6.7 million, +62% y/y.

The Company’s operating profit in Q3 reached 13,6 Mln, almost tripling y/y thanks to the gross profit from sales to related entities, which was up by PLN 16.2 million. In Q3 2008 it amounted to PLN 32.2 million, mainly thanks to the application of a principle of leveling off margin on sales to related entities within the Goodyear Group. In Q3 of the current year the revenues from this source amounted to PLN 30.4 million. Compared to Q3 of the last year the gross margin rose from 4.8 to 9 percent, which allowed to offset the negative impact of Polish currency appreciation on the sales revenues from related entities.

In Q3 2008 the value of export sales of Tire Company Dębica S.A. amounted to PLN 307 million, of which 99.5 percent was realized with the related entities within Goodyear Group. The domestic sales reached PLN 95.3 million, whereas 55.5 of domestic sales was to a related entity, viz. Goodyear Dunlop Tires Polska.

In Q3 of the current year gross profit from the sales to related entities amounted to PLN 32.2 million i.e. it was up by PLN 16.2 million compared to Q3 of the last year. Gross sales margin rose from 4.8 percent to 9.0 percent. Compared to the same period in 2007, the gross profit from the sales to non-related entities in Q3 of current year was down by PLN 6 million, reaching PLN 7.7 million. It was driven by the sales lower by 10.2 percent in volume terms and margin down by 7.5 percentage points.

Gross profit from total sales reached PLN 39.9 million i.e. it was up by PLN 10.3 million (34.6 percent) compared to Q3 2007.

The unit production costs were only up by 6.6 percent, which should be considered as good result, given more than 22 percent increase of domestic production costs in Q3 of this year. In this period the Polish currency strongly appreciated against US dollar and euro, which reduced the purchasing cost of imported raw materials. Other operating costs were up by PLN 1 million, whereas costs of sales and general management were up by PLN 600 thousand. It was driven by, among others, inventive marketing efforts, necessary in the ever-increasing competition in the tire market.

In Q3 this year the Company assets, compared to the previous quarter, rose by PLN 33.9 million, mainly in the category of tangible fixed assets, which rose by PLN 28.9 million in relation to the ongoing investment projects. Cash assets and short-term financial assets were down by PLN 8.8 million. Inventory and receivables rose by PLN 11.2 million, whereas other assets were up by PLN 2.6 million.

In Q3 of this year the costs of non-financial asset revaluation (fixed assets amounting to PLN 2.5 million and inventory amounting to PLN 2.1 million) were up by PLN 4.6 million, whereas restructuring costs were down by PLN 3.1 million. Other operating costs were down by PLN 0.5 million. Consequently in Q3 of this year the other operating net income was a loss amounting to PLN 5.0 million and was down by PLN 1.0 million compared to Q3 of the last year.

A strong rising trend of external funding costs was the reason why loan interest expense amounted to PLN 2.7 million i.e. up by PLN 2.1 million, whereas the bill of exchange discount expense amounted to PLN 1.5 million i.e. up by PLN 0.7 million than in Q3 2007.

In Q3 2008 the gross profit amounted to PLN 8.4 million and was up by PLN 3.2 million i.e. by 61.2 percent compared to the same quarter of the previous year.

The revaluation of pricing of embedded derivatives generated costs amounting to PLN 2,3 M, whereas in Q3 of the previous year generated revenues amounting to PLN 0.7 million. Once per month the Company revaluates the embedded derivatives, which include euro and US dollar exchange rates applied in long-term lease contracts for equipment and machinery and real estate. The foreign exchange gains amounted to PLN 1.5 million i.e. they were up by PLN 0.5 million. Given the aforementioned drivers, the net financial income was negative and amounted to PLN 5.2 million, and it was down by PLN 5.4 million compared to Q3 2007.

The operational activities generated positive cash flows amounting to PLN 2.5 million. The capital expenditures amounted to PLN 23.1 million, whereas the dividend payment to shareholders for the year 2007 amounted to PLN 29.0 million. The interest expense was PLN 2.8 million, whereas the repayment of lease installments amounted to PLN 0.5 million. The financial cash flows amounted to PLN 13.0 million and were due to higher lending amounting to PLN 65.8 million.