Commentary to 2005 consolidated financial results of Unipetrol a.s.

During 2005 the company achieved revenues from sales of 80 946 m CZK, excluding excise tax in the amount of 19 508 m CZK. The number, which is higher by 14% than the one reached during 2004, is the consequence of not only high products prices resulting from crude oil price increase but also of higher quantity of refinery products sold. Crude oil processed in UNIPETROL Group (100% PARAMO Refinery and 51% CESKA RAFINERSKA) reached the number of 4 151 thou. tons and increased by 11,6% in comparison to 2004. Refining utilization ratio reached the level of 81% and was kept at this high level in 3rd and 4th quarters of last year. Consolidated net profit of UNIPETROL for the whole year 2005 reached the level of 3 407 m CZK which is 8% lower than 2004. Although there was a good market situation in Czech Republic in 2005, benefiting prices and margins for petrochemicals produced within the UNIPETROL Group, consolidated results are lower than in previous year. The main reason was a drop in financial results of BENZINA and PARAMO. There was also a negative impact on consolidated results because of the break down of the Fluid Catalyst Cracker (FFC) in the Kralupy site. Consolidated EBIT in 2005 reached the level of 5 279 m CZK in comparison to the last year figure of 5 846 m CZK. Net debt of UNIPETROL in consolidated financial statements for 2005 reached the level of 11 963 m CZK in comparison to 17 336 m CZK in the previous year. The company also decreased its financial costs to 938 m CZK in 2005 from 989 m CZK in previous year. In 2005 the company faced a serious problem related to its shareholdings in ALIACHEM a.s. and AGROBOHEMIE a.s., the companies which are subject to the sale and purchase agreements between UNIPETROL a.s. and DEZA a.s. Due to the fact that there is a court proceeding performed over the above issues for claims the validity of the agreements - the Board of Directors of UNIPETROL a.s. observes a risk associated with a potentially unfavourable court verdict for UNIPETROL a.s. The above stated circumstances can have a significant negative impact on the value of UNIPETROL a.s.’ shares in ALIACHEM, a.s. and AGROBOHEMIE, a.s. However, having in mind the two facts: i) uncertainty about future result of the court proceeding and ii) difficulties with determination of fair value of these shares, no impairment charge has been established in respect of these shares and no provision for penalties has been established. The Board of Directors of UNIPETROL, a.s. believes, however, that given the above circumstances, the fair value of UNIPETROL, a.s. shareholdings in both companies is likely to be lower than their current book value in the consolidated financial statements of UNIPETROL, a.s. which amounts to 3.7 bn CZK.

Financial Results of Subsidiaries

UNIPETROL RAFINÉRIE, a.s.

The company UNIPETROL RAFINÉRIE which manages of 51% of CESKA RAFINERSKA production capacity made in 2005 a net profit of 578 m CZK. The achieved result was lower by 483 m CZK than in 2004. The main reason was a drop down in the average UNIPETROL RAFINÉRIE’s refinery margin. This was caused by specific product mix which depends on fulfilling the needs of other downstream companies within UNIPETROL Group (i.e. higher participation of feedstock for Ethylene Unit in CHEMOPETROL in UNIPETROL RAFINERIE production outcome). Because of this fact UNIPETROL RAFINÉRIE, a.s. can not be in direct way compared with other more “typical” refinery. Negative impacts on the achieved result were caused by the unit break down of the Fluid Catalyst Cracker (FFC) in the Kralupy site in Q2 2005 and the time shift of price formula in the contract for raw materials between UNIPETROL RAFINÉRIE and CHEMOPETROL. Moreover, accounting revaluation of IKL first filling had another negative impact about -300 m CZK during year 2005. Crude oil processing in 2005 was equal to 3,516.3 thou. tons which is 15.6% higher than in 2004. Simultaneously, 16.3% increase of sold volume was achieved thanks to closer cooperation with PKN ORLEN S.A.

PARAMO, a.s.

In 2005 the company generated a loss after tax of 207 m CZK compared to 2004 profit of 209 m CZK. Revenues from the sales of own products and services grew by 1 936 m CZK over 2004 and reached the level of 11 073 m CZK. Crude oil processing in 2005 was equal to 635 thou. tons it is lower by 6.3% than in 2004, simultaneously the total volume of PARAMO’s sales drop down by 6.6% This year results were caused by the fact that PARAMO a.s is a refinery, which does not perform a deep crude oil processing. PARAMO’s production is focused on dark products: lubricants and bitumens, in respect of which the company was not able to pass the increasing crude oil prices to the prices of its final products. It derives from the fact that the maximum substitution level on the market has been reached. In such a situation oils and asphalts may be substituted by other products, which prices are not dependent on the crude oil price (in terms of oils, the substitute is synthetic oil; in respect to asphalts it can be replaced by concrete, etc.). It is not possible to estimate the future time horizon of this adverse development and actual market conditions. The PARAMO’s Board of Directors systematically analyses actual and potential future market developments to dynamically react to changes and to prepare an adequate strategic plan of activities. This strategy has not yet been finalized and, consequently, impairment charges reported in the financial statements of PARAMO, a.s. may change in the near future based on the final strategy adopted by the Board of Directors.

BENZINA a.s.

During the majority of the year 2005 a trend of increase of fuels’ purchase and sale prices was noted, which negatively affected the results of BENZINA. The company was not able to reach the planned margins. In 2005 BENZINA reported a loss in amount of -499 m CZK in comparison with -1 m CZK in 2004. Negative impact on profit in 2005 was caused especially by creation of impairment for unprofitable filling stations and reserves for financial investments – BENZINA Trade (- 333,8 m CZK total), fail of budgeted margin (-315 m CZK). Total sales including sales of own services in 2005 reached the level of 11 426 m CZK. Volumes of fuel sold on filling stations in 2005 (446 162 thou. litres) were similar to last year figures. In 2004 volumes of fuel sold on filling stations were 446 010 thou. litres. In an area of restructuring and reorganizing the operational activity within the UNIPETROL Group in 2005 BENZINA sold its wholesale business to UNIPETROL RAFINERIE, what had a positive influence of company’s financial result (+268 m CZK). In the second half of the year 2005 BENZINA introduced a cost cutting program and reorganized its non-fuel business. The company prepared liquidation of its subsidiary BENZINA Trade. At the end of the year 2005, the sole shareholder of BENZINA increased the equity of the company by 1 299 m CZK. The funds from the capital increase strengthened the financial position of the company and allowed BENZINA to reorganize its liabilities.

CEMOPETROL, a.s.

According to the non-audited results CHEMOPETROL, a.s. reached a profit after tax of 2 616 m CZK, which is the best CHEMOPETROL´s result in the past decade. In 2004 the company registered profit after tax of 1 946 m CZK, which means an improvement of 34% year over year. This result was achieved even while the prices of raw material for petrochemical production significantly grow up. Positive impact on the achieved result had also a time shift of price formula in contract for refinery products between CHEMOPETROL a.s. and UNIPETROL RAFINÉRIE a.s. (A time shift of price formula in a period of raw materials increase influences very positively the company’s results). Simultaneously, prices increase of petrochemical products, made possible keep the margins of CHEMOPETROL’s products at the favourable level, similar like it was in the 2004. Production of all units was stable. Total revenues from sales of own products and services is equal to 31 181 m CZK CZK, which is an increase of 2 282 m CZK as against the same period of the last year (i.e. 7%). The year 2005 brought another positive result: the company managed to ensure cheaper company financing and thereby reduced financial costs. The positive influence on the company’s EBIT had also a sale of the emission allowences.

KAUCUK, a.s. 

In 2005 the company generated net profit of 439 m CZK, which was 58% better than in previous year. The revenues from sales of 10 395 m CZK were higher than 2004 by 2%. The increase in revenues was mainly thanks to the increase in prices of petrochemical commodities caused by substantial increase in crude oil prices due to growing demand on world markets. However, the significant improvement of economic results compared to the previous year is not only due to the increase in prices and margins of produced commodities but also thanks to sale of same fixed assets, cost reductions and better financial results achieved by cheaper company financing.

SPOLANA a.s.

In 2005 SPOLANA recorded a profit after tax of 183 m CZK which is the best result in the past decade. In 2004 period the company registered net profit of 82 m CZK and significant loss in 2003. Increased demand for the main products, especially caprolactame and ammonium sulphate, had a positive impact on the economic result. Positive development of margins and higher operating rates of production capacities contributed substantially to SPOLANA´s results. Improved company's economic results in 2005 were also achieved due to cheaper company financing.

UNIPETROL, a.s.

In 2005 UNIPETROL generated a non-consolidated net result of 1 026 m CZK in comparison to 143 m CZK in previous year. The main influence on the company’s result resulted from a dividend received from a subsidiary, CHEMOPETROL, a.s. In 2005 the company UNIPETROL noted an increase in the administrative and other operational expenses. The increase in these costs resulted from undertaking new activities focused on co-ordination of operations within UNIPETROL Group and preparation and implementation of a new strategy of the Group. Net debt of UNIPETROL in non-consolidated financial statements for 2005 reached the level of 1 175 m CZK in comparison to 1 832 m CZK in the previous year.​