Q1 2005 results again proved a strengthening international competitive position of SLOVNAFT with increasing contribution of export sales to the company’s results. Export contributed to the operating profit of the company by approximately 80%.

Despite increasing international competition SLOVNAFT has been able, even compared to the very good Q1 2004 results, to further increase its export. Sales revenues from export grew by more than 30% to nearly SKK 13bn impacted mainly by 6.2 % higher volumes sold (motor fuels and petrochemicals). As a result the SLOVNAFT Group recorded CCS[1] adjusted operating profit of SKK 1.75bn in Q1 2005.

Q1 2005 motor fuel export volumes increased by 4.2%, mainly sales on the Czech and Polish markets. In the retail segment the Network Reconstruction Program launched in 2001 is continuing with focus moved to the rationalization of the network, improvement of the average throughput/FS and the quality of the network. SLOVNAFT started 2005 with 283 FS in Slovakia and during the first three month of the year 10 FS were closed and 3 new FS were put into operation.

Besides increasing export the improving performance of the petrochemical segment is also having increasing impact on the results of the company when contributed to the company’s operating profit by more than 20 %. This is fuelled besides favorable external environment by consolidation of the petrochemical business within the MOL Group and significant investments. The new polypropylene production unit (PP3) with investment budget over SKK 5.0bn was mechanically completed in Q1 2005 and testing procedures started. Live production is expected from the next quarter. Just like in case of fuels, weight of export sales has been increasing in our sales portfolio due to new marketing strategy and the improving commercial efficiency as a result of single-chain channel sales activity, mainly in Italian, French and German markets. As a result of these SLOVNAFT raised export polymer sales by 8 % in volume terms.

„The results of the company were positively influenced by recent investments into technologies improving efficiency of Russian crude oil processing, enabling production of EU quality products with high added value and increasing petrochemical capacity. Without our key investment - EFPA - the profitability of SLOVNAFT would reach only about one third of the current level. The Q1 performance was also underlined by continuing effort of the management to further improve the efficiency of all processes and activities and also improved sales of EU standard motor fuels and petrochemicals commented the Q1 2005 results the SLOVNAFT CEO Vratko Kaššovic.

(1) CCS (Current Cost of Supplies) is a method typically used by commodity reliant businesses. Companies like BP, Shell and many others use CSS to eliminate differences of various inventory revaluation methods (FIFO, LIFO, average) resulting from quoted prices movements in order to provide fair and true picture of their business to shareholders and investors.

SLOVNAFT, a.s. company today ceremonially commissions a new production unit for desulphurization of diesel (HDS 7).

The new production unit will enable SLOVNAFT to produce the entire production of diesel in “zero sulphur” quality and thus to meet the European Union standards effective not only since the Y2005 but also Y2009. Pursuant to the European directive, since January 2009 content of sulphur in all diesel sold may not exceed 10mg/kg. Daily capacity of the new unit is 5,500 ton of the ultra low sulphur diesel. Total construction expenses amounted to SKK 3.2 billion.

“The new production unit will strengthen position and competitiveness of SLOVNAFT on the European market“ said Vratko Kaššovic, the CEO of SLOVNAFT. By means of state-of-the-art technology and yet improved diesel parameters the new plant considerably contributes to reduction in environmental burden. Following the implementation of the project the quantity of emissions from combustion processes will decrease by almost 29 tons annually, by 11.9 million m3 less cooling waters will be charged to the Malý Dunaj and the volumes of sulphur oxide emissions will be cut by app. 780 tons within the whole area of the “zero sulphur ” diesel use.

Construction works on the HDS 7 unit started in July 2003. Contractor managed to complete the construction 3 weeks ahead of scheduled deadline and so the first tons of the product could be produced already by October 2004 end. Licensor of the desulphurization process is Danish company Haldor Topsoe and main contractor of the construction is ABB Lummus Global from the Czech Republic.

In the past years SLOVNAFT refinery underwent through large-scale modernization and now ranks among the most sophisticated refineries in Europe. The HDS 7 project represents an extension of the EFPA (Environmental Fuel Project Apollo) project that was targeted at effective processing of crude oil and production of ecological gasoline. Since completion of the EFPA project in 2001 SLOVNAFT is producing only “zero sulphur” quality automotive gasoline. From now the entire production of diesel will also meet this quality.

The HDS 7 project is also another evidence of benefits generated by the strategic partnership of SLOVNAFT and MOL companies. Thanks to development harmonization of the MOL Group refineries in Bratislava and Százhalombatta, the Group could utilize another synergies resulting from the strategic partnership and integrated operations. The current development of refineries focused on production of sulphur free automotive fuels was carried out based on the same license and in cooperation with several joint suppliers. Transfer of know-how between project teams from both refineries played very important role as well.

SLOVNAFT is a member of multinational MOL Group, leading integrated oil, petrochemical and gas company in the Central and Eastern Europe. MOL Group processes about 14 million ton crude per year.

The year 2004 was ended in the SLOVNAFT Group with excellent results when the company compared to the same period of the last year succeeded in improving all key performance indicators.

SLOVNAFT similarly to other oil companies in its peer group that had invested into the state of the art technologies improving efficiency of crude oil processing and enabling the companies to produce high value added products, benefited from favourable development on the markets. In case of SLOVNAFT that resulted in operating profit amounting to SKK 12.5bn. EBITDA increased almost three times reaching SKK 16.4bn.

The most important factors influencing profitability of the company were:

• The smooth and uninterrupted operations of all production units and subsequent significantly higher produced and sold amounts contributed to SLOVNAFT results with SKK 2.9bn.
• Year-on-Year growth of exports by 10% with exports contributing to the operating profit with 78%.
• Significant increase both in production and sales of products with ultra low sulphur content mainly on Austrian and German markets contributed to the company’s results with app. SKK 1.5bn.
• Past and ongoing investments into the technologies improving efficiency of Russian crude oil processing and enabling production of quality products with high added value. Just for illustration, without EFPA project the profitability of SLOVNAFT would reach only one third of the actual level.
• Synergies resulting from integrated operations within the MOL Group and continuous internal efficiency improvements (mainly due to optimised logistics operations, continuously improving SCM and single sales channel operations) contributed by SKK 2.5bn.
• Beneficial impact of motor fuel crack spreads on the international markets (SKK 5.1bn of which major portion came from exports) was in a large extent set off by stronger SKK towards USD (- SKK 3.9bn).
• The company was able to take advantage from higher Brent-Ural spread, thanks to over USD 500 million investments, what resulted in SKK 2.7bn contribution to the 2004 income.

“The excellent results reached in 2004 were driven mainly by the past and ongoing investments that rank us among top four state-of-the-art refineries in Europe and enable us to utilize favourable worldwide development in oil industry. Here we could see the importance of the company’s ability to process Russian crude oil more efficiently into high value added products. And what is essential it is the fact that despite strong international competition SLOVNAFT not only managed to maintain its export position but also succeeded in its improving. Also it is necessary to mention in this respect continuing efforts of management to improve efficiency in all processes and operations,” said the CEO of SLOVNAFT, Vratko Kaššovic.

Thanks to significant increase in sales of motor fuels and petrochemical products on the foreign markets (by 35% in monetary and by 10% in volume terms) SLOVNAFT increased in 2004 its total revenues from sales of products by almost 29%. Revenues from sales of petrochemical products grew more significantly (by 39% on y/y basis) mainly due to implementation of a common single-channel sales operation for polymer products focusing on higher profitability of the end-user sales on the main export markets by TVK and SLOVNAFT. Increase in fuel sales was driven mainly by strong demand for ultra low sulphur fuels (mainly diesel) in Austria and Germany. Percentage of the ultra low sulphur diesel in total volumes of sold diesel was increasing also in the last quarter and exceeded 55% in 2004. The new production unit for production of “sulphur-free” diesel put into operation in November enables SLOVNAFT to produce full range of diesel in “zero sulphur” quality and thus to satisfy increasing demand more flexibly. Contrary to the exports the volumes sold on domestic market decreased by 3.5% in aggregate in 2004.

Strong competition and higher crude and oil product quoted prices on the international markets resulting also in higher motor fuel prices on the Slovak market impacted mainly gasoline retail sales (especially TP 98 and TP 91), which dropped in 2004 by 6% in volume terms though sales of diesel continued to grow (nearly by 6%). Thus total volumes sold stayed stabilised on the 2003 level. This development followed European market trends. At the end of December SLOVNAFT operated 348 service stations out of which 283 were in Slovakia. Despite the closure of 24 stations in the domestic network, SLOVNAFT´s SAPPO market share practically did not change.

In 2004 the capital expenditures and investments into modernization of production units, service stations and ecology projects reached SKK 6.7bn representing an increase of more than SKK 1.0bn compared to the previous year. Major portion of the investments was used for completion of the new production unit for sulphur reduction in diesel oil and new polypropylene production plant (planned to be put into the operation in 2005).