Annual Report 2019 UNIPETROL RPA, s.r.o. 1 CONTENTS The Annual Report of UNIPETROL RPA, s.r.o., is prepared in accordance with the provisions of Section 21 of Act 563/1991 Coll., on Accounting, as amended. 2 COMPANY INFORMATION AND OVERVIEW OF THE RESULTS Company: UNIPETROL RPA, s.r.o. al Code: 436 70, Czech Republic Reg. No.: 275 97 075 Share capital CZK 11,147,964,000 registered on 5 August 2014 UNIPETROL RPA, s.r.o. 2 Company formation The merger of CHEMOPETROL, a.s., with its registered o District, Postal Code: 43670, ID: 25003887, its registered o , resulted in the formation of a successor company, Unipetrol RPA, s.r.o. As a result of the merger of the above companies effective as of 1 January 2007, the assets, including the rights and obligations arising from the labour relations of the acquired companies CHEMOPETROL, a.s. and This information was entered in the Commercial Register on 1 August 2007. The sole shareholder is joint-stock company UNIPETROL, a.s., with its registered office at Praha ntil 30 September 2018, the registered office ha 4, Postal Code 140 00). The Company is part of the consolidation group, UNIPETROL, a.s. The majority shareholder of UNIPETROL, a.s. is Polski Koncern Naftowy ORLEN S.A. Principal objects of business activities: Unipetrol RPA is a leading Czech producer in the field of refinery, petrochemical, and agrochemical raw materials, which is also reflected in the abbreviation RPA: refinery, petrochemistry, agrochemistry. The Company primarily supplies motor fuels, fuel oils, bitumen, liquefied petroleum products, oil hydrogenates, other refinery products, olefins and aromatics, agrochemicals, carbon black and sorbents, and polyolefins (high-density polyethylene and polypropylene). Changes made in the object of business activities to 31 December 2019: None Other changes in the Commercial Register in 2019: None Governing body authorised representatives: 2.1 EXECUTIVES T in office since 15 March 2017 Tomasz Wiatrak in office since 9 March 2018 Maciej Andrzej Libiszewski in office since 20 March 2018 K in office since 20 March 2018 in office since 2 October 2018 Marek Eugeniusz Kaszuba in office since 3 July 2019 UNIPETROL RPA, s.r.o. 3 Changes made in the Commercial Register to 31 December 2019: Krzysztof Zdziarski termination of office as of 2 July 2019 Marek Eugeniusz Kaszuba commencement of the office of Executive Director as of 3 July 2019 2.2 MANAGEMENT In the period to which this report relates, the C executives. 3 THE FINANCIAL RESULTS Statement of profit or loss and other comprehensive income 9 amounted to CZK 120 536 million and were by 2% lower than in the year 2018, mainly due to lower prices of the final products. The geographic toward EU countries in 2019. 9 000 million in 2018 by CZK 7 928 million to CZK 1 072 million for 2019. The financial results of 2018 were significantly positively affected by reversal of the impairment to fixed assets in the amount of CZK 4.7 billion. However, the adverse macroeconomic environment negatively impacted the In the year 2019 754 million. Statement of financial position As of December 31, 2019, non-current assets of the Company amounted to CZK 51 391 million. In 2019, the Company acquired tangible and intangible assets worth CZK 6 310 million. Most investments were done in the downstream segment followed by investments in the retail segment. As of December 31, 2019, total current assets amounted to CZK 35 174 million. The equity of the Company increased to CZK 49 826 million as at December 31, 2019. The most significant change in the assets and liabilities structure was recognition and disclosure of the right of use and connected leasing liabilities in accordance with new IFRS 16 in the amount of CZK 3 113 million, resp. CZK 3 165 million as at December 31, 2019. UNIPETROL RPA, s.r.o. 4 4 RISKMANAGEMENT The Company is exposed to financial risks, especially to the foreign exchange risk due to the high proportion of sales and purchase activities in foreign currencies and to the commodity risk resulting from the time discrepancy between transactions related to the purchase of seaborne crude oil and the subsequent sale of crude oil products. These risks are mitigated by hedging transactions based on the C 5 ANTICIPATED DEVELOPMENTS The main development trends of the Unipetrol Group include the development and increase of petrochemical production, integration of refinery assets, involvement in low-emission energy, hydrogen and circular economies, consistent development of retail sales and strengthening the leading position in the retail market of fuel sales in the Czech Republic and in Slovakia. Furthermore, it puts emphasis on a strong R&D background and the introduction of innovations that will support all areas of activities on a sound financial basis. The main tasks for 2020 include n, as well as the marketing and sale of the product portfolio of the newly launched PE3 polyethylene unit in 6 EVENTS AFTER THE BALANCE SHEET DATE In the period from 1 January 2020 until the time this report was prepared, no occurrences other than the usual course of business affected the expected development. In the period from 1 January 2020, the following changes were made in statutory representatives: Position Name Change Date of change Statutory representative Marek Kaszuba Termination of position 13 January 2020 Statutory representative Termination of position 14 January 2020 Statutory representative Ryszard Pilch Elected into the office 27 January 2020 Statutory representative Adam Jarosz Elected into the office 18 February 2020 UNIPETROL RPA, s.r.o. 5 7 OTHERINFORMATION 7.1 RESEARCH AND DEVELOPMENT Research and development in the Unipetrol Group is focused primarily on the areas, which are crucial for further development of the Group and are in accordance with its strategy. The Company still faces new challenges arising from changing legislative rules. The main areas of interest are therefore biofuels, hydrogen for mobility, alternative raw materials for the production of fuels and polymers and the associated circular economy. All of these areas are closely linked to national and European objectives, which require permanent reduction of emissions of greenhouse gases and sustainable development of the refinery and petrochemical industries. Unipetrol continues to be intensively engaged in improving energy efficiency, looking for the options of reducing the consumption of primary sources of energy and energy recovery. The topics addressed are fully in line with the ORLEN Group strategy. Unipetrol covers the above basic segments primarily in its research institutions: Unipetrol Research and Education Centre (UniCRE) and the PIB branch (Polymer Institute Brno). UniCRE focuses on the production of biofuels and their impact on quality of fuels. It intensively focuses on the selection of appropriate raw materials and their qualitative evaluation, searching for optimal technologies and preparation and evaluation of operational tests, both in test laboratory units as well as real technologies. In particular, the processing of pure vegetable oils and used cooking oils has been examined in the long term with very positive results. Assessment of the impact on catalyst systems forms an integral part of its activities. Testing of catalytic converters of selected production processes is an area where UniCRE has had a long-term expertise and a wealth of knowledge. In 2019 an ACE unit was acquired, which is used to assess and optimise the FCC units within the ORLEN Group. At present, pyrolysis of waste plastics and hence the production of alternative raw materials for other processes is a very dynamically developing research area. This process is an important part of circular economy the objective of which is to use waste materials as the raw material for further processing. This area is very important for Unipetrol, which is a significant producer of plastics. Future sustainability of the production of these materials depends on these issues. Other activity areas include optimisation of the pyrolysis process, the use of renewable raw materials and advanced inorganic materials. The PIB focuses on polymer research. It also continues to develop the product portfolio of polypropylene and polyethylene. In 2019 there was a significant development of the testing infrastructure also thanks to the testing of the new PE3 unit. PIB employees provide wide UNIPETROL RPA, s.r.o. 6 The PIB continues to focus on the monitoring of monomer quality, acquisition of the necessary certifications, testing and development of catalysers. Important tasks in 2019 as well as in 2020 include support of the commencement of activities of the PE3 unit and further stabilisation of operations and evaluation of the production. Another area includes the project of the PLA production within the ORLEN Group as a component improving biodegradability of polymers, which is also manufactured from renewable materials. Unipetrol continues to be intensively involved in cooperation with universities and research institutions. The main partners in this area include the University of Chemistry and Technology in Prague with which it has implemented many research projects. The University Centre of the University of Chemistry and Technology in Prague - Unipetrol is located directly within the - have the opportunity to choose from a wide range theses and dissertations. Together with UniCRE and the University Centre, Unipetrol provides many educational activities both for secondary schools and universities. Increasing the awareness of research and devel Other institutions of higher education, which are involved in cooperation include Czech Technical University in Prague, Brno University of Technology, Technical University of Liberec, Jan Even . Unipetrol is also engaged in R&D cooperation with entities abroad. The main activities in research and development in 2020 will include the production of biofuels and the purchase and commissioning of a pilot unit for pyrolysis of waste plastics. Stabilisation of the PE3 unit and the development of the product portfolio will be a key task in the production of polymers.