Net income (191) (54) (39) (27.0)

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1 Q QUARTERLY REPORT INA Group (ZB: INA-R-A; LSE: HINA; announced its Q results today. This report contains unaudited consolidated financial statements for the period ending 31 March 2010 as prepared by the management in accordance with the International Financial Reporting Standards. INA Group financial results (IFRS) (HRK million) 2009 Q Q Ch % CONTINUING OPERATIONS (1) Net sales revenues 20,373 4,504 5, EBITDA (2) 4,013 1,013 1, Operating profit 1, Operating profit excl. special items (3) 1, Net financial gain /( expenses) (395) (809) (602) (25.6) Net income 617 (266) 76 n.a. Net income excl. special items (3) 979 (266) 135 n.a. DISCONTINUED OPERATIONS (1) Net income (1,011) (306) (207) (32.4) ALL OPERATIONS (1) Net income (4) (392) (572) (131) (77.1) Net income excl. special items (3) 73 (572) (72) (87.4) Operating cash-flow 2, (926) n.a. (USD million) (5) 2009 Q Q Ch % CONTINUING OPERATIONS (1) Net sales revenues 3, EBITDA (2) Operating profit Operating profit excl. special items (3) Net financial gain /( expenses) (75) (142) (114) (19.7) Net income 117 (47) 14 n.a. Net income excl. special items (3) 185 (47) 26 n.a. DISCONTINUED OPERATIONS (1) Net income (191) (54) (39) (27.0) ALL OPERATIONS (1) Net income (4) (74) (101) (25) (75.3) Net income excl. special items (3) 14 (101) (14) (86.5) Operating cash-flow (176) n.a. (1) According to the Gas Master Agreement between the Government of the Republic of Croatia and MOL signed on 30 January 2009, INA sold its Gas Storage Company and will divest its Gas Trading Activity, result of Gas Trading activities is presented as discontinued operation. On 16 December 2009 MOL and the Croatian Government signed the First Amendment to the Gas Master Agreement according to which the deadline for taking over of gas trading activities is extended by 1 December (2) EBITDA = EBIT + Depreciation + Impairment + Provisions (3) Excludes, a Q Retail segment one-off asset impairment in the amount of HRK 74 million. INA Group 2009 result was negatively influenced by one-off items because of asset impairments amounting to HRK 954 million. The income from the disposal of Podzemno skladište plina Okoli d.o.o. of HRK 497 million was recorded at the Group level in Q Total negative net effect of one-off items in 2009 amounted to HRK 457 million at the INA Group level. (4) INA Group net income attributable to equity holder. (5) In converting HRK figures into US Dollars, the following average CNB (HNB) rates were used: for Q1 2009: HRK/USD, Q1 2010: HRK/USD., for Q4 2009: 4,9194, for 2009: HRK/USD. INA Group has improved its 2010 first quarter overall results compared to the same period last year: we generated HRK 1.4 billion EBITDA and HRK 815 million operating profit excluding special items from continuing operations mostly due to higher hydrocarbon production volumes, improved crude oil prices and better refinery margins. First quarter net income from continuing operations excluding special items was positive at HRK 135 million against a loss of HRK 266 million for the same period of the previous year. However, INA is still experiencing the challenges of the difficult business environment from the previous year, which is reflected on the company financial position, leaving INA with an overall (albeit much reduced) loss at the net income level (HRK 131 million) and a negative operating cash flow of HRK 926 million in Q due to the huge steps taken to reduce overdue liabilities towards the state, this also caused a strong increase in external funding mainly sourced from MOL, INA s largest shareholder. Management is continuing with measures implemented for reducing operating expenses, improving efficiency of operations and evaluating further available sources of financing focusing on the strengthening of its financial position. In addition, INA has adjusted its investments to the current financial position: capex amounted to HRK 840 million (significantly, 15% lower compared to Q1 2009). This was not to the detriment of the key capex projects (refinery modernisation in Rijeka and Sisak, upstream development projects in Syria and Croatian Adriatic) of the company, however. PAGE 1 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

2 Continuing operations The operating profit from continuing operations (excluding one-off items) increased by HRK 335 million compared to the same period last year and amounted to HRK 815 million in Q Favourable results are coming primarily from stronger hydrocarbon production and sales volumes coupled with higher crude oil prices (the average price of Brent FOB Med was up by 71.5% on the world market), but also helped by a 27% rise in the average crack spreads due to processing of Azeri light yielding a better product slate and increase in gasoline crack spread. Additionally the result was positively influenced by lower operating costs as a result of strict cost-cutting measures. These positive effects were only partly decreased by lower crude oil product. Results were negatively influenced by HRK 74 million one-off impairment charge in retail - so operating profit amounted to HRK 741 million. A loss of HRK 602 million generated by financial activities of continuing operations was HRK 207 million down on Q1 2009, but still very significant. Adjusted net profit from continuing operations in Q amounted to HRK 135 million, compared to the HRK 266 million loss in Q Discontinued operations In Q1 2010, discontinued operations (natural gas trading) generated a net loss of HRK 207 million (HRK 99 million smaller than in the same period last year). This reflected the fact that the company still was only able to sell its natural gas volumes at a markedly lower price than the weighted average price of import price and domestic production price (increasing gradually towards the import price level as stipulated in the First Amendment to the Gas Master Agreement signed between the two largest shareholders of INA, the Government of Croatia and MOL), but this gap has been reduced from last year s level. Although it was planned that the natural gas trading company would operate without generating losses in 2010, discontinued operations recorded a loss for the quarter resulting from the still ongoing negotiations with some large eligible customers with whom new contracts still have to be concluded. Overall operations Adding this together, INA Group generated a net loss of HRK 131 million, HRK 441 million down on Q The gas business (discontinued activity) contributed with HRK 207 million to this, while continuing operations were profitable. Exploration and Production: operating profit from continuing operations in Q amounted to HRK 1,175 million (USD 223 million) 50% up on Q primarily as a result of 73% higher realised crude oil price, higher average daily hydrocarbon production due to putting in operation a new North Adriatic gas field and start-up of the oil and gas station Jihar in Syria as well as a changed accounting for the Angolan crude resulting in higher international crude oil sales. Refining and Marketing: the R&M segment generated a quarterly operating loss of HRK 118 million (USD 22 million), which compares favourably to the same quarter of last year. The result has been favourably influenced by the crude oil procurement optimisation, processing of Azeri light yielding a better product slate, a more favourable average crack spread and lower costs of services. Lower domestic sales had a negative impact on results. Retail: operating loss for Q (excluding the one-off items for impairment of HRK 74 million) amounted to HRK 42 million. The result was deteriorated by HRK 38 million compared to Q1 2010, mainly reflecting a 10% decrease in retail sales volumes. Corporate and Other 1 : This segment recorded an operating loss of HRK 200 million in Q1 2010, which increased by HRK 21 million compared to Q due to provisions and higher staff costs due to corporate restructuring. These negative effects were only partly offset by lower other operating costs as a result of cost-cutting measures. Discontinued operations: In Q1 2010, the operating loss from discontinued activities amounted to HRK 199 million, 160 million down on the same period previous year mainly as a result of lower negative differential between the selling price of gas and the price of imported gas. Pursuant to the Gas Master Agreement signed on 30 January 2009 between the Croatian Government and MOL, INA would be expected to withdraw from the regulated part of the gas business value chain. On 16 December 2009 MOL and the Croatian Government signed the First Amendment to the Gas Master Agreement according to which the deadline for takeover of gas trading activities is extended to 1 December 2010, and the gas trading company was planned to operate without generating losses in 2010 (on an annual basis). Net loss from financial activities of continuing operations was reduced by HRK 207 million compared to Q and it amounted to HRK 602 million in Q Forex losses of HRK 502 million were recorded in Q compared to forex losses of HRK 710 million in Q The interest expense was HRK 7 million down on Q The positive effect resulting from lower negative foreign exchange differences and interests was partly offset by HRK 8 million higher other financial costs. The Q loss from financial activities of discontinued operations amounted to HRK 8 million. 1 Includes Corporate Functions and subsidiaries providing safety and protection services, technical services, corporate support and other services. PAGE 2 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

3 Capital expenditures: In Q HRK 840 million (USD 160 million) was spent on capex, of which Exploration and Production accounted for HRK 516 million, primarily for development operations in Syria and North Adriatic, while Refining and Marketing spent HRK 323 million, almost fully on refinery modernisation. Quarterly capex decreased by HRK 144 million. Net indebtedness: INA Group net indebtedness increased to HRK 10.3 billion compared to HRK 8.2 billion as at 31 December 2009 while its gearing 2 as at 31 March 2010 rose from 40.9% to 46.9%. This underscores the company s current undercapitalisation due to its sustained intensive investment programme in its key businesses. Operating cash flow: Operating cash-flow before working capital changes amounted to HRK 1,069 million (HRK 496 million up q-on-q). Changes in working capital decreased the operating cash flow in Q by HRK 1,995 million, leaving INA with a negative operating cash flow of HRK 926 million, primarily as a result of the decrease in trade and other payables (decreased liabilities for crude oil and partially settlement of overdue taxes and other liabilities to the state) and increased inventories. Mr Zoltán Áldott, Chairman of the Management Board commented the result: In the first quarter of 2010, INA Group improved its results compared to the same period last year due to higher hydrocarbon production, improved crude oil prices and better refinery margins. However, we still experienced the consequences of the global crisis as our operations were markedly influenced by the measures taken to reduce overdue liabilities while lower oil product sales had a negative effect on our results. Besides a strong performance of our Upstream segment, the management s commitment to implementing the measures for reducing operating expenses and improving the efficiency of operations had a positive effect on our results while evaluating further available sources of financing. Although INA has adjusted its investments to its current financial position, we are fully committed to the continuation of the key projects such as further refinery modernization in Rijeka and Sisak and the Upstream development projects in Syria and the North Adriatic. Our primary goal in the next period is to continue with the necessary steps for stabilizing INA s financial position, especially focusing on further improvement of operational efficiency. 2 Net debt / net debt plus equity incl. minority interests PAGE 3 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

4 Overview of the macro environment The world economy is showing signs of recovery at the beginning of the year and is expected to grow 4.2 percent in 2010, according to the IMF. However, the recovery is uneven and it is driven to a large extent by continuing stimulus measures. The latest macroeconomic indicators have underlined the improving market sentiment. Both manufacturing and services in the US as well as in other developed and developing economies have improved markedly since the beginning of Fiscal and monetary policies will likely continue to support demand, while the stabilization and reform of the financial system remains an important issue. The US is ahead of Japan and the Eurozone due to its stronger fiscal stimulus and its more resilient, less credit-reliant corporate sector. The Eurozone is experiencing a sluggish recovery due to its weak domestic demand and a relatively strong euro, which is constraining export growth. Additionally, several weaker Eurozone economies are facing market tensions regarding their sovereign finances and current account deficits. This represents a serious ongoing uncertainty for economic growth in both the countries directly affected and Europe in general. Oil prices were fluctuating in the 70 to 80 USD/bbl range during Q1 2010, with a strong upward trend since mid-february. Improving market sentiment was mainly driven by positive developments and the rising recovery expectations of the global economic activity as well as by the appreciation of the euro against the dollar. The Dated Brent averaged at 76.4 USD/bbl in Q1 2010, a 2.5% increase from the previous quarter and 71.8% higher than the Q average of 44.5 USD/bbl. The demand recovery has continued but it is still driven by China and to a lesser extent by non-oecd Asia, while demand growth in the OECD remains sluggish at best. Refining margins have been widening at a steady pace since the beginning of 2010, due to a rising demand for gasoline and diesel fuels. Margins are similar to those at the beginning of 2009, prior to the start of their decline in February last year. The crack spread for BMB EURO 95 (IV) rose to USD/t in Q from 75.9 USD/t in Q1 2009, while the crack spread for diesel EURO (IV) dropped to 47.6 USD/t from 92.0 USD/t seen a year ago. The LPG crack spread increased from USD/t to USD/t in Q The negative crack spread on fuel oil weakened to USD/t from USD/t in Q The USD weakened against HRK by 7.2% in Q compared to Q1 2009, which had a negative effect on the results calculated in HRK. The Croatian economy recorded a 5.8% decline in The drop of GDP was a result of the global financial crisis which negatively affected global economic activity, primarily cash flows, but also put a dent on consumption and production. GDP movements were primarily influenced by the drop of global demand and by the shortage of available foreign capital, which abetted the decrease of domestic demand. Lower exports and declining domestic consumption were reflected in the disappointing GDP figure. Industrial production has failed to recover thus far, as it expanded by a mere 0.3% y-o-y during Q1 2010, which is one of the weakest growth rates in the region. The latest retail sales data from the end of February were still in a 7.3% y-o-y decline, as consumer confidence remains low due to the high and still growing unemployment rate, which was at 18.4% at the end of Q CPI was up by 0.9% y-o-y at the end of Q1. According to the latest IMF forecast, the Croatian GDP is expected to grow by 0.2% in 2010, and will return to a somewhat stronger growth rate of 2.5% only in PAGE 4 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

5 Exploration and Production* Q Segment IFRS results (HRK million) Q Q Ch. % 2,006 6,736 Revenues continuing operations 1,710 2, ,958 Revenues discontinued operations** (63.2) 724 2,616 Operating profit/(loss) continuing operations 783 1, (224) (1,029) Operating profit/(loss) discontinued operations (359) (199) (44.6) 1,273 4,441 EBITDA continuing operations 1,110 1, (229) (982) EBITDA discontinued operations (359) (114) (68.2) 442 3,039 CAPEX and investments (36.8) *Exploration and Production refers to the Upstream of INA, d.d. and following subsidiaries: Crosco Group, INA Naftaplin IE&PL, Guernsey, Adriagas S.r.I. Milano, Podzemno skladište plina d.o.o. until on 30 April 2009, Prirodni plin d.o.o. **Internal sales excluded. Q Hydrocarbon Production (gross figures before royalty) Q Q Ch. % Crude oil production (kt) * Croatia (7.8) International ,068.2 Natural gas production (m cm, net dry) ,024.3 Croatia on-shore (10.9) Croatia off-shore Syria Condensate (kt) (2.3) 20, ,782.7 Crude oil (boe/d) 14, , , ,447.1 Natural gas Condensate (boe/d) 7, ,770.1 (2.5) 34, ,354.2 Natural gas (boe/d) 34, , , ,137.5 o/w Croatia off-shore (boe/d) 13, , , ,584.0 Total hydrocarbon prod. (boe/d) 56, , *Excluding separated condensate Q Average realised hydrocarbon price Q Q Ch. % Crude oil and condensate price (USD/bbl) Total hydrocarbon price (USD/boe)* *Calculated based on total external sales revenue including natural gas selling price (discontinued operation) as well Q Hydrocarbon production cost (USD/boe) Q Q Ch. % Croatia - onshore (5.0) Croatia - offshore Angola* 30.3 n.a Egypt Syria Average *Angola full year cost are posted for a single crude oil delivery in Q4 2009, while Q calculation included only Q1 costs. Average Q hydrocarbon production costs without Angola amounted to 11.2 USD/boe. Q Natural Gas Trading (M cm) Q Q Ch. % ,044.2 Natural gas imports (net dry) ,778.0 Natural gas sales on domestic market (net dry) Q * 2009 * Natural gas price differential to import prices (HRK/m 3 ) * Q * Q Ch. % (485.30) (788.42) Eligible customers' price (1,093.05) (383.31) (64.9) (144.64) (790.55) Tariff customers' price (1,693.50) (140.40) (91.7) (317.73) (792.19) Total price (1,511.21) (290.63) (80.8) *Recalculated based on prices in HRK/m 3 for the purpose of providing comparable data. Continuing operation In Q the Upstream division recorded HRK 1,175 million operating profit compared to a HRK 1,047 million operating profit, excluding one-off items, in Q The increase of operating profit was mainly the result of higher hydrocarbon production and higher sales volumes. The operating profit recorded for Q was HRK 392 million up on Q1 2009, or 50%, mainly as a result of higher hydrocarbon production volumes coupled with 73.2% higher average sales prices of crude and Angolan crude, that was not recorded in Q (total annual revenue included in Q4 2009), and higher sales volumes. PAGE 5 INA GROUP FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED

6 Average daily hydrocarbon production in Q was 63,100 boe, or 12.6% up on Q Onshore domestic crude oil production declined by 7.8%, while natural gas production decreased by 10.9% in comparison with Q1 2009, due to the natural depletion. INA's share of North Adriatic gas production increased by 43.4% compared to the same period 2009, in accordance with the Production Sharing Agreement and as a result of putting in operation new gas fields. International crude production rose by 85.5%, compared to Q because of a higher production in Syria and Angola which compensated for lower production in Egypt. Natural gas production outside Croatia increased by 43.7% when compared to Q1 2009, after the start-up of the oil and gas station Jihar in Syria. Upstream revenues in Q increased by 46% in comparison with Q1 2009, amounting to HRK 2,495 million. The increase was primarily the result of stronger hydrocarbon production coupled with higher sales volumes and higher average crude price compared to Q Average production costs in Q increased by 6.4% to 11.7 USD/boe. Average cost of production in Syria increased because of putting in operation new oil and gas station (higher cost with lower initial production) and those in Egypt due to 14% lower production. The cost of North Adriatic gas production rose mainly because of a 43.7% higher production and higher costs with new assets put in use, while the average cost of onshore domestic production was the result of lower operating costs and lower production volume. Exploration and Production segment s CAPEX decreased by HRK 300 million to the amount of HRK 516 million, compared to Q Investments in tangible assets were HRK 383 million lower and the investments in intangible assets were HRK 83 million higher. CAPEX was primarily spent for development operations in Syria and North Adriatic. Discontinued operations In Q1 2010, the operating loss from discontinued activities amounted to HRK 199 million, 160 million down on 2009, as a result of 81% lower negative price differential, partially offset by 9% higher natural gas import. This reflected the fact that the company still was only able to sell its natural gas volumes at a markedly lower price than the weighted average price of import price and domestic production price (increasing gradually towards the import price level as stipulated in the First Amendment to the Gas Master Agreement signed between the two largest shareholders of INA, the Government of Croatia and MOL), but this gap has been reduced from last year s level. Compared to Q4 2009, the loss had been reduced by HRK 25 million due to a 9% lower price differential offset by 5% higher natural gas import. The average price of imported gas went down by 38% in the Q and it amounted to HRK/m 3 (with 7.3% stronger Kuna against the US dollar).the negative differential between the selling price of gas and the price of imported gas decreased by 81% in the reviewed period. PAGE 6 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

7 Refining and Marketing* Q Segment IFRS results (HRK million) Q Q Ch. % 3,778 13,454 Revenues 2,671 2, (158) (621) Operating profit/(loss) reported (120) (118) (1.7) (8) (66) EBITDA (16) (19) ,367 CAPEX and investments (w/o acquisition) *Refers to Refining & Marketing INA. d.d. and following subsidiaries: Maziva Zagreb, Proplin, Crobenz, Osijek Petrol, InterIna Ljubljana, INA BH Sarajevo, Holdina Sarajevo, INA Hungary, FPC London, INA -Crna Gora, INA Beograd, INA Kosovo, Interina Holding London, Holdina Guernsey. Q Refinery processing (kt Q Q Ch. % Domestic crude oil (23.6) 910 4,007 Imported crude oil 1, (15.0) Condensates (8.3) Other feedstock (58.9) 1,190 5,016 Total refinery throughput 1,304 1,048 (19.6) Q Refinery production (kt) Q Q Ch. % 263 1,048 Motor gasoline (18.4) 278 1,209 Diesel (9.1) Heating oil (25.0) Kerosene (3.5) Naphtha (53.1) Bitumen (34.7) 379 1,581 Other products (22.9) 1,059 4,444 Total 1, (20.1) 6 27 Refinery loss Own consumption* (17.6) 1,190 5,016 Total refinery throughput 1,304 1,048 (19.7) Q External refined product sales by country (kt) Q Q Ch. % 614 2,562 Croatia (30.2) B&H (36.0) 379 1,377 Other markets (1.5) 1,119 4,440 Total 1, (23.2) Q External refined product sales by product (kt) Q Q Ch. % 282 1,075 Motor gasoline (17.1) 309 1,295 Diesel (15.9) Heating oils (56.0) Kerosene (14.5) Naphtha (42.1) Bitumen (22.4) 383 1,447 Other products* ,119 4,440 Total 1, (23.2) 287 1,232 o/w Retail segment sales (9.9) 832 3,208 o/w Direct sales to other end-users (27.4) *Other products = LPG, FCC gasoline, petrol components, other gasolines, benzene-rich cut, other diesel fuels and components, fuel oils and components, liquid sulphur, coke, motor oils, ind. Lubricants, base oils, spindle oil, waxes, blend, gas oil M, atmosp. Residue, intermediaries, and other In Q1 2010, the operating loss amounted to HRK 118 million, comparing unfavourably by HRK 15 million with Q when the operating loss excluding one-off items was HRK 103 million. The loss mainly resulted from 288 kt lower sales (with domestic sales down by 24% and in BiH down by 37%, partly as a result of recession and seasonality. The amount of processing was 12% lower and inventories were built ahead of the Rijeka Refinery turnaround planned for March and April. The average crack spread rose by 21.9 USD/t and crude prices increased by 2%. LPG and gasoline spreads were more favourable but diesel spreads remained low indicating that the economic downturn persists despite the recovery in the USA and highly developed countries. Compared to Q1 2009, Q results slightly improved (by HRK 2 million compared to the 120 million operating loss in Q1 2009). The result has been favourably influenced by the crude oil procurement optimisation, processing of Azeri light yielding a better product slate, a more favourable average crack spread lower costs of services and 23% lower sales which had a negative impact on results. PAGE 7 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

8 The business environment was primarily marked by a significant growth of crude prices by 71.5% - from 44.5 USD/bbl to 76.2 USD/bbl, together with a growth of average crack spreads FOB Med Italy by 27.1% (from 29.2 USD/t to 37.1 USD/t), with the Brent-Ural spread having risen from 0.7 USD/bbl to 1.3 USD/bbl. The crack spread for BMB EURO 95 (IV) rose from 75.9 USD/t in Q to USD/t in Q1 2010, while the crack spread for diesel EURO (IV) dropped from 92.0 USD/t to 47.6 USD/t. The LPG crack spread increased from USD/t to USD/t in Q The negative crack spread on fuel oil increased from USD/t to USD/t. USD weakened against HRK by 7.3% compared to Q1 2009, with a negative effect on results. The volume of refining was 20% lower, mainly due to the planned and unplanned shutdowns. The processing of Azeri light has continued at both refineries (319 kt) resulting in a better product yield (7.3% higher yield of white products). In addition, the first quantities of EURO V grade products were produced and prepared for distribution. In Q1 2010, the imports of refined products were 21.2 kt higher than in Q (mostly of Euro diesel, jet fuel and aviation gasoline). Higher imports have been planned to increase the inventories in order to secure sufficient quantities to comfortably meet the market demand during the turnaround period in March and April. Lower demand resulted in 23% or 250 kt lower sales. Domestic sales decreased by 201 kt or 30%. Export sales declined by 12%, with the highest drop of 36% recorded in BiH. In the region, sales dropped by 22%. Total sales of motor gasolines declined by 17% and those of diesel by 16%. Own-produced Euro V grade products are sold at INA s filling stations since the beginning of April. New Regulation on determining the oil prices on domestic market was issued on 16 April Main changes include biweekly price adjustment which can be up to 3% only if the calculation base changes at least 2%. R&M capital expenditures in Q amounted to HRK 323 million, were almost fully spent on the modernisation, and they were HRK 175 million higher then Q In the scope of the Modernisation Programme, first phase, at Rijeka Refinery construction works at the Urinj mild hydrocracking complex (hydrocracking, hydrogen generation, desulphurisation and ancillary units) were in full swing, and are expected to be completed in the middle of After its completion Rijeka Refinery will produce only Euro-V standard gasoline and diesel fuel. The projects scheduled for execution in the second phase of the refinery modernisation are in the preparation phase. At Sisak, the FCC-gasoline hydrodesulphurization unit was completed in Since 2009 the Refinery has been producing lowsulphur (20 ppm) components for blending EURO-IV/V gasoline grades, and the engineering of the isomerization unit has been completed and the unit is expected to be completed in H improving the gasoline octane pool. PAGE 8 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

9 Retail Services* Q Segment IFRS results (HRK million) Q Q Ch. % 1,367 5,812 Revenues 1,147 1, (78) (126) Operating profit/(loss) (4) (116) n.a EBITDA 45 (13) n.a CAPEX and investments (w/o acquisition) 10 2 (85.0) * Refers to Retail INA. d.d. and Petrol Rijeka and retail of subsidiaries: Proplin, Crobenz, Osijek Petrol, Interina Ljubljana, Holdina Sarajevo, INA - Crna Gora Q Refined product retail sales (kt) Q Q Ch. % Motor gasoline (7.1) Gas and heating oils (10.3) LPG (29.1) 1 4 Other products 1 1 (18.9) 292 1,254 Total (10.3) Q Refined product retail sales (kt) Q Q Ch. % 278 1,199 Croatia (10.8) 9 39 B&H 8 8 (0.4) 4 16 Other markets ,254 Total (10.3) Retail Services operating loss, excluding one off items amounted to HRK 42 million in Q1 2010, what is in comparison to the Q higher loss by HRK 3 million. The main driver of the quarter-on-quarter result deterioration was a 18% drop in retail sales volumes or 53 kt. Compared to Q Retail Services recorded operating loss, excluding one off items higher by HRK 38 million, mainly as a result of lower sales volumes. Reported operating loss amounted to HRK 116 million. Total retail sales volumes, consisted primarily of diesel fuels and motor gasoline sales, decreased by 10% compared to Q In Q1 2010, INA Group experienced a 10% decrease in diesel sales, 7% decrease in motor gasoline sales and 29% decrease in LPG. Average throughput per site was decreased by 10% per station. A significant decrease in sale in comparison with Q considered a reflection of the overall decrease primarily in domestic market demand as a result of lower purchasing power due to the economic downturn in Croatia and increase of unemployment. The retail segment operated 486 petrol stations (of which 435 in Croatia; 44 in Bosnia-Herzegovina, 6 in Slovenia and 1 in Montenegro) as of 31 March 2010, what is 2 FS less compared to end of March Total Retail CAPEX of HRK 1.5 million in Q was used for minor projects such as technological and facility improvements, tc. In the same period 2009 total CAPEX amounted to HRK 10 million. The difference is coming from modified schedule of project execution during the year. PAGE 9 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

10 Financial overview Operations The Government of the Republic of Croatia and the Hungarian oil company, MOL signed a Master Agreement on Natural Gas Business (a framework agreement regulating some of the basic issues regarding the future of the natural gas market and natural gas supply in Croatia). Under the above Agreement the gas storage business was taken over by a fully state-owned company Plinacro d.o.o. on 30 April On 16 December 2009 MOL and the Croatian Government signed the First Amendment to the Gas Master Agreement according to which the deadline for takeover of gas trading activities is extended by 1 December 2010, and it was planned that the gas trading company would operate without loss generation in 2010 (on an annual basis). As the gas trading activity meets the definition of an operation as per IFRS 5, the company has disclosed its results as loss from discontinued operations. According to the First Amendment to the Master Agreement on Natural Gas Business (FAGMA) the Croatian Government passed a Decision on new gas price for tariff customers in Q1 which covers cost of gas procurement. The Agreements were concluded with eligible customers with prices set according to the escalation formula which cover costs of gas procurement during the year. Negotiations are still ongoing with some large eligible customers with whom new contracts still have to be concluded On 7 April 2010, INA, d.d. entered into a sale and purchase agreement for the sale of 100% ownership of Crobenz d.d. with Croatian Petrol Stations a.s., an affiliated company of Progress Trading, member of the Slavia Capital Group. The sale process was initiated based on INA s obligation under the decision of the Croatian Competition Agency dated 9 June Following the signing of the First Amendment to the Shareholders Agreement between the Croatian Government and MOL on 30 January 2009, MOL s gaining operational control over INA had been investigated by the Croatian Competition Agency, upon which the Agency made its final Decision on 9 June 2009, in which they approved the transaction under certain conditions, including the sale of INA s 100% ownership in Crobenz d.d. The sale of Crobenz is subject to the approval of the Croatian Competition Agency, therefore the completion of the transaction will happen upon receipt of the necessary regulatory consent. Crobenz d.d. is active in the wholesale and retail trade of petroleum products. Continuing operations Net sales revenues generated by INA Group 3 in Q amounted to HRK 5.4 billion and they were 19% higher compared to Q1 2009, mainly as a result of higher revenues from refined product sales (higher prices and lower sales), natural gas sales (higher sales and higher prices) and increased international crude oil sales (higher volumes because of changed accounting for the sales of Angola crude 4 and higher crude production in Syria but also higher prices). In Q1 2010, the costs of raw materials and consumables rose by 34% over Q1 2009, mainly because of 39% higher cost of imported crude as its average price rose by 64% (the average price of Brent FOB Med was up by 71.5% on the world market) while the volume of refined crude was 15% lower. The value of finished goods and WIP inventories rose by HRK 413 million compared to the opening balance while as at 31 March 2009, it was HRK 122 million lower. The cost of goods for resale of HRK 763 million was up by 126 %, primarily due to significantly higher imports of EURO IV grade motor fuels. The costs of services of HRK 604 million were down by HRK 124 million, mainly as a result of cost-cutting measures, lower costs of non-production services, and lower production costs, costs of geological works, contractual tax liabilities, subsequently granted discounts and maintenance costs. Depreciation rose by 9% to HRK 425 million because of assets put in use upon completion of projects. Adjustments and provisions of HRK 207 million were 64 million higher, with asset impairments HRK 52 million higher and HRK 19 million of provisions for unused paid holidays. Total staff costs increased by 4% compared to Q Financial activities in Q generated a loss of HRK 602 million but HRK 207 million lower that the Q loss. Net forex losses for Q in the amount of HRK 502 million mainly relate to long-term debt and trade creditors. In Q1 2009, net forex losses amounted to HRK 710 million. The interest expense of HRK 48 million was HRK 7 million down on Q1 2009, with the positive effect of lower interest on long-term debt partly offset by higher interest expense on trade creditors. Other financial expenses rose by HRK 8 million to HRK 52 million. The corporate tax calculated for continuing operations for Q amounted to HRK 63 million while in Q1 2009, the deferred tax liability amounted to HRK 63 million. 3 Consolidated sales 4 Until 2009, deliveries of Angola crude were recorded once a year, in the last quarter; as of 2010, these revenues are accrued on a monthly basis. PAGE 10 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

11 Discontinued operations In Q1 2010, discontinued operations (natural gas trading) generated a net loss of HRK 207 million (HRK 99 million smaller than in the same period last year). This reflected the fact that the company still was only able to sell its natural gas volumes at a markedly lower price than the weighted average price of import price and domestic production price (increasing gradually towards the import price level as stipulated in the First Amendment to the Gas Master Agreement signed between the two largest shareholders of INA, the Government of Croatia and MOL), but this gap has been reduced from last year s level. Although it was planned that the natural gas trading company would operate without generating losses in 2010, discontinued operations recorded a loss for the quarter resulting from the still ongoing negotiations with some large eligible customers with whom new contracts still have to be concluded. Operating loss from discontinued operations is HRK 160 million lower compared to Q1 2009, mainly as a result of lower negative differential between the average gas selling prices and import prices, and amounted to HRK 199 million. From financial activities, the loss from fair valuation of embedded derivatives in host contracts was HRK 16 million lower and in Q it amounted to HRK 8 million. The effect of deferred taxes in Q was not record, while it amounted to HRK 77 in Q Balance sheet As at 31 March 2010, total assets amounted to HRK 31.1 billion, what was 4% up on 31 December Non-current assets and intangible assets increased by 2%, mostly on account of capital investments in development operations in Syria and North Adriatic, and refinery modernisation. Goodwill and investments in subsidiaries and joint ventures increased by HRK 178 million and amounted to HRK 680 million. Deferred taxes decreased by HRK 64 million. The value of inventories was HRK 3.4 billion having increased by 19% due to higher prices and higher inventories of crude, WIP and finished products, while the inventories of natural gas decreased because of the higher winter season consumption. Net trade debtors of HRK 2.7 billion as at 31 March 2010 were 6% down on 31 December Total INA Group liabilities as at 31 March 2010 amounted to HRK 19.4 billion and they were 6% higher than on 31 December 2009, mainly as a result of higher indebtedness which rose to HRK 10.7 billion compared to HRK 8.5 billion as at 31 December Credit facilities were used for crude purchases, capital investments, and settlement of overdue taxes and other liabilities to the state. The amount of taxes and other contributions payable was reduced by HRK 502 million to HRK 1,279 million. The amount of trade creditors was also reduced by HRK 874 million. Long-term and short-term provisions rose to HRK 2.9 billion in Q because of higher provisions for well abandonment. Total net debt for INA Group amounted to HRK 10.3 billion compared to 8.2 billion as at 31 December 2009 while the net gearing 5 rose from 40.9% to 46.9 % as at 31 March This underscores the company s current undercapitalisation due to its sustained intensive investment programme in its key businesses Cash flow In Q1 2010, the operating cash flow before changes in working capital amounted to HRK 1,069 million, HRK 496 million up on Q1 2009, primarily as a result of a stronger EBITDA. The changes of working capital decreased the cash flow from operating activities by HRK 1,995 million in Q1 2010, due to HRK 1,418 million lower trade creditors, HRK 518 million higher values of inventories and HRK 59 million increased trade debtors. Liabilities for crude oil and overdue, taxes and other liabilities to the state were significantly decreased in Q Net outflows in investing activities amounted to HRK 914 million and were HRK 123 million down on Q mainly due to lower amount of Upstream CAPEX. 5 Net debt / net debt plus equity incl. minority interests PAGE 11 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

12 Financial instruments and risk management The most important risks include market risks (the currency risk, the interest rate risk and the price risk), the credit risk and the liquidity risk. The Group used derivative instruments for managing those risks to a very limited extent. The Group does not use derivative financial instruments for speculative purposes. a) Market risks Price risks The Group purchases crude oil mostly through short-term arrangements in US dollars at spot market prices while the required quantities of gas are purchased at a price denominated in US dollars and adjusted on a quarterly basis in accordance with the formula in the long-term gas supply agreement. INA is mostly engaged in the sale of refined products and wholesale of natural gas. Domestic prices of refined products are determined under the pricing formula set out in the Refined Product Pricing Regulation (effective since 2001), to a large extent hedging the Group from the changes in crude and oil product prices and the currency risk, enabling refinery products to be repriced every week (bi-weekly starting from 16 April 2010) depending on the market (Platts) prices and the fluctuations of the Croatian kuna against the US dollar. The Group dos not use forward contracts to manage its oil and gas price risks. Currency risk management While the Group operates home and abroad many company transactions are priced and denominated in foreign currency and it is thus exposed to currency risk. The company applies natural hedge to manage its currency risk exposure based on the principle that the currency mix of the debt portfolio should reflect the free cash flow currency position of the Group. Additionally, the Refined Product Pricing Regulation enables the company to partly transfer the unfavourable movements of exchange rates to domestic products market. Interest rate risk management INA Group companies use borrowed funds at both fixed and variable interest rates (mostly variable) and the Group is consequently exposed to the interest rate risk. Other price risks The Group is exposed to equity price risks arising from equity investments held for strategic reasons and not for trading. b) Credit risks Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a financial loss to the Group. INA, d.d. has adopted a Credit Risk Management Procedure, which it applies in dealing with its customers, and obtains a collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults, like all subsidiaries in the Group. Debentures, being the prevailing payment security instrument on the Croatian market, are mainly taken as collateral. There is no significant risk exposure of INA Group that would not be covered with collateral, other than those to the institutions and entities controlled by the state. Given that the Republic of Croatia is a major shareholder of the Group itself, credit risks to a significant extent depend on the policy of the Croatian Government. c) Liquidity risks The Group's liquidity risk is managed by maintaining adequate reserves and credit lines, and by continuous monitoring of projected and actual cash flow, and due dates for amounts receivable and payable. Crude oil and oil products are imported through INA, d.d. foreign subsidiaries: Interina London and Interina Guersney. In accordance with international practices, crude is purchased by opening irrevocable documentary letters of credit in favour of the suppliers opened at first-class commercial banks, and by using short-term financing (trade financing). d) Fair value of financial instruments The Group has concluded some long-term sale or purchase contracts that contain embedded derivatives as defined by IAS 39. An embedded derivative is a component of a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. PAGE 12 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

13 Related party transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on Group level consolidation. Details of transactions between INA parent company and the Group companies are disclosed below. INA parent company HRK mln Amounts owed from related parties Amounts owed to related parties 31 March March 2010 Foreign related companies Interina Ltd Guernsey Holdina Sarajevo 81 4 Interina d.o.o. Ljubljana 3 - Interina Ltd London - 3,142 INA Crna Gora 11 - INA - Beograd 9 - Domestic related companies Crosco Grupa 1 28 Osijek Petrol d.d Crobenz d.d. Zagreb Proplin d.o.o. Zagreb STSI d.o.o. Zagreb Maziva Zagreb d.o.o. Zagreb ITR d.o.o Sinaco d.o.o Hostin d.o.o. - - Prirodni plin d.o.o. 1, INA parent company HRK mln Sales of goods Purchase of goods 31 March March 2010 Foreign related companies Interina Ltd Guernsey Holdina Sarajevo Interina d.o.o. Ljubljana 7 - Interina Ltd London - 2,566 Adriagas Milano - - INA Crna Gora 11 - INA - Beograd 19 - Domestic related companies Crosco Grupa 1 29 Osijek Petrol d.d Crobenz d.d. Zagreb 98 1 Proplin d.o.o. Zagreb STSI d.o.o. Zagreb 5 94 Maziva Zagreb d.o.o. Zagreb ITR d.o.o. - 7 Sinaco d.o.o Hostin d.o.o. Prirodni plin d.o.o. 1, PAGE 13 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

14 INA Group Summary Segmental Results of Operations Q Q Q Ch.% HRK mln HRK mln HRK mln HRK mln Sales 2,006 6,736 Exploration & Production continuing operations 1,710 2, ,778 13,454 Refining & Marketing 2,671 2, ,367 5,812 Retail 1,147 1, Corporate and Other (1,786) (6,538) Inter-segment revenue (1,164) (1,480) 27 5,634 20,373 Sales continuing operations 4,504 5, ,958 Exploration & Production discontinued operations (63) 6,133 22,331 Total sales 5,234 5,636 8 Operating expenses, net other income from operating activities (1,282) (4,120) Exploration & Production continuing operations (927) (1,320) 42 (3,936) (14,075) Refining & Marketing (2,791) (3,088) 11 (1,445) (5,938) Retail (1,151) (1,349) 17 (499) (1,731) Corporate and Other (319) (349) 9 1,786 6,538 Inter-segment eliminations 1,164 1, (5,376) (19,326) Expenses continuing operations (4,024) (4,626) 15 (723) (2,987) Exploration & Production discontinued operations (1,089) (468) (57) (6,099) (22,313) Total expenses (5,113) (5,094) (0) Profit from operations 724 2,616 Exploration & Production - continuing operations 783 1, (158) (621) Refining & Marketing (120) (118) (2) (78) (126) Retail (4) (116) n.a. (230) (822) Corporate and Other (179) (200) ,047 Profit/(loss) form operations continuing operations (224) (1,029) Exploration & Production discontinued operations (359) (199) (45) Total profit/(loss) form operations Share in the profit of associate companies (274) (395) Net profit/(loss) from financial activities - continuing operations (809) (602) (26) (24) (112) Net profit/(loss) from financial activities - discontinued operations (24) (8) (67) (298) (507) Net profit/(loss) from financial activities (833) (610) (27) (16) 652 Profit/(loss) before taxation - continuing operations (329) 139 n.a. (248) (1,141) Profit/(loss) before taxation - discontinued operations (383) (207) (46) (264) (489) Profit/(loss) before taxation (712) (68) (90) 46 (35) Income tax - continuing operations 63 (63) n.a. (49) 130 Income tax - discontinued operations 77 n.a. (3) 95 Income tax 140 (63) n.a Profit/(loss) for the period - continuing operations (266) 76 n.a. (297) (1,011) Profit/(loss) for the period - discontinued operations (306) (207) (32) (267) (394) Profit/loss) for the period (572) (131) (77) Sales data include intra-group sales and related costs are included in the operating costs of the business segment making the purchase. Intra-group transactions are eliminated for consolidated sales data and operating costs. PAGE 14 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP

15 Q Operating Profit Excluding Special Items * (HRK mln) Q Q Ch. % 1,047 2,738 Exploration and Production continuing 783 1, (224) (1,029) Exploration and Production discontinued (359) (199) (45) (103) (508) Refining and Marketing (120) (118) (2) (39) 43 Retail (4) (42) n.a. (244) (769) Corporate and other (179) (200) Total Q Depreciation (HRK mln) Q Q Ch. % (210) (951) Exploration and Production continuing (250) (282) 13 Exploration and Production discontinued (77) (297) Refining and Marketing (71) (76) 7 (31) (108) Retail (26) (24) (8) (41) (163) Corporate and other (42) (43) ,519 Total (389) (425) 9 Q EBITDA *(HRK mln) Q Q Ch. % 1,273 4,441 Exploration and Production continuing 1,110 1, (229) (982) Exploration and Production discontinued (359) (114) (68) (8) (66) Refining and Marketing (16) (19) Retail 45 (13) n.a. (160) (546) Corporate and other (127) (127) ,030 Total Q EBITDA Excluding Special Items* (HRK mln) Q Q Ch. % 1,272 3,943 Exploration and Production continuing 1,110 1, (229) (982) Exploration and Production discontinued (359) (114) (68) 2 (56) Refining and Marketing (16) (19) Retail 45 (13) n.a. (161) (547) Corporate and other (127) (127) ,541 Total * EBITDA = EBIT + Depreciation + Impairment + Provisions PAGE 15 FINANCIAL STATEMENTS IN THIS REPORT ARE UNAUDITED INA GROUP