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Annual Report for 2016 Presents a Factual Overview of the Activities, Development and Performance of NIS Group in 2016

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Annual Report for 2016 Presents a Factual Overview of the Activities, Development and Performance of NIS Group in 2016 1 2 The Annual Report for 2016 presents a factual overview of the activities, development and performance of NIS Group in 2016. The Report covers NIS Group, which comprises NIS j.s.c. Novi Sad and its subsidiaries. If specific reference is made to individual subsidiaries or to NIS j.s.c. Novi Sad only, it is so noted in the Report. The terms “NIS j.s.c. Novi Sad” and “the Company” denote the parent company NIS j.s.c. Novi Sad, whereas the terms “NIS” and “NIS Group” denote NIS j.s.c. Novi Sad with its subsidiaries. The Annual Report summarises how the Group’s strategic goals, corporate governance, performance and realised potential, in conjunction with the external environment, help to generate value in the short, medium and long term. The Annual Report is compiled in Serbian, English and Russian. In case of any discrepancy, the Serbian version shall be given precedence. The Annual Report for 2016 is also available for download from the corporate website. For more information on NIS Group, visit the corporate website www.nis.eu. 3 CONTENTS Letter to Shareholders ............................................................................................................................. 7 Business Report Independent Auditor’s Report on the Compliance of the Business Report with Financial Statements ..................................................... 12 Highlights ............................................................................................................................................... 14 Group’s Profile ........................................................................................................................................ 20 Strategy .................................................................................................................................................. 28 Risk Management .................................................................................................................................. 30 Business Environment ........................................................................................................................... 34 Market Share .......................................................................................................................................... 40 Performance Analysis ............................................................................................................................ 42 Securities ............................................................................................................................................... 64 Corporate Governance ........................................................................................................................... 70 Environmental Protection, Industrial and Occupational Safety .......................................................... 112 Human Resources ................................................................................................................................ 122 Social Responsibility and Local Development ..................................................................................... 134 Internal and External communications ............................................................................................... 140 Further Development ........................................................................................................................... 142 2 Financial Statements Stand-alone Financial Statements ......................................................................................................146 Auditor’s Position on Stand-alone Financial Statements ................................................................... 147 Balance Sheet ..................................................................................................................................... 148 Income Statement ............................................................................................................................... 151 Statement of Other Comprehensive Income ....................................................................................... 153 Cash Flow Statement ...........................................................................................................................154 Statement of Changes in Equity .......................................................................................................... 156 Notes to financial statements ............................................................................................................. 159 Consolidated Financial Statements ..................................................................................................... 204 Auditor’s Position on Consolidated Financial Statements .................................................................. 205 Consolidated Balance Sheet ................................................................................................................206 Consolidated Income Statement ..........................................................................................................209 Consolidated Statement of Other Income ........................................................................................... 211 Consolidated Cash Flow Statement .....................................................................................................212 Consolidated Statement of Changes in Equity ..................................................................................... 214 Notes to consolidated financial statements ........................................................................................ 217 Statement of Individuals Responsible for the Preparation of Financial Statements ........................ 267 Appendices ...........................................................................................................................................269 General Details of NIS j.s.c. Novi Sad ................................................................................................. 270 Glossary ............................................................................................................................................... 271 Contact Details .................................................................................................................................... 274 3 4 5 „We did not let the crisis take control - we responded to it with great determination and successfully countered all the challenges it presented by creating a resilient business model.” 6 LETTER FROM CHAIRMAN OF BOARD OF DIRECTORS AND GENERAL DIRECTOR Determined response to crisis Management of the NIS Group in 2016 was, in fact, management under the circumstances of a global oil crisis. We did not let the crisis take control - we responded to it with great determination and successfully countered all the challenges it presented by creating a resilient business model that rests on two main pillars. The first one is based on the constant increase in efficiency and cost reduction in all segments of our business. The second one is the focus on key investment projects that allow us to develop and ensure a sustainable and secure future. This combination has enabled us to keep NIS among the profitable oil companies. At the same time, our management team showed leadership and great professionalism, proving that it is ready to respond to any challenge and to run a successful business even in times as challenging as these. Improved efficiency leads to profitability This is specifically the business model that in 2016 made it possible for us to deliver financial results similar to our 2015 performance. It is with great pleasure that we can confirm that we have succeeded in maintaining the profitability of NIS despite adverse macroeconomic trends, such as the drop in crude oil prices which marked the greater part of 2016. We have generated a profit of RSD 15 billion, and EBITDA amounted to RSD 39.8 billion. We have managed to preserve jobs, and to keep the salaries and important benefits unchanged for our employees. We owe this primarily to the measures aimed at increasing operational efficiency which we strictly adhered to, with an effect of RSD 8.6 billion on EBITDA last year. Savings were achieved by means of rational use of capacities, reduction of administrative costs as well as through arrangements with suppliers who agreed to lower the prices of their goods and services. This was a great effort of NIS as a whole, and we are very proud of the fact that a significant contribution to improved operational efficiency also came from our employees who in 2016, as part of the program “I have an idea”, put forward more than 1,000 suggestions and helped us remain stable in the face of the crisis. Leader in investments In the course of 2016, we have invested a total of RSD 26.1 billion and again confirmed our position as the leading investor in the Republic of Serbia. The largest investments were made in exploration and production of oil and gas, and keeping the growth rate of hydrocarbon reserves, which were estimated at 3.4 percent in 2016. In the field of refining, we have additionally modernized our plants and continued preparations for the start of construction of the “Bottom of the Barrel” project which will help increase our refining capacities to one of the largest in the region. In the trade segment, we have continued to increase the volume of sales in the markets of Serbia and the region, reaching the share of nearly 43 percent of
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