2017 Annual Report 4 Contents NIS Group in 2017 ........................................................6 Letter to Shareholders ..............................................8 Independent Auditor’s Report on the Business Compliance of the Business Report with 1 01 Report Financial Statements ..............................................14 02 Highlights ...................................................................16 03 NIS Group ....................................................................20 04 Strategy .......................................................................30 05 Risk Management ....................................................34 06 Business Environment ...........................................42 07 Performance Analysis ............................................48 08 OMS Etalon .................................................................74 09 Securities .....................................................................76 10 Corporate Governance............................................84 11 Human Resources .................................................118 Environmental Protection, Industrial and 12 Occupational Safety .............................................132 13 Corporate Social Responsibility ......................142 14 Communication .....................................................150 15 Research and Development ...............................152 16 Further Development ..........................................154 The Annual Report for 2017 presents a factual overview of NIS Group’s ac- The Annual Report is compiled in Serbian, English and Russian. In case of — tivities, development and performance in 2017. The Report covers and pre- any discrepancy, the Serbian version shall be given precedence. Referral to another sents data for NIS Group, comprising NIS j.s.c. Novi Sad and its subsidiaries. part of this Report or to other reports If the data pertain only to certain individual subsidiaries or only NIS j.s.c. The Annual Report for 2017 is also available online on the corporate website. of NIS Group. Novi Sad, it is so noted in the Report. The terms: ‘NIS j.s.c. Novi Sad’ and ‘the For any additional information on NIS Group, visit the corporate website Company’ denote the parent company NIS j.s.c. Novi Sad, whereas the terms www.nis.eu. ‘NIS’ and ‘NIS Group’ pertain to NIS j.s.c. Novi Sad with its subsidiaries. The Annual Report contains information explained in more detail in other — The Annual Report provides a concise and integrated overview of the fi- sections of this Report, other reports or on the corporate web pages. There Referral to the nancial and non-financial achievements of NIS Group in 2017 and shows is also a glossary at the end of the Report with explanation of the abbrevi- corporate website www.nis.eu how the Group’s strategic goals, corporate governance, achieved results and ations and acronyms used. realised potential, in conjunction with the external environment, lead to generating the value in the short, medium and long term. 2017 Annual Report 5 2 Financial 01 Stand-Alone Financial Statements ................158 Auditor’s Report on Stand-Alone Statements Financial Statements ...........................................160 Balance Sheet .........................................................162 Income Statement .................................................166 Statement of Other Comprehensive Income ..168 Cash Flow Statement ........................................... 170 Statement of Changes in Equity ...................... 172 Notes to the Stand-Alone Financial Statements .............................................................. 174 02 Consolidated Financial Statements ...............240 Auditor’s Report on Consolidated Financial Statements ...........................................242 Consolidated Balance Sheet ..............................244 Consolidated Income Statement .....................248 Consolidated Statement of Other Comprehensive Income ............................................250 Consolidated Cash Flow Statement .....................252 Consolidated Statement of Changes in Equity ....................................................254 Notes to the Consolidated Financial Statements .............................................256 3 Statement of Individuals Responsible for the Preparation of Financial Statements ................................................................ 330 4 Appendices 01 General Details of NIS j.s.c. Novi Sad ............334 02 Glossary ....................................................................335 03 Contact Details .......................................................340 6 NIS Group in 2017 1.01 NIS Group in 2017 Net profit RSD Investment growth of Strategy 2025 bn 27 2% adopted 80% 52 higher year-on-year development and 8 Increase in hydrocarbon reserves of exploration wells 2016 2017 drilled in Serbia in 2017 3.1% Refining volume Sales volume 3,605 3,507 thousand tonnes – thousand tonnes – 9% 5% more than last year more than last year Start of active phase in the Retail network development – 11 petrol stations construction of the Delayed Coking Unit reconstructed, 3 new petrol stations commissioned 2016 2016 as part of ‘Bottom of the Barrel’ Project and Bagrdan petrol station purchased 2017 2017 2017 Annual Report 7 Awards Net profit RSD Investment growth of Strategy Ministry of Education, Science and Technological Development awarded NIS j.s.c. Novi Sad with St Sava Award for its contribution to the education 2025 in the Republic of Serbia through the ‘Energy of Knowledge’ corporate programme. bn adopted 27 2% NIS declared the ‘National Champion’ in the category of Environmental Protection and Sustainable Development as part of the European Business Awards competition. 80% 52 The Chamber of Commerce and Industry of Serbia higher year-on-year development and awarded NIS with two awards in the category ‘Manufactured Goods and Business Services’ for the best corporate brand and the best merchandise brand ‘NIS Petrol’ as part of ‘The Best from Serbia’ Award. Increase in hydrocarbon reserves of 8 NISOTEC brand won the Great Champion Trophy of exploration wells the 84th International Agricultural Fair in Novi Sad drilled in Serbia for the top quality of motor and hydraulic oils, as 2016 2017 in 2017 3.1% well as seven grand prix gold medals and three gold medals for the quality of NISOTEC products. NIS won the Gold Stevie International Business Award Refining volume Sales volume in the category of specialised websites for providing 3,605 3,507 information to investors and shareholders. thousand tonnes – thousand tonnes – NIS declared the supreme champion of business excellence, achieving the highest score in the history 9% 5% of prestigious ‘Oscar of Quality’ business award. more than last year more than last year Start of active phase in the Retail network development – 11 petrol stations For the fifth time, NIS received the Golden Plaque construction of the Delayed Coking Unit reconstructed, 3 new petrol stations commissioned Award of the Belgrade Stock Exchange for the 2016 2016 as part of ‘Bottom of the Barrel’ Project and Bagrdan petrol station purchased best investor relations in 2017, competing with 17 2017 2017 domestic and regional companies. 8 Letter to Shareholders Vadim Yakovlev Chairman of Board of Directors of NIS j.s.c. Novi Sad Letter to Dear Friends, As a successful and dynamic year for NIS, 2017 has become a significant milestone in our history. It Shareholders saw strategic directions for the development of NIS defined and the cornerstone laid for implementing large projects aimed at improving our competitive- ness in an ever-more demanding market. The current reality and the accelerating rate of de- velopment in new technologies are bringing con- tinuous transformations globally, creating new challenges for our business. Rapid development in the IT sector greatly changes both the expec- tations and the behaviour of our consumers, while continuous innovation reforms not only production methods but also how processes of conventional markets operate on global and regional levels. In 2017 we set our focus on sustaining profitability and improving operational efficiency. Accordingly, we developed a business model that reflected low oil prices and new macroeconomic realities. This en- abled us to return excellent financial results by the end of the year as well as initiating and strength- 2017 Annual Report 9 ening important partnerships and to formulate the EUR 300 million. The start-up of the Delayed Cock- future strategic direction. ing Unit complex, set for 2019, will enable the NIS processing complex to become one of the most up- Improving results to-date and efficient refining capacities in South- East Europe. The significant financial growth during 2017 is the result of the total commitment to business activi- NIS also made further investments in increasing ties by all employees, from the top management to the environmental protection level at the Pančevo operating personnel. NIS net profit increased by 80 Oil Refinery. In 2017, the refinery became the first per cent compared to 2016 reaching RSD 27 billion. energy complex in Serbia to receive the IPPC per- We invested a total of RSD 26.5 billion, while fiscal mit, an international certificate that confirms that charges reached RSD 171 billion, 5 per cent more production processes comply with European stand- than the previous year. This is the fifth consec- ards for environmental protection. utive year