Quarterly Report for third quarter of 2014 This version of the Annual Report is a translation from the original document prepared in Serbian language. All possible care has been taken to ensure accurate representation of original document. However, in all matters of interpretation of information, views or opinions, the original Serbian language version of the document takes precedence over this translation. NIS Group Quarterly Report for third quarter of 2014 The Quarterly Report of NIS j.s.c. Novi Sad for third quarter of 2014 represents a credible review of NIS Group’s development and performance in third quarter of 2014, as well as for first nine months of 2014.The report includes and discloses information about NIS Group, which is consisted of NIS j.s.c. Novi Sad and its subsidiaries. If information in this report refers to specific subsidiar(y)ies or just NIS j.s.c. Novi Sad itself that is particularly indicated in the report. The terms "NIS j.s.c. Novi Sad" and "The Company" are used to designate parent company NIS j.s.c. Novi Sad, while the terms "NIS", “NIS Group” and "the Group" refer to the NIS j.s.c. Novi Sad with its subsidiaries. Report, in compliance with the Law on Capital Markets, comprises of three chapters: business report, financial statements (stand-alone and consolidated) with accompanying notes and the statement of persons responsible for preparation of the report. Page | 2 This version of the Quarterly Report is a translation from the original document prepared in Serbian language. All possible care has been taken to ensure accurate representation of original document. However, in all matters of interpretation of information, views or opinions, the original Serbian language version of the document takes precedence over this translation. NIS Group Quarterly Report for third quarter of 2014 CONTENTS Foreword ............................................................................................................................................... 4 Business Report ................................................................................................................................... 5 Key Events ......................................................................................................................................... 6 NIS Group Profile ............................................................................................................................... 7 Risk Management ............................................................................................................................ 18 Business Environment ...................................................................................................................... 20 Market Share .................................................................................................................................... 22 Results Analysis ............................................................................................................................... 24 Bank Indebtedness ........................................................................................................................... 30 Changes on assets and liabilities of more than 10% ....................................................................... 31 Major buyers and suppliers .............................................................................................................. 32 Intersegment Prices ......................................................................................................................... 33 Cases of Uncertainty (uncertainty of collection) ............................................................................... 34 Taxes and other public revenues ..................................................................................................... 35 Investments ...................................................................................................................................... 36 Securities .......................................................................................................................................... 38 Transactions with Affiliates ............................................................................................................... 41 Number of employees ...................................................................................................................... 42 Research and Development ............................................................................................................. 43 Financial Statements ......................................................................................................................... 44 Stand-alone Financial Statements ................................................................................................... 45 Statement on Financial Position ................................................................................................... 45 Statement on Profit and Loss and Other Comprehensive Income ............................................... 46 Statement of Changes in Equity ................................................................................................... 47 Statement Of Cash Flows ............................................................................................................ 48 Notes to Financial Statements ..................................................................................................... 49 Consolidated financial statements ................................................................................................... 49 Consolidated Statement on Financial Position ............................................................................. 66 Consolidated Statement on Profit and Loss and Other Comprehensive Income ........................ 67 Consolidated Statement of Changes in Equity ............................................................................. 68 Consolidated Statement Of Cash Flows ...................................................................................... 69 Notes to Consolidated Financial Statements ............................................................................... 70 Statements of Persons Responsible for Preparation of Quarterly Report ................................... 87 Contacts ........................................................................................................................................... 89 Page | 3 This version of the Quarterly Report is a translation from the original document prepared in Serbian language. All possible care has been taken to ensure accurate representation of original document. However, in all matters of interpretation of information, views or opinions, the original Serbian language version of the document takes precedence over this translation. NIS Group Quarterly Report for third quarter of 2014 FOREWORD Nine months of 2014 were difficult for all business entities, both in Serbia and in Balkans, and NIS was not spared the negative economic effects. Moreover, the most important financial indicators - operating and net income, as well as operating cash flow were negatively impacted by debts of public and state-owned companies. Financial results are influenced by the increase in the tax levy, as well as lower crude oil prices on the global market and the significant decline of the dinar against the dollar and the euro compared to the first nine months of 2013. At the end of the third quarter of 2014, net profit of the company amounted to 21.1 billion dinars, while EBITDA amounted to 47.3 billion dinars, which is at the level of this indicator in the same period last year. Meanwhile, operating cash flow for the first nine months of 2014 amounted to 19.3 billion dinars. At the same time, NIS remained by far the bigest taxpayer, while liabilities for taxes and other charges continue to grow in the first nine months of this year. At the end of September, the total volume of tax to be paid amounted to 97.9 billion which is 10 percent more than the same period last year. When it comes to the key operational indicators at the end of the third quarter of 2014, sales volume was 2,253 thousand tonnes, which is 3 percent more than last year during the same period. It should be kept in mind that Serbia and the region records steady long-term decline in living standards and purchasing power of the population. Yet, thanks to good business policy and appropriate marketing activities, sales of NIS‟ subsidiaries in the region is more than two and a half times higher than at the end of September 2013. Consequently, NIS export has increased, which has straighned its positions of second largest exporter in the country. When it comes to refining, the volume was increased to 2,252 thousand tons, up 2 percent compared to the same period last year. Domestic oil and gas production amounted to 1,209 thousand tonnes of oil equivalent. In the same period, the production of domestic oil was 870.7 thousand tons, while the production of domestic gas was 421.5 million cubic meters. However, despite the decline of key financial indicators and the modest achievements of the operational indicators, NIS continues to invest in its own development. In the first nine months of 2014 26.9 billion dinars was allocated to finance investments. Major investments were 3D seismic works and drilling exploratory wells and the drilling of development wells in Serbia, investment in concession rights in Hungary and Romania, the start of