Presentation for investors and shareholders for Novi Sad Investor Relations

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Allyson Anthony
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1 Presentation for investors and shareholders for Novi Sad Investor Relations

2 Disclaimer This presentation has been prepared by NIS a.d. Novi Sad (the Company ), and comprises the slides for a presentation to investors concerning the Company. Presentation does not constitute or form part of any offer or invitation, or any solicitation of any offer to sell or purchase or subscribe for, any shares or other securities representing shares in the Company, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision. Any viewer of this presentation considering a purchase of such securities is hereby reminded that any such sale or purchase should be made solely on the basis of the information contained in other publicly available documents and will be subject to the restrictions set out therein. No reliance may be placed for any purposes whatsoever on the information contained in this presentation, or any other material discussed at any presentation or on its completeness, accuracy or fairness. The information in this presentation should not be treated as giving investment advice or recommendation. All reasonable measures are taken to ensure that the facts stated in this presentation are accurate, and that the opinions expressed are fair and reasonable. However, the contents of this presentation have not been adopted by the corporate body s of Company. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in or discussed at this presentation. None of the Company or any of their respective members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information in this presentation includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, the Company s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forwardlooking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties to be set in other publicly available documents, because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company s results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods. The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. No person is under any obligation to update or keep current the information contained herein. By attending the presentation you confirm that you have read and understood foregoing limitations.

emissions Development of a detailed geological model of the Pannonian Basin (Schlumberger`s PetroMod software)

disposal; they reduce the mean time between failures for the equipment Refining: Overhaul of main refinery

3 NIS in. Exploration and production: Ecological method of dry well drilling Amine unit construction - reduction of CO₂ emissions Development of a detailed geological model of the Pannonian Basin (Schlumberger`s PetroMod software) New unit for gas clarification Use of chemical substances in the process of fluid production, preparation and disposal; they reduce the mean time between failures for the equipment Refining: Overhaul of main refinery units: atmospheric distillation, vacuum distillation, reforming of petroleum, HDS of pyrolytic petroleum, gas treatment and amine washing. Commencement of production and transport of BMB 100 petrol Production of a new type of polymer bitumen PMB 25/50, start of production of additional amounts of diesel from the heavy FCC petroleum cut. Demineralised water unit constructed Share of white petroleum products in the POR output reaches 75% 3

NIS in Sales: The financial results of the Block improved by 138% in comparison to Beginning of sales of the new

non-fuel product branding Super kartica becomes a payment card as well; may also be used at GAZPROM petrol stations

completed of the total electric capacity of 3,650 kwe Share of own electricity generation (small power plants with

generated at NIS cogeneration plants Plant for preparation and compression of natural gas constructed at the oil

4 NIS in Sales: The financial results of the Block improved by 138% in comparison to Beginning of sales of the new type of fuel - ULTRA D, premium Euro Diesel, at the stations of NIS Petrol, new restaurant brand Aromatic and non-fuel product branding Super kartica becomes a payment card as well; may also be used at GAZPROM petrol stations in Serbia Increase in the international turnover by 86% compared to Energy: Construction of four small power plants completed of the total electric capacity of 3,650 kwe Share of own electricity generation (small power plants with the energy plant in Pančevo) in the total consumption of NIS in is 20% NIS sells the first amount of electricity generated at NIS cogeneration plants Plant for preparation and compression of natural gas constructed at the oil and gas field of Palić Preconditions for the implementation of major projects in the area of electricity generation created 4

5 Macroeconomic indicators Last year was rather difficult for the economy in the whole Balkan region, and it applies to NIS as well USD/RSD exchange rate Urals oil price, $/bbl I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII GDP in Serbia**, bln. RSD Calculated taxes***, bln. RSD * -1.7% +13% % * GDP for the first three quarters in and estimate changes **Source: NBS, constant prices ***refers to the tax of all NIS Group

6 Challenging year for the whole industry Net profit CAPEX EBITDA -84% -7% -21%.. -11%.. -21%.. -13%.. -65%.. -33%.. -59%.. -10%.. -16%.. -30% Source:

7 Macroeconomic conditions are similar to those in 2008, while NIS shows much higher financial stability in USD/RSD exchage rate -6% -1% +26% % +5% +9% USD/RSD exchange rate shows a growth tendency in both years Q1 Q2 Q3 Q4. Q1 Q2 Q3 Q4 Urals oil price, in $/bbl +25% -4% -53% % -7% -25% Average oil price in both years is almost identical (94 98 $/bbl) with a sharp drop in the second half of the year and especially in Q Q1 Q2 Q3 Q4. Q1 Q2 Q3 Q4 Net profit, bln. RSD % -72% % 2,2 5,3 1, Q1 Q2 Q3 Q4-8,2-17,1 27,8-3% -51% +63% 8,6 8,4 4,1 6,7. Q1 Q2 Q3 Q4 Net income in is positive in spite of significantly bigger exchange rate differences (2008.: -8,8;.: -13,2)

Operational efficiency Application of operative efficiency increase measures has resulted in saving which is doubled as compared to projections Application of operative efficiency increase measures

8 Operational efficiency Application of operative efficiency increase measures has resulted in saving which is doubled as compared to projections Application of operative efficiency increase measures in resulted in the savings higher by 5.4 billion RSD than projected. Thus the decrease in domestic oil production was compensated Exploration and Production Services Refining Sales and Distribution Planned measures Additional measures Energy Functions Total 8 In, more than 400 ideas generated for achieving a higher efficiency Some of the measures which contributed to this increase: Import of semi-finished products instead of the import of crude oil VGO and gasoil in the raw materials basket Higher export of light petroleum products Increase in the efficiency of technological processes in Refining Higher efficiency in Sales and Distribution

: HSE indices Most HSE indicators are at the projected level, except for LTIF and perforation coefficient Investment into environmental projects, mln.

9 : HSE indices Most HSE indicators are at the projected level, except for LTIF and perforation coefficient Investment into environmental projects, mln. USD Transparency index increase Perforation coefficient Plan % 7 23 Major accidents 166 Serious incidents 192 Plan % 983 2,086-53% 823 Minor incidents 1, ,155 Potentially hazardous situations 7, LTIF RAR Investigated cases -19% Plan % Plan 0.9 Plan 100% -24% 3a 22% % 29% -59% За 36% % NIS with subsidiaries (OFS) 9 *Perforation coefficient is relation between the number of perforations based on the total oil pipeline length in km LTIF - Lost time injury frequency rates (relation between the number of injured during accidents at work and the total working hours, multiplied by 1 million RAR - Road Accident Rates - relation between the number of road accidents as opposed to mileage in km, multiplied by 1 million

10 : Key indicators NIS Group Q4. Q4. Q4. Q4. (%) 1 Key indicators Measurement unit.... (%) % Urals $/bbl % % Net profit billion of RSD % % EBITDA 2 billion of RSD % % Sales billion of RSD ,4% % OCF billion of RSD % % Taxes and other fiscal obligations 3 billion of RSD % % Domestic oil and gas production 4 thou. c. tons 1,596 1,642-2,8% % Oil and semifinalized products refining volume thousand tons 3,104 3,066 +1% % Total sales of oil products thousand tons 3,090 3,079 +0,4% % Abroad sales thousand tons % % Oil products local market sales 5 thousand tons 2,494 2,497-3% % Motor fuel thousand tons 1,632 1,592 3% % Retail 6 thousand tons % % CAPEX 7 billion of RSD % % Total bank indebtedness (total indebtedness) 8 million of USD % [1] All possible discrepancies in percentage values and total values are due to rounding errors [2] EBITDA = Sales (without excise tax) inventories ( of oil, oil products and other products) operational expenditure (OPEX) other costs, which management cannot affect [3] Taxes, duties, fees and other public revenues calculated for the relevant period. The overview includes NIS' tax obligations and other public revenues in Serbia and in other countries in which it operates. The indicated amount is exclusive of dividends paid out to the Republic of Serbia (3.7 billion RSD in and 3.9 billion RSD in ) [4] As a result of the changed methodology, gasolene and light condensate were included in the production of domestic oil, and commodity production of gas was included in the gas production [5] Petroleum product turnover in the domestic market refers to the sales to the buyers from Serbia in Serbia.. [6] Apart from motor fuels, production of other petroleum products was included as well.. [7] Financing, without VAT [8] Total bank indebtedness = Total indebtedness to banks + letters of credit. As at 31/12/ it amounts to 598 million USD total debt + 28 million USD letters of credit

Market of motor fuels trends / Regional motor fuel market in the region slightly recovered.

compressed natural gas as a more costeffective energy alternative.

11 Market of motor fuels trends / Regional motor fuel market in the region slightly recovered. Hungary Romania Key factor for recovering the regional market demand for motor fuels calls for significantly lower prices in the second half of the year. Slovenia +4.5% +5.4% -2.0% -0,1% In Serbia, motor fuel demand is experiencing moderate rise, despite a sharp downward trend in LPG consumption, which tends to be more and more substituted by compressed natural gas as a more costeffective energy alternative. Diesel consumption growth is mainly caused by flood recovery reconstruction projects and positive effects of fuel marking reducing the gray market. Croatia +2.0% Bosnia and Herzegovina Serbia * +1.3% Bulgaria +2.2% -2.6% 11 Sources of information used as a basis for the projections designed: * Serbia, internal analyses and assessments conducted by the Sales and Distribution; - PFC - assessment of consumption per trimester in Bulgaria and Romania, ; Eurostat - PFC and internal assessments for B&H, September

Due to significantly lower excise duties and taxes compared to the surrounding countries, Bosnia sees growth in cross-border goods procurement from border territories which include fuel supply as

12 Regional Retail Market and Motor Fuel Market Trends BOSNIA AND HERZEGOVINA BULGARIA ROMANIA 35 7% 7.3% Motor fuel market is recovering more slowly due to the poor economy and negative impact of the May floods. Due to significantly lower excise duties and taxes compared to the surrounding countries, Bosnia sees growth in cross-border goods procurement from border territories which include fuel supply as well % 2.6% Step-by-step market recovery continued throughout in Bulgaria. Motor fuel market growth is the result of diesel consumption increase, which should be the key factor for further long-term growth. In the last quarter, a rise in the LPG and motor fuel consumption was reported, as a result of the sudden drop in fuel prices % 0.5% Motor fuel market reported no recovery in the fourth quarter due to lower prices, as a partial compensation for the negative effect of higher excise duty policy applied since April. Number NIS market share in the total motor fuel market of FSs Sources of information used for forecast processing: - PFC - estimated consumption per quarter in Bulgaria and Romania, ; Eurostat, - Data for B&H: PFC "internal analyses and assessments conducted by the Sales and Distribution; * Motor Fuel Market: Motor gasoline (mogas), diesel fuels and LPG; NIS market share in the retail market

13 The Market of the Republic of Serbia The total consumption of petroleum products is dropping The market scope of the Republic of Serbia in thousands of tons Retail market in Republic of Serbia**, in thousand tons * 2,466 (78%) 705 (22%) 3, % 0.3% * 642 (41%) 934 (59%) 1,576 2,527 (78%) 718 (22%) 3,245 NIS Others 671 (43%) 901 (57%) 1,572 NIS Others Consumption of petroleum products is dropping. The largest decline in consumption has been reported in primary gasoline and LPG, whereas diesel fuels report a slight growth. Aviation fuel consumption is significantly higher primarily due to the business expansion of the local airliner, Air Serbia. Increased consumption of bitumen results from continuing Serbian corridor construction and finalization of the Pupin Bridge in Belgrade. NIS market share has remained stable compared to last year owing to an adequate market approach and flexible reactions to the changes in the surrounding environment. The retail market is at the previous year s level, and it is characterized by a slightly changed structure featuring reduced demand for auto gas, while diesel fuel consumption is on the rise. Since August, the motor fuel marker control has been applied, which has enhanced the fuel quality control in Serbia. NIS market share in the retail market tends to be experiencing a slight decline caused by changes of the agricultural program mechanism which now includes distribution at all stations in the country, and not through a single distribution system which used to be the case during past years. During the agricultural season, substitution of diesel with fuel oil was quite noticeable as confirmed by the rise observed on the sales figures thereof. 13 * Data for are based on the estimates. ** The sales of NIS and other competitors include engine fuels (gas, engine fuels, diesel and EL fuel oil, which is used as an engine fuel).

14 Financial Indicators EBITDA, billion of RSD Net profit, billion of RSD % 27.8 Foreign exchange rate losses % -42% Foreign exchange rate gains Q4 ' % Q4 ' % Q3 ' Q3 ' Q2 ' Q2 ' Q1 ' Q1 ' Q4 ' Q4 ' EBITDA decreased by -8% in compared to : Global Oil price drop Domestic oil and gas production decline Net profit decreased by -42% in compared to : Negative exchange rate differences, as a consequence of US dollar strengthening against the domestic currency Higher depreciation amount 14 All possible discrepancies in percentage values and total values are due to rounding errors

15 Financial Indicators Sales, billion of RSD -0.4% OCF, billion of RSD % Q4 ' % Q4' % Q3 ' Q3 ' Q2 ' Q2 ' Q1 ' Q1 ' Q4 ' Q4 ' The retail petroleum product prices increased in by about 0.70% compared to Changes in retail prices*. (%). Europremium BMB % Eurodiesel 1.90% All possible discrepancies in percentage values and total values are due to rounding errors *The prices are calculated as the average of all daily prices in and Decrease in cash flow from operations: Oil price drop Greater commitments for the purchase of petroleum products - semi-finished products Crude oil imports - greater quantities and length of the refining process - Sales Increase in customs and fiscal duties

Exploration and production Domestic oil and gas production, in thousand conditional tons Domestic oil production, in thousand tons Oil production in Angola, in thousand tons 1,596-3% 1,148-4% 57 4%

16 Exploration and production Domestic oil and gas production, in thousand conditional tons Domestic oil production, in thousand tons Oil production in Angola, in thousand tons 1,596-3% 1,148-4% 57 4% 1,642 1, Q4 ' % Q4 ' % -1% Q4 '14 14 Q3 ' Q3 ' Q3 '14 14 Q2 ' Q2 ' Q2 '14 15 Q1 ' Q1 ' Q1 '14 13 Q4 ' Q4 ' Q4 '13 15 Domestic oil and gas production in amounts to 1,596 thous. toe, which is by 3% less than. Drop in basic production Changes in drilling dynamics Reduction in the volume of investments Increase in oil and gas reserves in Serbia and Angola in : +9% 16 All possible discrepancies in percentage values and total values are due to rounding errors

17 Refining Refining volume, in thousand tons 1% Q4 ' % 1,500 1, ,104 Q3 ' Q2 ' ,568 1, ,066 Q1 ' Imported oil Domestic oil Semi-finalized products Q4 ' Imported oil Domestic oil Semi-finalized products Year saw an increase in oil refining volume and semi-finished product refining by 1% in comparison with the same period of the previous year: A higher refining and additional refining volume (with an increase in additional refining of semi-finsihed products) A higher volume of refining in accordance with the market demand Overhaul was conducted in September 17 All possible discrepancies in percentage values and total values are due to rounding errors

18 Sales Oil derivatives sales, in thousand tons Sales structure per oil derivatives, in thousand tons 643 1, , % 700 2,390 3, % Retail Serbia 674 1, ,079 Wholesale Serbia Abroad sales Export 666 2,413 3,079 Black and other products White products and LPG Q4 ' % Q4 ' % Q3 ' Q3 ' Q2 ' Q2 ' Q1 '14 Q4 ' Retail Serbia Wholesale Serbia Abroad sales Export Q1 '14 Q4 ' Black and other products White products and LPG 18 Retail drop in sales by 5%: Decrease in fuel sales to the farmers. A part of diesel fuel planned for farmers was sold through the wholesale channel. NIS is a leader in the country in terms of average daily sales per PS, both in the premium segment t/day and in the mass segment t/day Abroad assets growth by 86% Growth in the sale of motor fuels by 87%, which includes growth of gasoline by 67% and diesel by 91% All possible discrepancies in percentage values and total values are due to rounding errors Foreign turnover is the turnover of NIS subsidiaries. Wholesale drop by 2%: Decrease in fuel sales in the result of reduced sales of straight-run gasoline by 32% Increase in motor fuel sales by +5%, where there is an increase in diesel fuel sales by 6% Increase in jet fuel sales by +60% Increase in heavy fuel oil sales (by +1.4%) and bitumen sales (by +32%) Export growth by 2%: Increase in export of diesel, bitumen and jet fuel

19 Structure of bank indebtedness Total debt to banks increased by 31% Total debt to banks, in millions of USD ' ' ' ' ' ' ' ' ' Total bank indebtedness, in millions of USD Short-term Medium-term Long-term 793 GPN Loan, in millions of EUR Structure of total debt to banks, per currency in % ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' Letters of credit Total debt ' ' ' ' ' ' ' ' '09 85% 86% 72% 80% 69% 56% 70% 74% 67% 26% 15% 24% 25% 21% 32% 14% 1% 14% 13% 18% 7% 18% 5% 5% 1% 1% 1% USD EUR Other 19 All possible discrepancies in percentage values and total values are due to rounding errors * Term structure of the debt to banks is shown according to Contract terms and not by maturity of the debt as of December 31st,

20 Restructured loan portfolio Banking portfolio was successfully restructured - extended maturity with lower interest rates. NIS effectively bridged the difficulties caused by the EU and US sanctions and provided long-term financing in All in (including base interest), in % annually Average maturity, in years -20% -13% years as at as at Original maturity as at All in - part of portfolio due in. All in - all loans Maturity as at 31/12/, in millions of RSD Banks providing funds to NIS 20 Current part 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years

21 Investments RSD 39.4 billion was allocated in Q4. Q4. Sources of investment funding Ecology Angola PSA* Projects with direct economic effect Projects without direct economic effects Project-researching activities TOTAL: *in billions of RSD (VAT exclusive) CAPEX per investment projects, in billions of RSD Investments by segments, in billions of RSD % -15% -34% % % Plan -29% Ecology Angola Projects with direct economic effect Projects without direct economic effect Project-research works All possible discrepancies in percentage values and total values are due to rounding errors *PSA - Production Sharing Agreement; NIS j.s.c. Novi Sad with subsidiary companies, excluding Jubos d.o.o. Bor, NIS Overseas o.o.o. Saint Petersburg, and NIS Svetlost d.o.o. Bujanovac. Exploration and production Refining Sale and distribution Services Energy Corporate Centre

The most important investments in Exploration and Production, Refining and Sales and Distribution Exploration and production

concession rights Compressor station at OGF Velebit 7.

22 The most important investments in Exploration and Production, Refining and Sales and Distribution Exploration and production Seismic testing Increasing oil and gas production Refining Modernisation of refining capacities Sale and distribution Development of the retail network 25.2 billion RSD Well drilling 3D seismic testing and exploration well drilling in the Republic of Serbia Investment in concession rights Compressor station at OGF Velebit 7.7 billion RSD Production of base oils Reconstruction of oil transport tanks at NSOR Connection of distribution TS and rehabilitation of process transformer substations 3.7 billion RSD Regional development of sales in Bulgaria and Romania Purchase of PS Sava Centre Reconstruction of petrol stations in Serbia 22

23 Comparative analysis (benchmarking) of basic indicators with competitors (NIS *., other I-IX ) EBITDA margin (in %) EBITDA/FTE** (in thousands USD) Daily sales rate (in ton/day) Ratio of other products (in %) OPEX ($/boe) Lifting costs REVEX Н/Д 23 Sources: NIS, Companies reports *Data EBITDA / FTE presented for 9M * * Without leasing employees

24 + EBITDA above the plan + Efficiency increase measures + Growth in refining volume and turnover + Introduction of new products - Drop in oil and gas production - Retail sales drop - Lower OCF and the relevant increase of overall bank indebtedness - Unfavourable HSE picture 24

25 Anti-crisis plan Challenges remain in NIS has adopted a plan of anti-crisis measures; the achieved savings will be invested in the development and stability of NIS Investments - focus on the key projects for the development of NIS; projects of less importance are postponed Operational efficiency increase savings of at least 1.8 billion RSD; with additional measures up to 5 billion RSD Exploration and Production optimization of basic production, drilling costs and capital well workover costs Services optimization of time and quality of work processes Refining increase in the volume of production of white petroleum products and increase of energy efficiency Sales and Distribution reduction of costs of logistics and development of commercial policy Reduction of costs through the increase of procurement efficiency and sales of illiquid assets Reduction of administrative costs 1.5 billion RSD 25

26 NIS a.d. Novi Sad Investor Relations Narodnog fronta Novi Sad, Serbia

Presentation for Investors and Shareholders for Q /11/2014 Novi Sad Investor Relations

Presentation for Investors and Shareholders for Q3 2014 05/11/2014 Novi Sad Investor Relations Disclaimer This presentation has been prepared by NIS a.d. Novi Sad (the Company ), and comprises the slides