Naftna Industrija Srbije : Annual report for 2023

Annual report 2023

NIS Group

ANNUAL REPORT 2023

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ANNUAL REPORT 2023

Annual report 2023

The Annual Report for 2023 gives a factual overview of activities, development and performance of the NIS Group in 2023. The Report covers and presents data for the NIS Group, comprising NIS j.s.c. Novi Sad and its subsidiaries. If the data pertain only to specific subsidiaries or only NIS j.s.c. Novi Sad, it is duly 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 pertain to NIS j.s.c. Novi Sad with its subsidiaries.

The Annual Report provides a concise and an integrated overview of the financial and non-financial performance of the NIS Group in 2023 and shows how the strategic goals, corporate governance, achieved results and realised potentials, in conjunction with the external environment, lead to generating the value in the short, medium and long term.

The Annual Report is compiled in the Serbian, English and Russian language. In case of any discrepancy, the Serbian version shall prevail.

The Annual Report for 2023 is also available online on the corporate website. For any additional information on NIS Group, you may visit the corporate website www.nis.rs.

The Annual Report contains information explained in more detail in other sections of this Report, other reports or on the corporate website pages. In addition, the explanations of the abbreviations and acronyms used are given in the glossary at the end of the Report.

Reference to another part of the Report or to other reports of the NIS Group

Reference to the corporate website www.nis.rs

NIS Group

CONTENTS

NIS Group in 2023	4
Awards and recognitions	5
Implementations of Key Projects	6
HIP-Petrohemija integration	6
Construction of a polypropylene production plant	6
Retail Network Development Projects	6
Solar panels	7
Digital transformation	8
Letter to shareholders	10
Independent Auditor's Report	12
Management Business Report	24
Nonfinancial Reporting	24
Highlights	24
NIS Group	28
Strategy	46
Risk management	52
Business environment	58
Legislative changes	62
Performance analysis	63
Corporate Governance	103
Human resources	127
Occupational safety and health, industrial safety and emergency response and environmental
protection	136
Anti-Corruption and Anti-Fraud Policy	147
Corporate social responsibility	149
Communication	152
Research and Development	154
Further development	156
Financial Statements	158
Stand-Alone Financial Statements	158
Balance sheet	158
Income statement	161
Statement of other comprehensive income	163
Statement of cash flows	165
Statement of changes in equity	166
Notes to the Standalone Financial Statements	167
Consolidated Financial Statements	222
Consolidated balance sheet	222
Consolidated income statement	225
Consolidated statement of other comprehensive income	227
Consolidated statement of cash flows	228
Consolidated statement of changes in equity	230
Notes to the Consolidated Financial Statements	231
Report on payments to governmental authorities	293
ESG Indicators	297
Statement of individuals responsible for the preparation of report	299
Appendices	300
General Information about NIS j.s.c. Novi Sad	300
Glossary	301
Financial Calendar	303
Contacts	304

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Annual report 2023

NIS GROUP IN 20231

Oil and gas output	Reining volume	Sales volume	Volume of produced
1,158.3	4,092.3	3,999.5	electricity
129,059
thousand t.o.e.	thousand tonnes	thousand tonnes	MWh
bln RSD	bln RSD	bln RSD	bln RSD
68.1	44.2	39.2	28.0
EBITDA	Net proit	CAPEX	OCF

ACCELERATION OF THE ENERGY TRANSITION

>800mlnRSD	ecological projects	>270mlnRSD	of employees
	investments in		Professional development
-6%	(scope 1)	>4,200	training
	Direct CО" emissions		Realized
-13%	(SO")	0
	Sulphur Dioxide		Tier 1
17PvPP	at PSs	>7blnRSD	the community
	Put into operaŠion		Investments in

21.2%	23.4 RSD
	BLN
DIVIDEND	WAS PAID
INCOME	AS DIVIDEND

1 Refining and sales volume does not include HIP-Petrohemija. Volume of produced electricity includes the electricity produced in Power plant Pancevo, small power plants and photovoltaic power plants. The total volume of electricity produced for the 2023 in TE-TO Pančevo is 1.1 million MWh. NIS j.s.c. Novi Sad owns 49% of the shares in TE-TO Pančevo.

NIS Group

AWARDS AND RECOGNITIONS IN 2023

NIS won the special plaque of the daily newspaper "Večernje Novosti" entitled "The Noblest Feat of the Year", intended for associations and companies that have been continuously helping others and encouraging them to do noble deeds for years

"Diplomacy&Commerce" magazine awarded NIS with the Award for the Best Socially Responsible Campaign "May New Hopes be Born"

The "May New Hopes be Born" campaign won the award of the "Campaigns with Purpose social 2023", given by the "Yellow Pants" Association

At the International Agricultural Fair in Novi Sad, NIS received the award "Leader of Socially Responsibility among Companies" for 15 years of implementing the "Common Cause Community" programme

On the occasion of 15 years of the "Common Cause Community" programme, NIS won the "Captain Miša Anastasijević" award in the "Leader of Social Responsibility" category

The Drive.Go mobile application was given the special award of the magazine "PC Press" magazine - "Top 50" of the best online content in the "Digital Innovation" category

The NIS Energy programme was the winner of the award "Digital Awards" for the HR Employer branding online campaign, which was given during the conference #Digital2023

The Society of Mathematicians of Serbia has awarded NIS with a charter for a long-term support to young mathematicians and activities of the Society

NIS received the certificate of appreciation from the Serbian Chemical Society for supporting the organization of the Chemistry Olympiads in 2023

The Chess Federation of Serbia gave NIS the award for supporting the Chess Federation, as well as for supporting the organisation of the first FIDE Chess Olympiad for People with Disabilities

The Volleyball Federation of Serbia presented NIS its certificate of appreciation for the successful cooperation and contribution to the development of volleyball in Serbia

Place in the top three most desirable Serbian employers according to the AIESEC poll "Voice of the Serbian Youth"

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Annual report 2023

NIS Group

IMPLEMENTATIONS OF KEY PROJECTS

HIP-PETROHEMIJA INTEGRATION

The strategic partnership with HIP-Petrohemija was established in 2023. In accordance with the Strategic Partnership Agreement between the Republic of Serbia, NIS j.s.c. Novi Sad, and HIP- Petrohemija, the transaction was closed on 9 June, following which the work on integration of HIP-Petrohemija into the NIS system started. The share capital was increased, new governance bodies were elected, and NIS started fulfilling its obligations, as a strategic partner of HIP- Petrohemija.

As a result of this strategic cooperation, upon the implementation of an extensive investment program, modernisation and construction of new production capacities, NIS will tackle diversification and expansion of business activity in the petrochemicals production segment. Owning to the synergy effect, the consolidation of capacity will strengthen business stability.

CONSTRUCTION OF A POLYPROPYLENE PRODUCTION PLANT

RETAIL NETWORK DEVELOPMENT PROJECTS

Suboca

PS Bajmok

PS Bečej 2

				Zrenjanin
PS Odžaci
Novi Sad
					Stara Pazova
	Šabac	Beograd
Loznica
Valjevo
						Zaječar
	PS Valjevo 5			PS Sokolići 2
							Kragujevac
				PS Kosjerić
	Užice	Čačak
				Kraljevo		Kruševac
										PS Blace
							PS Brus
									Niš
							Novi Pazar

PS Niš istok

Leskovac

PS Vladičin Han

Vranje

SOLAR PANELS

During 2023, 37 solar photovoltaic power plants (PvPP) were constructed and 17 were put into operation on NIS petrol stations. The construction of these power plants started in 2022, when 8 PvPP were started up. In 2024, PvPP construction will continue on other NIS facilities.

Subo•ca	19
6		7
4
		18
5			Zrenjanin
14		2
Novi Sad
			25	Beograd
			8	23
		1	2	1
	15	3
11	Šabac	14	8		20
Loznica	12	3	16	9	10	24
Valjevo						7		17	21
						9
				4		5	Zaječar
		20
	19				Kragujevac
			6
	Užice	18
				15	12
	10	Čačak
			Kraljevo
						Kruševac
									13
				13		Novi Pazar	11	Niš
									17
									Leskovac	22
								16	Vranje

A plant for the production of polypropylene in HIP-Petrohemija is planned to be built, worth EUR 150 million, with a capacity of at least 140,000 tons per year.

The construction of a new polypropylene factory will enable an increase in the volume of polymer production and better utilization of the products now exported by HIP-Petrohemija.

New construcon

Reconstucon

Addional projects

Built PvPP in 2023

Commissioned PvPP in 2022 and 2023

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NIS Group

DIGITAL TRANSFORMATION

The process of digital transformation in our company is characterized by continuous improvement of business processes and introduction of highly applicable digital solutions and technologies with the aim of improving business efficiency. A significant part of this strategic direction is aimed at developing the competencies of our employees through intensive

Digital transformation - Results for 2023:

educational modules on digital technologies and their application in the business environment. Our team of internal trainers arose as a result of collective commitment and individual professional engagement, and our portfolio includes a wide range of digital projects, whose number now amounts to about 120.

During 2023, the implementation of the programme of digitalization of the HSE Function, aimed at improving the work of employees, as well as easier and safer management of contractors, is under way.

A portfolio of

~120

digital

projects

1. Improvement of the digital transformaion management process

2. Quaniicaion of economic efects across all business segments

Through cooperation with the Science and Technology Centre, we are actively conducting research with the aim of approbation and evaluation of the potential of applying advanced

Exploraion and	Reining
Producion Block	Block

Sales and	Energy
Distribuion Block	Block

digital technologies. In the field of data management and analytics, we have implemented a new business process - "Data Management". Several projects have been implemented, enabling us to reduce significantly the time spent on routine data processing and contributing to faster, better, and easier everyday work of our employees.

We end 2023 with a commitment: our Company is oriented towards digital transformation as an integral part of our corporate strategy for the future and sustainable development. By applying innovation, we solve challenges and turn them into opportunities, distinguishing ourselves in a dynamic and changing business environment.

Increasing the	Constant search for
eiciency and	soluions that
transparency of the	contribute to the
drilling and overhaul	high-quality and
process with the	smooth operaion of
implementaion of	the plant, as well as
digital instruments	the predicion of
based on Industry 4.0	failures and overhaul
technologies.	aciviies.

Opimizing the value creaion chain from the oil base to the end consumer, in which the key role is played by the development of digital soluions that improve the experience of our users and clients.

Development of digital soluions that contribute to energy and operaional eiciency in a broader sense.

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LETTER TO SHAREHOLDERS

NIS Group

Dear friends,

I believe that 2023 will go down in the history of NIS as an exceptional period. There are many reasons for this. To begin with, we started a new investment cycle. In 2023, we invested RSD 39.2 billion in capital projects in all areas of business, which is 77 percent more than the previous year. Having in mind that the market is volatile and the energy sector is in a transition, we will continue to invest in the period ahead to lay the foundations for our long-term development and success.

Furthermore, in a challenging year marked by complex macroeconomic and geopolitical developments, we continued to contribute significantly to energy stability in the markets where we operate. Other than that, in 2024, one of our main priorities will be to provide our consumers with the energy needed for further development at competitive prices and to be a guarantor of regular supply of all types of oil products.

In 2023, we further strengthened our partnership with the Republic of Serbia and became the majority shareholder of HIP Petrohemija. We made a big stride in new line of business, following global trends in our industry. The development of Petrohemija will require a lot more expertise and investment from us, but I have no doubt that with joint efforts we will achieve our goal - the modernization of existing and the construction of new plants, which will be an important step towards the establishment of a long-term sustainable operation of HIP Petrohemija.

Just as importantly, over the course of the previous year, NIS pursued its energy transition

effort. It is yet another instance of our support to bring about the accomplishment of Serbia's international obligations to reduce carbon dioxide emissions. In 2024, we will continue with the construction of solar panels at our refuelling stations and other facilities, and we have other projects in this area in the pipeline. In addition to that, we made strides in power generation, as more than one million MWh were produced in the facilities of NIS and partners.

The year behind us will also be remembered for the fact that we paid out more than RSD 23 billion to shareholders in dividends, a record amount since NIS started paying dividends in 2013. This is not only an indicator that our company is a safe source of income for shareholders even in challenging times, but also proof that the modernization of NIS, carried out in agreement with the leading shareholders, is yielding excellent results.

We have also strengthened our friendship with the community where we operate. We have invested almost RSD 7.5 billion in socially responsible projects, including support for the projects of the Government of the Republic of Serbia. Thus, we demonstrated that we are not only one of the powerhouses of the domestic economy, but also that we are a potent driving force for further progress of our community.

I would also like to stress that in 2023 we performed quite well, both in financial and operational terms. The figures are lower in comparison with those of 2022, but that is quite understandable, considering that it is, in many

respects, a record period. However, when we compare our results with those from the period before the corona virus pandemic, it is clear that we have reason to be satisfied. Not only due to the achieved net profit, which exceeds RSD 44 billion, but also because of the results accomplished in all business segments.

Thus, for example, thanks to the programme applied in exploration and production of oil and gas, we recorded good results and kept production at almost the same level as in 2022. Despite the fact that we are working in mature fields, in the coming period we expect our investments and efforts to yield even better results.

We also continued revamping the Refinery in Pančevo, where significant digitalization projects were also completed, as well as improvements in energy efficiency. Since last year, there are 11 new or reconstructed modern facilities in our retail network, including the strategically important refuelling station "Sokolići 2" on the "Miloš Veliki" highway. Our portfolio of digital retail services has been further strengthened and we can rightly say that we offer consumers a unique experience.

In conclusion, I would like to mention our further plans. Notwithstanding a successful year is behind us, we have a complex period ahead, that will be strongly affected by global events beyond our control. However, our plan is ambitious; in 2024, we have anticipated investments of almost RSD 60 billion. Other than that, a turnaround of the Refinery is coming. It will bring into the loop the newly built facilities, and will be the most demanding in the history of the Refinery

in Pančevo. In addition, the tasks we face are not easy at all. We intend to simultaneously achieve good results, make progress in the energy transition and thoroughly modernize all segments of the company. At the same time, we must not forget that NIS should remain a leader in the field of environmental protection, as well as a reliable partner to the community. With a view to achieve all that, we must first ensure that the NIS Group continues to accomplish good results. I am convinced that in the past period we have shown that we have a team ready to solve even the most complex tasks. Therefore, with a lot of optimism and confidence in our business model, we enter the year 2024, confident that it will be yet another successful period in the history of our company.

Kirill Tyurdenev

CEO

NIS j.s.c. Novi Sad

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NIS Group

INDEPENDENT AUDITOR'S REPORT

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