Naftna Industrija Srbije : Q3 2023 IFRS

Naftna industrija Srbije A.D.

Interim Condensed Consolidated Financial

Statements (Unaudited)

30 September 2023

This version of the financial statements is a translation from the original, which is prepared in Serbian language. All possible care has

been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original Serbian language version of the document takes precedence over this translation

Contents

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interim Condensed Consolidated Statement of Financial Position	3
Interim Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income	4
Interim Condensed Consolidated Statement of Changes in Shareholders' Equity	5
Interim Condensed Consolidated Statement of Cash Flows	6
Notes to the Interim Condensed Consolidated Financial Statements
1.	General Information	7
2.	Summary of Material Accounting Policies	7
3.	Segment Information	8
4.	Cash and Cash Equivalents	10
5.	Short-term Financial Assets	10
6.	Trade and Other Receivables	10
7.	Inventories	11
8.	Other Current Assets	11
9.	Property, Plant and Equipment	12
10.	Right-of-use Assets	13
11.	Other Non-Current Assets	13
12.	Short-term Debt and Current Portion of Long-term Debt	13
13.	Trade and Other Payables	14
14.	Other Current Liabilities	14
15.	Other Taxes Payable	14
16.	Long-term Debt	15
17.	Lease Liabilities	16
18.	Production, Manufacturing and Cost of Other Sales	16
19.	Selling, General and Administrative Expenses	17
20.	Other expense, net	17
21.	Net Foreign Exchange Loss	17
22.	Finance Income	17
23.	Finance Expenses	18
24.	Fair Value Measurement	18
25.	Business Combination	18
26.	Contingencies and Commitments	19
27.	Related Party Transactions	19
28.	Events After the Reporting Date	21
Contact Information	22

2

NIS Group

Interim Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income

(All amounts are in 000 RSD, unless otherwise stated)

		Three month period	Nine month period
		ended 30 September	ended 30 September
	Note	2023	2022	2023	2022
		(unaudited)	(unaudited)	(unaudited)	(unaudited)
Sales of petroleum products, oil and gas		101,580,407	135,102,743	271,760,760	363,767,540
Other revenues		15,647,544	5,420,267	32,326,909	17,029,884
Total revenue from sales	3	117,227,951	140,523,010	304,087,669	380,797,424
Purchases of oil, gas and petroleum products		(64,316,893)	(81,834,143)(172,859,159)(219,642,497)
Production, manufacturing and cost of other sales	18	(14,636,082)	(8,871,042)	(38,216,582)	(27,353,505)
Selling, general and administrative expenses	19	(7,825,253)	(6,462,159)	(22,620,582)	(19,290,583)
Transportation expenses		(447,527)	(505,495)	(1,202,904)	(1,347,955)
Depreciation, depletion and amortization		(6,174,042)	(6,531,921)	(18,579,048)	(19,242,874)
Taxes other than income tax		(2,026,741)	(1,840,429)	(5,772,666)	(6,085,528)
Exploration expenses		(322)	-	(322)	(173)
Total operating expenses		(95,426,860)(106,045,189)(259,251,263)(292,963,115)
Other expenses, net	20	(119,328)	(2,401,584)	(7,477,218)	(2,358,760)
Operating profit		21,681,763	32,076,237	37,359,188	85,475,549
Share of gain (loss) of associates and joint ventures		(67,880)	(92,264)	(170,220)	243,709
Net foreign exchange loss	21	(138,736)	(924,080)	(349,541)	(2,199,554)
Finance income	22	1,041,395	554,230	3,713,971	833,915
Finance expenses	23	(848,949)	(500,523)	(2,450,363)	(1,330,511)
Total other (expense) income		(14,170)	(962,637)	743,847	(2,452,441)
Profit before income tax		21,667,593	31,113,600	38,103,035	83,023,108
Current income tax expense		(3,783,809)	(5,462,743)	(6,893,010)	(13,854,660)
Deferred income tax income		163,352	87,101	560,160	279,142
Total income tax		(3,620,457)	(5,375,642)	(6,332,850)	(13,575,518)
Profit for the period		18,047,136	25,737,958	31,770,185	69,447,590
Other comprehensive income (loss):
Items that will not be reclassified to profit (loss)
Losses on remeasurements of defined benefit plans		-	-	-	(62,751)
Gain /(loss) from investments in equity instruments		8,431	-	8,276	(104)
Items that may be subsequently reclassified to profit
Currency translation differences		22,009	55,772	84,083	85,223
Other comprehensive income for the period		30,440	55,772	92,359	22,368
Total comprehensive income for the period		18,077,576	25,793,730	31,862,544	69,469,958
Profit/(loss) attributable to:
- Shareholders of Naftna Industrija Srbije		18,301,844	25,737,958	32,024,893	69,447,590
- Non-controlling interest		(254,708)	-	(254,708)	-
Profit for the period		18,047,136	25,737,958	31,770,185	69,447,590
Total comprehensive income/(loss) attributable to:
- Shareholders of Naftna Industrija Srbije		18,332,284	25,793,730	32,117,252	69,469,958
- Non-controlling interest		(254,708)	-	(254,708)	-
Total comprehensive income for the period		18,077,576	25,793,730	31,862,544	69,469,958
Earnings per share attributable to shareholders of Naftna
Industrija Srbije
Basic earnings (RSD per share)		112.24	157.84	196.40	425.90
Weighted average number of ordinary shares in issue
(in millions)		163	163	163	163

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial

Statements.4

NIS Group

Interim Condensed Consolidated Statement of Changes in Shareholders' Equity

Nine month period ended 30 September 2023 and 2022 (All amounts are in 000 RSD, unless otherwise stated)

	Equity attributable to the Company's owners
					Non-
			Retained		controlling	Total
(unaudited)	Share capital	Reserves	earnings	Total	interest	equity
Balance as at 1 January 2022	81,530,200	488,736	180,797,597	262,816,533	19,678	262,836,211
Profit for the period	-	-	69,447,590	69,447,590	-	69,447,590
Other comprehensive income/(loss)
Loss from investments in equity instruments	-	(104)	-	(104)	-	(104)
Losses on remeasurements of defined benefit plans	-	-	(62,751)	(62,751)	-	(62,751)
Currency translation differences	-	79,441	5,782	85,223	-	85,223
Total comprehensive income for the period	-	79,337	69,390,621	69,469,958	-	69,469,958
Dividend distribution	-	-	(5,782,122)	(5,782,122)	-	(5,782,122)
Other	-	23,565	(89,882)	(66,317)	(19,678)	(85,995)
Balance as at 30 September 2022	81,530,200	591,638	244,316,214	326,438,052	-	326,438,052
	Equity attributable to the Company's owners
					Non-
			Retained		controlling	Total
(unaudited)	Share capital	Reserves	earnings	Total	interest	equity
Balance as at 1 January 2023	81,530,200	572,221	267,125,162	349,227,583	-	349,227,583
Profit for the period	-	-	32,024,893	32,024,893	(254,708)	31,770,185
Other comprehensive income
Gain from investments in equity instruments	-	8,276	-	8,276	-	8,276
Currency translation differences	-	84,083	-	84,083	-	84,083
Total comprehensive income/(loss) for the period	-	92,359	32,024,893	32,117,252	(254,708)	31,862,544
Dividend distribution	-	-	(23,364,925) (23,364,925)	-	(23,364,925)
Disposal of investment in equity instruments	-	33,846	(33,846)	-	-	-
Balance as at 30 September 2023	81,530,200	698,426	275,751,284	357,979,910	(254,708)	357,725,202

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial Statements.

5

NIS Group

Interim Condensed Consolidated Statement of Cash Flows1

(All amounts are in 000 RSD, unless otherwise stated)
		Nine month period ended
		30 September
	Note	2023	2022
		(unaudited)	(unaudited)
Cash flows from operating activities
Profit before income tax		38,103,035	83,023,108
Adjustments for:
Share of (profit)/loss of associates and joint ventures		170,220	(243,709)
Finance expenses	23	2,450,363	1,330,511
Finance income	22	(3,713,971)	(833,915)
Unrealised foreign exchange (gain)/losses, net		(854,449)	1,880,241
Depreciation, depletion and amortization		18,579,048	19,242,874
Other non-cash items		704,968	367,761
Operating cash flow before changes in working capital		55,439,214	104,766,871
Changes in working capital:
Trade and other receivables		(1,126,619)	(9,943,233)
Inventories		6,558,562	(28,787,258)
Other current assets		(1,393,583)	(3,323,969)
Trade payables and other current liabilities		(17,407,335)	14,827,538
Other taxes payable		3,889,232	2,374,155
Total effect on working capital changes		(9,479,743)	(24,852,767)
Income taxes paid		(25,477,690)	(7,033,319)
Interest paid		(1,927,445)	(959,011)
Interest received		3,029,187	612,541
Net cash generated by operating activities		21,583,523	72,534,315
Cash flows from investing activities
Net cash inflow on acquisition of subsidiaries		568,307	-
Capital expenditures2		(24,310,852)	(13,971,148)
Proceeds from sale of property, plant and equipment		69,483	338,945
Bank deposits repayment, net		(24,353,824)	(91,880)
Other outflow		(14,999)	(170,385)
Net cash used in investing activities		(48,041,885)	(13,894,468)
Cash flows from financing activities
Proceeds from borrowings	12,16	820,000	5,811,336
Repayment of borrowings	12,16	(5,614,589)	(10,785,504)
Repayment of lease liabilities	17	(744,118)	(581,934)
Dividends paid		(23,364,925)	(5,782,122)
Net cash used in financing activities		(28,903,632)	(11,338,224)
Net increase/(decrease) in cash and cash equivalents		(55,361,994)	47,301,623
Effect of foreign exchange on cash and cash equivalents		(214,222)	(413,023)
Cash and cash equivalents as of the beginning of the period		88,131,045	21,283,274
Cash and cash equivalents as of the end of the period	4	32,554,829	68,171,874

The accompanying notes are an integral part of these Interim Condensed Consolidated Financial

Statements.

• Group policy is to present cash flow inclusive of related VAT.

• CF from investing activities includes VAT in the amount of 2.77 bln RSD (2022: 1.8 bln RSD)

6

NIS Group

Notes to the Interim Condensed Consolidated Financial Statements for the nine month period ended 30 September 2023

(All amounts are in 000 RSD, unless otherwise stated)

1. GENERAL INFORMATION

Open Joint Stock Company Naftna Industrija Srbije (the "Company") and its subsidiaries (together refer to as the "Group") is a vertically integrated oil company operating predominantly in Serbia. The Group's principal activities include:

• Exploration, production and development of crude oil and gas,
• Production of refined petroleum products,
• Petroleum products and gas trading and
• Electricity generation and trading.

Other activities primarily include sales of other goods, works and services.

The Company is a public joint stock company listed on the Belgrade Stock Exchange.

These Interim Condensed Consolidated Financial Statements have been approved and authorized for issue by Chief Executive Officer and will be presented to Board of Directors for approval.

2. SUMMARY OF MATERIAL ACCOUNTING POLICIES

2.1. Basis of preparation

The Group maintains its books and records in accordance with accounting and taxation principles and practices mandated by legislation in the countries in which it operates (primarily Serbian). The accompanying Interim Condensed Consolidated Financial Statements were primarily derived from the Group's statutory books and records with adjustments and reclassifications made to present them in accordance with International Financial Reporting Standards (IFRS).

The Interim Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard IAS 34 Interim Financial Reporting. IAS 34 for interim financial reporting does not require all disclosures that would be necessarily required by IFRS.

The new standard for insurance contracts and the amendments to the existing standards which became effective on 1 January 2023 did not have any material impact on the Interim Condensed Consolidated Financial Statements.

The Group intends to implement the amendments to the existing standards and new standards issued but not yet effective as of the date these Condensed Interim Consolidated Financial Statements were authorised for issue, and the Group does not expect them to have any material impact on the Condensed Interim Consolidated Financial Statements when adopted.

The Group does not disclose information which would substantially duplicate the disclosures contained in its audited Consolidated Financial Statements for 2022, such as significant accounting policies, significant estimates and judgements, financial risk disclosures or disclosures of financial line items, which have not changed significantly in amount or composition. Management of the Group believes that the disclosures in these Interim Condensed Consolidated Financial Statements are adequate to make the information presented not misleading if these Interim Condensed Consolidated Financial Statements are read in conjunction with the Group's Consolidated Financial Statements for 2022.

In the first nine months of 2023 the volatility at commodity and financial markets is seen rising while the RSD remained stable relative to EUR and weakening against the USD (the information on economic environment in the Republic Serbia is detailed in Note 26) due to geopolitical situation. Under current conditions it turned out to be impossible to evaluate how long the volatility will remain and at what level the key financial indicators will ultimately stabilise. Due to that during the third quarter 2023 the Group didn't review the critical accounting estimates which are used by the Group in the Interim Condensed Consolidated Financial Statements preparation and which are assessed based on oil prices forecasts, inflation and market borrowing rate. In particular as of 30 September 2023 the Group didn't review estimation of the recoverable amount of the non-current assets that is determined for the purpose of the impairment testing.

7

NIS Group

Notes to the Interim Condensed Consolidated Financial Statements for the nine month period ended 30 September 2023

(All amounts are in 000 RSD, unless otherwise stated)

The Group continues monitoring the development of macroeconomic situation and emergence of possibility to make evaluation of the indicators mentioned above with reasonable certainty.

The results in these Condensed Interim Consolidated Financial Statements for the three and nine months period ended 30 September 2023 are not necessarily indicative of the Group's results expected for the full year.

The Group as a whole is not subject to significant seasonal fluctuations.

2.2. Changes in significant accounting policies

Significant accounting policies, judgements and estimates applied while preparing these Interim Condensed Consolidated Financial Statements are consistent with those applied during the preparation of Consolidated Financial Statements as of and for the year ended 31 December 2022.

3. SEGMENT INFORMATION

Presented below is information about the Group's operating segments for the nine month periods ended 30 September 2023 and 2022. Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available.

The Group manages its operations in 2 operating segments: Upstream and Downstream.

Upstream segment (exploration and production) includes the following Group operations: exploration, development and production of crude oil and natural gas and oil field services. Downstream segment (refining and marketing) processes crude oil into refined products and purchases, sells and transports crude and refined petroleum products. Corporate centre, Energy business activities and petrochemical production are presented within the Downstream segment.

Eliminations and other adjustments section encompasses elimination of inter-segment sales and related unrealised profits, mainly from the sale of crude oil and products, and other adjustments. Intersegment revenues are based upon estimated market prices.

EBITDA represents the Group's EBITDA. Management believes that EBITDA represents useful means of assessing the performance of the Group's on-going operating activities, as it reflects the Group's earnings trends without showing the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortization, finance income (expenses) net and other non-operating income (expenses). EBITDA is a supplemental non-IFRS financial measure used by management to evaluate operations.

Reportable segment results for the nine month period ended 30 September 2023 are shown in the table below:

	Upstream Downstream Eliminations	Total
Segment revenue	36,411,547	304,506,054	(36,829,932)	304,087,669
Intersegment	35,857,296	972,636	(36,829,932)	-
External	554,251	303,533,418	-	304,087,669
Adjusted EBITDA (Segment results)	24,718,622	31,796,544	-	56,515,166
Depreciation, depletion and amortization	(10,608,328)	(7,970,720)	-	(18,579,048)
Share of loss of associates and joint ventures	-	(170,220)	-	(170,220)
Net foreign exchange loss	(241,971)	(107,570)	-	(349,541)
Finance income (expenses), net	(303,613)	1,567,221	-	1,263,608
Income tax	(70,516)	(6,262,334)	-	(6,332,850)
Segment profit	13,289,437	18,480,748	-	31,770,185

8

NIS Group

Notes to the Interim Condensed Consolidated Financial Statements for the nine month period ended 30 September 2023

(All amounts are in 000 RSD, unless otherwise stated)

Reportable segment results for the nine month period ended 30 September 2022 are shown in the table below:

	Upstream	Downstream	Eliminations	Total
Segment revenue	48,326,662	378,569,392	(46,098,630)	380,797,424
Intersegment	45,660,444	438,186	(46,098,630)	-
External	2,666,218	378,131,206	-	380,797,424
Adjusted EBITDA (Segment results)	34,759,713	70,039,805	-	104,799,518
Depreciation, depletion and amortization	(10,726,790)	(8,516,084)	-	(19,242,874)
Share of profit of associates and joint
ventures	-	243,709	-	243,709
Net foreign exchange loss	(189,278)	(2,010,276)	-	(2,199,554)
Finance expenses, net	(220,896)	(275,700)	-	(496,596)
Income tax	(284,534)	(13,290,984)	-	(13,575,518)
Segment profit	23,208,828	46,238,762	-	69,447,590

Adjusted EBITDA for the three and nine month period ended 30 September 2023 and 2022 is reconciled below:

	Three month period ended Nine month period ended
	30 September	30 September
	2023	2022	2023	2022
Profit for the period	18,047,136	25,737,958	31,770,185	69,447,590
Income tax	3,620,457	5,375,642	6,332,850	13,575,518
Finance expenses	848,949	500,523	2,450,363	1,330,511
Finance income	(1,041,395)	(554,230)	(3,713,971)	(833,915)
Depreciation, depletion and amortization	6,174,042	6,531,921	18,579,048	19,242,874
Share of (profit)/loss of associates and joint
ventures	67,880	92,264	170,220	(243,709)
Net foreign exchange loss	138,736	924,080	349,541	2,199,554
Other expenses, net	119,328	2,401,584	7,477,218	2,358,760
Other non-operating expense/(income), net*	76,205	(2,446,716)	(6,900,288)	(2,277,665)
Adjusted EBITDA	28,051,338	38,563,026	56,515,166	104,799,518

*Other non-operating expense/(income), net mainly relates to donations for support projects in the field of education, social and health care, excess and deficiencies of assets revealed, fines, penalties and other (note 20).

Oil, gas and petroleum products sales, sales of electricity, lease revenue and other sales comprise the following:

	Nine month period ended
	30 September
	2023	2022
Sale of crude oil	-	4,602,952
Sale of gas	129,916	101,564
Wholesale activities	129,916	101,564
Sale of petroleum products	271,630,844	359,063,024
Through a retail network	93,726,358	114,879,096
Wholesale activities	177,904,486	244,183,928
Sale of electricity	11,187,834	4,158,248
Lease revenue	282,327	269,906
Other sales	20,856,748	12,601,730
Total sales	304,087,669	380,797,424

9

NIS Group

Notes to the Interim Condensed Consolidated Financial Statements for the nine month period ended 30 September 2023

(All amounts are in 000 RSD, unless otherwise stated)

Other sales mainly relate to sales of non-fuel products at petrol stations in the amount of 17,054,344 RSD (2022: 9,400,678 RSD).

All performance obligations related to customers are satisfied at point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation.

4.	CASH AND CASH EQUIVALENTS
		30 September	31 December
		2023	2022
Cash in bank and in hand	12,509,645	18,958,001
Deposits with original maturity of less than three months	20,035,185	69,170,832
Cash held on escrow account	4,727	254
Cash equivalents	5,272	1,958
		32,554,829	88,131,045

The fair value of cash and cash equivalents approximates their carrying value.

5.	SHORT-TERM FINANCIAL ASSETS
		30 September	31 December
		2023	2022
Short-term loans	34,327	43,116
Deposits with original maturity more than 3 months less than 1 year	32,098,610	6,063,683
	Less impairment loss provision	(2,180)	(2,180)
		32,130,757	6,104,619

The fair value of short-term financial assets approximates their carrying value.

6.	TRADE AND OTHER RECEIVABLES
		30 September	31 December
		2023	2022
Trade receivables	45,848,926	43,289,967
Other receivables	84,412	88,129
Accrued assets	14,844	2,907
	Less credit loss allowance for trade receivables	(7,756,593)	(7,376,579)
	Less credit loss allowance for other receivables	(31,959)	(34,426)
		38,159,630	35,969,998

The Management of the Group regularly assesses the credit quality of trade and other receivables taking into account analysis of ageing profile of receivables and duration of relationships with the Group.

Management believes that not impaired trade and other receivables and other current assets are fully recoverable.

The carrying amounts of the Group's trade and other receivables are mostly denominated in RSD.

10