Naftna Industrija Srbije : Quarterly report for the second quarter of 2021

QUARTERLY REPORT FOR SECOND QUARTER OF 2021

NIS Group

The Quarterly Report for Second Quarter of 2021 presents a factual overview of NIS Group's activities, development and performance in second quarter of 2021. The Report covers and presents data for NIS Group, comprising NIS j.s.c. Novi Sad and its subsidiaries. If the data pertain only to certain individual subsidiaries or only NIS j.s.c. Novi Sad, it is so 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 Quarterly Report for Second Quarter of 2021 is compiled in Serbian, English and Russian. In case of any discrepancy, the Serbian version shall be given precedence.

The Quarterly Report for Second Quarter of 2021 is also available online on the corporate website. For any additional information on NIS Group, visit the corporate website www.nis.eu.

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Quarterly Report For Second Quarter Of 2021

Contents

Contents .........................................................................................................................................	3
Foreword ........................................................................................................................................	4
Business report .......................................................................................................................................	5
Highlights........................................................................................................................................	5
NIS Group ......................................................................................................................................	6
Business activities ..........................................................................................................................	6
NIS worldwide ................................................................................................................................	9
NIS Group Business Structure .....................................................................................................	10
Risk Management ........................................................................................................................	10
Business environment ..................................................................................................................	19
Performance analyses..................................................................................................................	22
Key indicators ...............................................................................................................................	28
Securities......................................................................................................................................	45
Corporate Governance.................................................................................................................	48
Human resources .........................................................................................................................	59
Research and Development.........................................................................................................	62
Financial Statements....................................................................................................................	63
Standalone financial statements ..............................................................................................	63
Consolidated Financial Statements...........................................................................................	83
Statement of individuals responsible for the preparation of financial statements ...............................	104

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NIS Group

Foreword

In the first half of 2021, the NIS Group continued to improve its financial and operational results, with the implementation of strategic projects that will enable further development and sustainable business in the market. The recovery of demand on the derivatives market, as well as the continuation of activities that contributed to increasing business efficiency at all levels led to a significant improvement in financial results, compared to the first six months of 2020. Trend of growth was recorded in oil prices - in June 2021, the price of Brent oil was 64.9 dollars per barrel, which is 63 percent more when compared with the equivalent reporting period last year.

For the first six months of the current year, the net profit of the NIS group has amounted to RSD 6.1 billion, which is much better result than last year, when a loss of RSD 10.2 billion was recorded in the equivalent time period. At the same time, the EBITDA indicator amounts to RSD 22.2 billion, which is the increase of almost nine times, if compared to the same period last year, when this indicator amounted to RSD 2.3 billion. Sales revenues during the first six months amounted to RSD 115.7 billion, which is the increase of 35% when compared to the same period last year. In this reporting period, NIS recorded a significant improvement in the operational cash flow indicator (OCF), which amounted to RS Dinar 14.5 billion, or 132% more than last year. Liabilities of NIS Group based on taxes and other public revenues amounted to RSD 95.4 billion, which is the increase of 14 percent compared to the first six months of 2020.

Success has also been recorded in most operational indicators. The total turnover of petroleum products for the first six months of 2021 amounted to 1,768 thousand tons, which represents the increase of 13 percent compared to last year. The modernization and expansion of the retail network continued, so at the end of May, the first retail facility on the "Milos Veliki" highway, the GAZPROM gas station "Sokolići 1", was put into operation. NIS also remained committed to the development of a digital portfolio in the field of retail, which is aimed at further improving the user experience. Additional innovative functionalities have been introduced within the Drive.Go mobile fuel payment application, as well as the "On the Road with Us " consumer loyalty program.

When it comes to the volume of refining, compared to the same period last year, the increase of 5 percent was recorded and the total volume of the refining of crude oil and semiproducts amounts to 1,714 thousand tons. At the same time, NIS has continued to modernize its refining complex by implementing projects within the third phase of modernization of the Pančevo Oil Refinery, whose main goal is to change the technology of fluid catalytic cracking plant (FCC) to modern INDMAX technology, as well as the construction of a new ETBE plant. tert-butyl ether). In the field of exploration and production of oil and gas, 589 thousand conditional tons were produced in the first six months of 2021.

Despite the challenges, even in this reporting period, NIS did not give up its strategic commitment and support to the community in which the company operates. A Memorandum of Cooperation was signed with the Ministry of Mining and Energy and the Ministry of Environmental Protection of the Republic of Serbia on the joint implementation of environmental projects. In addition to that, agreements were signed that are focused on supporting environmental projects between NIS and local governments, partners of NIS's program of social responsibility "Together to the Community", and the company set aside RSD 107.5 million to finance these projects. NIS has continued to support health institutions through donations to medical institutions, as a sign of support in the fight against the COVID-19 pandemic. A Memorandum was signed with the Faculty of Philosophy of the University of Niš on the cooperation in the field of education, research and knowledge transfer. In May, NIS published the 11th verified Sustainable Development Report for 2020, in order to present to the public in a transparent manner all its efforts aimed at improving business and the company's contribution to the development of the community. As a company that invests significant funds in occupational safety and health and environmental protection, NIS won the first place in the "Competition for the award of national recognitions in the field of occupational safety and health" in the category "April 28", organized by the Directorate for Safety and Health of the Ministry of Labor, Employment, Veterans and Social Affairs.

NIS's priority in the rest of the year remains to increase business efficiency, further improve financial and business indicators, through continued investment in development projects for the benefit of shareholders, employees and the community in which the company operates.

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Quarterly Report For Second Quarter Of 2021

Business report

Highlights

April - June

• 13 development wells were drilled and 12 development wells were put into operation
• Seismic works on the 2D project Obudovac in Bosnia and Herzegovina completed
• Workover on Beba Veche Sud 1000 well completed
• Final stage of the contract signing for two new seismic projects (3D Dogu Varinca and 3D Cizre) with "TRAO"
• The continuation of activities on the project Reconstruction of the FCC plant and construction of a new ETBE plant in accordance with the project phases
• The implementation of digital projects:
• • the improvement of operational availability (Predictive maintenance with Mashine learning);
  • the improvement of the efficiency of technological processes (improving the monitoring system of operational availability parameters and APC availability parameters (unit level));
• Termination of the lease agreement for the PS Zrenjanin 5, rebranding of the PS and reintegration into the network
• "Jazak" water - Image campaign
• Start of the operation of the newly built PS "Sokolici 1"
• Start of the operation of the reconstructed PS "Zagubica"
• Campaign for the loyalty program "On the Road with Us" - virtual membership

The XIII regular session of the Assembly of Shareholders of NIS was held, at which, among other things, decisions were adopted on the distribution of profits of previous years, to cover the loss of NIS j.s.c. Novi Sad for 2020, payment of dividends and determination of the total amount of retained earnings of NIS j.s.c. Novi Sad, as well as the election of members of the Board of Directors.

In cooperation with VISA and the Poštanska štedionica Bank, NIS enabled its customers to withdraw cash at all NIS Petrol and GAZPROM refuelling stations.

Senior state officials, led by Zorana Mihajlović, Deputy Prime Minister of Serbia and Minister of Mining and Energy, visited the NIS Science and Technology Center.

NIS won first place in the "Competition for the award of national recognitions in the field of occupational health and safety" in the category of Charter "28th April "organized by the Directorate for Safety and Health at Work of the Ministry of Labour, Employment, Veterans and Social Affairs.

NIS participated in the Kopaonik Business Forum this year as well, where presented investments in environmental projects.

Within the program "Common Cause - Community 2021", a Memorandum of Cooperation was signed with the Ministry of Mining and Energy and the Ministry of Environmental Protection of the Republic of Serbia on the joint implementation of environmental projects. Agreements were also exchanged with 12 municipalities and cities participating in this programme.

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