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Aside from the complex macroeconomic conditions, the drop of key financial indicators of the company – profitability and operating cash flow – was brought about by the increased tax burden and social contributions, including the growth of state-owned company debts. The results of the first half-year of 2014 indicate that the sum of calculated direct and indirect tax liabilities of the NIS Group, including excise duties, income tax, and other tax duties, stands at 60.4 billion dinars, exceeding the last year’s indicator by 15 per cent. As at end of June 2014, the total volume of state-owned company debts due for NIS products and services is more than 56 billion dinars.
At end of June 2014, the total volume of state-owned company debts due for NIS products and services is more than 56 billion dinars.According to the results for the six months of 2014, the net gain of the NIS Group (NIS j.s.c., daughter companies, and subsidiaries) stands at 17 billion dinars -- a 5-per-cent decrease compared to the same indicator last year. The increased tax burden, remediation of the effects of the floods in the company industrial facilities, and a considerable decrease in the operating cash flow (OCF is 93 per cent lower than in the same period last year) have forced NIS to reduce the investment programme volume by 26 per cent as compared with the same period last year. The volume of capital investments in the first six months of 2014 is 17.8 billion dinars. The company was forced to compensate for the diminished funds for strategically important projects by increasing indebtedness. The sum of NIS bank debt, based on the results in the first six months of 2014, is 672 million dinars – a 59-per-cent increase from the same period last year. The necessary reduction of the investment programme has resulted in the change of the plan of implementation of geological exploration, and geological-technical measures at company oil and gas fields requiring great capital, which has slowed down hydrocarbon production. Hence, the hydrocarbon production volume for the first half-year of 2014 is slightly reduced (by 1%) as compared with the same indicator for 2013, and amounts to 809,000 toe. According to the results of the first six months of 2014, the refining volume stands at 1.574 million tons, which is 12 per cent higher than in the same period last year. The sales of petroleum products in the reporting period was 1.425 million tons, which is 6 per cent higher than in the same period last year. Positive contributing factors to the greater sales volume were increased efficiency of company logistical infrastructure, improvement of the wholesale buyer business policy, and the growth of sales of petroleum products in foreign markets. According to the results of the first half-year of 2014, NIS retail sales dropped by 1 per cent, compared to the same indicator for the six months of last year, down to 336,000 tons. The drop in retail sales was caused above all by the effects of the floods – reduced fuel consumption and the disruption of the operation of petrol stations. The key company efficiency indicator, EBITDA (operating earnings before interest, taxes, depreciation, and amortization) was 30.9 billion dinars according to the results of the first half-year of 2014, which is 10 per cent better than the same indicator last year. In addition, the operating expenses of the company are considerably lower than the indicators of other companies conducting business in the Balkan energy market. Commenting on NIS business results for the six months of 2014, Company Chief Executive Officer Kirill Kravchenko said in a statement, “NIS is going through a very complex phase in its development. The adverse environmental pressures are intensifying, and we are having difficulties maintaining the company financial and production indicators at the necessary levels. Today NIS makes profit not owing to favourable macroeconomic conditions but rather in spite of them. We also expect the next half-year to be even more complex. This is why we will focus on maintaining the production volume, retaining the sales market for our petroleum products, and further increasing of operational efficiency. Moreover, non-payment by state-owned companies is forcing us to make a selection of investment projects and to reduce the total capital investment volume.”