Projects for the Future

March 8, 2019

At the same time, we are facing rapid technical and technological development which is creating a new market model and making consumer needs more complex and less predictable. All of these factors compel modern companies to react quickly and adapt readily to new technologies and knowledge. Although these challenges are substantial, NIS views them as a new chance for progress. In order to use this chance, it is necessary to constantly follow the development of new technologies, use them in the right way, and invest money into projects that will bring long-term and sustainable development. Since 2009, when Gazprom Neft became the majority shareholder, almost three billion euros has been invested into NIS. These investments made it possible for NIS to undergo a fundamental transformation over the course of the last decade, which can serve as an example of good management and business success in spite of unfavorable macroeconomic circumstances. During this period, NIS has grown from a local oil and gas company into a profitable energy system and one of the most important regional energy market players. Without any doubt, NIS had a successful and eventful decade during which it achieved considerable progress. Moreover, we are pleased to say that 2018 will be noted in the company’s history as the year during which exceptional results were achieved and an important step forward into the second phase of the modernization was made. Primarily, more than 40 billion dinars were invested into the development of the company, which is the largest investment since 2013. EBITDA continued to grow, and in the previous year, NIS reached record volumes of oil and gas refining and sales of petroleum products, as well as increased exports. Second phase of modernization and strategic investments The year behind us was the first year following the adoption of NIS Development Strategy 2025, and the goal of these substantial changes is to ensure the stability of business and long-term value to our shareholders and all stakeholders. It must be emphasized that in 2018 we saw the development of strategic projects, and we have successfully begun the digital transformation of the company, which involves the change of roles and responsibilities on all levels, as well as the optimization of business processes and implementation of new technologies in every segment of our business operations. We are talking about big data projects, artificial intelligence, machine learning, video analytics, mobility and other projects that will enable us to improve business efficiency, increase safety of work processes and make us even more competitive in the demanding regional market. Regarding NIS’s strategic projects, it is important to emphasize that Pančevo Oil Refinery, which celebrated its 50th anniversary last year, is one of the most complex construction sites in Serbia today. Namely, the Bottom-of-the-Barrel project, worth 300 million euros, is currently under construction, and after its completion, our refinery will become one of the most modern refining facilities in Eastern Europe, with depth of refining of 99.2 percent, which is on par with world’s top refineries. The completion of this project, planned in the third quarter of the current year, will enable NIS to produce a substantially larger quantity of the most valuable petroleum products, and allow for local production of coke. We also continue to work on constructing new electricity generating capacities, and after their completion in 2020, NIS will become an important player in Serbian electric power market. Our priorities are the construction of thermal power and heating plant in the vicinity of Pančevo Oil Refinery and wind farm Plandište - projects whose total worth is more than 310 million euros. These projects will also have a positive effect on the environment. After the completion of the Bottom-of-the-Barrel project, the refinery will be able to stop the production of heavy fuel oil with high sulfur content, and at the same time commence a more eco-friendly production of electric power - using gas and wind power. Apart from these projects, NIS will continue to invest significantly into research of oil and gas, and increase of hydrocarbon reserves, as well as into the modernization of our retail network. In the period between 2017 and 2025, in accordance with our development strategy, we will have invested a total of approximately 2 billion euros, which is a substantial amount not only for Serbia, but for the whole region. Digital Transformation We have approached the digital transformation of NIS with special care. The company has defined close to 70 potential projects, and 17 are already in the implementation phase. This initiative is expected, among other things, to strengthen the competitive edge of NIS, allow for a quicker and better decision making, increase work process safety, and contribute to the increase of business efficiency and profitability. However, as digital transformation is not merely an implementation of new technologies, it requires a fundamental change of company culture, adjustment of employee and management mindsets to digital way of thinking. This is why we think it is essential to have motivated employees, young experts who understand the ongoing changes, and who are able to both respond to them and go a step ahead of their time. Furthermore, this is the reason why NIS continues to devote special attention to the training and professional development of its employees, and also to support the most talented students -holder of our scholarships, who will build their careers in NIS after completing their education. We fully expect that these people will be the future driving force of our company, and the whole country And while the market trends expect us to be as flexible as possible, observing and improving standards in the field of occupational health and safety protection of the environment will always be our priority. We will continue to significantly invest into the protection of the environment, as we have invested over 13 billion dinars since 2009. Apart from that, we are aware of the community’s expectations, and of its growing needs. This is why we will remain a reliable partner to our friends across Serbia, supporting educational and scientific institutions, young talented people, development of culture and arts, sports clubs and societies, as well as health and social facilities significant to the public. We will consider that our success is complete only if we contribute to the development of the community in which we operate. Finally, it is important to emphasize that no transformation is a simple and quick process. Especially in the energy sector, which is, by its very nature, much more conservative than other industries. However, we are pleased to note that in 2018 we made a significant step forward for the future of NIS as a modern and stable company that will remain a leader in the regional market of petroleum products even in a complex macroeconomic environment, and will continue to create new values. Кirill Tyurdenev NIS Chief Executive Officer