MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE YEARS ENDED 31 DECEMBER 2018

Transcription

1 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE YEARS ENDED 31 DECEMBER 2018 You should read the following discussion and analysis of our financial condition and results of operations as of 31 December 2018 and for the years then ended (hereinafter referred to as MD&A ) in conjunction with our audited consolidated financial statements as of and for the years ended 31 December 2018 and 2017 (hereinafter referred to as the consolidated financial statements ). The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial and operational information contained in this MD&A comprises information on PJSC SIBUR Holding and its consolidated subsidiaries (hereinafter jointly referred to as we, SIBUR, Company or the Group ). (1) (3) (5) SELECTED DATA Operating Results The following table presents the Group s key operational measures for the years ended 31 December 2018 and 2017: Thousand tonnes, except as stated Processing and production volumes APG processing, SIBUR's share (2) (million cubic metres) 22,283 22,280 n/m NGLs purchasing 3,490 3, Raw NGL fractionation (3), SIBUR's share 7,712 7, Sales volumes Petrochemical products, including: 3,686 3, PP (2.5) PE (LDPE) (2.2) Elastomers Plastics and organic synthesis products Intermediates and other chemicals (7.1) Midstream products, including: 6,402 5, LPG 5,357 4, Naphtha 1, (1) In this and other tables of this MD&A, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding. All the operational data is presented in line with segment reporting. (2) Excluding third-party volumes processed at SIBUR s capacities. (3) Including volumes processed at third-party capacities and excluding third-party volumes processed at SIBUR s capacities. 1

2 Financial Results The following table presents the Group's key financial measures for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated Income statement highlights Revenue (net of VAT and export duties) 568, , Adjusted EBITDA (1) 205, , EBITDA 201, , EBITDA margin, EBITDA of reportable segments Olefins & Polyolefins 37,679 44,636 (15.6) Plastics, Elastomers & Intermediates 34,816 33, Midstream 127,107 86, EBITDA (USD millions) 3,205 2, Adjusted EBITDA (USD millions) 3,278 2, Profit for the year 110, ,246 (7.9) Cash flow highlights Net cash from operating activities 160, , Cash generated before income tax payment 184, , Operating cash flows before working capital changes 194, , Net cash used in investing activities, including (133,286) (106,035) 25.7 Capital expenditures (151,438) (135,261) 12.0 Net cash used in financing activities (63,857) (57,774) 10.5 (2) As of As of 31 December December 2017 Key ratios Net debt/ebitda 1.58x 1.64x Net debt/ebitda (in USD) 1.43x 1.66x EBITDA/Interest (2) 13.7x 10.1x In 2018, we observed continued recovery in crude oil prices as compared to the corresponding period of 2017, with Brent growing by 30.9 year-on-year and averaging 71.0 USD per barrel in the reporting period. Naphtha and LPG international benchmarks largely followed this trend, while prices for petrochemicals products showed mixed dynamics affected by market-specific drivers for each product group. The Russian ruble depreciated by 7.5 and by 12.2 on average against the US dollar and euro, respectively. In 2018, our APG processing volumes remained flat at 22.3 billion cubic metres and our raw NGL fractionation volumes increased by 2.5 year-on-year to 7.7 million tonnes. Growth in raw NGL fractionation resulted in additional volumes of LPG, that were channelled to external sales. Higher purchased naphtha volumes were used in polyolefin production, while we redirected internally produced naphtha to external sales. Our sales volumes of petrochemical products increased by 1.7 year-on-year. In 2018, our revenue increased by 25.1 year-on-year to RUB 568,647 million from RUB 454,619 million in 2017 with healthy revenues from LPG, naphtha, PP and plastics and organic synthesis products driven by positive market prices dynamics and higher sales volumes, marginally offset by a slight decline in PE sales. EBITDA increased by 25.0 to RUB 201,007 million from RUB 160,851 million driven by strong performance of Midstream segment, where EBITDA increased by 46.7 to RUB 127,107 million from RUB 86,672 million in an environment of higher oil and weaker ruble. Our Plastics, Elastomers and Intermediates segment EBITDA improved compared to last year. The growth was somewhat negated by weaker Olefins & Polyolefins segment EBITDA primarily reflecting weaker spreads, as well as maintenance shutdowns at our major production sites. (1) Adjusted EBITDA includes the Group s portion of EBITDA of joint ventures and associates and excludes the non-controlling interest portion of EBITDA of subsidiaries. (2) Interest represents accrued interest, i.e. includes interest expense and capitalised interest net of capitalised foreign exchange loss. 2

3 Our net profit in 2018 decreased by 7.9 to RUB 110,760 million as compared to RUB 120,246 million in 2017, based largely on a substantial forex loss recorded in the reporting period versus a gain on the disposal of Uralorgsintez recorded in Our operating cash flows before working capital changes increased by 20.3 year-on-year on the back of higher EBITDA. The difference from EBITDA dynamics is mainly explained by gain incurred on disposal of LPG rail-tanks to PTC LLC (a JV with SG-trans) and operational forex loss. Negative working capital change was driven by stock pile up mainly due to planned PTA expansion, higher goods in transit as well as higher inventories balances under NIPIGAZ contracts. Our capital expenditures increased by 12.0 due to the ongoing ZapSib construction, as well as year-on-year growth of payments in hard currencies that were affected by depreciation of the Russian ruble against euro and US dollar. As of 31 December 2018, our total debt increased by 6.4 to RUB 332,411 million vs. 31 December 2017 due to new drawdowns of ZapSib related financing, as well as foreign exchange dynamics. On the back of EBITDA growth, our net leverage remained flat at 1.6x as compared to 2017 year end. For a detailed discussion on SIBUR s operational and financial performance see Results of Operations and Liquidity and Capital Resources. 3

4 OVERVIEW SIBUR is a leader in the Russian petrochemicals industry with uniquely positioned vertically integrated business model. More than 26,000 employees (1) working in SIBUR contribute to the success of customers engaged in the chemical, fast moving consumer goods (FMCG), automotive, construction, energy and other industries in 80 countries worldwide. In the reporting period, the Company renamed the Feedstock and Energy segment to Midstream, which, in Management s opinion, more accurately characterises the Company s activities within this segment and allows for proper comparison with peer companies in domestic and international markets. The implemented changes do not affect the segment composition or financial results. SIBUR has three operating and reportable segments: Olefins & Polyolefins is a petrochemicals segment that produces polyolefins, such as polypropylene and polyethylene (LDPE), BOPP-films, as well as olefins represented by propylene and ethylene produced at our sites in Kstovo, Tomsk and Tobolsk, which are used internally by our petrochemicals segments and sold externally (primarily sales of ethylene to RusVinyl). Plastics, Elastomers & Intermediates is a petrochemicals segment that produces a variety of petrochemical products, such as (i) plastics and organic synthesis products comprising PET, glycols, expandable polystyrene, alcohols and acrylates, (ii) elastomers comprising various grades of commodity and specialty rubbers and thermoplastic elastomers, (iii) methyl tertiary butyl ether (MTBE) and fuel additives, which are sold externally. The segment also produces intermediates, which are primarily used internally with a minor share being sold to the market. Midstream segment comprises (i) gathering and processing of associated petroleum gas (APG) that we purchase from major Russian oil companies, (ii) transportation, fractionation and other processing of natural gas liquids (NGLs) that we produce internally or purchase from major Russian oil and gas companies, and (iii) production, marketing and sales of energy products, such as natural gas, liquefied petroleum gases (LPG) and naphtha. We sell these energy products on the Russian and international markets and use some of them as feedstock for our petrochemicals segments. (1) As of 31 December 2018, excluding the personnel of non-consolidated joint ventures. 4

5 RECENT DEVELOPMENTS In December 2018, SIBUR held its Extraordinary General Meeting of Shareholders. The shareholders elected the new Board. Li Cheng Feng, Director of Chemicals Department of Sinopec Corporation, took over the chair from Chang Zhenyong, previous Sinopec representative. In December 2018, it was announced that SIBUR launched the construction of a maleic anhydride (MAN) production facility at SIBUR Tobolsk. With a planned capacity of 45 ktpa, the facility is scheduled to go online in Maleic anhydride is used in the construction, agriculture, automotive, paint and varnish, furniture, pharmaceutical and other industries. MAN is currently not produced in Russia and domestic demand is covered by imports. In October 2018, SIBUR successfully executed the tender offer to purchase part of the USD 500 million Eurobond notes issued in October 2017 and maturing in 2023 with a coupon rate of per annum. As part of the offer, the Company accepted for purchase an aggregate principal amount of Eurobonds equal to USD 192,023,000 at a price of 97.4 of the par value. The buyback price was set at a premium to the notes market price as at the time of the tender offer announcement. Most of the tendered Eurobond notes came from the Russian holders. The Company used its excess liquidity to finance the transaction. In October 2018, SIBUR and SG-trans, one of the country's major railway operators, have set up Petrochemicals Transportation Company (PTC LLC). The JV was set up with a parity ownership split between SIBUR and SG-trans. As part of the deal totalling RUB 9.4 bn, SIBUR sold its LPG tank car fleet to PTC LLC via a leasing company. While reserving part of PTC LLC transportation capacity for SIBUR s own needs, the deal also provides for the JV to offer freight transportation services to third parties. In September 2018, it was announced that SIBUR s Voronezh site will boost the output of thermoplastic elastomers (TPE) used in road construction, roof coating production and other industries by 50 ktpa. With the current TPE output of 85 ktpa, Voronezhsintezkauchuk s design capacity is set to increase to 135 ktpa. The project has been approved by the Company s Investment Committee. The project s key deliverables comprise expanding the range of grades applied in roofing and road construction, and adding new grades for compounds and adhesives. SIBUR plans to supply the products to both domestic and international markets. In May 2018, SIBUR and Gazprom signed a final agreement to supply ethane from Gazprom s Amur Gas Processing Plant (GPP) to SIBUR's Amur Gas Chemical Complex (GCC). The document provides more details on the basic terms and conditions of a previously signed preliminary agreement for the future 20-year ethane fraction supplies. In particular, the document specifies the volume (ca. 2 mtpa), the pricing formula and the Parties responsibility for ensuring stable supplies and feedstock reception. The deal has secured long-term ethane fraction sales for Gazprom, while SIBUR is now able to continue developing the Amur GCC project. Previously, in February 2018, SIBUR and Gazprom entered into a preliminary agreement setting out the key commercial terms for the ethane supply. In April 2018, SIBUR Holding held its Annual General Meeting of Shareholders. The Company's shareholders resolved to pay dividends of RUB billion representing 25 of adjusted net profit under IFRS for The total dividend payout is RUB 6.75 per ordinary share. The shareholders also approved the expansion of the Board of Directors to 12 members, including four independent directors. Independent directors chair the Audit Committee and Human Resources & Remuneration Committee. In April 2018, Fitch revised its outlook for SIBUR s Long-Term Issuer Default Rating (IDR) to Positive from Negative, and the rating itself was affirmed at BB+. Previously, in March 2017, Fitch affirmed SIBUR s rating at BB+ and maintained the Negative outlook. In February 2018, SIBUR updated its Articles of Association and now has two single-member executive bodies, namely Chairman of the Management Board of SIBUR Holding (Dmitry Konov) and CEO of SIBUR LLC (Mikhail Karisalov, previously COO of SIBUR LLC). This decision results from the previously initiated processes seeking to separate strategic management from operational one to further enhance management efficiency. 5

6 In January 2018, Moody s assigned a Baa3 long-term issuer rating to SIBUR, with a stable outlook, thus moving SIBUR to investment-grade category. 6

7 RESULTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 2018 AND 2017 The following table presents selected data on our results of operations for the years ended 31 December 2018 and 2017: RUB millions, except as stated 2018 of revenue 2017 of revenue Revenue 568, , Olefins & Polyolefins 100, , Plastics, Elastomers & Intermediates 171, , Midstream 240, , Unallocated 55, , incl. Revenue from Project Management and Construction Services 41, , Operating expenses (403,566) (71.0) (329,598) (72.5) 22.4 Operating profit 165, , Net finance (expense) / income (29,359) (5.2) 3, n/m Result of subsidiary s disposal and remeasurement of related assets (425) (0.1) 19, n/m Result of subsidiary s acquisition and remeasurement of related liabilities (217) n/m (965) (0.2) (77.5) Share of net income of joint ventures and associates 3, , Profit before income tax 138, , (7.8) Income tax expense (27,493) (4.8) (29,671) (6.5) (7.3) Profit for the year 110, , (7.9) Profit for the year, including attributable to: 110, , (7.9) Non-controlling interest 4, , Shareholders of SIBUR 106, , (9.0) Revenue In 2018, our revenue increased by 25.1 year-on-year to RUB 568,647 million from RUB 454,619 million in 2017 with the following dynamics across the segments: Olefins & Polyolefins revenue increased by 14.4 to RUB 100,862 million from RUB 88,135 with PP being the major contributor to the revenue growth; Plastics, Elastomers & Intermediates revenue increased by 16.4 to RUB 171,003 million from RUB 146,877 million largely due to positive pricing within the plastics and organic synthesis products and MTBE; Midstream segment revenue increased by 30.7 to RUB 240,818 million from RUB184,199 million largely due to higher LPG and naphtha prices; Unallocated revenue increased by 58.1 to RUB 55,964 million from RUB 35,408 million, which was mainly driven by higher revenue from NIPIGAZ services. For a detailed discussion on results in each operating segment see Segment Information. 7

8 Operating Expenses The following table presents a breakdown of our operating expenses for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated 2018 of revenue 2017 of revenue Feedstock and materials (1) 130, , Transportation and logistics 75, , Staff costs 43, , Energy and utilities 39, , Depreciation and amortisation 35, , Goods for resale 32, , Services provided by third parties 29, , >100 Repairs and maintenance (1) 12, , (3.4) Taxes other than income tax 3, , Processing services of third parties 3, , Charity and sponsorship, marketing and advertising 2, , Rent expenses 1, , Impairment of PPE n/m >100 Impairment of assets held for sale n/m n/m (Gain)/loss on disposal of PPE (4,503) (0.8) n/m in WIP and refined products balances (6,247) (1.1) (1,803) (0.4) >100 Other 3, , Operating expenses 403, , In 2018, our operating expenses increased by 22.4 year-on-year to RUB 403,566 million from RUB 329,598 million. The growth was mainly driven by an increase in feedstock costs largely on higher international benchmarks, substantial growth in services provided by third parties, which was attributable to NIPIGAZ activities, as well as increase in goods for resale. Feedstock and Materials In 2018, our feedstock and materials costs increased by 48.5 year-on-year to RUB 130,669 million from RUB 87,983 million, increasing as a percentage of total revenue to 23.0 from 19.4 in The increase was largely driven by higher expenses related to purchases of hydrocarbon feedstock mainly due to the increase in the respective export netbacks. The following table presents information on our costs related to purchasing of feedstock and materials for the years ended 31 December 2018 and 2017: RUB millions, except as stated 2018 of feedstock and materials expenses 2017 of feedstock and materials expenses NGLs 63, , APG 30, , Paraxylene 9, , Benzene 5, , of stock (2,810) (2.2) 1, n/m Other feedstock and materials 25, , Feedstock and materials, total 130, , (1) The cost of spare parts and materials for repairs was reclassified from Feedstock and materials to Repairs and maintenance with retrospective adjustments. 8

9 In 2018, our expenses related to purchases of NGLs increased by 79.0 year-on-year to RUB 63,234 million from RUB 35,322 million, increasing as a percentage of total feedstock and materials expenses to 48.4 from The increase in expenses was attributable to: (i) growth in the effective average purchase price by RUB 6,397 per tonne in line with increase in international benchmarks (LPG Argus CIF ARA was up by RUB 6,299 per tonne year-on-year), and (ii) structural change in NGLs consumption with marginal growth of more expensive naphtha. We also recorded a 15.8 increase in purchasing volumes, or 476,644 tonnes in absolute terms, mainly attributable to: (i) new supply arrangements for naphtha deliveries to our cracker in Tomsk, (ii) higher volumes of raw NGL due to a new supply contract with Surgutneftegas. In 2018, our expenses related to purchases of APG increased by 16.7 year-on-year to RUB 30,445 million from RUB 26,077 million, decreasing as a percentage of total feedstock and materials expenses to 23.3 from The increase in expenses in absolute terms was primarily driven by the growth in the effective average purchase price by RUB 196 per bcm (16.7) backed by higher international benchmarks for liquids reflected in the respective export netbacks dynamics, as well as a 3.9 indexation of regulated natural gas prices as of 1 July 2017 and a 3.4 indexation as of 21 August Our APG purchasing volumes were relatively flat year-on-year. Other feedstock and materials expenses increased by 78.3 year-on-year to RUB 25,625 million from RUB14,371 million mainly due to (i) higher purchases of materials and spare parts used by NIPIGAZ under project management and construction services, as well as (ii) a new swap arrangement with our counterparties to optimise logistics. Transportation and Logistics In 2018, our transportation and logistics expenses increased by 11.9 year-on-year to RUB 75,021 million from RUB 67,058 million in 2017, decreasing as a percentage of total revenue to 13.2 from 14.8 a year earlier. The increase was largely attributable to higher transported volumes of LPG for export sales, which grew by 356 thousand tonnes. We also observed a 5.4 indexation in railroad transportation tariffs by the FAS in January 2018 (see Transportation Tariffs in Certain Factors Affecting Our Results of Operations ). Staff Costs In 2018, our staff costs increased by 12.6 year-on-year to RUB 43,171 million from RUB 38,334 million, decreasing as a percentage of total revenue to 7.6 from 8.4 a year earlier. The increase in absolute terms was primarily attributable to (i) growth in the operating activities of NIPIGAZ along the progress of the projects execution, as well as (ii) increase in average salaries in Our average headcount totaled 27,270 employees in 2018, down from 27,247 employees in Energy and Utilities In 2018, our energy and utilities expenses increased by 2.8 year-on-year to RUB 39,839 million from RUB 38,770 million, decreasing as a percentage of total revenue to 7.0 from 8.5. The increase in absolute terms was primarily attributable to higher average electricity tariffs. Our effective average electricity tariff was up by 4.5 due to the indexation in the regions of our operations, while our effective average heat tariff was almost flat. 9

10 The following table presents data on our energy and utilities costs for the years ended 31 December 2018 and 2017: RUB millions, except as stated 2018 of total energy and utilities 2017 of total energy and utilities Electricity 23, , Fuel (primarily natural gas) 8, , Heat 5, , (2.9) Other 2, , Energy and utilities, total 39, , Depreciation and amortisation In 2018, our depreciation and amortisation expenses were largely flat at RUB 35,510 million, decreasing as a percentage of total revenue to 6.2 from 7.8. Goods for Resale In 2018, our expenses related to purchases of goods for resale increased by 40.3 year-on-year to RUB 32,512 million from RUB 23,170 million, increasing as a percentage of total revenue to 5.7 from 5.1. The increase was attributable to (i) MTBE purchases from Uralorgsintez following divestment of the subsidiary in April 2017, as well as growth in international benchmarks; (ii) higher volumes of LPG purchased under a trading arrangement, and (iii) higher volumes of PP purchases from our JV NPP Neftekhimia mainly due to the lengthy turnaround at the site a year earlier. Services Provided by Third Parties In 2018, our expenses related to services provided by third parties increased more than twice year-on-year to RUB 29,645 million from RUB 14,129 million, increasing as a percentage of total revenue to 5.2 from 3.1. The growth was largely attributable to higher expenses of NIPIGAZ related to subcontractors. in Work in Progress and Refined Products Balances In 2018, we recorded a reversal to our operating expenses in the amount of RUB 6,247 million compared to a reversal in the amount of RUB 1,803 million a year earlier, which was largely attributable to the accumulation of (i) refined products due to maintenance shutdowns at our production sites, inter alia as part of expansion project, as well as (ii) naphtha and LPG for export sales in transit. Operating Profit In 2018, our operating profit increased by 32.0 year-on-year to RUB 165,081 million from RUB125,021 million. The corresponding operating margin totaled 29.0 and 27.5 in 2018 and 2017, respectively. Net Finance (Expense)/Income In 2018, we reported a net finance expense of RUB 29,359 million versus RUB 3,983 million income in 2017, which was largely attributable to significant foreign exchange loss incurred in The following table presents data on our finance income and expenses for the years ended 31 December 2018 and 2017: RUB millions, except as stated Interest income 1,464 2,012 (27.2) Interest expense (945) (6,416) (85.3) Foreign exchange (loss)/gain (28,888) 9,043 n/m Other finance expense (990) (656) 50.9 Net finance (expense)/income (29,359) 3,983 n/m 10

11 In 2018, we recorded a non-cash foreign exchange loss in the amount of RUB 28,888 million compared to RUB 9,043 million gain reported in The loss from financing activities in 2018 was mainly attributable to the depreciation of the Russian ruble against US dollar and euro and respective revaluation of debt denominated in these currencies. In 2018, our interest expense decreased by 85.3 to RUB 945 million from RUB 6,416 million in 2017 largely due to capitalisation of the interest accrued on ZapSib related loans. The total accrued interest amounted to RR 14,695 million and RR 15,893 million in 2018 and 2017, respectively Result of subsidiary s disposal and remeasurement of related assets In 2018, we recorded a loss of RUB 425 million from remeasurement of related assets for the sale of subsidiary Portenergo LLC in In 2017, we recognised a gain of RUB 19,805 million on disposal of subsidiary following the sale of Uralorgsintez to EKTOS in April The gain represents the difference between cash consideration and net book value of the asset as of the disposal date. Result of Subsidiary s Acquisition and Remeasurement of Related Liabilities In 2018, we recognised a loss from remeasurement of related liabilities for the acquisition of Tobolsk HPP from JSC Fortum in the amount of RUB 217 million compared to RUB 965 million in Share of net income of joint ventures and associates In 2018, we recorded a share in net income of joint ventures and associates in the amount of RUB 3,173 million compared to RUB 2,073 million reported in The increase was largely attributable to higher income of NPP Neftekhimia in 2018 as the plant was on a maintenance shutdown in the first half of 2017 with a subsequent marginal capacity increase. Income Tax Expense In 2018, we recorded an income tax expense in the amount of RUB 27,493 million compared to RUB 29,671 million recorded in The decrease was driven by lower pre-tax profit in Profit for the Reporting Period In 2018, our profit decreased by 7.9 year-on-year to RUB 110,760 million from RUB 120,246 million in 2017 on factors described above. Our net margin totaled 19.5 and 26.4 in 2018 and 2017, respectively. 11

12 SEGMENT INFORMATION The following table presents selected financial information by segment for the years ended 31 December 2018 and 2017: RUB millions, except as stated , Revenue incl. Inter-Segment Transfers Olefins & Polyolefins 130, , Plastics, Elastomers & Intermediates 174, , Midstream 294, , Unallocated 58,312 37, External Revenue 568, , Olefins & Polyolefins 100,862 88, Plastics, Elastomers & Intermediates 171, , Midstream 240, , Unallocated 55,964 35, EBITDA 201, , Olefins & Polyolefins 37,679 44,636 (15.6) PP production in Tobolsk 16,437 19,981 (17.7) Plastics, Elastomers & Intermediates 34,816 33, Midstream 127,107 86, Unallocated 1,405 (3,494) n/m EBITDA margin (1) Olefins & Polyolefins PP production in Tobolsk Plastics, Elastomers & Intermediates Midstream Unallocated 2.4 n/m Adjusted EBITDA (2) 205, , Olefins & Polyolefins 46,507 51,790 (10.2) Plastics, Elastomers & Intermediates 34,611 32, Midstream 127,771 87, Unallocated (3,360) (7,179) (53.2) (1)(2) (1) The Segment s EBITDA margin is calculated as the Segment s EBITDA devided by the Segment s Revenue incl. Inter-Segment Transfers. The Group s EBITDA margin is calculated as the Group s EBITDA devided by the Group s External Revenue. (2) Adjusted EBITDA includes the Group s portion of EBITDA of joint ventures and associates and excludes the non-controlling interest portion of EBITDA of subsidiaries. 12

13 Olefins & Polyolefins Segment The following table presents selected financial information for the Olefins & Polyolefins segment for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated 2018 of external 2017 revenue of external revenue Revenue incl. Inter-Segment Transfers 130, , External Revenue 100,862 88, PP 48, , PE (LDPE) 20, , (3.4) BOPP-films 18, , Ethylene 7, , Other polymers products 4, , >100 Other sales EBITDA 37,679 44,636 (15.6) EBITDA margin (1) including EBITDA of PP production in Tobolsk 16,437 19,981 EBITDA margin of PP production in Tobolsk JV contribution (the Group's portion of EBITDA of joint ventures and associates) 8,828 7, Adj. EBITDA 46,507 51,790 (10.2) The following table presents selected operational information for the Olefins & Polyolefins segment for the years ended 31 December 2018 and 2017: Tonnes, except as stated External Sales Volumes PP 583, ,019 (2.5) PE (LDPE) 262, ,480 (2.3) BOPP-films 152, ,909 (2.5) Olefins 157, , External Revenue Our Olefins & Polyolefins external revenue increased by 14.4 mainly due to positive dynamics in PP, as well as ethylene and BOPP-films, partly offset by the decline in revenue from LDPE sales. Polypropylene (PP) In 2018, our revenue from sales of PP increased by 14.3 to RUB 48,417 million from RUB 42,368 million in the corresponding period of 2017 on a 17.2 increase in the effective average selling price despite a 2.5 decrease in sales volumes. PP benefited from favourable pricing environment driven by higher oil prices, tighter PP market in China due to import ban on plastic waste and deficit of propylene on the European market. Domestic prices partially followed upturn in international benchmarks, though we couldn t fully pass on price uplift to domestic processors. A decrease in sales volumes was caused by lower PP production in Tobolsk due to a lengthy maintenance shutdown in the second half of In 2018, domestic sales accounted for 65.8 of total PP revenue, while 34.2 was attributable to export sales. (1) The Segment s EBITDA margin is calculated as the Segment s EBITDA devided by the Segment s Revenue incl. Inter-Segment Transfers. 13

14 Low Density Polyethylene (LDPE) In 2018, our revenue from sales of LDPE decreased by 3.4 to RUB 20,496 million from RUB 21,208 million in the corresponding period of 2017 on a 2.3 decrease in sales volumes and a 1.1 decrease in the effective average selling price. LDPE markets were under pressure following global capacity additions and increased competition on the domestic market. Our sales volumes decreased on lower production driven by scheduled maintenance shutdown of our production site in Tomsk. We channelled higher LDPE volumes to export markets where we observed improved market condition. In 2018, our domestic sales accounted for 64.0 of total LDPE revenue, 36.0 was attributable to export sales. BOPP-films In 2018, our revenue from BOPP-film sales increased by 11.0 to RUB 18,471 million from RUB 16,642 million in the corresponding period of 2017 on a 13.8 increase in the effective average selling price despite a 2.5 decrease in sales volumes. The increase in the effective average selling price partially followed positive dynamics of international market prices. Lower sales volumes were attributable to slight decline in production and moderate inventories accumulation as compared to inventory sales in the respective period of In 2018, domestic sales accounted for 67.1 of total BOPP-film revenue and 32.9 was attributable to export sales. Ethylene In 2018, our external revenue from olefins sales represented by ethylene increased by 33.0 to RUB 7,726 million from RUB 5,810 million in the corresponding period of The increase was largely attributable to a 25.3 growth in the effective average selling price, which reflected higher LPG and naphtha prices that drive our selling price. Sales volumes increased by 6.2, which was attributable to increased capacity utilisation at our JV RusVinyl, which is our key customer of ethylene. We sell 100 of produced ethylene in Russia. EBITDA Our Olefins & Polyolefins EBITDA decreased by 15.6 due to (i) weaker spreads for polyethylene resulting from outpacing dynamics of oil derivatives prices over polyolefin benchmarks, as well as (ii) lower polypropylene production volumes due to maintenance shutdowns at our major production sites. EBITDA margin declined to 28.8 from 39.5 year-on-year. The lower margin was driven by increased prices for feedstock and lower PP and PE sales volumes. Our share in EBITDA of joint ventures and associates increased by RUB 1,674 million on positive contribution of all our JVs, mainly of NPP Neftekhimia where a lengthy maintenance shutdown of a twoyear cycle fell on

15 Plastics, Elastomers & Intermediates Segment The following table presents selected financial information for the Plastics, Elastomers & Intermediates segment for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated 2018 of external 2017 revenue of external revenue Revenue incl. Inter-Segment Transfers 174, , External Revenue 171, , Plastics and organic synthesis products 59, , Elastomers 55, , MTBE and fuel additives 29, , Intermediates and other chemicals 25, , Other sales 1, , (3.9) EBITDA 34,816 33, EBITDA margin (1) Adj. EBITDA 34,611 32, The following table presents selected operational information for the Plastics, Elastomers & Intermediates segment for the years ended 31 December 2018 and 2017: Tonnes, except as stated External Sales Volumes Plastics and organic synthesis products 799, , Elastomers 486, , MTBE and fuel additives 677, , Intermediates and other chemicals 483, ,492 (7.2) External Revenue Our Plastics, Elastomers & Intermediates segment external revenue increased by 16.4 year-on-year, which was mainly attributable to higher revenue from plastics and organic synthesis products, as well as MTBE largely on positive dynamics in international benchmarks. Plastics and organic synthesis products In 2018, our revenue from sales of plastics and organic synthesis products increased by 26.8 year-onyear to RUB 59,878 million from RUB 47,227 million on a 22.3 increase in the effective average selling price and a 3.7 increase in sales volumes. The increase in the effective average selling prices was attributable to the overall positive price dynamics across the product group mainly following growth in international benchmarks, with the most significant impact in PET. The increase in sales volumes was attributable to higher alcohols production due to a two-year maintenance cycle at our production site in Perm, accompanied by higher glycols output due to increased productivity and the start of production of new type of polystyrene (MIX polystyrene) since June In 2018, domestic sales accounted for 77.0 of total plastics and organic synthesis products revenue, while 23.0 was attributable to export sales. Elastomers In 2018, our revenue from elastomers sales increased by 6.1 year-on-year to RUB 55,021 million from RUB 51,857 million as a result of a 5.9 increase in the effective average selling price mainly driven by positive international benchmarks. Sales volumes were almost flat. In 2018, export sales accounted for 63.5 of total elastomers revenue, 36.5 was attributable to domestic sales. (1) The Segment s EBITDA margin is calculated as the Segment s EBITDA devided by the Segment s Revenue incl. Inter-Segment Transfers. 15

16 MTBE and fuel additives In 2018, our revenue from MTBE and fuel additives sales increased by 28.7 year-on-year to RUB 29,753 million from RUB 23,120 million. Revenue from MTBE and fuel additives sales increased by 28.7 due to a 27.1 increase in the effective average selling price and a 1.3 increase in sales volumes. The increase in the effective average selling price was mainly driven by higher international benchmarks. Following the divestment of Uralorgsintez in April 2017, we decreased MTBE production volumes and increased the sales of MTBE under trading arrangements. The sales mix changed towards a higher share of domestic sales primarily as a result of more favourable pricing terms in new contracts with our customers in Russia. In 2018, our share of domestic sales increased to 72.0 of total MTBE and fuel additives revenue from 43.5 in 2017, while 28.0 and 56.5, respectively, were derived from export sales. Intermediates and other chemicals In 2018, our revenue from sales of intermediates and other chemicals increased by 7.4 year-on-year to RUB 25,137 million from RUB 23,410 million. The increase was largely attributable to higher international market prices. This was partially offset by lower revenue from propylene sales due to scheduled maintenance shutdowns at our production sites in Tobolsk and Kstovo, when some propylene volumes were rerouted from external sales to internal use in Tobolsk PP production. In 2018, the share of domestic sales increased to 81.2 of total intermediates and other chemicals revenue, from 73.5 in 2017, while 18.8 and 26.5, respectively, were derived from export sales. EBITDA Our Plastics, Elastomers & Intermediates EBITDA increased by 5.4 primarily due to increased plastics and organic synthesis products selling prices, partially offset by weaker elastomers spread. The segment EBITDA margin totaled 20.0, a year-on-year decrease from The lower margin was largely attributable to higher prices for hydrocarbon feedstock primarily supplied internally from the Midstream segment. 16

17 Midstream Segment The following table presents selected financial information for the Midstream segment for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated 2018 of external 2017 revenue of external revenue Revenue incl. Inter-Segment Transfers 294, , External Revenue 240, , LPG 152, , Natural gas 49, , Naphtha 37, , Other sales 1, , (6.6) EBITDA 127,107 86, EBITDA margin (1) Adj. EBITDA 127,771 87, The following table presents selected operational information for the Midstream segment for the years ended 31 December 2018 and 2017: Tonnes, except as stated Raw NGL production 5,416,730 5,401, Raw NGL purchases 2,689,251 2,577, Raw NGL fractionation (7,712,269) (7,522,294) 2.5 Naphtha purchases 762, , External Sales LPG 5,357,156 4,924, Natural gas (thousands of cubic metres) 18,519,244 18,477, Naphtha 1,045, , External Revenue Our Midstream external revenue increased by 30.7 year-on-year due to higher selling prices for LPG and naphtha mainly following the positive dynamics in international benchmarks. This was supported by the growth in LPG sales volumes on higher raw NGL fractionation that was up by 2.5 year-on-year. Liquefied Petroleum Gases (LPG) In 2018, our revenue from LPG sales increased by 37.5 year-on-year to RUB 152,206 million from RUB 110,708 million on a 26.4 increase in the effective average selling price and an 8.8 increase in sales volumes. The increase in our effective average selling price was driven by positive dynamics in international market prices. Our external LPG sales volumes increased mainly due to: (i) lower internal use of LPG at our crackers in Tomsk and Kstovo following a shift towards higher share of naphtha feedstock, as well as scheduled maintenance shutdown at our PDH facility in Tobolsk that is fed by propane, (ii) higher raw NGL fractionation volumes, and (iii) higher volumes of LPG purchased under trading arrangements. In 2018, our export sales accounted for 73.7 of total LPG revenue, while 26.3 was attributable to domestic sales. Natural Gas In 2018, our revenue from natural gas sales increased by 3.4 year-on-year to RUB 49,067 million from RUB 47,474 million as a result of a 3.1 increase in the effective average selling price following regulated natural gas prices indexation. Sales volumes were almost flat due to stable volumes of processed APG. We sell 100 of our natural gas in Russia. (1) The Segment s EBITDA margin is calculated as the Segment s EBITDA devided by the Segment s Revenue incl. Inter-Segment Transfers. 17

18 Naphtha In 2018, our revenue from naphtha sales increased by 57.2 year-on-year to RUB 37,572 million from RUB 23,904 million on a 32.2 increase in the effective average selling price and a 18.9 increase in sales volumes. The increase in our effective average selling price was driven by positive dynamics of international market prices. Our sales volumes increased as we used purchased naphtha at our crackers in Kstovo and Tomsk and redirected internally produced naphtha to external sales to optimise logistics. In 2018, we redistributed some of the sales volumes from domestic market to export. The share of export sales increased to 75.5 of total naphtha revenue, from 66.6 in 2017, while 24.5 and 33.4, respectively, were derived from domestic sales. EBITDA In 2018, our Midstream EBITDA increased by 46.7 year-on-year to RUB 127,107 million from RUB 86,672 million primarily due to: (i) wider spreads, as the increase in international benchmark prices for liquids more than compensated higher purchase prices for our hydrocarbon feedstock, as well as (ii) higher volumes of raw NGL fractionation. In 2018, the segment EBITDA margin totaled 43.1, a year-on-year increase from The higher margin was mainly attributable to wider spreads between purchased hydrocarbon feedstock and NGLs selling prices. 18

19 LIQUIDITY AND CAPITAL RESOURCES Cash Flow The following table presents selected data on our net cash flows for the years ended 31 December 2018 and 2017: (1) RUB millions, except as stated Net cash from operating activities 160, , Operating cash flows before working capital changes 194, , s in working capital (9,805) 10,377 n/m Income tax paid (24,582) (19,640) 25.2 Net cash used in investing activities, including (133,286) (106,035) 25.7 Capital expenditures (151,438) (135,261) 12.0 Grants and subsidies received (1) 9,536 11,274 (15.4) Proceeds from sale of property, plant and equipment 9, >100 Proceeds from disposal of subsidiaries, net of cash disposed - 22,136 n/m Net cash used in financing activities, including (63,857) (57,774) 10.5 Dividends paid to the Company's shareholders (27,126) (19,709) 37.6 Net repayment of debt (22,266) (23,087) (3.6) Interest paid (13,569) (14,655) (7.4) Bank commissions paid (896) (1,707) (47.5) Effect of exchange rate changes on cash and cash equivalents 3,061 (1,047) n/m Net decrease in cash and cash equivalents (33,673) (12,179) >100 Net Cash from Operating Activities In 2018, our net cash from operating activities increased by 5.1 year-on-year to RUB 160,409 million from RUB 152,677 million. Our operating cash flows before working capital changes increased by 20.3 year-on-year on the back of higher EBITDA. The difference from EBITDA dynamics is explained by gain incurred on sale of tanks for LPG transportation and operational forex loss. s in working capital had a negative impact on our net cash from operating activities in the amount of RUB 9,805 million as compared to a positive effect of RUB 10,377 million a year earlier. Negative working capital change was driven by stock pile up mainly due to planned PTA expansion, higher goods in transit as well as higher inventories balances under NIPIGAZ contracts. The following table presents data on changes in working capital for the years ended 31 December 2018 and 2017: RUB millions, except as stated Increase in advances received under project management and construction services 45,375 56,670 Increase in trade and other payables 26,127 17,660 Increase in taxes payable 2,413 2,878 Increase in prepayments and other current assets (2,553) (7,744) Increase in inventories (8,082) (1,156) Increase in trade and other receivables (25,138) (3,944) Increase in advances issued under project management and construction services (47,947) (53,987) s in working capital (9,805) 10,377 SIBUR s management monitors its liquidity and operational efficiency on the basis of the adjusted working capital (see Appendix I for further details). Our adjusted working capital was positive at RUB 22,818 million as of 31 December Our working capital turnover days stayed almost flat at 14.6 as of 31 December 2018 compared to 14.2 as of 31 December (1) To improve presentation and reliability of information in the consolidated statement of cash flows the Group reclassified grants and subsidies received from financing to investing activities. 19

20 Our net working capital balance may fluctuate from period to period due to factors within or outside our control, such as market conditions, our tactical marketing initiatives in response to changes in market conditions, logistical constraints as well as completion of major investment projects, which could require substantial inventory accumulation, as well as our activities under project management and construction services. Net Cash Used in Investing Activities In 2018, our net cash used in investing activities increased by 25.7 year-on-year to RUB 133,286 million from RUB 106,035 million, which was attributable to (i) a 12.0 increase in our capital expenditures largely due to ongoing ZapSibNeftekhim ( ZapSib ) construction, as well as (ii) low base of 2017 as we received proceeds from the divestment of Uralorgsintez. The growth was partly compensated by proceeds in the amount of RUB 9,475 million the Group received in 2018 from sale of its own tanks for LPG transportation. Net Cash Used in Financing Activities In 2018, our net cash used in financing activities increased by 10.5 to RUB 63,857 from RUB 57,774 million in 2017 primarily due to higher dividends payouts as compared to the corresponding period of We paid RUB 27,126 million and RUB 19,709 million in dividends to the Group s shareholders in 2018 and 2017, respectively. Capital Expenditures In 2018, our CapEx (1) increased by 12.0 year-on-year to RUB 151,438 million (net of VAT) as a result of the ZapSib transition to the final stage of the project implementation, as well as the depreciation of the Russian rouble against the euro and US dollar that affected our payments in these currencies. The following table presents data on our investment programme for the years ended 31 December 2018 and 2017: (2) RUB millions, except as stated Project ZapSibNeftekhim, ZapSib (Tobolsk) 112, ,896 5 Logistic platform (Tobolsk) 5,757 7,287 (21) Dioctyl terephthalate production, DOTP (Perm) 3, >100 Terephthalic acid expansion, TPA (Bashkortostan) 2,323 1, Thermoplastic elastomers expansion, TPE (Voronezh) 1, >100 Other 14,538 11, Maintenance (see Appendix II for details) (2) 11,554 7, Capital Expenditures (1), total 151, , Grants and subsidies received (9,536) (11,274) (15) Capital Expenditures net of subsidies, total 141, , As a major investor in infrastructure and social projects in the regions where it operates, SIBUR has signed cooperation agreements with a number of regional authorities, including investment and financial support agreements. Under these agreements, the Company is entitled to a partial refund of capital expenditures incurred in the respective regions subject to certain conditions. The amounts of government subsidies received in the years of 2018 and 2017 are presented in the table above. (1) Includes purchase of property, plant and equipment, intangible assets and other non-current assets. (2) Total maintenance expenses include maintenance CAPEX and OPEX Repairs and Maintenance line. 20

21 ZapSibNeftekhim ( ZapSib ) is designed to operate (i) a world-scale ethylene cracking unit with an annual capacity of 1.5 million tonnes, that will also produce 525 thousand tonnes of propylene and 223 thousand tonnes of butadiene and fuel components (technology provided by Linde), and (ii) polyolefin units with an annual capacity of 1.5 million tonnes of polyethylene (technology provided by INEOS) and 500 thousand tonnes of polypropylene (technology provided by LyondellBasell). This is a greenfield construction near our Tobolsk production site, and the facility will have direct access to the existing fractionation capacity. Positioned in the first quartile on the global IHS ethylene cost curve, ZapSib is expected to be one of the lowest-cost projects globally with cost advantage driven by competitive feedstock price (LPG netback in Western Siberia), economy of scale, as well as low energy and labour costs in Russia. By the end of 2018, the project s overall progress was estimated at 92.5, with progress by major units (steam cracker, polyethylene and polypropylene units) exceeding 95. Procurement of materials and equipment was nearing 100, construction and installation was 92 complete. The residual capital expenditures for the project was estimated by the Company at USD 2.1 (3) billion as of 31 December 2018 with the following currency structure: approximately 40 denominated in Russian rubles, approximately 35 in US dollars and 25 in euro. The following funding sources are available for the project: In December 2014, SIBUR signed an agreement with a consortium of European banks for ECAbacked long-term financing in the amount of EUR 1,575 million for the contracts with Linde AG and ThyssenKrupp Industrial Solutions, later the amount was revised upward to EUR 1,676 million; as of 31 December 2018, SIBUR had drawn down EUR 1,128 million from this credit facility; In September 2015, SIBUR signed credit facility arrangements with a consortium of European banks, which is covered by a EUR 412 million guarantee from French credit agency Bpifrance (earlier Coface), to raise long-term financing for a portion of the capital expenditures related to ZapSib; as of 31 December 2018, SIBUR had drawn down of EUR 178 million from this credit facility; In December 2017, ZapSibNeftekhim signed credit facility agreement with Vnesheconombank in the amount of USD 400 million with a tenor of 8 years; as of 31 December 2018, SIBUR had drawn down USD 240 million from this credit facility. * * * SIBUR's Board of Directors has approved the 2019 capital expenditures budget in the amount of RR 146 billion (net of VAT). These amounts represent investments into projects approved by the Investment committee, and include capital expenditures to maintain the existing infrastructure as well as the capitalised portion of the Group's expenses related to R&D, organisational and IT projects and exclude investments under joint ventures, loans issued to joint ventures or acquisitions. The Board of Directors may review the budget during the year in case of changes in macroeconomic and market environment. Borrowings As of 31 December 2018, our total debt amounted to RUB 332,411 million, an increase of 6.4 from RUB 312,344 million as of 31 December The increase was attributable to new drawdowns of ZapSib related financing, as well as to the depreciation of the Russian ruble against the euro and US dollar, partially offset by the repayment of conventional debt (debt excluding that related to ZapSib). (3) The respective residual expenditures are calculated at the respective foreign exchange rates as of 31 December