PJSC Tatneft. Annual report 2017
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PJSC Tatneft. Annual report 2017

Joint address of the Chairman of the board of directors and the Director general to shareholders, investors, and partners

DEAR SHAREHOLDERS, INVESTORS, AND PARTNERS!

In 2017, we launched an important stage of our Strategy 2025 that covers all the Company’s business units and is aimed at increasing the Company’s value. The key results of the year included a steady increase in performance indicators along principal business lines, achievement of current priority target values and consolidation of the Company’s financial stability.

The Company’s achievements and outlook were highly rated by the stock market. Over the course of the year, TATNEFT’s stock price has been among the best performers among Russian oil and gas companies.

For the year, TATNEFT’s capitalization increased by 14%, amounting to RUB 1.1 trillion by the end of 2017.

trong performance in production indicates the effectiveness of the Company’s business model. The Management has focused on creating new sources for the growth of earnings, strengthening the assets structure and maximizing productivity. We are building up our innovative potential and adopting progressive digital solutions to create a reliable technological foundation in the Company.

In the reporting year, TATNEFT Group produced 28.9 million tonnes of oil. To fulfill OPEC+ commitments, the Company held down the rate of production growth reached in previous years. Given that its vast hydrocarbon reserves are among the largest in Russia, TATNEFT has the potential to ramp up oil production. In addition to increasing oil production in mature fields, the Company is researching and developing methods to extract unconventional hard-to-recover resources (including Domanic productive deposits) from the subsoil. Successful development of super-viscous oil deposits is continuing.

In the current market, the Company has maintained an optimal customer balance, enabling the Company to increase oil sales income in 2017 by 22.5%. The in-house oil refining unit has been experiencing stable growth. In December 2017, the fifty millionth tonne of crude oil was refined at the TANECO Complex. In the reporting year, the Group produced 8.5 million tonnes of oil products.

Utilization of oil refining capacity is at 115%. We have maintained our industry leadership in the refining depth at the level of 99.24%, with the light oil products output of 87.5%. In the coming years, the Company is planning to start producing high-quality Euro-5 gasoline and to increase the production of TANECO diesel and jet fuel. To increase time between repairs, TANECO conducted a major overhaul during the reporting year. These repairs have enabled the Company to launch new production facilities without significant disruption of the production process.

The Company operates 685 retail filling stations under the corporate brand in the most attractive regions (in terms of demand volumes and trends) across Russia, Belarus, and Ukraine. Over the reporting year, average daily sales per filling station have increased by 6%. Priorities in this business segment include increasing the chain’s margins, ensuring the quality of oil products, and developing related services.

The TATNEFT Group’s tire manufacturing business maintains a significant share of the domestic Russian tire market. In the reporting year, petrochemical sales revenue increased by 9.4% thanks to the growth in tire sales. Tires are shipped to domestic and export markets (covering around 50 countries). Our objectives in this segment include occupying new market niches due to the high quality and extended range of products and running efficient marketing programs.

To meet the strategic goal of extending our range of innovative product lines, the Company is developing a composite cluster for high-tech manufacturing.

We are increasing the reliability of our generating capacities to ensure the supply of energy to companies in the Nizhnekamsk industrial hub. The Company is developing programs to diversify its sources of raw materials for the Nizhnekamsk combined heat and power plant, which will help improve its performance.

Driven by strong results throughout the reporting year, the TATNEFT Group’s consolidated profit grew by 17.4%, reaching RUB 681.2 billion at year-end. The net profit of the Group’s shareholders amounted to RUB 123.1 billion, an increase of 14.7% from 2016.

In the reporting year, the total value of the consolidated assets increased to RUB 1,107.5 billion.

The Company follows a progressive dividend policy. In 2017, TATNEFT shareholders received nine-month dividends in the amount of 75% of the company’s net profit. Based on the Company’s 2017 performance, the Board of Directors recommends the TATNEFT General Shareholders Meeting to make a resolution on paying common share dividends in the amount of RUB 39.94 for each preferred and common share (3,994% on the nominal value of each share) with due account of the dividends already paid on the nine-month results.

We take our commitment to sustainable development seriously.G4-1

One of our most important corporate priorities is to support the development of high-quality social infrastructure in the regions where we operate. In the reporting year, around RUB 7 billion was targeted to social initiatives in health care, education, culture, sport, and spiritual heritage.

To perform well, the complex multilevel VIOC structure requires highly efficient corporate management, talented managers, and a solid team of professional employees. The Company is steadily improving how its management bodies and operational segments collaborate with one another. We are paying special attention to developing incentive systems and performance evaluations. The decisions of the Board of Directors are aimed at the Company’s long-term success . While we are systematic about achieving our strategic goals, we also understand the challenges involved in our business. Responding to changes in the global economy, we have consolidated our domestic reserves and enhanced our competitiveness. On behalf of the Board of Directors, we would like to express our gratitude to our shareholders for their trust and present theBoard of Directors’ Report on the Company’s performance in priority business areas in 2017.

R. N. MINNIKHANOV

President of the Republic of Tatarstan,
Chairman of the Board of Directors of TATNEFT

N. U. MAGANOV

General Director,
Chairman of the Management Board of PJSC TATNEFT