Investor presentation 9M 2019 IFRS financial results December 2019 - - PowerPoint PPT Presentation

ПРОЕКТ 01/04/19

Investor presentation

9M 2019 IFRS financial results December 2019

2

The information contained in this presentation has been prepared by the Company. The conclusions presented here are based on general information collected at the time of preparation

• f the material, and are subject to change without notice. The

Company relies on information obtained from sources that it considers reliable; however, it does not guarantee its accuracy or

• completeness. All indicators in this document are presented with

rounding, and therefore the sum of rounded indicators may differ from the rounded amount of actual indicators. These materials may contain statements regarding future events and explanations representing a forecast of such events. Any statements in these materials that are not a statement of historical facts are forward-looking statements, with known and unknown risks, uncertainties and other factors, in connection with which our actual results, results and achievements may differ significantly from any future results, results

• r

achievements, reflected or implied by such forward-looking

• statements. The Company does not undertake any obligation to

update any forward-looking statements contained herein so that they reflect actual results, changes in assumptions or changes in factors affecting such statements. This presentation does not constitute an offer to sell, or solicit any offer of subscription to, or purchase of any securities. It is hereby understood that no provision of this presentation shall create the basis of any contract or obligation of any nature. The information contained in this presentation should not for any purpose be relied upon as complete, accurate or impartial. The information in this presentation is subject to review, finalization and modification. The content of this presentation has not been verified by the Company. Accordingly, we did not and do not give

• n behalf of the Company, its shareholders, directors, officers or

employees, or any other persons, any assurances or guarantees, whether expressed

• r

implied, regarding the accuracy, completeness or objectivity of the information or opinions contained herein. None of the directors of the Company, its shareholders, officers or employees, or any other persons shall be liable for any losses of any kind that may be incurred as a result of any use of this presentation or its content, or otherwise in conjunction with this presentation. English version of the presentation was translated from the

• riginal version in Russian. In case of any discrepancies, the

version in Russian language has priority.

CAUTIONARY STATEMENT

3

COMPANY OVERVIEW

Global leader in oil transportation by pipelines

• 51.8

thousand kilometers

• f
• il

pipelines, 16.7 thousand kilometers of petroleum products pipelines, more than 24 million cubic meters of storage tanks and over 500 pumping stations

• Transportation of 83% of crude oil and 29% of light petroleum

products produced in Russia

• Oil pipelines link major Russian oilfields with refineries and export

markets in Europe and Asia, either directly or through sea

• terminals. Petroleum products pipelines link refineries with key

consumption centers, sea ports, and other domestic and export distribution markets A natural monopoly

• The monopoly operator of Russian network of oil and petroleum

products pipelines

• Tariffs are set by the Federal Antimonopoly Service (FAS) of Russia

Shares outstanding* Ordinary shares 5,694,468 78.55% Preferred shares 1,554,875 21.45% Total number of shares 7,249,343 Credit Ratings Moody’s Baa2 / Stable S&P ВВB- / Stable RAEX ruAAA / Stable

* Only preferred shares are traded. 100% of

• rdinary

shares are

• wned

by the Russian Government. Preferred shares of Transneft are included in the tier 1 list of the Moscow Exchange. In accordance with Transneft’s Articles

• f

Association, DPS per 1 preferred share may not be less than DPS per 1 ordinary share.

4

KEY INFRASTRUCTURE ASSETS OF TRANSNEFT GROUP

*

* Classified as associate (7% - indirect ownership, 24% - held in trust by the Company)

5

TABLE OF CONTENTS

• 01. RECENT DEVELOPMENTS
• 02. KEY OPERATING AND FINANCIAL RESULTS
• 03. KEY FACTORS OF INVESTMENT ATTRACTIVENESS
• 04. ENVIRONMENTAL, SOCIAL AND GOVERNANCE ASPECTS (ESG)
• 05. APPENDIX. KEY FINANCIAL RESULTS ANALYZED BY SEGMENTS

• 01. Recent developments

7

KEY EVENTS

February

Raising of Moody’s credit rating to Baa2, with a Stable outlook

April

Incident involving the injection of organic chlorides into the system Signing a contract on the sale of Novorossiysk Grain Terminal AGM decision on dividends. 51.2% of normalized consolidated net profit under IFRS were allocated to dividends

September

Commissioning of the plant for manufacturing drag reducing agents in the Alabuga Special Economic Zone (the Republic of Tatarstan) Approval by the Board of Directors of the procedure for making payments in connection with the ingress of substandard oil into the system and agreement on the maximum amount of payments to shippers under contracts for the provision of oil transportation services at the rate of USD 15 per barrel of substandard oil. At the same time, it was noted that shippers must give documentary evidence of the incurred losses

2019

July

Connection of Komsomolsk refinery to the ESPO pipeline system

November

Implementation of maximum capacity under the project for expansion of the ESPO pipeline system

October

Transneft has started signing agreements on settlement of the consequences of the incident on the Druzhba oil pipeline with the shippers (oil companies)

June

Oil transportation was restored in all directions

AGM – Annual general meeting ESPO – East Siberia – Pacific Ocean

8

Key technical aspects of the project Key results of 2019 Goal and timeline of the project Completion of the project in November 2019 Enlarged scheme

ESPO TS / ESPO PS – East Siberia – Pacific Ocean transportation (pipeline) system IOGC – independent oil and gas company SSOP – Specialized Sea Oil Port, IPS – initial pumping station, PS – pumping station

EXPANSION OF ESPO PIPELINE SYSTEM

• Increasing the throughput capacity of the ESPO-1 pipeline system to

80 Mtpa, and the ESPO-2 pipeline system’s capacity to 50 Mtpa, to export oil to the People’s Republic of China and deliver oil to Kozmino SSOP (Specialized Sea Oil Port), as well as to refineries of the Russian Federation (RN-Komsomolsk Refinery, IOGC – Khabarovsk Oil Refinery)

• Project completed
• On 1 November 2019 the throughput capacity of the ESPO pipeline

system was increased to its maximum capacity under the project:

• at the Tayshet IPS – Skovorodino PS section to 80 Mtpa
• at the Skovorodino PS – Kozmino SSOP section to 50 Mtpa

Throughput capacity PS ESPO-1 / PS ESPO-2

80/50 Mtpa

Reconstruction of existing

• il pumping stations

6

Oil pumping stations, including

16

Construction of new tanks

150 mcm

Construction of new

• il pumping stations

10

External power supply objects

~908 km

9

Total area of the facility is 4 hectares The plant’s designed capacity is 3,000 tonnes of DRA for oil and petroleum products per year with a potential for further expansion to 10,000 tonnes per year. Key technical figures Key results for 2019 Project goals and completion term Project completion: 100% Transneft Synthesis plant for production of drag reducing agents (DRA)

CONSTRUCTION OF TRANSNEFT SYNTHESIS DRAG REDUCING AGENTS PLANT

• Opening ceremony of the plant took place in September 2019

Catalyst synthesis equipment applied for DRA production

DRA – drag reducing agents

• To establish a DRA plant for the oil transportation industry
• To ensure 100% localization of DRA production in the territory of the

Russian Federation

• Uninterrupted supply of DRA, ensuring technological stability of oil and

petroleum products transportation through trunk pipelines

• To cover in full Transneft Group’s needs in DRA

10

SETTLING THE INCIDENT AT THE DRUZHBA PIPELINE

MEASURES ES TAKEN:

• n
• n the operati

ation side de

• Oil pumping resumed at all of the directions
• Transneft completed the Road Map of the Incident Recovery signed with the Belarus party and completed

transportation of nonconforming crude oil out of Belarus

• Crude oil quality control for organic chloride compounds upgraded to a daily procedure
• n
• n the legisl

slati tion impr mproveme ment nt side de

• Transneft prepared and submitted proposals to increase the oil quality for consideration to the Government of the

Russian Federation, the Ministry of Energy, the Ministry of Economic Development and other interested authorities and organizations Key proposals:

• development of a regulatory document establishing mandatory requirements to quality control of oil delivered into

the oil trunk pipeline system

• updating of existing government standards, including methodology, indicators and frequency of oil tests
• mandatory accreditation of testing laboratories, regulatory consolidation of requirements for testing laboratories
• transfer of third-party oil delivery and acceptance points under the operational control of Transneft

11

SETTLING THE INCIDENT AT THE DRUZHBA PIPELINE (CONTINUATION)

• On 24 July 2019, Transneft’s Board of Directors approved the compensation procedure for shippers’ losses caused

by unlawful actions of third parties resulting in the ingress of nonconforming crude oil into the system and agreed on a payment cap for shippers under oil transportation services contracts on the basis of USD 15 per 1 bbl of nonconforming crude on condition that shippers provide documentary proof of material losses

• The IFRS financial statements of Transneft PJSC for 9 months of 2019 reflect the provision for settlement of the

consequences of the incident with shippers within the framework of signed contracts for the provision of oil transportation services for 2019, subject to documentary justification of their losses and confirmation of the relevant negative consequences and their size

• Transneft has started signing agreements on settlement of the consequences of the incident on the Druzhba oil

pipeline with the shippers (oil companies). Transneft signed agreements with LUKOIL and 32 shippers (oil companies) from Kazakhstan about the settlement of incident consequences.

• 02. Key operating and financial results

13

KEY FINANCIAL RESULTS

3Q19 3Q18 YoY 9М19 9М18 YoY

RUB bln

Revenue

272 253 ▲8% 793 716 ▲11%

EBITDA*

129 106 ▲22% 377 315 ▲20%

Profit attributable to shareholders of Transneft

38 79 ▼52% 144 171 ▼16%

Operating cash flow

76 65 ▲17% 234 223 ▲5%

(minus) CAPEX

• 61
• 66

▼8%

• 186
• 192

▼3%

Free cash flow

15

• 1

х 48 31 ▲54%

Total debt at the end of the period

629 717 ▼12% 629 717 ▼12%

* Less crude oil sale and purchase operations under contracts with Rosneft and CNPC Key financial results breakdown by Transneft segment and NCSP segment is given in the appendix (section 5 in the presentation)

14

IMPACT OF NCSP SEGMENT ON TRANSNEFT’S FINANCIALS

NCSP consolidation

• In September 2018 Transneft

Group

• btained

control

• ver

NCSP PJSC as the result of shares acquisitioning

• The financial results of NCSP

and its subsidiaries are recognized in the consolidated figures of the Group starting from the end of 3Q 2019

• Before obtaining the control, the

share of profit in the NCSP Group was recognized in share

• f profit from associates and

jointly controlled entities.

• NCSP

Group sold 99.9968% share in Novorossiysk Grain Terminal (NGT), the terminal carries

• ut

transshipment

• f

grain and oil seeds Revenue 15.9 980.0 43.3 792.7 EBITDA 10.2 433.4 31.6 376.7 Profit attributable to shareholders of Transneft 1.6 224.3 24.5 144.0 Free cash flow 5.9 79.2 13.9 47.5 Total debt at the end of the period 69.7 673.0 58.3 629.2 Key indicators, RUB bln 2018* 2018* 9М19 NCSP segment Transneft Group Share of NCSP segment NCSP segment Transneft Group Share of NCSP segment

5.5% 17.0% 9.3% 8.4% 29.3% 1.6% 0.7% 10.4% 2.4% 7.4% * Figures of NCSP Group for the year 2018 are disclosed starting from the end of 3Q 2018 – the date of its acquisition by Transneft Group NCSP segment includes NCSP PJSC and its subsidiaries. The segment is presented for analytical purposes in addition to segment information disclosed in the IFRS financial statements

15 27 .5% 72.5%

9М18

30.2 .2

MLN TONS

28.2% 71.8%

9М19

28.4 .4

MLN TONS

• 6.0%

52.4% 47 .6%

9М18

357.5 .5

MLN TONS

50.6% 49.4%

9М19

362.1 .1

MLN TONS

+1.3%

Oil turnover Petroleum products turnover

Export Domestic market

ANALYSIS OF OIL AND PETROLEUM PRODUCTS TURNOVER

• f oil produced in Russia

83

%

In 9M 2019 Transneft Group transported

• f light petroleum products

produced in Russia

29

%

In 9M 2019 Transneft Group transported

16

Structure of revenue for 9M 2019, % Factor analysis of changes in revenue of Transneft Group, RUB bln

Other revenue** Petroleum products transportation services Oil transportation services Stevedoring, additional port services and fleet services*

ANALYSIS OF TRANSNEFT GROUP REVENUE

Export sales of crude oil

66.0% 6.5% 5.1% 4.8% 17.6%

792.7

RUB BLN

+38.6 +40.8 +8.0

• 4.6
• 6.1

716.0

792.7

Revenue 9М18 Oil transportation Petroleum products transportation Stevedoring, additional port services and fleet services* Export sales of crude oil Other revenue** Revenue 9М19

+10.7%

* Starting from the end of 3Q 2018 Transneft Group consolidates NCSP segment results ** Other revenue includes revenue from domestic oil sales and petroleum products sales, from oil compounding services, oil and petroleum products storage services, communication services, diagnostic services, construction services, services of technological connection to pipeline system, information services related to oil transportation, rent services, resale of goods, organisation of transporting of cargos, revenue from provision of other services

17

FACTOR ANALYSIS OF TRANSNEFT GROUP EBITDA DYNAMICS, RUB BLN

+34.0 +40.8 +8.0 +3.1 +2.7

• 11.7
• 14.8

314.6

376.7

EBITDA 9М18 Revenue from oil and petroleum products transportation services Revenue from stevedoring, additional port services and fleet services* Other revenue Transneft segment

• perating expenses

(inflated) NCSP segment

• perating expenses

Operating expenses inflation** Inter-segment transactions in

• perating expenses

EBITDA 9М19

+19.7%

* Figures include NCSP Group only ** 9M 2018 operating expenses inflation is shown for Transneft segment. Starting from the end of 3Q 2018 Transneft Group consolidates NCSP segment results.

18

FACTOR ANALYSIS OF TRANSNEFT GROUP OPERATING EXPENSES* DYNAMICS, RUB BLN

* Nеt of export crude oil sales, depreciation and amortisation. The inflation rates used are based on the prepared by the Ministry of Economic Development forecast of social-economic development of the Russian Federation for 2020 and forecast periods of 2021 and 2022

+0.7 +7.9 +2.4

• 0.1
• 2.9
• 1.0
• 1.0

270.3

276.3

Operating expenses 9М18 (inflated to 2019) Salaries, insurance contributions and social expenses Pension expense Energy Materials Cost of domestic

• il and

petroleum products sales Cost of

• ther goods

for resale sold Other operating expenses Operating expenses 9М19

+2.2%

19

OPEX AND ITS OPTIMIZATION

Unit costs are calculated using operating expenses indicator based on aggregated RAS data (excluding depreciation, tax expenses and new facilities expenditure) which considers the previous year data adjusted for conditions of the reporting period

10.2% 10.1% 16.1% 15.6% 21.4% 21.7% 12.6% 12.4% 7 .3% 7.6% 32.4% 32.6% 9М18 (inflated to 2019) 9М19

For more than 10 years Transneft has been actively working to control operating costs in the company’s main business lines

Struct ctur ure of oil transpor portation ion unit it costs

Oil turnover, bln tkm

904.4 +2.5%

926.7

Struct ctur ure of pet etrol

• leum

eum produc ducts transpor sportation n unit costs

Petroleum products volume turnover, mln tons

30.2

• 6.0%

28.4

Other Operating, maintenance and diagnostics costs Fuel and energy resources Telecommunication services Security services Salaries, insurance contributions and social expenses Other Operating, maintenance and diagnostics costs Fuel and energy resources Telecommunication services Security services Salaries, insurance contributions and social expenses Operating unit costs, RUB per 100 tkm

19.36

19.10

• 1,4%

Operating unit costs, RUB per 100 tons

768.40

647.19

• 15.8%

9M18 18 9M 9M19 19 9M 9M18 18 9M 9M19 19

12.4% 10.6% 18.8% 21.3% 9.9% 10.4% 8.4% 8.8% 13.4% 13.3% 37 .1% 35.6% 9М18 (inflated to 2019) 9М19

20

EBITDA TO PROFIT GENERATED BY TRANSNEFT GROUP FACTOR ANALYSIS, RUB BLN

+2.3 +16.2 +0.1

• 154.7
• 36.8
• 23.0
• 23.0
• 13.6

376.7

144.0

EBITDA 9М19 Depreciation and amortisation Income tax expense Net finance costs Share of profit from associates and jointly controlled entities Profit from disposal of NGT LLC Provision for reimbursement to consignors of material losses* Other income/ expenses, net Non-controlling interests Profit attributable to shareholders of Transneft 9М19 * Provision presents the management’s estimate of probable expenditure for settlement of incident related to ingress of oil not complying with the GOST standards into the Druzhba oil trunk pipeline in April 2019 (Note 16 «Provisions for liabilities and charges» of condensed consolidated interim financial statements for the 9 months ended 30 September 2019)

21

+32.0 +6.3 +1.0 +24.5 +0.7

• 16.2
• 14.8
• 4.0
• 25.4
• 23.0
• 8.1

171.1

144.0

Profit attributable to shareholders of Transneft 9М18 EBITDA Depreciation and amortisation Income tax expense Net finance costs Share of results from associates and jointly controlled entities Fair value revaluation

• f NCSP share

at the date

• f acquisition

Provision for reimbursement to consignors of material losses* Other income/ expenses, net Non-controlling interests Factors related to NCSP segment** Inter-segment transactions Profit attributable to shareholders of Transneft 9М19

• 15.8%

ANALYSIS OF CHANGES IN PROFIT GENERATED BY TRANSNEFT GROUP, RUB BLN

* Provision presents the management’s estimate of probable expenditure for settlement of incident related to ingress of oil not complying with the GOST standards into the Druzhba oil trunk pipeline in April 2019 ** Factors related to NCSP segment includes EBITDA in the amount of RUB 31.6 billion, profit from disposal of NGT LLC in the amount of RUB 16.2 billion and income tax expense in the amount of RUB 4,8 billion and other items

22

ANALYSIS OF CASH FLOW GENERATED BY TRANSNEFT GROUP, RUB BLN

+29.6 +5.0 +34.9

• 186.3
• 65.2
• 82.9
• 31.1

233.8 47.5

Operating cash flow 9М19 CAPEX Free cash flow 9М19 Proceeds from loans and borrowings Repayment of loans and borrowings Received dividends Paid out dividends Other investment and financing activities Net cash flow 9М19 Transneft Group 233.8

• 186.3

47.5 +29.6

• 65.2

+5.0

• 82.9

+34.9

• 31.1

Transneft segment 217.7

• 183.7

34.0 +29.6

• 58.7

+12.7

• 77.6

+16.7

• 43.4

NCSP segment 16.6

• 2.7

13.9

• 6.4
• 13.1

+17.8 12.3 Inter-segment transactions

• 0.4
• 0.4
• 7.7

+7.7 +0.4

23

14.1 57.7 65.0 75.0 90.7 327.0 2019 2020 2021 2022 2023 2024

Cost of debt (weighted-average rates), % Debt breakdown by maturity*, RUB bln FX structure of debt,% Total debt / EBITDA **

KEY DEBT METRICS OF TRANSNEFT GROUP

* Net of IFRS adjustments, interest payments, data for 2019 refers to repayments in 4Q 2019 as of 9/30/2019 ** EBITDA in the ratio is calculated for the last 12 months before the reporting date including the figures of NCSP Group *** Foreign currency debt formed following the consolidation of NCSP Group, without Omirico debt

• 2028

RUB debt FX debt Russian ruble US dollar***

1.4 1.4 1.4 1.3

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

12/31/2018 3/31/2019 6/30/2019 9/30/2019 8.29 29 8.29 29 8.28 28 7.87 87 6.78 .78 6.60 .60 6.38 .38 6.05 .05 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12% 11% 10% 11% 88% 89% 90% 89% 12/31/2018 3/31/2019 6/30/2019 9/30/2019 4Q19

24

NCSP GROUP OPERATING RESULTS

48.6% 55.5% 25.8% 24.0% 8.5% 6.7% 11.1% 8.8% 4.7% 4.1% 9М18 9М19 9M Change 2018 2019

• thsd. tons

% Cargo turnover er, , tot

• tal

al 100,475 109,834 834 9,359 359 9.3% Liquid quid car argo,

• , tot
• tal

al 75,580 88,097 12,517 16.6% Crude oil 48,849 60,910 12,061 24.7% Petroleum products 25,905 26,345 439 1.7% Other 826 843 17 2.1% Bulk car argo,

• , tot
• tal

al 8,520 520 7,346 346

• 1,174
• 13

13.8% Grain 4,670 2,628

• 2,041
• 43.7%

Iron ore 1,854 2,324 470 25.3% Coal 1,186 1,155

• 32
• 2.7%

Other 810 1,240 429 53.0% Gener eral l car argo,

• , tot
• tal

al 11 11,159 9,716

• 1,443
• 12

12.9% Ferrous metals 9,991 8,725

• 1,266
• 12.7%

Other 1,168 991

• 177
• 15.1%

Containers tainers 4,681 4,524

• 157
• 3.4%

Containers 4,681 4,524

• 157
• 3.4%

Containers, thsd. TEU 469 484 16 3.4% Other er car argo 536 536 151

• 385
• 71

71.9% 9%** ** The normalized* cargo turnover of NCSP Group for the 9 months of 2019/2018 in thsd. tons (with the sale of NGT LLC taken into account)

Petroleum products

NCSP Group structure of cargo turnover Total (thsd. tons) and %

Bulk cargo Crude oil Containers General cargo

100,475 109,834

+9.3%

* Normalized indicators of NCSP Group's cargo turnover for 2018-2019: the grain turnover through NGT LLC and Berth No. 3 from May 1, 2018 to December 31, 2018 are not taken into account in the transshipment volume ** Due to the decrease in perishable goods turnover following the high harvest of fruits and vegetables in Russia and the construction of greenhouse plants

• 03. Investment case

26

Comp mparat arative e analysis ysis Ordi dina nary shares res of Transn nsneft Preferre erred d shares res of Transn nsneft Voting rights √

• The presence of a shareholder holding 100% of ordinary

shares √ √ Dividends linked to IFRS net profit √ √ DPS not lower than DPS per ordinary share

• √

Liquidity

• √

PREFERRED SHARES OF TRANSNEFT: KEY FEATURES

In case of

• the presence of a shareholder holding 100% of ordinary shares
• dividends linked to IFRS net profit
• DPS per preferred share not lower than DPS per ordinary share
• comprehensive disclosure requirements in accordance with the Code of

Corporate Conduct preferred shares of Transneft are a close alternative to ordinary shares.

Daily average Transneft preferred shares turnover since the beginning of 2019 was equal to RUB 247 mln

200 400 600 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Daily ily average ge Trans nsnef eft preferred ed shares es turno nover er Moscow Exchange, RUB mln (as of 11/27/19)

27

SANCTIONS AND THEIR IMPACT ON TRANSNEFT GROUP

Tran ansn snef eft t Group

• up

US OFAC C Direc ectiv ive e 2 under er Exec ecutiv ive order der 13662:

• Activities prohibited for US person or within the US –

issuance of new debt on or after November 28, 2017, all transactions in, provision of financing for, and other dealings in new debt of longer than 60 days maturity NEUTRAL for reasons: 1) Moderate level of debt burden and high degree of financial stability 2) Transneft Group has decreased the share

• f FX debt to 11%, additionally FX debt is

represented by the debt formed as a result of consolidation with NCSP Group 3) The spread of multi-currency payments with counterparties Council il regulati lation

• n (EU)

U) No No 960 960/2014, Article icle 5 (2) (b):

• Restrictions on debt and equity financing if issued after

September 12, 2014 with a maturity exceeding 30 days

SUBJECT JECT Sanctions do not restrict investors’ opportunity to purchase Transn nsneft preferr rred d equ quity ty, , as well as NCSP equ quity ty IMPACT ON THE GROUP

28

184 184 158 158 60 60 143 143 233 233 192 192 225 225 158 158

• 197

197

• 223

223

• 311

311

• 323

323

• 320

320

• 306

306

• 268

268

• 186

186 20 20 100 100

• 38

38 6

• 2

21 21 79 79 48 48

• 5
• 8
• 3
• 13

13

• 31

31

• 82.5

.5

• 77.6

.6

• 400
• 200

200 400 2012 2013 2014 2015 2016 2017 2018 9M19 Profit for the reporting period Capital expenditures Free cash flow Total Transneft PJSC dividend payments, for relevant year* 11,454 4.9 7.9 2.9 12.8 30.6 82.5 77.6 3,875 685 724 758 823 4,296 7,578 (**) 10,706 2.6% 5.0% 5.0% 8.9% 18% 50% 51.2% 0% 10% 20% 30% 40% 50% 60% 2,000 4,000 6,000 8,000 10,000 12,000 14,000 2012 2013 2014 2015 2016 2017 2018 Interim dividend, RUB per 1 pref. share, for relevant year Annual dividend, RUB per 1 pref. share, for relevant year Payout ratio for all types of shares, % of normalized profit under IFRS*, right axis Total dividend payments, RUB bln, for relevant year

Dividends on preferred shares (RUB per share) and dividend payout ratio

% OF NORMALIZED PROFIT DIVIDENDS, RUB PER SHARE

DIVIDENDS AND KEY FINANCIAL RESULTS

Profit for the reporting period, capital expenditures, free cash flow and dividends To form a recommendation on dividends, profit is normalized on key non-monetary items.

RUB BLN.

* In 2012-2015 dividends were calculated as a share of Transneft PJSC profit under RAS ** Final dividend for the year 2017 *** +54% to the figure for 9M 2018

*** ***

29

INVESTMENT CASE

• Uni

nique asse assets ts an and mar arket posi position

• n. One of the largest infrastructure companies in Russia and in the world. We

transport 83% of Russian crude and 29% of light petroleum products. On key metrics* Transneft is among the most efficient pipeline operators in the world

• Transf

ransform

• rmation

ation from exclus usively pi pipeli eline ne com

• mpan

any to to an an integ egrat ated ed infrastructure frastructure pla player

• er. With the consolidation of

control over Novorossiysk Commercial Sea Port in 2018, Transneft in addition to control over the pipeline business became #1 port operator in Russia and 3rd largest in Europe

• End

End of

• f investme

estment nt cy cycl cle, e, lar arge ge-sca scale gr growth wth of

• f FCF

CF and nd di divi vidend dend payouts

• uts. The company is completing pipeline

system expansion program and shifts focus on maintenance. For the year of 2018 Transneft has paid out more than 50% of normalized IFRS net income in the form of dividends (DY over 7%, covered by FCF)

• Turna

urnaround

• und

in in co corpor porat ate governanc ernance an and invest estor

• r

re relations ations. Approval

• f

Corporate Governance code, improvements in transparency, establishment of the dialogue with analysts and investors. Starting from 2017, the adjustments to the Articles of Association were introduced pegging DPS on prefs to DPS on ords

• Value cr

crea eati tion

• n potential
• ential. Current discounts to peers – 63-74% to pipeline companies. The company focuses on

further improvement of efficiency and cost control, increase of free cash flow, integration and development of acquired assets. Management initiatives on share buyback and LT option programs are currently discussed by the Russian Government

• A low-bet

eta stock

• ck. Transneft beta according to Bloomberg is 0.4-0.7 in the last 5 years

* Including metrics related to operational efficiency and safety FCF – free cash flow, DY – dividend yield, DPS – dividend per share

04.

Environmental, social issues, corporate governance aspects (ESG)

31

COMMUNICATION WITH ESG AGENCIES



Comments to agencies on controversial events covered in the media ESG data disclosure Analytical comments on ESG reports ESG rating’s methodology discussion  The activities of Transneft Group are analyzed in detail by the largest and well-known ESG agencies  Transneft group provides data and disclosures to ESG agencies subject to current Russian non- financial disclosure regulation  The Company carries

• ut active

communications with ESG agencies

  

COMM MMUNICA UNICATIONS IONS Key ESG G agen encie ies coveri ring Tran ransnef eft

32 Alexand ander er Novak vak

Minister of Energy of the Russian Federation Chairman of the Board of Directors of Transneft

Kirill ill Dmitr trie iev

CEO of Russian Direct Investment Fund

Matthias hias Warnig ig

CEO of Nord Stream 2 AG (Switzerland)

Alexand ander er Korsik ik

President and Management Board Chairman of Bashneft (From April 2011 till October 2016) Independent dire rector

Ilya a Klebano anov

Chairman of the Board of Directors of Sovcomflot In 2003-2011 Plenipotentiary Representative of the President of the Russian Federation to the North-Western Federal District Independent dire rector

Maxim Sokolo lov

CEO of LSR Group

Nikola

• lay Tokare

karev

Chairman of the Management Board, President of Transneft

Valer ery Shants tsev

CEO of Hockey club Dynamo-Moscow, Ltd In 2005-2017 Governor of the Nizhny Novgorod Region In 1996-2005 Vice Mayor of Moscow, appointed First Deputy Prime Minister of the Moscow Government

Genadi adii i Shmal

President of the Union of Oil and Gas Producers of Russia Independent dire rector

ൗ 1 3 of the Board d of Direct ctor

• rs

s are independ penden ent t direct ctor

• rs

BOARD OF DIRECTORS

Additional information is available at: https://en.transneft.ru/about/management/board-directors/

33

BOARD OF DIRECTORS COMMITTEES

Kirill ill Dmitr trie iev

Head of Сommittee on Strategy, Investment, and Innovation

Comm mmitt ttee ee on Stra rategy egy, , Investmen estment, t, and Innovat ation ion

Matthias hias Warnig ig

Audit it Commi mmitt ttee ee Human n Resour

• urces

ces and Remuner unerat ation ion Commi mmitt ttee ee

Alexan ander er Korsik ik

Head of Human Resources and Remuneration Committee Independent dire rector

Ilya a Klebano anov

Head of Audit Сommittee Independent dire rector

Maxim Sokolo lov Nikola

• lay Tokare

karev Valer ery Shants tsev Genadi adii i Shmal

Independent dire rector

Alexand ander er Korsik ik

Independent dire rector

Genadi adii i Shmal

Independent dire rector

Ilya a Klebano anov

Independent dire rector

Genadi adii i Shmal

Independent dire rector

100% of inde depe pend nden ent t dire rectors 100% of inde depe pend nden ent t dire rectors

Additional information is available at: https://en.transneft.ru/about/management/board-directors/457/

Alexand ander er Korsik* ik*

Independent dire rector

*Since July, 2019

34 Nikola

• lay Tokare

karev

Chairman of the Management Board President of Transneft

Maksim im Grishanin hanin

First Vice-President

Sergey Andr drono

• nov

Vice-President

Laris isa a Ka Kaland anda

Vice-President

Boris Korol

• l

Vice-President

Mikhail hail Margelo elov

Vice-President

Aleks eksey Sapsay

Vice-President

Pavel el Revel vel-Mu Muroz

• z

Vice-President

Rashid d Sharip ipov

Vice-President

MANAGEMENT BOARD

Additional information is available at: https://en.transneft.ru/about/management/board/

Vyacheslav Skvortsov

Vice-President

35

Transneft’s key priority is to protect the environment and to sustain a high level of environmental safety of production facilities. In accordance with the Policy of Transneft in the areas of labor safety, energy efficiency, and industrial and environmental safety, the main principles of the Company are:

ECOLOGY AND ENVIRONMENTAL PROTECTION

• compliance with international agreements of the Russian

Federation, the legislative requirements

• f

the Russian Federation, standards and regulations in the field

• f

environmental management, protection and safety;

• continuous improvement of environmental activities and

environmental management;

• reduction of the negative impact on environment by

improving the environmental safety

• f pipeline transport

facilities, reduction of emissions, discharges of pollutants and production waste decrease.

36

ENVIRONMENTAL MANAGEMENT SYSTEM

As of today, the Environmental Management System (EMS) is developed, adopted and certified in all Transneft subsidiaries. In 2004, all Transneft subsidiaries were certified internationally for the compliance with ISO 14001 standard. All subsidiaries conduct annual audits to confirm the EMS compliance with the requirements of ISO 14001 international environmental standard. Within 9 months of 2019, EMS certification audits were conducted in 22 Transneft subsidiaries and in Transneft PJSC. The audits’ results confirmed the EMS compliance with the requirements

• f

ISO 14001:2015.

37

ENVIRONMENTAL CONTROL SYSTEM

All industrial facilities

• f

the Company established an efficient system of industrial environmental control for atmospheric air, water and soil. The control is carried out by 55 ecology analysis laboratories certified by the Federal Service for Accreditation (Rosaccreditation). The labs are staffed by highly qualified specialists and equipped with modern analytical equipment. Environmental and analytical control is carried

• ut in accordance with schedules agreed with

regulatory authorities. Implementation of measures for construction and revamping of environmental facilities and procurement of environmental equipment ensures that Transneft production facilities comply with international agreements of the Russian Federation, legislative requirements of the Russian Federation, standards and rules in the field of environmental management, protection and safety.

38

ENERGY SAVING

Parameters for Transneft’s Energy Saving and Energy Efficiency Enhancement Program for 2018 – 2023 are:

• Rate of reducing specific electricity consumption

for crude

• il

and petroleum products transportation, transshipment, intake, loading, unloading and delivery

• Rate
• f

reducing consumption

• f

energy resources (boiler and furnace fuels, thermal energy, electricity, fuels and lubricants) by the Company’s internal processes related to the provision

• f

services

• f
• il

and petroleum products transportation via trunk pipelines

• The share of LED lights at production facilities
• Rate of reducing greenhouse gas emissions

achieved by implementing energy-saving measures

• The share of natural gas vehicles

LED lighting Solar panels Unit-specific consumption (in 2018)

16.4

Electr tric icit ity

kWh / th. tkm

11.4 1.4

Max 31.4 Min 7.4

Transneft Group Average for foreign peer group companies

2.7

All l energy gy resources

toe / mln. tkm

1. 1.6

Max 5.2 Min 1.2

toe – tonnes of oil equivalent

39

priority of employees’ life and health over the result of industrial activities

SOCIAL POLICY, OCCUPATIONAL AND INDUSTRIAL SAFETY

the right of each employee to suspend the works and their duty to refuse to carry out the work which does not meet safety requirements involvement of all employees in the prevention of

• ccupational injuries and diseases

leading role of managers at all levels in ensuring safe working conditions transparency of significant information on

• ccupational safety and health measures

1 2 3 4 5 TRANSNEFT GROUP’S MAIN PRINCIPLES IN THE FIELD OF OCCU CUPATIONAL IONAL SAFET ETY

Protecting employees’ life and health, as well as ensuring safe labor conditions is considered a priority by Transneft Group. The Group has adopted an

• ccupational safety

management system according to the requirements of the international standard BS OHSAS 18001: 2007.

Personal insurance: Voluntary health insurance, insurance against accidents and illnesses Non-governmental pension Health resort and recreation programs for employees and their children Residential and financial support and compensations Support to non-working corporate retirees Promoting mass athletics and healthy life style

Main vect ctor

• rs

s

• f the socia

ial policy cy

40

COUNTERING CORRUPTION

• Continuous awareness raising and training for employees
• Organisation of “hotline” against corruption1 in order to inform the management about possible facts of corruption,

as well as rapid response to received requests

• Development of a specialized section on the corporate website in order to ensure transparency on Transneft

activities in preventing and countering corruption

Additional information is available at: https://en.transneft.ru/protivodeistvie-korrypcii/goryachaya-liniya/?re=en

Key aspects

• Transneft adheres to high ethical standards of

conducting fair business by openly declaring zero tolerance to corruption in all its forms and manifestations

• The anti-corruption provision is stipulated in

the Transneft Anti-Corruption Policy, as well as in the Code of Ethics and Official Conduct of Transneft and Transneft Subsidiaries’ Employees Key measures Organisational structure of countering corruption Transneft Anti-corruption “Hotline”

• 1. Electronic form on corporate website:
• 2. Special electronic e-mail for requests: hl@ak.transneft.ru

Linked by QR-code: http://www.transneft.ru/protivodeistvie- korrypcii/elektronnaya-forma-obrasheniya/

Audit Committ mittee Board d of Direct ctor

• rs
• f Trans

nsnef neft Presi side dent nt Management ent Board of Transn nsneft Commissio sion n for Count nteri ring ng corrup upti tion Busi siness ness units

• 05. Appendix.

Key financial results analyzed by segments

42

* Less crude oil sale and purchase operations under contracts with Rosneft and CNPC

KEY RESULTS BY SEGMENTS (1/2)

3Q19 3Q18 YoY 9М19 9М18 YoY

RUB bln

Revenue

272 253 ▲8% 793 716 ▲11%

Transneft segment revenue

260 253 ▲3% 754 716 ▲5%

NCSP segment revenue

14 х х 43 х х

Inter-segment transactions

• 1

х х

• 4

х х

EBITDA*

129 106 ▲22% 377 315 ▲20%

Transneft segment EBITDA*

119 106 ▲12% 347 315 ▲10%

NCSP segment EBITDA

10 х х 32 х х

Inter-segment transactions

х х

• 1

х х

Profit attributable to shareholders of Transneft

38 79 ▼52% 144 171 ▼16%

Transneft segment profit

attributable to shareholders of Transneft

36 79 ▼54% 119 171 ▼30%

NCSP segment profit

attributable to shareholders of Transneft

5 х х 24 х х

Inter-segment transactions

• 3

х х 1 х х

Total debt at the end of the period

629 717 ▼12% 629 717 ▼12%

Transneft segment total debt

571 645 ▼11% 571 645 ▼11%

NCSP segment total debt

58 72 ▼20% 58 72 ▼20%

43

KEY RESULTS BY SEGMENTS (2/2)

3Q19 3Q18 YoY 9М19 9М18 YoY

RUB bln

Operating cash flow

76 65 ▲17% 234 223 ▲5%

Transneft segment operating cash flow

70 65 ▲8% 218 223 ▼2%

NCSP segment operating cash flow

6 х х 17 х х

(minus) CAPEX

• 61
• 66

▼8%

• 186
• 192

▼3%

Transneft segment CAPEX

• 60
• 66

▼9%

• 184
• 192

▼4%

NCSP segment CAPEX

• 1

х х

• 3

х х

Free cash flow

15

• 1

х 48 31 ▲54%

Transneft segment free cash flow

10

• 1

х 34 31 ▲10%

NCSP segment free cash flow

5 х х 14 х х

Net cash flow

• 77
• 96

▲20%

• 31

2 х

Transneft segment net cash flow

• 69
• 96

▲28%

• 43

2 х

NCSP segment net cash flow

• 8

х х 12 х х

Contacts:

Address: 4 bld. 2, Presnenskaya embankment Moscow, 123112 Telephone: +7 (495) 950-81-78 Fax: +7 (495) 950-89-00, +7 (495) 950-81-68 E-mail: transneft@ak.transneft.ru

Invest estor Relati tions

• ns

Telephon phone: : +7 (495) 950-84-54 E-mai ail: : ir@ak.transneft.ru