GEARED FOR GROWTH · the world. As a result SIBUR also helps to reduce CO 2 ... LDPE Low-density...

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Annual Review 2018

www.sibur.ru/en

GEARED FOR GROWTH

Annual Review 2018

http://www.sibur.ru/en

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Annual Review 2018

ABOUT THE REPORT

This Annual Report contains information on the essential aspects of SIBUR’s business and development, including its business model and value chain, major assets and infrastructure, key elements of its investment history, development strategy, corporate governance and management, performance and activities aimed at ensuring sustainable development.

In addition, in this Annual Report SIBUR strived to reflect the ideas pertaining to rational use of polymers, separate collection and recycling of used plastics based on the principles of the economics of renewable resources.

All of the information provided by the Company is solely for information purposes and by reading it, you agree to be bound by the limitations set out below. SIBUR’s Annual Report should not be viewed as investment advice, as it has no regard to the specific investment objectives and contains forward-looking statements based on the current expectations and projections of the Company about future events. Furthermore, there may be material variances between estimated data set forth in this Annual Report and corresponding data previously published by or on behalf of SIBUR.

All statements, other than statements of historical fact, contained in the Report are forward-looking statements. The Company may not actually achieve or realise its plans, intentions or expectations and therefore there can be no assurance that SIBUR’s actual results will not differ materially from the expectations set forth in such forward-looking statements.

SIBUR’s future performance can be affected by a variety of factors including, but not limited to, the state of the global economy, the ability of the petrochemical sector to maintain levels of growth and development, risks related to petrochemical prices and regional political and security concerns. The Company and its Affiliates are under no obligation to update the information, opinions or forward-looking statements in this Annual Report.

To download this Annual Review,please visit ourcorporate website:

http://investors.sibur.com/~/media/Files/ S/Sibur-IR/reports/SIBUR-AR-2018-RU.pdf


Annual Review 2018

www.sibur.ru/en

CONTENTS

SIBUR at a Glance 04Application of Our Petrochemicals 06Business Model 102018 Highlights 14

01 STRATEGIC REVIEW 16Q&A with Dmitry Konov, Chairman of the Management Board

18

Investment Case 22Growth Strategy 282018 Operating Environment 362018 Group Results Overview 38

02 BUSINESS REVIEW 40Map of Operations 42Our Business 44Feedstock 46Midstream 48Olefins & Polyolefins 54Plastics, Elastomers & Intermediates 58Value Chain 66Production Flows 68Transportation & Logistics 70Continuous Pursuit of Operational Excellence

73

State-of-the-Art Planning System 74

Research and Development 75

Digital Transformation Programme 76

Stakeholders 78

03 SUSTAINABILITY REVIEW 80What Does Sustainable Development Mean for SIBUR?

82

Environmental protection 86Health and Safety 90Employees 92Communities and Society 94

04 CORPORATE GOVERNANCE 96Corporate Governance Structure 99Board of Directors 100Corporate Secretary 112Management Board 113Anti-corruption Policies and Compliance

116

Information for Shareholders 118Risk Management 120

05 FINANCIAL INFORMATION 126

06 ADDITIONAL INFORMATION 245

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2,700 km

OF PIPELINES FOR FEEDSTOCK TRANSPORTATION

LargestPETROCHEMICALS COMPANY IN RUSSIA AND THE CIS

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Strong team and stakeholder community

TRANSFORMATIONAL ZAPSIB INVESTMENT PROJECT WORTH $9 billion

with total capacity of

2 million tonnes

of PE and PP

TO BE COMPLETED IN 2019

SIBUR at a Glance

SIBUR is a leader in the Russian petrochemicals industry with excellent opportunities for long-term growth and value creation. Our balanced business model enables us to deliver resilient financial performance and best-in-class margins.

We purchase hydrocarbon by-products of oil and gas extraction and process them into high value-added polymer goods, including plastics, elastomers and other materials that help to drive technological progress and improve the quality of people’s lives around the world.

As a result SIBUR also helps to reduce CO2 emissions stemming from the burning of oil extraction by-products, such as associated petroleum gas (APG), by recycling them instead. In 2018, SIBUR processed 22.3 billion m3 of APG thus cutting greenhouse emissions by 72 million tonnes, which is equivalent to the annual CO2 footprint of a middle-sized European country.

>22 billion m3

OF PETROLEUM GASES that would otherwise have been flared by oil companies, causing harmful emissions, are processed each year

See APPLICATION OF OUR PETROCHEMICALS, p. 06

Unique infrastructure and production base

Consistent environmental benefits

Robust financial performance and large expansion projects drive value-accretive growth

>26,000 EMPLOYEES

>1,400 CUSTOMERS IN

80 COUNTRIES WORLDWIDE

ThreeCOMPLEMENTARY BUSINESS SEGMENTS provide for consistent performance in terms of spreads and margins

Balanced business model ensures stable performance

AVERAGE EBITDA MARGIN OF

35% OVER LAST 3 YEARS (30%+ on average since 2010)

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REVENUE RUB 569 bln /

$9.1 bln

(2017: RUB 455 bln / $7.8 bln)

In RUB terms as of 31 December 2018. In June 2019, Fitch upgraded SIBUR’s rating from BB+ to BBB- with stable outlook. Assigned in August 2019.

31

5

1

4

5930

1810

42

2018 REVENUE BREAKDOWN BY SEGMENT AND GEOGRAPHY

Russia 59%Europe 31%Asia 5%

CIS 4%

Other 1%

Olefins & Polyolefins 18%Plastic, Elastomers and Intermediates 30%Midstream 42%

Other 10%

EBITDARUB 201 bln /

$3.2 bln

(2017: RUB 161 bln / 2.8 bln)

EBITDA MARGIN

35% (2017: 35%)

NET DEBT/ EBITDA

1.58x (2017: 1.64x)

INVESTED IN HIGH-QUALITY GROWTH OVER 10 YEARS – RUB 853 bln /

$19 bln

LOST TIME INJURY FREQUENCY RATE (LTIF)

0.37x(2017: 0.36x)

Baa3 STABLE OUTLOOK

2018 HIGHLIGHTS

INVESTMENT-GRADE CREDIT RATINGSMOODY'S

BBB-STABLE OUTLOOK

FITCH

BBB-STABLE OUTLOOK

S&P


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5

16

4

10

1

2 3 11

12

13

2015

17

18

21

22

23

19

14

9

24

87 6

Bumpers (polypropylene)

Artificial leather (PVC)

Soundproofing (polyethylene)

Tyres (rubber)

Cooling and antifreeze liquids (glycols)

Syringes (polypropylene)

Normal saline containers (polypropylene)

Medical tourniquets (rubber)

Utilities (natural gas)

Bottles (PET)

Plastic tableware (polypropylene)

Application of Our Products

Strong, lightweight, and mouldable, plastics are used in thousands of products that add convenience, comfort and safety to our everyday lives.

Olefins & PolyolefinsPlastics & organic synthesis productsElastomers

Midstream

1 7

2

8

3

9

4

10

5

11

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07

5

16

4

10

1

2 3 11

12

13

2015

17

18

21

22

23

19

14

9

24

87 6

Home appliances (polypropylene)

Food packaging (polypropylene, polyethylene)

Pipes and fittings (polypropylene, polyethylene, PVC)

Wallpaper and linoleum (PVC)

Heat insulation (EPS)

Roof moisture and vapour sealing (polypropylene)

Roofing materials (PVC membrane, SBS)

Siding (PVC)

Window profiles and sills (PVC)

Geoweb and geotextiles (polypropylene)

Greenhouses and hotbeds (polypropylene)

Seedling pots (polypropylene)

Motor fuel (methane, propane, butane)

12

17 2113

18 22

14

19 23

20

24

15

16


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Plastic has been successfully integrated into the model of a circular economy, as 100% of it can be recycled and reused for the production of new items. The safety of each type of plastic is confirmed by relevant certificates and studies.

EACH TYPE OF PLASTIC HAS A LABEL THAT HELPS USERS UNDERSTAND ITS PROPERTIES:

High barrier propertiesResistant to sunlightHeating to temperatures above 60°C not recommendedMicrowave- and oven-safe if so labelledReuse not recommended

High endurance and chemical resistanceCan withstand temperatures up to 90°C

Safe for household and industrial useToxic only if burnt (heating is safe)

High endurance and chemical resistanceHeating or storing hot food not recommendedNot microwavable

Can be used in disposable packaging for cold foodHeating or storing hot food not recommendedNot microwavable

Items made of other plastics or multilayer packaging

High endurance and chemical resistanceMicrowavableFreezable

PROPERTIES AND SAFETY

RECYCLED PLASTICS CAN BE USED TO MAKE NEW ITEMS:

Great recycling potential Good recycling potential Poor recycling potential Good recycling potential Good recycling potential Limited recycling potential Poor recycling potential

7654321

РЕТ/РЕТЕPolyethylene terephthalate

HDPEHigh-density polyethylene

VPolyvinyl chloride

(PVC)

LDPELow-densitypolyethylene

PPPolypropylene

PS/EPSPolystyrene

OTHER

What do recycling symbols mean?

Application of Our Petrochemicals

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High barrier propertiesResistant to sunlightHeating to temperatures above 60°C not recommendedMicrowave- and oven-safe if so labelledReuse not recommended

High endurance and chemical resistanceCan withstand temperatures up to 90°C

Safe for household and industrial useToxic only if burnt (heating is safe)

High endurance and chemical resistanceHeating or storing hot food not recommendedNot microwavable

Can be used in disposable packaging for cold foodHeating or storing hot food not recommendedNot microwavable

Items made of other plastics or multilayer packaging

High endurance and chemical resistanceMicrowavableFreezable

PROPERTIES AND SAFETY

RECYCLED PLASTICS CAN BE USED TO MAKE NEW ITEMS:

Great recycling potential Good recycling potential Poor recycling potential Good recycling potential Good recycling potential Limited recycling potential Poor recycling potential

7654321

РЕТ/РЕТЕPolyethylene terephthalate

HDPEHigh-density polyethylene

VPolyvinyl chloride

(PVC)

LDPELow-densitypolyethylene

PPPolypropylene

PS/EPSPolystyrene

OTHER


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We create value for our stakeholders by developing best-in-class, balanced, midstream and petrochemical operations to convert non-marketable by-products of oil and gas extraction that are effectively stranded in West Siberia into a wide range of value-added petrochemical and energy products used by people and businesses all over the world.

OUR VALUE CHAIN

Our value chain is mainly spread across three business segments: Midstream, Olefins & Polyolefins (O&P), and Plastics, Elastomers & Intermediates (PE&I). These businesses operate on an arm's-length basis, which supports the flexibility of our business model.

Business Model

DEFINITIONS:

— Associated petroleum gas (APG) is a by-product of oil production

— Natural gas liquids (NGLs) include raw NGL, liquefied petroleum gas (LPG) and naphtha. Raw NGL is a by-product of gas production

— Feedstock includes LPG, naphtha and raw NGL. Composition may vary from year to year depending on market conditions and other limitations

MIDSTREAM

PETROCHEMICALS

OLEFINS & POLYOLEFINS

PLASTICS, ELASTOMERS & INTERMEDIATES

2.4 mtpa

0.8 mtRaw NGL (0.4 mt)

LPG and naphtha (2.9 mt)

No cannibalisation of Midstream, as all

intersegment flows will be priced at market level and

an arm's-length basis

Gas producers

NGLs (4.1 mt)

OIL & GAS COMPANIES

Oil producers

APG (22.3 bcm)

SUPPLIERS

NGLs

6.0 mtpa

LPG and naphtha (6.4 mt)

Natural gas (18.5 bcm)

GAS PROCESSING

+ 2.7 mtpa of LPG and 0.3 mtpa of ethane

post-ZapSib (from external sales to O&P)

GAS FRACTIONATION

7.5 mtpa

BALANCED BUSINESS MODEL

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FIVE PILLARS OF OUR BUSINESS MODEL

ACCESS TO AN ABUNDANT AND ATTRACTIVELY PRICED RESOURCE BASE Our core production region, West Siberia, the richest oil and gas extraction region in Russia, offers some of the lowest-cost energy in the world. The strategic location of our key assets and long-term contracts with our suppliers, with an average maturity of over 14 years, secure SIBUR’s production cost advantages among global petrochemical producers.

57% / 71% OF ALL RUSSIAN APG/RAW NGL

COMPLEMENTARY BUSINESSESDeep integration between our midstream and petrochemical businesses enables us to maintain a flexible business model, with the ability to constantly adjust the composition of our feedstock, production, sales and logistics in order to deliver stable, blended margins despite the cyclicality of our markets. It also provides us with a strong natural hedge against volatility in global commodity prices and FX rates (see Investment Highlights, p. 22).

Ramping up ZapSib will further enhance the stability of our business model, enabling us to reroute an additional 2.7 tonnes of LPG to polyolefins production, which will double the share of our processed feedstock (see ZapSibNeftekhim, p. 30)

2.9 MILLION TONNES OF FEEDSTOCK FROM MIDSTREAM TO O&P AND PE&I

DIVERSIFIED PRODUCT AND SALES MIXWhile Russia is our core market, our sales are diversified across more than 80 countries. SIBUR’s products are used in more than a dozen industries, including packaging, construction, chemicals, food, clothing, automobile, agriculture and healthcare (see Application of Petrochemicals, p. 06).

1,400 CUSTOMERS IN 80 COUNTRIES

EXTENSIVE BASE FOR FUTURE STRATEGIC GROWTHThe competitive advantages of our business model described above underpin our strategy of adding significant capacity in the higher-margin O&P business, in particular with our landmark ZapSibNeftekhim investment project (see Growth Strategy, pp. 28–37 and ZapSibNeftekhim, pp. 30–33).

RUB 151 BILLION OF CAPEX IN 2018

SUSTAINABILITY, EFFICIENCY, INNOVATIONSOur business model comprises an intrinsic positive impact on the environment, as the Company de facto prevents flaring of significant volumes of APG by converting them into valuable petrochemical products. We strive to maximise the environmental benefits of our products and to contribute to the development of polymers recycling. Our new assets deploy the most advanced technologies available and adhere to the highest environmental standards.

72 MTPA OF CO2 EQV. EMISSIONS AVOIDED BY APG PROCESSING

Source: Company data.

Note: The chart above includes LPG and naphtha purchased from third parties for resale, as well as certain LPG and naphtha volumes produced directly from APG processing.

Previously known as Feedstock & Energy. Olefins & Polyolefins and Plastics, Elastomers & Intermediates comprise SIBUR’s petrochemical operations. The Company estimates capacity additions of 500 kt for PP and 1,500 kt for PE. JV sales include a share of PVC, caustic soda (RusVinyl) and PP (Poliom) sales. Other revenue for FY 2018 not included in the chart: RUB 57 bln.

PETROCHEMICALS

2.4 mtpa

0.8 mt

1.2 mt

External revenue RUB bln

LOGISTICS CLIENTS

101

171

190

49

1

2

3

4

5


WHAT WE DO

END PRODUCTS AND VALUE

— Russia’s largest infrastructure for processing and transportation of hydrocarbon feedstock:• APG and raw NGL pipelines connecting

extraction fields with our gas processing plants (GPPs) and our major gas fractionation unit (GFU) in Tobolsk

• 8 out of 10 GPPs in West Siberia • 2 GFUs, including the facility in Tobolsk,

the largest in Eastern Europe; a long-term agreement for feedstock processing at a third-party GFU in Ural

— Long-term supply contracts with an average maturity of 14 years

— Production hubs in West Siberia conveniently located to reduce feedstock transportation costs, large facilities in Central Russia:• a PDH facility in Tobolsk and 2 steam

crackers in Tomsk and Kstovo • 2 polypropylene and polyethylene

production facilities in Tobolsk and Tomsk, PP plants in Omsk (JV with Gazpromneft and Titan Group) and Moscow (JV with Gazpromneft)

• 5 BOPP-film production sites in Central Russia and Siberia

• A polyvinyl chloride and caustic soda production facility in the Nizhniy Novgorod region (JV with Solvay Group)

— We acquire by-products of oil and gas extraction (APG and raw NGL) and transport them to our GPPs and GFU through our own and third-party pipelines

— GPPs process APG to produce marketable natural gas, as well as raw NGLs feedstock

— GFUs fractionate NGLs to produce LPG and naptha, which are the main feedstock for petrochemical production

— We generate olefins through NGLs cracking (ethylene, propylene and benzene) and dehydrogenation (propylene)

— We generate polyolefins – polyethylene and polypropylene – via polymerisation of olefins (most of which are processed internally)

— Polypropylene is also used to produce BOPP films

— Providing the oil and gas industry with a unique processing solution that is helping to significantly reduce on-field flaring and CO2 emissions

— 6.4 million tonnes of LPG and naphtha, and 18.5 billion cubic metres of natural gas sold externally

— Securing feedstock for SIBUR’s petrochemical business

— 846 ths tonnes of PP and PE and 152 ths tonnes of BOPP films delivered to c. 850 customers in Russia and abroad

— Launch of ZapSib will triple our capacities in PP and PE and expand our offering with new types of polyethylene

— Some volumes of olefins are sold in Russia, ethylene is primarily sold to our JV with Solvay RusVinyl

— Securing olefins that serve as a feedstock for production of plastics and elastomers

MIDSTREAM OLEFINS & POLYOLEFINS

Business Model at Work

Based on FY 2018 operational results. Including PP, PE, plastics & organic synthesis products and

elastomers.

Business Model

35 FEEDSTOCK COLLECTION POINTS

2.7 ths km

OWN PIPELINES

9.5 mln t

GAS FRACTIONATION CAPACITY

2.6 mln t

PETCHEM CAPACITY

>26,000 EMPLOYEES

KEY ASSETS AND RESOURCES

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WHAT WE DO

END PRODUCTS AND VALUE

— Production facilities in Central Russia and Eastern Siberia:• 1 steam cracker• 4 plastic and organic synthesis

production plants• 3 elastomer production plants

— Butyl rubber production facility in India (JV with Reliance Industries)

At our PE&I facilities, we produce: — Plastics and organic synthesis

products (PET, glycols, expandable polystyrene, alcohols and acrylates)

— Elastomers (rubbers) — Methyl tertiary butyl ether (MTBE),

and fuel additives — Intermediates

— Sales to c. 1,260 customers globally in the chemicals, FMCG, construction, automotive, agriculture and other industries

— Helping businesses and consumers to save energy, water and other resources by using modern materials, including plastics and rubbers

PLASTICS, ELASTOMERS & INTERMEDIATES (PE&I)

REVENUE RUB

569 bln

EBITDARUB 201 bln

CAPEX RUB 151 bln

DIVIDENDSRUB 34 bln

KEY ASSETS AND RESOURCES

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FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS HEALTH AND SAFETY

REVENUERUB 569

bln PETCHEM SALES VOLUMES

POLYOLEFINS

846 ths t

LOST-TIME INJURY FREQUENCY RATE

PLASTICS & ELASTOMERS

1,286 ths t

EBITDA AND EBITDA MARGIN (%)RUB 201bln

NET DEBT/EBITDA

1.58x in RUB terms RAW NGL FRACTIONATION

7.7 mln t

PP and PE. Including contractors.

2018

455

2017

569 25%

35%35%

2018

161

2017

201 25%

2018

1.64x

2017

1.58x

2018

866

2017

846

25%

2018

1,256

2017

1,286 2%

2018

7.5

2017

7.7 3%

0.98

0.85

0.30

0.36 0.37

2014 2015 2016 2017 2018

2018 Highlights

EBITDA margin

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AS A RESULT OF THE PROFESSIONALISM AND SYNERGETIC EFFORTS OF THE SIBUR TEAM THROUGHOUT THE WHOLE YEAR, THE PROJECT IS WELL AHEAD OF THE ORIGINAL SCHEDULE.

Moody’s assigned a Baa3 long-term issuer rating to SIBUR, with a stable outlook, thus moving SIBUR into the investment-grade category.

SIBUR updated its Articles of Association to have two single-member executive bodies, namely the Chairman of the Management Board of SIBUR Holding (Dmitry Konov) and the CEO of SIBUR LLC (Mikhail Karisalov, previously COO of SIBUR LLC) to separate strategic and operational management to further enhance management efficiency.

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+.

SIBUR shareholders approved the expansion of the Board of Directors to 12 members, including four independent directors. Independent directors chair the Audit Committee and the Human Resources and Remuneration Committee.

SIBUR and Gazprom signed a final agreement to supply ethane from Gazprom’s Amur Gas Processing Plant to SIBUR's Amur Gas Chemical Complex (GCC).

SIBUR announced it will boost the output of thermoplastic elastomers (TPE) used in road construction, roof coating production and other industries by 50 ktpa at its Voronezh site.

SIBUR and SG-trans, one of the country's major railway operators, set up a JV called, Petrochemicals Transportation Company (PTC LLC). As part of a deal worth RUB 9.4 bln, SIBUR sold its LPG tank car fleet to PTC LLC via a leasing company.

SIBUR successfully executed a tender offer to purchase USD 192 million of the USD 500 million eurobond notes issued in October 2017 and maturing in 2023 with a coupon rate of 4.125% per annum. With available liquidity thanks to stable operating cash flow, SIBUR decided to benefit from the favourable securities market environment to optimise its debt portfolio.

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 2021 and is aimed at import substitution.

SIBUR revised its dividend policy for the years starting 2019, increasing dividend payouts from 25% of net profit to the level of not less than 35% of adjusted net profit.

JAN '18

FEB '18

APR '18

APR '18

MAY '18

MAR'19

DEC '18

OCT '18

SEP '18

OCT '18

ZAPSIB PROGRESSKEY 2018 DEVELOPMENTS

2018 Highlights

To learn more about our ZapSib project, see p. 30

95%

31/03 2019

01/01 2018

71%

30/06 2018

84%

31/12 2018

93%

EXECUTION PROGRESS:

сommissioning and start-up works underway

In June 2019, Fitch upgraded SIBUR’s rating from BB+ to BBB- with stable outlook.


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STRATEGIC REVIEW

We leverage our structural advantages and balanced business model in order

to achieve superior results and profitable growth through unique investment

projects.

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Investment Case

18

Q&A with Dmitry Konov, Chairman of the Management Board

28

Growth Strategy

36

2018 Operating Environment

38

2018 Group Results Overview


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MR. KONOV, WHAT WERE THE MAIN DRIVERS BEHIND SIBUR’S PERFORMANCE IN 2018?SIBUR’s revenues grew by 25% to RUB 569 billion on the back of solid operational performance, favourable pricing of petrochemical products and continued recovery in energy markets. Our balanced business model once again provided for year-on-year stability of the Company’s EBITDA margin, which stood at a strong 35%.

Speaking of our key segments, SIBUR’s petrochemical operations delivered total revenue growth of 16% and a 7% year-on-year decline in EBITDA, reflecting increased feedstock costs and tighter margins. Due to the structure of our business, this effect was naturally compensated by the performance of our midstream business, which posted revenue and EBITDA growth of 31% and 47%, respectively.


WHAT ENABLES YOU TO DELIVER GROWTH COMBINED WITH THIS LEVEL OF PROFITABILITY?First of all, we are a low-cost producer even by global standards. Our core operations are located in West Siberia, one of the world’s most hydrocarbon-rich regions, with very low energy costs. Over the past ten years, the Company has invested more than USD 4 billion in the region to develop unmatched integrated infrastructure to transport by-products from oil and gas extraction – APG and NGLs – and process them into LPG and naphtha, the main petrochemical feedstock. We have also invested heavily to expand our petrochemicals capacities, converting LPG and naphtha into higher-value-added petrochemical products. The close proximity of our production assets to our feedstock base means that we can eliminate a significant proportion of costs related to transportation of LPG and naphtha and bring down our production costs to a level well below that of most of our global competitors.

2018 was a very successful year for us, as shown by our record-breaking

financial results and strong progress towards the launch of ZapSibNeftekhim,

one of the world’s largest polyolefin production facilities.


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Another important factor is the flexibility of our business model, which we have achieved by developing complementary operations. The end products of our midstream business – LPG and naphtha – are both the feedstock for petrochemical production, which means that these two businesses compensate one another in terms of spreads and margins, since they operate on an arm’s-length basis. And while energy markets and the midstream spread have been volatile, the spread across key petrochemical products tends to be stable in the long run. Significant additions of petrochemical capacity have therefore supported our profitability and made SIBUR a more stable and balanced business – regardless of the direction of energy prices. These advantages underpin our strategy to further scale up our petrochemical capacity, in particular through ZapSib, which is the largest project in SIBUR’s history.

HOW DID ZAPSIB CONSTRUCTION PROGRESS IN 2018 AND AT THE BEGINNING OF THIS YEAR? Due to its scale, ZapSib is a unique project by many measures. It is being deployed as part of our Tobolsk hub in West Siberia, which is a region with a strong resource base but has a challenging climate. I am very pleased that a project of this degree of complexity was able to illustrate once again the great professionalism and dedication of SIBUR’s team. We are approximately six months ahead of the original schedule. As of the end of June 2019, we completed construction and pre-commissioning works at all technological and production units. As part of commissioning works during the first half of 2019 we produced approximately 27 thousand tonnes of PP from Tobolsk propylene at PP polymerisation unit. We also produced first PE granules from PE powder supplied from our existing Tomsk site as part of a test run.

WHAT ROLE WILL ZAPSIB PLAY FOR SIBUR AS IT RAMPS UP TO FULL CAPACITY?We have always said that ZapSib is a transformational project for SIBUR. Why is this the case? In 2018, our capacity allowed us to convert 2.9 million tonnes of LPG and naphtha (or c. 30% of all available feedstock) into petrochemicals, and we sold the remaining 70% in the open market. ZapSib will enable us to reroute an additional 30% of available feedstock (2.7 million tonnes) from the market to polyolefins production and also to use 300 thousand tonnes of ethane feedstock. This is a structural transformation, allowing us to add much more value through our value chain and to be less vulnerable to volatility in energy prices.

In terms of scale, with a total capacity of 2 million tonnes of PE and PP, ZapSib will more than triple our polyolefin production.

WHERE WILL ZAPSIB SELL ITS PRODUCTS?ZapSib is one of the most advanced production facilities on the global petrochemical map, and its offering will comprise high-quality polymer grades. The main pillar of ZapSib's go-to-market strategy is to target Russia and undersupplied Asian markets with our more than competitive products.


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(continued)

SIBUR IS CONSIDERING INVESTING IN ANOTHER LANDMARK PROJECT, NAMELY THE CONSTRUCTION OF THE AMUR GAS CHEMICAL COMPLEX (AMUR PROJECT). WHAT IS THE RATIONALE BEHIND THIS PROJECT?Value-accretive growth has always been a core of our strategy. Amur is an opportunity to further expand our petrochemical operations by leveraging Gazprom’s midstream infrastructure in East Siberia, which is a new region for SIBUR. The project envisages the construction of a global-scale ethane cracker and potentially an LPG cracker with several PE/PP units with a total capacity of at least 1.5 million tonnes. If we decide to proceed, Amur may become another major growth story, as it will allow us to tap ethane as a feedstock and to expand exports to Asia, a structurally undersupplied region, where we currently sell only around 5% of our products. In May 2018, we signed a 20-year ethane supply agreement with Gazprom. We are assessing this project at the moment and expect to reach our final investment decision by the end of 2019. In June 2019, we signed a Term Sheet with Sinopec for a potential joint venture that could be based at Amur. Should we decide positively, Sinopec can have a 40% share in the JV.

SIBUR HAS BEEN INVESTING INTENSIVELY IN CAPACITY EXPANSION OVER THE PAST FEW YEARS. WHAT WAS THE COMPANY’S FINANCIAL POSITION AS OF THE END OF 2018?

We have indeed gone through a heavy capex cycle, with ZapSib being our most capital-intensive project. However, thanks to our robust operational profitability and prudent leverage policy, we entered 2019 with a strong balance sheet and moderate leverage levels, and our financial profile remains in line with investment-grade issuers.

As of year-end, our debt portfolio was RUB 332.4 billion, up 6% year-on-year, mainly due to the depreciation of the rouble against the dollar and the financing of the ZapSib construction project. It is notable that while ZapSib-related debt has the largest share in our credit portfolio, its accumulated project cost is significantly higher than the overall debt balance of SIBUR. Our net debt/EBITDA ratio stood at a comfortable 1.6x in rouble terms and 1.4x in dollar terms. We also continued to manage our liabilities and deploy liquidity efficiently.

Now, with the ZapSib-driven investment phase almost over, our financial position and cash flows are creating a strong base for further growth of SIBUR’s dividends. In March 2019, SIBUR’s Board of Directors revised the Company’s dividend policy, increasing our payout ratio from 25% to not less than 35% (see Corporate Governance, p. 118). We believe that the new policy establishes a good balance between our desire to grow the business and to return cash to our shareholders, solidifying SIBUR’s investment case as a value-generating company.


Annual Review 2018

www.sibur.ru/en

PETROCHEMISTRY IS OFTEN VIEWED AS AN INDUSTRY WITH A STRONG ENVIRONMENTAL FOOTPRINT. WHAT ARE YOU DOING TO OPTIMISE SIBUR’S ENVIRONMENTAL IMPACT AND TO ENSURE THE BUSINESS’S LONG-TERM SUSTAINABILITY?Sustainability and environmental safety have always been integral components of our operations and our strategic priority. Firstly, we are focused on maximising the environmental benefits of our business model. One of our basic feedstock components is associated petroleum gas (APG), a by-product of oil extraction. Historically, oil companies have flared APG, resulting in significant harmful emissions of CO2 and other pollutants. Russia remains one of the world’s largest sources of APG flaring, though the situation has improved over the past ten years. By processing APG we help Russian oil and gas companies reduce amount of APG flaring and thus contribute to greenhouse gas emissions reduction. In 2018, we processed 22.3 billion cubic metres of APG, which, if flared, would have generated CO2 output comparable to the annual emissions of an average European country.

Another important area of our focus is plastic recycling. With global population growth, the demand for polymers will continue to expand, which means that it is becoming more and more vital to apply the principles of the circular economy to plastic.

One of the main advantages of plastic is that it is almost 100% recyclable and reusable in the manufacturing of clothing, packaging and other consumer and industrial items. SIBUR has launched a number of initiatives to increase public awareness in Russia of the benefits of waste recycling and to promote plastic waste sorting.

We at SIBUR are confident that volumes of recycled plastics will increase over the coming decades, and we will be one of the contributors to this important trend.

Finally, we continuously reduce our negative impact on environment by improving resource efficiency of our operations, implementing best available technologies, assessing environmental outcomes for every perspective activity.

WHAT KEY TAKEAWAYS WOULD YOU LIKE SIBUR’S STAKEHOLDERS TO DERIVE FROM THIS ANNUAL REVIEW?We would like this review not only to tell you about our business and performance but also to show how petrochemicals contribute to people’s well-being all over the world, as well as to the environmental safety of our planet. SIBUR is becoming more and more a global company, and we would like our growth to create benefits for as many people as possible. We will continue to develop as an innovative and sustainable business, and I am confident that, with our strong team and corporate values, we are well positioned to deliver on our mission in 2019 and beyond.

DMITRY KONOVChairman of the Management Board,SIBUR Holding


22

Annual Review 2018

SIBUR’s primary goal is building value through sustainable business growth and generation of consistent cash returns

for investors. Our strong market position, competitive advantages and strong management help us to deliver

long-term value for our shareholders.

TOP 10 PUBLIC PETROCHEMICALS-FOCUSED COMPANIES AS MEASURED BY 2018A EBITDA, USD BLN

INVESTMENT HIGHLIGHTS

SABIC Dow Lyondellbasell SIBUR post-ZapSib

launch

LG Chem Sasol SIBUR Braskem FormosaPetrochemical

Westlake PTT Chemicals

Petronas

3.2

Emerging marketsDeveloped markets

1A leading emerging

markets petrochemicals company

4Significant upside from the world-scale ZapSib project, which is near

completion

5Superior margins and resilient cash flow generation

throughout the cycle

6A strong management

and shareholder team with a track record of value

creation and transparent corporate governance

2Operating in growing

and diversified end markets

3A low-cost chemical

producer with high barriers to entry

Investment Case


Annual Review 2018

www.sibur.ru/en

1. WE ARE THE LEADING EM PETROCHEMICALS COMPANY AND THE LARGEST PLAYER IN RUSSIA AND THE CISAmong our closest publicly traded global peers, SIBUR was a top-10 petrochemicals company by EBITDA for FY 2018. Based on the forecast earnings potential of our ZapSibNeftekhim (ZapSib) project, we expect to place among the top five.

In our domestic Russian market, SIBUR has established itself as a clear leader in key petrochemical products. We are committed to reinforcing our leading position in domestic petrochemicals, while also seizing upon global growth opportunities by leveraging our structural advantages.

2. WE OPERATE IN GROWING AND DIVERSIFIED END MARKETSOur core products, polypropylene (PP) and polyethylene (PE) are two of the most widely used polymers in the world, which is attributable to their unmatched consumer properties. According to IHS Markit, they accounted for more than 70% of global polymers consumption in 2018.

Demand for PE and PP is expected to outperform global GDP performance due to the significant structural growth potential for consumption of petrochemicals in emerging markets, including our priority domestic market of Russia. Asia is expected to lead this expansion, with a projected demand CAGR in 2018-2025 of approximately 6% as the region catches up with Europe and the US in terms of per capita consumption of modern advanced materials. With the launch of ZapSib, SIBUR’s production facilities will be uniquely positioned to meet this demand, as they are strategically located in close proximity to China (see Strategy p. 32).

Polypropylene74 mln t, 30%

Polyethylene102 mln t, 42%

3019

13

10

19

9

2012100

120

140

160

180

200

220

240

260

2016 2020 2024 2028

2018 GLOBAL MAJOR POLYMERS CONSUMPTION

244 mln t

EVOLUTION OF PE/PP CONSUMPTIONAND GDP

SIBUR PRODUCTION BY KEY PRODUCTS IN 2018

OLEFINS & POLYOLEFINS, THS T PLASTICS, ELASTOMERS & INTERMEDIATES, THS T

SIBUR’s LEADING POSITION IN RUSSIAN PRODUCTION (2018)

PP 30%HDPE 19%LLDPE 13%LDPE 10%

PVC 19%

PET 9%

PP PET MEG EPS SBR BR SBSPE PVC BOPP films

579

348

1,427 1,756

335153

10579

256

295 269

125 117

ZapSib will add 500 ths tonnes of PP and 1,500 ths tonnes of PE (HDPE and LLDPE, fastest growing PE grades)post-2021

No. 1 LDPE

No. 1 PET

No. 1 SBR

No. 1 PP

No. 1 MEG

No. 2 BR

No. 1 BOPP

No. 1 EPS

No. 1 SBS

CAGRAnnual

increase

’12-’18 ’18-’25 ’18-’25PP, Asia 7.7% 5.8% 3 mln tPE, Asia 7.3% 5.7% 4 mln tPP, Global 5.4% 4.3% 4 mln tPE, Global 4.4% 4.3% 5 mln tGDP, Global 3.0% 2.9%

Source: IHS Markit, Bloomberg.

PE includes HDPE, LDPE, LLDPE. Virgin plastics demand.


24

Annual Review 2018

3. WE ARE A LOW COST PETROCHEMICALS PRODUCER WITH HIGH BARRIERS TO ENTRY

Our core production base is located in West Siberia, a region with low feedstock costs, providing a strong competitive advantage for our petrochemical operations. This cost advantage is secured by an abundant supply of land-locked LPG and naphtha (the end products of our midstream business and feedstock for polymer production), driving the export netback pricing in the market. For LPG, the domestic netback price is lower versus global benchmarks (by approximately 30% than in Europe) due to high transportation costs (railway transportation of LPG requires specialised tank cars and empty runs) and export duties. For naphtha, the netback price is also reduced by the recoverable excise. The location of SIBUR’s key production assets helps us to eliminate a significant part of feedstock transportation costs and export duties, resulting in more favourable netback prices for LPG and naphtha against global benchmarks.

We have developed Russia’s largest and most extensive integrated infrastructure for the processing and transportation of APG and NGLs, comprising eight of ten operating gas processing plants and 2,712 kilometres of pipelines in West Siberia, thus creating significant entry barriers. With approximately USD 4.5 billion of investments over the past nine years, we have expanded and significantly upgraded our processing and transportation capacities. Replicating our infrastructure would require multibillion-dollar investments and would not be economically justifiable without the economies of scale, client base and marketing expertise in petrochemicals that SIBUR enjoys.

LPG AND NAPHTHA PRICES ACROSS KEY GEOGRAPHIES USD/T

Recoverable excise taxes for naphtha, paraxylene and benzene were introduced by the Russian government to neutralise the impact of the tax manoeuvre on feedstock costs for petrochemical producers.

556

465 471

293

(167)

(11)

Asia US Europe Transport Duties Netback price in West

Siberia

Netback price

in Central Russia (Kstovo) before

Excise Tax

Recoverable Excise for Naphtha

Converters

Netback price

in Central Russia (Kstovo)

596 596 617

481

335

(65)(71)

(146)

Asia US Europe Transport from Kstovo

to Europe

Duties

LPG2018, USD/T

NAPHTHA2018, USD/T

CIF Japan. FOB USGC. DAF Brest propane-butane (50/50). FOB Singapore. FOB USGC. CIF North West Europe. Export duty and freight calculated based on IHS Markit data, rail transportation costs to Kstovo calculated based on Russian Railways tariffs for 2018, assuming a RUB/USD exchange rate of 62.7, Ust-Luga as the station of departure, Kstovo as the station of destination, leased railcars and tanker cars with a capacity of 66 t.

Source: Company data, IHS Markit, BP Annual Review.

Investment Case (continued)


Annual Review 2018

www.sibur.ru/en

EXPANSION OF SIBUR’S CAPACITY THROUGH ZAPSIB

4. WE EXPECT SIGNIFICANT UPSIDE FROM WORLD-SCALE INVESTMENT PROJECTS

In 2019, we are launching ZapSib, a world-scale production facility that will triple our polyolefins capacity. This transformational project worth c. USD 9 billion will enable us to reroute approximately 2.7 million tonnes of LPG from external sales to polyolefins production, which will significantly enhance the share of high-value-added products in our output mix.

SIBUR is also considering investing in another landmark project, the Amur Gas Chemical Complex (GCC), which aims to develop petrochemicals production in Eastern Siberia based on ethane feedstock expected to be supplied from Gazprom’s Amur Gas Processing Plant. With Amur GCC, SIBUR may add at least 1.5 mt of polyethylene to its annual capacity and would be well positioned to sell to Asian export markets, in particular China. The final investment decision regarding this project is expected to be taken by the end of 2019. (See Amur, p. 34).

1.1

2018 PP LLDPE/HDPE

HDPE

1.1

2.0

2018 PF

LPG2018, USD/T

Please see

ZapSibNeftekhim

pp. 30–33


26

Annual Review 2018

5. OUR BUSINESS EARNS SUPERIOR MARGINS AND GENERATES RESILIENT CASH FLOWS THROUGHOUT THE CYCLE

Our balanced business model provides us with a natural hedge against volatility in global commodity and FX markets. While our midstream business tends to benefit from higher prices for hydrocarbons, the margins in the Olefins & Polyolefins business receive support in an environment of lower oil prices and a weaker rouble due to lower feedstock costs. Another supporting factor is the FX structure of our revenues and expenses. Despite the fact that we sell more than half of our products domestically we apply import or export parity principles within our pricing formulas. That’s why we treat almost all our revenue as FX-based inflow while the vast majority of expenses are nominated in Russian roubles.

These hedging mechanisms are solidified by the pricing formulas of our long-term supply contracts, which link our feedstock prices to global commodity benchmarks and pass on the volatility in oil and gas prices to our suppliers.

In Olefins & Polyolefins, the spreads between feedstock costs and end-product selling prices have historically been more stable than in the Midstream segment. Expanding the capacity of our O&P segment with the launch of ZapSib and the increase in the share of petrochemicals in our business will thus help to significantly reduce the exposure to oil price volatility.

The stability of our business model helps us to deliver more resilient EBITDA margins than the industry average and strong operating cash flows despite the cyclical nature of global energy and petrochemical markets.

DOWNSTREAM INTEGRATION AND RESILIENCE OF EBITDA MARGIN

FX EXPOSURE OF SIBUR REVENUE AND COSTS,FY 2018

CHEMICAL SPREAD SUPPORTS MIDSTREAM MARGIN

70 79 66 6189

1278

(6) (7) (2) (1) (3) (1)

16 34 32

30

35

715

37 49

45

38

2013 2014 2015 2016 2017 2018

136 140

161

103

79

201

29% 32% 36% 34% 35% 35%

2.5 2.72.2 2.1

2.8 3.2

109 10053 44 54 71

SIBUR EBITDA (RUB bln)

2013 2014 2015 2017 201820160

10

20

30

40

50

60

70

0

200

400

600

800

1,000

1,200

1,400

1,600

O&P segmentspread

Midstreamspread

USD/T RUB/USD

RUB 569 bln

RUB 404 bln

Revenue OpEx

33%

9%

18%

20%

5%

15%

20%

9%

11%

10%

18%

32%

Other

D&A

Energy

Transportation & Logistics

Feedstock & Materials

Staff

LPG & Naphtha

NaturalGas

Olefins & Polyolefins

Plastics & Elastomers

MTBE

Other

Transportation and logistics costs (USD-linked)

EBITDA marginBrent price (avg USD/bbl)SIBUR EBITDA (USD bln)Olefins & Polyolefins EBITDA (RUB bln)Plastics, Elastomers & Intermediates EBITDA (RUB bln)Midstream EBITDA (RUB bln)

Unallocated EBITDA (RUB bln)

PP rafia China Main Port. SpotLiquids weighted export priceSIBUR EBITDA (USD bln)RUB/USD

Hard currency (USD, EUR)RUBUSD-linked

Investment Case (continued)


Annual Review 2018

www.sibur.ru/en

PORTFOLIO OF EXECUTED PROJECTSRUB BLN (EXCL. VAT)

12%

48%

18%

14%

8%

98

65122

412

156

Feedstock processing

infrastructure

Construction and expansion of GPPs, GFU

Transportation infrastructure

Ust-Luga transshipment facility, railway loading racks, raw NGL pipelines, logistics platform

Petchem

Tobolsk PP production and multiple smaller-scale projects

Other

Maintenance, R&D, IT, and other

TOTAL

~850 blnin 10 years

% of total

ZapSib

6. OUR STRONG MANAGEMENT HAS A TRACK RECORD OF VALUE CREATIONSIBUR is led by an experienced management team with industry-leading expertise and a strong track record in improving performance and project execution.

When implementing our strategic investment projects like ZapSib, we rely on our proven project management system based on detailed methodologies and processes, as well as modern project management IT systems and a team of experienced managers who specialise in project execution.

Our proven track record of completing value-accretive projects on time and within budget has enabled us to develop beyond execution of our own investment programme and to offer our expertise to third parties through SIBUR’s engineering subsidiary NIPIGAZ.


28

Annual Review 2018

Over the past nine years, SIBUR has grown its revenue and EBITDA 4 and 8 times, respectively, while significantly improving its operational efficiency. This transformation was achieved through predominantly organic growth and a strategic focus on the highest-margin segments of the petrochemicals business. We have divested a number of non-core and smaller-scale assets and concentrated our investment effort on securing the feedstock base within our midstream business, as well as robust capacity expansion in the Olefins and Polyolefins segment.

Today, the core of our strategy lies in leveraging SIBUR’s structural advantages and balanced business model in order to achieve sustainable, profitable growth. Our long-term focus is on further diversification into higher-value-added petrochemicals with the aim of maximising the efficiency of feedstock monetisation.

Structurally, our growth is driven by large-scale investment projects, in particular our ZapSibNeftekhim project, which are expected to enhance the way we capitalise on rising domestic demand in Russia and the expansion of value-added exports to China and other markets. We also continue selected strategic investments to expand our product offering at our plastics and elastomers facilities in order to take advantage of domestic and global consumption trends.

3Continuously pursue

operational excellence

1Expand our core production base

2Grow beyond the core

production base and core regions using third-party midstream infrastructure

OUR KEY DEVELOPMENT PRIORITIES ARE:

Growth Strategy


Annual Review 2018

www.sibur.ru/en

We believe that our domestic and selected international petrochemical markets have significant potential for growth, yielding ample opportunities for SIBUR to create further value by developing its structural feedstock advantage. In response to these opportunities, we continue to develop our petrochemicals

KEY GOALS AND OPPORTUNITIES

production base and transportation infrastructure in West Siberia in order to achieve greater vertical integration of our business and increase the share of higher-value-added products in our portfolio. Our key transformational project is ZapSibNefteKhim, which will secure SIBUR’s position among global petrochemicals leaders.

— Monetisation of attractively priced hydrocarbons at our tobolsk hub with integration into existing infrastructure and facilities

— Developing petrochemicals by leveraging the existing midstream infrastructure of other companies

Enhancing efficiencies in line with best global operational benchmarks through projects with low capex requirements: — Debottlenecking, maximising equipment uptime and increasing production volumes — Energy optimisation: cutting energy consumption and improving energy intensity rates — Technological improvements: reducing raw materials consumption and increasing operational efficiency

— Developing new products based on domestic and international demand

— Incremental low-capital projects based on our expertise in the construction of petrochemicals facilities

— Opportunities to increase the flow of NGLs from gas companies on the back of the expanding gas condensate base in the region

— Following significant growth over the past decade, no new material investments are expected

1. EXPAND CORE PRODUCTION BASE

ZapSib(сommissioning and start-up

works underway)

Amur GCC(FID is expected

by the end of 2019)

butyl rubber and halo butyl rubber (JV in India)

dioctyl terephthalate

thermoplastic elastomers

terephthalic acid

2. GROW BEYOND CORE PRODUCTION BASE TO TAP NEW O&G REGIONS LEVERAGING THIRD-PARTY MIDSTREAM INFRASTRUCTURE

3. CONTINUOUSLY PURSUE OPERATIONAL EXCELLENCE

OLEFINS & POLYOLEFINS MIDSTREAMPLASTICS, ELASTOMERS & INTERMEDIATES


30

Annual Review 2018

SIBUR is on track to launch its ZapSibNeftekhim (ZapSib) project, the world-scale production facility that is set to triple our polyolefins capacity. ZapSib is located within SIBUR’s Tobolsk petrochemicals hub, building on our infrastructure and access to feedstock supplies in West Siberia. This investment project will significantly enhance our ability to add value through monetisation of SIBUR’s NGLs feedstock and to deliver superior returns.

Growth Strategy

ZapSibNeftekhim

LARGEST STATE-OF-THE-ART PETROCHEMICALS COMPLEX IN RUSSIA

ZapSib is designed to be one of the world’s most advanced facilities in the global petrochemicals market. The project will comprise a cracking unit with nameplate capacity of 1.5 mtpa of ethylene and a polyolefin production complex with capacity of 1.5 mtpa of polyethylene (PE) and 0.5 mtpa of polypropylene (PP). The PE plant will add linear low-density polyethylene (LLDPE) and high-density polyethylene (HDPE) units to our existing low-density polyethylene (LDPE) capacity.

MIDSTREAM

PE UNITSPP UNIT

STEAM CRACKER

0.7 mtpaHDPE

0.8 mtpaLLDPE / HDPE

0.5 mtpaPP

0.23 mtpaС4, С5+

LPG2.7 mtpaethane

0.3 mtpa

New grades

PP PE

HDPE LLDPE LDPEFull Name polypropylene high-density polyethylene linear low-density polyethylene low-density polyethylene

Flexibility low medium to low medium to high high

Temperature Resistance high medium to high medium to low low

Tensile Strength high medium low

Transparency opaque can be produced optically clear

Recycling Code

Applications housewares, toys, fibre and injection moulding

blow moulded bottles (for household chemicals, shampoo, motor oil), pipes and fittings

heavy-duty sacks, stretch film, irrigation tubing

blow film, extrusion coating (milk packs), bags, squeeze bottles

5 42

ZAPSIB WILL ALLOW OUR O&P BUSINESS TO FURTHER EXTEND ITS PRODUCT PORTFOLIO, WHICH WILL COVER THE VAST MAJORITY OF POLYOLEFIN TYPES KNOWN TO THE MARKET TODAY

PROJECT DESIGN

Annual Review 2018

www.sibur.ru/en

PROJECT RATIONALE: ENHANCING OUR FEEDSTOCK ADVANTAGE

Transport& duties

LPG marketprice

LPG netback

in Tobolsk

Conversion cost

Polyolefin netback

in Tobolsk

Transport Polyolefin market

price

Transportation costs arbitrage and

zero export duty Addedvalue

RAW NGL → LIQUIDS → POLYOLEFINS

— Sold in Russia, Asia, Europe — Shipped in regular containers — Higher international benchmarks — Lower volumes

RAW NGL → LIQUIDS

— Primarily sold to Europe — Subject to export duty — Shipped in specialised rail cars — Empty-run pay

1 2

69%

40%

29%

21% 21%

10% 10%

2018 2018 PF

PE&I

O&P

External salesof LPG &Naphtha

ZapSib

FEEDSTOCK USE BY SEGMENTS

XX% – share of segment in LPG and naphtha consumption

At year-end 2018, SIBUR’s production facilities could convert approximately 31% of available feedstock into higher-margin petrochemicals. The remaining 69% were sold on the market as liquefied petroleum gas (LPG) or naphtha. ZapSib will enable us to reroute approximately 2.7 tonnes of LPG to polyolefins production, doubling the share of processed feedstock and facilitating stronger profitability. There will be no cannibalisation of our Midstream segment, as all intersegmental flows are priced at market level and on an arm's-length basis.

RATIONALE FOR POLYOLEFIN PRODUCTION

On the back of our long-term contracts with suppliers and advanced transportation and processing infrastructure, SIBUR’s midstream business is generating significant flows of LPG and naphtha. Two major options thereafter are either to sell these liquids in European markets (as local demand in Russia is limited) or push them further up the value chain to produce polyolefins (see Business Model, p. 10).

In the first scenario, approximately half of the value of LPG produced in Tobolsk is eliminated by railway transportation costs (typically high for flammable liquids) and export duties. However, converting the LPG into higher-value-added polyolefins (second scenario) gives us low-cost options to transport polyolefin granules to end markets with no export duties. With an abundant LPG supply and transportation cost arbitrage in place, ZapSib will further decrease SIBUR’s exposure to volatile energy markets (see Investment Highlights, p. 26) and significantly increase geography and product sales diversification.

Polyolefin production cost less by-products.


www.sibur.ru/en



32

Annual Review 2018

SALES AND MARKETING STRATEGY: EFFECTIVE DISTRIBUTION PRIMARILY TARGETING UNDERSUPPLIED EXPORT MARKETSSIBUR expects to benefit from its low-cost producer advantage compared to competitors and projected demand growth trends for polyolefins (see Investment Case, p. 23) in Russia and key net-short international markets, such as China, Turkey and Europe.

In 2018, we expanded our sales force in Russia and other key regions of SIBUR’s presence, in particular, the Company's sales office in Vienna, four offices in China and an office in Istanbul.

With our PP sales to export markets, we have already developed strong ties with our customers, many of which are also consumers of PE. We have identified more than two thousand target customers in Russia, the CIS, Turkey, Europe and Asia and are busy preparing our test delivery schedules, which will be activated with the first tonnes of products to be delivered from ZapSib. We are also in talks with distribution partners in China to use their distribution networks as well. For instance, in June 2019, SIBUR and Sinopec signed distribution agreement to supply PE from ZapSib to China. To support our domestic and export sales, we have also been developing our logistics and warehouse network.

10.5

HDPE/LLDPE

PP

8.8

(2.7)

0

1.9

HDPE/LLDPE

PP

2.6(0.1)(1.1)

2.6

HDPE/LLDPE

PP

3.1(2.5)

(3.0)

30.9

HDPE/LLDPE

PP

33.5(13.0)(3.0)

2.6

HDPE/LLDPE

PP

2.1

2.7 1.4

Tobolsk

Logistics Hub

WESTERN EUROPE 2025MT

CE EUROPE (EXCL. CIS) 2025MT

TURKEY 2025MT

CHINA 2025MT

RUSSIA AND CIS 2025MT

ZAPSIB IS EXPECTED TO BE ONE OF THE MOST COST-EFFICIENT ASSETSThe ethylene cost curve shows how competitive ZapSib is in terms of feedstock costs. ZapSib is positioned at the low end of the cost curve next to Middle Eastern and North American producers. The competitive cost position of Middle Eastern producers in olefins benefits from low fixed ethane prices stemming from government policies.

ZapSib’s costs are below the average both for US and other Russian producers, thanks to SIBUR’s low feedstock cost (see Investment Case, p. 24), relatively low energy and labour costs in Russia and economies of scale. Thus our position for polyolefins production globally and in the domestic market is very strong.

Consumption

Market Balance

Cumulative production, mln MT

USD/T

0

200

400

600

800

1 000

0 40 80 120 160 200

MDEAvg

NAMAvg

NEAAvg

WEAvg

ZapSib projected cash cost

THE PROJECT IS EXPECTED TO BE POSITIONED IN THE 1ST QUARTILEON THE GLOBAL ETHYLENE COST CURVE2022, ASSUMING BRENT OIL PRICE OF 68.7 USD/BBL

ZapSibNeftekhim(continued)

Growth Strategy

Defined as difference between supply and demand, highlighted in red in case of supply shortage.Source: IHS Markit.

Source: Nexant limited, IHS Markit, Company data.


Annual Review 2018

www.sibur.ru/en

COOPERATION WITH LEADING INTERNATIONAL CONTRACTORS

We cooperate with leading international licensors and contractors that have experience

Engineering

Germany Germany France

Russia Under ERCM contract

Procurement

Construction

Russia China

Multiple contractors

Licensor

Germany USA UK

SIBUR PERFORMS OVERALL PROJECT OVERSIGHT

PP

PP

PE

PE

CR

CR

UIO

UIO

NIPIGAS

Cracker PP units PE units Utilities, infrastructure and offsites

PROGRESS AND RAMP-UP UPDATE

In 2018, as a result of the professionalism and coordinated efforts of the SIBUR team, the ZapSib project proceeded well ahead of the original plan, making it possible to start commissioning works in the first half of 2019 instead of late 2019, as previously anticipated.

The ramp-up of ZapSib may take from three to twelve months, in line with industry benchmarks.

As of the end of June 2019, we completed construction and pre-commissioning works at all technological and production units. As part of commissioning works during the first half of 2019 we produced 26.7 thousand tonnes of PP from Tobolsk propylene at PP polymerisation unit. We also produced first PE granules from PE powder supplied from our existing Tomsk site as part of a test run.

As of the end of June 2019, the project was staffed with around 7,000 construction workers from Russia. The operating team totalled 1,453 specialists, mainly engineers and technical staff engaged in employee training, equipment maintenance, document inspection and start-up commissioning. The ZapSib complex will employ around 1,500 specialists when the plant is fully operational.

The total investment budget for ZapSib has been revised downwards from USD 9.5 billion to approximately USD 8.9 billion as of the end of June 2019. We already invested USD 7.4 billion as of the end of June 2019, with the residual CAPEX estimated to be around USD 1.5 billion.

ON-SITE PROGRESS, END OF JUNE 2019

146,000 t

of metal structures installed – 99% of total

7,466 km

of power lines installed – 88% of total.

376 km

of underground pipeline laid – 99% of total

3,768,000diameter inches of surface pipeline laid – 99% of total

Estimated CAPEX budget. Converted to USD using historical annual average exchange rates. Residual CAPEX was calculated based on the following exchange rates: RUB/USD at 65.6, RUB/EUR at 74.9.


34

Annual Review 2018

SIBUR is considering the Amur project as another potential pillar of the Company's long-term expansion in the higher-value-added petrochemicals segment. This project would develop petrochemicals production in Eastern Siberia based on ethane (and potentially LPG) feedstock expected to be supplied from Gazprom’s Amur Gas Processing Plant (GPP) to SIBUR’s Amur Gas Chemical Complex (GCC). A long-term agreement on 20-year ethane fraction supplies of approximately 2 mtpa was signed by SIBUR and Gazprom in May 2018.

Amur Project

The GCC would be ideally positioned to target China. In case a decision is made to proceed with the Amur project, mechanical completion could be achieved in mid-2024 subject to commissioning of Amur GPP in line with current plans.

The project comprises a large-scale ethane cracker and a polyethylene production facility. With a planned annual capacity of about 1.5 mt of polyethylene, the GCC is expected to be the largest gas processing and gas-chemical cluster in the Amur Region(Far East of Russia). There is a potential to uplift project capacity to 2.5 mtpa that relies on introduction of recoverable excise on LPG/ethane to align Government support among petrochemical producers in Russia.

The final decision regarding implementation of the Amur project is expected by the end of 2019. In June 2019, SIBUR and China Petroleum and Chemical Corporation (Sinopec) signed a Term Sheet for a potential joint venture (JV) that could be based at GCC. Subject to SIBUR's investment decision, Sinopec is expected to have a 40% share in the JV.

HDPE/LLDP P

Tobolsk

Moscow

Amur GPPGazprom

Amur GCC + potential partner(s)

Met

hane

Option 1: Ethane

Option 2: Ethane + LPG

ChayandinskoyeField

KovytkinskoyeField

SkovorodinoSvobodny

Ethylene

Heliu

m

C 5+C 3 – C

4

Markets

Cracker1.5 mtpa

1.5 mtpa PE

EthylenePropylene

Crackerup to 2.5 mtpa

2.5 mtpa PE/PP

Products: methane, ethane, propane,butane, pentane-hexane fraction

Gas processing capacity42 bcm

Helium production capacity60 mcm

Growth Strategy

Source: Gazprom. Expected capacity in billion cubic metres. Expected capacity in million cubic metres.

Plastics, Elastomers & Intermediates (PE&I) is the second pillar of our petrochemicals business and the top end of our value chain. Our strategic priority in this segment is expanding our product offering in order to meet domestic demand for advanced petrochemical solutions and to leverage opportunities to substitute less competitive imports.

Plastics, Elastomers & Intermediates

Project Product application Highlights Capacity and estimated CAPEX

Expected timing of completion

NEW DOTP PRODUCTION AT SIBUR-KHIMPROM (PERM)

— Floor and roof coatings

— Wallpaper, cable compounds, other construction products

— Substituting imports of alternative products

— Supplies to export markets, where demand for DOTP is rapidly growing

100,000 tpa /

RUB 6.9 bln

2019

EXPANSION OF TPE PRODUCTION AT VORONEZHSINTEZKAUCHUK (VORONEZH)

— Road and pavement construction (producing polymer-bitumen binders)

— Roofing material

— Production will efficiently utilise additional butadiene from ZapSib 50,000 tpa /

RUB 5.1 bln

2020

TPA PRODUCTION UPGRADE AT POLIEF (BLAGOVESHCHENSK, BASHKORTOSTAN)

— Production of PET for packaging and other industries

— Opportunities to substitute a major portion of imports

— Improving the site’s production efficiency and environmental safety

80,000 tpa /

RUB 6.4 bln

2019

BUTYL RUBBER AND HALO BUTYL RUBBER PRODUCTION

RELIANCE SIBUR JV IN ELASTOMER PRODUCTION (JAMNAGAR, INDIA)

— Car tyres

— Products for pharma industries

— Access to the fast-growing Indian market

— 25.1% in South Asia’s first butyl and halogenated butyl rubber production

— Monetisation of technology

120,000 tpa /

USD 151 mln

2019/ 2020

Launched in May 2019 (more detailed information is available at: http://investors.sibur.com/investor-news/2019/may/dotp-launch.aspx?sc_lang=en). Calculated as 25.1% of total budget (USD600 mln).

Our growth in PE&I is driven by selected projects with low capital requirements based on our expertise in construction of modern efficient petrochemical facilities. Our key expansion areas in the mid-term are dioctyl terephthalate (DOTP), thermoplastic elastomers (TPE), terephthalic acid (TPA) and butyl rubber.

Growth Strategy


Annual Review 2018

www.sibur.ru/en

http://investors.sibur.com/investor-news/2019/may/dotp-launch.aspx?sc_lang=en


36

Annual Review 2018

SIBUR benefits from its balanced business model. Our complementary petrochemical and midstream businesses operate on an arm's-length basis, enabling SIBUR to deliver resilient financial performance, even in a volatile market environment.

Growth in Russia accelerated in 2018, supported by robust global macro factors. Oil prices averaged 71 USD/bbl (up from 54 USD/bbl in 2017) but were volatile, with the Brent price ranging from 45 USD/bbl to 86 USD/bbl. Russia reported GDP growth of 2.3% year-on-year in 2018.

For SIBUR, these factors fostered higher cash generation and sustained margins, coupled with healthy growth in sales and EBITDA both in US dollar and Russian rouble terms.

PRICESAverage market prices for most of the products in SIBUR’s portfolio demonstrated positive dynamics in 2018. Brent crude prices rose on average by 31% year-on-year. Naphtha largely followed oil price dynamics, while European LPG prices lagged slightly behind due to additional LPG supplies coming to Europe from the US, which caused some market imbalance. Average prices for most petrochemical products also rose, but the magnitude was smaller than for hydrocarbon prices. Each group of petrochemicals products has its own pricing drivers, and each posted different growth dynamics, which do not correlate perfectly with oil price movements.

MIDSTREAMREBASED TO 100

OLEFINS & POLYOLEFINSREBASED TO 100

PLASTICS, ELASTOMERS & INTERMEDIATESREBASED TO 100

50%

100%

150%

200%

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Jan-17 Apr-17 Jul-17 Oct-17 Dec-17 Apr-18 Jul-18 Oct-18 Jan-1950%

70%

90%

110%

130%

150%

170%

190%

50%

70%

90%

110%

130%

150%

170%

190%

Jan-17 Apr-17 Jul-17 Oct-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Brent Naphtha CIF NWELPG DAF Brest

Polystyrene, EPS block FOB KoreaPET FOB China, SpotButadiene Contract, FD NWE

MEG Contract, FD NWE T2 Natural rubber, NR SMR 20 Brent

LPG CIF ARA (large)Natural gas

LDPE CFR China film, SpotPP MRC CPT Moscow

PP raffia China Main Port, SpotBrent

Source: Argus, Platts, Bloomberg, Federal Antimonopoly Service of the Russian Federation.

Source: Bloomberg, ICIS.

Source: Bloomberg, ICIS, Malaysian Rubber Board.

2018 Operating Environment


Annual Review 2018

www.sibur.ru/en

Price spreads between purchased feedstock and end products help to illustrate the fundamental resilience of our margins. For our midstream segment, international benchmarks for LPG, the key product in our energy business, were almost in line with the prices at which we purchase hydrocarbon feedstock. At the same time, the spread between polypropylene and LPG expanded by 13% to 689 USD/t from 611 USD/t, largely due to bans on imports of plastic waste in China, which led to increased demand for virgin polymers. In addition, a shift towards a higher share of lighter feedstock for European crackers compared to more expensive naphtha resulted in a higher output of ethylene and a deficit for propylene.

MIDSTREAM SPREADSPREAD: LPG BENCHMARK – PURCHASED HYDROCARBONS

POLYPROPYLENE SPREADSPREAD: PP BENCHMARK – LPG BENCHMARK

USD/RUB – OIL PRICE CORRELATION

CHANGE IN INDUSTRIAL OUTPUT IN 2018, % Y-O-Y

avg. spread ~327 USD/t


2017 2018

2017 2018



35

45

55

65

75

85

95

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

-4 -12 2 2 3 3 3 3 4 4 5

1113 13

Leat

her &

Lea

ther

Pro

duct

s

Mac

hine

ry &

Equi

pmen

t

Met

als

Oil R

efin

ing

Rubb

er &

Pla

stic

Goo

ds

Chem

ical

Oil &

Gas

Pro

duct

ion

Prod

uctio

n In

dex

Elec

tric

al G

oods

Text

iles

Min

ing

Food

Lum

ber

Pulp

& P

aper

Vehi

cles

LPG CIF ARAWA hydrocarbon feedstock price

PP raffia China Main Port. SpotLPG CIF ARA

Brent (USD/bbl)USD/RUB

Source: Russian Federal State Statistics Service.

EXCHANGE RATE

Our domestic currency, the Russian rouble, depreciated by 7% against the US dollar and by 12% against the euro in 2018. Combined with higher oil prices and prices for our products denominated in US dollars, we observed a high oil price environment in rouble terms, with around 41% year-on-year growth in the Brent price.

THE RUSSIAN ECONOMY

In 2018, the Russian economy posted 2.3% GDP growth, compared to 1.5% growth in 2017. Industrial output also expanded but at a moderate pace. Although trends diverged among different sectors, most of the industries that consume petrochemicals experienced growth, including important end customer segments for SIBUR, such as the food and chemical industries, consumer rubber and plastic goods and the automotive sector.


38

Annual Review 2018

OPERATIONAL RESULTS

In 2018, SIBUR’s gas processing plants (GPPs) processed 22.3 billion cubic metres of APG, almost on a par with the previous year. As a result, production of natural gas totalled 19.4 billion cubic metres. Raw NGL fractionation volumes increased by 2.5% year-on-year, reaching 7.7 million tonnes. Additional volumes contributed to an increase in LPG sales volumes of 8.8% year-on-year to 5.4 million tonnes.

SIBUR increased sales volumes of most of its petrochemical products. Sales of plastics and organic synthesis products increased by 3.8% year-on-year to 800 thousand tonnes as a result of higher alcohol 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 a new type of polystyrene in June 2018. Sales of elastomers remained flat year-on-year at 486 thousand tonnes. Sales of polypropylene decreased by 2.5% year-on-year to 583 thousand tonnes due to a maintenance shutdown in Tobolsk. Sales of polyethylene (LDPE) decreased by 2.2% year-on-year to 262 thousand tonnes driven by the planned maintenance shutdown of our production site in Tomsk.

PETROCHEMICAL PRODUCTS SALES VOLUME

3,686 ths t

MIDSTREAM SEGMENT PRODUCTS SALES VOLUME

6,402 ths t

Excluding third-party volumes processed at SIBUR’s capacities. Including volumes processed at third-party capacities and excluding third-party volumes processed at SIBUR’s capacities.

PROCESSING VOLUMES

Thousand tonnes, except as stated

Year ended 31 December

2018 2017 Change, %

APG processing, SIBUR’s share (mln cubic metres) 22,283 22,280 n/m

NGL volumes purchased 3,490 3,013 15.8%

Raw NGL fractionation, SIBUR’s share 7,712 7,522 2.5%

SALES VOLUMES

PETROCHEMICAL PRODUCTS, INCLUDING: 3,686 3,625 1.7%

PP 583 598 (2.5%)

PE (LDPE) 262 268 (2.2%)

Elastomers 486 485 0.2%

Plastics and organic synthesis products 800 771 3.8%

Intermediates and other chemicals 483 520 (7.1%)

MIDSTREAM SEGMENT PRODUCTS, INCLUDING: 6,402 5,805 10.3%

LPG 5,357 4,924 8.8%

Naphtha 1,045 878 19.0%

In 2018, the Company’s revenue increased by 25% due to favourable pricing of petrochemical products, rising beyond RUB 0.5 tn. Our EBITDA also grew by 25%. The EBITDA margin remained consistently high at over 35%. Due to our carefully considered financial policy, our leverage remained at the same comfortable level of 1.6x as reported last year.

ALEXANDER PETROV CFO, Management Company SIBUR LLC

2018 was a year of great success for us, as we achieved record-breaking financial results on the back of a favourable macro environment and strong operational performance. This will further support the Company’s strategy to diversify its sales markets, to increase the share of high added value cutting-edge products, and to improve operational efficiency.

MIKHAIL KARISALOV CEO, Management Company SIBUR LLC

2018 Group Results Overview

3901 02 BUSINESS REVIEW 03 04 05 06

Annual Review 2018

www.sibur.ru/en

2018

455

2017

569 25%35%35%

2018

161

2017

201 25%

2018

153

2017

160 5%

EBITDA AND EBITDA MARGIN (%)RUB 201bln

FINANCIAL RESULTS

In 2018, SIBUR’s revenue increased by 25% year-on-year to RUB 568.6 billion, with the following dynamics across segments:

— OLEFINS & POLYOLEFINS revenue increased by 14.4% year-on-year to RUB 100.9 billion mainly due to positive pricing dynamics in PP and in BOPP films, partly offset by a decline in revenue from LDPE sales.

— PLASTICS, ELASTOMERS & INTERMEDIATES revenue increased by 16.4% year-on-year to RUB 171.0 billion largely due to positive pricing in plastics and organic synthesis products as well as in MTBE.

— MIDSTREAM SEGMENT revenue increased by 30.7% year- on-year to RUB 240.8 billion largely due to higher LPG and naphtha prices.

EBITDA increased by 25% year-on-year to RUB 201.0 billion driven by the strong performance of the Midstream segment and the Plastics, Elastomers and Intermediates segment. Growth was partially offset by weaker Olefins & Polyolefins segment EBITDA, primarily reflecting tighter spreads.

Including acquisition of primary assets, intangibles and other noncurrent assets. Net debt is calculated as total debt less cash and cash equivalents.

Net profit decreased by 7.9% year-on-year to RUB 110.8 billion. The main factor was the reflection of the gain on the disposal of Uralorgsintez recorded in 2017 versus a substantial FX loss in 2018 due to the depreciation of the Russian rouble against the euro and US dollar and the corresponding revaluation of the Company’s FX-denominated debt.

Capital expenditures increased by 12.0% year-on-year to RUB 151.4 billion as a result of ZapSib's transition to the final stage of project implementation, as well as the depreciation of the Russian rouble against the euro and US dollar, which affected payments in these currencies. As of 31 December 2018, investment in the project totalled RUB 411.9 billion, or approximately USD 6.9 billion.

BORROWINGS

In 2018, total debt increased by 6.4% year-on-year to RUB 332.4 billion as of 31 December 2018. The increase was attributable to new drawdowns of ZapSib-related financing, as well as to the depreciation of the Russian rouble against the euro and US dollar. The increase in total debt was partially compensated by a decrease in debt not related to ZapSib.

Net debt increased by 20.4% year-on-year to RUB 317.6 billion. The net debt to EBITDA ratio remained flat at 1.6х.

For more detailed information, see MD&A on p. 128.

RUB mlnAs of 31

December 2018

As of 31 December

2017Change, %

TOTAL DEBT 332,411 312,344 6.4%

Debt excluding related to ZapSib 86,637 139,147 (37.7%)

ZapSib-related debt 245,774 173,197 41.9%

Cash and cash equivalents 14,783 48,456 (69.5%)

NET DEBT 317,628 263,888 20.4%

Net debt excluding related to ZapSib 74,770 102,744 (27.2%)

ZapSib-related net debt 242,858 161,144 50.7%

SIBUR FINANCIAL SUMMARY, RUB BLN

REVENUERUB 569

bln

EBITDAEBITDA margin

OPERATING CASH FLOW RUB 160

bln


BUSINESS REVIEW

We have significantly developed our Midstream segment and are now focusing on petrochemical

business to solidify SIBUR’s leadership in the attractive CIS and Russian

markets.

40

Annual Review 2018

44

Our Business

68

Production Flows

42

Map of Operations

66

Value Chain

76

Digital Transformation Programme

78

Stakeholders

46

Feedstock

70


48

Midstream

73

Continuous Pursuit of Operational Excellence

54


74

State-of-the-Art Planning System

58


75

Research and Development


Annual Review 2018

www.sibur.ru/en


42

Annual Review 2018

PE&I

PE&IPE&I

PE&I

PE&I

O&P

SIBUR HIMPROM

MM

M

M

M

M

M

M

SIBUR TOBOLSK

Krasnoyarsk

TOMSKNEFTEKHIM

O&PO&P

O&P

O&P

PE&I

PE&I MO&P

O&P

O&P PE&I

O&P

O&P PE&I O&P

Istanbul

SIBUR INTERNATIONAL TRADING ISTANBUL

FTOVienna

SIBUR INTERNATIONAL GMBH

FTO

SIBUR INTERNATIONALTRADING COMPANY

Mumbai

RELIANCE SIBUR ELASTOMERSPRIVATE LIMITED

JV

Voronezh

TobolskBashkortostan

MoscowHead office

Kursk

Tver

NIZHNIYNOVGOROD

PRODUCTIONCLUSTER

SIBUR GAS PROCESSING PLANTS (GPPs)

Samara Region

Tomsk

Omsk

Perm

Guangzhou FTO

FTO

Qingdao FTO

Beijing FTO

Shanghai

Map of Operations

Sites operated under a JV

FTO Foreign trading office

Key production facilities

М Midstream

O&P Olefins & Polyefins

PE&I Plastics, Elastomers & Intermediates


Annual Review 2018

www.sibur.ru/en

PE&I

PE&IPE&I

PE&I

PE&I

O&P

SIBUR HIMPROM

MM

M

M

M

M

M

M

SIBUR TOBOLSK

Krasnoyarsk

TOMSKNEFTEKHIM

O&PO&P

O&P

O&P

PE&I

PE&I MO&P

O&P

O&P PE&I

O&P

O&P PE&I O&P

Istanbul

SIBUR INTERNATIONAL TRADING ISTANBUL

FTOVienna

SIBUR INTERNATIONAL GMBH

FTO

SIBUR INTERNATIONALTRADING COMPANY

Mumbai

RELIANCE SIBUR ELASTOMERSPRIVATE LIMITED

JV

Voronezh

TobolskBashkortostan

MoscowHead office

Kursk

Tver

NIZHNIYNOVGOROD

PRODUCTIONCLUSTER

SIBUR GAS PROCESSING PLANTS (GPPs)

Samara Region

Tomsk

Omsk

Perm

Guangzhou FTO

FTO

Qingdao FTO

Beijing FTO

Shanghai

Tobolsk

Pyt-Yakh

Purovsk

Noyabrsk

SIBUR TOBOLSKPRODUCTION SITE

PUROVSKY GCP(NOVATEK)Yamal-Nenets

Autonomous Area

Khanty-MansiAutonomous Area

TyumenRegion

SIBUR ASSET BASE IN WESTERN SIBERIA

SIBUR infrastructure

Third-party infrastructure


44

Annual Review 2018

171

2016

31%

61

184

2017

39%

87

241

2018

43%

127

SIBUR is a uniquely positioned gas processing and petrochemicals company. We own and operate Russia’s largest APG processing and raw NGL fractionation business, and we are a leader in the Russian petrochemicals industry.

We purchase the by-products of oil and gas extraction activities under long-term contracts from Russian energy companies and process them into petrochemical and energy products.

SIBUR operates a Midstream segment and two petrochemicals sub-segments: Olefins & Polyolefins and Plastics, Elastomers & Intermediates.

These business segments vary in their end-user markets, supply and demand trends, value drivers and, consequently, their profitability. They are complementary, however, with most of the feedstock for our petrochemicals business supplied by our Midstream segment.

Our Business

MIDSTREAM BUSINESS

SIBUR owns and operates Russia’s largest infrastructure for the processing and transportation of hydrocarbon feedstock.

Our Midstream segment involves:

— receiving APG from oil companies and processing it into natural gas and raw NGL at our GPPs;

— transportation, fractionation and other processing of NGLs that we produce internally or purchase externally;

— production of energy products that are marketed and sold externally and are also used as feedstock by the Olefins & Polyolefins segment and the Plastics, Elastomers & Intermediates segment.

The Midstream segment supplies approximately 31% of LPG and naphtha available for sale as a feedstock for our petrochemicals business.

MIDSTREAM BUSINESS ASSETS AND INFRASTRUCTUREas of 31 December 2018

8

GPPs

5

Compressor stations

2

GFUs

MIDSTREAM FINANCIAL PERFORMANCE

WE create value for our stakeholders by developing best-in-class midstream and petrochemical operations to convert non-marketable by-products from oil and gas extraction that are effectively stranded in Western Siberia into a wide range of value-added petrochemical and energy products used by people and businesses all over the world.

MIKHAIL KARISALOV CEO, Management Company SIBUR LLC

External revenue RUB blnEBITDA RUB blnEBITDA margin %

In 2018, the Feedstock and Energy segment was renamed the Midstream segment, which more accurately characterises the Company’s activities within this segment and allows for proper comparison with peer companies in domestic and international markets. The change does not affect the composition of the segment or its financial results.

Including Yuzhno-Priobskiy GPP, a JV between SIBUR and Gazprom Neft.


Annual Review 2018

www.sibur.ru/en

PETROCHEMICALS BUSINESS

SIBUR operates an extensive petrochemicals production base and invests in capacity modernisation and expansion. Our Midstream segment provides a reliable source of raw materials for our petrochemicals business.

SIBUR’s petrochemicals business comprises two segments: Olefins & Polyolefins and Plastics, Elastomers & Intermediates.

THE OLEFINS & POLYOLEFINS (O&P) SEGMENT includes the production and sale of polyolefins, such as polypropylene and polyethylene, BOPP films and olefins comprising propylene and ethylene, which are either used internally in our petrochemicals production or sold externally.

ASSETS AND INFRASTRUCTURE OF SIBUR'S PETROCHEMICALS BUSINESSESas of 31 December 2018

3

Steam crackers

1

PDH facility

2

PP and LDPE production plants

3

Elastomers production plants

4

Plastic & organic synthesis production plants

5

BOPP films production plants

O&P FINANCIAL PERFORMANCE PE&I FINANCIAL PERFORMANCE

Please see

Eco-friendliness of products and recyclability

on p. 51



THE PLASTICS, ELASTOMERS & INTERMEDIATES (PE&I) SEGMENT produces a variety of petrochemical products, such as plastics and organic synthesis products, elastomers, methyl tertiary butyl ether (MTBE) and fuel additives, which are sold externally. The segment also produces intermediates, which are primarily used internally, with a small share being sold in the market.

87

2016

46%

49

88

2017

40%

45

101

2018

29%

38

131

2016

24%

32

147

2017

22%

33

171

2018

20%

35


46

Annual Review 2018

Key Suppliers

Oil Majors Gas Majors

Contract Characteristics

% Guaranteed under long-term

contracts

Weighted average maturity

% Guaranteed under long-term

contracts

Weighted average maturity

Pricing Drivers

— Base price for APG depends on three key drivers:• Regulated domestic natural gas

price

• Target liquid fractions content, distance and processing cost (i.e. value for SIBUR)

• Alternative cost for the seller

— The Russian Government has consistently increased incentives for oil companies to utilise APG: penalties for flaring increased from 4.5x the standard emission charge in 2012 to 25x starting from 2014

— With reference to international prices for LPG and naphtha, and to domestic LPG prices

— Pricing in raw NGL supply contracts is determined on an export netback basis and reflects • Fraction content of LPG and

naphtha and fractionation cost (i.e. value for SIBUR)

• Transportation costs and export duties

• Alternative channels available for NGLs suppliers (i.e. alternative cost of the seller)

Feedstock

Our Business

We use two major types of hydrocarbon feedstock:

APG is a by-product of oil production and represents a key raw material for our Midstream business. We produce natural gas and raw NGL by processing APG at our gas processing plants.

NGLs include raw NGL (a by-product of gas production), liquefied petroleum gas (LPG) and naphtha. NGLs are used as a raw material for both our midstream and petrochemicals businesses. We produce NGLs from APG at our own GFUs and GPPs and also purchase them from third parties.

To ensure sufficient feedstock volumes for our processing and production capacities, we work continuously with all the largest oil and gas producers in Western Siberia.

Associated petroleum gas (APG). Natural gas liquids (NGLs).

Multi-year supply contracts increase the predictability of feedstock pricing and volumes and enable better operating expense planning:

Share of our JV partners in APG purchases within JVs

Purchases from JV partners within JVs

APG RAW NGL

SOURCING

22.421.5

20.819.6

22.8

22.3

20182017

22.3

201620152014

19.4

21.2

21.92.8

3.4 3.5

20182017

3.0

20162015

2.6

2014

2.2

APG, BLN CUBIC METRES

NGLs, MLN TONNES

15.4years

13.6years92 77


Annual Review 2018

www.sibur.ru/en

C1 C5C4C3C2 C7+C6

C1 C5C4C3C2 C7+C6

C1 C5C4C3C2 C7+C6

Core products of oil and

gas companies

APG/gas condensate

Raw NGL

Natural gas LPG Naphtha Oil

Methane(gas)

Ethane(gas)

Heavy fractions

Pentaneisopentane

(liquid)

Propane (gas/liquid)

Butaneisobutane

(gas/liquid)

Hexane(liquid)

OIL FIELD GAS FIELD

FEEDSTOCK TRENDS IN WESTERN SIBERIA

FEEDSTOCK OVERVIEW

APG and gas condensate are composed of the same fractions but in different proportions.

OUTLOOK FOR RUSSIAN CRUDE OIL PRODUCTION, MLN TONNES

OUTLOOK FOR RUSSIAN APG PRODUCTION, BLN CUBIC METRES

59

HOW

WE

CREA

TE V

ALUE

SIBURAnnual Review 2017

HOW WE SUSTAIN VALUE FINANCIAL INFORMATION ADDITIONAL INFO

https://www.sibur.ru/en/

FEEDSTOCK PRICING

APG

APG prices are negotiated by agreement between parties. There is no regulated or market price due to the limited options for oil producers to use APG. The base price for APG depends on target liquid fractions content, distance of an APG source from our GPPs, availability of collection and transportation infrastructure and costs to construct and maintain it.

We have two types of APG purchase contracts:

• APG price once agreed upon in absolute terms is typically regularly indexed to reflect changes in FAS regulated prices for natural gas;

• For our contract with Rosneft, the APG price is indexed in line with changes

NGLs

Our NGLs feedstock is typically priced with reference to international prices for LPG and naphtha, and to a lesser extent to domestic LPG prices, while prices for raw NGL, depending on its composition, are largely correlated with prices for LPG and naphtha. As the supply of NGLs exceeds demand in Russia and particularly in Western Siberia, prices for NGLs are determined on an export netback basis, which reflects transportation costs and export duties. Pricing in NGLs supply contracts is determined by the respective netbacks and reflects the fraction content of NGLs, cost of fractionation, capital expenditures required to construct and maintain infrastructure, and alternative selling channels available for NGLs supplier.


The outlook for APG production mostly follows the trend of Russian oil production, which is stable in mature production areas like Western Siberia according to Wood Mackenzie estimates.

The following charts provide an outlook for Russian crude oil and APG production:

Given the maturity profile of oil fields, the concentration of liquid fractions in the APG may decline, but we expect this trend to be partially offset by a higher liquids recovery ratio. In recent years we substantially expanded our raw NGL transportation infrastructure to match the production growth at our suppliers’ gas fields in

Going forward, we do not expect significant increases in NGLs feedstock supplied volumes; however we do expect to process an increasing portion of NGLs into petrochemicals as we expand capacity, as we currently sell approximately 65% of feedstock as raw NGLs or energy products on the open market and can use only 35% internally as raw material for higher added value petrochemicals.



Source: Wood Mackenzie.

2010 2014 2018 2022 20302026

100

200

400

500

600

2010 2014 2018 2022 20302026

20

40

60

80

100

APG SOURCING, BLN CUBIC METRES

22.8

2017

22.319.6

2013

13.9

22.4

2016

21.921.5

2015

21.220.8

2014

19.4

NGLs SOURCING, MLN TONNES

2017

3.03.6

2013

2.1

2016

3.4

2015

2.82.6

2014

2.2

share of our JV partners in APG purchases within JV purchases from JV partners within JV

19.6

2014

22.4

2017

21.5

2016

20.8

2015 2018

22.3


2010 2014 2018 2022 20302026

22.8

13.9

21.921.2

19.4

3.0

3.6

2.1

3.4

2.82.6

2.2

2014 201720162015 2018

2010 2014 2018 2022 20302026

600

500

400

300

200

100

100

80

60

40

20

59

HOW

WE

CREA

TE V

ALUE

SIBURAnnual Review 2017

HOW WE SUSTAIN VALUE FINANCIAL INFORMATION ADDITIONAL INFO

https://www.sibur.ru/en/

FEEDSTOCK PRICING

APG

APG prices are negotiated by agreement between parties. There is no regulated or market price due to the limited options for oil producers to use APG. The base price for APG depends on target liquid fractions content, distance of an APG source from our GPPs, availability of collection and transportation infrastructure and costs to construct and maintain it.

We have two types of APG purchase contracts:

• APG price once agreed upon in absolute terms is typically regularly indexed to reflect changes in FAS regulated prices for natural gas;

• For our contract with Rosneft, the APG price is indexed in line with changes

NGLs

Our NGLs feedstock is typically priced with reference to international prices for LPG and naphtha, and to a lesser extent to domestic LPG prices, while prices for raw NGL, depending on its composition, are largely correlated with prices for LPG and naphtha. As the supply of NGLs exceeds demand in Russia and particularly in Western Siberia, prices for NGLs are determined on an export netback basis, which reflects transportation costs and export duties. Pricing in NGLs supply contracts is determined by the respective netbacks and reflects the fraction content of NGLs, cost of fractionation, capital expenditures required to construct and maintain infrastructure, and alternative selling channels available for NGLs supplier.


The outlook for APG production mostly follows the trend of Russian oil production, which is stable in mature production areas like Western Siberia according to Wood Mackenzie estimates.

The following charts provide an outlook for Russian crude oil and APG production:

Given the maturity profile of oil fields, the concentration of liquid fractions in the APG may decline, but we expect this trend to be partially offset by a higher liquids recovery ratio. In recent years we substantially expanded our raw NGL transportation infrastructure to match the production growth at our suppliers’ gas fields in

Going forward, we do not expect significant increases in NGLs feedstock supplied volumes; however we do expect to process an increasing portion of NGLs into petrochemicals as we expand capacity, as we currently sell approximately 65% of feedstock as raw NGLs or energy products on the open market and can use only 35% internally as raw material for higher added value petrochemicals.




2010 2014 2018 2022 20302026

100

200

400

500

600

2010 2014 2018 2022 20302026

20

40

60

80

100

APG SOURCING, BLN CUBIC METRES

22.8

2017

22.319.6

2013

13.9

22.4

2016

21.921.5

2015

21.220.8

2014

19.4

NGLs SOURCING, MLN TONNES

2017

3.03.6

2013

2.1

2016

3.4

2015

2.82.6

2014

2.2

share of our JV partners in APG purchases within JV purchases from JV partners within JV

19.6

2014

22.4

2017

21.5

2016

20.8

2015 2018

22.3


2010 2014 2018 2022 20302026

22.8

13.9

21.921.2

19.4

3.0

3.6

2.1

3.4

2.82.6

2.2

2014 201720162015 2018

2010 2014 2018 2022 20302026

600

500

400

300

200

100

100

80

60

40

20

The outlook for APG production mostly follows the trend of Russian oil production, which, according to Wood Mackenzie estimates, is stable in mature production areas like Western Siberia.

Given the maturity profile of oil fields, the concentration of liquid fractions in APG may decline, but we expect this trend to be partially offset by a higher liquids recovery ratio. In recent years, we substantially expanded our raw NGL transportation infrastructure to match the production growth at our suppliers’ gas fields in the northern part of Western Siberia.

Petrochemical feedstock

THE FOLLOWING CHARTS PROVIDE AN OUTLOOK FOR RUSSIAN CRUDE OIL AND APG PRODUCTION:

Since then, we have not been expecting a significant increase in the volume of NGL feedstock supplied; however, we do expect to process an increasing portion of NGLs into petrochemicals as we expand capacity, since we currently sell approximately 65% of our feedstock in the open market as raw NGLs or energy products and can use only 35% internally for higher-added-value petrochemicals.


48

Annual Review 2018

27

73

Our Business

The products of SIBUR’s Midstream segment, including LPG, naphtha and natural gas, are sold primarily to customers in the utilities, fuels and petrochemicals industries both in Russia and internationally. The majority of available raw NGL is used internally as petrochemical feedstock and raw materials for LPG and naphtha.

In 2018, our revenue from our Midstream segment amounted to RUB 240,818 million, an increase of 31% year-on-year, representing 42% of total Group revenue for 2018.

Domestic sales accounted for 42% of total revenue from sales of Midstream products, while 58% of revenue was attributable to exports.

LPG, naphtha and raw NGL are used as feedstock for internal processing into petrochemical products and sold externally.

BY PRODUCT

BY CONTRACT/SPOT

BY REGION

BY KEY END-CUSTOMER INDUSTRY

LPG 63% Natural gas 20% Naphtha 16%

Other sales 1%

Petrochemicals 53%Utilities and fuels 28%Traders and other 19%

Europe 57%Russia 42%Asia, CIS and other 1%

Contract 73%Spot 27%

MIDSTREAM REVENUE SPLIT (2018)

20

16

1

63

1

5742

28

19

53

Midstream


Annual Review 2018

www.sibur.ru/en

Product Production site Location

Nameplate capacity as of 31 December Capacity utilisation

2018 2017 2018 2017

PROCESSING CAPACITY, BILLION CUBIC METRES OF APG

Natural gas

Raw NGL

Naphtha

LPG

Gas processing plants (GPPs)

Khanty-Mansi Autonomous Area

Yamal-Nenets Autonomous Area25.4 25.4 86% 90%

PROCESSING CAPACITY, MILLION TONNES OF RAW NGL

LPG

NaphthaGas fractionation units (GFUs)

Tobolsk

Perm Perm Region

9.5 9.5 94% 92%

Including Yuzhno-Priobskiy GPP, which is operated as a JV with Gazprom Neft. SIBUR utilizes fractionation capacities of Uralorgsintez divested in April 2017 under a long-term processing arrangement.

M

P&OS

MTBE

I&OC

SIBUR-HIMPROM

I&OC MTBE

O&PM

M

SIBUR TOBOLSK

YUZHNO-BALYKSKIY GPPM

YUZHNO-PRIOBSKIY GPP

M

NIZHNEVARTOVSKIY GPP

M

BELOZERNIY GPP

M

VYNGAPUROVSKIY GPP

M

GUBKINSKIY GPP

M

MURAVLENKOVSKIY GPP

M

NYAGAN GPP

М Midstream


P&OS Plastics & organic synthesis

I&OC Intermediates & other chemicals

MTBE MTBE & fuel additivesFacilities operated under joint ventures

42%

of total Group revenue

63%

of total Group EBITDA

43%

EBITDA margin

34%

of volumes of NGLs available for sale are supplied as feedstock for petrochemicals


50

Annual Review 2018

7,626

20182017

7,481

2016

6,9256,510

2015

5,122

2014

Liquified Petroleum Gases (LPG)

Our Business

Midstream

PRODUCT DESCRIPTION

LPG refers primarily to propane (C3), butane and isobutane (C4) or propane-butane mixtures and is produced by fractionating raw NGL at our GFUs.

27% of total Group revenue

63% of Midstream revenue

24% of volumes available for sale are used internally as feedstock for petrochemicals production

PRODUCTION VOLUMES,

7,626‘000 tonnes

REVENUE SPLIT BY MARKET, %

REVENUE FROM SALES, RUB152

bln

152

20182017

111

2016

8983

2015

77

2014

71

26

2 1


CIS 1%

KEY APPLICATIONS

Motor fuel, feedstock for petrochemicals, utilities.

SALES

We sell LPG externally and also supply it as feedstock to our petrochemicals production facilities.

Including volumes under processing arrangements.

2% 37%


Annual Review 2018

www.sibur.ru/en

Naphtha

Midstream

Our Business



54% of volumes available for sale are used internally as feedstock for petrochemicals production

PRODUCTION VOLUMES,

1,490 ‘000 tonnes



bln

Russia 24%Europe 75%CIS 1%

KEY APPLICATIONS

Feedstock for energy and petrochemicals industries.

SALES

We sell naphtha externally and supply it as feedstock to our petrochemicals production facilities.

PRODUCT DESCRIPTION

Naphtha (C5+) refers primarily to pentane, isopentane, hexane or heavier fraction hydrocarbons and is produced by fractionating raw NGL at our GFUs.

1,490

20182017

1,495

2016

1,526

1,479

2015

1,460

2014

38

20182017

24

2016

2731

2015

27

2014

24

1

75

Including volumes under processing arrangements. Net of revenue from trading operations via Ust-Luga in the amount of RUB 42 bln, ceased in 2015.

57%


52

Annual Review 2018

Natural Gas





bln

Russia 100%

Our Business

SALES

We sell natural gas to Russian oil and gas companies and, to a limited extent, to Russian regional and municipal power companies. Natural gas is not used as feedstock for our petrochemicals business but only as fuel at our GPPs and for our own heat and power generation.

PRODUCT DESCRIPTION

Natural gas comprises methane (C1) and ethane (C2). SIBUR produces natural gas at its GPPs by processing APG purchased from oil companies, which we separate into natural gas and raw NGL.

KEY APPLICATIONS

Utilities.

19

20182017

1919

2016

18

2015

17

2014

49

20182017

47

2016

4643

2015

38

2014

100

3%

JVs’ share of production volumes

Midstream

PRODUCTION VOLUMES,

19 bln cubic metres


Annual Review 2018

www.sibur.ru/en

Raw Natural Gas Liquids (Raw NGL)

100% of volumes available for sale used internally as feedstock for petrochemicals production

PRODUCTION VOLUMES,

5,417 ‘000 tonnes

REVENUE FROM SALES, RUB bln

Our Business

KEY APPLICATIONS

Petrochemicals.

SALES

We use raw NGL primarily for internal fractionation into energy products and as feedstock at our own petrochemicals facilities without prior fractionation.

PRODUCT DESCRIPTION

Raw NGL represents a wide mixture of hydrocarbon fractions, ranging from C3 to C6 (propane, butane, isobutane, pentane, isopentane, and hexane), which are produced at GPPs by processing APG and separating it into natural gas and raw NGL.

APG PROCESSING RESULTS IN NEGATIVE CO2 FOOTPRINT

SIBUR helps to reduce CO2 emissions stemming from the burning of oil extraction by-products, such as APG, by recycling them instead. In 2018, SIBUR processed 22.8 billion cubic metres of APG, thus cutting greenhouse-gas emissions by 72 million tonnes, which is equivalent to the annual CO2 footprint of a medium-sized European country.

5,417

20182017

5,402

5,248

2016

5,223

2015

4,823

2014–

20182017

0

2016

34

2015

10

2014

95% fractionated into energy products from produced and purchased volumes

JVs’ share of production volumes

Midstream

3.7 mtpetrochemicals

APG

22.3 bcmflaring

CO2 emissions

Gross sales volumes.


54

Annual Review 2018

11

10

10

69

Our Business

SIBUR’s Olefins & Polyolefins segment comprises polypropylene, polyethylene, BOPP films, as well as olefins represented by propylene and ethylene produced at our sites in Kstovo, Tomsk and Tobolsk. Polyolefins are sold primarily to customers in the fast-moving consumer goods (FMCG), construction and chemical industries in both domestic and external markets. The majority of olefins are used to produce higher-value-added petrochemical products and are sold in Russia, primarily to RusVinyl.

In 2018, our revenue from Olefins & Polyolefins totalled RUB 100,862 million, a 14% increase year-on-year, and accounted for 18% of total Group revenue for 2018. Domestic sales accounted for 69% of total revenue from Olefins & Polyolefins sales, while 31% of revenue was attributable to exports.

BY PRODUCT

BY CONTRACT/SPOT

BY REGION


PP 48%PE (LDPE) 20%BOPP films 18%

Olefins 8%

Other 6%


Russia 69%CIS 11%Europe 10%

Asia 10%

Packaging 39%FMCG 23%Construction 10%

Chemicals 10%

Hygiene products 9%

Other 9%

OLEFINS & POLYOLEFINS REVENUE SPLIT (2018)

20

18

86

48

37

6323

10

10

9

9

39



Annual Review 2018

www.sibur.ru/en

Product Production site LocationNameplate capacity (tonnes)

as of 31 December Capacity utilisation

2018 2017 2018 2017

PE (LDPE) Tomskneftekhim Tomsk 270,000 270,000 95% 101%

PP SIBUR Tobolsk Tomskneftekhim

Tobolsk Tomsk 640,000 640,000 90% 102%

PP NPP Neftekhimia (non-consolidated JV) Moscow 140,700 130,000 103% 81%

PP Poliom (non-consolidated JV) Omsk 218,400 210,000 98% 98%

BOPP films BIAXPLEN group of companies

Samara region Moscow region Kursk Nizhniy Novgorod region

184,600 184,600 83% 84%

Ethylene Tomskneftekhim SIBUR-Kstovo

Tomsk Nizhniy Novgorod region 684,000 684,000 95% 96%

PropyleneSIBUR Tobolsk Tomskneftekhim SIBUR-Kstovo

Tobolsk Tomsk Nizhniy Novgorod region

829,000 829,000 84% 99%

PVC RusVinyl (non-consolidated JV) Nizhniy Novgorod region 330,000 330,000 102% 95%

Benzene SIBUR-Kstovo Nizhniy Novgorod region 96,000 96,000 77% 81%

Caustic soda RusVinyl (non-consolidated JV) Nizhniy Novgorod region 225,000 225,000 97% 92%

P&OS

O&P

O&P

BIAXPLEN

RUSVINYL

BIAXPLEN

I&OC MTBE

O&PM

SIBUR TOBOLSK

O&PI&OC

SIBUR-KSTOVOBIAXPLEN

POLIOM

O&P

BIAXPLEN

O&P

TOMSKNEFTEKHIM

NPP NEFTEKHIMIA

O&P

O&P

O&PSamara region

Nizhniy Novgorod regionKursk

Moscow region

18%


19%


29%

EBITDA margin

37%

of petrochemical business revenue

52%

of petrochemical business EBITDA

М Midstream




MTBE MTBE & fuel additivesFacilities operated under joint ventures


56

Annual Review 2018


Our Business

PRODUCT DESCRIPTION

SIBUR’s Olefins & Polyolefins include polypropylene (PP) and polyethylene (LDPE), BOPP films and olefins.

PP and LDPE are granulated thermoplastic polymers that are derived from polymerisation of olefins – propylene and ethylene, respectively – that are produced internally.

BOPP films include coextruded, coated, non-heat-sealable or homopolymer films in a variety of finishes.

KEY APPLICATIONS PRODUCTION VOLUMES,

2,339 ‘000 tonnes

1,779

2014

1,004

120260

395

2,182

2015

1,264

154248516

2,379

2016

1,380

160246593

2,558

2017

1,478

155273

652

2,339

2018

1,351

153256

579

52

2014

21

1115

23

75

2015

34

17

19

32

2016

8735

19

21

39

2017

8826

17

21

42

101

2018

6818

21

48

PPPE (LDPE)BOPP filmsOlefins

PPPE (LDPE)BOPP filmsOlefinsOther sales

SALES

We sell polyolefins to external clients in Russia and abroad and also use certain volumes of PP internally in the production of BOPP films.

While some olefins are sold externally to other petrochemicals companies, we process most of the volumes internally into higher-value-added petrochemicals products.

3

1

4

2

PP Consumer goods, packaging, BOPP films, hygiene products, pipes, fibres and automotive components.

LDPE Consumer goods, coating materials for the electrotechnical and energy industry, film for the agriculture industry, various types of packaging.

BOPP FILMS Packaging and production of labels and adhesive tapes.

OLEFINS Production of PP and LDPE.

14%

9%


REVENUE FROM SALES, RUB101bln


Annual Review 2018

www.sibur.ru/en

USING PLASTICS HELPS TO:

Production of plastic bags requires

40% LESSenergy

The production of plastic bags consumes

33 TIMES LESS water than the production of paper bags

And generates

80% LESSsolid wastethan paper bags

The use of PLASTIC BAGS in Russia prevents the CUTTING DOWN OF 15 MILLION TREES every year that would be necessary for the production of paper bags, which thereby increases the ABSORPTION OF CO2 BY ABOUT 14 THOUSAND TONNES PER YEAR.

of all food products are preserved during

transportation through the use of plastic

packaging

of all food products are preserved during

transportation through the use

of plastic packaging

97%50%

In the production of PAPER BAGS, 70% MORE CO2 is released than in the production of plastic bags.

REDUCE ENERGY USE

KEEP THE AIR CLEAN

SUPPORT FOODS SAVINGS

REDUCE WATER USE

EXTENDED SHELF LIFE

3 хVS 3 х

5 х 3 х

2 х 182 х

3

1

4

2


58

Annual Review 2018

Within the Plastics, Elastomers & Intermediates segment, we produce (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; and (iii) MTBE and fuel additives, which are sold externally. The segment also produces intermediates, which are primarily used internally, with a small share being sold in the market.

Each of these product groups has particular characteristics and distinct market fundamentals; however, they are all sold to industrial customers in key end markets, such as chemicals, utilities and fuels, automotive, FMCG, construction and other sectors.

In 2018, SIBUR’s Plastics, Elastomers & Intermediates segment’s external revenue increased by 16% to RUB 171,003 million. Domestic sales accounted for 64% of total revenue from Plastics, Elastomers & Intermediates sales, while 36% of revenue was attributable to exports.

We use a large portion of intermediates and other chemicals internally for processing into higher-value-added petrochemical products. SIBUR’s balanced business model enables us to change the composition of our feedstock and product mix to optimise purchasing, production, sales and logistics in order to maximise our blended margins.

BY PRODUCT

BY CONTRACT/SPOT

BY REGION


Plastics & organic synthesis products 35%Elastomers 32%MTBE & fuel additives 17%

Intermediates & other chemicals 15%

Other 1%


CIS 8%

Other 2%

Chemicals 23%Automotive 16%Fuels 15%

FMCG 15%

Construction 14%

Traders and other 17%

PLASTICS, ELASTOMERS & INTERMEDIATES REVENUE SPLIT

32

17

15

1

3518

9

8

2

64

2316

1515

14

17


Our Business


37

63


Annual Review 2018

www.sibur.ru/en

Product Production site LocationNameplate capacity (tonnes)

as of 31 December Capacity utilisation

2018 2017 2018 2017

ELASTOMERS 580,800 572,300 88% 85%

Commodity rubbers SIBUR Togliatti VoronezhSintezKauchuk

Togliatti Voronezh 374,800 369,800 86% 82%

Specialty rubbers Krasnoyarskiy ZSK SIBUR Togliatti

Krasnoyarsk Togliatti 121,000 117,500 88% 90%

Thermoplastic elastomers VoronezhSintezKauchuk Voronezh 85,000 85,000 93% 91%PLASTICS AND ORGANIC SYNTHESIS PRODUCTS 972,288 964,061 95% 94%

PET Polief SIBUR-PET

Blagoveshchensk (Bashkortostan) Tver 327,300 327,250 89% 91%

Glycols SIBUR-Neftekhim Nizhniy Novgorod region 308,900 308,900 98% 101%

Alcohols SIBUR-Himprom Perm 164,700 164,700 104% 90%

Expandable polystyrene SIBUR-Himprom Perm 100,000 100,000 105% 98%

Acrylates SIBUR-Neftekhim Nizhniy Novgorod region 71,388 63,211 73% 77%INTERMEDIATES AND OTHER CHEMICALS

Propylene SIBUR-Himprom Perm 96,500 96,500 69% 69%

Ethylene SIBUR-Himprom Perm 60,000 60,000 95% 87%

Butadiene SIBUR Tobolsk SIBUR Togliatti

Tobolsk Togliatti 287,000 287,000 99% 96%

Benzene Uralorgsintez Perm region 95,000 95,000 86% 88%

Isoprene SIBUR Togliatti Togliatti 90,000 90,000 93% 85%

Styrene SIBUR-Himprom Plastic

Perm Tula region 200,000 195,000 92% 91%

Ethylene oxide SIBUR-Neftekhim Nizhniy Novgorod region 324,000 324,000 93% 97%

Terephthalic acid Polief Blagoveshchensk (Bashkortostan) 271,788 271,788 99% 99%

MTBE AND FUEL ADDITIVES

MTBE

Uralorgsintez SIBUR Tobolsk SIBUR Togliatti SIBUR-Himprom

Perm region Tobolsk Togliatti Perm

390,000 390,000 84% 79%

Plastic divested in December 2013 produces styrene for SIBUR under a processing arrangement. Uralorgsintez divested in April 2017 produces benzene and up to 65,000 tpa of MTBE for SIBUR under a processing arrangement.

P&OS I&OC

P&OS

EO&P

M

P&OS

MTBE

I&OC

I&OC MTBE

E

SIBUR-HIMPROM

SIBUR TOGLIATTI

POLIEF

P&OS I&OC

SIBUR-NEFTEKHIM

SIBUR-PET

I&OC MTBE

O&PM

SIBUR TOBOLSK

O&PI&OC

SIBUR-KSTOVO

E

VORONEZH-SINTEZKAUCHUK

KRASNOYARSKIY ZSKTOMSKNEFTEKHIM

30%


17%


20%

EBITDA margin

63%

of petrochemical business revenue

48%

of petrochemical business EBITDA

М Midstream




MTBE MTBE & fuel additives

E Elastomers


60

Annual Review 2018

KEY APPLICATIONSPRODUCT

Plastics & Organic Synthesis Products

SALES

We sell these products to external customers in a variety of industries in Russia and abroad with a strong focus on the domestic market for the majority of the products, and we also use certain volumes internally, primarily in the production of higher-value-added products.

PRODUCT DESCRIPTION

SIBUR produces plastics and organic synthesis products primarily from ethylene and propylene derivatives, as well as a wide range of intermediates, which we also produce as part of our value chain.


1

4

2

5

3PET 41%Glycols 20%EPS 17%

Alcohols 14%

Acrylates 9%

Russia 77%CIS 11%Europe 9%

Asia 2%

Other 1%

REVENUE SPLIT BY PRODUCT, %

PET is a thermoplastic polymer resin of the polyester family.

GLYCOLS include mono-ethylene glycol, diethylene glycol and triethylene glycol.

EXPANDABLE POLYSTYRENE is a granulated polymer produced from styrene monomer.

ALCOHOLS include 2-ethylhexanol, butyl alcohol and isobutyl alcohol.

ACRYLATES comprises ethers of acrylic acid, butyl, methyl and 2-ethylhexyl.

Packaging for beverages and food, other containers.

PET, polyester fibre, de-icing liquids, cooling and antifreeze liquids, extragent for aromatic hydrocarbons and reagent for drying natural gas.

Production of thermoinsulation blocks, packaging materials as well as for decorative elements.

Production of plasticisers, acetates, acrylates, oil additives, as solvents for plastics and varnish, as antifoaming agent, as well as a component for perfume compounds.

Production of acrylic emulsions, superabsorbents, building mixes and adhesives used in the construction and textile industries.

20

16

14

9

41

2 1

9

11

77


Our Business

60


Annual Review 2018

www.sibur.ru/en

11%of total Group revenue

35%of Plastics, Elastomers & Intermediates revenue

22%of petrochemical businesses revenue

Source: Table D-1, Franklin Associates, Green Lifestyle Magazine, The Container Recycling Institute, Columbia University Fu Foundation School of Engineering and Applied Science.

IN TERMS OF CO2 EMISSIONS, consumption of energy and water, emissions and waste generated, PRODUCTION OF POLYMERS AND OTHER PETROCHEMICALS IS MORE ENVIRONMENTALLY FRIENDLY than production of comparable materials, including metals and paper

ECO-FRIENDLINESS OF PRODUCTS AND RECYCLABILITY

Energy consumption for the production of one item with a volume of 355 ml

0.9 W*h 0.63 W*h 0.58 W*h

Recycling potential

100% Up to 80% 100%Decomposition time

500 years >1,000 years 300 years

Air emissions CO2 equivalent

1.2 kg 2.2 kg 0.5 kg

The Company IMPLEMENTS PRINCIPLES OF A CIRCULAR ECONOMY, contributing to the development of polymers recycling

SIBUR’s products have ENVIRONMENTAL BENEFITS and a SMALL CARBON FOOTPRINT


bln PRODUCTION VOLUMES,

923 ‘000 tonnes

3% 27%

Due to the introduction of a new segment breakdown, figures are available for 2014–2018 only.

923

20182017

894

2016

900

869

2015

780

2014

60

20182017

47

2016

4647

2015

35

2014


Annual Review 2018

www.sibur.ru/en



PLASTIC IS COMPLETELY RECYCLABLE.

EXAMPLES OF THE RECYCLING OF PLASTIC BOTTLES

15 х 48 х

2 х 7 х 1 х

Х 1 tonne

The following items can be made from 1 tonne of waste

from plastic bottles:

400 sleeping bags

furniture fabric for

200 sofas

450 m2 of carpet

insulation for

750 winter jackets

4,300 m2

of road materials

800 m2

of canvas

covers for

200 cars

Plastics & Organic Synthesis Products (continued)


Our Business

62

Annual Review 2018

MTBE and Fuel Additives

Our Business

17% of Plastics, Elastomers & Intermediates revenue

11% petrochemical business revenue



bln

MTBE 86%Other fuels and fuel additives 14%

-8%

29%

PRODUCT DESCRIPTION

МТBE is a fuel additive that is used to increase the octane level in gasoline and is produced from the reaction of methanol with isobutylene fraction.

KEY APPLICATIONS

Motor fuel.

SALES

We sell 100% of MTBE externally to oil refineries in Russia and abroad.

14

8621

10

11

67

722

20182017

786

2016

730

674

2015

656

2014

30

20182017

23

2016

2325

2015

23

2014

Russia 67%Europe 21%CIS 10%Asia 1%Other 1%


PRODUCTION VOLUMES,

722 ‘000 tonnes



Annual Review 2018

www.sibur.ru/en




64

Annual Review 2018

Elastomers

Our Business


20% of petrochemical business revenue



bln

4%6%

PRODUCTION VOLUMES,

504 ‘000 tonnes

SALES

We sell 100% of rubbers to external customers both in Russia and abroad.

PRODUCT DESCRIPTION

Elastomers comprise commodity rubbers, specialty rubbers and thermoplastic elastomers (SBS). Commodity rubbers have elastic and other properties that are somewhat similar to natural rubbers. Some specialty rubbers are characterised by oil and petrol resistance, gas impermeability, in addition to basic rubber properties. Thermoplastic elastomers demonstrate both thermoplastic and elastomeric properties.


Commodity rubbers 57%Specialty rubbers 23%Thermoplastic elastomers 20%

23

20

57

504

20182017

485

2016

445409

2015

353

2014

55

20182017

52

2016

3935

2015

28

2014


29

24

64

37


CIS 6%

Other 4%

KEY APPLICATIONS

3

1

2

COMMODITY RUBBERS Tyres, mechanical rubber goods for automotive and machine-building industries, asbestos technical (frictional) goods and adhesives, footwear.

SPECIALTY RUBBERS Tyre inner tubes and vulcanising diaphragms, mechanical rubber goods for asbestos technical (frictional) goods and adhesives, footwear.

THERMOPLASTIC ELASTOMERS Construction, healthcare, automotive, electronics and footwear.

Annual Review 2018



Annual Review 2018

www.sibur.ru/en

3,767

20182017

3,597

2016

3,658

3,481

2015

3,229

2014

Intermediates and Other Chemicals

Our Business


9% of petrochemical business revenue



PRODUCT DESCRIPTION

Intermediates and other chemicals primarily comprise styrene, benzene, propylene, ethylene oxide, terephthalic acid, butadiene, isoprene, isobutylene and others and are produced primarily from raw NGL, LPG and naphtha.

5% 7%

Russia 81%Europe 13%CIS 5%Asia 1%

PRODUCTION VOLUMES,

3,767 ‘000 tonnes

135

1

81

25

20182017

23

2016

2119

2015

18

2014


bln

KEY APPLICATIONS

These chemicals are primarily used internally for processing into higher-value-added petrochemical products.

SALES

We also sell these products externally, primarily to other petrochemicals companies.

Please note that total production volumes of intermediates and other chemicals includes double counting


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Annual Review 2018

Our Business

Consolidationof naphtha flows

2.3 mt

Stranded APG purchased from oilcompanies processed by SIBUR’s GPPsto produce natural gas and raw NGL

APG

LPG

Raw NGL produced internally or purchasedfrom oil and gas companies fractionatedat SIBUR GFUs into LPG and naphtha

RAW NGL

LPG and naphtha produced internally or purchased from oil and gas companies as petrochemical feedstock

LPG and naphtha produced internallyor purchased from oil and gas companiesas petrochemical feedstock

NAPHTHA

Methanol used in MTBE productionParaxylene used in TPA production

METHANOL, PARAXYLENE & OTHER

0.8 mtnaphthapurchased

1.5 mt naphtha

produced

LPG produced6.4 mt

0.7 mtmtLPG purchased

2.7 mtraw NGLpurchased 76%

5%

95%

24%

56%

77%

9%

14%

5.4 mtraw NGLproduced

19.4 bcmnatural gas produced

Intermediates polymerised or otherwiseprocessed into higher-value-addedpetrochemical products

INTERMEDIATES

Depending on local market balances andlogistical constraints, we purchase certainvolumes of petrochemical productsfor further resale

TRADING

22.3 bcm

18.5 bcm

natural gas

5.4 mt

LPG

1.2 mt

olefins & polyolefins

0.5 mt

elastomers

0.8 mt

plastics & organicsynthesis

0.4 mtmethanol purchased

4.5 mt*intermediates processed internally

MIDSTREAM

Share of external revenueSales volumes

Other revenue represented 9%of external revenue in 2018

LPG, naphtha andraw NGL processedat SIBUR’s crackers/PDHfacility into a widerange of intermediatepetrochemical products

Cracking/dehydrogenation/

other chemicalprocessing

Intermediatesproduced5.1 mt*

Consolidationof LPG flows

7.1 mt

44%

* Gross volumes

1.0 mt

naphtha

0.7 mt

MTBE & fuel additives

FMCGConstructionChemicals


Utilities

FuelsPetrochemicalsUtilities

AutomotiveConstruction

PetrochemicalsFuels

FuelsFuel additivesand components

Chemicals0.5 mt

intermediates

Oilcompanies

Gascompanies

9%

27%



7%

5%

4%

11%

10%

18%

Gasprocessing

Consolidationof raw NGL

flows8.1 mt

Raw NGL fractionation

7.7 mt

Polymerisation & other processing

ILLUSTRATIVE

Used to produce energy products

Petrochemicals sold externally

Used to produce petrochemicals

Midstream products sold externally

SUPPLIERS PROCESSING & PRODUCTION CUSTOMERS

Value Chain


Annual Review 2018

www.sibur.ru/en

Consolidationof naphtha flows

2.3 mt

Stranded APG purchased from oilcompanies processed by SIBUR’s GPPsto produce natural gas and raw NGL

APG

LPG

Raw NGL produced internally or purchasedfrom oil and gas companies fractionatedat SIBUR GFUs into LPG and naphtha

RAW NGL

LPG and naphtha produced internally or purchased from oil and gas companies as petrochemical feedstock

LPG and naphtha produced internallyor purchased from oil and gas companiesas petrochemical feedstock

NAPHTHA

Methanol used in MTBE productionParaxylene used in TPA production

METHANOL, PARAXYLENE & OTHER

0.8 mtnaphthapurchased

1.5 mt naphtha

produced

LPG produced6.4 mt

0.7 mtmtLPG purchased

2.7 mtraw NGLpurchased 76%

5%

95%

24%

56%

77%

9%

14%

5.4 mtraw NGLproduced

19.4 bcmnatural gas produced

Intermediates polymerised or otherwiseprocessed into higher-value-addedpetrochemical products

INTERMEDIATES

Depending on local market balances andlogistical constraints, we purchase certainvolumes of petrochemical productsfor further resale

TRADING

22.3 bcm

18.5 bcm

natural gas

5.4 mt

LPG

1.2 mt

olefins & polyolefins

0.5 mt

elastomers

0.8 mt

plastics & organicsynthesis

0.4 mtmethanol purchased

4.5 mt*intermediates processed internally

MIDSTREAM

Share of external revenueSales volumes

Other revenue represented 9%of external revenue in 2018

LPG, naphtha andraw NGL processedat SIBUR’s crackers/PDHfacility into a widerange of intermediatepetrochemical products

Cracking/dehydrogenation/

other chemicalprocessing

Intermediatesproduced5.1 mt*

Consolidationof LPG flows

7.1 mt

44%

* Gross volumes

1.0 mt

naphtha

0.7 mt

MTBE & fuel additives



Utilities

FuelsPetrochemicalsUtilities

AutomotiveConstruction

PetrochemicalsFuels

FuelsFuel additivesand components

Chemicals0.5 mt

intermediates

Oilcompanies

Gascompanies

9%

27%



7%

5%

4%

11%

10%

18%

Gasprocessing

Consolidationof raw NGL

flows8.1 mt

Raw NGL fractionation

7.7 mt

Polymerisation & other processing

ILLUSTRATIVE

Used to produce energy products

Petrochemicals sold externally

Used to produce petrochemicals

Midstream products sold externally

SUPPLIERS PROCESSING & PRODUCTION CUSTOMERS


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Annual Review 2018

cracking

gas processing

fractionation

cracking

oxidation

alkylation

hydration

polymerisation

catalytic oxidation

liquid-state, solid-statepolycondensation

dehydrogenation

oxoprocess

polymerisation

extrusion

cracking

cracking

catalytic oxidation

etherification

etherification

dehydrogenation

dehydrogenation

solution copolymerisation


solution polymerisation


emulsioncopolymerisation

separation

oxidation & condensation solution polymerisation

emulsion copolymerisation

hydration & dehydrogenation


APG

LDPE

PARAXYLENE ACETIC ACID NAPHTHA LPG

Crude C4

BR ND-PBRACRYLIC ACID DMD

STYRENE ISOPRENE ISOBUTYLENEETHYLBENZENEETHYLENE OXIDETPA

GLYCOLS ALCOHOLS PP

PROPYLENEBENZENE IIFETHYLENE BIF BUTADIENEMETHANOL

ALPHA-METHYLSTYRENE ACRYLONITRILE

NATURAL GASRAW NGL

PET EPS ACRYLATES IIRIRBOPP FILMS SBS SSBRESBR

ESBR NBRMTBE

ProductionFlows

Our Business

Separation

Compounding


Annual Review 2018

www.sibur.ru/en

cracking

gas processing

fractionation

cracking

oxidation

alkylation

hydration

polymerisation

catalytic oxidation

liquid-state, solid-statepolycondensation

dehydrogenation

oxoprocess

polymerisation

extrusion

cracking

cracking

catalytic oxidation

etherification

etherificationdehydrogenation

dehydrogenation



solution polymerisation


emulsioncopolymerisation

separation

oxidation & condensation solution polymerisation


hydration & dehydrogenation


APG

LDPE

PARAXYLENE ACETIC ACID NAPHTHA LPG

Crude C4

BR ND-PBRACRYLIC ACID DMD

STYRENE ISOPRENE ISOBUTYLENEETHYLBENZENEETHYLENE OXIDETPA

GLYCOLS ALCOHOLS PP

PROPYLENEBENZENE IIFETHYLENE BIF BUTADIENEMETHANOL

ALPHA-METHYLSTYRENE ACRYLONITRILE

NATURAL GASRAW NGL

PET EPS ACRYLATES IIRIRBOPP FILMS SBS SSBRESBR

ESBR NBRMTBE

Feedstock sourced by SIBUR externally

Midstream

Olefins & Polyefins



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Annual Review 2018

15

14

13

2

56


SIBUR’s main production sites are located close to our feedstock base, giving us one of our competitive advantages. At the same time, the extensive geographical spread of SIBUR’s enterprises – which are sometimes located in remote regions far from any distribution point – creates challenges for delivering our feedstock to other enterprises in the Group as well as end products to our consumers.

PIPELINES

SIBUR operates the largest and most extensive pipeline network in Western Siberia. Although not part of our logistics costs, pipelines are crucial for transportation given the geographical spread of our enterprises and significant volumes of hydrocarbon feedstock needing to be transported. Fixed costs required for the upkeep of such a network, like those of staff and maintenance expenses, are substantially lower than railway payments.

TRANSPORTATION EXCLUDING PIPELINES

Logistics plays an important role in ensuring the Company’s smooth operation and uninterrupted supplies. We use railway networks, port facilities, trucks and combined transportation services to deliver both feedstock and finished products. SIBUR’s own infrastructure (on-site railway facilities) meets part of our transportation demand, while we rely on third-party services for the rest. In 2018, external logistics costs totalled RUB 75 bln, which represents 13% of the Group’s total operational expenses. Excluding pipeline transportation, transportation volumes by other various types of transport, including transportation between the Company's enterprises, totalled 18.6 mln tonnes. Volumes transported between the Company’s enterprises accounted for 20% of total transported volumes.

TRANSPORTATION VOLUMES BY TYPE OF TRANSPORT, %

Rail transportation 56%Sea freight 15%Transshipment in ports 14%

Truck transportation 13%

Multimodal transportation services 2%

APG APG purchased from oil companies is transported via pipelines, which link oil fields and oil clusters to our GPPs. Most pipelines are owned by oil companies, but some are owned by SIBUR.

819 km

NATURAL GAS SIBUR transports the gas it produces through its own pipelines to the Unified Gas Supply System (UGSS), owned by Gazprom, and to regional power companies.

250 km

RAW NGL We transport the majority of raw NGL to our GFUs via specialised raw NGL pipelines. The Group has developed its own pipeline network that helps to secure long-term access to abundant raw NGL resources in Western Siberia.

1,643 km

Length as of 31 December 2018.

Our Business


Annual Review 2018

www.sibur.ru/en

8ships on long-term lease

RAIL

Rail is SIBUR’s most significant mode of transportation both in terms of volumes transported and costs.

The main components of rail transportation costs are:

— tariffs for access to Russia's railway network and usage of locomotives, which is regulated by the Federal Antimonopoly Service of Russia (FAS);

— cost of shipping services outside Russia;

— cost of contracted and rented rolling stock;

— cost of rolling stock maintenance.

We are evolving our logistics strategy. In 2018, we refined the model of rolling stock ownership by selling our LPG tank car fleet to Petrochemicals Transportation Company (NKhTK), a JV set up with a parity ownership split between SIBUR and the railway operator SG-trans. This deal will allow us to be more flexible in terms of the number of tanks we have, which will decrease after the launch of ZapSib, while maintaining control over current operations.

PORT FACILITIES AND SEA FREIGHT

In November 2015, SIBUR sold a terminal in the commercial port of Ust-Luga on the Baltic Sea. According to the agreement, SIBUR has long-term rights to utilise 100% of the LPG transshipment capacity on the pre-agreed terms.

We deliver LPG, naphtha and certain other products to export markets through ports in Russia and neighbouring countries (Baltic states, Finland). The largest ports are shown on the map below. In 2018, SIBUR shipped 2.4 million tonnes of LPG through the sea terminal at the port of Ust-Luga, which is under SIBUR’s operational management.

Most of the LPG was shipped in eight ice-class cargo ships with a capacity of 5,000-22,000 cubic metres each. In 2018, we started using an MGC vessel (35,000 cubic metres) for cargo transportation.

SEAPORTS BY TYPES OF PRODUCTS SHIPPED

MidstreamO&PPE&I

Riga (Latvia)

St. Petersburg (Russia)

Ust-Luga (Russia)

Nakhodka (Russia)

Vladivostok (Russia)

Taman (Russia)

Novorossiysk (Russia)

Temryuk (Russia)

Muuga (Estonia)

Kotka (Finland)

Paldiski (Estonia)

Hamina (Finland)


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Annual Review 2018

TRUCKS

We use many types of truck (box trucks, container trucks, refrigerator trucks, tank trucks and polyolefins-carrying trucks) to transport petrochemicals both within Russia and to export markets, using the services of leading Russian and foreign providers (about 11.5 thousand car dispatches per month).

Specialised vehicles are used for relatively low volumes of transportation.

MULTIMODAL TRANSPORTATION SERVICES

Multimodal transportation offers the advantage of many different types of transport and is the most convenient way to deliver large consignments of goods over medium and long distances. We use the largest multimodal transportation operators to deliver our products such as polyolefins, elastomers and liquid chemistry products in containers within Russia and to export markets.

WAREHOUSES AND DISTRIBUTION CENTRES

We use warehouses to store our petrochemical products close to both our production sites and our key customers. SIBUR has its own sales desks in Russia and abroad. In preparation for the ZapSib launch, a logistics hub for polymer products is being set up in Vorsino, in the Kaluga region.

Please see ZapSib descriptionon p. 30

Rail, specialised park for liquids

Regular transport

MIDSTREAM



KEY TYPES OF ONSHORE TRANSPORTATION BY SEGMENT

Transportation & Logistics(continued)

Our Business


Annual Review 2018

www.sibur.ru/en

Uptime is the ratio of total time during which machinery or equipment is fully operational and capable of producing end products. Uptime may exceed the nameplate capacity utilisation rate and fall below 100% due to unscheduled shutdowns, decreases in quality or volume, losses on launches or switches of production lines, and external losses, such as weather-related events, energy and feedstock supply issues, demand trends and logistical constraints. Feedstock utilisation rate at SIBUR's production assets compared to industry benchmarks.

Our approach to operational excellence is based on three pillars that provide the greatest economic impact:

— PRODUCTION UPTIME INITIATIVES aimed at increasing volumes by maximising equipment uptime;

— ENERGY OPTIMISATION INITIATIVES aimed at cutting energy consumption and improving energy intensity rates, resulting in lower production costs;

— TECHNOLOGY EFFICIENCY INITIATIVES aimed at reducing feedstock consumption and increasing operational efficiency.

An important part of our work is motivating our people to create value, so SIBUR has built the Production System of SIBUR (PSS), a company-wide tool aimed at creating a culture of continuous improvement. The overarching principle of PSS is to align our people with our strategic goals for the current year and over the medium term. PSS drives a culture of performance excellence, safety and sharing of best practices and ideas to enable sustainable efficiency gains.

In 2018, the economic effect of implemented activities amounted to RUB 7.9 billion. Forty percent of the effect was a result of measures to increase uptime, 30% was related to technology efficiency, and about 25% was due to energy-optimisation initiatives. The greatest economic impact was achieved at the SIBUR Tobolsk production site, gas processing plants in Western Siberia, and a site producing plastics in Dzerzhinsk, Nizhny Novgorod region.

We seek opportunities for efficiency enhancements among both global best practices and ideas shared by our employees. That said, the economic value of operational improvements is gradually decreasing as we narrow the gap between SIBUR's plants and international benchmarks.

— Digitalisation — Culture of performance

excellence and continuous improvement

Key Inputs and Drivers

Research by industry experts

UPTIME

Continuous reassessment of KPIs

TECHNOLOGY EFFICIENCY INDEX

Recommendations from external consultants

ENERGY INTENSITY INDEX

Diagnostics concerning PSS losses

LTIF

PSS

Clearly Defined Operational Targets (KPIs) Productivity Enhancements

KEY DRIVERS

KEY INPUTS

— Best-in-class practices — Continuous

benchmarking vs. peers

84

20182017

85

2016

8379

2015

159

20182017

173

2016

171

242

2015

98.6

20182017

98.2

2016

98.0

n/a

2015

7.9

20182017

7.3

2016

8.2

11.7

2015

7.4

20182017

5.9

2016

5.05.0

2015

UPTIME, %

ECONOMIC VALUE OF OPERATIONALINITIATIVES, RUB bln

ENERGY INTENSITY INDEX, %

EBITDA PER EMPLOYEE, RUB mlnTECHNOLOGY EFFICIENCY INDEX,

% 26%

(7) pp

Continuous Pursuit of Operational Excellence


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Annual Review 2018

Moscow

VoronezhTogliatti Perm

TomskKrasnoyarsk

State-of-the-Art Planning System

Operational complexity and embedded optionality dictate the need for sophisticated supply chain planning software

SIBUR operates a diversified operations network with a high level of geographic spread, which gives us substantial advantages but also requires a constant focus on material flow management. We have optionality in logistics, capacity utilisation, types of feedstock and sales channels, and it’s essential that we pick the right ones.

We use an SCM optimisation tool, an IT system based on the Aspen Petroleum Supply Chain Planner, which is an industrial solution designed for planning material flows to maximise marginal revenue per tonne of product given input constraints as

well as feedstock and product costs. It allows us to identify what and how to produce, as well as to select sales channels and to adjust the feedstock mix based on current market conditions and alternative utilisation methods to maximise profit margin through the whole production chain.

We are adjusting our SCM ahead of our ZapSib launch. The most important features include even more detailed planning of sales channels, detailed scheduling and inventory count with specification up to particular products' grades. These are crucial aspects that will allow us to ensure operational reliability despite the greater scale.

HIGH RELEVANCE OF DATA USED IN SALES

PRODUCTION OPTIONS

OPTIMISATION IN TWO WAYS:

OPER

ATIO

NAL

PLAN

NING

EXAM

PLES

OF

PROD

UCTI

ON O

PTIO

NS

HIGH GRANULARITY

PROCUREMENT AND SALES OPTIONS

— Medium- and short-term planning with monthly updates for 18 months and daily updates for three months

— Planning the flows of all materials and finished goods along the whole supply chain

— Detailed sales (volumes and prices) planning by regions and delivery basis

— 22 points of production optimisation and >6,000 power restrictions

— >230 finished goods; >500 clients in >80 countries — >20,000 logistics routes and constraints

LPG

PE 10 grades

PP 40 grades

Rubber 173 grades

Isobutylene

Glycols and Oxides

Propylene

Acrylates 3 grades

Alcohols 3 grades

Butadiene

MTBE

Dehydrogenation units

Crackers

Feedstock 2

Feedstock 3

Propylene

Ethylene

Butadiene

Isobutylene

Feedstock 1

V

$

Product sales options

V

$ Profits maximisation zone


Annual Review 2018

www.sibur.ru/en

Moscow

VoronezhTogliatti Perm

TomskKrasnoyarsk

SIBUR’s R&D activities primarily aim to increase the efficiency of existing production, as well as expand our product range, in particular through the development of new grades of polyolefins, elastomers, etc. In addition, SIBUR carries out strategic research aimed at creating new technologies and products for the industry.

PRODUCT PORTFOLIO EXPANSION AND UPGRADING: development of new, higher-margin grades produced by the Company (PP, PE, PET, PS, elastomers) along with the search for high-potential product niches

NEW PRODUCTS AND NEW TECHNOLOGIES: search for, and analysis of, ideas for new businesses, development of the Company’s own technologies for new products without licensors

PROCESS AND TECHNOLOGY OPTIMISATION: increased efficiency of technologies and processes used at the Company. Production process analysis, processing of ideas, implementation of R&D projects, transfer of standard solutions

CORPORATE CENTRE/BUSINESS CUSTOMER

— R&D coordination; — supervision of projects; — project portfolio management.

POLYLAB CENTRE, SKOLKOVO

— R&D developers of polyolefins grade assortment; — testing alternative additives; — tech support for polyolefins consumers.

NIOST CHEMTECH CENTRE IN TOMSK

— R&D in organic synthesis and catalysis, plastics and associated compounds; — testing alternative feestocks and materials at the Feedstock and Material Qualification Centre (FMQC); — functional management of the Company's scientific units.

ELASTOMERS CENTRE (VORONEZHSYNTEZKAUCHUK)

— R&D in synthetic rubbers (SSBR, BR, ESBR); — tech support for operations at VoronezhSyntezKauchuk and FMQC.

DEVELOPMENT AND SCALING CENTRE IN PERM (SIBUR-HIMPROM)

— R&D in catalysis and EPS; — tech support for operations at SIBUR-Himprom and FMQC.

ELASTOMERS CENTRE (SIBUR TOGLIATTI)

— R&D in synthetic rubbers (IR, butyl rubbers, emulsion rubbers); — tech support for operations at SIBUR Togliatti and FMQC.

DEVELOPMENT AND SCALING CENTRE IN KRASNOYARSK (KRASNOYARSKSYNTEZKAUCHUK)

— R&D in synthetic rubbers (butadiene nitrile and latex); — tech support for operations at KrasnoyarskSyntezKauchuk and FMQC.

3

1

2

MAIN AREAS OF R&D:

To learn more about POLYLAB, please visit: https://www.youtube.com/watch?v=gsVti1b6q-g&feature=youtu.be

POLYLAB LAUNCHED AT SKOLKOVO INNOVATION CENTRE

In May 2019, SIBUR opened PolyLAB, Russia’s first R&D centre designed to develop innovative polymers and polyolefin applications, at the Skolkovo Innovation Centre in Moscow. We will use this site to develop and test new materials and product solutions, analyse and refine their properties, customise materials to meet customers’ needs and explore opportunities to enhance polyolefin processing technologies.

>100 projects annually

> 350 employees

WORK AT OUR R&D CENTRES AND RESEARCH DEPARTMENTS AT PRODUCTION SITES

Research and Development


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Annual Review 2018

KEY PRINCIPLES OF SIBUR DIGITALISATION:

— Introduction of the MOST EFFECTIVE digital technologies successfully TESTED IN THE MARKET

— Technology applicability assessment based on SPEED OF IMPLEMENTATION and POSITIVE ECONOMIC IMPACT

— Application of FLEXIBLE project management techniques to SECURE MAXIMUM BENEFIT

— Fostering a PROPRIETARY SOFTWARE DEVELOPMENT culture

— Focus on ABILITY TO IMPLEMENT these tools and CULTURAL TRANSFORMATION

Implementation of a digital transformation programme requires world-class IT infrastructure. SIBUR has a developed corporate data management to perform data-driven decisions at all management levels. All our processes are fully automated through SAP ERP, SCM, CRM, MES and other systems.

Digital Transformation Programme

The digital transformation of companies is taking place across the entire horizontal value chain. By leveraging new technologies and smart handling of big data, we intend to transform all of our production, logistics, business and many other processes, and reach a new level of automation. We are one of the first companies to have initiated full digitalisation of our facilities and to have started implementing other elements of Industry 4.0.

KEY FOCUS ON ENHANCING OPERATIONAL EXCELLENCE

R&D

R&D 4.0: big data, machine learning

Modelling of the technology development process

PROCUREMENT

Digitalisation of the procurement process

Blockchain

End-to-end process optimisation

SUPPLY CHAIN

“Digital Twins”

Warehouse 4.0: robotics automation

Drones and unmanned aerial vehicles

Visualisation

CAPITAL CONSTRUCTION

3D design

“Digital Twins” of plants

Construction monitoring

PRODUCTION

Advanced analytics

Process digitalisation

Industry 4.0

Real-time optimisation

MARKETING AND DISTRIBUTION

New sales channels and marketplaces

Dynamic pricing

Robotics automation

Blockchain


Annual Review 2018

www.sibur.ru/en

“DIGITAL TWIN” RAILWAY STATION (digitalisation of processes)

— Management tool for optimal planning of shipments and repair management

— Allows a decrease in the number of tanks in operation and thus reduces transportation and maintenance costs

PREDICTIVE MAINTENANCE MODEL BASED ON BIG DATA TECHNOLOGY (advanced analytics)

— Aims to predict PP extruder downtime and support the technological process

— Accuracy of the model – 85% (goal >70%)

REMOTE EXPERT PLATFORM (industry 4.0)

— Aims to speed up work

— Improves the quality of work performed through advice from remote experts with the necessary content displayed on the glasses

MOBILE ROUNDS AND REPAIRS (digitalisation of processes)

— Allows an increase in the proportion of detected defects at an early stage and a decrease in the number of unplanned equipment shutdowns

— As a result, the productivity of inspectors and machinists is improved

REMOTE-PILOTED VEHICLES (industry 4.0)

— Allows for high-quality visual monitoring of pipeline conditions

— Aims to increase industrial safety and eliminate risks associated with human factors


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Annual Review 2018

Our success would not be possible without cooperation with our diverse universe of stakeholders. We operate and develop our business in constant and open dialogue with them to address their interests. In turn, our stakeholders contribute to our development and help to create value for our business.

Our cooperation with the major Russian oil and gas companies is only the most visible example of win-win partnerships. We have built the infrastructure to provide them with a profitable solution for utilising the by-products of the oil and gas extraction process and reducing harmful emissions from flaring, while securing feedstock for our business on the basis of long-term contracts. Our joint ventures, including RusVinyl, NPP Neftekhimia, Poliom and Yuzhno-Priobskyi GPP, are other examples of our collaborative growth model.

Our international partners also include China Petroleum and Chemical Corporation, or Sinopec, which purchased a 10% stake in our Company in 2015 to strengthen the opportunities driven by our complementary businesses and geographic markets. The purchase of an additional 10% stake in our Company by China’s Silk Road Fund in 2017 furthers our relationship with Chinese stakeholders.

Interaction with our stakeholders is guided by the Code of Corporate Ethics approved by the PJSC SIBUR Holding Board of Directors on 16 December 2014 (Revision No. 3).

STAKEHOLDER GROUPS

1

2

3

4

5

6

7

8

SHAREHOLDERS

EMPLOYEES

CUSTOMERS

SUPPLIERS

BUSINESS PARTNERS

CAPITAL MARKETS AND LENDERS

COMMUNITIES AND NGOs

GOVERNMENTAL AUTHORITIES Visit the COMPANY’S WEBSITE to find more information on these documents at: https://www.sibur.ru/en/about/corporate/documents/.

Stakeholders

https://www.sibur.ru/en/about/corporate/documents/



Annual Review 2018

www.sibur.ru/en

CONTRIBUTION TO SUCCESS KEY INTERACTION PRINCIPLES INTERACTION TOOLS

— provide financial capital

— run business efficiently and provide creative solutions to business challenges

— we operate our business for customers and value their feedback

— solid and reliable foundation of our business

— sharing expertise;

— provision of high-quality services at competitive pricing.

— provide investment and financing

— provide feedback on all environmental and social aspects of our business

— maintaining and improving the regulatory framework of our operations

— value creation at levels of international benchmarks;

— equal treatment;

— transparent disclosure.

— equal opportunity;

— safe working environment;

— professional development.

— gain and maintain loyalty by offering high quality, competitive pricing;

— compliance with competition and antitrust law.

— mutually beneficial cooperation;

— solution for processing the by-products of oil and gas extraction.

— mutual benefit and respect.

— value creation at levels of international benchmarks;

— equal treatment;

— transparent disclosure.

— fair and open conduct of business;

— high level of social responsibility;

— environmental awareness.

— compliance with applicable law;

— responsible taxpayer;

— zero tolerance for corruption.

— shareholder meetings; — Board of Directors’ meetings,

operational and financial reporting; — internal restrictions on the use

of insider information.

— collective labour agreements; — internal communications; — social benefits; — training and career development

programmes; — internal restrictions on the use

of insider information.

— information distribution via industry media;

— participation in trade shows;

— customer surveys.

— long-term contracts;

— tender procedures.

— joint ventures;

— long-term contracts;

— tender procedures.

— operational and financial reporting;

— press releases;

— investor meetings.

— media;

— public hearings;

— roundtables;

— social projects;

— volunteering.

— agreements on social and economic development;

— joint working groups.


SUSTAINABILITY REVIEW

We are integrating sustainability agenda into our core corporate values in an effort to maximise the environmental and social

benefits of our business and optimise our impact.

Annual Review 2018

80

82

What Does Sustainable Development Mean for SIBUR?

86

Environmental protection

89

Health and Safety

90

Employees

94

Communities and Society

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Annual Review 2018

The global challenges facing humanity, as expressed in the UN Sustainable Development Goals, will inevitably force companies to revise their business models. A company's long-term business success will depend on its ability to respond to global social, environmental and economic challenges – in other words, on its sustainability. Requests from stakeholders, including customers, partners, suppliers, regulators and financial institutions, are becoming increasingly integrated into the sustainable development agenda, reducing the perceived conflict between sustainability and profitability.

In the petrochemical industry, these trends are reflected in the following actions:

— Regulators are tightening environmental regulations

— Investors and financial institutions are paying more attention to the activities of companies in the field of sustainable development and taking into account ESG performance in making investment/credit decisions

— The B2C segment is undergoing a clear transformation from a linear to a circular consumption model

— In the B2B segment, there is increasing demand for recycled materials and the use of recycled materials

— Climate change and the increasing amount of plastic waste are of concern not only to eco-activists but also a broader spectrum of the population

As the largest gas processing and petrochemicals company in Russia, SIBUR has a strong belief in the value of being a good corporate citizen and creating value for all of its stakeholders. We treat health, safety and environmental matters as top priorities, and we are committed to having a positive impact on local communities in the regions where we operate.

We strive to implement the principles of sustainable development in all aspects of the Company’s operations. To identify our sustainable development priorities, we focus on the specifics of the petrochemical industry in general and our production in particular, stakeholder requests and expectations, the UN Sustainable Development Goals and international best practices.

SIBUR understands that the long-term sustainability and growth of our business will depend on our ability to respond to and address global, social, environmental, and economic challenges. With the creation of SIBUR’s own Sustainable Development Department in the beginning of 2019, we expect our sustainability activities to become better organised and integrated into the Company’s overall strategic development.

The Department will represent SIBUR in international associations and alliances such as the World Plastics Council, Plastics Europe and the CEFIC in order to examine best practices in responsible plastics production, as well as the creation and development of green initiatives in petrochemistry.

SIBUR also plans to join the UN Global Compact and global movements for responsible business leaders.

MAXIM REMCHUKOVSustainable Development Director, Management Company SIBUR LLC

More info on SIBUR’S SUSTAINABLE DEVELOPMENT can be found on our website (https://www.sibur.ru/en/sustainability/) and in stand-alone sustainability reports prepared every year (http://investors.sibur.com/results-centre/annual-reviews.aspx?sc_lang=en).

To learn more about PLASTICS IN THE CIRCULAR ECONOMY, please visit: https://www.youtube.com/watch?v=UFlGganDSPk


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https://www.youtube.com/watch?v=UFlGganDSPk

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Annual Review 2018

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0.37 Lost-time injury frequency rate

RUB 1,095.5 mln

ALLOCATED TO HEALTH AND SAFETY ACTIVITIES IN 2018

26,164 employeesAS OF 31 DECEMBER 2018

27.5 hours of training per 1 FTE

>120 projects IN THE FIELD OF SOCIAL INVESTMENTS AND DEVELOPING LOCAL COMMUNITIES

72 mln tonnes of CO2-eq.EMISSIONS PREVENTED DUE TO APG UTILISATION

RUB 3,939 mln

ALLOCATED TO ENVIRONMENTAL PROTECTION ACTIVITIES IN 2018

LTIF (lost-time injury frequency) – the frequency of disabling accidents (including fatalities) calculated as the number of lost-time injuries per 1 million man-hours in a calendar year.

ECONOMIC SUSTAINABILITY AND CORPORATE GOVERNANCE:

— Solidifying our investment case

— Ethical business conduct and preventing corruption

— Innovative activity

— Implementation of investment projects

— Digital transformation

— Development of new solutions in collaboration with customers and suppliers

SOCIAL SUSTAINABILITY:

— Creating safe working conditions and developing a safety culture

— Social support, development and staff training

— Development of local communities in the regions where we operate

ENVIRONMENTAL SUSTAINABILITY:

— Improving our environmental management system

— Preventing environmental pollution

— Increase resource efficiency (reduce energy and water consumption)

— Involvement of secondary raw materials and waste in production processes

— Product stewardship and reduction of carbon footprint of the products

Environmental sustainability

Social sustainability

Economic sustainability and

corporate governance



Annual Review 2018

SIBUR starts implementation of a programme of facility upgrades with a view to enhancing industrial safety, with a focus on hazardous workplaces

SIBUR joins the Responsible Care Programme

SIBUR signs the Responsible Care Global Charter, thus reaffirming its commitment to the key principles of occupational health and safety and environmental protection

Introduction of a unified integrated management system (IMS) that combines SIBUR’s former stand-alone management systems and that is compliant with four international standards, including ISO 9001, OHSAS 18001, ISO 14001 and ISO 50001


SIBUR’s Sustainability Journey

— 2017 sustainability report prepared for the first time in line with GRI standards

— Introducing a top-down approach to HSE KPIs throughout the entire business, and establishing individual HSE contracts for the heads of SIBUR’s subsidiaries

— Focus on developing a culture of safety

— Implementation of an industrial accident risk management system, as well as a health and safety risk management system

— Initiation of a project to standardise and systematise energy consumption and energy loss management

The EII was developed by SIBUR specialists in 2015 in order to set long-term goals in terms of reducing our environmental impact. It takes into account atmospheric emissions, waste-water discharge and waste management.

— Sustainable reduction of our environmental impact index (EII) from 5.2 kg per tonne down to 4.4 kg per tonne

— Based on the top 50 best practices, SIBUR formed and is currently implementing 173 energy-saving initiatives with a potential economic impact of hundreds of millions of roubles

— ECOVADIS assessment of SIBUR’s ESG performance

— Sustainalytics assessment of SIBUR’s ESG performance

20172012 2013

2014

2015

2016

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To learn more about RESOLVE, please visit: https://www.ellenmacarthurfoundation.org/assets/downloads/publications/EllenMacArthurFoundation_PolicymakerToolkit.pdf

— 2018 sustainability report prepared in line with GRI standards, with an independent assurance review conducted for the first time

— SIBUR joins Operation Clean Sweep, a PlasticsEurope initiative that aims to prevent the loss of polymer particles during production and logistics processes. The Company begins three pilot implementation projects at its production sites: JSC SIBUR Khimprom in Perm, JSC SIBUR-PETF in Tver and LLC SIBUR Tobolsk

— SIBUR receives an ISO 19600:2014 (compliance management systems) certificate, becoming the third Russian company to hold such a certification (https://www.sibur.ru/en/press-center/news/SIBURgetscertifiedagainstISOstandardforcompliancemanagement/)

PLANS FOR 2019

— Creation of a new SUSTAINABLE DEVELOPMENT DEPARTMENT

— CALCULATION OF CARBON FOOTPRINT

— Set SUSTAINABILITY GOALS and DEVELOP SUSTAINABILITY STRATEGY

— ADVANCE POSITION IN ESG RANKINGS and CDP DISCLOSURE

— Transition towards a CIRCULAR-ECONOMY APPROACH with IMPLEMENTATION of the ELLEN MACARTHUR FOUNDATION’S RESOLVE FRAMEWORK for a circular economy

2018



https://www.ellenmacarthurfoundation.org/assets/downloads/publications/EllenMacArthurFoundation_PolicymakerToolkit.pdf




https://www.sibur.ru/en/press-center/news/SIBURgetscertifiedagainstISOstandardforcompliancemanagement/



SIBUR considers the reduction of its anthropogenic environmental impact to be one of its priorities. Our ecological mission is to increase the efficiency of our use of natural resources (associated petroleum gas) and to minimise our negative impact on the environment in the regions where we operate.

As a company involved in the primary processing of associated petroleum gas (APG), which is a by-product of oil production, SIBUR helps to improve the environment in oil-producing regions and contributes to the development of the feedstock base for the subsequent deep processing of hydrocarbons into fuels and petrochemical products. Basic polymers, synthetic rubbers and plastics are an environmentally friendly alternative to the industrial use of natural materials.

According to experts, flaring of 1 mcm of APG emits 300 tonnes of air pollutants, including nitrogen oxide, soot, carbon monoxide and other toxic substances. In 2018, APG processing at SIBUR enterprises totalled 22.8 billion cubic metres, equivalent to preventing 7 million tonnes of harmful emissions entering the atmosphere, as well as 72 million tonnes of greenhouse gases in CO2 equivalent.

The Company’s key environmental protection initiatives include:

— construction of new and modernisation of existing treatment facilities and equipment;

— measures to reduce emissions into the atmosphere;

— increasing the share of recycled and used waste;

— improving production safety and calculations of greenhouse gases;

— improving our environmental management system (compliance with the ISO 14001 international standard);

— cooperation with state bodies and international organisations in terms of environmental safety and use of best practices.

Converted into products 91%SIBUR emissions 9%

9

91

SIBUR PREVENTED THE LOSS OF 186 TONNES OF PLASTIC PELLETS INTO THE ENVIRONMENT IN 2018

In April 2018, the pan-European trade association PlasticsEurope published a report on its Operation Clean Sweep international programme designed to prevent the loss of plastic pellets into the environment during production and logistics processes. It involves more than 500 companies that account for around 98% of the plastics value chain.

SIBUR joined the programme in 2018 and piloted PlasticsEurope’s recommendations at its Tver, Perm and Tobolsk sites. We scrutinised existing and potential sources of plastic pellet losses, drew up action plans to eliminate them, procured additional equipment and supplies, updated instructions and held training sessions for employees. These measures helped to prevent the loss of 186 tonnes of plastic pellets into the environment, with 86% going back into the production cycle and the rest being disposed of as required.

In early 2019, the requirements of Operation Clean Sweep were incorporated into SIBUR’s Integrated Management System Policy by a resolution of the Board of Directors and will be implemented across all of the Company’s facilities over the next two years.

Environmental Protection

CO2 EMISSION EFFICIENCY, %

Annual Review 2018

86

Environmental Impact Index(Environmental impact per 1 tonne of production (kg))Gross production volumes (mt)

STABLE DECLINE IN ANTHROPOGENIC IMPACT

SIBUR’S ENVIRONMENTAL PROTECTION PROGRAMMES

We develop and implement annual and long-term environmental programmes aimed at reducing SIBUR’s impact on the environment.

In recent years, we have significantly expanded the Company’s production capacities, while reducing our anthropogenic impact on the environment. In 2018, our EII decreased to 3.5 from 3.9 in 2017.

20142013201220112010 2015 2016 2017 2018

12.113.1

14.0

17.7

15.5

19.6

20.921.5 21.6

6.67.0 7.2 7.0

5.2

4.54.2

3.93.5

Annual Review 2018

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Annual Review 2018

AIR PROTECTION

Key measures implemented to reduce emissions of air pollutants:

— Technical upgrades of gas cleaning units at POLIEF, industrial emission sources at production sites at Sibur-Neftekhim were equipped with samplers, reconstruction of production scrubbers at SIBUR Togliatti

— Voronezhsintezkauchuk received a new mobile laboratory for monitoring the state of the environment. The mobile laboratory monitors the quality of atmospheric air on the border of the facility’s sanitary protection zone; it also conducts monitoring in the impacted zone and other residential areas of the city

CONSERVATION OF WATER RESOURCES

Key measures implemented to reduce pollutants in waste-water discharge:

— A number of the Company’s sites carry out waste-water treatment using their own biological treatment facilities and chemical systems for the preparation of source water

— Monitoring of the effectiveness of the treatment facilities and the quality control of waste water, surface and groundwater, as well as monitoring compliance with the established volumes of water consumption and waste water

— At the end of 2018, a biological treatment plant was opened at our Perm site. Waste-water treatment plants were rebuilt in order to ensure high-quality treatment. In addition, following the launch of our new waste-water treatment plants, we plan to reduce the load on municipal waste-water treatment plants to create reserve capacity and to provide opportunities for other businesses in the city

— Technical upgrades of waste treatment plants at Yuzhno-Balyksky GPP, commencement of the reconstruction of industrial waste-water treatment facilities at POLIEF, technical upgrades of the mechanical waste-water treatment unit at SIBUR Togliatti

WASTE-WATER DISCHARGE,MLN M3

58

20182017

58

2016

5556

2015

54

2014

AIR POLLUTION, '000 TONNES

59

20182017

60

2016

5859

2015

56

2014

SANITARY WASTE GENERATION, '000 TONNES

64

20182017

64

2016

7674

2015

74

2014

WASTE TREATMENT

SIBUR’s activities in the field of waste management in 2018 were aimed at complying with applicable legislation and optimising the process of waste treatment in order to reduce the negative impact on the environment. The Company’s waste mainly comprises low-hazard environmental waste (hazard classes 4 and 5).

Separate collection of waste for its further disposal is arranged at the Company’s production facilities: almost all plants have installed containers for separate collection of household plastic and paper. All waste is transferred to licensed contractors for disposal, neutralisation or placement in specially equipped landfills. At the same time, part of the waste is sent for recycling or is transferred as by-products.

Environmental Protection(continued)

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Environmental Protection

Energy Efficiency

SIBUR has been making considerable efforts to reduce energy costs through the safe and effective management of energy consumption, energy conservation and improved energy efficiency at our enterprises.

ELECTRICITY CONSUMPTION, BLN KWH

HEAT CONSUMPTION, MLN GCAL

All our production sites develop and implement energy-efficiency programmes. Best practices are subsequently rolled out across all of SIBUR’s facilities.

Key energy-efficiency initiatives include:

— Development and implementation of an energy-saving programme;

— Raising energy-efficiency levels closer to international benchmarks over the medium term;

— Support and sustainable development of an ISO 50001-compliant energy management system. In 2018, the first supervisory audit of our system’s compliance with all the requirements of the standard was successfully completed.

8.9

20182017

8.9

2016

8.88.3

2015

7.6

2014

21.1

20182017

21.4

2016

21.1

20.3

2015

18.4

2014

As part of the search for new potential in 2018, we conducted an analysis of the efficiency of the water-supply systems at SIBUR’s facilities. As a result, measures to reduce gaps in the efficiency of water-supply systems were developed, and comprehensive energy inspections were conducted at a number of production assets.

In 2018, electricity and heat consumption volumes were almost flat compared to 2017.



We view the health and well-being of our personnel and all our stakeholders as our top priority – more important even than our operating achievements. Some of our production sites fall into the category of hazardous industrial facilities; therefore, ensuring safety is a major focus.

To improve safety across all our production sites in 2018, SIBUR continued implementing its dedicated programmes to minimise incident rates among the Company’s and contractors’ employees, such as:

— taking a top-down approach to HSE KPIs throughout the entire business, and establishing individual HSE contracts for the heads of SIBUR’s subsidiaries

— developing a safety culture

— implementing an industrial accident risk management system, as well as a health and safety risk management system

*Since 2016, including contractors.

HAZARDOUS FACILITIES LOST-TIME INJURY FREQUENCY RATE (LTIF)

148

20182017

156

2016

187191

2015

197

2014

0.37

2018*2017*

0.36

2016*

0.30

0.63

2015

0.73

2014

Health and Safety

Since 2012, SIBUR has been making upgrades to improve safety at its hazardous industrial facilities. As of the end of 2018, the number of hazardous industrial facilities had been reduced to 148, down by 5% compared to 2017.

In accordance with our long-term goals, the Company strives to improve its lost-time injury frequency rate (LTIF) from year to year. In 2018, 16 accidents were registered involving Company's employees, a 20% decrease compared to 2017. At the same time, we focus particular attention on the safety of our contractors’ employees working on our construction and expansion projects. A decision was made in 2016 to include contractors’ data in our LTIFR calculations. In 2018, 43 accidents were registered among our contractors, including five fatal accidents. The increase in the number of accidents in 2018 was mainly related to the high volume of construction work at ZapSibNeftekhim. All incidents – from major accidents to those that are potentially hazardous – that occurred at our facilities were thoroughly investigated, their causes established, and measures taken to prevent such incidents from recurring in the future.

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INITIATIVES AIMED AT ENHANCING OUR OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT SYSTEM

Since 2008, SIBUR has significantly improved the transparency of its incident reporting systems and reduced incident rates.

EVOLUTION OF OHS:

2008 — Low priority of work safety, lack of transparent information about incidents

— Implementation of SIBUR’s production system with a special focus on safety

— Implementation of procedures for identifying threats and assessing risks of possible accidents

— Introduction of a compulsory corporate training programme

— Introduction of integrated management (OHSAS 18001, ISO 14001, ISO 50001, ISO 9001)

— Transformation of our work safety culture through the application of “hearts and minds” tools (Shell)

— Development of employee incentivisation

Implementation, in cooperation with DuPont, of a multi-year programme for the development of a work safety culture:

— Key safety rules — Investigating incidents — Performing behaviour-based safety audits — Managing contractors

2009

2014

2016

2017

2018

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HEALTH AND WELLNESS PROGRAMMES

SIBUR’s social benefits policies aim to create a positive environment for employees and their families, and they go considerably further than social guarantees mandated by law. Most current health and wellness programmes focus on the health of Company employees and are designed to provide them with a wide range of opportunities for maintaining a healthy lifestyle.

All employees are covered by our voluntary health insurance programmes. SIBUR organises pre-employment medical examinations and routine check-ups for employees exposed to hazardous working conditions. We place a high priority on programmes that promote preventive healthcare, physical exercise and healthy lifestyles.

EMPLOYEE COMPENSATION

A transparent, performance-linked remuneration system is a key competitive advantage for attracting and retaining professional talent. SIBUR utilises a Company-wide grade system at all Group enterprises to ensure a well-managed remuneration framework. Compensation includes a base salary and performance bonuses that depend on the employee’s grade, their performance against KPI targets and SIBUR’s overall results.

Base pay is revised annually, taking into account the economic situation, the labour market and the employee’s individual performance. In 2018, the average salary at SIBUR increased by 21% year-on-year to RUB 96,652 per month. All changes in the remuneration and incentive framework promote our corporate culture and objectives for motivating, attracting and retaining talent and enhancing our performance and competitive position.

Our employees are one of our main stakeholders. We use numerous internal communication channels – from company newsletters and the social media accounts of Company enterprises – to interact with employees, to get their quick feedback and to assess social attitudes. As of 31 December 2018, SIBUR had 26,164 employees. Our workforce gender profile is in line with industry averages for the petrochemicals and gas processing industries: 67% men and 33% women, mostly in technical and engineering occupations.

REVENUES PER EMPLOYEE, RUB20.9

mln

25.4%

HEADCOUNT AND SALARY,

26,164 employees

Average headcount ths peopleAverage monthly salary RUB ths

20.7%

SIBUR CONTINUES TO PAY SPECIAL ATTENTION TO EMPLOYEE TRAINING AND CAREER DEVELOPMENT AS KEY DRIVERS OF SUSTAINABLE GROWTH AND COMPETITIVENESS

THREE YEARS IN A ROW IN THE TOP THREE annual rating of Russian employers by HeadHunter

SECOND-BEST EMPLOYER for students in the “Best employer for its target audience” rating by FutureToday

NUMBER ONE in the Federation category of the “HR-brand Award 2018” established by HeadHunter

Recognised five years in a row as the MOST ATTRACTIVE EMPLOYER in the chemical industry by Randstad

20.9

20182017

16.6

2016

14.914.0

2015

12.3

2014

27.3

20182017

27.3

2016

27.727.1

2015

25.9

56.563.0

71.080.0

96.7

2014

Employees

as of 31 December 2018

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Below 25 years of age 6%From 25 to 34 years of age 36%From 35 to 44 years of age 30%

From 45 to 54 years of age 18%

Over 50 years of age 10%

EMPLOYEES BY AGE GROUP, %

Midstream segment 15%Olefins & Polyolefins segment 14%Plastics, Elastomers & Intermediates segment 32%Marketing, administration, project management and business service 39%

EMPLOYEES BY SEGMENT,%

STAFF RECRUITMENT AND DEVELOPMENT

— in 2018, the topics of focus were “the employee of the future” in the era of digitalisation, comprehensive career and professional development of employees, participation in WorldSkills projects and recruitment of employees for the digital transformation function

— one of the key areas of work was the training of staff from the operating and service units for the launch of the ZapSibNeftekhim complex: today, a unique engineering team has been assembled in Tobolsk that includes about 1,500 people from 40 regions of Russia

— a key challenge is to provide quality training for staff capable of delivering excellent results in the face of constant changes. To do this, the Company has a human resources management system that integrates management training programmes, including an MBA in partnership with INSEAD (more than 100 people participated in 2018), functional competence enhancement programmes (more than 1,000 people), and professional development programmes for staff from production units

— in 2018, HR Day was held for the first time: this was an interactive event aimed at informing employees about HR processes and opportunities, in which more than four thousand people took part

— SIBUR continued the implementation of its health programme, which is aimed at carrying out systematic work to protect the health of personnel, creating a comfortable working environment and making a commitment to a healthy lifestyle as part of the corporate culture

— in partnership with the CASE-IN International Engineering Championship, SIBUR established a league in the field of petrochemistry, in which 322 students from nine support universities and 52 Company employees took part

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Annual Review 2018

Charity and social investments are an important part of the Company’s commitment to the regions where it operates. SIBUR’s key partners are regional and municipal authorities, with which priorities are defined and important projects for Russian regions are implemented. In 2016, SIBUR launched a corporate charity programme called “Formula for Good Deeds”, bringing together all of the Company’s social initiatives.

More info on the “FORMULA FOR GOOD DEEDS” programme can be found on our website: https://www.formula-hd.ru/

URBAN DEVELOPMENT WORK STREAM: SIBUR is engaged in the reconstruction of social institutions, improvement of the urban landscape and the development of sports infrastructure in the regions where it operates.

ECOLOGY WORK STREAM: we pay attention to projects in the field of environmental education and nature conservation in partnership with representatives of environmental organisations, non-profit organisations and eco-activists.

SPORTS AND HEALTHY LIFESTYLES WORK STREAM: SIBUR provides an integrated approach to supporting sports and a healthy lifestyle: from the reconstruction of sports facilities and the development of the coaching corps to seasonal festivals with the participation of international and Russian sport stars.

VOLUNTEERING WORK STREAM: in the Year of the Volunteer, special attention was paid to the corporate volunteering development programme, which was launched as part of the “Formula for Good Deeds” programme in September 2017 in order to unite the Company, its employees and city residents around universal values and involve them in joint socially significant projects.

CULTURE WORK STREAM: SIBUR organises cultural leisure activities and creates opportunities for cultural development, while also encouraging the creation of local competitive cultural products.

EDUCATION AND SCIENCE WORK STREAM: we take a systematic approach to the development of science and technical education by providing financial support to educational institutions, encouraging the popularisation of the natural sciences and organising career guidance projects.

BUILDING a world-class company, we focus not only on excellent financial performance but also on leadership in the field of sustainable development and corporate social responsibility. The "Formula for Good Deeds" programme allows us to engage the widest-possible range of stakeholders in dialogue.

DMITRY KONOV Chairman of the Management Board, SIBUR Holding

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One of our most notable projects was #БАСКЕТБОТЛ (#BASKETBOTTLE), launched by SIBUR and the VTB United League in the 2017/18 season. SIBUR takes part in the “Sort Right” federal programme run by the Ministry of Natural Resources of the Russian Federation, which aims to raise public awareness of proper waste disposal.

As part of the #BASKETBOTTLE environmental initiative, we began teaching fans to sort garbage, primarily plastic bottles. The programme was not limited to educational lectures or booklets but turned everything into a game and competition: each team collected plastic trash in the arena, and its successes were recorded in a pivot table. Then the collected plastic was sent for recycling. The initiative was taken up by #БУЛЛИТБОТЛ (#BULLETBOTTLE) in partnership with the Kontinental Hockey League and #ГАНДБОТЛ (#HANDBOTTLE) in partnership with the Spartak handball club, both launched in 2019.

Over a period of two years, 15 tonnes of plastic bottles have been sent for recycling. One of the things made from these bottles is the first eco-friendly basketball. It was created by SIBUR together with Wilson and became the official ball of the VTB United League championship in the 2018/19 season. The ecoball is made from composite material obtained as a result of high-tech processing of plastic bottles, and it possesses all the quality characteristics of the balls used in professional basketball leagues. Two 1.5-litre plastic bottles are required to manufacture one ball.

A video about HOW TO TURN PROPER DISPOSAL OF PLASTIC INTO A FUN GAME is available here: https://www.youtube.com/watch?v=FAdzd62I1n0

THERE ARE OFTEN NO ALTERNATIVES TO PLASTIC; THEREFORE, WHEN CARING FOR THE ENVIRONMENT, IT IS IMPORTANT TO TALK NOT ONLY ABOUT THE SCALE OF THE GARBAGE PROBLEM BUT ALSO ABOUT THE PROPER DISPOSAL OF PLASTIC. HOW IS SPORT RELATED TO THIS? SPORT CONSTANTLY INTERACTS WITH PLASTIC, E.G., TEAMS AND TENS OF THOUSANDS OF FANS USE A LOT OF DISPOSABLE BOTTLES AND DISHES. THEREFORE, SIBUR IS ACTIVELY INVOLVED IN SPORTS INITIATIVES FOR THE COLLECTION AND RECYCLING OF PLASTIC.

15 tonnes of plastic bottles have been sent for recycling

TWO 1.5-litre plastic bottles are required to manufacture one ball

#BASKETBOTTLE ENVIRONMENTAL CAMPAIGN

PARTNERS



CORPORATE GOVERNANCE

We are committed to transparency and best practices

in Corporate Governance.

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Board of Directors

99

Corporate Governance Structure

112

Corporate Secretary

113

Management Board

116

Anti-corruption Policies and Compliance

118

Information for Shareholders

120

Risk Management

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Corporate Governance

Good corporate governance, transparency and risk management are critically important to building long-term value for SIBUR's shareholders and

increasing our investment appeal.

CORPORATE GOVERNANCE PRINCIPLES

Ability of shareholders to effectively exercise their rights

Equal treatment of the Company’s shareholders

Timely and accurate disclosure of information about the Company

Effective control over the financial and business activities of the Company

Strategic management of the Company’s activities and effective supervision over the Company’s executive bodies by the Board of Directors

Reliable and responsible implementation of Company plans and management of business activities by the Company’s executive bodies

1 4

2 5

3 6

Adherence to the Code of Corporate Conduct at all levels of the Company makes SIBUR a more robust, efficient, high-performing business and a more attractive long-term investment.

The Company complies with the requirements of the Code of Corporate Conduct approved by the PJSC SIBUR Holding Board of Directors on 16 December 2014 (Revision No. 5), as well as with the revised Code of Corporate Conduct approved by the Central Bank of the Russian Federation on 21 March 2014.

SIBUR’s management structure consists of the General Meeting of Shareholders, the Group’s Board of Directors, the Management Board, the Sole Executive Body and the Revision Commission.

The General Meeting of Shareholders, which is the supreme governing body of SIBUR, is empowered to decide on the Group’s most critical issues and activities expressly set forth in the Russian Federation Law “On Joint Stock Companies” and SIBUR’s Charter, including the election of the Board of Directors. The most recent Annual General Shareholders’ Meeting took place on 8 April 2019.

The Board of Directors is the collegial governing body of SIBUR responsible for the strategic management of the Group’s activities, focused on creating and enhancing shareholder value. The Board of Directors makes decisions on all general management issues except for those that are the exclusive prerogative of the General Shareholders’ Meeting, Collegial and Sole Executive Bodies.

SIBUR’s Management Board is the Group’s collegial executive body responsible for effective management of the Group. The Management Board develops and monitors implementation of the Company’s strategy and implements resolutions adopted by the General Shareholders’ Meeting and the Group’s Board of Directors.


Annual Review 2018

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SIBUR’s Sole Executive Body is the Management Company SIBUR LLC, which was established in accordance with a decision of the General Meeting of Shareholders. The rights and responsibilities of the Management Company are governed by the Federal Law “On Joint Stock Companies”, the Group’s Charter and the agreement between PJSC SIBUR Holding and the Management Company. The responsibilities of the Management Company include all day-to-day management issues except for those that are the exclusive prerogative of the General Shareholders’ Meeting, the Board of Directors and the Management Board.

In accordance with Russian law, the General Shareholders’ Meeting elects the Group’s Audit Commission to review the preparation of accurate financial and accounting statements, other information about the Group’s financial and operational activities and the status of the Group’s assets. The Revision Commission is also tasked with enhancing asset management effectiveness, mitigating SIBUR’s financial and operational risks and optimising internal controls.

An external independent auditor conducts an annual audit of the Group’s financial statements in accordance with Russian Accounting Standards (RAS) and consolidated financial statements in accordance with International Financial Reporting Standards (IFRS).

The auditor is approved by the General Shareholders’ Meeting based on the recommendation of the Board of Directors.

All issues concerning the formation, responsibilities and activities of the Group’s governing and controlling bodies are stipulated in the Charter and relevant internal documents, including:

— by-laws of the General Shareholders’ Meeting of PJSC SIBUR Holding;

— by-laws of the Board of Directors of PJSC SIBUR Holding; — by-laws of the Management Board of PJSC SIBUR Holding; — by-laws of the Revision Commission of PJSC SIBUR Holding.

Visit the COMPANY’S WEBSITE to find more information on these documents at: https://www.sibur.ru/en/about/corporate/documents/

CORPORATE GOVERNANCE PRINCIPLES

PJSC SIBUR HOLDING

GENERAL SHAREHOLDERS MEETING

Revision Commission

Board Committees:

• Audit Committee • Human Resources

and Remuneration Committee

• Strategy and Investments Committee

(analysis of proposals to determine Company’s priorities, development of Company’s strategy and investment policy)

33% of BoD members are independent directors

Internal Audit

Executive Bodies:

Management Board

Sole Executive Body:

functions are carried by

SIBUR LLCInvestment Committee(Chairman – Dmitry Konov)

Decision making and control over the implementation of investment projects; investment management

Corporate Secretary

Management Board

Committees

Board of Directors

GENERAL PARTICIPANTS’ MEETING (RESOLUTION OF THE SOLE PARTICIPANT)

Sole Executive body

(Chairman of PJSC SIBUR Holding

Management Board)

Sole Executive body (CEO, Chairman

of LLC SIBUR Management Board)

Management Board

Agreement for assigning authorities to the managing

company

SIBUR LLC (100% subsidiary of PJSC SIBUR Holding)

Dmitry Konov Mikhail Karisalov


Corporate Governance Structure

As of 31 December 2018. Chaired by Independent Directors.




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1 2 3 4 5 6

7 8 9 10 11 12


Board of Directors

LEONID MIKHELSONCHAIRMAN OF THE BOARD OF DIRECTORSNON-EXECUTIVE DIRECTOR

Committee membership

GENNADY TIMCHENKOMEMBER OF THE BOARD OF DIRECTORS NON-EXECUTIVE DIRECTOR


ALEXANDER DYUKOVDEPUTY CHAIRMAN OF THE BOARD OF DIRECTORS, NON-EXECUTIVE DIRECTOR


SERGEY VASNETSOV MEMBER OF THE BOARD OF DIRECTORS INDEPENDENT DIRECTOR


WANG DAN MEMBER OF THE BOARD OF DIRECTORS NON-EXECUTIVE DIRECTOR


ANDREI VERNIKOV MEMBER OF THE BOARD OF DIRECTORS INDEPENDENT DIRECTOR


DMITRY KONOVMEMBER OF THE BOARD OF DIRECTORS EXECUTIVE DIRECTOR


ALEXEY KOMISSAROV MEMBER OF THE BOARD OF DIRECTORS INDEPENDENT DIRECTOR


VLADIMIR RAZUMOVMEMBER OF THE BOARD OF DIRECTORS EXECUTIVE DIRECTOR


PETER LLOYD O'BRIEN MEMBER OF THE BOARD OF DIRECTORS INDEPENDENT DIRECTOR


KIRILL SHAMALOVMEMBER OF THE BOARD OF DIRECTORS EXECUTIVE DIRECTOR


LI CHENGFENGMEMBER OF THE BOARD OF DIRECTORS NON-EXECUTIVE DIRECTOR


Human Resources and Remuneration Committee

Strategy and Investments Committee

Does not serve on any Board Committees

Audit Committee


Since 2012

Chairman since 2011

Since 2018

Since 2018

Since 2016

Since 2018

Since 2018 Chairman since 2018 Since 2018

Since 2018 Since 2018


Chairman since 2018

Since 2018

Since 2012 Since 2014

In accordance with director independence criteria established by Russian law.


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1 LEONID MIKHELSON

AppointmentChairman of the Board of Directors since 2011

Education1977: Kuybyshev Institute of Civil Engineering, degree in Industrial Civil Engineering

Professional experienceActive employment as of 31 December 2018Since 2003: Member of the Board of Directors and Chairman of the Management Board of PAO NOVATEK

Past employmentMr. Mikhelson began his career as a foreman of a construction and assembly company in the Tyumen region, where he worked on the construction of the first section of the Urengoi-Chelyabinsk gas pipeline. Mr. Mikhelson served as Chief Engineer of Ryazantruboprovodstroy, General Director of Kuibishevtruboprovodstroy, Managing Director of SNP NOVA and General Director of Novafininvest. He was also a member and chairman of the Board of Directors of OAO Stroytransgaz and OAO Yamal LNG, and a member of the Board of Directors of OOO Art Finance and of the Supervisory Board of OAO Russian Regional Development Bank.Mr. Mikhelson was awarded the Order of the Badge of Honour of the Russian Federation, the Order of Merit for the Fatherland II degree and the honorary title of “person of the gas industry”.

2 ALEXANDER DYUKOV

AppointmentBoard Member since 2005Deputy Chairman since 2011

Education1991: Leningrad Shipbuilding Institute, degree in Engineering2001: International Management Institute of St. Petersburg, MBA

Professional experienceActive employment as of 31 December 2018Since 2008: Chairman of the Management Board, CEO, member of the Board of Directors of PJSC Gazprom NeftSince 2009: Chairman of the Board of Directors of AO Lakhta Center

Mr. Dyukov also serves as Chairman of the Board of Directors of AO Football Club Zenit (since 2017) and OOO BK Zenit (since 2017), a member of the Board of Directors of OOO National Oil Consortium (since 2009), OOO Hockey Club SKA (since 2010) and OOO Hockey City (since 2012). He is also a member of the Management Board of the Russian Union of Industrialists and Entrepreneurs National Public Organization (since 2013).

Past employmentMr. Dyukov held various managerial positions in SIBUR between 2003 and 2011: he was the Company’s CEO (2003 – 2006) and Chairman of the Board of Directors (2006-2011), also acting as Chairman of the Board of Directors for OAO SIBUR Russian Tyres (2005-2009).

Mr. Dyukov also served as Financial Director and General Director of Joint Venture ZAO Petersburg Oil Terminal, and as Director of Economics and Acting General Director of St. Petersburg Sea Port. He was chairman of the Board of Directors of the Petersburg Oil Terminal and of OAO NGK Slavneft, a member of the Board of Directors of OAO Moscow Oil and Gas company, OOO Gazprom Gazomotornoye Toplivo and of OOO LIGA-TV.


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3 WANG DAN

AppointmentBoard Member since 2017

Education1991: Management School of Wuhan University, Bachelor’s degree with a major in International Finance1994: Tsinghua University PBC School of Finance, Master’s Degree in International Finance

Professional ExperienceActive employment as of 31 December 2018Since 2015: Executive Vice President of Silk Road Fund Co., Ltd (SRF)

Past employmentBefore joining SRF, Ms. Wang worked for the International Department and the Monetary Policy Department II of the People’s Bank of China (PBOC), and her last position at PBOC was as Deputy Director-General of the Monetary Policy Department II. She also served as a Board Director at Pirelli&C. S.p.A.

4 DMITRY KONOV


Education1994: Moscow State Institute of International Relations (MGIMO), degree in International Economic Relations2001: IMD, MBA

Professional ExperienceActive employment as of 31 December 2018Since February 2018: Chairman of the Management Board of PJSC SIBUR Holding Since 2017: Member of the Supervisory Board of PJSC AK ALROSASince 2016: Chairman of the Board of Directors of JSC NIPIGAZSince 2014: Member of the Board of Directors of JSC Stroytransneftegaz and LLC STGM

Past employmentMr. Konov joined SIBUR in 2004 and held various positions at the Group including those of Advisor to the President, Senior Vice President for Corporate Policy and Strategy at OAO AK SIBUR (2004-2006), CEO of the Management Company (2006-February 2018) and Chairman of the Management Board of the Management Company (2009-February 2018).

Mr. Konov also served in the Treasury Department of OAO NK YUKOS, held various positions at AKB Trust and Investment Bank, including that of Vice President – Head of the Investment Banking Department and Managing Director of Corporate Finance Department. He was a member of the Board of Directors of OAO Gazprom Neftekhim Salavat and OAO Gazprombank, AO SDS AZOT, OOO Tobolsk-Polymer, and Chairman of the Board of Directors of OOO RusVinyl, OOO SNHK, OAO Stroytransgaz.


Board of Directors (continued)


Annual Review 2018

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5 VLADIMIR RAZUMOV

AppointmentBoard Member in 2011 – April 2012 and since 2013

Education1967: Voronezh Technological Institute, degree in Engineering with Honours 1980: Plekhanov Russian Academy of Economics, degree in Procurement1989: Academy of the National Economy under the USSR Council of Ministers, specialised in Economics and Management of the National Economy

Professional ExperienceActive employment as of 31 December 2018Since 2018: Deputy Chairman of the Management Board of PJSC SIBUR Holding (member since 2007)Since 2006: Member of the Management Board of the Management Company LLC SIBUR

Past employmentMr. Razumov first joined SIBUR in 1999 and held the positions of Vice President in charge of Production of Synthetic Rubber and Tyres and of Senior Vice President in charge of Petrochemical Production until 2002. In 2003 he re-joined the Group and held various managerial positions including that of Advisor to the President, Senior Vice President in charge of Production and Marketing and Senior Executive Vice President. Mr. Razumov was also a member of the Board of Directors of OAO SIBUR-Russian Tyres, OAO SIBUR-Neftekhim, OAO Plastic, AO Sibur-Trans, OAO SIBUR-Fertilisers and OOO Tobolsk-Polymer.

Prior to that Mr. Razumov worked for the USSR Ministry of the Oil Refining and Petrochemicals Industry first as a Head of the Main Procurement Department and then as a Deputy Minister in 1989-1992. He also worked at Voronezh Synthetic Rubber Plant and went all the way from an engineer to the Plant Director.

6 KIRILL SHAMALOV


Education2004: St. Petersburg State University, degree in Law

Professional ExperienceActive employment as of 31 December 2018Since 2018: CEO of LLC Ladoga ManagementSince 2018: CEO of LLC Yudoga InvestmentsSince 2017: Deputy Chairman of the Management Board of PJSC SIBUR Holding Since 2014: Member of the Board of Directors of LLC Russian Cement Company

Past employmentFrom 2008 to 2012, Mr. Shamalov served as Vice President for Business Administration in SIBUR. He was member of the Management Board of the Company and member of the Management Board of the Management Company between 2009 and 2015.Previously, Mr. Shamalov was Chief Legal Counsel for foreign economic activity at OAO Gazprom, Expert in the regional department at FGUP Rosoboronexport, Chief Lead Counsel in the legal department at ZAO AB Gazprombank, and Expert consultant in the Economics and Finance Department for the Russian Government.


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7 GENNADY TIMCHENKO


Education1976: Leningradsky Mechanical University, degree in Mechanical Engineering

Professional ExperienceActive employment as of 31 December 2018Since 2009: Member of the Board of Directors of PAO NOVATEKSince 2011: Co-Сhairman of the Economic Council of the Franco-Russian Chamber of CommerceSince 2014: Chairman of the Russian Council of the NPO Russian Chinese Business Council

Mr. Timchenko also serves as Chairman of the Boards of Directors of the Ice Hockey Club SKA St. Petersburg (since 2011) Continental Hockey League (since 2012) and is Vice-President of the Olympic Committee of the Russian Federation.

Past employmentMr. Timchenko has more than 20 years of experience in the Russian and international energy sectors. He began his career at the Izhorsk plant in Leningrad, which specialised in the engineering and production of equipment for the energy industry. Mr. Timchenko also served as Senior Engineer to the Ministry of Foreign Trade and as Vice President of Kirishineftekhimexport. He worked for Urals Finland, was Managing Director of IPP OY Finland and IPP AB Sweden, member and Chairman of the Board of Directors of OOO Transoil and co-founder of Gunvor.

8 SERGEY VASNETSOV

AppointmentBoard Member since April 2018

Education1985: Novosibirsk State University, Master's degree in chemistry 1990: Oxford University, study and research1995: Rutgers University, MBA

Professional ExperienceActive employment as of 31 December 2018Since 2016: Member of the Board of Directors of Eurochem AG

Past employmentMr. Vasnetsov served as Senior Vice President of Strategic Planning and Transactions and as Head of the Division of Special Plastics for the Automotive Industry to LyondellBasell.

9 ANDREI VERNIKOV


Education1981: Moscow State Institute of International Relations of the Ministry of Foreign Affairs of the USSR, degree in international economic relations with a foreign language2006: Doctorate in economics

Professional ExperienceActive employment as of 31 December 2018Since 2005: Leading researcher at the Institute of Economics at the Russian Academy of Sciences

Past employmentMr. Vernikov was Professor of the Department of Finance at HSE from 2006-2016.


Annual Review 2018

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10 ALEXEY KOMISSAROV


Education1994: Moscow State Automobile and Road Construction Technical University (MADI), Engineer for the Maintenance and Repair of Vehicles degree2003: Kingston University, MBA2010: IoD UK, Chartered Director qualification

Professional ExperienceActive employment as of 31 December 2018Since 2017: Vice-rector, Director of the Higher School of Public Administration, Ranepa Since 2017: Independent Director of AO Federal Freight CompanySince 2018: General Director of ANO Russia is a country of opportunities

Past employmentFrom 2015 to 2017 Mr. Komissarov was Director of the Industry Development Fund and served as Independent Director, Member of the Strategy and Investment Committee and Chairman of the Budget and Reporting Committee to GLONASS. From 2011 to 2015 Mr. Komissarov worked in the Moscow government as a Minister of the Government of Moscow, Head of the Department of Science, Industrial Policy and Entrepreneurship and Advisor to the Mayor.

11 PETER LLOYD O'BRIEN


Education1991: Duke University, Bachelor’s degree2000: Columbia Business School, MBA2011: Harvard Business School, Advanced Management Program

Professional ExperienceActive employment as of 31 December 2018Since 2012: Member of the Board of Directors of AO Pipe Metallurgical Company and PAO TransFin-MSince 2018: Member of the Board of Directors of Regalwood Global Energy (USA) and Sberbank CIB USA Inc. (New York)

Past employmentFrom 2015 to 2018 Mr. O'Brien was a member of the Board of Directors of PAO T plus, and from 2016 to 2018 of PAO TransContainer.

12 LI CHENGFENG

AppointmentBoard Member since December 2018

Education1988: Zhe-Jiang University, Master’s degree in Chemical engineering

Professional ExperienceActive employment as of 31 December 2018Since 2018: Director General for the Chemical Department at Sinopec Corporation

Past employmentMr. Li Chengfeng held various positions at Sinopec since 2014 including those of Chairman of SINOPEC Yangzi Petrochemical, President of Sinopec Wuhan Petrochemical and Chairman of Sinopec-SK Wuhan Petrochemical. He was also Chairman of BASF-YPC Company Limited in 2016-2018.


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Strong corporate governance starts with the Board of Directors. SIBUR’s Board focuses on overseeing corporate strategy development and management performance and protecting the interests of our shareholders.

BOARD ROLE AND RESPONSIBILITIESThe responsibilities of the Board of Directors include the strategic management of the Group’s business activities in compliance with the Federal Law “On Joint Stock Companies” and SIBUR’s Charter.

The Board of Directors determines SIBUR’s strategic priorities, approves annual and long-term business plans and annual investment programmes, oversees the Group’s financial activities and internal controls and makes recommendations on dividend payments.

BOARD COMPOSITIONMembers of the Board of Directors are elected by the Annual General Meeting of Shareholders. They serve until the next Annual General Meeting of Shareholders unless the Board in its entirety is terminated prior to the expiration of its term based on a decision of the Group’s shareholders.

BOARD OF DIRECTORS’ COMPOSITION AS OF 31 DECEMBER 2018

Name Year of birth Title Year of appointment

Leonid Mikhelson 1955 Director, Chairman of the Board of Directors 2011

Wang Dan 1969 Director, Member of the Strategy and Investments Committee 2017

Alexander Dyukov 1967 Director, Deputy Chairman of the Board of Directors, Chairman of the Strategy and Investments Committee, Member of the Human Resources and Remuneration Committee 2005

Li Chengfeng 1963 Director, Member of the Strategy and Investments Committee 2018

Alexey Komissarov 1969 Independent Director, Chairman of the Human Resources and Remuneration Committee, Member of the Audit Committee 2018

Dmitry Konov 1970 Director 2007

Peter Lloyd O'Brien 1969 Independent Director, Chairman of the Audit Committee, Member of the Human Resources and Remuneration Committee 2018

Vladimir Razumov 1944 Director, Member of the Strategy and Investments Committee 2013

Kirill Shamalov 1982 Director, Member of the Strategy and Investments Committee 2014

Gennady Timchenko 1952 Director, Member of the Strategy and Investments Committee 2012

Sergey Vasnetsov 1963 Independent Director, Member of the Strategy and Investments Committee, Member of the Audit Committee 2018

Andrey Vernikov 1960 Independent Director, Member of the Audit Committee, Member of the Human Resources and Remuneration Committee 2018

Independent director in accordance with director independence criteria established by Russian law.

The members of the Group’s Board of Directors as of 31 December 2018 were elected by the Annual General Meeting of Shareholders held on 16 April 2018.

In accordance with the Charter, the minimum number of elected members of the Board of Directors is seven. The Group is committed to transparent election procedures for each member, which, among other provisions, entail the following:

— the Group’s shareholders are entitled to nominate members of the Board of Directors;

— the Group discloses information on the composition of the current Board of Directors and on prospective candidates in a timely manner;

— cumulative voting is applied in the election of members of the Board of Directors.



ActualPlanned

In personHeld remotely

NUMBER OF ISSUES CONSIDERED BY MEETINGS OF THE BOARD OF DIRECTORS

65

2014

18

51

201614

66

2015

22

35

2017

17

38

201814

NUMBER OF BOARD MEETINGS

7

2014

3

10 7

2015

4

11

3

2016

710

3

2017

58

4

2018

59


Annual Review 2018

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ACTIVITIES REVIEWIn 2018, the Board of Directors held 9 meetings, including 5 meetings held remotely.

STRATEGIC PLANNING AND INVESTMENT ACTIVITIES:

— review and approval of the report on 2017 annual investment programme execution;

— decisions were taken on the implementation of major investment projects;

— approval of the securities placement (bonds) and related issuance documentation;

— ongoing review of major investment projects.

CORPORATE GOVERNANCE:

— approval of revisions to SIBUR’s internal documents;

— approval of a number of decisions on corporate matters including convening of the General Shareholders’ Meeting to review and approve a revised version of the Charter and Company by-laws;

— extension of the agreement on the transfer of powers of the sole executive body of the management organisation;

— approval of PricewaterhouseCoopers as an independent auditor for SIBUR’s 2018 financial statements in accordance with RAS and IFRS.

ISSUES CONSIDERED AT MEETINGS OF THE BOARD OF DIRECTORS IN 2018

Financial management 45%Corporate governance 26%Operational issues 5%

Strategic issues 16%

Other 8%

26

5

16

8

45

BUDGET PLANNING AND FINANCING ACTIVITIES:

— review and recommendation for approval by General Meeting of Shareholders of 2017 annual report and financial results;

— review and approval of the report on 2017 annual business plan execution, including financial and operational performance;

— approval of the business plan and investment programme for 2019;

— approval of the SIBUR Performance Contract for 2019;

— approval of several financing transactions.

SIBUR Performance Contract is a set of indicators and targets against which the Company’s performance is evaluated.


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PARTICIPATION OF MEMBERS OF THE BOARD OF DIRECTORS IN THE WORK OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES IN 2018

Members of the Board of Directors in 2018

Independent director

Board of Directors (9 meetings)

Audit Committee (9 meetings)

Strategy and Investments Committee (4 meetings)

Human Resources and Remuneration Committee

(5 meetings)

Leonid Mikhelson All

Wang Dan All All

Alexander Dyukov All All 4/5

Li Chengfeng (since 28 December 2018) All

Alexey Komissarov (since 16 April 2018) + All All All

Dmitry Konov All

Denis Nikienko (till 16 April 2018) All All All

Peter Lloyd O'Brien (since 16 April 2018) + All All All

Vladimir Razumov All All All

Kirill Shamalov All All All

Ilya Tafintsev (until 16 April 2018) All All

Gennady Timchenko All All

Ruben Vardanyan (until 16 April 2018) All All

Sergey Vasnetsov (since 16 April 2018) + All All All

Andrey Vernikov (since 16 April 2018) + All All All

Chang Zhenyong (until 28 December 2018) All All

“All” refers to the number of Board/Committee meetings where a director had to be present either before the termination of the director’s term of office or following his or her election to the Board/Committee.




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Board Committees

In order to ensure the effectiveness of the Board’s functions, SIBUR’s Board of Directors has established three Board Committees. They undertake a more detailed review of the issues within their areas of responsibility and make recommendations to the Board as necessary.

In accordance with corporate governance best practice, the Chairman of the Audit Committee is an independent director of the Board. Committee members are elected by the Board during the first meeting of the newly composed Board of Directors for a term lasting until the next Board of Directors’ election by the shareholders. The current Committee members have been elected by the Board on 5 February 2019.

AUDIT COMMITTEE

ISSUES CONSIDERED AT MEETINGS OF THE AUDIT COMMITTEE IN 2018

Issues on audit conduction 32%Risk management 23%Financial management 13%

Recommendations on dividends 6%

Other 26%

23

13

6

26

32

COMMITTEE ROLE:

Responsible for developing and issuing recom mendations to the Board of Directors on:

— an annual independent external audit of the Group’s financial statements, including IFRS financial statements;

— independent external auditor’s qualifications, the quality of the services rendered by the auditor, and whether the auditor satisfies the requirements for independence;

— improvements to internal controls and risk management functions;

— assessment of the effectiveness of internal controls and risk management functions and recommendations for further improvement;

— dividend amounts and payout schedules.

COMMITTEE COMPOSITION

— Peter Lloyd O'Brien (Chairman)

— Alexey Komissarov

— Sergey Vasnetsov

— Andrey Vernikov

9 MEETINGS OF THE AUDIT COMMITTEE IN 2018



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HUMAN RESOURCES AND REMUNERATION COMMITTEE

ISSUES CONSIDERED AT MEETINGS OF THE HUMAN RESOURCES AND REMUNERATION COMMITTEE IN 2018

HR policies 42%Performance indicators 25%Other 33%

25

33

42

COMMITTEE ROLE:

Responsible for developing and making recommendations to the Board of Directors on:

— the key Group’s human resource policies;

— the Group’s annual performance indicators and annual and semi-annual results;

— the Group’s long-term incentive programmes;

— criteria and policies for candidate selection to the management bodies;

— remuneration policy applicable to members of management bodies;

— implementation of personnel policy for subsidiaries and affiliates.

The Committee submits recommendations to the Group’s Board of Directors on improvements to HR polices at the Group level and at LLC SIBUR, as well as the criteria for the qualifications of independent directors.


— Alexey Komissarov (Chairman)

— Peter Lloyd O’Brien

— Alexander Dyukov

— Andrey Vernikov

5 MEETINGS OF THE HUMAN RESOURCES AND REMUNERATION COMMITTEE IN 2018

Board Committees (continued)



Annual Review 2018

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STRATEGY AND INVESTMENTS COMMITTEE

ISSUES CONSIDERED AT MEETINGS OF THE STRATEGY AND INVESTMENTS COMMITTEE IN 2018

COMMITTEE ROLE:

Responsible for developing and issuing recommendations to the Board of Directors on:

— defining SIBUR’s priority areas for development;

— defining the Group’s long-term strategy (including financing strategy), objectives and key initiatives, as well as annual and long-term investment programmes;

— evaluating the Group’s investment programme and strategic planning process as well as the Group’s policy on interaction with investors and shareholders and proposing improvements;

— issues related to the Group’s establishment of commercial entities, as well as mergers, acquisitions, divestments or pledges of the Group’s assets;

— issuance of bonds or other securities.


— Alexander Dyukov (Chairman)

— Wang Dan

— Li Chengfeng

— Vladimir Razumov

— Kirill Shamalov

— Gennady Timchenko

— Sergey Vasnetsov

4MEETINGS OF THE STRATEGY AND INVESTMENTS COMMITTEE IN 2018

Strategic issues 36%Operational issues 29%Financial management 14%

Other 21%

29

14

21 36


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The Corporate Secretary position was established at SIBUR in 2008. The Corporate Secretary’s key responsibilities are to ensure efficient corporate procedures aimed at protecting shareholder rights and ensuring SIBUR’s commitment to shareholder interests, as well as supporting management decision-making, including:

— Interaction with shareholders and their representatives to support the effective work of the Group’s governing bodies and ensure shareholders’ rights and commitment to shareholder interests;

— Ensuring execution of procedures regulating the activities of collegial bodies in compliance with federal laws, SIBUR’s Charter and other internal corporate policies;

— Arrangement of the Company’s engagement with shareholders, preparation of replies to their requests and inquires;

— Advisory support to the Board of Directors, Management Board and shareholders;

— Ensuring the efficient functioning of the collegial executive bodies of PJSC SIBUR Holding and the Management Company LLC SIBUR, including:

• General Meeting of Shareholders of PJSC SIBUR Holding

• Board of Directors of PJSC SIBUR Holding

• Management Board of SIBUR Holding

• Board Committees of PJSC SIBUR Holding

• Investment committee of the Management Company LLC SIBUR

• Governing boards of investment projects

• Organisational Projects committee of the Management Company LLC SIBUR

• Management Board of the Management Company

• Ethics and Compliance committee of the Management Company LLC SIBUR;

— Ensuring best practices in accordance with professional standards and bodies;

— Control over the implementation of decisions made by governing bodies.

MARINA MEDVEDEVACORPORATE SECRETARY OF PJSC SIBUR HOLDING

Education 2000: Moscow Academy of Economics and Law, degree in Law2004: Winner of the Edmund S. Muskie Graduate Fellowship Program (U.S. Department of State)2008: Moscow State Institute of International Relations (MGIMO), MBA course “International Oil & Gas Business”2004-2009: INSEAD, various executive management courses

Professional ExperienceActive employmentSince 2016: Secretary to the Board of Directors, Board Committees and Management Board of PJSC SIBUR HoldingSince 2016: Member of the Management Board and Managing Director, Business Processes, Shared Services, Corporate Governance at LLC SIBURSince 2012: Member of the Board of Directors of Petrochemical India Private Limited and Reliance Sibur Elastomers Private Limited

Past employmentMs. Medvedeva joined SIBUR in 2008 and served as Head of the Governing and Executive Bodies Administration and as Administrative Services Director. Prior to that, Ms. Medvedeva worked as Head of the Management Board and Committees Services Department and as Corporate Secretary to the Management Board of OJSC TNK-BP Management.

Corporate Secretary



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Management Board

MANAGEMENT BOARD ROLE AND RESPONSIBILITIES

SIBUR’s Management Board is the Group’s Collegial Executive Body. The Management Board is responsible for the effective management of the Group. The Management Board also participates in the development and execution of the Group’s strategy.

MANAGEMENT BOARD COMPOSITION

In accordance with the Group’s Charter, the Management Board is formed by the Board of Directors from the Group’s senior executives based on the recommendations of the Sole Executive Body.

The Group’s Management Board consisted of seven members as of 31 December 2018.

MANAGEMENT BOARD COMPOSITION AS OF 31 DECEMBER 2018

Name Year of birth Title Year of appointment

Dmitry Konov 1970 Chairman of the Management Board 2007

Vladimir Razumov 1944 Deputy Chairman of the Management Board 2007

Kirill Shamalov 1982 Deputy Chairman of the Management Board 2017

Mikhail Karisalov 1973 Member of the Management Board 2007

Alexey Kozlov 1982 Member of the Management Board 2015

Sergey Lukichev 1964 Member of the Management Board 2016

Alexander Petrov 1981 Member of the Management Board 2016

DMITRY KONOVChairman of the Management Board of PJSC SIBUR Holding

See biography on p. 102.

VLADIMIR RAZUMOVDeputy Chairman of the Management Board of PJSC SIBUR Holding Member of the Management Board of LLC SIBUR


KIRILL SHAMALOVDeputy Chairman of the Management Board of PJSC SIBUR Holding


The primary objectives of the Management Board include managing SIBUR assets to maximise their value and returns, improving the efficiency of internal controls and risk management functions, and ensuring the protection of shareholder rights and interests.



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MIKHAIL KARISALOVMEMBER OF THE MANAGEMENT BOARD OF PJSC SIBUR HOLDINGCHAIRMAN OF THE MANAGEMENT BOARD LLC SIBUR

Education1998: Russian Civil Service Academy under the President of the Russian Federation, degree in State and Municipal Management2010: Tyumen State Oil and Gas University, professional retraining course in Chemical Technology of Natural Energy Sources and Carbon Materials

Professional ExperienceActive employmentSince February 2018: Chairman of the Management Board and CEO of LLC SIBUR (Member of the Management Board – Chief Operating Officer in 2016 – February 2018)Since 2016: Member of the Board of Directors of JSC NIPIGAZSince 2014: Chairman of the Board of Directors of LLC STGMSince 2007: Member of the Management Board of PJSC SIBUR Holding (Deputy Chairman till 2017)

Past employmentMr. Karisalov joined SIBUR in 2003 and held various positions at the Group including those of Advisor to the President, Director of Procurement, Head of Logistics and Capital Construction. In 2006-2011 he was a Vice-President – Head of Hydrocarbon Feedstock Department at LLC SIBUR. Mr. Karisalov was also a Member of the Board of Directors of LLC Tobolsk-Polymer and LLC Yuzhno-Priobskiy GPP.

ALEXEY KOZLOVMEMBER OF THE MANAGEMENT BOARD OF PJSC SIBUR HOLDINGMEMBER OF THE MANAGEMENT BOARD – MANAGING DIRECTOR, ADMINISTRATIVE SUPPORT AND GR, LLC SIBUR

Education2004: Moscow State Law University, degree in Law. Ph.D. in Law

Professional ExperienceActive employmentSince 2015: Member of the Management Board of PJSC SIBUR Holding (Deputy Chairman till 2017)Since 2015: Member of the Management Board – Managing Director, Administrative support and GR, LLC SIBUR

Past employmentMr. Kozlov held various positions in the Russian Ministry for Economic Development, including Deputy Head of State Property Management, Chief Counselor at the Department of Priority National Projects and an Assistant to Deputy Chairman in the Government of the Russian Federation. He also worked as a Head of the Department of Social Development of the Government of the Russian Federation.

In February 2018, SIBUR updated the Articles of Association of Management Company SIBUR LLC and it now has two single-member executive bodies, namely that of Chairman of the Management Board of SIBUR Holding (Dmitry Konov) and CEO of SIBUR LLC (Mikhail Karisalov, previously COO of SIBUR LLC). This decision resulted from previous efforts seeking to separate strategic from operational management, and is intended to further enhance management efficiency.

Management Board (continued)



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SERGEY LUKICHEVMEMBER OF THE MANAGEMENT BOARD OF PJSC SIBUR HOLDINGMEMBER OF THE MANAGEMENT BOARD – MANAGING DIRECTOR, CORPORATE SECURITY AND AUDIT, LLC SIBUR

Education1986: Perm High Command Military Academy, degree in Physics and Power Plants

Professional ExperienceActive employmentSince November 2018: Member of the Management Board – Managing Director, Corporate Security and Audit, LLC SIBURSince 2016: Member of the Management Board of PJSC SIBURSince 2016: Member of the Board of Directors of LLC STM (Advanced Metal Protection Technologies)

Past employment:In 2011-2018 Mr. Lukichev was a Member of the Management Board – Managing Director, Information Security of LLC SIBUR. He also served in the military.

ALEXANDER PETROVMEMBER OF THE MANAGEMENT BOARD OF PJSC SIBUR HOLDINGMEMBER OF THE MANAGEMENT BOARD – MANAGING DIRECTOR, ECONOMICS AND FINANCE, LLC SIBUR

Education2003: Finance Academy under the Government of the Russian Federation, degree in Finance and Credit2014: INSEAD, MBA

Professional ExperienceActive employmentSince 2016: Member of the Management Board – Managing Director, Economics and Finance, LLC SIBURSince 2015: Member of the Board of Directors of LLC RusVinyl

Past employmentIn 2006–2016 Mr. Petrov held various positions at SIBUR, including Head of the Economics Department, CFO at SiburTyumenGaz, Financial Director of the Hydrocarbons Division, and Director for Financial Controlling.

Prior to that he worked at PricewaterhouseCoopers Audit as an audit consultant and senior advisor.


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SIBUR complies with the requirements of anti-corruption legislation and codes of conduct in each country where we operate. SIBUR applies anti-corruption principles in its operating activities as well as in the implementation of strategic projects and participation in joint ventures, and in relations with commercial and financial counterparties.

The fundamental requirements and principles that each SIBUR employee must follow to protect property rights, safeguard against bribery or fraud and avoid potential conflicts of interest are contained in SIBUR’s Code of Corporate Conduct.

Visit the Company’s website to find more information on SIBUR’s Code of Corporate Conduct at: https://www.sibur.ru/en/compliance/

SIBUR continuously reviews and strengthens its compliance management system and policies to prevent fraud, abuse and conflicts of interest. In this regard, the Company has adopted a by-law on managing conflicts of interests. In addition to policies that go above and beyond legal compliance that the Company has adopted voluntarily, SIBUR has approved “Anti-corruption policy” with guidelines and requirements for employees when interacting with governmental authorities and counterparties to ensure compliance with anti-corruption legislation. SIBUR regularly updates existing practices to adjust to changes in legislation and to align with international best practices.

The Company provides appropriate communication and education for employees regarding compliance with anti-corruption and conflicts of interest policies, including:

— Directly or indirectly offering bribes to government officials;

— Commercial bribery;

— Requesting, accepting or approving illegally-obtained money, securities or other material property from third parties;

— Illegal abuse of authority for personal or third-party gains and purposes contrary to SIBUR’s interests.

SIBUR’s key anti-corruption and compliance activities in 2018 included the following:

— Independent evaluation of the corporate anti-corruption program for compliance with the international standard ISO 19600: 2014 “Compliance Management System” conducted by JSC “Bureau Veritas Certification Rus”

— Internal audit of the anti-corruption compliance program

— Trainings for employees on anti-corruption compliance

— “Compliance” section added on SIBUR website

Anti-corruption Policies and Compliance



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To prevent the taking and receiving of bribes, SIBUR issued employee guidelines on gift-giving.

The Ethics and Compliance Committee established by the Company’s management is comprised of the heads of the Security, Legal Services, Corporate Secretary and Administrative Services, and Human Resources Departments. The Committee’s key objective is to coordinate activities among SIBUR’s subsidiaries and ensure compliance with regulatory requirements, ethical business behavior, prevention of corrupt practices and violations, and resolution of conflicts of interest.

Ethics and Compliance Commissions at SIBUR’s production sites are headed by the sites’ General Directors, whose authority includes investigating conflicts of interest, evaluation of identified conflicts, and developing processes to mitigate conditions that may lead to conflicts of interest among employees.

According to SIBUR’s conflicts of interests policies, all employees are required to report any existing or potential conflicts of interest. An independent and anonymous Hotline (website: https://sibur.deloitte-hotline.ru, e-mail: [email protected], tel: +7 800 500-08-74) was set up to receive information about circumstances that can be interpreted as a conflict of interest, as well as for consulting on these issues. Information is collected and processed by an independent operator, Deloitte.

All situations that may signal a conflict of interests are investigated by the Ethics and Compliance Committee and Commissions at production sites. In 2018, these bodies held 58 meetings in total, and as a result 38 conflicts of interest were treated as material. Each case was separately evaluated and followed up with subsequent corrective actions.

SIBUR’s anti-corruption and compliance strategy and policies are designed to mitigate the risk of Company management and employee involvement in corrupt activities irrespective of their position, and minimise negative consequences for the Company resulting from employee conflicts of interest.

website: https://sibur.deloitte-hotline.ru e-mail: [email protected] tel: +7 800 500-08-74

Materialised con�icts reviewed by Ethics and Compliance Committee and Commissions meetings in 2018

MATERIALISED CONFLICTS REVIEWED BY ETHICS AND COMPLIANCE COMMITTEE AND COMMISSIONS MEETINGS IN 2018

Direct subordinafon to close relatives 47%Employees or their relatives are associated with contractors 21%

Conduction of part-time work for counterparties during working hours 16%

Usage of Company's assets, property and informafon to the benefit of third parties 5%

Other violations of the Code of Corporate Ethics 11%

21

16

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EXTERNAL AUDITOR

The Company annually hires an external auditor to perform an independent and unbiased assessment of the quality of its Russian Accounting Standards (RAS) and International Financial Reporting Standards (IFRS) financial statements.

External auditors are hired based on tenders providing an objective selection. The Company’s auditor is approved by the General Meeting of Shareholders based on a proposal from the Board of Directors. A preliminary assessment of auditor candidates is conducted by the Audit Committee. PricewaterhouseCoopers Audit JSC (PwC) was re-elected as the Company’s auditor at the General Meeting of Shareholders in April 2018.

The fees for the audit according to RAS and IFRS of the SIBUR Holding PJSC financial statements for 2018, including review of interim semi-annual financial information for 3, 6 and 9 months of 2018, comprised RUB 46,405,000 (excluding VAT).

SHARE CAPITAL

The share capital of PJSC SIBUR Holding amounts to RUB 21,784,791,000. As of 31 December 2018, the share capital consisted of 2,178,479,100 ordinary shares with a par value of RUB 10 each.

The state registration number is 1-02-65134-D, with a registration date of 31 May 2012.

The number of authorised shares amount to 9,653,045,500 ordinary shares and 2,500,000,000 preferred shares with a par value of RUB 10 each. No preferred shares have been issued.

SHAREHOLDING STRUCTURE

DIVIDENDS

Our dividend policy is aimed at increasing SIBUR’s investment appeals and shareholder value.

Our capital allocation objective is to balance the financial needs of the business and returns for shareholders, while respecting shareholders’ rights and complying with Russian legislation and SIBUR charter documents.

The General Shareholders’ Meeting makes decisions on dividend payouts and amounts, and the timing and form of payment, based on the Board of Directors’ recommendations.

The Board of Directors makes dividend recommendations based on SIBUR’s payout target of not less than 35% of net profit attributable to the shareholders of the parent company, as determined on the basis of the Company’s consolidated financial statement prepared in accordance with IFRS for the relevant reporting period and adjusted for:

— the amounts of foreign exchange gains and/or losses;

— the amount of extraordinary non-cash income and expenses, including those related to the amount of share-based payments to employees obtained on behalf of the Company and not consolidated in the Company’s IFRS financial statements;

— one-off (irregular) income and expenses.

In accordance with an updated dividend policy approved in March 2019 (previous version of the dividend policy implied a 25% payout ratio).

Information for Shareholders


48.514.5

17

10

10

Leonid Mikhelson 48.5%Gennady Timchenko 17.0%Current/former Managers of PJSC SIBUR 14.5%

Sinopec 10.0%

The Silk Road Fund 10.0%


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DIVIDENDS ACCRUED AND PAID FOR 2014-2018

Dividend accrual period Dividend per share, RUB Dividends accrued, RUB

1H 2014 3.53 7,690,031,223

2H 2014 4.42 9,628,877,622

1H 2015 3.90 8,496,068,490

2H 2015 3.24 7,058,272,284

1H 2016 3.33 7,254,335,403

2H 2016 4.30 9,367,460,130

1H 2017 4.50 9,803,155,950

2H 2017 6.75 14,704,733,925

1H 2018 5.06 11,023,104,246

2H 2018 10.46 22,786,891,386

Visit the Company’s website to find more information on SIBUR DIVIDEND POLICY at:http://www.sibur.ru/en/about/corporate/documents/

33.8

20182017

24.5

2016

16.615.6

2015

17.3

2014

DIVIDENDS ACCRUED AND PAID RUB 33.8 bln

38%

NOT LESS

35.0%PAYOUT RATIO TARGETED BY OUR UPDATED DIVIDEND POLICY


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Risk management is an important element of SIBUR’s corporate strategy, involving a constant cycle of identification, assessment and mitigation of near-term and long-term risks that could affect our performance, value and ability to conduct business. SIBUR continuously acts to improve its risk management system and properly mitigate risks arising from its business operations and strategic development.

KEY GOALS

— Support for strategy implementation;

— Preservation of asset value and increase in operational efficiency.

IMPROVEMENTS IN 2018

— Improved methodology: a single corporate risk matrix has been approved for use in risk assessment at all levels of the Company;

— Maps on key risks have been developed for consideration by the Board of Directors’ Audit Committee and for decision making by the Company’s management;

— All Corporate risks are listed in a single register;

— Risk evaluation sessions were conducted based on a cross-functional expert review to improve risk detection and assessment procedures.

ONGOING DEVELOPMENTS

— Review of changes in assessments of risk areas on the map, taking into account completed audits, and updating key risks by the business

— Further integration of risk management into business planning processes, which will enable us to:

• Evaluate the probability of achieving planned KPIs with in view of overall risk

• Evaluate potential deviations in KPIs set in a business plan as a result of risk impact

• Evaluate correlations and relationships between risks

• Rank risks based on probability and impact on SIBUR’s KPIs and deviations from planned targets

• Minimise deviations of actual results from targets by increasing the resilience of our business plans to unfavourable events, through contingency allowances, response plans and other de-risking strategies.

EVALUATION

2

MITIGATION PLANS AND ACTIONS

3

EXECUTION &MONITORING

4

IDENTIFICATION

1

Continuousmonitoring

Identification of risks that impact the Company’s operational performance.

1

Continuous monitoring of risk mitigation actions with respect to timeliness and efficiency.

4

Evaluation and prioritisation of each risk’s impact on the Company’s performance and business as a whole, including an analysis of risk probabilities and possible losses.

2

Development of mitigation action plans for each risk.

3

Risk owners report on the status of risks at annual Audit Committee meetings.

Risk Management


Annual Review 2018

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LESSONS LEARNED By analysing past experience – the reasons for risk occurrences and lessons learned – and by sharing knowledge Group-wide, we aim to prevent the same issues from being repeated in other Group entities. Knowledge and experience sharing with respect to realised risks allows us to optimise risk management processes Group-wide.

ACCOUNTABILITY SIBUR employees at every level are responsible for the risks related to their functional and control areas. They monitor and manage risks, applying risk matrices and appropriate oversight procedures.

INFORMED DECISION-MAKING All management decisions incorporate information regarding risk probabilities and possible losses provided by internal and external sources. All secondary effects that could arise as a consequence of mitigating primary risks are taken into account as well.

We apply an integrated and unified approach to risk management. Implementation of a consistent policy ensures a holistic approach across the entire risk spectrum. GOAL SETTING Risks are identified simultaneously with goal-setting. To manage risks effectively, we seek to integrate risk analysis as we set business goals at all levels of the Company.

OPEN DISCUSSION Risk management requires open discussion both internally and with key stakeholders. SIBUR employees take part in our risk management process, assessing risk probabilities and possible losses, providing input targeted at risk prevention and loss minimisation, which are openly discussed within departments and at cross-functional risk-management sessions.

RISK MANAGEMENT PRINCIPLES

INTEGRATED APPROACH

RISK MANAGEMENT SYSTEM STRUCTURE

RECEPTIVITY TO NEW IDEAS Risk management requires constant assessment, flexibility and a preventive mindset in all business areas. Openness to change allows us to take advantage of new ideas and technologies and translate them into opportunities, while mitigating negative impacts.

CONTINUITY Risk management involves a constant cycle of interconnections and changes. All elements of our risk management system are interconnected and influence each other, and they are directly correlated with the Company’s business processes and updated to reflect major changes and business developments.

At the direction of the Audit Committee, key risks include events that can significantly affect the achievement of key Company goals over both the short and long term.

BOARD OF DIRECTORS Key risks

MANAGEMENT BOARD Risks at the corporate level

PROCESS OWNERS Risks at the operational level

PRODUCTION SITES Risks at the production level


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SIBUR applies a risk-based approach in the decision-making process and operations management. Risks are considered an inherent part of operating the business, and risk management is built into each employee’s responsibilities. Regular monitoring and evaluation are conducted in relation to identified risks, while the Company plans and monitors the implementation of specific actions aimed at risk prevention and mitigation.

Key risks and related response strategies are reviewed and approved by the Board of Directors’ Audit Committee. Regular updates to the list of key risks help to guide Management and employee efforts to manage the most significant risks that could impact the Company’s operations.

The current list of key risks was revised and approved in April 2019.

At the direction of the Audit Committee, key risks include events that can significantly affect the achievement of keyCompany goals over both the short and long term. The list of risks presented herein is not exhaustive and only reflects SIBUR’s opinion and assessments. This section does not include any analysis of general economic and social risks, such as slowdowns in economic growth or decreases in consumer purchasing power, among others.

KEY RISKS

MARKET RISK IT SYSTEMS RISK

LOGISTICAL RISK INVESTING ACTIVITY RISK

OPERATIONAL RISK

RISK OF FEEDSTOCK UNDERSUPPLY

INDUSTRIAL ACCIDENT RISK RISK TO THE COMPANY’S LONG-RUN FINANCIAL SUSTAINABILITY REGULATORY RISK

Risk Management(continued)


Annual Review 2018

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OPERATIONAL RISK DESCRIPTION Decreased production volumes, deterioration in product quality, increased operating expenses on production resulting from malfunction or shutdown of production processes, equipment failures or reduced operating efficiency of equipment.

RISK MITIGATION ACTIONS To reduce the impact of risks, the Company is rebuilding and modernising its facilities, organising continuous operations and equipment condition monitoring, introducing advanced methods to maintain and upgrade fixed assets, undertaking projects designed to enhance the skills of workers who operate equipment, and protecting against production interruptions and unplanned production outages at key Company facilities.

FEEDSTOCK SUPPLY RISK DESCRIPTION Insufficient supply of feedstock on the market or a shortage of individual feedstock fractions, low quality of feedstock.

RISK MITIGATION ACTIONS To manage these risks, the Company is taking the following measures:

— locating production facilities in close proximity to feedstock producers;

— implementing projects to pursue further extraction and develop the feedstock base;

— investing in infrastructure to collect, process and transport feedstock in order to consolidate the flow of hydrocarbon feedstock and ensure reliable access to the feedstock base;

— signing long-term feedstock supply contracts;

— diversifying feedstock suppliers where possible.

INDUSTRIAL ACCIDENT RISK DESCRIPTION Risks involving a danger to people’s life, health and safety; damage or destruction of equipment, buildings and installations; and pollution caused by use of the Company's assets and as a result of possible accidents at related enterprises.

RISK MITIGATION ACTIONS The Company is taking active steps to minimise the potential impact of such risks. In particular, sites are monitored continuously for emergency risk factors, and projects designed to improve industrial safety culture and safeguard property are underway.

MARKET RISK DESCRIPTION Reduced demand and/or lower prices for the Company's products, including lower prices for oil and petroleum products, increased market competition, and displacement of the Company’s products by alternative products.

RISK MITIGATION ACTIONS Market risk management is being carried out in several areas: market monitoring and analysis; market segment diversification; product portfolio development; geographic diversification for product sales; conclusion of long-term sales contracts for finished products; fulfilment of customers’ product quality, transportation, labelling and packaging requirements; development of a sales system and sales channels to account for expanded production capacity; and under taking premarketing activities.

LOGISTICAL RISK DESCRIPTION Increased logistics costs; changes in the timing of feedstock and finished product delivery; changes in product quality during transport, loading, unloading, and storage; and suboptimal meeting of production requirements with existing inventories.

RISK MITIGATION ACTIONS The Company is developing alternative transport routes, taking measures to create and/or update infrastructure facilities, developing comprehensive long-term solutions to logistics challenges together with its shipping partners – Russian Railways and the Russian Government.


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Risk Management(continued)

LONG-TERM FINANCIAL SUSTAINABILITY RISK DESCRIPTION SIBUR’s business and operational results may be negatively affected by lower demand or reduced prices for its products, changes in consumers’ requirements, higher competition as well as market share losses in its key markets. These factors may negatively affect the Company’s operational and financial results.

RISK MITIGATION ACTIONS Baa3 investment rating with Stable outlook received from Moody’s rating agency; RDIF credit covenants aligned with Eurobond conditions; Active portfolio management, including early loan repayment; Expansion of credit instruments using state support (financing from the Monocity Development Fund); Access to the rouble bond market secured: bond issues have been registered.

IT SYSTEMS RISK DESCRIPTION Failure of key information systems and equipment, unauthorized access to information, and corruption of information during transmission.

RISK MITIGATION ACTIONS To manage these risks, the Company continues to develop information backup systems, as well as systems to protect information, channels and communication equipment from external intrusion.

INVESTING ACTIVITY RISK DESCRIPTION Increased timing and cost of investment project implementation, as well as failure to broadly achieve investment activity performance measures.

RISK MITIGATION ACTIONS A contract strategy is formed early, schedules are developed to mobilise contractors based on performance and workload; and workflows are planned and adjusted based on the actual supply of materials.

Project implementation plans and productivity are monitored weekly, with adjustment of worker mobilisation plans.

Alternative suppliers are being selected, and confirmation is provided for order placements and the start of component manufacturing.

Backup options are being developed with efficiency analysis.

REGULATORY RISK DESCRIPTION Changes in the regulatory environment (laws, standards and regulatory requirements); political instability in Russia and the regions where the Company operates, as well as international sanctions.

RISK MITIGATION ACTIONS The Company uses an information analysis system to monitor counterparties and the regulatory environment in order to develop timely responses to changes in legislation, consults and trains employees on legal issues, and actively participates in discussions of draft legislation.


Annual Review 2018

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The Group also maintains directors and officers liability insurance (D&O) that protects the Group and its directors and officers against possible third-party lawsuits that may arise from unintentional and/or erroneous actions. To protect its trading operations and risks to product supplies on extended payment terms, the Group maintains comprehensive cargo and credit insurance programmes.

Additionally, the Group maintains insurance coverage for construction risks at its major investment projects, including risks related to construction, third-party liabilities, cargo transportation and financial losses resulting from delays in commissioning of new facilities due to material damage or destruction of insured objects.

The Group regularly reviews the terms of its insurance coverage and relationships with reinsurance market players. Reinsurance is provided by major reinsurance companies with a credit rating of “A-” or better on the S&P Global Ratings’ financial strength rating scale.

The Group believes that insurance coverage is only one of the risk mitigation actions it must take as part of a comprehensive risk mitigation approach and works to implement other measures to decrease its maximum cumulative risk.

INSURANCE

To mitigate operational risks, SIBUR maintains insurance coverage that meets global standards and best practices. Insurance policies are underwritten by reputable Russian insurance companies, with partial placement of risks on international insurance and reinsurance markets.

All of the Group’s production facilities are covered under comprehensive property damage (PD) insurance programmes. PD insurance is maintained for full replacement value based on an independent valuation. An independent surveyor identifies risks at each production facility. Based on the surveyor’s reports, estimated maximum losses are determined, and the Group then implements and monitors compliance with the surveyor’s recommendations.

For facilities where accidents could incur the largest financial impact and replacement costs, the Group maintains insurance coverage against property damage and business interruption (PD / BI).

The Group also maintains liability insurance for harm to the life, health, or property of third parties. This liability policy is supplemental to the compulsory insurance of hazardous production facilities, to provide efficient coverage against possible third-party claims resulting from accidents and risk occurrences at the Group’s production sites.


FINANCIALINFORMATION

Our balanced business model helps us deliver sustainably resilient EBITDA margins, strong operating cash flows

and ensure a solid financial performance.

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187

IFRS ConsolidatedFinancial Statements

128

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

180

Independent Auditor’s Report

For the full set of FY 2018 results materials visit FINANCIAL RESULTS CENTRE on our website:http://investors.sibur.com/results-centre/financial-results.aspx?sc_lang=en

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http://investors.sibur.com/results-centre/financial-results.aspx?sc_lang=en


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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”).

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

as of and for the years ended 31 December 2018

Management’s Discussion and Analysis of Financial Condition and Results of Operationsas of and for the years ended 31 December 2018


Annual Review 2018

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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

Year ended 31 DecemberChange, %

2018 2017

Processing and production volumes

APG processing, SIBUR’s share (million cubic metres) 22,283 22,280 n/mNGLs purchasing 3,490 3,013 15.8%Raw NGL fractionation, SIBUR’s share 7,712 7,522 2.5%

Sales volumesPetrochemical products, including: 3,686 3,625 1.7%

PP 583 598 (2.5)%PE (LDPE) 262 268 (2.2)%Elastomers 486 485 0.2%Plastics and organic synthesis products 800 771 3.8%Intermediates and other chemicals 483 520 (7.1)%

Midstream products, including: 6,402 5,805 10.3%LPG 5,357 4,924 8.8%Naphtha 1,045 878 19.0%

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.

Excluding third-party volumes processed at SIBUR’s capacities. Including volumes processed at third-party capacities and excluding third-party volumes processed at SIBUR’s capacities.



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FINANCIAL RESULTS

The following table presents the Group’s key financial measures for the years ended 31 December 2018 and 2017:

RUB millions, except as stated


2018 2017

Revenue (net of VAT and export duties) 568,647 454,619 25.1%Adjusted EBITDA 205,529 164,964 24.6%EBITDA 201,007 160,851 25.0%

EBITDA margin, % 35.3% 35.4%EBITDA of reportable segments

Olefins & Polyolefins 37,679 44,636 (15.6%)Plastics, Elastomers & Intermediates 34,816 33,037 5.4%Midstream 127,107 86,672 46.7%

EBITDA (USD millions) 3,205 2,757 16.2%Adjusted EBITDA (USD millions) 3,278 2,827 16.0%Profit for the year 110,760 120,246 (7.9%)

Cash flow highlightsNet cash from operating activities 160,409 152,677 5.1%

Cash generated before income tax payment 184,991 172,317 7.4%Operating cash flows before working capital changes 194,796 161,940 20.3%

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%

As of 31 December 2018 As of 31 December 2017

Key ratiosNet debt/EBITDA 1.58x 1.64xNet debt/EBITDA (in USD) 1.43x 1.66xEBITDA/Interest 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.

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. Interest represents accrued interest, i.e. includes interest expense and capitalised interest net of capitalised foreign exchange loss



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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.

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 2017.

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”.



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OVERVIEW

SIBUR is a leader in the Russian petrochemicals industry with uniquely positioned balanced business model. More than 26,000 employees 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.

As of 31 December 2018, excluding the personnel of non-consolidated joint ventures.



Annual Review 2018

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RECENT DEVELOPMENTS

In December 2018, SIBUR held its Extraordinary General Meeting of Shareholders. The shareholders elected the new Board. Li Chengfeng, 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 2021. 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 4.125% 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 24.508 billion representing 25% of adjusted net profit under IFRS for 2017. 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.

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.



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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:



2018 % of revenue 2017 % of revenue

Revenue 568,647 100.0% 454,619 100.0% 25.1%Olefins & Polyolefins 100,862 17.7% 88,135 19.4% 14.4%Plastics, Elastomers & Intermediates 171,003 30.1% 146,877 32.3% 16.4%Midstream 240,818 42.3% 184,199 40.5% 30.7%Unallocated 55,964 9.8% 35,408 7.8% 58.1%

incl. Revenue from Project Management and Construction Services 41,047 7.2% 21,460 4.7% 91.3%

Operating expenses (403,566) (71.0%) (329,598) (72.5%) 22.4%

Operating profit 165,081 29.0% 125,021 27.5% 32.0%Net finance (expense) / income (29,359) (5.2%) 3,983 0.9% n/mResult of subsidiary’s disposal and remeasurement of related assets (425) (0.1%) 19,805 4.4% n/mResult 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 3,173 0.6% 2,073 0.5% 53.1%

Profit before income tax 138,253 24.3% 149,917 33.0% (7.8%)Income tax expense (27,493) (4.8%) (29,671) (6.5%) (7.3%)

Profit for the year 110,760 19.5% 120,246 26.4% (7.9%)

Profit for the year, including attributable to: 110,760 19.5% 120,246 26.4% (7.9%)Non-controlling interest 4,431 0.8% 3,337 0.7% 32.8%Shareholders of SIBUR 106,329 18.7% 116,909 25.7% (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”.



Annual Review 2018

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OPERATING EXPENSES

The following table presents a breakdown of our operating expenses for the years ended 31 December 2018 and 2017:




Feedstock and materials 130,669 23.0% 87,983 19.4% 48.5%Transportation and logistics 75,021 13.2% 67,058 14.8% 11.9%Staff costs 43,171 7.6% 38,334 8.4% 12.6%Energy and utilities 39,839 7.0% 38,770 8.5% 2.8%Depreciation and amortisation 35,510 6.2% 35,486 7.8% 0.1%Goods for resale 32,512 5.7% 23,170 5.1% 40.3%Services provided by third parties 29,645 5.2% 14,129 3.1% >100%Repairs and maintenance 12,792 2.2% 13,242 2.9% (3.4%)Taxes other than income tax 3,983 0.7% 3,313 0.7% 20.2%Processing services of third parties 3,696 0.6% 3,333 0.7% 10.9%Charity and sponsorship, marketing and advertising 2,297 0.4% 2,041 0.4% 12.5%Rent expenses 1,603 0.3% 1,354 0.3% 18.4%Impairment of PPE 416 0.1% 164 n/m >100%Impairment of assets held for sale — — % 180 n/m n/m(Gain)/loss on disposal of PPE (4,503) (0.8%) 319 0.1% n/mChange in WIP and refined products balances (6,247) (1.1%) (1,803) (0.4%) >100%Other 3,162 0.6% 2,525 0.6% 25.2%Operating expenses 403,566 71.0% 329,598 72.5% 22.4%

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 2017. 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 statedYear ended 31 December

Change, %2018 % of feedstock and

materials expenses 2017 % of feedstock and materials expenses

NGLs 63,234 48.4% 35,322 40.1% 79.0%APG 30,445 23.3% 26,077 29.6% 16.7%Paraxylene 9,174 7.0% 6,697 7.6% 37.0%Benzene 5,001 3.8% 4,467 5.1% 11.9%Change of stock (2,810) (2.2%) 1,049 1.2% n/mOther feedstock and materials 25,625 19.6% 14,371 16.3% 78.3%Feedstock and materials, total 130,669 100.0% 87,983 100.0% 48.5%

The cost of spare parts and materials for repairs was reclassified from “Feedstock and materials” to “Repairs and maintenance” with retrospective adjustments.



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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 40.1%. 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 29.6%. 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 2018. 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 RUB 14,371 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 2018. Our average headcount totaled 27,270 employees in 2018, down from 27,247 employees in 2017.

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.



Annual Review 2018

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The following table presents data on our energy and utilities costs for the years ended 31 December 2018 and 2017:



2018 % of total energy and utilities 2017 % of total energy

and utilities

Electricity 23,978 60.2% 22,918 59.1% 4.6%Fuel (primarily natural gas) 8,541 21.4% 8,469 21.8% 0.9%Heat 5,036 12.6% 5,188 13.4% (2.9%)Other 2,284 5.7% 2,195 5.7% 4.1%Energy and utilities, total 39,839 100.0% 38,770 100.0% 2.8%

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.

Change 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.



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OPERATING PROFIT

In 2018, our operating profit increased by 32.0% year-on-year to RUB 165,081 million from RUB 125,021 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 2018.

The following table presents data on our finance income and expenses for the years ended 31 December 2018 and 2017:


Change, %2018 2017

Interest income 1,464 2,012 (27.2%)Interest expense (945) (6,416) (85.3%)Foreign exchange (loss)/gain (28,888) 9,043 n/mOther finance expense (990) (656) 50.9%Net finance (expense)/income (29,359) 3,983 n/m

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 2017. 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 RUB 14,695 million and RUB 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 2015. In 2017, we recognised a gain of RUB 19,805 million on disposal of subsidiary following the sale of Uralorgsintez to EKTOS in April 2017. 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 2017.

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 2017. 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.



Annual Review 2018

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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 2017. The decrease was driven by lower pre-tax profit in 2018.

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.

SEGMENT INFORMATION

The following table presents selected financial information by segment for the years ended 31 December 2018 and 2017:


Change, %2018 2017

Revenue incl. Inter-Segment TransfersOlefins & Polyolefins 130,899 112,910 15.9%Plastics, Elastomers & Intermediates 174,006 149,710 16.2%Midstream 294,790 223,484 31.9%Unallocated 58,312 37,169 56.9%

External Revenue 568,647 454,619 25.1%Olefins & Polyolefins 100,862 88,135 14.4%Plastics, Elastomers & Intermediates 171,003 146,877 16.4%Midstream 240,818 184,199 30.7%Unallocated 55,964 35,408 58.1%

EBITDA 201,007 160,851 25.0%Olefins & Polyolefins 37,679 44,636 (15.6%)

PP production in Tobolsk 16,437 19,981 (17.7%)Plastics, Elastomers & Intermediates 34,816 33,037 5.4%Midstream 127,107 86,672 46.7%Unallocated 1,405 (3,494) n/m

EBITDA margin 35.3% 35.4%Olefins & Polyolefins 28.8% 39.5%

PP production in Tobolsk 46.0% 55.3%Plastics, Elastomers & Intermediates 20.0% 22.1%Midstream 43.1% 38.8%Unallocated 2.4% n/m

Adjusted EBITDA 205,529 164,964 24.6%Olefins & Polyolefins 46,507 51,790 (10.2%)Plastics, Elastomers & Intermediates 34,611 32,938 5.1%Midstream 127,771 87,415 46.2%Unallocated (3,360) (7,179) (53.2%)

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 by the Group’s External Revenue.

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.



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OLEFINS & POLYOLEFINS SEGMENT

The following table presents selected financial information for the Olefins & Polyolefins segment for the years ended 31 December 2018 and 2017:


Change, %2018 % of external revenue 2017 % of external revenue

Revenue incl. Inter-Segment Transfers 130,899 112,910 15.9%External Revenue 100,862 88,135 14.4%

PP 48,417 48.0% 42,368 48.1% 14.3%PE (LDPE) 20,496 20.3% 21,208 24.1% (3.4)%BOPP films 18,471 18.3% 16,642 18.9% 11.0%Ethylene 7,726 7.7% 5,810 6.6% 33.0%Other polymers products 4,930 4.9% 1,418 1.6% >100%Other sales 822 0.8% 689 0.8% 19.3%

EBITDA 37,679 44,636 (15.6)%EBITDA margin 28.8% 39.5%including

EBITDA of PP production in Tobolsk 16,437 19,981EBITDA margin of PP production in Tobolsk 46.0% 55.3%

JV contribution (the Group’s portion of EBITDA of joint ventures and associates) 8,828 7,154 23.4%

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 statedYear ended 31 December

Change, %2018 2017

External Sales VolumesPP 583,242 598,019 (2.5%)PE (LDPE) 262,311 268,480 (2.3%)BOPP films 152,049 155,909 (2.5%)Olefins 157,767 148,600 6.2%

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 2018. In 2018, domestic sales accounted for 65.8% of total PP revenue, while 34.2% was attributable to export sales.

The Segment’s EBITDA margin is calculated as the Segment’s EBITDA devided by the Segment’s Revenue incl. Inter-Segment Transfers.



Annual Review 2018

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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 2017. 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 2017. 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 two-year cycle fell on 2017.



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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:




Plastics and organic synthesis products 59,878 35.0% 47,227 32.2% 26.8%Elastomers 55,021 32.2% 51,857 35.3% 6.1%MTBE and fuel additives 29,753 17.4% 23,120 15.7% 28.7%Intermediates and other chemicals 25,137 14.7% 23,410 15.9% 7.4%Other sales 1,214 0.7% 1,263 0.9% (3.9%)

EBITDA 34,816 33,037 5.4%EBITDA margin 20.0% 22.1%Adj. EBITDA 34,611 32,938 5.1%

The following table presents selected operational information for the Plastics, Elastomers & Intermediates segment for the years ended 31 December 2018 and 2017:


Change, %2018 2017

External Sales VolumesPlastics and organic synthesis products 799,674 771,225 3.7%Elastomers 486,001 485,087 0.2%MTBE and fuel additives 677,546 669,909 1.1%Intermediates and other chemicals 483,132 520,492 (7.2%)




Annual Review 2018

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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-on-year 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 2018. 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.

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.



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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 22.1%. The lower margin was largely attributable to higher prices for hydrocarbon feedstock primarily supplied internally from the Midstream segment.

Midstream Segment

The following table presents selected financial information for the Midstream segment for the years ended 31 December 2018 and 2017:




LPG 152,206 63.2% 110,708 60.1% 37.5%Natural gas 49,067 20.4% 47,474 25.8% 3.4%Naphtha 37,572 15.6% 23,904 13.0% 57.2%Other sales 1,973 0.8% 2,113 1.1% (6.6%)

EBITDA 127,107 86,672 46.7%EBITDA margin 43.1% 38.8%Adj. EBITDA 127,771 87,415 46.2%

The following table presents selected operational information for the Midstream segment for the years ended 31 December 2018 and 2017:


Change, %2018 2017

Raw NGL production 5,416,730 5,401,806 0.3%Raw NGL purchases 2,689,251 2,577,842 4.3%

Raw NGL fractionation (7,712,269) (7,522,294) 2.5%

Naphtha purchases 762,233 390,597 95.1%

External SalesLPG 5,357,156 4,924,033 8.8%Natural gas (thousands of cubic metres) 18,519,244 18,477,418 0.2%Naphtha 1,045,064 878,445 19.0%




Annual Review 2018

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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.

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 38.8%. The higher margin was mainly attributable to wider spreads between purchased hydrocarbon feedstock and NGLs selling prices.



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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:


Change, %2018 2017

Net cash from operating activities 160,409 152,677 5.1%Operating cash flows before working capital changes 194,796 161,940 20.3%Changes in working capital (9,805) 10,377 n/mIncome 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 9,536 11,274 (15.4%)Proceeds from sale of property, plant and equipment 9,617 65 >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/mNet 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. Changes 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.

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.



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The following table presents data on changes in working capital for the years ended 31 December 2018 and 2017:


2018 2017

Increase in advances received under project management and construction services 45,375 56,670Increase in trade and other payables 26,127 17,660Increase in taxes payable 2,413 2,878Increase 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)

Changes 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 2018. Our working capital turnover days stayed almost flat at 14.6 as of 31 December 2018 compared to 14.2 as of 31 December 2017.

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 2017. We paid RUB 27,126 million and RUB 19,709 million in dividends to the Group’s shareholders in 2018 and 2017, respectively.



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CAPITAL EXPENDITURES

In 2018, our CapEx 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 ruble 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:

RUB millions, except as stated Year ended 31 DecemberChange, %

Project 2018 2017

ZapSibNeftekhim, ZapSib (Tobolsk) 112,369 106,896 5%Logistic platform (Tobolsk) 5,757 7,287 (21%)Dioctyl terephthalate production, DOTP (Perm) 3,798 791 >100%Terephthalic acid expansion, TPA (Bashkortostan) 2,323 1,318 76%Thermoplastic elastomers expansion, TPE (Voronezh) 1,099 352 >100%Other 14,538 11,175 30%Maintenance (see Appendix II for details) 11,554 7,442 55%Capital Expenditures, total 151,438 135,261 12%Grants and subsidies received (9,536) (11,274) (15%)Capital Expenditures net of subsidies, total 141,902 123,987 14%

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.

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 Markit 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 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.

Includes purchase of property, plant and equipment, intangible assets and other non-current assets. Total maintenance expenses include maintenance CAPEX and OPEX Repairs and Maintenance line. The respective residual expenditures are calculated at the respective foreign exchange rates as of 31 December 2018.



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The following funding sources are available for the project:

— In December 2014, SIBUR signed an agreement with a consortium of European banks for ECA-backed 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 RUB 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 2017. 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).

Our net debt increased by 20.4% to RUB 317,628 million as of 31 December 2018 from RUB 263,888 million as of 31 December 2017 following the increase in total debt and cash utilization for the ongoing ZapSib construction.

Net debt is calculated as total debt less cash and cash equivalents.



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The following table presents data on our total debt, cash and cash equivalents, as well as net debt position as of 31 December 2018 and 31 December 2017:

RUB millions As of 31 December 2018 As of 31 December 2017 Change, %

Total debt 332,411 312,344 6.4%Debt excluding related to ZapSib 86,637 139,147 (37.7%)ZapSib related debt 245,774 173,197 41.9%

Cash and cash equivalents 14,783 48,456 (69.5%)Net debt 317,628 263,888 20.4%

Net debt excluding related to ZapSib 74,770 102,744 (27.2%)ZapSib related net debt 242,858 161,144 50.7%

As of 31 December 2018 all of our debt was unsecured.

The following table presents detailed information on our total borrowings as of 31 December 2018 and 31 December 2017:

RUB millions, except as stated Currency Due As of 31 December 2018 As of 31 December 2017

Variable rate loansNational Wealth Fund financing (ZapSib related) USD 2030 121,574 100,800Deutsche Bank (ZapSib related ECA) EUR 2020-2029 78,380 49,096Bank GPB RUB 2023 22,000 22,000Deutsche Bank EUR 2014-2023 4,274 4,589ING Bank Group (ZapSib related ECA) EUR 2013-2029 2,705 2,246Citibank USD 2021 695 —

ING Bank Group EUR, USD 2011-2021 285 531UniCredit Bank EUR 2013-2019 253 445Citibank (ZapSib related ECA) USD 2013-2023 — 1,612NPP Neftekhimia RUB 2020 — 175Raiffeisen Bank USD 2019-2021 — 5,760

Total variable rate loans 230,166 187,254

Fixed rate loansRussian ruble bonds RUB 2019-2021 30,000 30,000Eurobonds 2023 USD 2023 21,285 28,616Vnesheconombank USD 2021-2025 16,564 —

Credit Agricole (ECA financing) EUR 2019-2029 13,293 7,347Russian Direct Investment Fund USD 2018-2020 13,258 12,096UniCredit Bank Group RUB 2022 4,980 4,974Gazprombank RUB 2019 1,865 —

Monotowns Development Fund RUB 2021-2026 1,000 —

Alfa-Bank USD 2019 — 14,400Sberbank of Russia RUB 2020-2022 — 1,896Gazprom mezhregiongaz RUB 2011-2018 — 233Eurobonds 2018 USD 2018 — 25,528Total fixed rate loans 102,245 125,090

Total debt 332,411 312,344

SIBUR aims to maintain a diversified debt portfolio with a balance of fixed and floating interest rate instruments. As of 31 December 2018, our share of fixed rate borrowings decreased to 30.8% from 40.0% as of 31 December 2017. Our share of variable rate borrowings increased to 69.2% as of 31 December 2018 from 60.0% as of 31 December 2017. These changes were attributable to the repayment of conventional fixed rate borrowings.



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Our weighted average interest rate on Russian ruble-denominated borrowings was 9.2% and 9.3% as of 31 December 2018 and 31 December 2017, respectively. US dollar-denominated borrowings’ weighted average interest rate remained at 4.0% compared to 31 December 2017. Weighted average interest rate on euro-denominated borrowings was 1.1% as of 31 December 2018 and 1.2% compared to 31 December 2017.

The following table presents weighted average loan tenors of our outstanding debt as of 31 December 2018 and 31 December 2017:


WA loan tenor (years) 7.1 6.9WA debt excluding related to ZapSib 3.1 3.1WA ZapSib related debt 8.5 9.9

The following table presents the currency split of our outstanding debt as of 31 December 2018 and 31 December 2017:RUB millions, except as stated As of 31 December 2018 % of total borrowings As of 31 December 2017 % of total borrowings Change, %

Denominated in:Russian ruble 59,844 18.0% 59,278 19.0% 1.0%Euro 99,191 29.8% 64,208 20.6% 54.5%US Dollar 173,376 52.2% 188,857 60.5% (8.2%)Total debt 332,411 100.0% 312,344 100.0% 6.4%

The following table presents our key liquidity and credit ratios as of 31 December 2018 and 31 December 2017:


Current ratio 0.9x 1.0xDebt / EBITDA 1.7x 1.9xDebt / EBITDA (in USD) 1.5x 2.0xNet debt / EBITDA 1.6x 1.6x

Net debt excluding related to ZapSib 0.4x 0.6xZapSib related net debt 1.2x 1.0x

Net debt / EBITDA (in USD) 1.4x 1.7xEBITDA / Interest 13.7x 10.1x

As of 31 December 2018, our net debt to EBITDA ratio remained at 1.6x compared to 31 December 2017. The EBITDA to interest ratio increased to 13.7x as of 31 December 2018 from 10.1x as of 31 December 2017 on the back of a lower accrued interest in 2018 due to increased capitalization of interest related to significant advancement of the ZapSib project.

As of 31 December 2018, SIBUR had RUB 391,888 million available under its existing credit facilities denominated in Russian rubles, US dollars and euros, both short- and long-term, of which an equivalent of RUB 133,778 million was committed.

CAPITAL MARKETS

The Company is exploring a number of different strategic options for its business including the possibility of an equity capital markets transaction, subject to market conditions.

Net debt is calculated as total debt less cash and cash equivalents and bank deposits. Interest represents accrued interest, i.e. includes interest expense and capitalised interest.



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CERTAIN FACTORS AFFECTING OUR RESULTS OF OPERATIONS

MACROECONOMIC AND OTHER ECONOMIC TRENDS

Overall economic conditions in Russia and globally significantly impact our operations as demand for our products is driven by consumers across a diverse range of industries, which are dependent on the state of the global economy and the economies of their respective countries.

GDP Growth

One of the key factors that drive demand for our products or otherwise affect our results of operations is GDP growth globally. SIBUR is also exposed to economic risks specific to the Russian Federation as all of our production assets are located in Russia.

The following table contains selected data on year-on-year GDP growth for the years ended 31 December 2018 and 2017:


2018 2017

European Union (EU-15) 1.7% 2.4%United States n/a 2.3%

China 6.6% 6.9%

Russia 2.3% 1.5%

Source: Eurostat, U.S. Bureau of Economic Analysis, National Bureau of Statistics of the People’s Republic of China, Russian Federal State Statistics Service

Foreign Exchange Rate Fluctuations

The movements of the Russian ruble against the US dollar and the euro may have a significant impact on our financial performance.

The following table presents selected data on exchange rate movements for the years ended 31 December 2018 and 2017:Year ended 31 December

Change, %2018 2017

RUB/USDat the beginning of the reporting period 57.6 60.7at the end of the reporting period 69.5 57.6

20.6% (5.0%)

Average RUB/USD rate for the period 62.7 58.4 7.5%RUB/EURat the beginning of the reporting period 68.9 63.8at the end of the reporting period 79.5 68.9

15.4% 7.9%

Average RUB/EUR rate for the period 74.0 65.9 12.2%

Source: CBR



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SIBUR’s functional and reporting currency is the Russian ruble. Our sales to countries outside of Russia (41.4% of total revenue both in 2018 and 2017) are primarily denominated in US dollars and, to a lesser extent, in euros. In many cases our domestic sales are linked to international benchmark prices quoted in US dollars and euros, however in case of substantial shifts in the Russian ruble exchange rate the adjustment of domestic selling prices can take a certain amount of time. At the same time, our expenses are primarily denominated in Russian rubles. As a result, depreciation of the Russian ruble relative to the US dollar or the euro positively affects our operational results, while appreciation of the Russian ruble relative to these currencies tends to have a negative effect on our operational results.

A significant part of our borrowings is also denominated in foreign currencies, primarily in US dollars and, to a lesser extent, in euros. When the Russian ruble depreciates against the US dollar or euro, our liabilities denominated in these currencies increase in Russian ruble terms, as do interest costs on SIBUR’s foreign currency-denominated borrowings. Correspondingly, our financial expenses tend to increase as a result of foreign exchange losses recorded by the Group. When the Russian ruble appreciates against the US dollar or euro, our liabilities denominated in these currencies decrease in Russian ruble terms, as do interest costs on SIBUR’s foreign currency-denominated borrowings. Correspondingly, our financial income tends to increase as a result of foreign exchange gain recorded by the Group.

In 2018, the Russian ruble depreciated by 7.5% relative to the US dollar and by 12.2% relative to the euro on average year-on-year, which had a positive impact on our revenue.

The Russian ruble as of 31 December 2018 depreciated by 20.6% relative to the US dollar and by 15.4% relative to euro as of 31 December 2017 resulting in financial losses reported in SIBUR’s consolidated financial statements for the year 2018, which was largely attributable to the revaluation of our foreign currency denominated debt. The Russian ruble as of 31 December 2017 appreciated by 5.0% relative to the US dollar and depreciated by 7.9% relative to euro as compared to the level of 31 December 2016.

Inflation

Historically Russia has reported higher inflation rates compared to developed markets. Increases in inflation may significantly affect our financial results because of an increase in operating expenses, which are linked to the general price level in Russia, such as staff costs, rent and others.

The following table presents selected data on inflation rates for the years ended 31 December 2018 and 2017:


2018/2017 2017/2016

Consumer price index (CPI) 4.3% 2.5%Producer price index (PPI) 11.6% 8.4%

Source: Russian Federal State Statistics Service

Prices for Crude Oil and Liquids

Prices for a large portion of our feedstock and processed goods are directly or indirectly linked to oil or oil derivative prices. Increase in prices for oil or oil derivatives generally has a net positive effect on our financial results because our position as a net seller of energy products allows us to mitigate the negative effect that growth in oil and oil derivative prices has on our cost base. Decline in prices for oil or oil derivatives generally has a net negative effect on our financial results, which is partially offset by decrease in our cost base.

Crude oil prices typically influence prices for liquids (raw NGL, LPG and naphtha), which we purchase from third parties as feedstock. This correlation, however, is not perfect, as prices for LPG and naphtha are also influenced by supply and demand trends and other factors in their own markets, while prices for raw NGL, depending on its composition, largely correlate with prices for LPG and naphtha.



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Oil prices have a significant impact on the Russian ruble exchange rate fluctuations. Historically, the Russian ruble has typically, though not consistently, appreciated in real terms against the US dollar and the euro when oil prices increased, and depreciated against these currencies when oil prices decreased. The negative effect of declining oil prices tends to reduce our revenue, while mitigated by the positive effect of the weakening Russian rublee on export sales or domestic sales linked to the US dollar or the euro (see “Foreign Exchange Rate Fluctuations” above).

Oil and oil derivative prices have historically been volatile and dependent on a variety of factors including, among others, market supply and demand balances, geopolitical developments affecting the principal producing nations and force majeure events. In 2018, international prices for LPG lagged behind dynamics in oil prices as a result of certain imbalances on LPG markets.

The following table presents average benchmark international market prices for crude oil, naphtha and LPG for the years ended 31 December 2018 and 2017:

USD per tonne except as stated


2018 2017

Brent crude oil (USD per bbl) 71.0 54.3 30.9%Naphtha (CIF NWE) 601.3 484.6 24.1%LPG DAF Brest 464.4 395.8 17.3%LPG Sonatrach for Bethioua 511.5 431.8 18.5%LPG Argus cif ara (large) 507.7 437.6 16.0%

Source: Bloomberg, Argus

Export Duties on LPG and Naphtha

The LPG and naphtha (excluding pentane and isopentane) that we export are subject to export duties, which are set monthly by the Russian Government. Export sales to member states of the Customs Union (Republic of Belarus, Republic of Kazakhstan, Republic of Armenia and Kyrgyz Republic) are not subject to export duties.

The export duty on LPG (excluding butane and isobutane) is formula-based and depends on the international benchmark price of LPG (LPG DAF Brest). When the market price for LPG is below USD 490 per tonne, no export duty is levied. Starting August 2018, an export duty on LPG was imposed following a price increase to the level above USD 490.

Effective 1 January 2015, the Russian Government imposed an export duty on butane and isobutane, which is calculated as the percentage of the export duty on LPG grades excluding butane and isobutene. It was set at 30% for 2017 and 40% for 2018 with successive annual increases up to 90% effective 1 January 2022.

The export duty on naphtha is calculated as a percentage of export duties on crude oil (Urals). This rate was reduced from 71% in 2016 to 55% of the crude oil export duty starting from 1 January 2017. The decrease in export duty rates for naphtha was implemented as part of the “tax manoeuvre” completion in the Russian oil industry.

As Russia’s domestic prices for raw NGL, LPG and naphtha are based on export netback prices, higher export duties reduce the domestic price for these products, while declining export duties support domestic prices. Increase in export duties negatively affects our export and domestic sales of LPG and naphtha, at the same time reducing our feedstock purchasing costs. Decrease in export duties as a result of declining prices for LPG and naphtha supports our external export and domestic sales of these products.



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The following table presents average export duties on LPG and naphtha for the periods indicated:

Export duties, USD per tonneYear ended 31 December

Change, %2018 2017

LPGexcl. butane and isobutane 10.2 — n/mbutane and isobutane 4.0 — n/m

Naphtha (excl. pentane and isopentane) 70.4 47.7 47.7%

Source: Russian Government

Recoverable tax excise was introduced as a part of the tax manoeuvre. The Russian Tax Code defines a procedure for calculation of excise duties and tax deductions with respect to domestic sales and processing of naphtha, benzene and paraxylene. Local companies are eligible to receive an excise duty refund (“recoverable excise”) with a scale-up factor if the product is processed into non-excisable petrochemical products. The scale-up factor for naphtha was set at 1.7x for 2018 and 2017 and at 3.4x for paraxylene and benzene. The excise duty for naphtha was set at RUB 13,100 per tonne for 2018 and 2017 and at RUB 2,800 per tonne for paraxylene and benzene for 2018 and 2017.

Natural Gas Prices

The prices at which we purchase a large portion of feedstock and sell natural gas as well as our utility costs are significantly impacted by changes in regulated domestic gas prices at which Gazprom, the major Russian gas producer, sells natural gas on the domestic market. This price regulation is executed by the Russian Government, through the Federal Anti-Monopoly Service (FAS). Although this price regulation does not apply to independent gas producers, the regulated price significantly influences domestic market conditions and our effective selling prices.

Effective 1 July 2017, the Federal Anti-Monopoly Service (FAS) increased wholesale natural gas prices for sales to all customer categories (excluding residential customers) on the domestic market by 3.9%. Effective 21 August 2018, natural gas prices were increased by 3.4%. In October 2018, the Ministry of Economic Development of the Russian Federation published the “Forecast of Socio-economic Development of the Russian Federation for the period up to 2024”. The forecast envisages an increase in wholesale natural gas prices for sales to all customer categories (excluding residential customers) from 1 July 2019 by 1.4% and by not more than 3% in 2020-2024. The Russian Federation government continues to discuss various concepts relating to the natural gas industry development, including natural gas prices and transportation tariffs growth rates on the domestic market.

Although we are not subject to the Russian Government’s regulation of prices for natural gas that we produce from APG, our effective average selling prices for natural gas are close to the regulated gas prices and are typically also indexed in line with the regulated price changes. SIBUR is a net seller of natural gas and historically our financial results have been positively impacted by increases in domestic natural gas prices.

Prices for APG, one of our key feedstock, are not regulated by the Russian Government. There is also no benchmark market price for APG. Prices at which we purchase APG from oil companies are negotiated on a case-by-case basis and depend on a variety of factors (see “Feedstock Sourcing and Mix” below). We typically purchase APG at a price that substantially differs from the regulated domestic natural gas prices because of the significant capital expenditures required to develop and maintain the processing and transportation infrastructure. At the same time, some of our supply contracts regularly index APG prices to reflect changes in the regulated domestic gas prices. Such indexations, however, are not always synchronised with the respective changes in the regulated domestic gas prices. Additionally, there are other factors that influence our APG purchase prices; hence there may be certain discrepancies between movements in our APG purchase prices and the regulated domestic gas prices (see “Feedstock Sourcing and Mix” below for further details).



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Cyclicality of the Petrochemicals Industry

Prices for petrochemical products are subject to significant fluctuations as they are influenced by trends in global and domestic supply and demand, including differences in supply and demand between domestic and export markets. Demand is generally linked to economic activity, while supply is linked to long-term investments in capacity expansion and structural changes in feedstock supply, such as, for example, the discovery and commercialisation of new feedstock sources. When significant new capacity becomes available and is not matched by corresponding growth in demand, average industry operating margins typically fall. At the same time, capacity additions require substantial lead times and when growth in demand is not matched by respective capacity expansions, average industry operating margins typically rise. As a result, the petrochemicals industry experiences periods of tight supply, leading to high capacity utilisation rates and margins, followed by periods of oversupply, leading to reduced capacity utilisation rates and margins, and, accordingly, the profit margins of petrochemical producers historically have been cyclical.

As the Group is vertically integrated into the midstream business and is a net seller of energy products, which are not dependent on the cyclicality of the petrochemicals industry, this partially protects the Group against margin pressures in the periods of oversupply in the petrochemicals industry. Additionally, the Group's access to attractively priced feedstock, its diversified mix as well as a diversified product portfolio puts the Group in a more advantaged position compared to majority of other petrochemical companies during market downturns in the petrochemicals industry.

Feedstock Sourcing and Mix

Types of Hydrocarbon Feedstock

To operate our business successfully we must obtain sufficient quantities of feedstock in a timely manner and at acceptable prices. Therefore, our access to feedstock and its mix have a material impact on our financial results. We use two major types of hydrocarbon feedstock: associated petroleum gas (APG) and natural gas liquids (NGLs), primarily raw NGL, as well as LPG and naphtha.

APG is a by-product of oil production. We process APG at our gas processing plants (GPPs) to produce natural gas and raw NGL. APG accounted for 32.5% and 42.5% of our expenses related to third-party hydrocarbon feedstock purchases in 2018 and 2017, respectively. As a percentage of total feedstock and materials costs, APG accounted for 23.3% and 29.6% in 2018 and 2017, respectively.

NGLs are used as raw material by all our operating segments. Raw NGL is produced as a result of APG processing or through stabilisation of unstable gas condensate which is obtained from the processing of wet gas extracted from gas fields. LPG and naphtha are produced through fractionation of raw NGL. We produce NGLs at our own GPPs and GFUs and also purchase them from third parties. NGLs accounted for 67.5% and 57.5% of our expenses related to third-party hydrocarbon feedstock purchases in 2018 and 2017, respectively. As a percentage of total feedstock and materials costs, NGLs accounted for 48.4% and 40.1% in 2018 and 2017, respectively.

Feedstock Sourcing

We purchase APG and NGLs from major oil and gas companies in Western Siberia, including Rosneft, Gazprom Neft, RussNeft, LUKOIL, NOVATEK and Gazprom, primarily under long-term contracts.

As of 31 December 2018, approximately 92% of our APG supplies for 2018 were guaranteed under multi-year supply contracts. Overall, as of 31 December 2018, our multi-year APG supply contracts had a weighted average maturity of 13.6 years. Rosneft remained our major APG supplier with 73.5% share in SIBUR’s total APG supplies in volume terms in 2018.

As of 31 December 2018, approximately 77% of our NGLs supplies for 2018 were guaranteed under multi-year supply contracts. Overall, as of 31 December 2018, our multi-year NGLs supply contracts had a weighted average maturity of 15.4 years. Our major external raw NGL suppliers are NOVATEK and Gazprom.



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SIBUR and Gazprom Neft jointly operate Yuzhno-Priobskiy Gas Processing Plant (Yuzhno-Priobskiy GPP) with annual APG processing capacity of 900 million cubic metres, each owning 50%. Gazprom Neft supplies APG to the plant for processing into raw NGL and natural gas. SIBUR pays for 50% of the total APG volumes supplied to the plant, while the remaining 50% is processed for Gazprom Neft. SIBUR obtains 50% of all raw NGL and dry gas volumes produced, while Gazprom Neft obtains the rest. Subsequently SIBUR purchases Gazprom Neft’s share of raw NGL and sells its share of natural gas to Gazprom Neft.

We continuously work with all the largest oil and gas producers in Western Siberia with the view of extending tenors of the existing agreements and/or entering into new long-term supply contracts on both APG and NGLs supplies. Multi-year supply contracts and joint venture arrangements enhance predictability of feedstock pricing and volumes and allow better planning of the Group’s future operating expenses and investments, which is particularly important given the capital-intensive nature of the Group’s investment programme.

Pricing

Oil companies produce APG as a by-product of oil extraction and by law must evacuate it from the field or otherwise utilise it. Failure to do so can result in fines and potentially jeopardise an oil company’s license to operate the field. Most oil companies in Western Siberia do not own gas processing facilities and have been reluctant to develop such facilities as this requires substantial capital investments, while oil companies prefer to invest in their core oil exploration and production business. Apart from being processed into hydrocarbon feedstock at a GPP, only limited volumes of APG can be used productively, mostly for power generation or for re-injection into the reservoir.

The Russian Government has consistently increased incentives for oil companies to utilise APG. Based on the Russian Government’s resolution issued in November 2012, penalties for APG flaring exceeding permitted thresholds (currently set at 5% of APG production volumes) have been substantially increased and become material for oil companies: effective 1 January 2013, the penalty has been increased from 4.5x the standard emission charge in 2012 to 12x the standard emission charge in 2013 and 25x the standard emission charge starting from 2014. The standard emission charges depend on the type of pollutant and are regularly indexed. According to CDU TEK, the total volume of flared APG in Russia in 2018 was 15.7 billion cubic metres or 15% of total produced volumes, decreasing APG utilisation in Russia to 85% compared to 87% in 2017 mainly due to new oil fields coming on stream in Eastern Siberia. In Western Siberia APG utilisation remained largely flat at 91% in 2018 and 2017, according to Petromarket.

SIBUR provides oil companies with an attractive solution for APG utilisation, therefore, we are able to source APG at advantageous prices. Given the limited options for using APG and the lack of alternatives for evacuating it from oil fields, there is no market or benchmark price for APG. APG pricing is also not subject to government regulation. As a result, we purchase APG from oil companies at prices that are negotiated on a case-by-case basis and typically substantially differ from the FAS regulated natural gas prices. The magnitude of the difference and the absolute price for APG is dependent on the following key factors: the quality and composition of APG in terms of target liquid fractions content, distance of an APG source from our GPPs, availability of collection and transportation infrastructure and capital and operating expenditures needed to construct, expand and maintain that infrastructure. The price is also dependent on the potential capital expenditures that the oil company would need to incur to construct its own gas processing capacity as an alternative to selling APG to SIBUR.

Currently SIBUR has two types of APG purchase contracts:

— Under first contract type, APG purchase price once agreed upon in absolute terms, is typically regularly indexed to reflect changes in the FAS regulated prices for natural gas.

— Under second contract type, the APG purchase price is indexed in line with changes in prices for APG derivatives: natural gas and raw NGL (see “Crude Oil, Naphtha, Raw NGL and LPG Prices” and “Natural Gas Prices” above).

Additional volumes of APG that we source from oil companies (new volumes under new agreements or volumes under existing agreements that exceed initially pre-agreed or guaranteed volumes) can be supplied at a higher price due to additional capital and operating expenses incurred by oil companies to produce and deliver such volumes. Also, modification of terms of the existing agreements, either at expiry or as a result of renegotiation, may cause material changes in our APG pricing levels.



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Our NGLs feedstock is typically priced with reference to international prices for LPG and naphtha, and to a lesser extent to domestic LPG prices, while prices for raw NGL, depending on its composition, are largely correlated with prices for LPG and naphtha. As the supply of NGLs significantly exceeds demand in Russia and particularly in Western Siberia, prices for NGLs are determined on an export netback basis, which reflects transportation costs and export duties. Transportation of NGLs out of Western Siberia is costly, with transportation costs consistently rising, reducing the prices at which NGLs are available for purchase in Western Siberia. Therefore, the domestic prices for NGLs feedstock in Western Siberia are substantially lower than those available to the majority of SIBUR’s international petrochemical peers. The Group’s NGLs supply contracts typically contain a formula where prices are determined by the respective netbacks and reflect the fraction content of NGLs, need for and cost of fractionation, capital expenditures required to construct and maintain the respective infrastructure as well as the availability and quality of alternative selling channels that the oil or gas company supplying the NGLs has.

Transportation Tariffs

We incur substantial transportation costs due to the geographic spread of our operations. For the transportation services we use railway, port facilities, trucks and multimodal transportation services. While we operate our own gas and raw NGL pipelines and railway carrier fleet, we also use third-party transportation services. Third-party transportation services accounted for 18.6% and 20.3% of our operating expenses in 2018 and 2017, respectively. Changes in transportation tariffs and prices for third-party services have a significant effect on our operating expenses.

Railway Transportation Tariffs

We use rail for transportation of refined products, intermediates and feedstock, including 100% of our LPG, naphtha and MTBE, certain volumes of raw NGL and a major part of our petrochemical products.

Our rail transportation costs comprise a transportation tariff charged for access to Russia’s main railway and usage of locomotives (the “Railway Tariff”), which accounts for the majority of our total rail transportation costs. The Railway Tariff is charged by Russian Railways, Russia’s state-owned monopoly, and is regulated by the FAS. The Railway Tariff is specific to types of products, types of carriers and their tonnage, transportation routes and the volume of a delivery. The FAS reviews the Railway Tariff on an annual basis.

Effective 1 January 2017, the FAS increased the tariff by 4% with a subsequent increase by 2% effective 9 January 2017. In January 2018, the FAS increased the railway transportation tariff in several steps, which effectively totaled 5.4%. Effective 1 January 2019, the FAS increased the tariff by 3.6%.

Effective 1 January 2017, Russian Railways ceased a 13.4% tariff surcharge for deliveries of oil derivatives to the export market. Effective 29 January 2017, Russian Railways set the tariff surcharge at 10% for all types of products, while for LPG it came into effect on 12 February 2017 and was ceased for other types of oil derivatives products. Effective January 2018, export tariff surcharge was reduced to 8%. Effective January 2019, export tariff surcharge remained at the level of 8%.

Energy Procurement

Our business is energy-intensive. Purchases of electricity, fuel and heat account for the largest portion of our energy costs. As a result, changes in tariffs for electric power and heat, as well as natural gas prices have a significant effect on our operating expenses.



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Electricity

We make electricity purchases on a centralised basis. In addition to purchases of electricity for internal needs, we also buy electricity for further resale to third parties, which, inter alia, include other companies located at our production sites. Revenue from sales of electricity to third parties is reported under “Other revenue” in the consolidated financial statements.

The Russian electricity market has been liberalised gradually over the past few years. However, maximum levels of electricity prices remain under the supervision of the Federal Antimonopoly Service (FAS) and regional regulatory authorities. One of the most important factors that influence electricity prices is fuel cost (primarily natural gas and coal), and increases in natural gas prices tend to result in higher electricity prices. We also own our own electric power generating capacity in order to reduce our exposure to higher electricity prices from third-party suppliers. In 2014, SIBUR launched an 18 MW power plant at the Perm production site. In 2016, SIBUR acquired Tobolsk Heating and Power Plant with power capacity of 665 MW, all of which is sold on the wholesale market. In 2018, the share of internal electric power generation accounts for 3.5% of total electricity consumption.

Heat Energy

We source heat energy in the form of steam and hot water from regional suppliers at regulated prices. Heat energy prices are also largely dependent on prices for natural gas. In order to minimise dependence on third-party providers, we generate a substantial portion of heat energy at our own production sites. In February 2016, SIBUR acquired Tobolsk Heating and Power Plant with the capacity of 2,585 MW (or 2,223 gigacalories) of heat. The Plant is the only supplier of steam for SIBUR’s Tobolsk production site. At the Group’s level, the share of internally generated heat accounted for 76.5% and 76.4% of total consumed volumes in 2018 and 2017, respectively.

Fuel

We source fuel (mainly represented by natural gas) at the prices linked primarily to the regulated natural gas prices. We utilise fuel mainly for electricity and heat generation at our production sites. We also utilise some volumes of natural gas produced at our GPPs, as well as gas emerging as a by-product at other production sites. Starting 2016, we significantly increased fuel consumption volumes due to acquisition of Tobolsk Heating and Power Plant. In 2018, the share of fuel produced internally accounted for 50% of total consumption volumes.

SIBUR’s ability to sell natural gas enables it to balance its exposure to growth in energy and utilities costs, which to a large extent are influenced by increases in natural gas prices.

The following table presents volumes purchased and effective average tariffs for electricity, heat and fuel for the years 31 December 2018 and 2017:


2018 2017

Volume Average tariff Volume Average tariff Volume Average tariff

Electricity (millions of kWh or RUB per kWh) 10,233 2.34 10,212 2.24 0.2% 4.5%Heat (thousands of gigacalories or RUB per gigacalorie) 4,966 1,030 5,080 1,036 (2.2%) (0.6%)Fuel (natural gas, billions of cubic metres or RUB per cubic metre) 2,167 3.77 2,291 3.61 (5.4%) 4.4%

Management data.



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OPERATIONAL DATA

Olefins and Polyolefins Segment

The following table presents data on our revenue from sales of olefins and polyolefins for the years ended 31 December 2018 and 2017: (1)


Change, %2018 % of revenue 2017 % of revenue

PP 48,417 8.5% 42,368 9.3% 14.3%Domestic 31,857 65.8% 25,765 60.8% 23.6%Export 16,560 34.2% 16,603 39.2% (0.3%)

PE (LDPE) 20,496 3.6% 21,208 4.7% (3.4%)Domestic 13,114 64.0% 14,128 66.6% (7.2%)Export 7,382 36.0% 7,080 33.4% 4.3%

BOPP films 18,471 3.2% 16,642 3.7% 11.0%Domestic 12,397 67.1% 11,777 70.8% 5.3%Export 6,074 32.9% 4,865 29.2% 24.9%

Ethylene 7,726 1.4% 5,810 1.3% 33.0%Domestic 7,726 100.0% 5,810 100.0% 33.0%Export — — % — — % n/m

Other polymers products 4,930 0.9% 1,418 0.3% >100%Domestic 4,174 84.7% 1,255 88.5% >100%Export 756 15.3% 163 11.5% >100%

Other sales 822 0.1% 689 0.2% 19.3%Domestic 822 100.0% 689 100.0% 19.3%Export — — % — — % n/m

Olefins and Polyolefins, total 100,862 17.7% 88,135 19.4% 14.4%Domestic 70,090 69.5% 59,424 67.4% 17.9%Export 30,772 30.5% 28,711 32.6% 7.2%

Percentages against domestic and export lines represent percentage of revenue from the respective product sales, while percentages against the respective total product lines represent percentages of total revenue.



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The following table presents data on our olefins and polyolefins production, purchases and sales volumes for the years ended 31 December 2018 and 2017: (1)


Change, %2018 2017

Production 2,339,195 2,557,919 (8.6%)PP 578,658 652,047 (11.3%)PE (LDPE) 256,298 272,873 (6.1%)BOPP films 152,757 155,031 (1.5%)Ethylene 651,991 655,333 (0.5%)Propylene 699,492 822,636 (15.0%)

Transfers from PE&I 84,394 7,366 >100%Purchases from third parties 153,723 117,248 31.1%Total production, transfers and purchases 2,577,312 2,682,534 (3.9%)

(Internal use) (1,020,675) (1,126,238) (9.4%)(Increase)/decrease in stock 15,727 (7,191) n/m

Gross sales, including 1,572,364 1,549,105 1.5%Intercompany sales to PE&I 332,600 370,730 (10.3%)External salesPP 583,242 598,019 (2.5%)

Domestic 377,409 349,669 7.9%Export 205,833 248,350 (17.1%)

PE (LDPE) 262,311 268,480 (2.3%)Domestic 162,657 171,201 (5.0%)Export 99,654 97,279 2.4%

BOPP films 152,049 155,909 (2.5%)Domestic 97,388 104,263 (6.6%)Export 54,661 51,646 5.8%

Ethylene 157,767 148,600 6.2%Domestic 157,767 148,600 6.2%Export — — n/m

Other polymers products 84,394 7,366 >100%Domestic 69,913 5,091 >100%Export 14,481 2,276 >100%

External sales volumes 1,239,764 1,178,375 5.2%Domestic 865,134 778,824 11.1%Export 374,629 399,551 (6.2%)

Including internal use at the segment’s production facilities and immaterial natural losses.


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Plastics, Elastomers and Intermediates Segment

The following table presents a breakdown of revenue from sales of our plastics, elastomers and intermediates for the years ended 31 December 2018 and 2017:




Plastics, elastomers and intermediates, total 171,003 30.1% 146,877 32.3% 16.4%Domestic 109,245 63.9% 83,793 57.0% 30.4%Export 61,758 36.1% 63,084 43.0% (2.1%)

PLASTICS AND ORGANIC SYNTHESIS PRODUCTS




PET 24,494 4.3% 18,771 4.1% 30.5%

Domestic 24,428 99.7% 18,571 98.9% 31.5%Export 66 0.3% 200 1.1% (67.0%)

Glycols 12,100 2.1% 9,808 2.2% 23.4%Domestic 7,778 64.3% 4,965 50.6% 56.7%Export 4,322 35.7% 4,843 49.4% (10.8%)

Expandable polystyrene 9,910 1.7% 8,190 1.8% 21.0%Domestic 6,436 64.9% 5,552 67.8% 15.9%Export 3,474 35.1% 2,638 32.2% 31.7%

Alcohols (including 2-ethylhexanol) 8,234 1.4% 5,842 1.3% 40.9%Domestic 5,235 63.6% 3,861 66.1% 35.6%Export 2,999 36.4% 1,981 33.9% 51.4%

Acrylates 5,140 0.9% 4,616 1.0% 11.4%Domestic 2,213 43.1% 3,457 74.9% (36.0%)Export 2,927 56.9% 1,159 25.1% >100%

Plastics and organic synthesis products, total 59,878 10.5% 47,227 10.4% 26.8%Domestic 46,090 77.0% 36,406 77.1% 26.6%Export 13,788 23.0% 10,821 22.9% 27.4%




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ELASTOMERS



Commodity rubbers 31,159 5.5% 31,289 6.9% (0.4%)Domestic 11,639 37.4% 11,821 37.8% (1.5%)Export 19,520 62.6% 19,468 62.2% 0.3%

Specialty rubbers 12,752 2.2% 11,008 2.4% 15.8%Domestic 1,804 14.1% 1,690 15.4% 6.7%Export 10,948 85.9% 9,318 84.6% 17.5%

Thermoplastic elastomers 11,110 2.0% 9,560 2.1% 16.2%Domestic 6,666 60.0% 5,391 56.4% 23.7%Export 4,444 40.0% 4,169 43.6% 6.6%

Elastomers, total 55,021 9.7% 51,857 11.4% 6.1%Domestic 20,109 36.5% 18,902 36.5% 6.4%Export 34,912 63.5% 32,955 63.5% 5.9%




MTBE 25,483 4.5% 18,958 4.2% 34.4%Domestic 17,155 67.3% 7,550 39.8% >100%Export 8,328 32.7% 11,408 60.2% (27.0%)

Other fuels and fuel additives 4,270 0.8% 4,162 0.9% 2.6%Domestic 4,270 100.0% 2,501 60.1% 70.7%

Export — — % 1,661 39.9% n/m

MTBE and fuel additives, total 29,753 5.2% 23,120 5.1% 28.7%Domestic 21,425 72.0% 10,051 43.5% >100%Export 8,328 28.0% 13,069 56.5% (36.3%)





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INTERMEDIATES AND OTHER CHEMICALS



Benzene 3,085 0.5% 3,747 0.8% (17.7%)Domestic 3,033 98.3% 2,972 79.3% 2.1%Export 52 1.7% 775 20.7% (93.3%)

Styrene 5,348 0.9% 3,759 0.8% 42.3%Domestic 4,015 75.1% 2,793 74.3% 43.8%Export 1,333 24.9% 966 25.7% 38.0%

Terephthalic acid 301 0.1% 604 0.1% (50.2%)Domestic 150 49.8% 279 46.2% (46.2%)Export 151 50.2% 325 53.8% (53.5%)

Propylene 2,543 0.4% 4,035 0.9% (37.0%)Domestic 2,391 94.0% 1,924 47.7% 24.3%Export 152 6.0% 2,111 52.3% (92.8%)

Ethylene oxide 5,522 1.0% 4,266 0.9% 29.4%Domestic 4,236 76.7% 3,354 78.6% 26.3%Export 1,286 23.3% 912 21.4% 41.0%

Butadiene 281 0.0% 285 0.1% (1.4%)Domestic 281 100.0% 285 100.0% (1.4%)Export — — % — — % n/m

Isoprene 373 0.1% 457 0.1% (18.4%)Domestic 22 5.9% 26 5.7% (15.4%)Export 351 94.1% 431 94.3% (18.6%)

Isobutylene 1,017 0.2% 958 0.2% 6.2%Domestic 1,017 100.0% 958 100.0% 6.2%Export — — % — — % n/m

Other intermediates 3,771 0.7% 2,209 0.5% 70.7%Domestic 2,870 76.1% 1,742 78.9% 64.8%Export 901 23.9% 467 21.1% 92.9%

Other chemicals 2,896 0.5% 3,090 0.7% (6.3%)Domestic 2,406 83.1% 2,872 92.9% (16.2%)Export 490 16.9% 218 7.1% >100%

Intermediates and other chemicals, total 25,137 4.4% 23,410 5.1% 7.4%Domestic 20,421 81.2% 17,205 73.5% 18.7%Export 4,716 18.8% 6,205 26.5% (24.0%)

Other sales 1,214 0.2% 1,263 0.3% (3.9%)Domestic 1,200 98.8% 1,229 97.3% (2.4%)Export 14 1.2% 34 2.7% (58.8%)




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The following table presents data on our production, purchases and sales volumes in plastics, elastomers and intermediates for the years ended 31 December 2018 and 2017:

PLASTICS, ELASTOMERS AND INTERMEDIATES SEGMENT

Tonnes, except as stated


2018 2017

Production 5,916,213 5,762,286 2.7%Transfers from O&P 332,600 370,730 (10.3%)Purchases from third parties 205,998 173,759 18.6%Total production, transfers and purchases 6,454,811 6,306,776 2.3%

(Internal use) (3,890,595) (3,853,299) 1.0%(Increase)/decrease in stock (33,470) 602 n/m

Gross sales, including 2,530,746 2,454,078 3.1%Intercompany sales to O&P 84,394 7,366 >100%External sales 2,446,352 2,446,712 (0.0%)

Domestic 1,690,305 1,465,894 15.3%Export 756,047 980,818 (22.9%)




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PLASTICS AND ORGANIC SYNTHESIS PRODUCTS


Change, %2018 2017

Production 922,785 893,793 3.2%Glycols 302,243 300,017 0.7%Alcohols 170,510 148,585 14.8%PET 295,161 298,605 (1.2%)Acrylates 50,360 48,453 3.9%Expandable polystyrene 104,510 98,133 6.5%

Purchases from third parties 5,835 7,217 (19.1%)Total production and purchases 928,620 901,009 3.1%

(Internal use) (124,384) (127,095) (2.1%)(Increase)/decrease in stock (4,562) (2,689) 69.7%

External salesGlycols 204,055 198,612 2.7%

Domestic 133,405 103,391 29.0%Export 70,650 95,221 (25.8%)

Alcohols 144,895 125,893 15.1%Domestic 92,878 88,161 5.4%Export 52,017 37,732 37.9%

PET 294,568 294,796 (0.1%)Domestic 293,768 291,630 0.7%Export 801 3,166 (74.7%)

Acrylates 52,921 53,736 (1.5%)Domestic 22,685 38,653 (41.3%)Export 30,236 15,083 >100%

Expandable polystyrene 103,233 98,187 5.1%Domestic 68,923 67,123 2.7%Export 34,311 31,064 10.5%

External sales volumes 799,674 771,225 3.7%Domestic 611,660 588,958 3.9%Export 188,014 182,267 3.2%




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ELASTOMERS


Change, %2018 2017

Production 504,456 484,698 4.1%Commodity rubbers 320,299 301,593 6.2%Specialty rubbers 104,880 105,347 (0.4%)Thermoplastic elastomers 79,276 77,757 2.0%

Purchases from third parties 38 522 (92.7%)Total production and purchases 504,494 485,219 4.0%

(Internal use) 121 66 83.3%(Increase)/decrease in stock (18,614) (199) >100%

External salesCommodity rubbers 306,137 302,636 1.2%

Domestic 115,598 115,195 0.3%Export 190,539 187,440 1.7%

Specialty rubbers 100,874 103,782 (2.8%)Domestic 12,468 13,135 (5.1%)Export 88,407 90,647 (2.5%)

Thermoplastic elastomers 78,989 78,669 0.4%Domestic 49,248 43,560 13.1%Export 29,742 35,109 (15.3%)

External sales volumes 486,001 485,087 0.2%Domestic 177,313 171,890 3.2%Export 308,687 313,197 (1.4%)




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Change, %2018 2017

MTBEProduction 327,020 354,556 (7.8%)Purchases from third parties 193,707 129,898 49.1%Total production and purchases 520,727 484,453 7.5%

(Internal use) (546) 989 n/m(Increase) / decrease in stock (137) (375) (63.5%)

External sales volumes 520,044 485,068 7.2%Domestic 337,235 189,237 78.2%Export 182,809 295,830 (38.2%)

Other fuels and fuel additivesProduction 394,755 431,751 (8.6%)Purchases from third parties 2,660 33,396 (92.0%)Total production and purchases 397,415 465,147 (14.6%)

(Internal use) (240,370) (280,514) (14.3%)(Increase) / decrease in stock 458 208 >100%

External sales volumes 157,502 184,841 (14.8%)Domestic 157,502 125,568 25.4%Export — 59,273 n/m




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INTERMEDIATES AND OTHER CHEMICALS


Change, %2018 2017

Production 3,767,197 3,597,488 4.7%Intermediates, including 2,755,957 2,731,950 0.9%Benzene 165,173 168,228 (1.8%)Styrene 196,502 177,454 10.7%Terephthalic acid 268,876 268,226 0.2%Ethylene oxide 305,977 293,322 4.3%Butadiene 284,409 276,231 3.0%Isoprene 84,080 76,674 9.7%Isobutylene 181,188 191,437 (5.4%)Ethylene 56,748 51,966 9.2%Propylene 66,112 66,571 (0.7%)

Other intermediates 1,146,892 1,161,841 (1.3%)Other chemicals 1,011,240 865,539 16.8%Transfers from O&P 332,600 370,730 (10.3%)

Ethylene 231,891 228,001 1.7%Propylene 100,709 142,729 (29.4%)

Purchases from third parties 3,759 2,728 37.8%Total production, transfers and purchases 4,103,556 3,970,946 3.3%

(Internal use) (3,525,416) (3,446,745) 2.3%(Increase)/decrease in stock (10,614) 3,657 n/m

Gross sales, including 567,526 527,858 7.5%Intercompany sales to O&P 84,394 7,366 >100%External salesBenzene 71,653 88,988 (19.5%)

Domestic 70,641 72,403 (2.4%)Export 1,012 16,585 (93.9%)

Styrene 66,041 52,823 25.0%Domestic 50,202 39,632 26.7%Export 15,839 13,191 20.1%

Terephthalic acid 7,688 15,886 (51.6%)Domestic 4,530 8,133 (44.3%)Export 3,158 7,753 (59.3%)

Propylene 44,096 95,811 (54.0%)Domestic 41,143 47,410 (13.2%)Export 2,953 48,401 (93.9%)

Ethylene oxide 88,201 74,988 17.6%Domestic 72,888 61,307 18.9%Export 15,313 13,681 11.9%

Butadiene 3,073 3,053 0.7%Domestic 3,073 3,053 0.7%Export — — n/m




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Change, %2018 2017

Isoprene 3,680 5,025 (26.8%)Domestic 236 251 (6.0%)Export 3,443 4,774 (27.9%)

Isobutylene 14,486 14,672 (1.3%)Domestic 14,486 14,672 (1.3%)Export — — n/m

Other intermediates 133,493 110,864 20.4%Domestic 107,149 92,164 16.3%Export 26,345 18,700 40.9%

Other chemicals 50,722 58,382 (13.1%)Domestic 42,248 51,215 (17.5%)Export 8,474 7,167 18.2%

External sales volumes 483,132 520,492 (7.2%)Domestic 406,596 390,240 4.2%Export 76,536 130,251 (41.2%)

Midstream Segment

The following table presents a breakdown of our revenue from sales of midstream products for the years ended 31 December 2018 and 2017:



LPG 152,206 26.8% 110,708 24.4% 37.5%Domestic 40,088 26.3% 28,895 26.1% 38.7%Export 112,118 73.7% 81,813 73.9% 37.0%

Natural gas, domestic sales 49,067 8.6% 47,474 10.4% 3.4%Naphtha 37,572 6.6% 23,904 5.3% 57.2%

Domestic 9,203 24.5% 7,984 33.4% 15.3%Export 28,369 75.5% 15,920 66.6% 78.2%

Other sales 1,973 0.3% 2,046 0.5% (3.6%)Domestic 1,677 85.0% 1,778 86.9% (5.7%)Export 296 15.0% 268 13.1% 10.4%

Midstream products, total 240,818 42.3% 184,199 40.5% 30.7%Domestic 100,035 41.5% 86,133 46.8% 16.1%Export 140,783 58.5% 98,066 53.2% 43.6%




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The following table present data on production, purchases and sales volumes of our midstream products for the years ended 31 December 2018 and 2017:


Change, %2018 2017

LPGProduction 7,626,454 7,481,316 1.9%

Production, SIBUR’s share 6,444,454 6,299,316 2.3%Purchases from third parties, including 657,577 608,273 8.1%

Purchases for resale 619,130 563,385 9.9%Total production and purchases 7,102,031 6,907,589 2.8%

(Internal use) (18,857) (19,540) (3.5%)(Increase) / decrease in stock (35,565) (29,210) 21.8%

Gross sales, including 7,047,608 6,858,840 2.8%Intercompany sales to petrochemical business, including 1,690,452 1,934,807 (12.6%)

Intercompany sales to O&P 769,130 999,010 (23.0%)Intercompany sales to PE&I 921,322 935,797 (1.5%)External sales 5,357,156 4,924,033 8.8%

Domestic 1,745,825 1,668,708 4.6%Export 3,611,331 3,255,326 10.9%

Natural gas (thousands of cubic metres)Production 19,729,662 19,722,448 0.0%Production, SIBUR’s share 19,355,569 19,343,229 0.1%Purchases from third parties - 1,439 n/mTotal production and purchases 19,355,569 19,344,669 0.1%

(Internal use) (833,567) (867,251) (3.9%)(Increase) / decrease in stock (2,758) - n/m

External sales 18,519,244 18,477,418 0.2%Domestic 18,519,244 18,477,418 0.2%Export — — n/m

NaphthaProduction 1,490,148 1,494,801 (0.3%)Purchases from third parties, including 762,233 390,597 95.1%

Purchases for resale — — n/mTotal production and purchases 2,252,382 1,885,398 19.5%

(Internal use) 108 (187) n/m(Increase) / decrease in stock (12,892) 17,142 n/m

Gross sales, including 2,239,598 1,902,354 17.7%Intercompany sales to O&P 1,194,533 1,023,908 16.7%External sales 1,045,064 878,445 19.0%

Domestic 275,771 312,224 (11.7%)Export 769,293 566,221 35.9%

Including volumes under processing arrangements. Including internal use at the segment’s production facilities and immaterial natural losses. Including third-party volumes processed at SIBUR’s capacities. Excluding third-party volumes processed at SIBUR’s capacities.


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Change, %2018 2017

Raw NGLProduction 5,577,788 5,561,661 0.3%Production, SIBUR’s share 5,416,730 5,401,806 0.3%Purchases from third parties, including 2,689,251 2,577,842 4.3%

Purchases for resale — — n/mTotal production and purchases 8,105,981 7,979,648 1.6%

(Fractionation) (8,912,269) (8,722,294) 2.2%(Fractionation, SIBUR’s share) (7,712,269) (7,522,294) 2.5%(Increase) / decrease in stock 10,738 4,058 >100%

Gross sales, including 404,450 461,412 (12.3%)Intercompany sales to O&P 404,450 458,395 (11.8%)External sales — 3,017 n/m

Domestic — 151 n/mExport — 2,867 n/m

Feedstock Purchasing Volumes


Change, %2018 2017

NGLs 3,489,873 3,013,229 15.8%APG (thousand cubic metres) 22,283,359 22,280,387 0.0%Paraxylene 176,386 177,061 (0.4%)Benzene 143,433 142,695 0.5%

APG Processing Volumes

Million cubic metresYear ended 31 December

Change, %2018 2017

APG processing 22,781 22,782 (0.0%)APG processing, SIBUR’s share 22,283 22,280 0.0%

Including volumes under processing arrangements. Excluding third-party volumes processed at SIBUR’s capacities. Including third-party volumes processed at SIBUR’s capacities. Excluding volumes purchased for trading, which are reported as goods for resale.



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DESCRIPTION OF SELECTED OPERATIONAL AND FINANCIAL ITEMS

REVENUE

Revenue, unless otherwise stated, represents revenue from sales to third parties, which excludes any inter-segment transfers. It is reported net of VAT, excise taxes and export duties and includes transportation costs incurred in relation to the delivery of respective refined products to the customers.

OPERATING EXPENSES

Feedstock and materials. Feedstock and materials include purchases from third-party suppliers of various types of feedstock and intermediates, which are used for further processing into higher value-added products, and materials. Our key raw materials are represented by hydrocarbon feedstock, such as APG and NGLs, which comprise raw NGL, LPG and naphtha, as well as paraxylene, which is used in the production of terephthalic acid (PTA) and polypropylene, which is used in the production of BOPP films. We also purchase other feedstock and materials. Other feedstock includes methanol, which is used in the production of MTBE and certain intermediate chemicals such as butadiene, benzene and others. We purchase intermediates in addition to our own production of intermediates primarily for further processing into higher value-added petrochemical products. Materials primarily include materials and spare parts used by NIPIGAZ under certain contracts for project management and construction services, as well as supplementary raw materials. Amounts of recoverable excise are reported under feedstock and materials expenses.

Transportation and logistics. Transportation and logistics comprise expenses related to transportation of feedstock, materials and refined products by railway, via pipelines that are not owned and operated by SIBUR, by trucks, as well as through multimodal transportation operators. These costs also include transshipment and storage services, as well as charges for rail cars/tankers used by SIBUR under short-term transportation contracts as well as operating lease contracts related to rail cars and marine vessels, which are used by the Group to transport its goods to customers. Transportation and logistics costs are related to third-party services and exclude expenses associated with AO Sibur-Trans (the Group’s subsidiary) activities and maintenance of our own gas and product pipelines.

Staff costs. Staff costs comprise primarily salaries, bonuses and other personnel incentives, severance payments, pension expenses and related social taxes.

Energy and utilities. Energy and utilities costs primarily comprise expenses associated with purchases of electric power, heat and fuel from third-party suppliers.

Depreciation and amortisation. Depreciation comprises depreciation of property, plant and equipment calculated on a straight-line basis to allocate the cost of property, plant and equipment to their respective residual values over their respective estimated useful lives (except for depreciation of catalysts, which are depreciated using the unit-of-production method). Amortisation comprises amortisation of intangible assets calculated using a straight-line method to allocate the cost of relevant intangible assets over their estimated useful lives.

Goods for resale. Goods for resale include purchases of products from third parties for further resale externally, including refined products and intermediates.

Services provided by third parties. Services provided by third parties comprise services related to environmental and industrial safety, R&D, design and engineering, security expenses as well as legal, audit, consulting services, etc.

Repairs and maintenance. Repairs and maintenance comprise services for repairs and maintenance of the Group’s production facilities provided by third parties, as well as spare parts, materials for auxiliary workshops and other operating supplies. These expenses include inter alia expenses incurred in relation to implementation of one-off targeted programmes.

Taxes other than income tax. Taxes other than income tax primarily include land tax and property tax.




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Processing services of third parties. Processing services represent services we obtain from other manufacturers, including our non-consolidated joint ventures, to process our feedstock / intermediates into higher value-added products. Our decision to use such services depends on existing agreements, market trends, logistical issues and shortages of our own capacity.

Rent expenses. Rent expenses represent primarily lease payments for buildings and land plots on which our facilities are located.

Charity and sponsorship. SIBUR places a very high degree of importance on social responsibility. As a major investor in the economic development of the regions where we operate, we have signed mutually beneficial agreements with a number of regional authorities, including agreements on social-economic cooperation. As part of our social initiatives, we implement a range of humanitarian projects and programmes in several regions, including Western Siberia, the Nizhny Novgorod regions and other areas, where we are implementing our strategic investment projects. This includes investments in regional infrastructure, improvement of people’s life quality, ecological initiatives, support of sports organisations, promotion of child and youth sports, etc. We also actively promote Russia’s chemical science and professional education in cooperation with leading chemical institutions, universities and schools.

Marketing and advertising. Marketing and advertising costs are associated with the promotion of SIBUR’s corporate brand and are aimed at enhancing SIBUR’s profile among our customers, suppliers, partners and general public. The majority of our marketing and advertising expenses relate to corporate sponsorships of leading Russian and regional football, hockey, basketball and volleyball teams in different regions of Russia, including Tyumen, Nizhny Novgorod, which positions us as an active promoter of Russian sports both nationally and in the regions where we operate.

Additionally, marketing and advertising costs include promotion of SIBUR’s corporate brand and selected products at industrial exhibitions, conferences and forums, as well as via TV, print media and the Internet.

Change in work-in-progress and refined products balances. The change in work-in-progress and refined product balances represents an adjustment to expenses associated with the production of refined products to reflect changes in inventory balances of such products. When inventory balances of refined products increase at the end of a reporting period compared to the beginning of the respective period, operating expenses are reduced by an amount, which represents the cost of production of such refined products incurred in the reporting period, while revenue from sale of these products will be recognised in the future. When inventory balances of refined products decrease at the end of a reporting period compared to the beginning of the respective period, operating expenses are increased by an amount, which represents the cost of production of such refined products incurred in the preceding periods, while revenue from the sale of these products is recognised in the reporting period.

Our volumes of refined product balances fluctuate from period to period depending on market conditions, changes in marketing and distribution strategy, as well as logistical constraints. They also tend to increase in the periods of completion of our major investment projects, which may trigger substantial inventory accumulation.



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OPERATING PROFIT

Operating profit represents revenue less operating expenses.

EBITDA

EBITDA represents profit/loss for the reporting period adjusted for income tax expense, finance income and expenses, share of net income/loss of joint ventures, depreciation and amortisation, impairment of property, plant and equipment, gain/loss on disposal of investments and exceptional items.

ADJUSTED EBITDA

Adjusted EBITDA represents EBITDA as defined above and accounting for the portion of EBITDA of joint ventures and associates. Starting fourth quarter 2018 Adjusted EBITDA is calculated by the management net of NCI share of related subsidiaries’ EBITDA. Figures for 2017 were adjusted accordingly.

FINANCE INCOME AND EXPENSES

Finance income includes primarily interest income on bank deposits and loans issued and foreign exchange gains. Finance expenses include primarily interest expense on debt, bank charges and foreign exchange losses.

SHARE OF NET INCOME/(LOSS) OF JOINT VENTURES

Share of net income/loss of joint ventures represents our share of post-acquisition profit or loss of joint ventures as recognised under equity accounting method.

INCOME TAX EXPENSE

We do not pay corporate income tax on a consolidated basis since, for taxation purposes, the members of the Group are assessed individually. The statutory corporate income tax rate in Russia was set at 20% for the periods under review. The difference between our effective and statutory tax rates is typically attributable to certain non-deductible expenses and (or) non-taxable income as well as tax benefits that we may obtain in certain regions where we operate.



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APPENDIX I: NET WORKING CAPITAL

SIBUR’s management monitors its liquidity and operational efficiency on the basis of the adjusted working capital. SIBUR’s net working capital position takes into account trade receivables net of advances from customers; inventory balances of refined products, goods for resale, feedstock and materials; VAT balance; trade payables net of prepayments and advances to suppliers; payables to employees; and other assets and liabilities listed in the table below.

The following table presents detailed calculation of our net working capital position as of 31 December 2018 and 31 December 2017:

RUB millions, except as stated As of 31 December 2018 As of 31 December 2017

Current assets 218,524 176,514Current liabilities (234,477) (174,925)

Working capital (15,953) 1,589Adjustments to assets, including: 29,299 (1,850)

Cash and cash equivalents (14,783) (48,456)Long-term advances issued under project management and construction services 53,509 52,027Receivables under project management and construction services (5,336) (966)Prepaid borrowing cost (4,091) (4,455)

Adjustments to liabilities, including: 9,472 17,951Accounts payable to contractors and suppliers of property, plant and equipment 44,210 41,009Payables for acquisition of subsidiaries 3,280 2,619Interest payable 1,863 2,087Long-term advances received under project management and construction services (66,268) (58,524)Payables under project management and construction services 4,253 914Short-term debt and current portion of long-term borrowings 22,134 29,846

Adjusted working capital 22,818 17,690Revenue for the year 568,647 454,619Working capital turnover, days 14.6 14.2

Starting 2017, net working capital was adjusted for long-term advances issued and received to reflect NIPIGAZ operating activities under project management and construction services.



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APPENDIX II: MAINTENANCE CAPEX RUB millions, except as stated Year ended 31 December

Change, %Project 2018 2017

Maintenance (CAPEX ) 11,554 7,442 55.2%Repairs and maintenance (OPEX) 12,792 13,242 (3.4%)Total maintenance expenditures 24,346 20,684 17.7%



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APPENDIX III: REVENUE BY PRODUCTS AND REPORTABLE SEGMENTS Year ended 31 December 2018

Revenue Sale of goods Transportation Transportation tariff Price, KRUR

Midstream 240,818 196,622 44,196Liquefied petroleum gas 152,206 113,818 38,388 7.17 21.25Natural gas 49,067 49,067 — — 2.65Naphtha 37,572 31,908 5,664 5.40 30.41Other sales 1,973 1,829 144 n/a n/aOlefins and Polyolefins 100,862 97,000 3,862 n/a n/aPolyolefins 68,913 65,458 3,455 4.09 77.42BOPP films 18,471 18,078 393 2.59 119.23Olefins 7,726 7,726 — — 47.39Other polymers products 4,930 4,916 14 n/a n/aOther sales 822 822 — n/a n/aPlastics, Elastomers and Intermediates 171,003 163,294 7,709 n/a n/aElastomers 55,021 52,477 2,544 5.24 107.98Plastics and organic synthesis products 59,878 57,992 1,886 2.36 72.51MTBE and fuel additives 29,753 28,166 1,587 2.44 43.38Intermediates and other chemicals 25,137 23,543 1,594 n/a n/aOther sales 1,214 1,116 98 n/a n/aUnallocated 55,964 55,964 n/a n/a n/aRevenue from project management and construction services 41,047 41,047 n/a n/a n/a

Other revenue 14,917 14,917 n/a n/a n/aTotal revenue 568,647 512,880 55,767 n/a n/a



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APPENDIX III: REVENUE BY PRODUCTS AND REPORTABLE SEGMENTS (CONTINUED)

Year ended 31 December 2017

Revenue Sale of goods Transportation Transportation tariff Price, KRUR

Midstream 184,199 144,909 39,290 Liquefied petroleum gas 110,708 76,375 34,333 6.9698 15.50Natural gas 47,474 47,474 — — 2.57Naphtha 23,904 19,129 4,775 5.4109 21.68Other sales 2,113 1,931 182 n/a n/aOlefins and Polyolefins 88,135 84,172 3,963 n/a n/aPolyolefins 63,576 59,852 3,724 4.298 69.07BOPP films 16,642 16,287 355 2.277 104.50Olefins 5,810 5,810 — — 39.10Other polymers products 1,418 1,412 6 n/a n/aOther sales 689 689 — n/a n/aPlastics, Elastomers and Intermediates 146,877 139,358 7,519 n/a n/aElastomers 51,857 49,468 2,389 4.925 101.98Plastics and organic synthesis products 47,227 45,931 1,296 1.679 59.52MTBE and fuel additives 23,120 21,112 2,008 3.087 32.45Intermediates and other chemicals 23,410 21,653 1,757 n/a n/aOther sales 1,263 1,195 68 n/a n/aUnallocated 35,408 35,408 n/a n/a n/aRevenue from project management and construction services 21,460 21,460 n/a n/a n/a

Other revenue 13,948 13,948 n/a n/a n/aTotal revenue 454,619 403,848 50,771 n/a n/a


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AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, Russia, 125047T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru

Independent Auditor’s Report

To the Shareholders and Board of Directors of PJSC SIBUR Holding:

Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of PJSC SIBUR Holding (the “Company”) and its subsidiaries (together – the “Group”) as of 31 December 2018, and its consolidated financial performance and itsconsolidated cash flows for the year then ended in accordance with International Financial ReportingStandards (IFRS).

What we have audited

The Group’s consolidated financial statements comprise:

• the consolidated statement of profit or loss for the year ended 31 December 2018;

• the consolidated statement of financial position as of 31 December 2018;

• the consolidated statement of cash flows for the year then ended;

• the consolidated statement of changes in equity for the year then ended;

• the consolidated statement of comprehensive income for the year then ended; and

• the notes to the consolidated financial statements, which include significant accounting policiesand other explanatory information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.


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Our audit approachOverview

• Overall Group materiality: Russian rubles (“RUB”) 5,000 million,which represents 2.5% of earnings before interest, taxes,depreciation and amortization (“EBITDA”).

Refer to Note 8 in the consolidated financial statements.

• The Group has offices and operations in a number of countries. Weconducted audit work covering significant reporting units, whichare located in two countries.

• The Group engagement team audited Group component located inRussia, while PwC network firm in Austria audited the Group’sforeign subsidiary in the that country.

• Business development of JSC NIPIgaspererabotka

• Revenue recognition

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole.

Materiality

Group scoping

Key audit matters


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Overall Group materiality RUB 5,000 million

How we determined it 2.5% of EBITDA

Rationale for the materiality benchmark applied

We chose to apply EBITDA as the benchmark because, in our view, it is the benchmark against which the Group’s performance is most commonly measured. We chose 2.5%, which is within the range of acceptable quantitative materiality thresholds.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Business development of JSC NIPIgaspererabotkaRefer to Notes 2, 9 and 14 in the consolidated financial statements

JSC NIPIgaspererabotka (“NIPIGAS”), a Group subsidiary, provides engineering, procurement, construction and project management services to external customers.

We paid particular attention to NIPIGAS’s operations, due to the materiality and the fact that they differ from the Group’s core business activity.

Our audit procedures included review of NIPIGAS contracts and verification of revenue recognition criteria fulfilment. We reviewed the contractual terms and the accounting policies applied by management. We reviewed documents supporting the revenue recognized by the Group under project management and construction services, arrangements with subcontractors and suppliers, invoices and payment schedules, underlying budgets, revenue and cost forecasts. We discussed the status of the projects with management, including financial and technical experts. We also reviewed the presentation of these operations in the consolidated financial statements.

No significant exceptions were noted as a result of our procedures.

Revenue recognition Refer to Note 5 in the consolidated financial statementsThe Group recognizes revenue from sales of goods at the point of transfer of control of those goods, which is determined according to the terms of the underlying customer contract.

We selected individual revenue transactions to test whether they were appropriately recorded in the correct period. For selected transactions, the date of revenue recognition was traced to shipping documents with reference to the underlying sales contract with the customer.


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A number of revenue contracts specify separate points of transfer of legal title and control. Certain sales also require long-distance shipping. As a result, the procedure to identify the moment when control of the assets is transferred can be complex and requires making certain estimates. The difficulty in identifying the proper moment when control is transferred increases the risk of revenue recognition in the wrong period and may potentially lead to overstatement or understatement of revenue.

We paid particular attention to revenue transactions, due to the materiality, also, under ISAs, there is a rebuttable presumption of fraud risk in revenue recognition on every audit engagement.

We also verified the selected outstanding balances of trade accounts receivable at the year-end by receiving confirmations from customers.

No significant exceptions were noted as a result of our procedures.

How we tailored our Group audit scope

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the geographic and management structure of the Group, the accounting processes and controls and the industry in which the Group operates.

Considering our ultimate responsibility for the opinion on the Group’s consolidated financial statements, we are responsible for the direction, supervision and performance of the Group audit. In establishing the scope of our audit work, we determined the nature and extent of the audit procedures to be performed at the reporting units to ensure sufficient evidence has been obtained to support our opinion on the consolidated financial statements as a whole.

We also determined the type of work that needed to be performed directly by us, as the Group engagement team, by the component auditor represented by the PwC network, or by another audit firm. Where the work was performed by the component auditor, we determined the level of involvement we needed to have in the audit work at this component to be able to conclude whether sufficient appropriate audit evidence was obtained as a basis for our opinion as a whole.

In establishing our overall approach to the Group audit, we considered the significance of the Group components to the consolidated financial statements, our assessment of risk within each component, the overall coverage across the Group achieved by our procedures, as well as the risk associated with insignificant components not brought into the full scope of our audit.

Based on the above, we determined the nature and extent of work to be performed both at the reporting units and at the Group level. Where the work was performed by a PwC network firm, we performed consolidated level oversight and detailed testing of revenue to ensure sufficient evidence has been obtained to support our opinion on the consolidated financial statements taken as a whole.

Our approach to determining the scope of a Group audit is a process whereby reporting units are deemed to be within the scope for audit testing based on significant contribution or the presence of a significant risk, or to add elements of unpredictability.

Based on this process, we identified locations in Russia and Austria that required full scope audit procedures or procedures over specific financial statement line items. Together, these reporting units


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accounted for 86% of the Group’s revenue. In respect of the Group’s significant joint venture, RusVinyl LLC, the audit was performed by another audit firm under our instruction.

Other informationManagement is responsible for the other information. The other information comprises “Management’s discussion and analysis of financial condition and results of operations” for the year ended 31 December 2018 (but does not include the consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and the PJSC SIBUR Holding Annual Review for the year ended 31 December 2018 and first quarter 2019 Quarterly Issuer’s Report, which is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the PJSC SIBUR Holding Annual Review for the year ended 31 December 2018 and first quarter 2019 Quarterly Issuer’s Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of management and those charged with governance for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statementsOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:


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• Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related to eventsor conditions that may cast significant doubt on the Group’s ability to continue as a going concern.If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements,including the disclosures, and whether the consolidated financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financialstatements. We are responsible for the direction, supervision and performance of the Group audit.We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare


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pwc

circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The certified auditor responsible for the audit resulting in this independent auditor's report is T.V. Sirotinskaya.

itor Oicence no. 01-000527), AO PricewaterhouseCoopers Audit

Audited entity: PJSC SIBUR Holding

Certificate of inclusion in the Unified State Register of Legal Entities issued on 8 July 2005 under registration NQ 1057747421247

Block 1, No. 6, bid. 30, Eastern Industrial Park, Tobolsk, Tyumen Region, Russian Federation, 626150

Independent auditor: AO PricewaterhouseCoopers Audit

Registered by the Government Agency Moscow Registration Chamber on 28 February 1992 under No. 008.890

Record made in the Unified State Register of Legal Entities on 22 August 2002 under State Registration Number 1027700148431

Member of Self-regulated organization of auditors «Russian Union of auditors• (Association)

Principal Registration Number of the Record in the Register of Auditors and Audit Organizations - u603050547


Annual Review 2018

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IFRS Consolidated Statement of Profit or Loss

(In millions of Russian rubles, unless otherwise stated)

NotesYear ended 31 December

2018 2017

5 Revenue 568,647 454,6196 Operating expenses (403,566) (329,598)

Operating profit 165,081 125,0217 Finance income 2,331 14,9577 Finance expenses (31,690) (10,974)3 Result of subsidiary’s disposal and remeasurement of related assets (425) 19,805

Result of subsidiary’s acquisition and remeasurement of related liabilities (217) (965)13 Share of net income of joint ventures and associates 3,173 2,073

Profit before income tax 138,253 149,917

30 Income tax expense (27,493) (29,671)

Profit for the year 110,760 120,246

Profit for the year, including attributable to: 110,760 120,24629 Non-controlling interest 4,431 3,337

Shareholders of the parent company 106,329 116,90928 Basic and diluted earnings per share (in Russian rubles per share) 48.81 53.67

28 Weighted average number of shares outstanding (in thousands) 2,178,479 2,178,479

SUPPLEMENTARY INFORMATION (NON-IFRS MEASURES)8 EBITDA 201,007 160,851

EBITDA margin 35.3% 35.4%8 Adjusted EBITDA 205,529 164,964

The accompanying notes on pages 192 to 244 are an integral part of these consolidated financial statements.

D.V. KONOV Chairman of the Management Board

21 February 2019

A.A. PETROV Chief Financial Officer

21 February 2019


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IFRS Consolidated Statement of Financial Position


NotesAs of 31 December

2018 2017

ASSETSNon-current assets

10 Property, plant and equipment 769,309 605,31511 Advances and prepayments for capital construction 33,988 69,01512 Goodwill 12,097 12,09712 Intangible assets excluding goodwill 103,454 107,82213 Investments in joint ventures and associates 35,853 33,67330 Deferred income tax assets 8,465 11,73114 Long-term advances issued under project management and construction services 53,509 52,027

Loans receivable 1,878 1,50115 Prepaid borrowing costs 1,665 2,30716 Trade and other receivables 6,576 2,408

Other non-current assets 3,723 2,848Total non-current assets 1,030,517 900,744Current assets

17 Inventories 40,467 31,734Prepaid current income tax 1,190 2,334

16 Trade and other receivables 45,209 25,75118 Prepayments and other current assets 26,620 24,08514 Short-term advances issued under project management and construction services 86,164 39,69915 Prepaid borrowing costs 4,091 4,45520 Cash and cash equivalents 14,783 48,456

Total current assets 218,524 176,5143, 4 Assets classified as held for sale 9,605 6,568

TOTAL ASSETS 1,258,646 1,083,826LIABILITIES AND EQUITY

Non-current liabilities21 Long-term debt excluding related to ZapSibNeftekhim 73,337 111,78622 Long-term ZapSibNeftekhim related debt 236,940 170,71223 Deferred income from grants and subsidies 55,335 48,72014 Long-term advances received under project management and construction services 66,268 58,52430 Deferred income tax liabilities 34,261 38,73024 Other non-current liabilities 15,885 16,575

Total non-current liabilities 482,026 445,047Current liabilities

25 Trade and other payables 119,888 95,36014 Short-term advances received under project management and construction services 76,891 39,558

Income tax payable 4,640 1,61121 Current portion of long-term debt excluding related to ZapSibNeftekhim 13,300 27,36122 Current portion of long-term ZapSibNeftekhim related debt 8,834 2,48527 Taxes other than income tax payable 10,924 8,550

Total current liabilities 234,477 174,9253, 4 Liabilities associated with assets classified as held for sale 1,679 6,696

Total liabilities 718,182 626,668Equity

28 Ordinary share capital 21,784 21,784Share premium 9,357 9,357Equity-settled share-based payment plans 32,450 32,450Retained earnings 468,879 388,515Total equity attributable to the shareholders of the parent company 532,470 452,106

29 Non-controlling interest 7,994 5,052

Total equity 540,464 457,158

TOTAL LIABILITIES AND EQUITY 1,258,646 1,083,826



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IFRS Consolidated Statement of Cash Flows



2018 2017

Operating activities31 Cash from operating activities before income tax payment 184,991 172,317

Income tax paid (24,582) (19,640)31 Net cash from operating activities 160,409 152,677

Investing activitiesPurchase of property, plant and equipment (145,505) (131,765)

Purchase of intangible assets and other non-current assets (5,933) (3,496)23 Grants and subsidies received 9,536 11,27435 Acquisition of interest in subsidiary, net of cash acquired (3,023) (2,227)

Proceeds from disposal of subsidiary, net of cash disposed — 22,136Income tax paid on the disposal of subsidiary — (3,471)

13 Additional contributions to the share capital of joint ventures and associates (598) (2,075)13 Dividends received 1,937 2,247

Interest received 1,054 1,87713 Loans issued (153) (1,493)

Repayment of loans receivable — 971Proceeds from sale of property, plant and equipment 9,617 65

Other (218) (78)

Net cash used in investing activities (133,286) (106,035)Financing activitiesProceeds from debt 53,568 73,411

Repayment of debt (75,834) (96,498)

Interest paid (13,569) (14,655)

28, 29 Dividends paid (27,126) (19,709)Bank commissions paid (896) (1,707)

19 Return of deposit under loan settlement arrangement — 1,384

Net cash used in financing activities (63,857) (57,774)

Effect of exchange rate changes on cash and cash equivalents 3,061 (1,047)Net decrease in cash and cash equivalents (33,673) (12,179)Cash and cash equivalents, at the beginning of the reporting year 48,456 60,635Cash and cash equivalents, at the end of the reporting year 14,783 48,456



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IFRS Consolidated Statement of Changes in Equity


Notes

Attributable to the shareholders of the parent company

Share capital Share premiumEquity-settled

share-based payment plans

Retained earnings Total Non-control-ling

interest Total equity

Balance as of 1 January 2017 21,784 9,357 32,450 290,889 354,480 2,258 356,738Profit for the year — — — 116,909 116,909 3,337 120,246Actuarial loss on post-employment benefit obligations — — — (112) (112) (5) (117)

Total comprehensive income for the year — — — 116,797 116,797 3,332 120,12928, 29 Dividends — — — (19,171) (19,171) (538) (19,709)

Balance as of 1 January 2017 21,784 9,357 32,450 388,515 452,106 5,052 457,158

Balance as of 1 January 2018 21,784 9,357 32,450 388,515 452,106 5,052 457,15837 Effect of transition to IFRS 15 — — — (425) (425) — (425)

Balance as of 1 January 2018, restated 21,784 9,357 32,450 388,090 451,681 5,052 456,733Profit for the year — — — 106,329 106,329 4,431 110,760Actuarial gain on post-employment benefit obligations — — — 188 188 8 196

Total comprehensive income for the year — — — 106,517 106,517 4,439 110,9563 Deconsolidation of subsidiary — — — — — (99) (99)28, 29 Dividends — — — (25,728) (25,728) (1,398) (27,126)

Balance as of 31 December 2018 21,784 9,357 32,450 468,879 532,470 7,994 540,464



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IFRS Consolidated Statement of Comprehensive Income



2018 2017

Profit for the year 110,760 120,246Other comprehensive income/(loss): 196 (117)Actuarial gain/(loss) on post-employment benefit obligations 249 (157)Deferred tax effect (53) 40Total comprehensive income for the year 110,956 120,129Total comprehensive income for the year, including attributable to: 110,956 120,129Non-controlling interest 4,439 3,332Shareholders of the parent company 106,517 116,797



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Notes to the IFRS Consolidated Financial Statements

1 NATURE OF OPERATIONS

PJSC SIBUR Holding (the “Company”) and its subsidiaries (jointly referred to as the “Group”) form a vertically integrated petrochemical business. The Group purchases and processes raw materials (primarily associated petroleum gas and natural gas liquids), and produces and markets energy and petrochemical products, both domestically and internationally. The Group’s production facilities are located in the Russian Federation.

2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The preparation of consolidated financial statements under International Financial Reporting Standards (IFRS) requires the use of certain accounting estimates which, by definition, may differ from actual results. Estimates and judgements are continually evaluated; revisions of estimates are recognized prospectively. It also requires management to exercise judgement when applying the Group’s accounting policies.

Judgements that have the most significant effect on the amounts recognized in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities in future financial reporting periods are as follows:

Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations (see Note 36).

Deferred income tax asset recognition. Deferred income tax assets are recognized to the extent that it is probable that the future taxable profit will be available to cover such assets. When determining future taxable profits and the amount of tax benefits available to certain Group entities, the management makes judgements and applies estimates based on recent taxable profits and expectations of future income that are believed to be reasonable under the circumstances.

Useful lives of property, plant and equipment. Estimating the useful life of a property, plant and equipment item is based on experience with similar assets. When determining the useful life of an asset, the management considers the expected usage, estimated technical obsolescence, residual value, physical wear and tear, and the environment in which the asset is operated. Differences between such estimates and actual results may result in losses in future periods, and changes in any of these conditions or estimates may result in adjustments to future depreciation rates.

Estimated impairment of goodwill. The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amounts of cash-generating units are the higher of their fair value less costs to sell and their value-in-use calculations. These calculations require the use of estimates (see Note 12).

Estimated impairment of property, plant and equipment and intangible assets excluding goodwill. Property, plant and equipment and intangible assets excluding goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGU).

The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value-in-use calculations, which require the estimation of discounted cash flows. The estimation of cash flows and assumptions considers all information available at the year-end on the future development of the operating business and may deviate from actual future developments. An impairment charge is the difference between the carrying amount and the recoverable CGU amount.

Grants and subsidies. As a major investor in infrastructure and social projects in the regions where it operates, the Group has signed cooperation agreements with several regional authorities, including investment and financial support agreements, under which the Group is entitled to a partial refund of capital expenditures incurred in the respective regions subject to certain conditions. Such reimbursements are made after supporting documents have been submitted to the relevant authority in the form of a direct grant of public funds.

Notes to the IFRS Consolidated Financial Statements (сontinued)


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2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUED) Quarterly, at each reporting date, management assesses whether there is a reasonable assurance that the Group is able to comply with the required conditions. The management believes that the Group will be able to comply with the conditions stipulated by the agreements.

Operating leases. The Group has also a number of arrangements with several shipping companies for freight of eight vessels with terms from 5 to 10 years. At the inception date, the minimum lease payments for contracts were up to 80-85 percent of the value of the vessels and the economic useful life amounted to approximately 30 years. Based on that, and on the fact that the rewards are not substantially transferred to the Group because at the end of the lease period vessels will be capable for generating significant cash flow, the rented vessels are presented as an operating lease in these consolidated financial statements.

The Group had a number of contracts with third parties for the rental of tank wagons (railway cars) with terms of 5-10 years each. At their inception minimum lease payments for some of the contracts were close to the market value of the wagons. At the same time this situation resulted from a shortage of rail cars on the market and the strong negotiating position of service providers. Based on that, and on the fact that the rewards are not substantially transferred to the Group because at the end of the lease period cars will be capable of generating significant cash flow (even if they are subsequently sold or rented at significant discounts), the rented cars were accounted for as an operating lease in the consolidated financial statements until the contacts were cancelled by the Group due to establishment of PTC LLC (see Note 13).

Contracts on construction services. JSC NIPIgaspererabotka (“NIPIGAS”), a Group subsidiary, is engaged in the construction of a combined oil refining unit for JSC Gazpromneft Moscow Refinery and the construction of utilities, infrastructure and offsites for JSC Gazpromneft Omsk Refinery. On both contracts, NIPIGAS acts as contractor, providing the construction services. Also, NIPIGAS is engaged in the ARCTIC LNG 2 project for PJSC NOVATEK by providing engineering services to NOVAENGINEERING (see Note 3).

The Group recognizes revenue for such contracts over time using the input method, applying judgement over the expected costs to be incurred until project completion. If circumstances arise that may change the original estimates of revenue (which is generally fixed in the contract with minor variable components), costs or the extent of progress toward completion, the estimates are revised. These revisions may result in increases or decreases in estimated revenues and total costs and are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

In addition, receivables related to contracts on project management and construction services are subject to credit risk. In other words, although some revenue continues to be contractually bound, the customer can still refuse to pay or to pay in time. Where revenue has been recognized on a contract, but an uncertainty subsequently arises about the recoverability of the related amount due from the customer, any provision against the amount due is recognized as an expense.

For the years ended 31 December 2018 and 31 December 2017, the Group recognized revenue from the application of the input method by reference to costs incurred of RUB 26,409 and RUB 7,988, respectively (see Note 9).

Amur GPP project. In July 2015, Gazprom Pererabotka Blagoveshchensk LLC, a Gazprom Group member, and NIPIGAS signed a contract to manage a project on constructing the Amur Gas Processing Plant (“Amur GPP”) in the Amur Region. Under this agreement, NIPIGAS manages and supervises engineering work, procurement and delivery of equipment and materials, and construction work until the transfer of the plant to Gazprom Pererabotka Blagoveshchensk LLC in a state of mechanical completion. Amounts received under this contract include amounts payable to subcontractors for services rendered and equipment delivered, and NIPIGAS’s management services fee.The Group's management considered that under this project the Group's promise is to arrange for specified goods or services to be provided to the customer by the other parties, as the customer has a significant control over the construction process, including approval by Gazprom Pererabotka Blagoveshchensk LLC of contracts with subcontractors and preapproval of services rendered and equipment delivered by subcontractors before its acceptance by NIPIGAS. Thus, amounts received from the customer and transferred to subcontractors for construction services and equipment delivery are not recognized as revenue in the consolidated statement of profit or loss. Remuneration for management services rendered by NIPIGAS is recognized within revenue from project management and construction services in the consolidated statement of profit or loss.



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2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUED) JSC NIPIgaspererabotka consolidation. The effective percentage of NIPIGAS’s share capital held by the Group became 45 percent, representing 50 percent of the voting shares, as the result of shares sale to certain companies controlled by some of Company’s shareholders, including those that simultaneously serve as senior Group management. The Group continued to consolidate NIPIGAS as it has retained control over its relevant activities as defined by IFRS 10 “Consolidated Financial Statements”. The Group has made a significant judgement that it has retained control over NIPIGAS as the Group and its key management can cumulatively control a majority of votes at the meetings of NIPIGAS’s governing bodies.

SIBUR-Portenergo LLC disposal. In 2015, the Company sold its 100% interest in SIBUR-Portenergo LLC, the subsidiary of the Group that operates the liquefied petroleum gas and naphtha transshipment terminal located in Ust-Luga, Leningrad Region (“Terminal”), to Baltic Sea Transshipment PTE. Ltd (“Buyer”) and signed a long-term, take-or-pay transshipment contract with SIBUR-Portenergo LLC (valid through December 2029) under which the Company must transship its liquefied petroleum gas (“LPG”) and fully utilize the Terminal’s LPG transshipment capacity. As well, the Company must transship its naphtha and utilize a pre-determined percentage of the Terminal’s naphtha transshipment capacity if there are no other customers.

After the disposal, Management company SIBUR-Portenergo LLC (“Management Company”), a subsidiary of the Group, manages Terminal operations for a service fee. The Buyer is entitled to terminate the service contract with the Management Company at any time.

The Buyer makes decisions regarding all relevant Terminal activities, as defined by IFRS 10 “Consolidated Financial Statements”, including approving its budgets, setting the terms of significant contracts, and financing and investing activities. The Management Company operates under budgets approved by the Buyer. Should the Management Company disagree with the Buyer’s approved budget, it will formally relinquish responsibility for Terminal operations and will officially notify the Buyer accordingly.

The Group’s management made a significant judgement that, although the Group has retained some exposure or rights to variable returns from its involvement with the Terminal, it does not control the Terminal because it is the Buyer’s prerogative to make decisions on relevant Terminal operations, and the Terminal’s naphtha transshipment capacity may be utilized by third parties upon a decision of the Buyer.

3 ACQUISITION AND DECONSOLIDATION OF SUBSIDIARIES

LNG NOVAENGINEERING LLC

As of 31 December 2017, the Group classified assets and liabilities of its subsidiary LNG NOVAENGINEERING LLC (“NOVAENGINEERING”) as assets held for sale and associated liabilities. NOVAENGINEERING was founded by NIPIGAS in February 2017 to provide engineering, design and other services related to gravity-based structure liquefied natural gas plants, including ARCTIC LNG 2 project for PJSC NOVATEK.

In January 2018, the part of NIPIGAS’s interest in NOVAENGINEERING was sold for a cash consideration of RUB 16 to Technip France and LINDE AG. As a result the ownership percentage of NIPIGAS in NOVAENGINEERING decreased to 50.1%. In accordance with the Charter of NOVAENGINEERING and the other documents concluded to implement ARCTIC LNG 2 and other projects, the participants exercise joint control over relevant activities of NOVAENGINEERING and the Group’s management determines it as a joint venture. The Group’s management is planning to keep the Group’s majority ownership percentage in NOVAENGINEERING. Fair value of the Group’s investment retained in NOVAENGINEERING approximated its carrying value as of the disposal date.



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3 ACQUISITION AND DECONSOLIDATION OF SUBSIDIARIES (CONTINUED) The carrying amounts of NOVAENGINEERING’s assets and liabilities as of the disposal date amounted to RUB 7,312 and RUB 7,279, respectively (as of 31 December 2017 – RUB 6,568 and RUB 6,696, respectively). NOVAENGINEERING's assets were mainly presented by trade and other receivables; liabilities were mainly presented by advances from customers.

The Group did not incur any significant transaction costs on the disposal. Until the disposal date NOVAENGINEERING’s financial results had been reported as Unallocated in the segment information (see Note 8).

JSC Uralorgsintez

In 2017 the Company sold its 100% interest in its subsidiary JSC Uralorgsintez to JSC ECTOSintez (“the Buyer”), a Russian producer of anti-knock compounds, mainly benzene hydrocarbons and methyl tertiary butyl ether (“MTBE”), for a cash consideration of RUB 22,000 and a working capital price adjustment of RUB 175, both received in the first half 2017.

The main operating activities of JSC Uralorgsintez are processing hydrocarbon feedstock to LPG and naphtha, and producing MTBE, a high-octane fuel additive.

The interest was disposed under condition that the Company and the Buyer would sign several operating agreements, including those, under which the Buyer is obliged to: 1) process certain types of the Group's feedstock into finished goods using significant part (up to full capacity) of relevant JSC Uralorgsintez's production facilities; 2) purchase certain raw materials from the Group to utilise significant part of some JSC Uralorgsintez's production capacities with the option of the Group to utilise the residual part of these production capacities; 3) sell a significant part of JSC Uralorgsintez's major product to third parties when the Group acts as a sales agent. All these contracts were signed at the transaction date for the 10-years period at fair market prices.

The Company’s management considered the requirements of IFRIC 4 “Determining Whether an Arrangement Contains a Lease”. The terms of the contracts are at arm’s length. More than an insignificant amount of JSC Uralorgsintez’s output will be consumed by parties other than the Group, and the Buyer makes decisions on relevant operations of JSC Uralorgsintez and controls physical access to the production site. As a result, the management made a significant judgement that it is not a lease arrangement, even though the Group will utilise some of the JSC Uralorgsintez’s production capacity.

The carrying amounts of JSC Uralorgsintez’s assets and liabilities as of the disposal date amounted to RUB 2,909 and RUB 539, respectively. As a result of the disposal, the Company recognized a gain in the amount of RUB 19,805, which was classified as a gain on disposal of subsidiary in the consolidated statement of profit or loss.

The Company did not incur any significant transaction costs on this disposal. Until the disposal date JSC Uralorgsintez’s financial results were reported in the Plastics, Elastomers and Intermediates segment (see Note 9).

4 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

In the third quarter of 2018, the Group decided to sell part of its petrochemical production facilities which is not a strategic priority asset within the Group portfolio to an unrelated third party on market terms, related assets and liabilities were reclassified to the held for sale category.



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4 ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE (CONTINUED) As of the date of reclassification and reporting date, assets classified as held for sale and associated liabilities were as follows:

Assets and liabilities classified as held for sale Reclassification date 31 December 2018

AssetsProperty, plant and equipment 7,818 8,331Inventories 805 926Other assets 358 348

Total assets 8,981 9,605Liabilities

Trade and other payables 1,007 1,118Other liabilities 561 561

Total liabilities 1,568 1,679

As of 31 December 2017, the assets and liabilities associated with the assets classified as held for sale represented by assets and liabilities of the Group’s subsidiary LNG NOVAENGINEERING LLC (“NOVAENGINEERING”) (see Note 3).

5 REVENUE

Revenue by products and reportable segments is presented below:Year ended 31 December

2018 2017

Midstream 240,818 184,199Liquefied petroleum gas 152,206 110,708Natural gas 49,067 47,474Naphtha 37,572 23,904Other sales 1,973 2,113

Olefins and Polyolefins 100,862 88,135Polyolefins 68,913 63,576BOPP films 18,471 16,642Olefins 7,726 5,810Other polymers products 4,930 1,418Other sales 822 689

Plastics, Elastomers and Intermediates 171,003 146,877Plastics and organic synthesis products 59,878 47,227Elastomers 55,021 51,857MTBE and fuel additives 29,753 23,120Intermediates and other chemicals 25,137 23,410Other sales 1,214 1,263

Unallocated 55,964 35,408Revenue from project management and construction services 41,047 21,460Other revenue 14,917 13,948

Total revenue 568,647 454,619

In the second quarter 2018 the segment Feedstock and Energy was renamed to Midstream without any changes in the segment structure.

The amount of revenue recognized over time except for revenue from construction services recognized over time (separately disclosed in Note 2) for the year ended 31 December 2018 equals to RUB 20,668 (for the year ended 31 December 2017 – RUB 15,441, if prior year revenue would be recorded under accounting policies adjusted as the result of IFRS 15 adoption).

As of 31 December 2018 unsatisfied performance obligations on project management and construction services equals to RUB 117,584. Management expects that RUB 47,236 of this amount will be recognized as revenue in 2019 in accordance with the contract terms. The residual amount will be recognized until 2025.



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6 OPERATING EXPENSES


2018 2017

Feedstock and materials 130,669 87,983Transportation and logistics 75,021 67,058Staff costs 43,171 38,334Energy and utilities 39,839 38,770Depreciation and amortization 35,510 35,486Goods for resale 32,512 23,170Services provided by third parties 29,645 14,129Repairs and maintenance 12,792 13,242Taxes other than income tax 3,983 3,313Processing services of third parties 3,696 3,333Rent expenses 1,603 1,354Marketing and advertising 1,439 1,221Charity and sponsorship 858 820Impairment of property, plant and equipment 416 164Impairment of assets held for sale — 180(Gain)/loss on disposal of property, plant and equipment (4,503) 319Change in WIP and refined products balances (6,247) (1,803)Other 3,162 2,525

Total operating expenses 403,566 329,598

The Group’s production facilities are located in the Russian Federation and most of the Group’s operating expenses are generated at these production plants. Transportation expenses are closely related to the Group’s geography of sales disclosed in Note 8.

In 2018, due to change in the accounting policy the cost of spare parts and materials for repairs was reclassified from “Feedstock and materials” to “Repairs and maintenance” with retrospective adjustments. For the years ended 31 December 2018 and 31 December 2017 the amount of reclassification equals to RUB 4,145 and RUB 4,951, respectively.

Staff costs for the years ended 31 December 2018 and 31 December 2017 included statutory pension and other social security contributions of RUB 7,759 and RUB 7,127, respectively, also RUB 671 and RUB 592 of statutory pension and other social security contributions were capitalized in cost of property, plant and equipment for the years ended 31 December 2018 and 31 December 2017, respectively.

For the year ended 31 December 2018 “(Gain)/loss on disposal of property, plant and equipment” included gain from sale of Group’s own tanks for LPG transportation in the amount of RUB 4,711. The consideration of RUB 9,475 for these tanks was fully received in cash in the fourth quarter of 2018 (Note 13).



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7 FINANCE INCOME AND EXPENSES


2018 2017

Interest income 1,464 2,012Unwinding of discount on loans receivable and non-current accounts receivable 124 142Discount on loans and borrowings 23 93Foreign exchange gain from financing activities — 11,150Gain on the loan release (Note 19) — 1,384Other income 720 176

Total finance income 2,331 14,957Foreign exchange loss from financing activities (25,907) —Foreign exchange loss from non-financing activities (2,981) (2,107)Unwinding of discount on non-current accounts payable (1,379) (1,178)Interest expense (945) (6,416)Interest expense on post-employment obligations (196) (191)Bank commissions (52) (783)Other expense (230) (299)

Total finance expenses (31,690) (10,974)



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8 SEGMENT INFORMATION

The Group operates as a vertically integrated business, gathering and processing hydrocarbon feedstock, obtained from major Russian oil and gas companies, and producing and selling a wide range of petrochemical products as well as energy products.

At the beginning of the reporting period, the chief operating decision-makers were the Chairman of the Management Board, the Chief Operating Officer, the Chief Financial Officer and three Executive Directors. In February 2018, the Company updated its Charter and now has two single-member executive bodies, namely Chairman of the Management Board of PJSC SIBUR Holding and Chief Executive Officer of SIBUR LLC – the management company of the Group. This decision results from previously initiated processes seeking to separate strategic management from operational to further enhance management efficiency. As a result, the Group’s chief operating decision-makers are now the Chairman of the Management Board, the Chief Executive Officer, the Chief Financial Officer and three Executive Directors. These executives regularly review the Group’s internal reporting in order to assess performance and allocate resources.

The Group’s management determines three operating and reportable segments:

— Midstream – processing of associated petroleum gas and raw natural gas liquids to produce energy products, natural gas, liquefied petroleum gases and naphtha, which are used as feedstock by the Olefins and Polyolefins segment and the Plastics, Elastomers and Intermediates segment and also marketed and sold externally;

— Olefins and Polyolefins – mainly the production of polypropylene, polyethylene, propylene, ethylene and BOPP films;

— Plastics, Elastomers and Intermediates – the production of synthetic rubbers, plastics, organic synthesis products and other petrochemical products. In addition, the Plastics, Elastomers and Intermediates segment produces fuel additives, including MTBE, which is fully sold externally.

The Group’s management assesses the performance of each operating segment based on their respective EBITDA contributions. The results from providing electricity and heat supply, transportation to third parties, managerial services are not allocated into the operating segments.

EBITDA is calculated as the profit or loss for the period, adjusted by income tax expense, finance income and expenses, share of net income of joint ventures and associates, depreciation and amortization, impairment of property, plant and equipment, profit or loss on disposal of investments, as well as other one-off items.

To reflect and assess the results of the joint ventures and associates the Group’s EBITDA was adjusted by the Group’s portion of the EBITDA (calculated in accordance with the methodology as above) of joint ventures and associates (Adjusted EBITDA).

Starting fourth quarter 2018 adjusted EBITDA is calculated by the management net of NCI share of related subsidiaries’ EBITDA. Figures for 2017 were adjusted accordingly.

Inter-segment transfers include transfers of raw materials, goods and services from one segment to another, amount is determined based on the market prices for similar goods.



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8 SEGMENT INFORMATION (CONTINUED) Other information provided to management, except as noted below, is measured in a manner consistent with that in these consolidated financial statements.

Midstream Olefins and Polyolefins

Plastics, Elastomers and Intermediates

Total reportable segments Unallocated Total

Year ended 31 December 2018Total segment revenue 294,790 130,899 174,006 599,695 58,312 658,007Inter-segment transfers (53,972) (30,037) (3,003) (87,012) (2,348) (89,360)

External revenue 240,818 100,862 171,003 512,683 55,964 568,647EBITDA 127,107 37,679 34,816 199,602 1,405 201,007Adjusted EBITDA 127,771 46,507 34,611 208,889 (3,360) 205,529

Year ended 31 December 2017Total segment revenue 223,484 112,910 149,710 486,104 37,169 523,273Inter-segment transfers (39,285) (24,775) (2,833) (66,893) (1,761) (68,654)

External revenue 184,199 88,135 146,877 419,211 35,408 454,619EBITDA 86,672 44,636 33,037 164,345 (3,494) 160,851Adjusted EBITDA 87,415 51,790 32,938 172,143 (7,179) 164,964

For the years ended 31 December 2018 and 31 December 2017, EBITDA in US dollars measured at the weighted average exchange rate of the US dollar against the Russian ruble, calculated for corresponding periods (see Note 37), was USD 3,205 million and USD 2,757 million, respectively.

A reconciliation of EBITDA to profit before income tax was as follows:


2018 2017

EBITDA 201,007 160,851Finance income 2,331 14,957Finance expenses (31,690) (10,974)Result of subsidiary’s acquisition and remeasurement of related liabilities (217) (965)Result of subsidiary’s disposal and remeasurement of related assets (425) 19,805Share of net income of joint ventures and associates 3,173 2,073Depreciation and amortization (35,510) (35,486)Impairment of property, plant and equipment (416) (164)Impairment of assets held for sale — (180)

Profit before income tax 138,253 149,917

Geographical information

The breakdown of revenues by geographical regions was as follows:


2018 2017

Russia 333,394 262,862Europe 179,196 135,989Asia 26,082 29,193CIS 25,661 23,888Other 4,314 2,687

Total revenue 568,647 454,619



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9 CONTRACTS ON CONSTRUCTION SERVICES

The Group’s financial position with respect to contracts on construction services in progress as of 31 December 2018 and 31 December 2017 was as follows:

31 December 2018 31 December 2017

Construction service revenue 33,216 8,997Less:

Progress billings (33,472) (9,842)Advances from customers (6,672) (6,594)

Contract liabilities (6,928) (7,439)


Construction service revenue 3,635 —Less:

Progress billings (3,034) —Advances from customers (137) —

Contract assets 464 —

For the year ended 31 December 2017 the aggregate amount of contract costs incurred and aggregate amount of recognized profits were RUB 7,486 and RUB 1,511, respectively.

As of 31 December 2018, contracts on construction services in progress include the contracts with NOVAENGINEERING, which were intercompany before its deconsolidation (see Notes 2, 3).

10 PROPERTY, PLANT AND EQUIPMENT

Movements in the net book value of property, plant and equipment were as follows:

Buildings Facilities Machinery and equipment Transport Assets under

construction Other Total

Net book value as of 1 January 2017 45,600 144,065 100,852 6,649 130,854 6,982 435,002Depreciation charge (2,351) (10,532) (15,371) (600) — (1,816) (30,670)Additions — — — — 201,749 2,300 204,049Transfers 9,583 7,633 9,510 47 (27,182) 409 —Reclassification to inventories — — — — — (1,260) (1,260)Reversal of impairment / (impairment) 38 14 102 — (333) 15 (164)Disposals (857) (68) (73) (48) (410) (186) (1,642)Historical cost as of 31 December 2017 65,383 191,997 172,155 11,134 304,678 11,051 756,398Accumulated depreciation (13,370) (50,885) (77,135) (5,086) — (4,607) (151,083)

Net book value as of 1 January 2018 52,013 141,112 95,020 6,048 304,678 6,444 605,315Depreciation charge (2,858) (10,541) (14,622) (376) — (2,267) (30,664)Additions — — — — 203,381 6,190 209,571Transfers 3,490 6,130 9,800 86 (20,249) 743 —Impairment — — — — (199) (217) (416)Disposals (705) (81) (249) (4,324) (20) (717) (6,096)Reclassification to assets held for sale (Note 4) (587) (1,794) (4,669) (68) (856) (427) (8,401)Historical cost as of 31 December 2018 67,310 195,447 171,214 3,105 486,735 15,896 939,707Accumulated depreciation (15,957) (60,621) (85,934) (1,739) — (6,147) (170,398)

Net book value as of 31 December 2018 51,353 134,826 85,280 1,366 486,735 9,749 769,309



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10 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) For the years ended 31 December 2018 and 31 December 2017, the Group capitalized borrowing costs of RUB 30,595 and RUB 14,109, respectively. Borrowing costs included foreign exchange losses in the amount of RUB 16,845 and RUB 4,632 for the respective years. The annual capitalization rates, excluding the effect of capitalized foreign exchange losses from financing activities, were 6.63 percent and 6.60 percent, respectively.

The Group is implementing ZapSibNeftekhim (“ZapSib”) investment project, construction of the ethylene cracking unit and polymers production units located in Tobolsk, Tyumen Region. The mechanical completion is to be attained by the end of 2019.

11 ADVANCES AND PREPAYMENTS FOR CAPITAL CONSTRUCTION

Advances and prepayments in the amount of RUB 33,988 and RUB 69,015 as of 31 December 2018 and 31 December 2017, respectively, primarily were paid to suppliers and contractors under the major investment project of the Group – ZapSib.

As of 31 December 2018, the most significant advances and prepayments were paid to Renaissance Heavy Industries, Linde AG Engineering Division, Yamata Endüstriyel Projeler Inşaat Taahhüt ve Ticaret, JSC PROMSTROI-GROUP, China National Chemical Engineering No.7 Construction Co., Ltd, Technip France.

As of 31 December 2017, the most significant advances and prepayments were paid to Linde AG Engineering Division, Renaissance Heavy Industries, Yamata Endüstriyel Projeler Inşaat Taahhüt ve Ticaret, Technip France, China National Chemical Engineering No.7 Construction Co., Ltd.

Management assessed the risks of non-recoverability and requested a collateral against advances and prepayments when the risk was considered as moderate or higher. On a regular basis, management reviews and monitors the status of work performed under each construction, other services and supply agreements. The Group’s management assesses the risk that some of the advances and prepayments would not be recovered as insignificant.



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12 GOODWILL AND INTANGIBLE ASSETS

The net book value of intangible assets was as follows:

Goodwill Customer relationships

Supply contracts

Software and licences

Development costs Total

Net book value as of 1 January 2017 12,097 343 101,715 10,566 1,604 126,325Additions — — — 2,941 467 3,408Disposals — — — (21) (97) (118)Amortisation charge — (71) (7,023) (2,602) — (9,696)Historical cost as of 31 December 2017 12,097 680 119,931 17,896 1,974 152,578Accumulated amortisation — (408) (25,239) (7,012) — (32,659)

Net book value as of 1 January 2018 12,097 272 94,692 10,884 1,974 119,919Additions — — — 5,335 597 5,932Disposals — — — (57) (95) (152)Amortisation charge — (71) (7,013) (2,988) — (10,072)Reclassification to assets held for sale (Note 4) — — — (40) (36) (76)Historical cost as of 31 December 2018 12,097 680 119,931 22,680 2,440 157,828Accumulated amortisation — (479) (32,252) (9,546) — (42,277)

Net book value as of 31 December 2018 12,097 201 87,679 13,134 2,440 115,551

Intangible assets other than goodwill are presented in a separate line in the consolidated statement of financial position.

Impairment tests for goodwillGoodwill related to the acquisitions of SIBUR International GmbH, Biaxplen LLC and Yugragazpererabotka LLC is allocated to the Group’s cash-generating units (“CGUs”), which are the same as operating and reportable segments (see Note 8).

An operating segment-level summary of the goodwill allocation is presented below:


SIBUR International GmbH Midstream 3,189 3,189Olefins and Polyolefins 1,160 1,160Plastics, Elastomers and Intermediates 2,348 2,348

Biaxplen LLCOlefins and Polyolefins 2,783 2,783

Yugragazpererabotka LLCMidstream 2,479 2,479

IT-Service LLCUnallocated 138 138Total goodwill 12,097 12,097

The recoverable amount for each CGU is the higher of its fair value, less the selling cost and its value-in-use calculations, and has been determined based on a value-in-use calculation. These calculations use pre-tax cash flow projections based on management’s five-year financial forecast prepared as of the year end. Cash flows beyond the five-year period are extrapolated using an estimated growth rate of three percent. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The following key assumptions are used in the value-in-use calculation: a discount rate of 17.87 percent, an exchange rate of RUB 65-70 to USD 1, an oil price of USD 65-73 per bbl, and a Consumer Price Index of 4.0-4.3 percent. The discount rates used are pre-tax and reflect specific risks relating to the CGU’s operating activity.

As the result of the management assessment no impairment of goodwill was identified.



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13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES

Country of incorporation Interest held (%) 31 December 2018 31 December 2017

RusVinyl LLC Russia 50 19,598 19,305Yuzhno-Priobsky GPP LLC Russia 50 6,100 6,121Reliance Sibur Elastomers Private Limited India 25.1 4,084 3,400Sibgazpolimer JSC Russia 50 3,061 2,263NPP Neftekhimia LLC Russia 50 2,470 2,583PTC LLC Russia 50 477 —LNG NOVAENGINEERING LLC Russia 50.1 62 —SNHK LLC Russia 50 1 1

Total investments in joint ventures and associates 35,853 33,673

Special purpose vehicle established for investing in production entities.

The voting and ownership percentage in joint ventures and associates are the same, except for LNG NOVAENGINEERING LLC (see Note 3).

The table below summarises the movements in the carrying amount of the Group’s investment in associates and joint ventures.

2018 2017

As of the beginning of the year 33,673 31,757Share of profit of joint ventures and associates 3,173 2,073Additions 253 2,075Dividends received from joint ventures and associates (1,937) (2,247)Translation differences 691 15

As of the end of the year 35,853 33,673

All individually material associates and joint ventures are private companies and, thus, there are no quoted prices for their shares. All of these entities have share capital consisting solely of ordinary shares, which are held directly by the shareholders.

The Group reviews its investments in joint ventures and associates for potential impairment indicators on a regular basis. As of 31 December 2018 and 31 December 2017 there were no circumstances that would indicate the carrying value of investments in joint ventures and associates exceeds its recoverable amount.



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13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED) The nature of the Group’s relationship with and the financial information of each individually material associate and joint venture are described below.

RusVinyl LLC. RusVinyl LLC is a joint venture between the Group and SolVin Holding Nederland B.V. (which is ultimately controlled by Solvay SA) to produce a polyvinyl chloride on a new plant, constructed by RusVinyl LLC in the Nizhny Novgorod Region.

The Group issued guarantees (debt service undertaking – DSU), which cover 20 percent of loans of Rusvinyl LLC, and pledged its shares in Rusvinyl LLC as a security. In addition to that the Group issued guarantee as a liquidity support undertaking (LSU). As of 31 December 2017 and until the project completion date (which is determined as achievement of targeted operating and financial performance), the amount of LSU was equal to EUR 32.5 million. After the project Completion date occurred in the end of 2018 DSU guarantee was replaced by LSU guarantee, increased up to EUR 62.5 million.

As of 31 December 2018 and 31 December 2017, the maximum credit risk exposure due to financial guarantees issued for the RusVinyl LLC was RUB 4,966 and RUB 8,093, respectively.

In 2017, the Group issued loan to RusVinyl LLC maturing in 2024 to finance its operating activity. The Group provided loan on an arm’s length basis and its ownership share remained unchanged.

The table below provides information on the statement of financial position and the results of RusVinyl LLC as of and for the years ended 31 December 2018 and 2017.


AssetsNon-current assets

Property, plant and equipment 62,088 64,952Other non-current assets 2,211 2,429

Current assetsCash and cash equivalents 3,678 1,807Other current assets 4,803 4,407

Total assets 72,780 73,595

LiabilitiesNon-current liabilities

Financial liabilities 25,557 27,297Current liabilities

Financial liabilities 5,748 5,291Other current liabilities 2,279 2,397

Total liabilities 33,584 34,985Net assets 39,196 38,610


2018 2017

Revenue 27,058 22,578Depreciation and amortisation (3,484) (3,433)Interest income 39 22Interest expense (2,162) (2,787)Other finance expense (355) (66)Foreign exchange loss (3,258) (1,712)Income tax expense (200) (185)Profit for the period 586 493



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13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED) Yuzhno-Priobsky GPP LLC. In 2007, the Group and the Gazprom Neft Group established a joint venture in the Khanty-Mansiysk Autonomous District to construct a gas processing plant based on Yuzhno-Priobskaya compressor station. On 3 September 2015, Yuzhno-Priobsky GPP LLC began its operation.

The table below provides information on the statement of financial position and the results of Yuzhno-Priobsky GPP LLC as of and for the years ended 31 December 2018 and 2017.



Property, plant and equipment 7,495 8,655Other non-current assets 263 298

Current assetsCash and cash equivalents 1 1Other current assets 5,141 4,103



Other non-current liabilities 326 365Current liabilities

Other current liabilities 375 450Total liabilities 701 815Net assets 12,199 12,242


2018 2017

Revenue 2,102 2,004Depreciation and amortisation (1,215) (1,363)Foreign exchange gain 4 1Income tax expense (16) (23)Profit for the period 58 101



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13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED) NPP Neftekhimia LLC. In September 2010, the Group established a joint venture, NPP Neftekhimia LLC, with AO Moskovskiy NPZ (later renamed to JSC Gazpromneft Moscow Refinery), a member of the Gazprom Neft Group. The joint venture is a polypropylene producer located in Moscow, and the Group purchases substantially all of its production volumes.

The table below provides information on the statement of financial position and the results of NPP Neftekhimia LLC as of and for the years ended 31 December 2018 and 2017.



Property, plant and equipment 1,273 1,495Other non-current assets 55 68

Current assetsCash and cash equivalents 519 310Other current assets 786 926



Other non-current liabilities 28 27Current liabilities

Other current liabilities 533 513Total liabilities 561 540Net assets 2,072 2,259


2018 2017

Revenue 10,485 6,476Depreciation and amortisation (325) (278)Interest income 70 87Foreign exchange loss (4) (4)Income tax expense (745) (403)Profit for the period 2,670 1,350



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13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED) The nature and summarised financial information of individually immaterial joint venture and associate are provided below.

Reliance Sibur Elastomers Private Limited. In February 2012, the Group and the Reliance Industries Limited established a company for the construction of butyl rubber production facility at Reliance Industries Limited’s integrated petrochemical site in Jamnagar, India. In 2017, the Group made additional contributions to the associate’s share capital of RUB 2,075; the Group’s ownership share remained unchanged.

JSC Sibgazpolimer. In May 2014, JSC Sibgazpolimer acquired a 50 percent stake in Poliom LLC from JSC GK Titan for a cash consideration of RUB 2,297 and a contingent consideration of RUB 2,131. Purchase price allocation resulted in recognition of goodwill in the amount of RUB 5,960, which is included in carrying value of investment in Poliom LLC.

PTC LLC. In 2018 the Group established with JSC SG-Trans (one of the Russian major railway operators) a 50/50 percent joint venture, Petrochemical Transportation Company LLC (PTC LLC). PTC LLC is aimed to be a licensed railway operator, responsible for the provision of the transportation services both for company’s owners and third parties.

The Group sold its LPG tanks (Note 6) to the leasing company that leased out the tanks to the joint venture. The Group included the services rendered by PTC LLC in operating expenses line in the consolidated statement of profit and loss.

Summarized financial information of these individually immaterial joint ventures and associate is provided below.

As of and for the year ended 31 December 2018Current assets

Non-current assets

Current liabilities

Non-current liabilities Revenues Oper. profit/

(loss)Рrofit/ (loss)

SNHK LLC — — — — 2,016 — —LNG NOVAENGINEERING LLC 8,045 940 1,536 6,947 392 377 291Reliance Sibur Elastomers Private Limited 3,380 29,235 2,534 14,679 — (8) (18)Sibgazpolimer JSC 1,668 6,928 — 2,475 2,655 2,652 2,509PTC LLC 2,853 9,547 3,247 7,467 3,581 478 491

As of and for the year ended 31 December 2017Current assets

Non-current assets

Current liabilities

Non-current liabilities Revenues Oper. profit/

(loss)Рrofit/ (loss)

SNHK LLC — — — — 25 — —Reliance Sibur Elastomers Private Limited 5,620 17,665 2,036 7,256 — (1) (22)Sibgazpolimer JSC 3 6,795 — 2,272 2,212 2,212 1,990

The Group will finance investments in its joint ventures and associates should these entities be unable to attract third parties’ financing. The Group’s commitments under these investment arrangements comprised RUB 200 and RUB 819 as of 31 December 2018 and 2017, respectively.



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14 ADVANCES ISSUED AND RECEIVED UNDER PROJECT MANAGEMENT AND CONSTRUCTION SERVICES

Advances received from Gazprom Pererabotka Blagoveshchensk LLC under the project management of construction of the Amur GPP (see Note 2) were paid in full to suppliers and subcontractors as advances for their respective work. The Group’s management considers the terms of advances received and paid based on the expected date of their utilization in the full amount, linked to contractual terms.

As of 31 December 2018 and 31 December 2017, the total amount of advances received from Gazprom Pererabotka Blagoveshchensk LLC under this project is presented in the long-term advances received under project management and construction services line in the amount of RUB 64,746 and RUB 57,099, respectively, and in the short-term advances received under project management and construction services line in the amount of RUB 71,053 and RUB 33,544, respectively, in the consolidated statement of financial position. Advances paid are presented in the long-term advances issued under project management and construction services line in the amount of RUB 53,509 and RUB 52,027, respectively, and in the short-term advances issued under project management and construction services line in the amount of RUB 82,207 and RUB 38,093, respectively, in the consolidated statement of financial position.

Advances issued and received under project management and construction services also include advances under the project of construction of combined oil refining unit for JSC Gazpromneft Moscow Refinery, the project of construction of utilities, infrastructure and offsites for JSC Gazpromneft Omsk Refinery and others (Note 2).

15 PREPAID BORROWING COSTS

As of 31 December 2018 and 31 December 2017, prepaid borrowing costs of RUB 5,756 and RUB 6,762, respectively, included credit agencies premiums and fees for arranging long-term credit facilities for the Group’s subsidiary, ZapSibNeftekhim LLC, for the ZapSib execution. The current portion of prepaid borrowing costs of RUB 4,091 and RUB 4,455 as of 31 December 2018 and 31 December 2017, respectively, is accounted for under loans and borrowings within one year from the reporting date.



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16 TRADE AND OTHER RECEIVABLES


Receivables under project management and construction services 32,552 8,930Trade receivables (net of impairment provisions of RUB 281 and RUB 241 as of 31 December 2018 and 31 December 2017, respectively) 15,721 16,411

Other receivables (net of impairment provisions of RUB 544 and RUB 263 as of 31 December 2018 and 31 December 2017, respectively) 3,512 2,818

Total trade and other receivables 51,785 28,159Less non-current portion:

Receivables under project management and construction services (5,336) (966)Other receivables (1,240) (1,442)

45,209 25,751

The fair values of trade and other receivables approximate their carrying values. All non-current receivables are due up to twenty years from reporting period date.

Accrual and release of the impairment provision have been recognized within other operating expenses in the consolidated statement of profit or loss. The Group applies IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables.

To measure the expected credit loss, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the historical payment profiles of sales, and the corresponding historical credit losses experienced. As a regular payment term specified for the majority of customers is prepayment or payment within 90 days the effect of adjustment on future expected losses is immaterial. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the probability of insolvency or significant financial difficulties of the debtor. Impaired amounts are derecognized when they are assessed as uncollectible.

17 INVENTORIES


Refined products and work in progress 22,433 17,822Materials and supplies 16,386 11,855Goods for resale 1,648 2,057

Total inventories 40,467 31,734

As of 31 December 2018 and 31 December 2017, inventory write-downs amounted to RUB 191 and RUB 357, respectively. No significant reversals of previous inventory write-downs were made during the years ended 31 December 2018 and 31 December 2017.



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18 PREPAYMENTS AND OTHER CURRENT ASSETS


Non-financial assetsVAT receivable 12,461 8,818Prepayments and advances to suppliers 6,394 7,828Recoverable VAT 3,170 4,077Other prepaid taxes and custom duties 1,408 750Prepaid excise 1,294 1,344Recoverable excise 758 835Other current assets 1,023 224

Total non-financial assets 26,508 23,876Financial assets

Other financial assets 112 209Total financial assets 112 209Total prepayments and other current assets 26,620 24,085

19 BANK DEPOSITS

In October 2016, the Group signed a USD 414 million long-term deposit agreement due in March 2023. The main terms of the deposit agreement, including maturity schedule and interest rate, matched with the respective terms of the agreement, under which the Group had obtained a loan from the same bank. As the transaction meets the pass-through arrangement criteria, the long-term deposit and long-term loan were derecognized by the Group from its consolidated statement of financial position on the transaction date.

In March 2017 bank released the Group from a payment of the loan portion in the amount of USD 23.5 million, simultaneously deposit was decreased by the same amount and ruble equivalent of RUB 1,384 was returned to the Group; this development does not breach the pass-through arrangement criteria.

20 BANK DEPOSITS

Cash and cash equivalents included deposits held in banks, which are readily convertible to cash and have an original maturity of less than three months, of RUB 10,002 and RUB 31,403 as of 31 December 2018 and 31 December 2017, respectively, and cash in transit in the amount of RUB 472 and RUB 1,798 as of 31 December 2018 and 31 December 2017, respectively.



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21 LONG-TERM DEBT EXCLUDING RELATED TO ZAPSIBNEFTEKHIM

Long-term debt payable to Currency Due 31 December 2018 31 December 2017

Variable rate Bank GPB RUB 2023 22,000 22,000Deutsche Bank EUR 2014-2023 4,274 4,589Citibank USD 2021 695 —ING Bank Group EUR, USD 2011-2021 285 531UniCredit Bank EUR 2013-2019 253 445NPP Neftekhimia RUB 2020 — 175Raiffeisen Bank USD 2019-2021 — 5,760

Fixed rateRussian ruble bonds RUB 2019-2021 30,000 30,000Eurobonds 2023 USD 2023 21,285 28,616UniCredit Bank Group RUB 2022 4,980 4,974Monotowns Development Fund RUB 2021-2026 1,000 —Alfa-Bank USD 2019 — 14,400Sberbank of Russia RUB 2020-2022 — 1,896Gazprom mezhregiongaz RUB 2011-2018 — 233Eurobonds 2018 USD 2018 — 25,528

Total long-term debt excluding related to ZapSibNeftekhim 84,772 139,147

Less: current portion (11,435) (27,361)73,337 111,786

Eurobonds 2018. The nominal amount of notes outstanding as of 31 December 2017 was USD 443.2 million and it was paid in full in January 2018.

Eurobonds 2023. On 5 October 2017, the Group issued notes with nominal value USD 500 million in total on the Irish Stock Exchange, bearing 4.125 percent annual interest and maturing in 2023. The Group used the aggregate net proceeds from the notes issue for an early redemption of the Eurobonds 2018 issue and for general corporate purposes. In October 2018 the Group repurchased its Eurobonds 2023 with the nominal value of USD 192 million at a price of 97.4% of the par value for RUB 12,620.

The Group had no subordinated debt and no debts that may be converted into an equity interest in the Group.

The scheduled maturities of long-term debt excluding related to the ZapSib as of 31 December 2018 and 31 December 2017 are presented below:


Due for repayment:Between one and two years 11,181 25,639Between two and five years 61,584 35,258More than five years 572 50,889

Total long-term debt excluding related to ZapSibNeftekhim 73,337 111,786



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21 LONG-TERM DEBT EXCLUDING RELATED TO ZAPSIBNEFTEKHIM (CONTINUED) The carrying amounts of long-term fixed-rate borrowings approximate their fair value as of 31 December 2018 and 31 December 2017, except for those, which fair value is disclosed in Note 35.

The carrying amounts of long-term debts with variable interest rates linked to LIBOR, EURIBOR or the Central Bank of Russia key interest rate approximate their fair value.

As of 31 December 2018 and 31 December 2017, the Group had the following committed long-term credit facilities excluding related to the ZapSib:

Credit limit Undrawn amount

As of 31 December 2018USD-denominated (in millions of USD) 200 200RUB-denominated (in millions of RUB) 10,000 10,000

As of 31 December 2017USD-denominated (in millions of USD) 349 249RUB-denominated (in millions of RUB) 6,000 6,000

As of 31 December 2018 and 31 December 2017, the total ruble equivalent of the Group’s undrawn committed long-term credit facilities excluding related to the ZapSib was RUB 23,894 and RUB 20,320, respectively.

22 LONG-TERM ZAPSIBNEFTEKHIM RELATED DEBT

Long-term debt payable to Currency Due 31 December 2018 31 December 2017

Variable rate National Wealth Fund financing USD 2030 121,574 100,800Deutsche Bank (ECA financing) EUR 2020-2029 78,380 49,096ING Bank Group (ECA financing) EUR 2013-2029 2,705 2,246Citibank (ECA financing) USD 2013-2023 — 1,612

Fixed rateVnesheconombank USD 2021-2025 16,564 —Credit Agricole (ECA financing) EUR 2019-2029 13,293 7,347Russian Direct Investment Fund USD 2018-2020 13,258 12,096

Total long-term ZapSibNeftekhim related debt 245,774 173,197Less: current portion (8,834) (2,485)

236,940 170,712



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22 LONG-TERM ZAPSIBNEFTEKHIM RELATED DEBT (CONTINUED) The scheduled maturities of long-term ZapSib related debt as of 31 December 2018 and 31 December 2017 are presented below:


Due for repayment:Between one and two years 15,587 7,382Between two and five years 37,212 23,078Between five and ten years 53,920 28,488More than ten years 130,221 111,764

Total long-term ZapSibNeftekhim related debt 236,940 170,712

The carrying amounts of long-term fixed-rate borrowings approximate their fair value as of 31 December 2018 and 31 December 2017, except for those, which fair value is disclosed in Note 35.

The carrying amounts of long-term debt with variable interest rates linked to LIBOR, EURIBOR or USA CPI approximate their fair value.

As of 31 December 2018 and 31 December 2017, the Group had the following committed long-term ZapSib related credit facilities:

Credit limit Undrawn amount

As of 31 December 2018EUR-denominated (in millions of EUR) 2,151 902

As of 31 December 2017EUR-denominated (in millions of EUR) 2,166 1,284USD-denominated (in millions of USD) 400 400

As of 31 December 2018 and 31 December 2017, the total ruble equivalent of the Group’s undrawn committed long-term ZapSib related credit facilities was RUB 71,684 and RUB 111,495, respectively.

Total Group’s long-term debt both including and excluding related to the ZapSib bore the following weighted average interest rates: RUB-denominated of 9.2 percent and 9.3 percent as of 31 December 2018 and 31 December 2017, respectively; USD-denominated of 4.0 percent as of 31 December 2018 and 31 December 2017; and EUR-denominated of 1.1 percent and 1.2 percent as of 31 December 2018 and 31 December 2017, respectively.

23 DEFERRED INCOME FROM GRANTS AND SUBSIDIES

As a major investor in infrastructure and social projects in the regions where it operates, the Group has signed cooperation agreements with a number of regional authorities, including investment and financial support agreements. Under these agreements, the Group is entitled to a partial refund of capital expenditures and finance expenses incurred in the respective regions subject to certain conditions. Such reimbursements are made after supporting documents have been submitted to the relevant authority in the form of a direct grant of public funds.

2018 2017

Deferred income from grants and subsidies as of 1 January 48,720 41,082Grants and subsidies received 9,687 11,274Recognized in profit or loss (depreciation) (3,072) (3,636)

Deferred income from grants and subsidies as of 31 December 55,335 48,720



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24 OTHER NON-CURRENT LIABILITIES


Financial liabilitiesPayables under project management and construction services 4,253 914Payables for acquisition of subsidiaries 3,523 5,792Payables under accommodation program 2,801 2,278Payables to contractors and suppliers of property, plant and equipment 1,279 2,778Trade payables 50 223Other liabilities 241 6

Total financial non-current liabilities 12,147 11,991Non-financial liabilities

Post-employment obligations 2,077 2,401Payables to employees 1,661 2,181Other liabilities — 2

Total non-financial non-current liabilities 3,738 4,584Total other non-current liabilities 15,885 16,575

The Group maintains a cash-settled long-term incentive (LTI) plan. Among other factors, remuneration under the LTI plan is contingent upon the contribution that management makes toward increases in the Group’s business fair value, which is measured by changes in the Group’s business fair value divided by the median change in the business fair values of certain other international corporations operating in the petrochemical industry. The LTI plan requires that participants provide services to the Group within a specific time period. Remuneration granted is vested to each participant on an annual basis and in separate tranches. Each tranche equals 33.3 percent of the total remuneration granted, provided that the participant is continuously employed by the Group from the grant date until the applicable vesting date. Each tranche is accounted for as a separate arrangement and expensed, together with a corresponding increase within payables to employees in other non-current liabilities. The current portion of liabilities under the LTI plan is classified within payables to employees in trade and other payables. For the years ended 31 December 2018 and 31 December 2017, the Group recognized RUB 848 and RUB 915, respectively, as expenses under the LTI plan.

The carrying amounts of other non-current liabilities approximate their fair value.

25 TRADE AND OTHER PAYABLES


Financial liabilitiesPayables to contractors and suppliers of property, plant and equipment 44,210 41,009Payables under project management and construction services 28,231 8,613Trade payables 25,675 26,098Payables for acquisition of subsidiaries 3,280 2,619Interest payable 1,863 2,087Other payables 825 514

Total financial trade and other payables 104,084 80,940Non-financial liabilities

Payables to employees 9,650 7,948Advances from customers 4,958 5,163Other payables 1,196 1,309

Total non-financial trade and other payables 15,804 14,420Total trade and other payables 119,888 95,360

As of 31 December 2018 and 31 December 2017, payables to employees included provisions for annual and other bonuses, vacation accruals (including provision for social taxes) of RUB 9,623 and RUB 7,948, respectively.



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26 SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT EXCLUDING RELATED TO ZAPSIBNEFTEKHIM


Short-term debt:RUB-denominated debt 1,865 —

Current portion of long-term debt excluding related to ZapSibNeftekhim (Note 21):Russian ruble bonds 10,000 —Eurobonds 2018 — 25,528Others 1,435 1,833

Total 13,300 27,361

As of 31 December 2018 the Group had committed short-term credit facilities excluding related to the ZapSib in euro and rubles. The total ruble equivalent of the Group’s undrawn committed short-term credit facilities excluding related to the ZapSib was RUB 27,084. As of 31 December 2017, the Group had no committed short-term credit facilities.

27 TAXES OTHER THAN INCOME TAX PAYABLE


VAT 9,130 6,918Property tax 1,009 919Social taxes 494 620Other taxes 291 93

Total taxes other than income tax payable 10,924 8,550

28 SHAREHOLDERS’ EQUITY

On 14 December 2016, the Group’s shareholders entered into the sale of 10 percent stake in the Company’s share capital to the Silk Road Fund, an investment fund registered in China. The transaction was finalized in January 2017.

As of 31 December 2018 and 31 December 2017, the Group didn’t have direct parent company and an ultimate controlling shareholder.

Share capital. The share capital of PJSC SIBUR Holding (authorised, issued and paid-in) was RUB 21,784 as of 31 December 2018 and 31 December 2017, and consisted of 2,178,479,100 ordinary shares, each with a par value of ten Russian rubles.

Earnings per share. There were no events that would trigger dilution of earnings per share for the years ended 31 December 2018 and 31 December 2017.

Dividends. Dividends in the amount of RUB 25,728 (11.81 Russian rubles per share) and RUB 19,171 (8.80 Russian rubles per share) were paid during years ended 31 December 2018 and 31 December 2017, respectively.



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29 NON-CONTROLLING INTEREST

The following table provides information about each significant subsidiary with a non-controlling interest:

Place of business

Proportion of non-controlling interest,

percent

Proportion of non-controlling interest’s voting rights held,

percent

Accumulated non-controlling interest in the subsidiary

Year ended 31 December 2018JSC NIPIgaspererabotka Russia 55 50 7,710JSC Krasnoyarsk Synthetic Rubbers Plant Russia 25 25 364Others — — — (80)

7,994Year ended 31 December 2017

JSC NIPIgaspererabotka Russia 55 50 4,749JSC Krasnoyarsk Synthetic Rubbers Plant Russia 25 25 192LNG NOVAENGINEERING LLC Russia 55 50 99Others — — — 12

5,052

The summarised financial information of JSC NIPIgaspererabotka before inter-company eliminations was as follows:

As of and for the year ended 31 December 2018 31 December 2017

Non-current assets 65,144 71,439Current assets 133,115 52,000

Non-current liabilities 71,219 60,437Current liabilities 113,002 54,292

Revenue 44,276 26,184

During the years ended 31 December 2018 and 31 December 2017 the Group’s subsidiary NIPIGAS distributed dividends to its shareholders.

A subsidiary of JSC NIPIgaspererabotka.



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30 INCOME TAX

The movement in deferred income tax assets and liabilities during the year was as follows:

31 December 2018 (Charged)/ credited to profit or loss/equity

Reclassifications to assets held for sale 31 December 2017 Business combinations

and acquisitions(Charged)/

credited to profit or loss/equityReclassifications to /

from assets held for sale 31 December 2016

Tax effects of taxable temporary differencesProperty, plant and equipment (32,621) (6,990) 457 (26,088) 20 (3,255) — (22,853)Intangible assets (17,926) 1,173 — (19,099) — 1,188 — (20,287)Trade and other receivables (7,459) (860) 1 (6,600) — (3,762) 304 (3,142)Prepaid borrowing costs (1,349) — — (1,349) — 29 — (1,378)Debt (1,212) (354) — (858) — (103) — (755)Inventory (444) (281) — (163) — 186 — (349)Others (73) 33 — (106) — 31 — (137)

Deferred tax liabilities (61,084) (7,279) 458 (54,263) 20 (5,686) 304 (48,901)Less: deferred tax assets offset 26,823 11,669 (379) 15,533 — 1,283 (296) 14,546

Total deferred tax liabilities (34,261) 4,390 79 (38,730) 20 (4,403) 8 (34,355)Tax loss carry-forwards 22,260 7,932 (232) 14,560 — (631) — 15,191Grants and subsidies 6,877 (152) — 7,029 — (232) — 7,261Payables to employees 2,422 330 (92) 2,184 — 342 — 1,842Inventory 1,485 247 (28) 1,266 — 850 — 416Trade and other payables 1,227 (365) (13) 1,605 — 930 — 675Intangible assets 113 (9) (4) 126 — (21) — 147Others 905 421 (10) 494 (10) 705 (296) 95

Deferred tax assets 35,288 8,403 (379) 27,264 (10) 1,943 (296) 25,627Less: deferred tax liabilities offset (26,823) (11,669) 379 (15,533) — (1,283) 296 (14,546)

Total deferred tax assets 8,465 (3,266) — 11,731 (10) 660 — 11,081Total net deferred tax liabilities (25,796) 1,124 79 (26,999) 10 (3,743) 8 (23,274)

Differences between recognition criteria under Russian tax regulations and under IFRS have given rise to temporary differences between the carrying value of certain assets and liabilities for financial reporting and income tax purposes. The tax effect of changes in these temporary differences is recorded at the applicable statutory tax rate.

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realisation of the related tax benefits through future taxable profits is probable. Under the Russian Tax Code, during the period from 1 January 2017 to 31 December 2020 only up to 50% of a taxable income can be covered by tax losses carry-forward from previous periods. After 31 December 2020 a tax income can be covered by tax losses carry-forward from previous periods in full amount. Tax losses can be carried forward until fully recognized without time limitation.


2018 2017

Current income tax:Current income tax on profits for the year 28,765 25,971Adjustments for prior years (148) (43)

Total current income tax 28,617 25,928Deferred income tax:

(Reversal)/accrual of temporary differences (1,124) 3,743Total deferred income tax (1,124) 3,743Total income tax expense 27,493 29,671



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30 INCOME TAX

The movement in deferred income tax assets and liabilities during the year was as follows:

31 December 2018 (Charged)/ credited to profit or loss/equity

Reclassifications to assets held for sale 31 December 2017 Business combinations

and acquisitions(Charged)/

credited to profit or loss/equityReclassifications to /

from assets held for sale 31 December 2016

Tax effects of taxable temporary differencesProperty, plant and equipment (32,621) (6,990) 457 (26,088) 20 (3,255) — (22,853)Intangible assets (17,926) 1,173 — (19,099) — 1,188 — (20,287)Trade and other receivables (7,459) (860) 1 (6,600) — (3,762) 304 (3,142)Prepaid borrowing costs (1,349) — — (1,349) — 29 — (1,378)Debt (1,212) (354) — (858) — (103) — (755)Inventory (444) (281) — (163) — 186 — (349)Others (73) 33 — (106) — 31 — (137)

Deferred tax liabilities (61,084) (7,279) 458 (54,263) 20 (5,686) 304 (48,901)Less: deferred tax assets offset 26,823 11,669 (379) 15,533 — 1,283 (296) 14,546

Total deferred tax liabilities (34,261) 4,390 79 (38,730) 20 (4,403) 8 (34,355)Tax loss carry-forwards 22,260 7,932 (232) 14,560 — (631) — 15,191Grants and subsidies 6,877 (152) — 7,029 — (232) — 7,261Payables to employees 2,422 330 (92) 2,184 — 342 — 1,842Inventory 1,485 247 (28) 1,266 — 850 — 416Trade and other payables 1,227 (365) (13) 1,605 — 930 — 675Intangible assets 113 (9) (4) 126 — (21) — 147Others 905 421 (10) 494 (10) 705 (296) 95

Deferred tax assets 35,288 8,403 (379) 27,264 (10) 1,943 (296) 25,627Less: deferred tax liabilities offset (26,823) (11,669) 379 (15,533) — (1,283) 296 (14,546)

Total deferred tax assets 8,465 (3,266) — 11,731 (10) 660 — 11,081Total net deferred tax liabilities (25,796) 1,124 79 (26,999) 10 (3,743) 8 (23,274)

Differences between recognition criteria under Russian tax regulations and under IFRS have given rise to temporary differences between the carrying value of certain assets and liabilities for financial reporting and income tax purposes. The tax effect of changes in these temporary differences is recorded at the applicable statutory tax rate.

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realisation of the related tax benefits through future taxable profits is probable. Under the Russian Tax Code, during the period from 1 January 2017 to 31 December 2020 only up to 50% of a taxable income can be covered by tax losses carry-forward from previous periods. After 31 December 2020 a tax income can be covered by tax losses carry-forward from previous periods in full amount. Tax losses can be carried forward until fully recognized without time limitation.


2018 2017

Current income tax:Current income tax on profits for the year 28,765 25,971Adjustments for prior years (148) (43)

Total current income tax 28,617 25,928Deferred income tax:

(Reversal)/accrual of temporary differences (1,124) 3,743Total deferred income tax (1,124) 3,743Total income tax expense 27,493 29,671

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise if the Russian statutory tax rate to the consolidated profit was used as follows:


2018 2017

Profit before income tax 138,253 149,917Theoretical income tax expense at statutory rate of 20 percent (27,651) (29,983)Tax effect of items which are not deductible or assessable for taxation purposes:Non-deductible expenses 928 667Other non-taxable income 1,086 979

Total income tax expense (27,493) (29,671)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes within one entity.

In April 2018, the Group’s subsidiaries Belozerny Gas Processing Complex LLC, Nizhnevartovsky Gas Processing Complex LLC and Nyagangazpererabotka LLC merged with JSC SiburTyumenGaz. The merger caused netting off the deferred income tax assets and liabilities in the amount of RUB 3 billion.

30 INCOME TAX (CONTINUED)



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31 CASH GENERATED FROM OPERATIONS AND NET DEBT RECONCILIATION


2018 2017

Profit before income tax 138,253 149,917Adjustments to profit before income tax

6 Depreciation and amortization 35,510 35,486Foreign exchange loss/(gain) from investing and financing activities, net 25,502 (9,495)

7 Unwinding of discount on non-current accounts payable 1,379 1,1787 Interest expense 945 6,416

Reversal of provision for legal cases (395) (201)6 (Gain)/loss on disposal of property, plant and equipment (4,503) 3197 Bank commissions 52 783

Impairment/(reversal of impairment) of trade and other receivables 848 (72)Result of subsidiary’s acquisition and remeasurement of related liabilities 217 965

7 Pension liabilities 196 1914, 6 Impairment of assets held for sale — 180

Discount on borrowings and non-current accounts payable (23) (93)7, 19 Gain on the loan release — (1,384)

Result of subsidiary’s disposal and remeasurement of related assets 425 (19,805)6 Impairment of property, plant and equipment 416 1647 Unwinding of discount on loans receivable and non-current accounts receivable (124) (142)7 Interest income (1,464) (2,012)

24, 25 Change in provision for bonuses 878 1,66813 Share of net income of joint ventures and associates (3,173) (2,073)

Other adjustments (143) (50)Operating cash flows before working capital changes 194,796 161,940Changes in working capital

Increase in advances received under project management and construction services 45,375 56,670Increase in trade and other payables 26,127 17,660Increase in taxes payable 2,413 2,878Increase in trade and other receivables (25,138) (3,944)Increase in prepayments and other current assets (2,553) (7,744)Increase in inventories (8,082) (1,156)Increase in advances issued under project management and construction services (47,947) (53,987)

Total changes in working capital (9,805) 10,377Cash generated from operating activities before income tax payment 184,991 172,317

Income tax paid (24,582) (19,640)Net cash from operating activities 160,409 152,677

For the years ended 31 December 2018 and 31 December 2017, the reconciliation of net debt was as follows:Cash and cash equivalents Long-term and short-term debt Net debt

As of 1 January 2017 60,635 (341,813) (281,178)Cash flows (11,132) 23,087 11,955Foreign exchange adjustments (1,047) 5,758 4,711Other non-cash movements — 624 624

As of 31 December 2017 48,456 (312,344) (263,888)

As of 1 January 2018 48,456 (312,344) (263,888)Cash flows (36,734) 22,266 (14,468)Foreign exchange adjustments 3,061 (43,718) (40,657)Other non-cash movements — 1,385 1,385

As of 31 December 2018 14,783 (332,411) (317,628)



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32 PRINCIPAL SUBSIDIARIES

Principal wholly owned operating subsidiaries of the Group:

BIAXPLEN LLC JSC PoliefBIAXPLEN T LLC SIBUR Tobolsk LLCSIBUR International GmbH SIBUR Togliatti LLCJSC Sibur-Neftehim Tomskneftekhim LLCJSC SIBUR-PET JSC Sibur-HimpromJSC SIBUR-Trans JSC VoronezhsintezkauchukSIBUR-Kstovo LLC JSC SiburenergomenedgmentZapsibtransgaz LLC ZapSibNeftekhim LLCJSC SiburTyumenGaz

Other principal operating subsidiaries of the Group:Effective percent of share capital held

by the Group as of


JSC NIPIgaspererabotka 45 45JSC Krasnoyarsk Synthetic Rubbers Plant 75 75

As of 31 December 2018 and 31 December 2017, the voting and ownership percentage in the Group’s subsidiaries with a non-controlling interest are the same, except for JSC NIPIgaspererabotka in which the Group had 50 percent voting rights.

The Group’s operating subsidiaries are registered and located in the Russian Federation, except for SIBUR International GmbH, an export trading company of the Group registered in Austria.

33 RELATED PARTIES

For the purposes of these consolidated financial statements, parties are generally considered to be related if the party is part of the Group’s key management or the Board of Directors; the party has the ability to control or jointly control the other party; both parties are under common control; or one party can exercise significant influence over the other party in the financial and operational decision-making process. In considering each possible related-party relationship, the Group’s management pays attention to the substance of the relationship, and not merely the entities’ legal form. Also, management applies judgement to decide whether party could exercise significant influence over the Group, considering not merely percentage of shareholding in the Group and governing bodies representation, but actual ability and participation in the Group's decision making.

The nature of the related-party relationships for those related parties with whom the Group entered into significant transactions during the years ended 31 December 2018 and 31 December 2017, or had significant balances outstanding as of 31 December 2018 and 31 December 2017, are presented below.

a) Significant transactions with parties under the control or joint control of PROMSTROI GROUP

JSC PROMSTROI-GROUP, jointly with its subsidiaries (“PROMSTROI GROUP”), is one of the providers of construction services to the Group. In 2016, the Company and PROMSTROI GROUP signed a strategic partnership agreement aimed to develop a reliable local provider of construction services by the way of a) monitoring operational and financial performance of PROMSTROI GROUP on a long-term basis; b) jointly participating in the construction business opportunities as a local EPC contractor by combining an engineering and construction expertise of NIPIGAS and PROMSTROI GROUP. In 2016-2017, as the first step of the partnership agreement’s realization several Group’s representatives were appointed to the governing bodies of PROMSTROI GROUP under an agreement between JSC PROMSTROI-GROUP and the Group on the conditions of reimbursement of the Group’s costs.

Further in January 2018, the Group’s representatives got the positions of the Chief Executive Officer and the Chairman of the Board of Directors of PROMSTROI GROUP. Thus, the management of the Group has made a judgment that since 2018 the Group is able to exercise a significant influence over PROMSTROI GROUP and treated it as a related party in this consolidated financial statements.



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33 RELATED PARTIES (CONTINUED) The Group had the following transactions with PROMSTROI GROUP for the year ended 31 December 2018:

Operating and investing activitiesPurchases of construction services (14,279) Sales of materials and services 152

As of 31 December 2018, the Group had the following balances with PROMSTROI GROUP:

31 December 2018

Advances and prepayments for capital construction 2,144Trade and other payables 1,291Prepayments and advances to suppliers 857Accounts payable to contractors and suppliers of property, plant and equipment 201

Trade and other receivables 60

b) Remuneration of directors and key management

In January – March 2018 the Company’s Board of Directors comprised eleven individuals and since April 2018 comprised twelve individuals (during the year ended 31 December 2017, comprised of eleven individuals), including shareholder representatives. Members of the Board of Directors are entitled to annual compensation, as approved by the Annual General Shareholders’ Meeting.

During the years ended 31 December 2018 and 31 December 2017, the Company accrued RUB 102 and RUB 98 net of social taxes, respectively, to Board of Directors members as part of their compensation for the years 2018 and 2017.

During the year ended 31 December 2018, the number of key management personnel comprised 16 individuals. In January 2017, the number of key management personnel comprised 16 individuals and since February 2017 comprised 15 individuals. Key management personnel is entitled to salaries, bonuses, voluntary medical insurance and other employee benefits. Remuneration of key management personnel is determined by the terms set out in the relevant employment contracts and is substantially linked to the financial performance of the Group. Remuneration of key management personnel amounted to RUB 2,119 and RUB 1,836 net of social taxes for the years ended 31 December 2018 and 31 December 2017, respectively.

c) Joint ventures

The Group had the following transactions with its joint ventures for the years ended 31 December 2018 and 31 December 2017:Year ended 31 December

2018 2017

Operating and investing activitiesPurchases of materials, goods and services (11,128) (6,489)Purchases of processing services (972) (996)Sales of materials, goods and services 12,062 8,413

As of 31 December 2018 and 31 December 2017, the Group had the following balances with its joint ventures:31 December 2018 31 December 2017

Trade and other receivables 1,561 702Loans receivable 1,878 1,507Trade and other payables 3,030 2,322Short-term debt — 175

The Group provided and received loans to and from its joint ventures on the market terms.

The Group has a number of long-term contracts with joint ventures, including contracts for procurement of processing services and purchase of finished goods. Also, the Group has several agency arrangements with its joint ventures under which the Group is providing marketing, selling, construction management and procurement services. The agent remuneration earned by the Group under the agency arrangements is included in sales of materials, goods and services line. The balances outstanding under the agency arrangements are included into trade and other payables and receivables lines.



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34 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS

Financial assets


Total finance incomeTrade and other receivables 6,109 1,672Loans receivable 1,878 1,501Contingent consideration for the sale of SIBUR-Portenergo LLC 467 736Other non-current financial assets 87 23

Total non-current financial assets 8,541 3,932Current financial assets

Cash and cash equivalents 14,783 48,456Trade and other receivables 45,209 25,751Other current financial assets 112 209

Total current financial assets 60,104 74,416Total current and non-current financial assets 68,645 78,348

Financial liabilities


Non-current financial liabilitiesFinancial liabilities at amortised cost:

Other non-current liabilities 8,624 7,317Debt 310,277 282,498

Financial liabilities at fair value:Payables for the acquisition of Tobolsk HPP LLC 3,523 4,674

Total non-current financial liabilities 322,424 294,489Current financial liabilitiesFinancial liabilities at amortised cost:

Trade and other payables 102,020 79,059Debt 22,134 29,846

Financial liabilities at fair value:Payables for the acquisition of Tobolsk HPP LLC 2,064 1,881

Total current financial liabilities 126,218 110,786Total current and non-current financial liabilities 448,642 405,275

The Group’s activities are exposed to a variety of financial risks: market risk (including foreign currency exchange risk, cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management focuses on financial market unpredictability, and seeks to minimise potential adverse effects on its financial performance. The Group focuses on managing exposure to risks that could lead to a potential loss of RUB 1 billion or more.

Financial risk management is carried out by the central finance function. The Group’s treasury manages credit risks related to transactions with financial institutions and liquidity risk. Relevant business units manage credit risks related to operating activities in accordance with the Group policies.

Foreign exchange risk. As the Group operates internationally, exports its products to Europe and Asia, and has a substantial amount of foreign currency-denominated debt, it is exposed to foreign exchange risk.



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34 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The table below summarises the Group’s exposure to foreign currency exchange risk at the reporting date:

Denominated in

As of 31 December 2018 USD EUR Other currency

Cash and cash equivalents 1,169 527 121Trade and other receivables 2,275 18,676 1,744Contingent consideration for the sale of SIBUR-Portenergo LLC 467 — —

Total financial assets 3,911 19,203 1,865Trade and other payables 14,560 39,168 1,729Debt 173,376 99,191 —

Total financial liabilities 187,936 138,359 1,729

As of 31 December 2017Cash and cash equivalents 26,501 1,957 92Trade and other receivables 3,667 3,126 429Contingent consideration for the sale of SIBUR-Portenergo LLC 736 — —

Total financial assets 30,904 5,083 521Trade and other payables 5,915 26,653 1,824Debt 188,857 64,208 —

Total financial liabilities 194,772 90,861 1,824

The sensitivity analysis given in the table below reflects the hypothetical gain/(loss) that would occur assuming the Russian ruble had weakened/strengthened by 20 percent against the US dollar and euro and that there were no changes in the securities portfolio and other variables as of 31 December 2018 and 2017, respectively.

Increase in exchange rate 31 December 2018 31 December 2017

Effect on profit before income taxRUB / USD 20 percent (36,805) (32,774)RUB / EUR 20 percent (23,831) (17,156)

Decrease in exchange rate 31 December 2018 31 December 2017

Effect on profit before income taxRUB / USD 20 percent 36,805 32,774RUB / EUR 20 percent 23,831 17,156

Cash flow and fair value interest rate risk. The Group is exposed to interest rate risk primarily due to short- and long-term debt at variable rates. Debt issued at fixed rates exposes the Group to fair value interest rate risk. As of 31 December 2018 and 2017, the Group’s debt at variable rates was denominated in Russian rubles, US dollars and euro (see Notes 21, 22, 26). As of 31 December 2018 and 2017, the Group’s interest-bearing assets were primarily comprised by loans receivable and cash deposits. The Group analyses its interest rate exposure on a regular basis. The Group’s management makes financial decisions after careful consideration of various scenarios, which may include refinancing, renewing existing positions or alternative financing.

If variable interest rates were higher/lower, assuming all other variables remain constant, the Group’s profit before income tax would change as follows:

Increase in floating rates by 31 December 2018 31 December 2017

Effect on profit before income taxRUB-denominated debt 10 percent (171) (172)USD-denominated debt 10 percent (135) (223)

Decrease in floating rates by 31 December 2018 31 December 2017

Effect on profit before income taxRUB-denominated debt 10 percent 171 172USD-denominated debt 10 percent 135 223



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34 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Credit risk. The Group is exposed to credit risk primarily due to cash and cash equivalents, loans issued and customers credit risks.

The Group deposits cash and cash equivalents only in banks that have minimal risk of default within set credit limits at the deposit date.

A large portion of the Group’s receivables from domestic sales relates to large companies such as Rosneft, Gazprom Pererabotka and Novatek, with low credit risks. The Group’s export customers are also key market players such as BOREALIS AG, SHV Gas Supply & Risk Management, Gunvor SA. The Group sells its products on export sales based on prepayments or advances received or secures its export sales by letters of credit. The Group assesses the credit quality of its customers based on market segment, customer’s financial position, its market share past experience and other relevant factors. Although economic factors affecting the Group’s customers influence cash collection of the Group’s accounts receivable, the Group’s management assesses that there is no significant risk of loss other than bad debts provided as of 31 December 2018.

As of 31 December 2018 and 2017, the maximum credit risk exposure due to accounts receivable was RUB 51,984 and RUB 28,391 respectively.

The Group estimates the fair value of its financial liabilities as a close-out amount that does not incorporate changes in credit risks.

The credit risk posed by off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to adhere to the relevant contract. The Group uses the same credit policies in assuming conditional obligations as it does for on-balance sheet financial instruments, through established credit approvals, risk control limits and monitoring procedures.

The table below shows the credit limit and balance of cash and cash equivalents of the Group’s major counterparty groups as of the reporting date.

As of and for the year ended 31 December 2018 Bank equity Rating Credit limit for one bank Balance

Major banks ≥25,000A+,

BBB-, BB+, BBUSD 200 mln,

in individual cases-unlimited 14,675

Other banks Not set Not set Individually set 108Total cash and cash equivalents 14,783

As of and for the year ended 31 December 2017

Major banks ≥25,000A+,

BBB-, BB+, BBUSD 200 mln,

in individual cases-unlimited 48,346

Other banks Not set Not set Individually set 110Total cash and cash equivalents 48,456

The Group did not exceed its credit limits during the reporting period, and the Group’s management does not expect any losses resulting from these counterparties’ non-performance. As of 31 December 2018 and 2017, the maximum credit risk exposure due to cash and cash equivalents was RUB 14,783 and RUB 48,456, respectively.



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34 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Liquidity risk and capital risk management. Liquidity risk management includes maintaining sufficient cash balances, available funding from an adequate amount of committed credit facilities, and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group’s management maintains funding flexibility by ensuring funds availability under committed credit lines and expected cash flows from operating activities. Management monitors rolling forecasts of the Group’s liquidity reserve, comprising the undrawn debt facilities (see Notes 21, 22, 26), and cash and cash equivalents on the basis of expected cash flow. This is carried out at the Group level on a monthly and annual basis. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet cash requirements while maintaining debt financing plans.

The table below analyses the Group’s non-derivative financial liabilities in relevant maturity groupings based on the remaining period at the reporting date up to the contractual maturity date.

As of 31 December 2018 Less than one year Between one and two years Between two and five years Over five years

Debt 35,389 38,178 124,186 217,039Trade and other payables 102,221 4,479 6,733 5,762

Total 137,610 42,657 130,919 222,801

As of 31 December 2017Debt 41,949 44,601 83,950 222,096Trade and other payables 78,698 4,749 6,974 5,939

Total 120,647 49,350 90,924 228,035

Guarantees issued by the Group as of 31 December 2018 and 31 December 2017 are disclosed in Note 13.

As the amounts in the table represent contractual undiscounted cash flows, they may not reconcile with those disclosed in the consolidated statement of financial position on debt and trade and other payables.

The Group monitors liquidity on the basis of the net debt to EBITDA ratio, which was calculated as net debt divided by EBITDA. Net debt is calculated as total debt less cash and cash equivalents.

EBITDA for any period means the Group’s profit or loss for the period adjusted for income tax expense, finance income and expenses, share of net income/loss of joint ventures and associates, depreciation and amortisation, impairment of property, plant and equipment, profit or loss on disposal of investments and other exceptional items.

In accordance with the Group’s financial policy the Group shall maintain a net debt to EBITDA ratio of no higher than 2.5 and an EBITDA to interest accrued ratio of no lower than 7. This policy is stricter than the relevant contractual requirements. The net debt to EBITDA ratio was 1.58 and 1.64 as of 31 December 2018 and 2017, respectively. The EBITDA to interest accrued ratio was 13.7 and 10.1 for the years ended 31 December 2018 and 2017, respectively.

The primary objectives of the Group’s liquidity management policy is to ensure a strong liquidity base to fund and sustain its business operations through prudent investment decisions as well as to maintain investor, market and creditor confidence to support its business activities.



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35 FAIR VALUE OF FINANCIAL INSTRUMENTS

RECURRING FAIR VALUE MEASUREMENTS

Recurring fair value measurements are those that are required or permitted under the relevant accounting standards in the consolidated statement of financial position at the end of each reporting period.

a) Financial instruments carried at fair value

Contingent and deferred considerations for the purchase of Tobolsk HPP LLC. In February 2016, the Group recognized a contingent consideration in the amount of RUB 585 as a financial liability within other non-current liabilities in the consolidated statement of financial position as a part of the total purchase consideration for the acquisition of its subsidiary Tobolsk HPP LLC (“Tobolsk HPP”).

Also, the Company should reimburse for all Tobolsk HPP cash inflows under its capacity supply contracts, which are specific to this industry revenue stream, guaranteed by the legislation of the Russian Federation, as the recovery of capital investments. Such reimbursements are payable on a monthly basis from the date of acquisition until 2020. During the years ended 31 December 2018 and 31 December 2017, the Company reimbursed cash inflows under its capacity supply contracts in the amount of RUB 2,035 and RUB 2,108, respectively.

The fair value of these financial instruments was determined using Level 3 measurements. For contingent consideration the sum of potential outcomes determined for different scenarios in which the Group realises synergies from integrating Tobolsk HPP into its production site infrastructure in Tobolsk, multiplied by the probability of each scenario. As of 31 December 2018 and 31 December 2017, the fair value of this contingent consideration was assessed as RUB 2,016 and RUB 1,818, respectively. The fair value of liability under capacity supply contracts was assessed based on the estimated future cash flows under the relevant capacity supply contracts discounted by the market interest rate for similar type of liabilities and amounting to RUB 3,571 and RUB 4,737 as of 31 December 2018 and 31 December 2017, respectively. The unwinding of discount on these liabilities amounting to RUB 816 and RUB 915 was recognized as a financial expense in the consolidated statement of profit or loss for the years ended 31 December 2018 and 31 December 2017, respectively.

b) Assets and liabilities not measured at fair value but for which fair value is disclosed

Liabilities carried at amortised cost. As of 31 December 2018 and 31 December 2017, the fair value of the Eurobonds 2023 (see Note 21) was RUB 20,794 and RUB 28,945, respectively. As of 31 December 2017, the fair value of the Eurobonds 2018 (see Note 21) was RUB 25,736. It was calculated based on Level 1 measurements such as quoted market prices. The fair values of other long-term and short-term debt carried at amortised cost were determined using valuation techniques. The estimated fair value of variable interest rate instruments linked to LIBOR, EURIBOR, USA CPI or the Central Bank of Russia key interest rate with stated maturity was estimated based on Level 2 measurements as expected cash flows discounted at current LIBOR, EURIBOR, USA CPI or the Central Bank of Russia key interest rate increased by the margin stipulated by the corresponding loan agreement. The estimated fair value of fixed interest rate instruments with stated maturity was estimated based on Level 3 measurements as expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. As of 31 December 2017, the fair value of the Russian ruble bonds with maturity date 26 March 2021 (see Note 21) was RUB 10,729. As of 31 December 2018 and 31 December 2017, the fair value of Credit Agricole Loan (see Note 22) was RUB 14,604 and RUB 8,107, respectively.

Other financial assets and liabilities. The carrying amounts of other financial assets and liabilities in the consolidated statement of financial position approximate their fair value, as determined based on Level 3 measurements.



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36 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS

Operating environment. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations.

The Russian economy was growing in 2018 and 2017. The economy is negatively impacted by low oil prices, ongoing political tension in the region and international sanctions against certain Russian companies and individuals. The financial markets continue to be volatile.

In the year 2014, the USA and the EU imposed a number of sectorial and personal sanctions against some of Russian companies and Russian citizens. These sanctions restrict certain US and EU persons and companies from providing financing, goods and services to certain entities. The Group considers these sanctions in its activities, continuously monitors them and analyses the effect of the sanctions on the Group’s financial position and results of operations. As of 31 December 2018 the Group was not subject to economic sanctions and restrictions imposed by the USA and the EU.

The operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results.

For the purpose of measurement of expected credit losses (“ECL”) the Group uses supportable forward-looking information, including forecasts of macroeconomic variables. As with any economic forecast, however, the projections and likelihoods of their occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different from those projected.

Legal proceedings. During the reporting period, the Group was involved in a number of lawsuits (as both plaintiff and defendant) arising in the ordinary course of business. Management believes there are no current legal proceedings or other outstanding claims that could have a material adverse effect on the Group’s operational results or financial position, and which have not been accrued or disclosed in the consolidated financial statements.

Certain agreements under which the Group has disposed of various businesses and assets contain warranties and indemnities in favour of purchasers related to title, environmental and other matters. Although the Group’s potential obligations under such warranties and indemnities may be material, the scope of such potential obligations cannot be accurately assessed until a specific claim is filed.

Taxation. Russian tax, currency and customs legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and formal documentation supporting these tax positions may be challenged by tax authorities. There is a tendency in the Russian Federation that Russian tax administration is gradually strengthening its awareness of the economic principles of taxpayers’ operations, including the fact that there is a higher likelihood of more focused attention from Russian tax authorities towards complex business arrangements or transactions with counterparties deemed potentially non bona fide by Russian tax authorities. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decisions about the review was made. Under certain circumstances reviews may cover longer periods.

Russian transfer pricing (TP) legislation is generally aligned with the international TP principles developed by the Organisation for Economic Cooperation and Development (OECD), although it has specific features. The TP legislation provides for the possibility of additional tax assessment for controlled transactions (transactions between related parties and certain transactions between unrelated parties) if such transactions are not on an arm’s-length basis. The Management has implemented internal controls to comply with current TP legislation.



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36 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS (CONTINUED) Tax liabilities arising from controlled transactions are determined based on their actual transaction prices which established by the Group according to arm’s length principle. It is possible, with the evolution of the interpretation of TP rules, specific features and unclear practice of application of TP legislation in Russia, that such prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the Group's operations.

The Group includes companies incorporated outside of Russia. Non-Russian companies of the Group may be subject to taxation in Russia if they are deemed to create a permanent establishment in Russia or if they are recognized as Russian tax residents based on the place of effective management and control. Appropriate procedures and controls are maintained in the Group to keep the said tax risks at an acceptable level.

Financial results of the foreign companies of the Group may be subject to tax in Russia in hands of PJSC “SIBUR Holding” under Controlled Foreign Company (CFC) legislation, unless they qualify for CFC tax exemption(s). Since virtually all foreign companies of the Group are either engaged in trading / provision of active services or generate losses for CFC purposes, these companies should reasonably qualify for CFC tax exemption or do not generate taxable profit above CFC taxation threshold, respectively; hence, the level of associated risk of challenge is assessed as not significant.

Russian tax legislation does not provide definitive guidance in certain areas and, as a result, is usually subject to varying interpretations by taxpayers. In such cases the Group adopts internally developed own tax positions of such uncertain areas based on analysis of relevant court cases and administrative practice, which are estimated by the management as in line with applicable provisions of the Russian tax law and can probably be sustained. However, a risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities cannot be excluded. The impact of any such challenge was assessed as not significant to the financial condition and/or overall operations of the Group. Where the Group management believes it is probable that a position cannot be sustained, an appropriate amount has been accrued for in these consolidated financial statements.

Environmental matters. The enforcement of environmental regulations in the Russian Federation is evolving, and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. Obligations are recognized as soon as they are determined. Potential liabilities that could arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated, but could be material.

Management believes that there are no likely liabilities for environmental damage, that would have a materially adverse impact on the Group’s financial position or operating results.

Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of employees in those areas where it has production operations, including contributions to the construction, development and maintenance of housing, hospitals, transport services, recreational facilities and other social infrastructure. Such funding is expensed as incurred.

Compliance with covenants. The Group is subject to certain covenants primarily related to its debt. Non-compliance with such covenants may result in negative consequences for the Group, i.e. increased borrowing costs. Management believes that the Group is in compliance with its covenants.

Operating lease commitments. The Group has two types of lease contracts in place: fixed-term agreements and continuous contracts. The vast majority of fixed-term contracts are non-cancellable before the expiry date and only a few of them may be terminated by the lessee at its sole discretion. The continuous contracts may be terminated by either party by giving proper notice of termination. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. Lease payments include payments for non-lease elements in the arrangement such as scheduled maintenance expenses, insurance expenses, pollution charges and related taxes. Payments for the non-lease elements are not specifically predetermined in the contracts and may vary depending on the level of servicing required. Accordingly, it would not be practicable to disclose them separately.



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36 COMMITMENTS, CONTINGENCIES AND OPERATING RISKS (CONTINUED) The Group’s operating lease commitments as of 31 December 2018 and 31 December 2017 were as follows:


Less than 1 year 4,278 10,254From 1 year to 5 years 11,797 23,368More than 5 years 675 1,218

Total operating lease commitments 16,750 34,840

The majority of the Group’s lease contracts are shipping vessels that the Group uses to transport its produced goods to customers. Related expenses are accounted as transportation and logistics within operating expenses in the consolidated statement of profit or loss.

As long as the Group has lease operations, there will be impact on the Group’s consolidated financial statements from adoption of the new standard IFRS 16 “Leases” that is effective for annual periods beginning on or after 1 January 2019. The Group intends to apply the modified retrospective approach as of 1 January 2019 and will not restate comparative amounts for 2018. Right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). When measuring lease liabilities, the Group discounted lease payment using its incremental borrowing rate as of 1 January 2019.

The Group will recognize additional right-of-use assets in the amounts of RUB 21,138 and lease liabilities in the same amount as of 1 January 2019. The expected impact on EBITDA of the Group for 2019 equals to RUB 5,957.

The reconciliation of operating lease commitments and the amount of lease liability to be recognized as of 1 January 2019 is presented below:

1 January 2019

Operating lease commitments as of 31 December 2018 16,750Discounted using the incremental borrowing rate at 1 January 2019 13,900

Additional lease liabilities to be recognized 2,121Recognition exemption for short-term leases (60)Change in estimate 5,177

Lease liability 21,138

Capital commitments. The Group has entered into contracts for the purchase of property, plant and equipment and construction services. As of 31 December 2018, the Group had contractual capital expenditure commitments of RUB 113,119, including RUB 105,064 related to the ZapSib (as of 31 December 2017: RUB 182,913, including RUB 174,855 related to the ZapSib), calculated as the contractual amount of construction contracts less cash paid under these contracts. The capital commitments should not be considered as binding since they can be cancelled on the sole management’s decision without any significant losses for the Group, except those liabilities, which were already recognized in the consolidated statement of financial position.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation. These consolidated financial statements have been prepared in accordance with IFRS and interpretations issued by the IFRS Interpretations Committee (IFRS IC). Most of the Group’s companies maintain their accounting records in Russian rubles (RUB) and prepare their statutory financial statements in accordance with the Regulations on Accounting and Reporting of the Russian Federation (RAR). The consolidated financial statements are based on the statutory records of the Group’s companies, with adjustments and reclassifications recorded to ensure fair presentation in accordance with IFRS.

The consolidated financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities are measured at fair value; assets held for sale measured at fair value less costs to sell.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Consolidated financial statements. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The Group may have power over an investee even when it holds less than a majority of voting power in an investee. In such cases, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes in an investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which such control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired, as well as liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, regardless of the extent of any non-controlling interest.

The Group measures non-controlling interest on a transaction-by-transaction basis, either at: a) fair value, or b) the non-controlling interest’s proportionate share of the acquiree’s net assets.

Goodwill is measured by deducting the acquiree’s net assets from the aggregate amount of the consideration transferred for the acquiree, as well as the amount of non-controlling interest in the acquiree and the fair value of the interest in the acquiree held immediately before the acquisition date. Any negative amount (“bargain purchase”) is recognized in profit or loss after management reassesses whether it identified all the assets acquired, all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement.

The consideration transferred for the acquiree is measured at the fair value of the assets released, equity instruments issued, and liabilities incurred or assumed, including the fair values of assets or liabilities from contingent consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and similar professional services. Transaction costs related to an acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. In addition, unrealised losses are also eliminated unless the relevant cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies that are consistent with the Group’s policies.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets and disposal groups classified as held for sale. Assets and disposal groups (which may include both non-current and current assets) are classified in the consolidated statement of financial position as “assets classified as held for sale” if their carrying amount will be recovered principally through a sale transaction (including loss of control over the subsidiary holding the assets) within 12 months after the reporting period and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.

Non-current assets or disposal groups classified as held for sale in the current period’s consolidated statement of financial position are not reclassified or presented again in the comparative consolidated statement of financial position to reflect the classification at the end of the current period.

Liabilities directly associated with the disposal group that will be transferred in the disposal transaction are reclassified and presented separately in the consolidated statement of financial position.

Property, plant and equipment. Property, plant and equipment items are stated at cost less accumulated depreciation and provision for impairment, wherever required.

Costs for minor repairs and day-to-day maintenance are expensed when incurred. The cost for replacing major parts or components of property, plant and equipment items is capitalized when it is probable that future economic benefits will flow to the Group, the cost of the item can be measured reliably, and the replaced part has been taken out of commission and derecognized. Gains and losses on disposals determined by comparing proceeds with carrying amounts are recognized in profit or loss.

An asset’s carrying amount is immediately recorded to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Depreciation. Depreciation of property, plant and equipment items is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives (except for depreciation of catalysers, which are depreciated using the unit-of-production method):

Useful lives in years

Buildings 20-60Facilities 10-50Machinery and equipment 5-30Transport vehicles and other 5-20

The Group has a number of property, plant and equipment items, mainly temporary buildings and facilities, which are used for the project ZapSibNeftekhim (see Note 11). Due to its specifics, the estimated useful lives of such items could be lower than for similar types of the Group’s assets stated in the Group’s accounting policy.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal if the asset was already of the age and in the condition expected at the end of its useful life. The residual value of an asset is assumed to be nil if the Group expects to use the asset until the end of its physical life.

Operating leases. Where the Group is a lessee in a lease that does not substantially transfer all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible assets

a) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the acquisition date. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses, if any. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill with respect to the entity sold.

Goodwill is allocated to cash-generating units for impairment testing. The allocation is made to those cash-generating units, or groups of cash-generating units, which are expected to benefit from the synergies as the result of the business combination. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment.

b) Development costs directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if an inflow of incremental economic benefits exceeding costs is probable. Capitalized costs include employee benefit expenses of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Development costs are carried at cost less accumulated amortisation.

c) Research expenditure is recognized as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognized as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.

d) Other intangible assets with finite useful lives are carried at cost less accumulated amortisation.

Amortisation is calculated using the straight-line method to allocate the cost of intangible assets over their estimated useful lives. Supply contracts are amortised during the contract maturity from 5 to 19 years. The useful lives are reviewed annually taking into consideration the nature of the intangible assets.

Impairment of non-financial assets. Assets with an indefinite useful life, goodwill for example, are not subject to amortisation and are tested annually for impairment. Assets subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Investments in joint ventures are accounted for by the equity method of accounting and are initially recognized at cost. Dividends received from joint ventures reduce the carrying value of the investment in joint ventures. The carrying amount of joint ventures includes goodwill identified on acquisition less accumulated impairment losses, if any. The Group’s share of the post-acquisition profit or loss of joint ventures is recorded in profit or loss for the year as a share of the net income of joint ventures. The Group’s share of other post-acquisition comprehensive income of joint ventures is recognized in the Group’s other comprehensive income.

When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognize any further losses, unless it has incurred obligations or made payments on behalf of the joint venture.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. In addition, unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Associates. Associates are entities over which the Group has significant influence (directly or indirectly), but not control. Investments in associates are accounted for using the equity method and are initially recognized at cost.

Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.

Inventories. Inventories are recorded at the lower of cost and net realisable value. The cost of inventory is assigned on a weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads, but nonetheless excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.

Prepayments. Prepayments are carried at cost less allowance for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which itself will be classified as non-current upon initial recognition.

Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held on call with banks, and other short-term, highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method. Foreign exchange gains and losses from deposits held on call with banks are classified as foreign exchange gains or losses from operating activities.

Cash inflows and outflows related to long-term deposits are classified within financing activities.

Starting from fourth quarter 2018, the Group reclassified grants and subsidies received for acquisition of property, plant and equipment from financing to investing activities. The effect of change in accounting policy is provided below:

Year ended 31 December 2017

As reported Adjustment As restated

Investing activitiesGrants and subsidies received — 11,274 11,274

Net cash used in investing activities (117,309) 11,274 (106,035)Financing activities

Grants and subsidies received 11,274 (11,274) —Net cash used in financing activities (46,500) (11,274) (57,774)

Provisions for liabilities and charges. Provisions for liabilities and charges are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and so that a reliable estimate of the relevant amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A provision is recognized even if there is little likelihood of an outflow connected to any item included in the same class of obligations. Where the Group expects a provision to be reimbursed, under an insurance contract for example, the reimbursement is recognized as a separate asset but only when reimbursement is virtually certain. Provisions are reassessed at each reporting date and changes in the provisions are reflected in the profit or loss.

Provisions are measured at the present value of the expenditures expected to be required in order to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in a provision due to passage of time is recognized as interest expense.

Value added tax. Output value added tax (VAT) related to sales is payable to the relevant tax authorities upon the earlier of a) collection of receivables from customers or b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the relevant VAT invoice. The Russian tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases that have not been settled at the reporting date (VAT recoverable and payable) is recognized on a gross basis and disclosed separately as a current asset and current liability, respectively. Where a provision has been made for expected credit loss of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT. The related VAT liability is maintained until the debt is written off for tax purposes.

Deferred income from grants and subsidies. Grants and subsidies are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all accompanying conditions. Grants and subsidies related to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the profit or loss: a) on a straight-line basis over the expected lives of the related assets, or b) in full when the assets are sold. Grants and subsidies received as compensation for non-capital expense are credited to profit or loss reducing the corresponding expense.

Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is presented as share premium.

Where the Group companies purchase the Company’s equity share capital, the consideration paid including any attributable transaction costs net of income taxes is deducted from total shareholders’ equity until the equity instruments are cancelled, sold or reissued. Where such shares are subsequently sold or reissued, any consideration received net of any directly attributable incremental transaction costs and the related income tax effects is included in shareholders’ equity. The gains (losses) arising from treasury shares transactions are recognized in the consolidated statement of changes in shareholders’ equity, net of associated costs including taxation.

Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of participating shares outstanding during the reporting year.

Dividends. Dividends are recognized as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. Dividends are disclosed when declared after the reporting date but before the consolidated financial statements are authorised for issue.

Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interests. The Group recognizes the difference between the purchase consideration and the carrying amount of non-controlling interests acquired and records it as a capital transaction directly in equity. Any difference between the sales consideration and carrying amount of non-controlling interests sold is also recognized as a capital transaction in the consolidated statement of changes in equity.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Current and deferred income tax. Income taxes are covered in the consolidated financial statements in accordance with Russian law as enacted, or substantively enacted, by the reporting date. The income tax charge or credit comprises current tax and deferred tax, and is recognized in profit or loss, unless it is recognized in other comprehensive income or directly in equity because it relates to transactions that are recognized, in the same or a different period, in other comprehensive income or directly in equity.

Current income tax is the amount expected to be paid to or refunded by the tax authorities on taxable profits or losses for the current and prior periods. Deferred income tax is recognized using the balance sheet liability method for tax loss carry-forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Under the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit.

Deferred tax assets and liabilities are netted only within individual Group companies. Deferred tax assets for deductible temporary differences and tax loss carry-forwards are recorded only to the extent that there are sufficient taxable temporary differences, or that it is probable there will be future taxable profit against which the deductions can be utilised.

The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains at their disposal. The Group does not recognize deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future.

Taxes other than income tax, including VAT and excise tax are recorded within operating expenses.

Trade and other payables. Trade payables are accrued when a single counterparty has performed its obligations under a relevant contract, and are recognized initially at fair value plus transaction costs and subsequently carried at amortised cost using the effective interest method.

Post-employment obligations. Some Group companies provide retirement benefits to their retired employees. Entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of such benefits are accrued over the period of employment. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries.

Employee benefits. Wages, salaries and contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health services and kindergarten services) are accrued in the year in which the associated services are rendered to the Group’s employees.

Revenue recognition. The Group’s adoption of IFRS 15 “Revenue from Contracts with Customers” from 1 January 2018 led to changes in accounting policies. In the transition to IFRS 15, the Group has elected to apply a modified retrospective approach. The transition to IFRS 15 did not have a significant effect on the Group’s consolidated financial statements. Therefore, transition adjustment was recognized within retained earnings and trade and other receivables lines of the consolidated statement of financial position in the amount of RUB 425 as of 1 January 2018 and no additional disclosures are provided under IAS 11/18 for the year ended 31 December 2018.

The Group produces and sells a range of petrochemical products for domestic and international markets. Sales of goods are recognized when control of the products has transferred in accordance with each contract term. If the Group provides any additional services (such as transportation, etc.) to a customer after the control over goods has passed, the revenue from such services is considered to arise from a separate performance obligation, stated in the contract with a reference to delivery terms, and is recognized over the time that the service is rendered.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue on contracts that include variable consideration is recognized only to the extent that it is highly probable that there will be no significant reversal of such consideration. Contracts with customers do not contain a significant financing component. Sales are shown net of VAT, excise tax, export duties and other similar mandatory payments.

The Group is involved in construction and project management services where it may act as a principal or an agent. The Group acts as a principal if it obtains control over goods and services from other parties that it then combines with other goods and services in providing a specified promise to a customer. Revenue for contracts on construction services is recognized based on the input method by reference to costs incurred relative to the total expected costs, as the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

The Group gets unconditional right to consideration when a customer accepts acts of services rendered (progress billings). If the services rendered by the Group exceed progress billings and advances received for services not yet accepted by the customer, a contract asset is recognized. If the progress billings and advances received for services not yet accepted by the customer exceed the services rendered, a contract liability is recognized. Progress billings not yet paid by customers and retentions are included within trade accounts receivable.

Contract liabilities related to construction services are recognized within advances received under project management and construction services in the consolidated statement of financial position. Contract assets related to construction services are recognized within trade and other receivables in the consolidated statement of financial position. Prior to the transition to IFRS 15, the Group separately disclosed advances from customers (for services not yet accepted by customers) and the gross amount due to customers for contract work where progress billings exceeded revenue recognized. Both were recognized within advances received under project management and construction services in the consolidated statement of financial position. Contract liabilities that relate to contracts under which the Group sells its products to customers are recognized within advances from customers within trade and other payables line in the consolidated statement of financial position.

The Group recognizes revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the contract.

The Group accounts for the contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. The effect that the contract modification has on the transaction price, and on the Group’s measure of progress towards complete satisfaction of the performance obligation, is recognized as an adjustment to revenue at the date of the contract modification.

In an agency relationship, the Group satisfies its promise to a customer to arrange for the provision of the specified good or service by another party or parties. The Group’s revenue under such an arrangement represents the agency fee. The Group assesses whether it acts as an agent or as a principal on a contract-by-contract basis. Agency fee is recognized in the amount to which the Group has a right for consideration from customers, which is directly linked to the actual value of services delivered to customers.

Accounting policy applied in 2017. Revenues from sales of goods were recognized for financial reporting purposes at the point of transfer of ownership risks and rewards, normally when the goods are shipped. If the Group agreed to transport goods to a specified location, revenue was recognized when the goods were delivered to the customer at the destination point. In an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal which do not result in increases in equity for the Group. Thus, revenue for such arrangements is the commission, received by the agent, and accounted on net basis. Revenues were measured at the fair value of the consideration received or receivable.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Construction contracts. Contract costs are recognized as expenses in the period in which they are incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Variations in contract work, claims and incentive payments are included in contract revenue to the extent that has been agreed with the customer and the amounts are capable of being reliably measured.

The Group used the ‘percentage-of-completion’ method to determine the appropriate amount of revenue to recognize in a given period. The stage of completion is measured by reference to the contract costs incurred up to the statement of financial position date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.

Financial instruments

Classification of financial assets. The Group’s adoption of IFRS 9 “Financial Instruments” from 1 January 2018 led to changes in accounting policies. The transition to IFRS 9 did not have a significant effect on the Group’s consolidated financial statements. The Group applied the new rules from 1 January 2018 with the practical expedients permitted under the standard. Comparatives for 2017 were not restated.

Business model as a tool for classifying financial instruments. The classification of financial assets for measurement purposes depends on the business model for managing those assets in order to generate cash flows and contractual cash flow characteristics of the asset. IFRS 9 prescribes the following:

a) Hold to collect model: holding financial assets to collect contractual cash flows, where those cash flows solely represent payments of principal and interest.

b) Hold to collect and sell model: holding financial assets to collect contractual cash flows and selling, where those cash flows solely represent payments of principal and interest.

c) If a financial asset does not fall into one of the two prescribed business models, it is considered as held for trading.

Equity instruments. The Group classifies its financial assets in the form of equity instruments as measured at fair value (either through OCI, or through profit or loss).

For investments in equity instruments that are not held for trading, gains and losses will either be recorded in profit or loss or OCI, depending on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (“FVOCI”).

Debt instruments. The Group classifies its financial assets in the form of debt instruments in the following measurement categories:

— those to be measured at fair value (either through OCI, or through profit or loss);

— those to be measured at amortised cost.

The Group reclassifies debt investments when and only when its business model for managing those assets changes.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Initial recognition of financial assets

Equity and debt instruments. At initial recognition, the Group measures a financial asset at its fair value, plus the transaction costs that are directly attributable to the acquisition of the financial asset if the financial asset is not measured at fair value through profit or loss (“FVPL”). Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

Subsequent measurement of financial assets

Debt instruments. Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

— Amortised cost: Assets are managed using the hold to collect business model. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented as finance income and expense.

— FVOCI: Assets are managed using the hold to collect and sell business model. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses, which are recognized in profit or loss. When a financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in the finance income and expense line item.

— FVPL: Assets that do not fall into any business model are held for trading and measured at FVPL. A gain or loss on a revaluation of debt investment that is subsequently measured at FVPL is recognized in profit or loss and presented net within other gains/(losses) in the period in which it arises.

Equity instruments. The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss upon the derecognition of the investment.

Impairment

Debt instruments. From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses (“ECL”) associated with its debt instruments and carried at amortised cost and FVOCI. For trade receivables and contract assets, the loss allowance is determined at initial recognition and throughout its life at an amount equal to the lifetime. The Group uses a provision matrix to estimate ECL for trade receivables. For other financial assets, the Group applies a significant increase in the credit risk model.

Impairment losses are presented in the operating expenses line item in the consolidated statement of profit or loss.

Derecognition of financial assets. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership.

Equity instruments. Changes in the fair value of equity instruments at FVPL are recognized in other gains/(losses) in the consolidated statement of profit or loss.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Classification of financial liabilities. Financial liabilities fall in the following measurement categories: fair value and amortised cost. Financial liabilities are measured at amortised cost, unless they are required to be measured at FVPL or the Group has opted to measure a liability at FVPL. Derivatives and held for trading liabilities are measured at FVPL with all fair value movements, including those related to changes in the credit risk of the liability, and recognized in profit or loss. Financial guarantees are initially recognized at fair value and subsequently measured at the higher of:

— the amount determined in accordance with the ECL;

— the amount initially recognized less, where appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15.

Fees paid for the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs and presented as prepaid borrowing costs. The split-off between the short-term and long-term portion of prepaid borrowing cost is performed based on the expected schedule of the related financing withdrawal.

Capitalization of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of assets that require considerable time to be prepared for their intended use or sale (qualifying assets) are capitalized as part of the costs for such assets. Capitalization of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.

Effect of the initial application of IFRS 9 at the Group’s consolidated financial statements. The Group has reviewed its financial assets and liabilities and identified the following impact from the adoption of the new standard on 1 January 2018:

Assets. The Group’s debt instruments were previously classified as loans and receivables and measured at amortised cost, except for the contingent consideration for the sale of SIBUR-Portenergo LLC, which was classified as available for sale and measured at fair value.

The Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories.

Trade accounts receivables of SIBUR International GmbH were reclassified to the FVOCI measurement category due to “hold to collect and sell” model. This model has been selected for those trade accounts receivables of SIBUR International GmbH, which are intended to be sold under non-recourse factoring scheme. No material effect on equity identified.

All other financial assets satisfied the conditions for classification at amortised cost and there was no change to the measurement for these instruments.

Impairment. An analysis performed by the Group’s management determined that the amount of expected credit losses as at 1 January 2018 does not materially differ from the amount of recognized allowances in the consolidated financial statements as of 31 December 2017 and, therefore, there is no quantitative effect of the transition as of 1 January 2018.

Liabilities. There is no impact on the Group’s accounting and classification for financial liabilities. The requirements affect accounting and classification for financial liabilities that are designated at fair value through profit or loss. The only liabilities measured at fair value through profit or loss are contingent and deferred considerations for the purchase of Tobolsk HPP LLC (see Note 35). The Group believes no reclassification is required for the financial instruments and no material changes in carrying values is required. The derecognition rules were transferred from IAS 39 “Financial Instruments: Recognition and Measurement” and have not been changed.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting policies applied until 31 December 2017.

Comparative information is presented with application Group’s previous accounting policy:

Classification of financial assets. The Group classified its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. Management determined the classification of its financial assets at initial recognition.

a) Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if it was acquired principally for the purpose of selling in the short term. Derivatives are also categorised as financial assets at fair value through profit or loss. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the profit or loss in the period in which they arise.

b) Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non-current assets.

The Group’s loans and receivables included trade and other receivables, loans and notes receivable, and cash and cash equivalents in the consolidated statement of financial position.

c) Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months from the reporting date.

Available-for-sale investments are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognized in profit or loss for the year as finance income. All other elements of changes in the fair value are recognized in other comprehensive income until the investment is derecognized or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to other operating income in profit or loss for the year.

Impairment losses are recognized in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognized in profit or loss – is reclassified from other comprehensive income to other operating expenses in profit or loss for the year.

Impairment losses on equity instruments are not reversed and any subsequent gains are recognized in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through current period’s profit or loss.

Classification of financial liabilities. Financial liabilities have the following measurement categories: a) held for trading, which also includes financial derivatives, and b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognized in profit or loss for the year (as finance income or finance expenses) in the period in which they arise. Other financial liabilities are carried at amortised cost. The Group’s other financial liabilities comprise of ‘trade and other payables’ and ‘long-term and short-term debt in the consolidated statement of financial position.

Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below.



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37 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivative financial instruments are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting.

Impairment of financial assets carried at amortised cost. Impairment losses are recognized in profit or loss when incurred as a result of one or more events (hereinafter “loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the given asset in a group of financial assets with similar credit risk characteristics, and then collectively assesses them for impairment.

If the terms of an impaired financial asset held at amortized cost are renegotiated or otherwise modified because of the counterparty’s financial difficulties, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are always recognized through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account through profit or loss.

Uncollectible assets are written off against the related impairment loss provision after all necessary procedures for recovering the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the impairment loss account within the profit or loss for the year.

Debt. Debt is recognized initially at fair value, net of transaction costs incurred. Debt is subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of profit or loss over the period of the debt using the effective interest method.

Foreign currency transactions. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the given entity operates. The functional currency of the Company and most of its subsidiaries (including SIBUR International GmbH, an export trading company of the Group) and the Group’s presentation currency, is the national currency of the Russian Federation, the Russian ruble (RUB).

Monetary assets and liabilities held by Group entities as of 31 December 2018 and 2017 and denominated in foreign currencies are translated into RUB at the exchange rate prevailing at that date. Foreign currency transactions are accounted for at the exchange rate prevailing at the date of the transaction. Gains and losses from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in a foreign currency are recognized as exchange gains or losses in profit or loss.

The official exchange rates of the US dollar (USD) and euro (EUR) against the Russian ruble (RUB), as set by the Central Bank of Russia, are as follows:

USD/RUB EUR/RUB

As of 31 December 2018 69.4706 79.4605Year ended 31 December 2018 weighted average 62.7078 73.9546As of 31 December 2017 57.6002 68.8668Year ended 31 December 2017 weighted average 58.3529 65.9014

Segment reporting. Segments are reported in a manner consistent with the internal reporting as provided to the Group’s chief operating decision makers. Segments with revenue, operating profit or assets that represent ten percent or more of all segments are reported separately.



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38 NEW ACCOUNTING DEVELOPMENTS

The following amended standards became effective from 1 January 2018, but did not have a material impact on the Group:

— Amendments to IFRS 2 “Share-based Payment” (issued on 20 June 2016);

— Amendments to IFRS 4 (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach);

— IFRIC 22 “Foreign Currency Transactions and Advance Consideration” (issued on 8 December 2016);

— Annual Improvements to IFRSs 2014-2016 cycle (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018 for amendments to IFRS 1 and IAS 28);

— Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016).

39 NEW ACCOUNTING PRONOUNCEMENTS

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2019 or later, and which the Group has not early adopted.

The Group is currently assessing the impact of the amendments and new standards on its consolidated financial statements.

IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognizing the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognizing the loss immediately.

IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate.



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39 NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority's right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation.

IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognize: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The impact of new standard on consolidated financial statements is disclosed in Note 36.

Annual Improvements to IFRSs 2015-2017 cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019). The narrow scope amendments impact four standards. IFRS 3 was clarified that an acquirer should remeasure its previously held interest in a joint operation when it obtains control of the business. Conversely, IFRS 11 now explicitly explains that the investor should not remeasure its previously held interest when it obtains joint control of a joint operation, similarly to the existing requirements when an associate becomes a joint venture and vice versa. The amended IAS 12 explains that an entity recognizes all income tax consequences of dividends where it has recognized the transactions or events that generated the related distributable profits, e.g. in profit or loss or in other comprehensive income. It is now clear that this requirement applies in all circumstances as long as payments on financial instruments classified as equity are distributions of profits, and not only in cases when the tax consequences are a result of different tax rates for distributed and undistributed profits. The revised IAS 23 now includes explicit guidance that the borrowings obtained specifically for funding a specified asset are excluded from the pool of general borrowings costs eligible for capitalization only until the specific asset is substantially complete.

The following other new pronouncements are not expected to have any material impact on the Group when adopted:

— Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).

— Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).

— Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).

— Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019).

— Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020).

— Definition of a business – Amendments to IFRS 3 (issued on 22 October 2018 and effective for acquisitions from the beginning of annual reporting period that starts on or after 1 January 2020).

— Definition of materiality – Amendments to IAS 1 and IAS 8 (issued on 31 October 2018 and effective for annual periods beginning on or after 1 January 2020).

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Disclaimer

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Contact Information

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Abbreviations and Units

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Nameplate Capacity and Production Capacity Utilisation Rates


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ABBREVIATIONS

APG Associated petroleum gas

BDF Butylene-divinyl fraction

BIF Butylene-isobutylene fraction

BOPP films Biaxially oriented polypropylene films

BR Polybutadiene rubber

CBR Central Bank of Russia

CIS Commonwealth of Independent States

COO Chief Operating Officer

DMD Dimethyl dioxane

ECA Export credit agency

ECHA European Chemicals Agency

EIS Environmental Impact Index

EP Engineering and procurement

EPC Engineering, procurement and construction

EPS Expandable polystyrene

ESBR Emulsion styrene-butadiene rubber

FAS Federal Antimonopoly Service

FEED Front-end engineering and design

FMCG Fast moving consumer goods

GCC Gas chemical complex

GCP Gas condensate plant

GDP Gross domestic product

GFU Gas fractionation unit

GPP Gas processing plant

HDPE High-density polyethylene

HPP Heating and Power Plant

HSE Health, Safety and Environment

IFRS International Financial Reporting Standards

IHS Markit Independent industry and research consulting firm (Information Handling Services)

IIF Isobutane-isobutylene fraction

IIR Butyl rubber

IMS Integrated management system

IR Polyisoprene rubber

ISO International Organisation for Standardisation

JV Joint venture

KPI Key performance indicator

LDPE Low-density polyethylene

LLDPE Linear low-density polyethylene

LPG Liquefied petroleum gas

LTIF Lost Time Injury Frequency

Additional Information

Abbreviations and Units


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MEG Monoethylene glycol

MGC Medium gas carrier

MTBE Methyl tertiary butyl ether

NBR Nitrile-butadiene rubber

nd-PBR Polybutadiene rubber (Neodymium based)

NGLs Natural gas liquids

NGO Non-governmental organization

OHSAS Occupational Health and Safety Assessment Series

PDH facility Propane dehydrogenation facility

PE Polyethylene

PET Polyethylene terephthalate

PP Polypropylene

PSS Production System of SIBUR

PVC Polyvinyl chloride

R&D Research and Development

RAS Russian Accounting Standards

Raw NGL Raw natural gas liquid

RDIF Russian direct investment fund

REACH Registration, Evaluation and Authorization of Chemicals

SBS Styrene- butadiene- styrene thermoplastic elastomers

SRF Silk Road Fund

SSBR Solution styrene-butadiene rubber

TPA Terephthalic acid

UGSS Unified Gas Supply System

VAT Value added tax

UNITS

barrel One stock tank barrel, or 42 US gallons of liquid volume

bbl Barrel(s)

bcm Billion cubic metres

bcmpa Billion cubic metres per annum

EUR Euro

Gcal Gigacalories

km Kilometres

kWh Kilowatt-hour

mt Million tonnes

mtpa Million tonnes per annum

MW Megawatt

RUB Russian ruble

USD United States dollar


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The nameplate capacity of our production sites is the capacity registered with the Federal Service for Environmental, Technological and Nuclear Supervision (“Rostekhnadzor”). It is defined as the volume of products that could be produced by a plant or a unit if it operates a certain number of hours per annum, usually less than the number of hours in a calendar year. As such, the nameplate capacity implicitly assumes scheduled shutdowns, but it does not take into account possible cyclicality of scheduled shutdowns (for example, two year maintenance cycle adopted at some of SIBUR’s facilities).

The nameplate capacity also does not take into account quality, grade and other characteristics of the products produced. For our petrochemical facilities we provide

capacity for each product group separately, since certain petrochemicals are used for production of other products.

Capacity utilisation is calculated as total production as a percentage of the weighted average capacity during the year. Weighted average capacity during the year may differ from nameplate capacity as of the year-end, if the capacity was expanded or the asset was consolidated during the respective period. We seek to operate our production facilities at optimal levels of capacity utilisation, taking into consideration prevailing general economic conditions, availability of feedstock, demand for our products and other factors. Capacity utilization below 100% at GPPs is driven primarily by availability of feedstock at a particular location. Capacity utilization below 100% at other production facilities

is driven more by a combination of market demand for each particular product and our decision and ability to switch the production between different types of products.

In addition, capacity utilisation levels below 100% may reflect lost days of production due to unscheduled shutdowns at our own facilities as well as at facilities of our suppliers or customers. Capacity utilisation exceeds 100% when we are able to run a facility more efficiently over time, upgrading the technology and implementing various debottlenecking measures. As the nameplate capacity includes scheduled shutdowns, the capacity utilisation at a particular facility may exceed 100% during those periods in which the frequency and duration of shutdowns is less than scheduled.

Nameplate Capacity and Production Capacity Utilisation Rates



Annual Review 2018

www.sibur.ru/en

The information contained herein pertaining to SIBUR (the “Group”) has been provided by the Company solely for information purposes. By reading this Annual Review, you agree to be bound by the limitations set out below.

The material contained in this Annual Review is presented solely for information purposes and is not to be construed as providing investment advice. As such, it has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It should not be regarded by recipients as a substitute for the exercise of their own judgment.

There may be material variances between estimated data set forth in this Annual Review and actual results, and between the data set forth in this Annual Review and corresponding data previously published by or on behalf of the Company.

This Annual Review contains forward-looking statements, including (without limitation) statements, based on the current expectations and projections of the Company about future events and are subject to change without notice. All statements, other than statements of historical fact, contained herein are forward-looking statements.

Forward-looking statements are subject to inherent risks and uncertainties, such that future events and actual results may differ materially from those set forth in, contemplated by or underlying such forward-looking statements. The Company may not actually achieve or realise its plans, intentions or expectations.

There can be no assurance that the Company’s actual results will not differ materially from the expectations set forth in such forward-looking statements.

Factors that could cause actual results to differ from such expectations include, but are not limited to, the state of the global economy, the ability of the petrochemical sector to maintain levels of growth and development, risks related to petrochemical prices and regional political and security concerns. The above is not an exhaustive list of the factors that could cause actual results to differ materially from the expectations set forth in such forward-looking statements. The Company and its Affiliates are under no obligation to update the information, opinions or forward-looking statements in this Annual Review.

Disclaimer



250

Annual Review 2018

LEGAL OFFICE

Building 30, No. 6, Quarter 1, Vostochniy Industrial District, Tobolsk, Tyumen Region, 626150Tel./Fax: +7 (3456) 266 686

HEAD OFFICE

16/1 Krzhizhanovskogo St., Moscow, GSP-7, 117997Tel./Fax: +7 (495) 777 5500

MEDIA CENTRE

International Media RelationsTel.: + 7 (495) 937 1726E-mail: [email protected]

Contact Information


INVESTOR RELATIONS

Eduard FaritovDirector for Investment Planning and IRTel.: +7 (495) 777 5500

Ruslan VaysovHead of IRTel.: +7 (495) 777 5500 (*24-66)

Daria BelovaIR managerTel.: +7 (495) 777 5500 (*67-48)

Yana SharonovaIR managerTel.: +7 (495) 777 5500 (*46-65)

Anastasiia LevinaIR managerTel.: +7 (495) 777 5500 (*61-39)E-mail: [email protected]

WEBSITEwww.sibur.ru(Russian version)www.sibur.ru/en/(English version)

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