ETALON GROUP PLC
Annual Report 2020

Plain-text annual report

LEVERAGING INNOVATION FOR MODERN CITIES 1 ANNUAL REPORT 2020 CONTENTS 01 INTRODUCTION Aboutthisreport Ourcompetencies Ourfocus Ourgeography Howwecreatevalue Businessmanagementstructure Businessmodel Equitystory 2020inbrief Chairman’sstatement CEO’sstatement 02 MARKET OVERVIEW AND TRENDS Anewphaseofcompetition Marketfactorsandtheirimpactonthe mainaspectsofourbusiness Supplyandlandavailability Constructioncosts 03 STRATEGY Strategyoverview Thestrategyto2024aimstoreinvent eachstepofthevaluechain Waystoachieveourstrategicgoals Ourambitionsonthestrategichorizon Financialtargets 04 PROJECT PORTFOLIO Currentprojectportfolio Additionstotheprojectportfolio Integrateddevelopmentprojects Business-classprojects Comfort-classprojects 05 OPERATING RESULTS Operatingresults Anevenmoreattractiveprojectportfolio Regionalsales 2 4 6 7 8 10 11 12 14 16 20 22 24 26 29 35 38 42 44 46 48 60 61 62 66 68 72 84 94 100 102 112 114 06 FINANCIAL RESULTS 07 SUSTAINABILITY Introduction Materialissuescoveredinthereport Sustainabilitymanagement Sustainabledevelopmentgoals andaccomplishmentsin2020 Keyhighlightsandachievementsin2020 Stakeholderengagement Occupationalhealthandsafety Environment Employees Customers Socialresponsibility Innovation Businessconduct Riskmanagementframework andkeyriskmanagementfunctions GRIstandards 08 CORPORATE GOVERNANCE Boardofdirectors Boardcommittees 09 SHAREHOLDER INTERACTIONS Sharevalueandshareholderreturns Ownershipstructure Dividendpolicy Shareholderrelations Analystcoverage Investorcalendar2021 10 FINANCIAL STATEMENTS Consolidatedfinancialstatements ParentCompanyfinancialstatements 116 124 126 128 129 130 132 134 138 146 154 164 168 174 180 184 194 198 201 208 212 215 216 217 218 220 221 222 224 304 2 INTRODUCTION 3 ANNUAL REPORT 2020 INTRODUCTION 04 Aboutthisreport 06 Ourcompetencies 07 Ourfocus 08 Ourgeography 10 Howwecreatevalue 11 Businessmanagementstructure 12 Businessmodel 14 Equitystory 16 2020inbrief 20 Chairman’sstatement 22 CEO’sstatement 24 INTRODUCTION 5 5 ANNUAL REPORT 2020 ANNUAL REPORT 2020 ABOUT THIS REPORT ONE OF THE LARGEST PUBLIC DEVELOPERS IN RUSSIA TIME FRAME ThisAnnualReportcontainsinformationon EtalonGroup’sactivitiesforthe12months of2020,aswellastheGroup’sconsolidated auditedIFRSfinancialstatementsforthe sameperiod.Thesectionsofthereport thatprovideanoverviewoftheCompany asawholeandofitsbusiness,aswell asitseffortsinsustainabledevelopment, corporategovernancepracticesand investorrelations,alsocoverimportant developmentsthattookplaceatthe beginningof2021. REPORTING FORM AND STANDARDS TheAnnualReportispresentedinthe formofanintegratedreportwiththeaimof informingallstakeholdersabouthowEtalon Groupiscreatingvalueintheshort,medium andlongtermforallofitsstakeholders.To ensurethatthisinformationisfact-basedand astransparent,accurateandup-to-dateas possible,wewereguidedbybestreporting practicesandstandards,andwealsoused relevantmanagementreportingdata. Thisyearwearecontinuingoureffortsto improvethequalityandlevelofdetailinour disclosureofinformationonsustainable development.ThisAnnualReportwas preparedinaccordancewithanumber ofguidingprinciples,includingtheGRI SustainabilityReportingStandards,which areourprimarysourceofguidancefor qualitativedisclosureofsustainability information.Inaccordancewithstandard 102-55(GRI102:Disclosure,2016),this reportincludesaGRIcontentindexas theprimarynavigationtoolforusersof thereport.Wealsoseektoadheretothe principlesoftheUNGlobalCompact, althoughwehavenotyetbecomea full-fledgedmemberofthisorganisation. MATERIAL ISSUES Inaccordancewiththeabove-mentioned reportingstandards,thisreportaddresses allmaterialissuesrelatedtoEtalonGroup’s economic,environmentalandsocial impactthatcouldaffecttheassessments anddecisionsofstakeholders.Wehave identifiedandprioritisedtheseissuesbased ontheirimportanceandtheavailabilityof measurabledata. FORWARD-LOOKING STATEMENTS andtheirpricingpolicies,product development,commercialisation,technical problems,supplydisruptions,etc. Certainstatementsinthisreportareforward- lookinginnature,andactualresultscould differconsiderably.Inadditiontofactors explicitlystatedinthereport,otherfactors couldhaveamaterialimpactonactual results.Thesefactorsinclude,butarenot limitedto,thegeneralbusinessenvironment, regulatorychanges,interestratefluctuations, politicalevents,theactivitiesofcompetitors Founded in 1987, Etalon Group is one of the largest development and construction companies in Russia. The Company focuses on residential real estate for middle-class customers in Moscow, Moscow region and St Petersburg. Vertical integration enables the Company to control costs, quality and timing, while also achieving best-in-class profitability at every stage of project development. EtalonGroup’sassetsinclude20projects atthedesignandconstructionstages, unsoldrealestateincompletedproperties andcommercialrealestatewithanNSA of2.8mnsqm,aswellaconstructionand maintenancedivision. AMONG THE 10 LARGEST DEVELOPERS IN RUSSIA intermsofdeliveryvolumes1 TOP 10 204 BLN 20 PROJECTS RUB inassets 2 AT THE DESIGN AND CONSTRUCTION STAGES YEARS IN THE MARKET >30 7.5MLN SQM 4.6 THOUSAND EMPLOYEES DELIVERED DURING THE COMPANY’S HISTORY 1 ERZ rating as of the end of 2020 2 Colliers International estimates as of 31 December 2020 6 INTRODUCTION 7 ANNUAL REPORT 2020 OUR COMPETENCIES OUR FOCUS 1 DESIGN Indesigningresidentialcomplexes, EtalonGroupinvolvesbothitsown in-housedesigninstituteandleading architecturalfirmswithinternational experience. 2 3 CONSTRUCTION PROJECT MANAGEMENT Wehaveextensiveexperiencein theconstructionofresidentialreal estate–frominfilldevelopmentto integrateddevelopmentprojects.We arealsoatrustedpartnerforindustrial constructionprojects. Wemanageprojectsofvaried complexity,includinglarge-scale developmentsforentireresidential districts. 4 PROPERTY MANAGEMENT EtalonGroupmanages6mlnsqm ofrealestateand27.4thousand parkingspaces. 5 SALES OursalesnetworkcoversMoscow, StPetersburgand59citiesinother regionsofRussia;wecooperate withrealestateagenciesthroughout thecountry. 6 B2B SERVICES Weareconstantlydevelopingour competenciesandintroducing innovations:thisenablesustoprovide servicesintheareasofgeneral contracting,constructionoversightand expertappraisal,geodeticsurveying, documentpreparationandBIM technologies,whilealsosharingour expertisewithothercompanies. Our strong portfolio is currently presented in the mid-market and partially in the upper segment in St Petersburg and the Moscow Metropolitan Area. Theseregionsandsegmentshaveimportant advantages:resistancetomacroeconomic changes,highgrowthpotentialand excellentprofitability,whichtookonspecial significanceinlightofthepandemicand relatedrestrictionsthataffectedbusiness andconsumeractivity.Thankstothestable recoveryindemandaftertheliftingof COVID-19-relatedrestrictionsinRussia’s twobiggestcities,EtalonGroupwasable todemonstratestrongresults,exceedingits targetsfortheyearbyawidemargin. Combinedwithbuyers’higherexpectations inourkeyregionsintermsofthequality ofthelivingenvironment,thiscreates anexcellentfoundationforthescaleof businessdevelopment,aswellasthe introductionofnewtechnologiesand modernapproachestodevelopment, which,inturn,enablesustocreatevalue forbuyersandinvestorsbyimprovingthe cost-effectivenessandconsumerqualities ofourproduct. CURRENT ETALON GROUP SEGMENTS 8 INTRODUCTION 9 ANNUAL REPORT 2020 8 7OFFICES IN ST PETERSBURG 14 REPRESENTATIVE OFFICES IN OTHER RUSSIAN CITIES IN MOSCOW OFFICES OUR GEOGRAPHY Our regional sales network covers 59 cities and contributes to Etalon Group’s steady sales growth Murmansk Apatity Kaliningrad St Petersburg Petrozavodsk Severodvinsk Arkhangelsk Tver Usinsk Krasnogorsk Moscow Syktyvkar Ukhta Salekhard Norilsk Belgorod Kirov Saransk Cheboksary Rostov-on-Don Penza Krasnodar Saratov Volgograd Samara Sochi Ekaterinburg Ufa Chelyabinsk Izhevsk Perm Nadym Noviy Urengoy Gubkinskiy Khanty-Mansiysk Surgut Noyabrsk Nefteyugansk Nizhnevartovsk Tyumen Orenburg Magnitogorsk Omsk Ust-Ilimsk Krasnoyarsk Magadan Elizovo Petropavlovsk- Kamchatskiy Mirniy Yakutsk Neryungri Blagoveschensk Komsomolsk-on-Amur Khabarovsk Uzhno- Sakhalinsk EtalonGroupsalesoffices EtalonGrouprepresentativeoffices Establishedrelationships/partnershipswithlocalsalesagencies Newcitiesaddedin2020 Tashtagol Irkutsk Chita Birobidzhan Ussuriysk Vladivostok 1 Rosstat preliminary data for 12 months of 2020 TheCompany’spropertiesareinhigh demandinresource-richregionsofRussia withhighpercapitaincome. REGIONAL PER CAPITA INCOME COMPARED WITH RUSSIA’S NATIONAL AVERAGE1 Chukotka Yamalo-NenetsAD NenetsAD Moscow Magadanregion Sakhalinregion Khanty-MansiAD Kamchatskikrai Tyumenregion StPetersburg Murmanskregion Moscowregion Sakha(Yakutia) Khabarovskkrai Primorskkrai Sverdlovskregion Arkhangelskregion EtalonGroup’stargetregions 2.5x 2.5x 2.4x 2.1x 1.9x 1.7x 1.5x 1.5x 1.4x 1.4x 1.3x 1.3x 1.3x 1.2x 1.0x 1.0x 1.0x 10 INTRODUCTION 11 ANNUAL REPORT 2020 HOW WE CREATE VALUE BUSINESS MANAGEMENT STRUCTURE We create added value for our clients and shareholders at every stage of development, from the analysis and acquisition of land plots to the operation of completed properties. Etalon Group aims to maximise the return on investment at every stage, while also creating value for its customers in order to encourage loyalty to the Etalon brand. Our Business management structure corresponds to the geographies where we operate and our main areas of business: housing development, general contracting and after-sales service. The Company has three large operating divisions, whose activities are controlled by Etalon Group. CREATING A COMFORTABLE LIVING ENVIRONMENT Whenplanningourresidentialcomplexes, westrivetoadheretotheprinciplesof newurbanismandparticipatorydesign: werecruittopexperts,focusonadvanced concepts(includingthe15-minutecity principleandthemystreetstandardof amenitiesandbeautification),useelements ofsmarthomesystemsandcreatemodern, comfortablepublicspacesaspartofour projects.Weusedurable,environmentally friendlymaterialsandresource-efficient engineeringsolutionsduringconstruction. ETALON GROUP BUSINESS MANAGEMENT STRUCTURE ETALON GROUP ADDITIONAL SERVICES FOR RESIDENTS OF OUR HOMES ESTABLISHING SOCIAL INFRASTRUCTURE AND DEVELOPING LOCAL COMMUNITIES OurhomesareservicedbyEtalonGroup’s ownservicecompany,whichgivesusan advantage,aswearefamiliarwithallthe featuresofourprojectsandtheneedsof thetenants,whomwehaveaccompaniedat everystepfromsigningthecontractatthe presalestagetosettlingintotheirfinished home.Weareconstantlyimprovingthe Webuildeducational,medicalandsports infrastructurebothaspartofourlarge- scaleintegrateddevelopmentprojectsand asseparateprojects.Thisenablesusto ensureaccesstoqualityeducationformore children.Inaddition,wecontributetothe developmentoflocalcommunitiesbytaking partinsocialprogrammes. qualityandrangeofadditionalservicesfor residents,aswellasouronlineplatform, whichbringstogethervariousservicesand opportunitiesforbuyersandresidents. DEVELOPMENT IN ST PETERSBURG DEVELOPMENT IN MOSCOW CONSTRUCTION AND MAINTENANCE TheregionalofficesinMoscowand StPetersburgareresponsibleforthe Company’skeybusinessarea:residential realestatedevelopment.Aseparatedivision performsconstructionwork,carriesout industrialconstructionunderexternal contracts,andisalsoresponsibleforthe operationofresidentialcomplexesbuiltby EtalonGroup. EtalonGroupisresponsibleforcarrying outgeneralmanagementandstrategic development,settingstandards,monitoring complianceandimplementingpolicies throughouttheCompany. 12 INTRODUCTION 13 ANNUAL REPORT 2020 BUSINESS MODEL LAND PLOT ANALYSIS AND ACQUISITION DESIGN AND PERMITTING MARKETING AND ONGOING SALES EFFECTIVE PROFIT REINVESTMENT R E I N V E S T M E N T T N E M P O L E V E D VALUE I S E C V R E S G N I O G N O ONGOING MAINTENANCE FITTING-OUT AND FURNISHING PROJECT MANAGEMENT N S T R U C TIO GENERAL CONTRACTING AND SUBCONTRACTING N O C We choose projects that provide a strong foundation for quality products, and that will ensure a high return on invested capital. Recent developments:  Aspartofthedigitalisationof allbusinessprocesses,weare introducingAI-poweredsystems toanalyselandplotsandthe competitiveenvironment,which willallowustoquicklyprocess incomingdataandselectplots thatbestcomplementour portfolio. Thefull-scaleimplementa- tionofastandardised-design system,whichhasalreadygone live,willenableustocalculate projectbudgetsquicklyand accuratelyandofferthebest priceforattractiveplotswhile maintainingtherequiredlevelof profitability. We have unique expertise in project design thanks to our in-house design insti- tute, science and technology centre, and cooperation with leading architects. We maintain effective two-way communication with our customers and maintain a leading market position despite fluctuations in the macro environment. Recent developments: Theintroductionofastand- ardised-designsystembased onBIMtechnologieswillhelp usreducedesigncostsand timeinputandimproveproject quality. Recent developments: Weareconstantlyimproving oursalessystem,includingthe developmentofdigitalchan- nels.Theintroductionofdigital systemstocreateperson- alisedoffersandimprove thecustomerexperience throughouttheentirecustomer journeyincreasescustomer loyaltyanddrivesrepeatsales. Our extensive project management experience helps to ensure the quality, safety and timely delivery of our projects, and also to accurately forecast resources and maintain stable returns on investment. Recent developments: Onceourend-to-enddigital architectureiscompletelyin place,itwillenableustoseeall processesataglanceandto becomeevenmoreflexibleand efficient. We guarantee the quality and cost-effectiveness of each project, controlling project safety using BIM technologies and guaranteeing fulfilment of the construction terms. Recent developments: Thedigitalisationofthebusi- nessandtheintroductionof newtypesofindustrialhousing constructionandtheiradapta- tiontoRussianconditionswill makeourconstructionbusiness moreprofitable. By offering clients fitted-out and furnished apartments, we are able to reach a wider potential audience of buyers, thus increasing demand and providing stable returns on our operations. Recent developments: Extendingthelifecycleof customerinteractionbasedon anunderstandingofcustomer expectationswillenableus tocreatethemost-sought- afterfinishingoptions,thereby increasingsalesandproduct satisfaction. Efficient ongoing service provides us with additional revenue and helps us maintain the good reputation of our projects. Recent developments: End-to-enddigitalarchitec- turewillenableustosendthe operatingcompanydetailed digitalmodelsofbuildingsin ordertoensuremoreeffective serviceandmaintenanceand toimprovetheplatformfor serviceprovision;feedback fromresidentswillimprovethe qualityandexpandtherange ofservicesavailable,whichwill thusincreasethedemandfor thoseservices. We invest generated income into further growth and return it to our shareholders in the form of dividends. Recent developments: Theinitiativesenvisagedbythe Company’snewstrategyare aimedatachievingleadership intermsofcostsandquality. Thus,ourbusinessinvestments willhaveamuchgreaterimpact, andwewillbeabletopayout moregenerousdividends. 14 INTRODUCTION 15 ANNUAL REPORT 2020 EQUITY STORY Etalon Group’s GDRs have traded on the Main Market of the London Stock Exchange since 20 April 2011 and in the Level 1 quotation list of Moscow Exchange since 31 January 2020 under the ticker ETLN. WHY INVEST IN ETALON GROUP ATTRACTIVE GROWTH PROFILE SUPPORTED BY A DIVERSE OFFERING AND A HIGH DEGREE OF LOYALTY TO ETALON’S PRODUCT 1 2 STRONG SALES AND REVENUE GROWTH NEW SALES IN FY 20 REVENUE IN FY 20 79.9 BLN RUB 78.7 BLN RUB fromRUB47.4blnin2016 fromRUB49blnin2016 Formoredetails,seethe“OperatingResults”and“FinancialResults”sections. 33 % PRE-PPA GROSS MARGIN inFY20 1.2х NET CORPORATE DEBT / PRE-PPA EBITDA inFY20,within acomfortablelevel below2x Formoredetails,seethe“FinancialResults”section. GENEROUS DIVIDEND POLICY WITH A FIXED MINIMUM PAYMENT AND AN ATTRACTIVE DIVIDEND YIELD SUSTAINABLE AND RESPONSIBLE BUSINESS 3 4 5 DIVIDEND PAYMENTS 40 –70 % 12 OF CONSOLIDATED IFRS NET PROFIT RUB PER GDR min.annualpayment Formoredetails,seethe“ShareholderInteractions”section. FOCUS ON ENVIRONMENTALLY FRIENDLY AND RESILIENT URBAN DEVELOPMENT -17 % DECLINE IN SOLID WASTE PRODUCTION 7 THS SQM totalareaofsocial infrastructuredelivered in2020 Formoredetails,seethe“ProjectPortfolio”and“Sustainability”sections. STRATEGIC INCENTIVES BASED ON INNOVATIONS AND DIGITALISATION ... ... TO RESULT IN A MORE COST-EFFECTIVE, SUSTAINABLE PRODUCT AND INCREASED VALUE FOR SHAREHOLDERS AND STAKEHOLDERS Formoredetails,seethe“Strategy”section. STRONG FINANCIAL POSITION WITH HEALTHY PROFITABILITY AND DEBT PROFILE IMPLEMENTATION OF ETALON GROUP’S NEW STRATEGY TO 2024 TO OPEN UP NEW OPPORTUNITIES FOR FURTHER GROWTH 16 INTRODUCTION 17 ANNUAL REPORT 2020 2020 IN BRIEF FINANCIAL HIGHLIGHTS: REVENUE 78.7 BLN RUB NET INCOME 2 BLN RUB NET CORPORATE DEBT / PRE-PPA EBITDA 1.2х JANUARY FEBRUARY MARCH APRIL MAY JUNE • RequestforlistingEtalonGroup’s GDRsonMoscowExchangeand admissiontotrading • ApprovalbytheBoardof Directorsofanewstrategyto 2024andadividendpolicywitha payoutrangeof40–70%ofIFRS netprofitandaminimumpayout ofatleastRUB12pershare/GDR 1Q RESULTS: NEW SALES 17.9 BLN RUB CASH COLLECTIONS 17.6 BLN RUB The Company’s GDRs start trading on Moscow Exchange Etalon Group’s GDRs included in Moscow Exchange’s Broad Market Index • Inclusiononthelistof systemicallyimportant companies • Deliveryofthefirstphaseofthe Normandyresidentialcomplex • DeliveryoftheSchastye v • DeliveryoftheSchastye v Kuskovoresidentialcomplex Kuzminkakhand House on Kosmonavtov residential complexes AVERAGE PRICE (TOTAL)/SQM DELIVERIES, THS SQM 142.4 THS RUB 88.5 ST PETERSBURG 2Q RESULTS: NEW SALES 11.6 BLN RUB AVERAGE PRICE (TOTAL)/SQM DELIVERIES, THS SQM 122 THS RUB 15 MOSCOW METROPOLITAN AREA AVERAGE PRICE (APARTMENTS)/SQM 165.5 THS RUB CASH COLLECTIONS AVERAGE PRICE (APARTMENTS)/SQM 13.9 BLN RUB 159.1 THS RUB 73 ST PETERSBURG 18 INTRODUCTION 19 ANNUAL REPORT 2020 OPERATING HIGHLIGHTS: DELIVERIES 540 THS SQM RECORD NEW SALES RECORD CASH COLLECTIONS NEW STRATEGY TO 2024 UPDATED DIVIDEND POLICY HIGH SAFETY STANDARDS 79.9 BLN RUB 82 BLN RUB aimedatsustainableurban developmentandinnovations withmin.payment ofRUB12perGDR zerofatalitiesin2020;EtalonGroup’ssafety indexreached86%(+6p.p.year-on-year) SUSTAINABILITY HIGHLIGHTS: JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER • TheArchitecturalCouncilof MoscowapprovestheZIL-Yug project,theCompany’sflagship residentialdistrictinMoscow • DeliveryoftheBotanica residentialcomplex • StartofsalesattheProject on Chernigovskaya Street 3Q RESULTS: NEW SALES 24 BLN RUB • Schastyeresidentialcomplexes projectnamedthewinnerinthe “Information Modelling for Residential Buildings”category atthefourthRussiannational competition“BIMTechnologies 2019/20” • EtalonGroupprojectbecomes thefirstinRussiatoundergoa digitalexpertstatereview • DeliveryoftheSchastye na Sokole project • LaunchofGeneration ZIL, apublicinformationalmedia platformdedicatedtothe developmentoftheZIL-Yug districtinMoscow • StartofsalesattheSchastye na Semyonovskoyresidential complex • CompanyhostsaCapital MarketsDay,whereitpresents itsnewstrategyto2024 • DeliveryoftheSchastye na Presneand Okhta Houseprojects, aswellasseveralbuildingsinthe Galactica residential complex • TheWingsandPetrovskiy Landmarkresidentialcomplexes namedwinnersattheEuropean PropertyAwards2020 AVERAGE PRICE (TOTAL)/SQM DELIVERIES, THS SQM NEW SALES AVERAGE PRICE (TOTAL)/SQM DELIVERIES, THS SQM 159.4 THS RUB 16 MOSCOW METROPOLITAN AREA 26.4 BLN RUB 158.4 THS RUB 74 MOSCOW METROPOLITAN AREA 4Q RESULTS: CASH COLLECTIONS AVERAGE PRICE (APARTMENTS)/SQM CASH COLLECTIONS AVERAGE PRICE (APARTMENTS)/SQM 21.2 BLN RUB 186.3 THS RUB 29.2 BLN RUB 191.9 THS RUB 273 ST PETERSBURG 20 INTRODUCTION 21 ANNUAL REPORT 2020 CHAIRMAN’S STATEMENT Whilethepandemichasimpactedthe residentialdevelopmentsectorglobally,it hasalsoservedtoacceleratepre-existing trends,includingthedigitalisationof businessprocesses.EtalonGroupwasno exceptiontothisandin2020beganoffering customersvirtualsitetoursandanarrayof documentationonline,includingmortgage applications. Onthesupplyside,themarketisbecoming increasinglyconsolidatedassmallerplayers struggleundernewprojectfinancingrules. Meanwhile,un-zonedpropertyisbecoming increasinglyattractivetolargedevelopers aslandbecomesmoreexpensivetobuy. Moscowrenovationprogrammehasalso madethemass-marketsegmentless attractive. EtalonGroup’soperatingperformancein 2020surpassedevenourmostoptimistic forecasts.Growthwasdrivenbyour attractiveportfolioofprojects,ourrapid responsetochangesincustomerbehaviour andeffectivestatemeasurestosupport theaccessibilityofnewhousing.New contractsalesandcashcollectionsreached recordlevelsofRUB79.9billionandRUB 82.0billion,respectively,in2020.Revenue fortheyearamountedtoRUB78.7billion, andweachievedarecordpre-PPAgross profitofRUB25.8billion,withagross marginof33%justslightlybelowthe strategictargetof35%.TheCompany’s financialpositionimprovedduring2020, withnetcorporatedebt/pre-PPAEBITDA ratiodecliningto1.2xfrom1.9xattheend of2019. Thenewstrategyapprovedin2020aims tobuildonthesuccessofpreviousyears whilerespondingtomarkettrendsand renderingEtalonGroupatechnology leaderinitssector,bothintermsofdigital transformationandintermsofadoptingnew constructiontechniques. Inlightofthesemajorshiftsinsupplyand demand,theBoardofDirectorsworked withmanagementtoreinventeachstepof thevaluechain.Ourfirstareaoffocuswas theend-to-enddigitalisationofbusiness processesandthecreationofafullydigital architecture.Aspartofthis,wehave begunusingbigdata–poweredsystemsto quicklyandaccuratelyassessalandplot’s potential,aswellasGISscanningand newmasterplanningsolutionstomakeit possibletorenderadetailedmasterplan andbudgetinunderaday. Ournextaimistoapplythesedigital businessprocessestoprojectsusing newconstructiontechnologies.Weplan todevelopourexistingcast-on-site technologywhileaddingmodular,cross- laminatedtimberandmodernprefabrication techniquestoourportfolio.Weexpect thatthisstrategy,combinedwiththe standardisationofourproductandfloor plans,willenableustomeetchanging customerdemandwhileachievingthe efficiencyandprofitabilityrequiredto providegoodshareholderreturns. Globaltrendshavebeguntoimpact  residentialdevelopmentinRussia. Homebuyers’expectationsaregrowing withregardstofeaturesofferedby  aspecificbuilding,livingspaceand  surroundingarea,especiallyinMoscow andStPetersburg.Demandhasincreased  duetorecordaffordability,buthasbeen  constrainedbythelimitedupsidepotential  ofRussianhouseholdincomesinthe  medium-term.Thischangingconsumer landscaperequiresnewapproachesto planningandconstruction,withcareful attentionpaidtointegratingmodern urbanplanningtechniqueswithnewand  efficientconstructiontechnologiestohelp maintainmargins. Wewillsupplementourlandbankstructure withun-zonedlandinthecomingyears,as weapplyourexpertiseinrezoningtoensure developmentcanstartassoonaspossible. Atthesametime,weplantoexplorenew geographieswithinRussiabyacquiringlocal developersandexpandingourgreenfield investments.By2024,weexpectthat10% ofourportfoliowillbeoutsideofMoscow andStPetersburg. Wealsoplantousedigitaltechnologies toexpandthecustomerjourney.We havealreadylaunchedanupdatetothe MyEtalonHomeapp,whichprovides customerswithsupportateverystagefrom searchtopost-saleservices,andhave enabledpartnerstointegrateadditional offeringstoenhancethelivingexperiencein Etalon-managedbuildings. Basedonthesestrategicpriorities,wehave setambitiousgoalsfor2024includinga 2xincreaseinvolumesunderconstruction anddoubledigitsalesgrowth.Ournew constructiontechnologies,newproduct approachandfullydigitalcustomerjourney shouldhelpEtalontoachievethehighest NPSandCLVlevelswhileourindustry- leadingprofitabilitywillsupportsalesgrowth. Thesebusinesstargetsarejustpartof theplanswehavefortheyearsahead.As EtalonGroupgrowsasabusiness,wewill continuetoenhanceourcorporategovern- ancepractices.Wehaveexpandedthe responsibilitiesoftheInformationDisclosure Committee,andareusingfeedbackfrom adetailedperceptionstudytoimproveour practices.Inordertoimprovethealignment ofmanagementandshareholderinter- ests,wehavealsodevelopedtheGroup’s incentiveprogrammes.Theshort-term programmeisbasedonkeyperformance metrics,whilethelong-termprogramme focussesonEtalonGroup’smarketcapi- talisation,withpay-outsdependenton performanceoverthreeyears. TheBoardisalsoworkingtoimproveEtalon Group’sstanceonsustainability.Aspartof this,wehaveselectedsixUnitedNations SustainableDevelopmentGoalsasthe pillarsofoursustainabilitydevelopment: GoodHealthandWell-Being,Affordable andCleanEnergy,Industry,Innovation andInfrastructure,SustainableCitiesand Communities,ResponsibleConsumption andProductionandClimateAction.Weare planningtodevelopourinternalregulatory documentsintheseareasfurtherbyimple- mentingnewmanagementprocessesand disclosinganupdatedlistofnon-financial informationinthenewintegratedannual report.Wearealsoplanningtosetspecific andambitiousESGtargets. IamconfidentthatEtalonGrouphas therightpeopleandtherightstrategyto transformthebusinessinawaythatwill supportgrowth,efficiencyandshareholder returns.Wearedevelopingthefuturetoday! SERGEY EGOROV Chairman of the Board of Directors Dear shareholders, In November 2020, the management team and I presented the Company’s new strategy to 2024. This was a significant event not only because it marked the largely successful completion of our previous strategy, but also because it demonstrated the resilience of our business: we were able to successfully develop and approve an ambitious new development strategy while navigating the many challenges presented by the COVID-19 pandemic. This success would not have been possible without the hard work and dedication of our employees and to them I extend my sincerest gratitude. 22 INTRODUCTION 23 ANNUAL REPORT 2020 CEO’S STATEMENT Operating and financial performance InthefaceoftheCOVID-19pandemic, EtalonGroup’sFY2020newcontractsales cameto538thssqmofNSAwortharecord RUB80billion.Cashcollectionsalsoseta newall-timehighatRUB82billion.These resultswerebetterthanevenourmost optimisticupdatedforecastfortheyear. Ourperformancewaspossiblethanksto acombinationoffactors,includingtimely stepsbyEtalonGrouptomovekeysales functionsonline,statesupportintheformof subsidisedmortgageratesandsolidprice growthacrossourportfolio. Newsalestechnologieslikedynamicpricing enabledustorespondmorepreciselyand flexiblytomarkettrends,contributingtoan increaseintheaveragepriceforapartments toRUB192thspersqm.Strongaverage priceperformancewaslikewisesupported byfurthergrowthintheshareofbusi- ness-classprojectsintheportfolio. RevenuefortheyeardeclinedtoRUB 78.7billion,butallkeyprofitabilitymetrics improvedyear-on-year.Pre-PPAgrossprofit increasedby13%toRUB25.8billion, withpre-PPAgrossmarginof33%almost reachingourstrategictargetof35%.Thanks toongoingmeasurestocontrolcosts,SG&A expensesdeclinedby19%year-on-year andamountedto12%ofFY2020revenue. Thiscontributedtoyear-on-yearpre-PPA EBITDAgrowthof47%,whilepre-PPA EBITDAmarginroseby8p.p.to21%. EtalonGroupimproveditsnetcorporate debt/pre-PPAEBITDAratioto1.2xasof year-end2020,comparedwith1.9xayear earlier.Thankstoourstablebalancesheet andstrongcashcollections,weareinagood positiontocontinuetoadheretoourdividend policywhilealsoprioritisinginvestmentsin replenishingourlandbankduring2021. Responding to COVID-19 wasnoexception.Whileexternalfactorslike thetemporaryconstructionbanimplemented inMoscowandMoscowregionwerebeyond ourcontrol,theconstructiontechnologythat EtalonGroupusesenabledustoquickly restartworkoncetherestrictionswerelifted, andtoacceleratethepaceofconstructionin ordertokeepprojectsonschedule. TheCompany’sresponsetoCOVID-19 focusedonprotectingthesafetyofour employeesandcustomers,whilealso ensuringthesustainabilityofthebusiness. Wetransferredthemajorityofouroffice employeestoremoteworkingarrangements, whilethosestillcomingtoworkhadregular medicalcheckstopreventinfectionsfrom spreadingintheoffice.Forcustomers,we acceleratedtherolloutofonlineandvirtual salesplatforms,minimisedtheamountof paperworkrequiringin-personmeetingsand participatedinonlinemortgageissuance programmesofferedbybanksoperatingin Russia. Embarking on a new strategy Wepresentedanewstrategyto2024in November2020andhavealreadybegun todeliverresults.Oneofthekeyareas offocusisimplementingnewbuilding technologiessuchasmodular,CLTand modernprefabrication.Wearecurrently workingonthesetechnologies,andweare ontracktolaunchourfirstpilotCLT-based project,subjecttofinalapproval,in2021, withtheothertechnologiesduetolaunchin 2022–2023. Usinginnovativetechnologiestoachieve adigitaltransformationinourbusiness practicesisanotherkeyareaoffocus.We arealreadyusingelementsofanend-to-end digitalarchitecturethatwillintegrate processesfrommarketanalysisandsite planningtoconstruction,salesandongoing buildingservicing.Weexpectthatfull implementationofthisdigitalarchitecture willsignificantlyenhancetheefficiencyof ourbusiness. Thepastyearpresentedunprecedented challengesforcompaniesacrossmany sectorsallovertheworld.EtalonGroupand theresidentialdevelopmentsectorinRussia Aswelooktogrowthebusiness,weare adaptingourlandbankstrategyandour geographicfocus.Intheyearsahead,in additiontozonedlandplots,wewillseekto acquirelower-costunzonedplots,usingour zoningexpertisetostreamlinetheprocess ofacquiringthenecessaryprojectdocu- mentation.Wewillalsobelookingoutside ofMoscowandStPetersburgtootherlarge Russiancitieswithsufficientdemand.While pricesareloweroutsideofRussia’s“two capitals”,weareconfidentthattheefficiency ofourbusinessandqualityofouroffering willenableEtalonGrouptoachieveattrac- tivemargins. Finally,weareusingdigitaltechnologiesto transformthecustomerexperience.This includesstandardisationofourproducts usingautomatedplanningsoftwarethatwill enableustooffercustomersthefeatures theywantinalivingspacewhilemaximising efficiencyforthebusiness.Wearealso refiningtheEtalonwebplatformandMy EtalonHomemobileapptocoverthefull customerjourney,fromsearchanddiscovery ofanewpropertytopurchaseandfinancing, aswellasthetransferoflegaltitle,ongoing paymentsandservicing.Weaimtofurther enhancecustomerloyaltyandimprovethe customerjourney. Outlook Weexpect2021tobeayearofgrowthfor EtalonGroup.InMarch2021,weannounced planstoconductapotentialSPOtofinance acquisitionstoreplenishourlandbank.While theglobaleconomyisstillbesetwiththe COVID-19pandemic,demandforhousing inRussiaremainssolid,andaverageprice performanceinthenewyearhasbeenstrong. Welookforwardtoreportingtoyouregularly aboutourprogressagainstourupdated strategy,andIamconfidentthatwewill achievetransformativechangethatwill enhancethevaluewecreateforallofour stakeholders. ThankyouforyourinterestinEtalonGroup. GENNADIY SHCHERBINA Chief Executive Officer Dear shareholders, In 2020, Etalon Group successfully overcame the challenges presented by the COVID-19 pandemic to deliver record-setting operational performance and solid financial results. With a new strategy focused on innovation in business processes and building techniques, as well as expansion in existing and new geographies, we have set a course to significantly grow the size and value of our business in the years ahead. 24 MARKET OVERVIEW AND TRENDS 25 ANNUAL REPORT 2020 MARKET OVERVIEW AND TRENDS 26 A new phase of competition Market factors and their 29 impact on the main aspects of our business Supply and land availability 35 38 Construction costs 226 MARKET OVERVIEW AND TRENDS 27 ANNUAL REPORT 2020 A NEW PHASE OF COMPETITION Last year served as a catalyst for important structural changes in the competitive landscape. The preconditions for these changes had been forming over the past several years. Despite the fact that the number of permits issued and the availability of new projects in Moscow and St Petersburg are decreasing, the country as a whole has seen an increase in investment in development sites. Market consolidation continues: the top 20 players are consolidating their positions, and the competition between them is increasing. Owing to the need for better living conditions and a more comfortable living environment, the demand for residential real estate in Russia is expected to continue to grow in the long term. In order to overcome the shortage of living space, renovation of buildings built between the 1950s and 1970s and redevelopment of unused sites in regions outside Moscow and St Petersburg will remain a key part of state policy. However, this has a positive impact only on companies that are capable of managing change and demonstrating flexibility in understanding changing trends and consumer preferences while reducing product costs. PRICE PER SQM VS DELIVERY VOLUMES IN RUSSIA PRICE GROWTH RATES 2020 15 % 10 % 5 % 0 % Long-term trend 2019 -2 % 0 % 2 % 4 % 6 % 8 % VOLUME GROWTH RATES Stabilisation of demand amid economic stabilisation Increasing the volume of construction through state support measures and urban development programmes in regions beyond Moscow and St Petersburg Source: Etalon Group analysis of data from Dom.rf Prior to 2020, housing prices grew at moderate rates despite an acceleration in supply volumes. Amid a contraction in the market and interruptions to construction projects in 2020, supply decreased; this, combined with a rise in housing affordability and increased ability to invest in upgrading to new housing, contributed to a rise in prices. Low interest rates together with the need to improve living conditions will support prices even after the end of the mortgage rate subsidy programme. At the same time, a recovery in supply volumes over the long term will help to stabilise prices and prevent the market from overheating. MACROECONOMIC CONTEXT The Russian economy has proven to be more resilient to the impact of the pandemic than European countries; this fact will also make Russia a leader in terms of the expected rate of recovery. At the end of 2020, Russia was one of the countries least affected by the pandemic. The World Bank identified several key factors that contributed to this; in particular, fiscal stimulus measures (at 4 % of GDP) and an expansionary monetary policy revitalised economic activity based on domestic demand. There was no additional downturn in the SME services sector, as restrictive measures related to the spread of the pandemic were not introduced a second time. Despite the fact that budgetary and financial support measures in Russia were relatively small compared with developed economies, they were in line with the volume of assistance provided in comparable economies. Targeted support for major sectors of the economy, including the construction industry, successfully stabilised the economy. The result was a less severe downturn with potential for a faster recovery. Based on forecasts from Oxford Economics and the European Commission, this smaller economic decline in 2020 means that net economic growth for the period 2020 to 2022 is expected to be positive 1.1 % for Russia, while the Eurozone will still be at negative 0.6 %. GDP CONTRACTION AND RECOVERY FORECASTS, % growth Net growth by 2022 IN 2020 2.1 i a n h C A S U i a s s u R y n a m r e G 1 e n o z o r u E e c n a r F i m o d g n K d e t i n U -3.5 -3.7 -6.0 -7.8 -9.8 -9.9 Source: Data from Oxford Economics, European Commission IN 2021 IN 2022 8.4 4.1 1.7 3.5 4.2 3.4 4.5 5.5 4.2 3.1 3.4 3.0 3.4 6.6 10.5 % >15 % 4.8 % 0.6 % A S U i a n h C i a s s u R y n a m r e G 1 e n o z o r u E e c n a r F i m o d g n K d e t i n U 1.1 % y n a m r e G 1.1 % i a s s u R i a n h C A S U 1 e n o z o r u E e c n a r F 1.2 % m o d g n K d e t i n U i -2 % -2.5 % -3.6 % -5.4 % -6.4 % -0.6 % -3 % 1 The eurozone includes 28 countries 28 MARKET OVERVIEW AND TRENDS 29 ANNUAL REPORT 2020 Russian state policy priorities include increasing the affordability of housing and improving the quality of living conditions. In terms of the availability of living space per capita, Russia still trails even Eastern Europe, where there is an average of 31 sqm of living space per person. According to the Strategy for the Development of the Housing Sector of the Russian Federation to 2025, the target is to reach 30 sqm of housing stock per capita. At the same time, more than 60 % of the housing stock in the largest cities was built before 1990, and it does not meet the standards that current buyers look for when planning a purchase. According to Russia’s Housing Ministry, about 35 % of the country’s housing stock was built before 1970 and needs to be renovated. MARKET FACTORS AND THEIR IMPACT ON THE MAIN ASPECTS OF OUR BUSINESS AMOUNT OF LIVING SPACE, sqm/person1 19 26 33 33 36 39 39 30 TARGET BY 2025 w o c s o M g r u b s r e t e P t S w a s r a W l m o h k c o t S Source: Rosstat, national statistical agencies s i r a P n i l r e B e m o R DEMAND FACTORS Due to low interest rates on bank deposits and the state programme to subsidise mortgages, demand for housing increased significantly in 2020. Falling interest rates and the introduction of taxes on income from large investments have led to a deceleration in bank deposit growth, as this has become a less attractive option for individual savings. Starting from 2015, the rates on rouble deposits have been steadily decreasing, and they were just keeping up with consumer price inflation in December 2020: deposits offered an average return of 3.4 % versus CPI of 3.99 %2. While total deposits in the Russian banking system in 2020 grew by RUB 2.0 trillion, the increase was in fact the result of funds being put into escrow accounts for the purchase of real estate (RUB 0.8 trillion) and the revaluation of FX deposits in RUB terms. Excluding these two factors and taking into account a USD 9 billion outflow from FX deposits, in RUB terms total deposits actually shrank by RUB 1.5 trillion during 2020. HOUSING STOCK OLDER THAN 1990 61 % 57 % 62 % DEPOSITS AND RETURNS 23.2 24.2 26.0 28.5 30.5 32.5 Net deposits excluding exchange rate revaluation of USD during 2020 and the increase in escrow accounts3, RUB trn s t n a t i b a h n i n o i l l i m 1 t s a e l t a h t i w s e i t i C >60 % OF THE HOUSING STOCK IN THE LARGEST CITIES WAS BUILT BEFORE 1990 w o c s o M g r u b s r e t e P t S Source: Etalon Group analysis THE STATE’S TARGET PRIORITIES IN TERMS OF HOUSING CONSTRUCTION ARE TO IMPROVE THE HOUSING CONDITIONS FOR AT LEAST TO INCREASE CONSTRUCTION VOLUMES TO AT LEAST 5 MLN FAMILIES ANNUALLY 120 MLN SQM PER YEAR 8.4 % 6.5 % 0.8 0.7 transferred to escrow accounts taken from USD deposits 5.6 % 5.3 % 4.7 % 1.5 trn RUB decrease 31 actual amount of deposits in 2019 terms 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 3.4 % 0 2 0 2 Deposits, trn RUB Interest rate on deposits Source: Bank of Russia, National Rating Agency 1 Figures for 2019 2 Bank of Russia 3 Individual amounts in escrow accounts are recognised as savings according to the Bank of Russia’s methodology; however, these sums were invested in real estate purchases and, in general, cannot be considered savings 30 MARKET OVERVIEW AND TRENDS 31 ANNUAL REPORT 2020 In addition, in 2020, mortgage rates in Russia declined at one of the fastest rates in the world (down 170 basis points) compared with large economies such as Mexico, India and Brazil that have traditionally high rates. This made housing investments a more attractive option for investing savings in Russia. Wage growth in St Petersburg and Moscow noticeably outpaced the growth in price per sqm of housing, even amid the uncertain financial situation in service industries in 2020. There was a similar trend in other major cities across the country. DECREASE IN MORTGAGE RATES IN THE BIGGEST ECONOMIES IN 1H 2020 Western European countries Eastern European countries Developing countries MORTGAGE RATE 11.0 % Mexico India 7.0 % Brazil Russia Turkey South Africa 3.0 % -25 -1.0 % Hungary USA UK Netherland 50 125 200 275 MORTGAGE RATE DECREASE IN BASIS POINTS FROM 4Q 2019 TO 2Q 2020 Source: Bank of Russia, data from The Global Economy, the National Bank of Mexico, the Central Bank of India, the FBN, GOV.UK, the IMF The notable decrease in mortgage rates in Russia in 2020 supported a general trend towards record housing affordability despite a temporary drop in real incomes. Housing affordability in Moscow, St Petersburg and across Russia as a whole has generally improved at a steady pace over the last five years. HOUSING AFFORDABILITY AND MORTGAGE RATES1 Affordability Mortgage rate MOSCOW ST PETERSBURG RUSSIA 1.4x 1.6x 1.7x 1.9x 2.0x 2.2x 1.6x 1.9x 2.0x 2.2x 2.1x 2.4x 1.6x 1.7x 1.9x 2.1x 2.1x 2.4x 13.3 % 12.4 % 13.2 % 12.1 % 13.4 % 12.5 % 10.7 % 10.7 % 9.6 % 9.9 % 9.6 % 9.9 % 10.6 % 9.6 % 9.9 % GROWTH IN REAL ESTATE PRICES AND WAGES SINCE 2013 Wage growth rate Price growth rate per sqm Demand potential THE LARGEST REGIONAL METROPOLITAN AREAS MOSCOW ST PETERSBURG 105 % 37 % 30 % 11 % 11 % 8 % 76 % 31 % 26 % 19 % 17 % 10 % 93 % 56 % 45 % 10 % 10 % 8 % 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 Source: Rosstat, Dom.rf, Etalon Group analysis Another factor that made investments in real estate more attractive for individuals was the transition to the use of project financing and escrow accounts in the residential development sector, which made it possible to provide full state guarantees for investments in housing still under construction. In December 2020, the volume of housing under construction in Russia using the new rules, which require that funds from buyers be held in escrow accounts, exceeded the volume under the old rules. According to a joint survey by the Russian Public Opinion Research Centre and Dom.rf, about 80 % of Russians have a positive opinion of the reform; 77 % note that, thanks to the reform, the risks to homebuyers at the construction stage have decreased. The amount of funds that buyers of housing during the construction stage in Russia paid into escrow accounts increased eightfold over the year: as of 1 January 2021, according to the Bank of Russia, RUB 1.19 trillion had been placed in escrow for development project financing. In St Petersburg, escrow account balances increased almost twentyfold; in Moscow, growth was comparable to the national average. INCREASE IN DEVELOPER ESCROW ACCOUNT BALANCES FOR 2020, BLN RUB RUSSIA MOSCOW ST PETERSBURG 148 1,192 69 523 3 60 8x 7.5x 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 7.8 % 0 2 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 7.7 % 0 2 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 7.6 % 0 2 0 2 9 1 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 19x 0 2 0 2 9 1 0 2 Source: Rosstat, Bank of Russia, Etalon Group analysis Source: Bank of Russia, Etalon Group analysis 1 Ratio of average salary to average annuity payment 32 MARKET OVERVIEW AND TRENDS 33 ANNUAL REPORT 2020 DEPENDENCE OF MORTGAGE RATE ON REPAYMENT TERM, 2010–2020 Current rates Estimated values 15 13 11 9 7 5 3 160 200 240 280 320 360 Source: Bank of Russia, Etalon Group analysis We estimate that 99 mln sqm of additional demand was created in our core geographies of Moscow and St Petersburg as a result of the sharp decline in mortgage rates in 2020. If mortgage rates continue to fall from an average of 7.6 % to 7.0 % by 2024, and if mortgage repayment durations continue to improve, we estimate further additional housing demand of 32 mln sqm. Taking into account the current supply volume, estimated at 46 mln sqm, as well as the annual rate of property sales, it would therefore take up to 20 years to fully meet existing demand. A portion of the demand in the lower price segment can be met through Russia’s ongoing housing renovation programme; however, a considerable share of solvent buyers will continue to look to purchase higher-quality properties. SUPPLY AND DEMAND IN MOSCOW AND ST PETERSBURG 2020–2024, mln sqm MORTGAGE RATE 9.0 % -1.4 % -0.6 % 7.6 % 7.0 % 991 9 202 321 46 Average term 280 (+50 months) 188 112 Average term 230 (+30 months) Demand 2019 Additional demand 2020 Supply 2020 (actual) Demand 2020 Additional demand 2021–2024 Supply 2021–2024 Demand 2024 Source: Etalon Group analysis of data from the Bank of Russia, Rosstat A major factor supporting demand in the long term will be a change in the makeup of buyers and their demands for product quality. In 2015, only 26 % of residential real estate buyers were under the age of 40; now millennials and older members of Generation Z account for about 60 % of the demand for residential real estate. As a rule, these are people who did not have privatised housing and who made their first and subsequent purchases using mortgage financing, which prompted them—with their limited resources—to look for the best quality they could get on their available budget. SHARE OF GENERATIONS Y AND Z (UNDER 40) WITHOUT PRIVATISED HOUSING Generation Y (25–40) Generation Z (<25) 2015 2020 Source: Etalon Group analysis 26 % 58 % 53 % 5 % 1 Includes mortgage rate decrease, term increase, impact of wages increase and of change in GDP MORTGAGE RATE, %MORTGAGE REPAYMENT TERM, MONTHS34 MARKET OVERVIEW AND TRENDS 35 ANNUAL REPORT 2020 The Russian state is taking unprecedented measures to support this category of potential homebuyers, in the form of various tax deductions and programmes to support families with children The share of people in Moscow who were able to buy an apartment with a mortgage in 2020 increased to 40 % of total households; in Russia as a whole, this figure reached 50 % on average. It is precisely this generational shift, supported by record affordability in Etalon Group’s core geographies, that is creating the preconditions for sustainable demand even after the preferential mortgage programme is phased out in July 2021. SUPPLY AND LAND AVAILABILITY STATE SUPPORT PROGRAMMES FOR THE POPULATION Up to RUB 1 mln in state support for families with children Up to RUB 520 ths in tax subsidies for the purchase of real estate Up to RUB 436 ths in support for families from regions outside Moscow and St Petersburg Up to RUB 390 ths in tax subsidies for mortgage interest payments The change in industry regulations together with an expanded role for banks is facilitating a further reduction in supply. The general decline in the number of building permits issued is driving a continuation in the contraction in supply that began earlier. The overall number of building permits issued for housing in Moscow and St Petersburg decreased by 14 % year-on-year in 2020. The number of building permits issued in St Petersburg decreased by 44 % year-on- year in 2020. In Moscow, the number of permits increased by 8 % year-on-year, but the volume of housing covered by the 2020 permits represented a decrease of 48 % year-on-year. The cost of changing the permitted use of a project in Moscow, depending on the complexity of the project and its location, is becoming a regular part of the acquisition of land plots. This factor also holds back small players. The cost of changing the permitted use will represent a significant part of the budgets for development projects in New Moscow, which, before the change, already accounted for about 10 –15 % of the total investment. Source: Bank of Russia, Etalon Group analysis UP TO RUB 2.3 MLN NUMBER OF BUILDING PERMITS ISSUED FOR HOUSING DEVELOPMENT 394 554 457 745 208 179 Generational changes in the consumer makeup are also having an impact on market development in terms of consumer preferences; young people (late Generation Y and Generation Z) value different characteristics than Generation X, and they are willing to pay extra for them. About 70 % of Generations Y and Z are ready to increase their purchase budget if residential properties are more energy- efficient, have all the necessary amenities and are made of more environmentally friendly materials. According to a joint study by Etalon Group and the research company Celebrium-X, safety is a common value shared by all groups of buyers purchasing business- class homes: they are all willing to pay extra for a well-lit courtyard; they all understand the additional costs of providing around-the-clock security; the vast majority would agree to pay more for an apartment if the residential complex provided a facial recognition system at the entrance to the property grounds and an around-the-clock concierge service. Smart home systems are another common preference for consumers. Nearly all respondents agree (with a confidence index of 69–75) that this option costs extra, and they’re willing to pay more. Buyers are demanding greater variety and the ability to choose. There is growing demand for the development of mixed types of residential spaces, where there is an opportunity for the development of new-economy clusters and creative industries: for example, modern studios where one can live and work (light industrial) or office space for small businesses on the ground floors of buildings where the employees of those businesses live (live & work). 271 -72 % 239 315 181 213 220 474 237 -14 % 88 120 49 130 2015 2016 2017 2018 2019 2020 Moscow St Petersburg Source: Federal Service for State Registration, Cadastre and Cartography; State Construction and Expert Review Service of St Petersburg; Committee of State Construction Supervision of Moscow 36 MARKET OVERVIEW AND TRENDS 37 ANNUAL REPORT 2020 Developers have started to build up their portfolios again, while the number of sites is decreasing; competition for new land among the top 20 players is increasing, driven by industry consolidation in key regions. CHANGES IN THE SHARE OF INVESTMENTS IN SITES FOR HOUSING DEVELOPMENT IN THE OVERALL STRUCTURE OF REAL ESTATE INVESTMENTS Investments in residential development sites continue to grow in terms of total investment in major real estate markets. After a decline in investments in 2016–2017 amid the transition to new industry regulations, investors started to increase investments to replenish their project portfolios: investments in development sites as a share of total investments in real estate has roughly doubled each year, from 5 % in 2017 to 50 % in 2020. This reflects investors’ growing interest in the expansion of the development business. 19 % 5 % 12 % 23 % 50 % This is largely due to the fact that project financing is too expensive for small players but comfortable for market leaders; these larger companies often prefer to use projects owned by smaller industry players to expand their own portfolios. Accumulating sufficient reserves in escrow accounts to qualify for reduced rates is a difficult challenge for second-tier developers. In Russia’s regions outside Moscow and St Petersburg, this change in regulations could even lead to a situation where local players are unable to start new projects. We believe that this creates an opportunity for the largest “federal” players to enter new regions and consolidate a significant market share for themselves. An additional factor holding back the rapid growth of supply is the shortage of quality land plots in Moscow and St Petersburg. Only 8 % of land plots have all the permits required for development. Another 60 % have only a portion of the required documentation. SHORTAGE OF LAND SUITABLE FOR BUILDING IN MOSCOW AND ST PETERSBURG 32 % Non-zoned 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Source: Knight Frank The consolidation trend in the industry continues and is picking up pace. By 2023 the top 20 developers are expected to account for a record 57 % of the supply in Moscow and St Petersburg, while the number of small and medium-sized players will continue to decline. THE TOP 20 DEVELOPERS WILL STRENGTHEN THEIR POSITION Total deliveries, mln sqm Share of the top 20 16.0 16.4 17.1 14.0 32.6 60 % Part of urban planning documentation 8 % Complete urban planning documentation Source: Real Estate and Construction journal 57 % 3 2 0 2 – 1 2 0 2 40 % 39 % 45 % 46 % 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Source: Etalon Group analysis of ERZ data Longer-term, the conditions for entry into projects and the role of the developer will change; the ability to address the needs of a wide range of stakeholders is becoming an important attribute. Today the concept of housing quality is inextricably linked with the quality of the living environment and lifestyle; it includes the functionality of residential districts and the development of local facilities, transport accessibility, the provision of social infrastructure facilities, the connectivity of pedestrian routes and the zoning of property grounds and common areas. One indicator of the quality of urban master planning in cities is the ability to propose a strategy for sustainable economic development and the well-being of residents. Spatial planning documents are increasingly focused on structuring mutually beneficial terms and distributing risks between city businesses, property owners, city administrations and developers. Key targets for development projects are no longer square metres but indicators such as declining unemployment, the percentage of people employed in the service and innovation economy, improvements in public health and the city’s economic growth. The ability to structure high-yield projects that have a considerable positive socioeconomic impact on the area will play an increasing role in real estate development companies’ business models. 38 MARKET OVERVIEW AND TRENDS 39 ANNUAL REPORT 2020 CONSTRUCTION COSTS Temporary cost increases during the COVID period are not long-term. Last year, the introduction of restrictions resulted in a labour shortage at construction sites and an increase in costs related to workplace management during the pandemic. The depreciation of the rouble and a rise in prices for rolled steel and rebar, which are key materials used in construction, also impacted construction costs in 2020. At the same time, temporary regulatory measures taken by the government have stabilised the situation. The average increase in construction costs in Russia during 2020 was below 1 %. Streamlining production processes and cost reductions will enable business expansion and entry into regional markets over the long term. In contrast to Moscow and St Petersburg, where the largest developers have focused their operations, the regional market remains largely fragmented. In Russia’s biggest cities, the share of the top 20 players is about 6 %; in 2020, they delivered around 0.5 mln sqm out of total deliveries of 8 mln sqm. At the same time, both the volume of new housing and the number of building permits issued are decreasing in regional markets, while new housing volumes in the traditional regions of operations of St Petersburg and Moscow, which is dominated by large federal players, remain above 2015 levels, despite recent declines. NEW HOUSING SUPPLY, mln sqm Mln sqm Linear trend ST PETERSBURG MOSCOW THE LARGEST REGIONAL METROPOLITAN AREAS 4.0 5.2 23.6 5.0 3.5 3.5 3.4 3.9 3.1 3.0 3.4 3.4 3.5 22.0 22.6 21.9 20.6 20.5 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 Source: Unified Interdepartmental Statistical Information System The implementation of a renovation programme and integrated development projects in regions beyond Moscow and St Petersburg will require the involvement of large professional players. Their participation in official renovation projects, accompanied by opportunities to develop large land plots, will not only reduce the risk of low-quality supply but also help to ensure that new residential areas are created with adequate consideration for creating jobs and social infrastructure. Cities that choose this approach will benefit from the large-scale redevelopment experience of major federal players in developing a comprehensive master plan, as opposed to dividing territories up into small plots for individual development by small local players. Moreover, involvement of federal players that are likely to expand into regions outside Moscow and St Petersburg will make it possible to achieve the target indicators of the Housing National Project, which calls for the delivery of 120 mln sqm of housing per year. SHARE OF NEW HOUSING SUPPLY AND POTENTIAL UNDER THE NATIONAL PROGRAMME 11 % Moscow and St Petersburg 27 % Large cities 62 % Other regions Source: Unified Interdepartmental Statistical Information System, Dom.rf, Etalon Group analysis SUPPLY IN 2020: 80.5 MLN SQM / YEAR 120 MLN SQM / YEAR POTENTIAL BY 2025: 39.5 MLN SQM / YEAR CHANGES IN THE CONSTRUCTION COST AND AVERAGE PRICE PER SQM OF HOUSING IN THE LARGEST METROPOLITAN AREAS OUTSIDE MOSCOW AND ST PETERSBURG In turn, rising housing prices in the past year created the preconditions for large developers to enter regions beyond Moscow and St Petersburg. Price, cities with at least 1 million inhabitants Cost, cities with at least 1 million inhabitants (growth rate) PERIOD OF DECLINE IN PROFITABILITY PERIOD OF RECOVERY IN PROFITABILITY 6 % 1 % 4 % -0.4 % -0.2 % -3 % 7 % 5 % 6 % 2 % 5 % 1 % 2015 2016 2017 2018 2019 2020 Source: Unified Interdepartmental Statistical Information System, Dom.rf, Etalon Group analysis Lower average prices in regional markets mean that effective cost control measures are necessary to achieve profitability levels comparable to Moscow and St Petersburg. The ability to offer a quality product at affordable prices will remain a key factor for successful expansion in regional markets outside Russia’s two largest cities. information exchange between all project participants • standardising and optimising their product, including by increasing net sellable area by correctly designing partition walls, creating useful niches and controlling the thickness of interior partition walls. To achieve this by optimising their value chains, construction companies are: • improving the precision and depth of exploratory studies, including by working with big data analytics • using technologies and materials that reduce labour costs or the time needed for construction and installation works implementing BIM technologies and developing tools for collaboration and • In the future, once the impact of these steps has been exhausted, changes in construction technologies should create additional opportunities to further improve management of costs and construction timelines. One significant trend, for example, is the shift towards modularisation and off-site production, which should rebalance the construction value chain. 40 MARKET OVERVIEW AND TRENDS 41 ANNUAL REPORT 2020 McKinsey & Company forecast significant changes in the construction business value chain New production technologies provide opportunities like industrialisation and a shift toward off-site production. Such changes could lead to a 15 –20 % decrease in costs. per year. Worldwide, labour productivity growth in construction has averaged only 1 % a year over the past two decades, compared with growth of 2.8 % for the total world economy and 3.6 % in manufacturing. The construction industry holds great potential for players able to quickly innovate and achieve productivity gains to achieve significant breakthroughs compared to peers. According to an analysis by McKinsey, the industry globally loses about USD 1.6 trillion in economic value added Significant factors behind low productivity in the construction industry include poor project management and execution, inadequate skills, inadequate design processes, and inadequate investment in skills development, R&D and innovation. AVERAGE VALUE ADDED BY EMPLOYEES PER HOUR WORKED PRODUCTIVITY LAG 1.63 TRN USD Source: McKinsey & Company 37/hour 25/hour Global economy Global construction sector TECHNOLOGICAL IMPACT ON REDISTRIBUTION IN THE VALUE CHAIN BY 2025, % value in productised value chain Remaining value added Value shifted Value at risk 2 % 11 % 12 % 16 % 9 % 14 % 11 % 3 % 31 % 25 % 12 % To achieve these structural changes, companies need to develop their own R&D capabilities, which initially will inevitably affect the cost of the product. According to McKinsey & Company data, global R&D spending by the top 2,500 construction companies grew by 77 % from 2013 to 2017. In addition, nearly two-thirds of the interviewed decision-makers believe that the COVID-19 crisis will accelerate industry transformation, and half have already raised investment in line with the shifts. In Russia, where demand is heightened due to the attractiveness of housing as a way of investing savings and measures to make housing more affordable, companies still have an opportunity to revise their business models and to introduce new technological solutions that will radically change the quality and speed of construction. An overall assessment of the factors that are going to influence the growth of the development business indicates that there is great potential for development in the long term despite increasing competition. 30 % 15 % ASSESSMENT OF FACTORS AFFECTING THE MAIN COMPONENTS OF THE BUSINESS Business impact Positive Negative Negligble OVERALL ASSESSMENT OF THE IMPACT OF FACTORS BUSINESS MODEL COMPONENTS Previously In the short term In the long term SALES 1 % 2 % 3 % 1 % 1 % 1 % 2 % 5 % AVAILABILITY OF SITES AND TERMS OF ENTRY CONSTRUCTION COST 1 % 1 % 9 % 9 % 15 % 8 % 12 % 9 % 3 % 1 % 10 % 7 % IT solutions Working with land Design and engineering Production of materials Production of components Equipment manufacturing Material logistics Equipment leasing Off-site production Primary developer Specialist contractors Source: McKinsey & Company Source: Etalon Group analysis Challenges requiring market leaders to review their strategies 42 STRATEGY 43 ANNUAL REPORT 2020 STRATEGY 44 Strategy overview 46 The strategy to 2024 aims to reinvent each step of the value chain 48 Ways to achieve our strategic goals 60 61 Financial targets Our ambitions on the strategic horizon 44 STRATEGY 45 ANNUAL REPORT 2020 Our strategy is aimed at strengthening Etalon Group’s leading position in residential development and creating a product that exceeds customers’ expectations. We see the path to achieving these goals in the development of sound and sustainable solutions that are based on new technologies and that meet the needs of society – both today and in the future. With the fast pace of change, industry development trends and an understanding of available resources in mind, our strategy involves rethinking all business processes: from the purchase of land and project design to construction, sales and living in our residential complexes. STRATEGY OVERVIEW Etalon Group’s previous strategy, which was presented to the market in 2017, proved to be quite successful, despite the fact that certain circumstances beyond our control prevented us from meeting all of our targets. RESULTS OF 2017–2021 STRATEGY IMPLEMENTATION STRATEGIC GOALS STATED IN 2017 TARGET STATUS 1 2 3 4 5 TO BECOME ONE OF THE LARGEST DEVELOPERS IN THE ST PETERSBURG AND MOSCOW MARKETS TO BECOME ONE OF THE MOST PROFITABLE PLAYERS IN THE RUSSIAN RESIDENTIAL DEVELOPMENT MARKET TO MAINTAIN A STRONG FINANCIAL POSITION TO CONTINUOUSLY INCREASE DIVIDEND DISTRIBUTION TO MAINTAIN A DISCIPLINED APPROACH TO REGIONAL EXPANSION AND ACHIEVE FURTHER PORTFOLIO DIVERSIFICATION 15% MARKET SHARE IN ST PETERSBURG 7% IN MOSCOW 20% CAGR FOR NET INCOME 2x NET DEBT / EBITDA RATIO 40% 70% OF IFRS NET PROFIT ONLY VALUE-ACCRETIVE EXPANSION Successfully achieved in Moscow with 7 % market share Failed in St Petersburg due to lack of appropriate land bank Failed to achieve due to weaker profitability and numerous accounting adjustments 1.9х net corporate debt / pre-PPA EBITDA despite large-scale M&A transaction in 2019 Despite a low net profit base, Etalon updated its dividend policy, introducing a guaranteed minimum dividend of RUB 12 per GDR/share Successful entry into business- and premium-class segments with higher profit margins Avoided expansion into new regions, with current product focused on Moscow and St Petersburg 46 STRATEGY 47 ANNUAL REPORT 2020 THE STRATEGY TO 2024 AIMS TO REINVENT EACH STEP OF THE VALUE CHAIN Current conditions and trends in industry development, as well as the goal of improving business efficiency in changed circumstances, have led us to a radical revision of our business model and the formation of a new strategy to 2024. With the fast pace of change and an understanding of available resources in mind, the strategy involves – with fairly limited investments – the renewal of all business processes. L A N D BANK N D D I G I T A L ARC HIT E E - O D - T N E C T U R D E E S I G N PARTNERS AND SUPPLIERS NETWORK S A L E S MANAGEMENT CONSTRU C T I O N 1 Long-term focus on replenishing the land bank, supported by the acquisition of unzoned plots, broadening the geography of projects through expansion and inorganic development KEY EXPECTED RESULTS: • increase in portfolio size to over 6 mln sqm • a balanced structure of land assets and long-term growth in sales 2 3 4 5 6 Design based on modern principles and urban planning standards, offering in-demand housing formats and surroundings KEY EXPECTED RESULTS: • improved product quality • highly transparent processes reduction of the time frame • from site search to the start of construction by up to six months • creation of a unified system for standardised design and implementation of R&D Speed and cost leadership thanks to product standardisation across the entire range and leadership in new building technologies KEY EXPECTED RESULTS: • pre-PPA gross profit margin • of 35% twofold increase in construction volumes with stable overhead costs KEY EXPECTED RESULTS: • sustained double-digit sales growth with the industry’s highest NPS and CLV scores reduction of marketing costs by up to 20% • Extending the life cycle of interaction with customers based on an understanding of their expectations from the purchase of a new property through inhabitancy and the use of services Product personalisation and the tailoring of promotions through big data analysis and the use of artificial intelligence End-to-end data transfer across the entire value chain through the introduction of a unified digital architecture KEY EXPECTED RESULTS: • Decrease in SG&A to revenue to the level of 4.5–5.5% Leadership through partnership and the creation of a best-in-class platform for housing construction KEY EXPECTED RESULTS: • A new management model with seamless architecture that is open to partners and suppliers, enabling rapid innovation and cost reduction PRINCIPLES FOR ACHIEVING STRATEGIC GOALS • Innovation: new technologies and standards enable us to achieve new goals in the market by reducing costs and increasing the efficiency of business processes • Customer-centricity allows us to prioritise the main features of our product and customer experience, putting customer needs at the heart of our efforts to improve our management model • The sustainability of solutions and processes underlying the development of our business allows us to contribute in a meaningful way to improving the sustainability of the cities where we operate 48 STRATEGY 49 ANNUAL REPORT 2020 WAYS TO ACHIEVE OUR STRATEGIC GOALS 1 PARTNERS Joint ventures Share participation Long-term exclusive agreements INTRODUCTION OF A UNIFIED DIGITAL ARCHITECTURE Our business will employ a digital architecture that enables end-to-end data transfer across the entire value chain. Our openness to new partners and suppliers will enable us to build competencies quickly and at minimal cost. To do this, we are implementing the Etalon.Partnership programme, which any company or start-up can take part in. UNIFIED CLOUD-BASED DIGITAL PLATFORM End-to-end data transfer for the overall value chain In selecting each new project with the help of an automated land search system, and taking into account the customer experience for comparable projects, we will decide which product is best suited to a particular location. A big data-driven predictive analytics system will analyse the current and future competitive environment for any promising project, as well as price levels and possible volumes of property sales. After building a GIS map of the area, the computer-aided design system will make it possible: • • • • • to develop a detailed master plan and project budget in just one day, to begin preparing the design and working documentation, to complete a project appraisal in a completely electronic format, to quickly transfer data to the BIM environment and modify projects manually, and to subsequently use the design model to supervise and coordinate construction. This will enable Etalon Group to make all processes as transparent as possible, to reduce costs considerably and also to shorten the time frame from site search to the start of construction by up to six months. After the completion of construction, the design model in the BIM system will be transferred to the service company, which will then be able to use it for current and future building repairs and renovations. In addition, we will continue to collect feedback from residents of the new property to further improve our product. This creates a closed loop aimed at the constant improvement of our product and the customer experience. End-to-end digital architecture saves time, money and materials PRICING AND PRODUCT LIMITATIONS INPUTS MARKET ANALYSIS Big data system for real-time and forecast data analysis (price, demand, supply and competition level for each particular location) Automated screening of appropriate land plots Inputs for further product improvement GO/NO-GO DECISION MASTER PLANNING AND CONCEPT Express masterplan and budget Automated data transfer to BIM Revit GIS Land scanning with drones and transfer to automated master- planning solution Deep integration with third-party GIS services DESIGN Automated project documentation Online permitting process Automated working documentation Full integration to BIM Revit 99% ACCURACY AT MASTER-PLANNING STAGE CONSTRUCTION BIM 360 Build model for construction coordination and control Dashboard for real-time cost control SERVICE BIM model for ongoing maintenance and building repairment Proposal request Tendering best price SUPPLIERS Value for money solution implementation Materials and components supply at contracted price REDUCTION IN TIME FRAME BY UP TO 6 MONTHS LIMITATION OF PREDEVELOPMENT STAGE EXPENSES SALES Feedback from Etalon property residents REAL-TIME MONITORING OF COSTS AND TIMING PRODUCT FEEDBACK 50 STRATEGY 51 ANNUAL REPORT 2020 2 DESIGN AUTOMATION The computer-aided design system uses a library of standardised structural elements to create a large number of unique product options in line with specifications. At the same time, the quality of design solutions will improve, while the costs and time frames for preparation of the design documentation will be reduced. In addition, the system makes it possible to continuously develop standardised projects to keep them up to date and in line with customer requests. DESIGN STAGE AUTOMATION Facade and engineering solutions for each residential property class (Etalon.Start, Etalon.Comfort and Etalon.Plus) Different housing construction technologies (cast-on-site, modular, CLT and prefabrication) Target mixture of studios, 1-, 2- and 3+ bedroom apartments Library of standardised built-in commercial layouts Library of standardised apartment layouts Standardised social infrastructure layouts During the reporting year, we agreed on an exclusive partnership with a leading Russian design automation company. To further improve our system, a joint venture was created that will deal with modifications and fine-tuning, including for more complex tasks facing Etalon Group. The system already makes it possible to choose the technology to be used for the construction of a property, factoring in the potential of the land plot. In the near future, we plan to automate the master- planning stage, which will enable us, right up to the moment of acquiring a project, to understand its future economics – in just one day – with a high degree of accuracy. By 2022, we plan to automate the process of preparing design and working documentation, to integrate outgoing estimates from our system with suppliers’ databases and also to enable online certification of all of our new projects thanks to the complete integration of our CAD system with BIM Revit. INPUT MAINTAINING A DIVERSE OFFERING WHILE STANDARDISING OUR PRODUCT MULTIPLE COMBINATIONS OF REPEATED ELEMENTS STANDARDISED SECTION LAYOUTS STANDARDISED MASTER PLAN LAYOUT TOWER TOWER TOWER 1 ZIL-YUG STAGE 1 STAND-ALONE SECTION CORNER SECTION TOWER 2 Multiple combinations based on standardised elements Different buildings — same approach Fitted to the form of each land plot Same building – different apartment layouts for each floor AUTOMATION Automated master plan for each construction technology and property class Detailed budget and output for RFP to suppliers Full integration with BIM Revit Online project certification Automated project and working documentation underway R E S U L T S Go/no-go decision-making before land acquisition backed by detailed information on potential project (99% accuracy) One-day master- planning stage Full design stage automation by 2022 (incl. project and working documentation) 52 STRATEGY 53 ANNUAL REPORT 2020 3 MODULAR CONSTRUCTION CONSTRUCTION USING CLT PANELS MODERN PREFABRICATION STATE-OF-THE-ART INDUSTRIAL TECHNOLOGIES FOR HOUSING CONSTRUCTION Achieving cost leadership is impossible without improving the construction process for residential properties. As part of our new strategy, we plan to supplement a technology we have traditionally used – cast-on-site construction – with three new methods of industrial housing construction: ADVANTAGES: • 40% shorter construction cycle • >20% lower construction costs • Limited CAPEX • Zero waste • Fully fitted out FOCUS AREA Short term: • Apartments (as developer) • Hotels (as general contractor) Medium term: • Etalon.Start and Etalon.Comfort residential buildings for mass- and mid-market segments We are developing modular technology in Russia in partnership with a British company. In 2021, we plan to begin the process of certifying the technology for the construction of multi-apartment residential buildings, and also to roll out a mobile factory on the grounds of our ZIL-Yug project for the production of modules. Before we receive full housing construction certification, we will be able to launch pilot projects in the form of non-residential apartments, while also acting as a general contractor and supplier of modules for the construction of modular hotels. We plan to launch our first project using modular technology in 2022. • 25% shorter construction cycle • Same costs as cast-on-site • No CAPEX • Same strength as monolithic technology • Climate positive • Acoustic advantage Short term: • Facades for residential buildings • Hybrid CLT apartments (as developer) • Office buildings (as general contractor) Medium term: The first pilot project using hybrid technology is planned for launch at the end of 2021 in collaboration with Segezha Group. Thanks to the exclusive terms of cooperation, we were able to jointly develop a project concept and adapt production to the concept. • Etalon.Plus residential buildings for the high-end segment In the near future, we plan to use CLT for our buildings’ facade elements and for the construction of non-residential apartments in the upper price segment for this technology, and also for the construction of office buildings as a general contractor. On the strategic horizon, we, together with Segezha Group, expect to complete the certification of the technology for the construction of residential complexes in the upper and – possibly in the future – mid-price segments. • 30%-50% shorter construction cycle compared to traditional poured concrete cast-on-site technology • Construction costs lower by up to 20% • Good energy efficiency and ergonomics characteristics • Construction generates less waste than traditional buildings, including a 30% reduction of steel waste • Greater quality control due to a controlled and consistent environment Short term: • Create a library of design solutions related to new construction methods • Pilot use of prefabrication technology Medium term: • Product standardisation and transfer to Unified 2.0 product using hybrid technology The idea behind modern prefabrication is to assemble as many building components as possible at the factory: from reinforced concrete products to engineering systems and finishing. We are currently looking for a partner with international experience who will be ready to manufacture prefabricated components for our projects with a guarantee of future capacity utilisation. The supplementation of our product line does not imply that we are giving up on cast-on-site technology – the most flexible technology available. However, we plan to completely rethink our approach to using it: • Version 2.0 of Etalon Group’s cast- on-site blocks will involve complete standardisation of planning and technological solutions; • R&D improvements will allow us to further reduce costs and construction time using this technology. 54 STRATEGY 55 ANNUAL REPORT 2020 4 CONSTRUCTION SHORTENING PRODUCTION TIME The introduction of new technologies will shorten production time by three to six months. Shorter construction time will create an opportunity for us to lengthen the presale period by a comparable amount, and, as a result, to reduce the project financing rate to almost zero. TECHNOLOGY PROJECT IMPLEMENTATION CAST-ON-SITE GROUND WORKS & PREPARATION SAME ON-SITE CONSTRUCTION 3 months shorter TRANSFER TO SERVICE COMPANY INDUSTRIAL GROUND WORKS & PREPARATION 1–2 months longer ON-SITE CONSTRUCTION 6 months shorter TRANSFER TO SERVICE COMPANY PRODUCTION up to 9 months PRESALES 3–6 months longer SALES up to 50% 3–6 months shorter 30–40% c. SALES POST-COMPLETION 20 c. % CONSTRUCTION PERMIT GRANTED BUILDING COMPLETION AND DELIVERY 56 STRATEGY 57 ANNUAL REPORT 2020 5 LAND BANK LONG-TERM FOCUS ON EXPANDING OUR LAND BANK We have supplemented our standard approach to replenishing our project portfolio and will now consider acquiring not just zoned but also unzoned land plots. This approach will allow us to reduce expenditures on land in our cost structure and to put optimal design solutions in place. This is largely a consequence of our experience in carrying out integrated development projects, such as Galactica and ZIL-Yug, which enabled us to strengthen our competencies in this area. LAND BANK REPLENISHMENT PRINCIPLES: • Deficit compensation in St Petersburg of c. 1 mln sqm, including up to 0.8 mln sqm by the end of 2021 • Annual land bank replenishment by at least the same amount as Etalon Group plans to sell during the period • Acquisition of new unzoned land in Moscow and St Petersburg to ensure market share growth by 2023–2024 • Only value-creative regional expansion with limited entry cost • Targeting presence in at least five regions by 2024 • Target balanced portfolio of large-scale, mid- and small-sized projects to ensure diversified product offering In addition to implementing projects in Russia’s two biggest cities, we see good opportunities to rapidly increase the scale of our business through regional expansion. The main criterion is the possibility of maintaining profitability levels comparable to those of our key regions. In this regard, we will consider, first of all, cities with a population of 1 million (or just under a million) where at least 20–30% of the population is capable of buying the most affordable of our future products. We plan to enter new regions both through the launch of pilot projects and through partnerships with or the acquisition of local players. LAND BANK STRATEGY WILL SHIFT TO LONG-TERM PLANNING TO ENSURE SUSTAINABLE NEW SALES GROWTH LAND BANK STRUCTURE BALANCED BY REGION >6.0 MLN SQM 10% 40% 1 NOW STRATEGY FOCUS MOSCOW, ST PETERSBURG MOSCOW, ST PETERSBURG PLUS NEW REGIONS PERMITTING STAGE PREFERABLY ZONED WITH PROJECT DOCUMENTATION UNZONED WITH AND WITHOUT LANDLORD GUARANTEE OF RECEIPT OF PLANNING PERMISSION, PLUS ZONED TO COMPENSATE FOR DEFICIT IN CORE REGIONS TIME TO LAUNCH SALES 6–12 MONTHS 24–36 MONTHS PERMITTING RISK LOW MODERATE INVESTMENT HORIZON SHORT LONG ACQUISITION COST HIGH MODERATE IMPACT ON PROFITABILITY NEGATIVE TO MODERATE POSITIVE Moscow St Petersburg New regions 2.8 MLN SQM 26% 74% 50% 1 2020 2024 Our approach to M&A remains practically unchanged. Facing a portfolio deficit in St Petersburg, as well as a desire to increase our presence in other regions, we are ready to consider the possibility of inorganic growth if certain conditions are met: • Land bank size of c. 1 mln sqm • Only value-accretive transactions (gross profit of 35%; ROIC of >20%) • Limited overlap of project portfolio in core regions • High degree of transparency of both business and ownership structure • Considerable operating synergies • Ability to implement new design and construction solutions that are aligned with the Company’s target offering 1 Including 20–30% of unzoned land for potential development At the same time, we have accumulated, since the acquisition of Leader-Invest, vast experience in successfully integrating a large portfolio of projects that can be used in the future. The basis for inorganic growth will be the creation of a new product that offers higher margins and that will enable us to maximise synergies. 58 STRATEGY 59 ANNUAL REPORT 2020 PRODUCT STANDARDISATION 6 CONSTRUCTION State-of-the-art industrial housing construction technologies and a unique digital architecture enable us to make extensive use of the flexibility of standard elements to create a high-quality standardised product. We have identified the most promising construction technologies for each housing class, and we are developing our own facade solutions, concepts and layouts for common areas, engineering solutions, as well as ground-level layouts and plans for parking lots. We have already created a unified database of standardised apartment layouts that contains at least 380 of the most popular options that we can apply in each segment. OUR NEW CUSTOMER OFFERING IN RESIDENTIAL REAL ESTATE DEVELOPMENT Standardised product for: % of new residential property offering ETALON. START Mass-market residential housing (economy) 20% St Petersburg regions ETALON. COMFORT Mid-market segment (comfort and business) 70% Moscow St Petersburg regions ETALON. PLUS High-end property (premium and above) 10% Moscow St Petersburg After updating its value chain, Etalon Group will be able to offer an expanded range of services for business that offer higher margins than general contracting: from analytics and design to fee development and a single point of contact for new housing construction technologies. Development in this area will enable us to reduce the R&D costs that we incur when creating our new digital architecture. B2C B2B 7 8 SALES EXTENDING THE CUSTOMER LIFE CYCLE partners and to add a cashback option for additional services for homebuyers, which will create more opportunities for us to increase the share of secondary purchases and an influx of new buyers. One of the key elements of our strategy is to create a better customer experience, including through the further development of online sales, as well as the creation of a single client platform for buyers and residents of our properties – the Etalon My Home app 2.0 – which should become the basis for increasing engagement with our customers on issues related to further improvement of our product. As part of this project, we plan to expand the range of added services in cooperation with new SALES PRODUCT PERSONALISATION AND TAILORING OF PROMOTIONS Our most important task is the full-fledged transformation of our business processes based on an analysis of the problems facing our customers, and the introduction of intelligent decision-making tools that also speed up the decision-making process within the Company. This is the key aspect of our strategy to 2024 that will ensure a progressive increase in customer loyalty through the creation of value for them and its qualitative embodiment in the finished product. The introduction of a big data analytics system has enabled us to better understand our customers: their patterns of behaviour, interests, movements and channels of communication. On the basis of predictive analytics, we continue to improve our communication policy and to develop precise targeting tools and our competence in terms of analysing one of the most difficult stages of the customer journey – choice. We currently have strong NPS scores in the sales-related stages of the customer journey – at the level of around 60–70. We are developing a system for evaluating and analysing customer feedback at all stages of the customer journey (online platforms, calls, visits, transactions, living in finished apartments) and for improving procedures in order to increase customer satisfaction. 60 STRATEGY 61 ANNUAL REPORT 2020 OUR AMBITIONS ON THE STRATEGIC HORIZON FINANCIAL TARGETS The implementation of Etalon Group’s new strategy will enable us to become not just a developer but a technology company whose foundation is a fully digital architecture that allows us to quickly adapt all processes in accordance with the situation or established goals. For investors and shareholders, this means a good return on investment thanks both to improved performance and a higher EBITDA multiple. 1 CREATE AN EASILY SCALABLE BUSINESS MODEL 2 DOUBLE THE VOLUME OF ONGOING CONSTRUCTION WHILE MAINTAINING CONSTANT OVERHEAD COSTS 3 BECOME A LEADING NATIONWIDE PLAYER 4 PROMOTE A CONCEPT OF SUSTAINABLE AND PEOPLE- CENTRED CITIES 5 ACHIEVE DOUBLE-DIGIT SALES GROWTH 6 BECOME A LEADER IN TERMS OF NPS AND CLV 7 ACHIEVE INDUSTRY-LEADING PROFITABILITY 1H 2020 1 FLATTISH YEAR-ON-YEAR 2024 NEW CONTRACT SALES GROWTH STRONG DOUBLE-DIGIT 29% 14.1% < REVENUE GROWTH 1.8 NEGATIVE 12 RUB PER GDR PRE-PPA GROSS MARGIN SG&A TO REVENUE PRE-PPA EPS GROWTH NET CORPORATE DEBT TO PRE-PPA EBITDA REPORTED OCF DIVIDENDS 1 Based on financial results as of 30.06.2020 (Financial position on 30.09.2020) and operating results for 9 months 2020 35% 10% > REVENUE GROWTH 2–3 POSITIVE MIN. RUB PER GDR 12 + NET PROFIT GROWTH UPSIDE 62 PROJECT PORTFOLIO 63 ANNUAL REPORT 2020 PROJECT PORTFOLIO 66 Current project portfolio 68 Additions to the project portfolio 72 Integrated development projects 84 Business-class projects 94 Comfort-class projects 2464 PROJECT PORTFOLIO 65 ANNUAL REPORT 2020 CONFIDENT GROWTH YEAR-ON-YEAR MARKET VALUE OF PROJECT PORTFOLIO BLN RUB 66 PROJECT PORTFOLIO 67 ANNUAL REPORT 2020 CURRENT PROJECT PORTFOLIO The market value of Etalon Group’s project portfolio as of 31 December 2020 was RUB 191 billion. The portfolio includes 63 projects with unsold NSA of 2.8 mln sqm divided between St Petersburg and the Moscow Metropolitan Area. About 98 % of our portfolio involves projects in the mid- and upper price segments. At the same time, we have enjoyed equal success in developing not only medium-sized and small projects but also large-scale integrated developments, such as Emerald Hills and Galactica, which has an area of close to 1 mln sqm. More than half of the projects in our land bank are at various stages of construction. These include both projects where sales were recently launched and partially completed residential properties. This product range allows us to offer clients a wide selection of quality housing for any preferences—even on a limited budget. 20 CURRENT PROJECTS IN ST PETERSBURG AND MOSCOW METROPOLITAN AREA on 31 December 2020 Our excellent reputation and high-quality portfolio of projects in Moscow and St Petersburg are key to ensuring steady sales that enable stable perfor- mance, even through the most challenging times. At year-end 2020, we had a well-balanced portfolio of over 2.8 mln sqm of NSA in a variety of segments and at different stages of construction. 191 BLN RUB MARKET VALUE OF ETALON GROUP’S PROJECT PORTFOLIO on 31 December 2020 2.8 MLN SQM UNSOLD NET SALEABLE AREA on 31 December 2020 # Projects Status (THS SQM) Total NSA Unsold NSA (THS SQM)1 Unsold parkings (LOTS) Income Construction Outstanding OMV (Mln rub) from sales (Mln rub)2 budget (Mln rub)3 budget (Mln rub)3 CURRENT PROJECTS ST PETERSBURG 1 2 3 4 5 Galactica Construction Project on Chernigovskaya Street Construction Petrovskiy Landmark Etalon on the Neva Domino Construction Construction Construction 764 110 89 77 39 245 1,916 21,620 77,863 49,017 20,103 68 40 35 33 972 322 374 312 5,359 18,383 4,941 15,316 3,233 2,696 9,349 7,199 8,939 6,716 4,520 3,262 6,557 4,222 1,412 2,965 TOTAL ST PETERSBURG 1,078 420 3,896 37,849 128,111 72,454 35,259 MOSCOW METROPOLITAN AREA 4 Design 1,403 1,307 10,113 64,121 360,185 166,078 165,473 ZIL-Yug Emerald Hills Nagatino i-Land Summer Garden Silver Fountain Wings Normandy Letnikovskaya Street Mytishinskiy District Fotievoi 5 Bolshaya Cherkizovskaya Electrozavodskaya 60 Zorge 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Construction Construction Construction Construction Construction Construction Design Design Design Design Design Design 857 329 278 226 184 124 63 93 11 7 9 12 6 6 28 301 36 121 48 29 63 82 11 7 9 12 5 3 290 1,519 60,209 39,799 3,614 1,467 23,237 73,177 31,493 29,981 270 1,494 31,812 17,409 4,022 1,587 17,973 45,493 18,745 2,769 30,947 16,087 483 198 717 322 72 46 63 99 34 37 3,029 15,989 6,814 20,315 7,002 8,980 4,469 1,640 556 1,192 1,941 7,678 4,243 1,526 2,382 2,881 1,517 729 2,092 1,217 1,256 1,533 714 676 392 868 860 6,719 7,782 880 8,405 4,469 1,639 556 1,147 1,905 463 689 Schastye na Semyonovskoy (Izmailovskoye Shosse 20) Construction 15 Schastye na Lomonosovskom Construction TOTAL MMA 3,609 2,062 15,798 127,255 660,446 317,337 237,743 TOTAL CURRENT PROJECTS 4,687 2,482 19,694 165,104 788,558 389,791 273,002 COMPLETED PROJECTS Residential property in completed projects Completed stand-alone commercial properties TOTAL COMPLETED PROJECTS 3,332 8 3,340 350 8 358 6,799 25,195 283,567 55 591 6,854 25,786 283,567 TOTAL ETALON GROUP PROJECTS 8,027 2,840 26,548 190,890 1,072,125 389,791 273,002 PRODUCTION UNIT Production Unit’s business and properties 18 12,640 12,640 TOTAL ASSETS VALUE 8,027 2,858 26,548 203,530 1,072,125 389,791 273,002 Source: Colliers International estimate as of 31 December 2020 1 Including parking: parking area in launched projects with partially sold parking lots is calculated as 30 sqm per parking space 2 Income from sales includes potential and received incomes as of 31 December 2020 3 Excluding land acquisition costs 4 Moscow, New Moscow and Moscow region within 30 km from Moscow Ring Road 68 PROJECT PORTFOLIO 69 ANNUAL REPORT 2020 ADDITIONS TO THE PROJECT PORTFOLIO Considering our strategic initiatives to 2024, our goal is essentially to double our portfolio to more than 6 mln sqm. MOSCOW METROPOLITAN AREA: ST PETERSBURG: The acquisition of Leader-Invest in 2019 enabled us to add more than 1.5 mln sqm to our Moscow portfolio. This volume is enough for us to carry out our development projects for the next few years. Nevertheless, we continue to analyse and consider for purchase promising land plots in attractive areas of the capital. Our land bank in St Petersburg is limited, but we are working hard to add to our portfolio in the region. In 2021, we expect to add about 800 ths sqm to our land bank in St Petersburg. Making up for the shortage in St Petersburg and subsequently adding—on an ongoing basis—at least as much space as we plan to sell the following year will help us balance our portfolio in Moscow and St Petersburg and further strengthen our positions in Russia’s two largest cities. 1 OPTIMAL PORTFOLIO STRUCTURE IN TERMS OF PROJECT SIZE 3 SHIFTING FROM A SHORT-TERM TO A LONG-TERM FOCUS We adhere to a land bank structure with one anchor project of about 1 mln sqm, 5–6 medium-sized projects and up to 10 infill development projects. 2 OPTIMAL RATIO OF PROJECTS BY HOUSING CLASS We have enjoyed significant success in the higher-class segment, starting with the launch of our Silver Fountain project in 2017; our share of business- and premium- class projects reached 71 % of our portfolio at the end of 2020. Due to the rising cost of land, the shortage of quality land for construction and our improved zoning competencies, we are considering the purchase of unzoned land and zoning it independently. This approach has several distinct advantages despite the longer time horizon to the start of construction. First, purchase and independent zoning reduces the cost of land in a project’s cost structure. Second, independent zoning makes it possible to include optimal architectural solutions and a site development concept from the very beginning. At the same time, we are considering purchasing zoned plots to make up for the shortage in the coming years. OUR APPROACH TO FURTHER DIVERSIFICATION OF OUR PORTFOLIO: 6 MLN SQM TARGET PORTFOLIO SIZE IN 2024 Forecast 2.8 MLN SQM PORTFOLIO SIZE on 31 December 2020 2020 2021 2022 2023 2024 70 PROJECT PORTFOLIO 71 ANNUAL REPORT 2020 ST PETERSBURG MOSCOW 5 3 PROJECTS 1 2 3 4 5 Galactica Project on Chernigovskaya Street Petrovskiy Landmark Etalon on the Neva Domino 1 4 2 2 PROJECTS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 ZIL-Yug Emerald Hills Nagatino i-Land Summer Garden Silver Fountain Wings Normandy Letnikovskaya Street Mytishinskiy District Fotievoi 5 Bolshaya Cherkizovskaya Electrozavodskaya 60 Zorge 3 Schastye na Semyonovskoy (Izmailovskoye Shosse 20) Schastye na Lomonosovskom 9 4 13 10 15 6 7 5 8 1 3 12 11 14 Design stage Under construction Completed Design stage Under сonstruction Completed 72 PROJECT PORTFOLIO 73 ANNUAL REPORT 2020 INTEGRATED DEVELOPMENT PROJECTS ZIL-Yug Galactica Nagatino i-Land p. 74 p. 80 p. 82 74 PROJECT PORTFOLIO 75 ANNUAL REPORT 2020 ZIL-YUG MOSCOW ZIL-Yug is a large-scale redevelopment project on the grounds of the former ZIL plant in Moscow. With an area of over 109 hectares, it is based on the “15-minute city” concept and uses state-of-the-art technologies. S S A L C S S E N S U B I The development project was designed in collaboration with the Dutch urban planning and architectural company KCAP and leading Russian urbanists. Plans call for the construction of 1.4 mln sqm of housing, commercial real estate and public infrastructure by 2030. In terms of architectural quality and comfort, the ZIL-Yug project will be able to compete with the central districts of Moscow. It will be home to modern residential areas and parks, pedestrian embankments linking ZIL’s northern and southern sites, as well as two pedestrian bridges and three bridges for both vehicle and foot traffic. Two mooring berths for water transport—ZIL and Planet ZIL—will be built on an adjacent property. In the summer of 2020, the city was presented with the architectural and urban planning concept for the development of the first phase of the ZIL-Yug residential area, which is a model for the entire district—the principles underlying the ZIL-Yug master plan were clearly laid out: • • advanced technologies: from various housing types and variable building heights to the use of state-of-the-art prefabricated elements, modular construction and CLT panels; the principle of a 15-minute walking distance to the main commercial, business and public spaces from anywhere in the residential area—half of all movement in the district will be carried out on foot or by non-motorised transport (thanks to this approach, people will be able to live, work and relax in one place, which will make ZIL-Yug a new point of attraction for city residents and businesses); the “smart city” concept, which calls for the creation of advanced digital infrastructure. • Standardised offerings in prefabricated buildings Hybrid buildings will be erected around the central passage and square near the centre of activity for the project Moscow Central Circle Modular buildings that can be quickly assembled and offer rental apartments next to the ZIL-Vostok business district P r o s p e k t i L k h a c h e v a M o s c o w R i v e r Novinki Backwater First stage and second stage in cast-on-site to test demand for new layouts from the Etalon 2.0 product Buildings in backwater eco-zone will use CLT construction 76 PROJECT PORTFOLIO 77 ANNUAL REPORT 2020 Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E University Church THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye The district is located on the Moscow River Embankment and the Naberezhnaya Nagatinskogo Zatona, next to Tyufeleva Roshcha and Kozhukhovo National Park. The area’s biggest potential is linked to the river, which should become not only a key recreational area but also an important transport channel connecting the ZIL-Yug residential complex with other parts of the city. Dubrovka Business Center Avtozavodskaya THIRD RING ROAD Tulskaya Business Center University Church Museum University Business Center A V O P O R D N A V A R S H A V S K O Y E Lanscape Park University ZIL Tekhnopark Verkhnie Kotly The residential district is adjacent to a large transport hub and Prospekt Likhacheva. Its proximity to Moscow’s main thoroughfares—the Third Ring Road and Prospekt Andropova—will enable residents to reach the historic Nagatinskaya city centre in about 30 minutes by car or 25 minutes by public transport. The ZIL and Tekhnopark metro stations are within walking distance of the ZIL-Yug complex. Kolomenskaya Business Center T K E P S O R P S H O S S E University Museum Business Center Church Kolomenskoye 10 km 25 minutes to Red Square 7 km 15 minutes to the Garden Ring Museum Main Botanical Garden Ostankino Park Museum VDNKh A K A D E M I K A KORO LYOVA S TR E E T Museum Church I A R M T K E P S O R P Business Center University Museum Aqueduct Park VDNKh Losiny Ostrov National Park Malenkovskaya University Alekseevskaya Business Center Sokolniki Park Moskva-3 T H I R D R I N G R O A D Rizhskaya University Museum University Yekaterininskiy Park MSU Botanical Garden Church Business Center T H I R D R I N G R O A Business Center D Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Shelepikha Filyovskiy Park Business Center D A O R G N I R D R I H T Church Ulitsa 1905 Goda Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest A M I N Y E V S Setun River Valley Nature Park University Church Business Center Business Center Business Center Business Center Troyekurovskaya Grove Business Center R E E N T G P R O S P E K Business Center K O Y E S H O S S E O V A H K O R O A D L A Lomonosovskiy Prospekt Matveyevskaya Aminyevskaya (under construction) University Ramenki Museum Business Center Church Ochakovo Michurinskiy Prospekt 50 Years of October Park O S P E K T RIN S KIY P R U H M IC Museum Olympic Village Park University Ozyornaya Museum Church Marsovo Pole Church University Museum University New Holland Island Museum University Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church University Church University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center University Business Center Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University Church Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum 78 PROJECT PORTFOLIO 79 ANNUAL REPORT 2020 NET SELLABLE AREA1 THS SQM MARKET VALUE1 MLN RUB FUTURE-ORIENTED HOUSE- BUILDING TECHNOLOGIES IN LINE WITH GLOBAL TRENDS: • • the separation of pedestrian and traffic flows will ensure hassle-free movement throughout the area relatively even distribution of public spaces, parkland and social and commercial facilities will ensure that every resident is able to reach a variety of infrastructure within a 15-minute walk • high-standard urban-space design—“my street” and “my district” • excellent neighbourhood of low-rise and high-rise buildings • landscaped terraces on the roofs of buildings • close proximity to a new business cluster on the ZIL-Vostok site (more than 500 ths sqm of office space by 2028) • the developed Marс Chagall embank- ment with a length of more than 6 km (comparable to the Naberezhnaya Parka Gorkogo and Naberezhnaya Vorobyovykh Gor) • a residential area near water built to the highest standards in terms of the urban environment and quality of life is a rare find in any city SALES REVENUE1 MLN RUB 1 Colliers International estimate as of 31 December 2020 Church Avtozavodskaya Kuntsevskaya Minskaya Victory Park Museum Business Center Khodynka Field Park Beryozovaya Roscha Park 80 Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E University THIRD RING ROAD Museum University ZIL A V O P O R D N A University Lanscape Park PROJECT PORTFOLIO Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum GALACTICA Business Center Church Kolomenskoye Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E University Business Center Church Dubrovka Business Center THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Business Center Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center University Business Center Church Museum S S A Kolomenskaya L C T R O F M O C Kolomenskoye Museum Main Botanical Garden Ostankino Park Museum VDNKh University Museum Aqueduct Park VDNKh A K A D E M I K A KORO LYOVA S TR E E T Museum 81 Church I A R M T K E P S O R P Business Center University Alekseevskaya Business Center Losiny Ostrov National Park Malenkovskaya Sokolniki Park Moskva-3 Church Business Center Business Center T H I R D R I N G R O A D Rizhskaya University Museum T H I R D R I N G Business Center Business Center Yekaterininskiy Park NET SELLABLE AREA1 University R O A D MSU Botanical Garden Church 764 THS SQM Business Center Business Center Troyekurovskaya Grove Business Center R E E N T G P R O S P E K Business Center MARKET VALUE1 K O Y E S H O S S E O V A H K O R O A D L A Matveyevskiy Forest A M I N Y E V S Setun River Valley Nature Park University Lomonosovskiy Prospekt Matveyevskaya ANNUAL REPORT 2020 Aminyevskaya (under construction) University Ramenki Museum Business Center Michurinskiy Prospekt 50 Years of October Park O S P E K T Olympic Village Park SALES REVENUE1 Church Ochakovo RIN S KIY P R U H M IC Ozyornaya 21,620 MLN RUB Museum 77,863 MLN RUB University SHOSSE Khoroshyovskaya ZVENIGORODSKOYE Begovaya Museum Church Ulitsa 1905 Goda Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center D A O R G N I R D R I H T Shelepikha Filyovskiy Park Business Center Museum Business Center Business Center Museum Victory Park University Church ST PETERSBURG The Galactica residential area on the grounds of the former Warsaw railway station is the largest redevelopment project in the centre of St Petersburg. a a s s t t i i l l U U a a y y a a k k s s v v e e y y n n a a f f o o r r t t i i M M a a y y a a l l a a M M Izmailovskiy Bulvar Izmailovskiy Bulvar a a s s t t i i l l U U a a y y a a n n n n i i m m u u b b l l A A A A l l b b u u m m i i n n n n a a y y a a U U l l i i t t s s a a Parfonovskaya Ulitsa Parfonovskaya Ulitsa Parfnovskaya Ulitsa Parfnovskaya Ulitsa Moskovskiy Prospekt Moskovskiy Prospekt a a l l a a n n a a K K o o g g o o n n d d o o v v b b O O a a y y a a n n h h z z e e r r e e b b a a N N l l i i a a n n a a K K y y n n d d o o v v b b O O l l i i a a n n a a K K y y n n d d o o v v b b O O l l a a a a n n a a K K o o g g o o n n d d o o v v b b O O a a y y a a n n h h z z e e r r e e b b a a N N Moskovskiy Prospekt Moskovskiy Prospekt A A l l b b u u m m i i n n n n a a y y a a Parfonovskaya Ulitsa Parfonovskaya Ulitsa U U l l i i t t s s a a a a s s t t i i l l Parfonovskaya Ulitsa Parfonovskaya Ulitsa U U a a y y a a n n n n m m u u b b A A i i l l Izmaylovskiy Bulvar Izmaylovskiy Bulvar l l M M a a a a y y a a M M i i t t r r o o f f a a n n y y e e v v s s k k a a y y a a U U l l i i t t s s a a Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church Museum Church Marsovo Pole Church University 16 km 25 minutes to the airport 5 km 10 minutes to Nevskiy Prospekt Museum University New Holland Island Museum University University Business Center Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University University Church University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum Church The large-scale integrated development project is situated across two districts—Admiralteiskiy and Moskovskiy—on an area of about 36 hectares. The residential complex includes 30 multi-storey brick- monolithic buildings, which form an avenue that runs lengthwise with closed courtyards between them. There are also 3 schools, 10 preschools and public recreational space. The northern and southern parts of the complex are home to the Galactica Premium and Galactica Pro business-light properties, which stand out thanks to their apartment layouts and unique building features. In 2020 the Galactica residential complex won an Urban Award for the best integrated development project. The area where the Galactica residential complex is located is flourishing as part of the historic centre redevelopment programme. Thus, the complex combines the advantages of a central location with the diverse social and commercial infrastructure of a residential district. Nearby are preschools, schools, high schools, vocational schools and post-secondary institutions, Lenta and Prisma grocery stores, supermarkets, general stores, sports centres, cafes and restaurants, museums and public gardens. Varshavskiy Ekspress, a large shopping centre with a cinema, a concert venue and a fitness area, is within easy reach of the project. The area has a well-developed network of surface public transport, and there are three metro stations within walking distance: Frunzenskaya, Baltiyskaya and Moskovskie Vorota. The area is conveniently located near important transport routes: Moskovskiy Prospekt, Naberezhnaya Obvodnogo Kanala and Mitrofanievskoye Shosse, as well as an access road onto the Western High-Speed Diameter. The airport can be reached within 20 minutes by car. 1 Colliers International estimate as of 31 December 2020 82 PROJECT PORTFOLIO 83 ANNUAL REPORT 2020 S S A L C S S E N S U B I NET SELLABLE AREA1 329 THS SQM MARKET VALUE1 23,237 MLN RUB SALES REVENUE1 73,177 MLN RUB NAGATINO I-LAND MOSCOW Nagatino i-Land is a multifunctional development project with an NSA of 329 ths sqm on a land plot of more than 14 hectares in the Danilovskiy district, one of the most promising parts of the capital. University Developed in collaboration with the British firm AHR Architects according to the “city within a city” concept, the project combines an existing business cluster with residential and commercial development. Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E Church THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye M o s c o w R iv e r P l a n n e d r o a d w a y M o s c o w R v e r i l P a n n e d r o a d w a y Ulitsa Mustaya Karima Planned roadway Prospekt Andropova Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E University Business Center Church Dubrovka Business Center THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Business Center Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye 11 km 15 minutes to Red Square 7 km 10 minutes to the Garden Ring Museum Museum Museum University Ostankino Park Main Botanical Garden Buildings with heights varying from 5 to 22 storeys will be used to form residential areas with closed courtyards, inside which will be public spaces for recreation, games, socialising and sports. The layouts are diverse and, along with traditional apartment formats, include apartments with separate entrances and patios, as well as penthouses with excellent views and ceilings up to 3.9 metres high. Special attention was paid to the grounds’ landscape design, which included the development of a landscape park, pedestrian boulevards and improvements to the embankment. Malenkovskaya A K A D E M I K A KORO LYOVA S TR E E T A R M T K E P S O R P Losiny Ostrov National Park VDNKh Aqueduct Park Business Center Business Center Sokolniki Park Museum Church Church VDNKh I Alekseevskaya University Moskva-3 T H I R D R I N G R O A D University D H R R T I I Museum University Business Center Business Center Business Center Rizhskaya Nagatino i-Land is being built on the banks of the Moscow River, in an area with established infrastructure. In the immediate vicinity is a modern office cluster and two large shopping centres—Megapolis and Riviera. The Moscow City business centre is only 20 minutes away by car. Located not far from the residential complex are three well-maintained parks—Kolomenskoye, Kozhukhovo National Park and Tyufeleva Roshcha—and the largest amusement part in Russia, Dream Island. Yekaterininskiy Park MSU Botanical Garden Business Center Church A R O N D G With the Tekhnopark and ZIL metro stations located within walking distance, the project offers excellent transport accessibility. There are also convenient access roads onto Prospekt Andropova, Kozhukhov Bridge and the Third Ring Road. Museum Church Marsovo Pole Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest Setun River Valley Nature Park University Business Center Business Center Troyekurovskaya Grove Business Center A M I N Y E V S K O Y E S H O S S E O V A H K O R O A D Lomonosovskiy Prospekt Matveyevskaya University Ramenki Museum Business Center P R O S P E K Business Center Ochakovo Michurinskiy Prospekt 50 Years of October Park Aminyevskaya (under construction) L A R E E N T G Church O S P E K T RIN S KIY P R U H M IC Museum Olympic Village Park University Ozyornaya Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Church Ulitsa 1905 Goda Business Center D A O R G N I R D R I H T Filyovskiy Park Shelepikha Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church Church University Museum University New Holland Island Museum University University Church University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center University Business Center Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University Church Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church 1 Colliers International estimate as of 31 December 2020 84 PROJECT PORTFOLIO 85 ANNUAL REPORT 2020 BUSINESS-CLASS PROJECTS Silver Fountain Wings Petrovskiy Landmark Schastye na Presne p. 86 p. 88 p. 90 p. 92 86 PROJECT PORTFOLIO 87 ANNUAL REPORT 2020 SILVER FOUNTAIN MOSCOW Silver Fountain is Etalon Group’s first green-certified business-class project in Moscow. S S A L C S S E N S U B I NET SELLABLE AREA1 226 THS SQM MARKET VALUE1 17,973 MLN RUB SALES REVENUE1 45,493 MLN RUB The multifunctional residential complex being built in the Alekseevskiy district in the North-Eastern Administrative Division combines architectural traditions with advanced technological solutions and high environmental standards. The project includes a free-standing office building and three rows of residential buildings of different heights, each of which forms an inviting, self-sufficient residential area. Surrounded by an old linden park, the state-of-the-art buildings that make up the complex form an seamless architectural composition with cultural heritage properties. To reduce operating costs, the project uses advanced engineering solutions and elements of a smart home system, including the installation of energy- and water-efficient equipment, as well as an automated water and electricity metering system. Silver Fountain’s high degree of energy efficiency and environmental friendliness have been confirmed by a Green Zoom platinum certificate. Located within a 5–10-minute walk from the Alekseevskaya metro station, next to Prospekt Mira—one of the capital’s main transport arteries—the project offers excellent accessibility for both vehicle and pedestrian traffic. Sokolniki Park, Ekaterininskiy Park, VDNKh, Ostankinskiy Garden and the Botanical Garden are all within walking distance. Tulskaya V A R S H A V S K O Y E S H O S S E Verkhnie Kotly Church A V O P O R D N A T K E P S O R P THIRD RING ROAD Museum Avtozavodskaya University University ZIL Lanscape Park Tekhnopark Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye University University Business Center Church Dubrovka Business Center Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Business Center Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya Museum University 10 km 30 minutes to Red Square Business Center Church 5 km 20 minutes to the Garden Ring Kolomenskoye 1 km 10 minutes to Sokolniki Park Museum Main Botanical Garden Ostankino Park Museum VDNKh A K A D E M I K A KORO LYOVA S TR E E T Museum Church I A R M T K E P S O R P Business Center University Museum Aqueduct Park VDNKh Losiny Ostrov National Park Malenkovskaya University Alekseevskaya Business Center Sokolniki Park Moskva-3 T H I R D R I N G R O A D Rizhskaya University Museum University Yekaterininskiy Park MSU Botanical Garden Church Business Center T H I R D R I N G R O A Business Center D Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest A M I N Y E V S Setun River Valley Nature Park University Church Business Center Business Center Business Center Business Center Troyekurovskaya Grove Business Center R E E N T G P R O S P E K Business Center K O Y E S H O S S E O V A H K O R O A D L A Lomonosovskiy Prospekt Matveyevskaya Aminyevskaya (under construction) University Ramenki Museum Business Center Church Ochakovo Michurinskiy Prospekt 50 Years of October Park O S P E K T RIN S KIY P R U H M IC Museum Olympic Village Park University Ozyornaya Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Shelepikha Filyovskiy Park Business Center D A O R G N I R D R I H T Church Ulitsa 1905 Goda Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church 1 Colliers International estimate as of 31 December 2020 1 According to a valuation as of 31 December 2020. CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya Vasileostrovskaya Church Museum University Museum Museum Museum Church Marsovo Pole Church University Museum University New Holland Island Museum University University Business Center Teatra Yunykh Zriteley Garden Business Center University University Church Tekhnologicheskiy Institut University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Frunzenskaya T K E P S O R Church Church O V S KIY P LIG Moskovskie Vorota M O S K O V S K I Y P R O S P E K T Church Business Center Business Center Business Center Museum 88 PROJECT PORTFOLIO 89 ANNUAL REPORT 2020 WINGS MOSCOW S S A L C S S E N S U B I NET SELLABLE AREA1 184 THS SQM MARKET VALUE1 2,769 MLN RUB SALES REVENUE1 30,947 MLN RUB University University Church Tulskaya Created in collaboration with the British architectural firm Aedas and the Moscow architectural firm ABD architects, the project is located Tulskaya in a prestigious green area of Moscow and successfully combines state-of-the-art technical and architectural solutions and functional public areas with carefully designed layouts. Avtozavodskaya THIRD RING ROAD Tekhnopark V A R S H A V S K O Y E A V O P O R D N A Lanscape Park ZIL University University Museum THIRD RING ROAD Museum University University ZIL Verkhnie Kotly S H O S S E T K E P S O R P Verkhnie Kotly V A R S H A V S K O Y E S H O S S E Avtozavodskaya A V O P O R D N A Business Center Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya Nagatinskaya Business Center Kolomenskaya Business Center Church Dubrovka Business Center 16 km Museum Main Botanical Garden 30 minutes to Red Square Museum Museum University Ostankino Park VDNKh Aqueduct Park 10 km 20 minutes to the Garden Ring VDNKh A K A D E M I K A KORO LYOVA S TR E E T 6 km 10 minutes to Botanical Gardens Losiny Ostrov National Park Malenkovskaya Museum Church Business Center I A R M T K E P S O R P University Alekseevskaya Business Center Sokolniki Park Moskva-3 University Museum Church Kolomenskoye Business Center The residential complex includes three multi-storey residential buildings, an office and shopping centre, a school, a kindergarten, a fitness centre with a swimming pool, and underground parking. Common areas inside the buildings—each individually designed—have no fewer than 10 zones for various functional uses. The main lobby will house a reception area and a lounge area, storage rooms for bicycles and prams, and rooms for washing pets. There are plans to outfit the roofs of the complex with spacious green terraces. Due to the lack of dense development, the apartments in the Wings residential complex will offer beautiful views of Sparrow Hills, Moscow State University, Moscow City and green parkland. Every apartment will be equipped with touchpads for home management. An application will give residents access to various services, including food delivery, dry cleaning and CCTV monitoring of the grounds Business Center University surrounding their building, as well as the ability to pay their utility bills. In addition, residents will be able to take advantage of a unique service offering fresh vegetables— based on the “from garden to plate in one day” principle—thanks to state-of-the-art automated facilities for growing vegetables in urban settings that use the latest lighting, energy-saving, climate control and operating technologies. The project is located in Ramenki, one of the most environmentally friendly and picturesque areas of Moscow—and completely devoid of industrial enterprises. The property offers convenient access to several main transport arteries: the Moscow Ring Road, the Third Ring Road, Michurinskiy Prospekt and Lobachevskogo Street. The Michurinskiy Prospekt metro station is located within a 10-minute walk. Museum Church Kolomenskoye T H I R D R I N G R O A D Rizhskaya University Museum University Yekaterininskiy Park MSU Botanical Garden Church Business Center T H I R D R I N G R O A Business Center D Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church 1 Colliers International estimate as of 31 December 2020 Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Church Ulitsa 1905 Goda Business Center D A O R G N I R D R I H T Filyovskiy Park Shelepikha Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest A M I N Y E V S Setun River Valley Nature Park University Church Business Center Business Center Business Center Business Center Troyekurovskaya Grove Business Center R E E N T G P R O S P E K Business Center K O Y E S H O S S E O V A H K O R O A D L A Lomonosovskiy Prospekt Matveyevskaya Aminyevskaya (under construction) University Ramenki Museum Business Center Church Ochakovo Michurinskiy Prospekt 50 Years of October Park O S P E K T RIN S KIY P R U H M IC Museum Olympic Village Park University Ozyornaya Museum Church Marsovo Pole Church University Museum University New Holland Island Museum University University Church University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center University Business Center Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University Church Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum 90 PROJECT PORTFOLIO Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E PETROVSKIY LANDMARK University Church THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye S S A L C S S E N S U B I ST PETERSBURG The Petrovskiy Landmark business-class residential complex is being built in one of the most interesting and most promising areas of central St Petersburg, on the picturesque shores of Petrovskiy Island. University Tulskaya THIRD RING ROAD Museum University University ZIL Verkhnie Kotly V A R S H A V S K O Y E S H O S S E Business Center Church Dubrovka Business Center 91 Avtozavodskaya A V O P O R D N A Business Center Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center University Business Center NET SELLABLE AREA1 Kolomenskaya Museum 89 THS SQM Kolomenskoye Church Museum Main Botanical Garden Ostankino Park Museum VDNKh A K A D E M I K A KORO LYOVA S TR E E T Museum Church I A R M T K E P S O R P Business Center University Museum Aqueduct Park VDNKh Losiny Ostrov National Park University Alekseevskaya MARKET VALUE1 Business Center T H I R D R I N G R O A D University T Rizhskaya 4,941 MLN RUB Business Center Business Center University Yekaterininskiy Park Museum I I A R R R O D N D H G MSU Botanical Garden Malenkovskaya Church Business Center Sokolniki Park Moskva-3 Business Center SALES REVENUE1 Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest ANNUAL REPORT 2020 Setun River Valley Nature Park A M I N Y E V S K O Y E S H O S S E O V A H K Business Center Business Center Troyekurovskaya Grove Business Center O R O A D L A R E E N T G P R O S P E K University Lomonosovskiy Prospekt Matveyevskaya Aminyevskaya (under construction) University Ramenki Museum Business Center Michurinskiy Prospekt 50 Years of October Park O S P E K T 15,316 MLN RUB Business Center Church Ochakovo RIN S KIY P R U H M IC Museum Olympic Village Park University Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Church Ulitsa 1905 Goda Business Center D A O R G N I R D R I H T Filyovskiy Park Shelepikha Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church Church CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church Ozyornaya Museum Church Marsovo Pole Church University Museum University New Holland Island 30 km 30 minutes to the airport Museum University University Business Center 15 km 7 km 20 minutes to the Lakhta Centre University Church Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University NABEREZHNAYA OBVODNOGO 10 minutes to the Spit of Vasilievskiy Island Baltiyskaya K ANAL A University Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center Church Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum The complex includes three modern residential buildings, each with its own individualised appearance. At the same time, the buildings share European-style brick architecture of the late 19th and early 20th centuries. The project also includes an underground parking garage. For its combination of architectural traditions and new technologies, the project won an award at the third Golden Trezzini Awards for Architecture and Design competition in 2020. Its location near the Malaya Neva is one of the property’s great advantages, and it was used in the project’s design. The complex is home to apartments with oversized windows, panoramic or corner glazing, or floor-to-ceiling windows offering access to open balconies, enclosed balconies with floor-to-ceiling windows or open terraces, or glazed winter gardens. The project is located in one of the most prestigious locations in the central part of St Petersburg, in close proximity to the banks of the Neva River, parks and garden squares. Various recreational areas, including a yacht club, upscale restaurants, Petrovskiy Park and parks on nearby Krestovskiy Island, as well as stadiums and sports facilities, are located nearby. And since the island’s bridges are not raised at night, there won’t be any delays reaching the city’s business centre. Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya 1 Colliers International estimate as of 31 December 2020 92 PROJECT PORTFOLIO 93 ANNUAL REPORT 2020 S S A L C S S E N S U B I NET SELLABLE AREA1 6 THS SQM MARKET VALUE1 66 MLN RUB SALES REVENUE1 1,643 MLN RUB SCHASTYE NA PRESNE MOSCOW Tulskaya Verkhnie Kotly V A R S H A V S K O Y E S H O S S E University THIRD RING ROAD Museum University ZIL Nagatinskaya Business Center University Verkhnie Kotly University Church Tulskaya V A R S H A V S K O Y E S H O S S E THIRD RING ROAD Museum University University ZIL Avtozavodskaya A V O P O R D N A Lanscape Park Tekhnopark T K E P S O R P Nagatinskaya Business Center Kolomenskaya University Museum Business Center Church Kolomenskoye The Schastye na Presne residential complex is located in the pres- tigious Presnenskiy district in the very centre of Moscow, not far from the Moscow International Business Centre (Moscow City). Business Center Museum Main Botanical Garden Church Dubrovka Business Center Avtozavodskaya Ostankino Park Museum VDNKh A K A D E M I K A KORO LYOVA S TR E E T University Museum Aqueduct Park VDNKh Losiny Ostrov National Park Business Center A V O P O R D N A University T K E P S O R P Lanscape Park Tekhnopark This residential complex’s varied-height tower (from 19 to 21 storeys) offers apartments with ceiling heights ranging from 3.6 to 5.1 metres. Panoramic windows will allow residents to enjoy breathtaking views of the Moscow City business centre, the Moscow River Embankment, Krasnogvardeyskie ponds and other attractions in the centre of the capital. Kolomenskaya Museum Church Kolomenskoye The Schastye na Presne residential complex is within a 15-minute walk from the Ulitsa 1905 Goda metro station and near the Business Center I A R M T K E P S O R P Museum Church Business Center Malenkovskaya Third Transport Ring and Zvenigorodskoye Shosse. Just 100 metres from the property is the picturesque and green Krasnogvardeiskiy Bulvar, with its cascade of ponds, behind which are Krasnaya Presnya Park and the Moscow River Embankment. Rizhskaya Alekseevskaya Moskva-3 Business Center Sokolniki Park University T H Church Business Center Business Center T H I R D R I N G R O A D University Museum I R D R I N G R Business Center University Yekaterininskiy Park Shops, two preschools, a sports centre and the Expocentre can be found within walking distance of the complex. MSU Botanical Garden Business Center Church A O D Zenit R E T E M A I D E D E P S - H G I H N R E T S E W Primorskaya CPKiO Park Tikhiy Otdykh Seaside Victory Park Krestovskiy Ostrov K R E S T O V S K I Y A V E N U E Museum Botanicheskiy Garden Church PETROVSKIY AVENUE University Museum Chkalovskaya Business Center Museum University Aleksandrovskiy Garden Sportivnaya Peter and Paul Fortress Vasileostrovskaya Church Museum Museum University Church Museum Business Center Khodynka Field Park Beryozovaya Roscha Park Begovaya Museum Khoroshyovskaya ZVENIGORODSKOYE SHOSSE Shelepikha Filyovskiy Park Business Center D A O R G N I R D R I H T Church Ulitsa 1905 Goda Business Center Business Center Barrikadnaya Museum Business Center Krasnaya Presnya Park Delovoy Tsentr Business Center Business Center Museum Business Center Business Center Museum Victory Park University Church 7 km 12 minutes to Red Square 4 km 9 minutes to the Garden Ring 2 km 5 minutes to Krasnaya Presnya Park Kuntsevskaya Minskaya Victory Park Matveyevskiy Forest A M I N Y E V S Setun River Valley Nature Park University K O Y E S H O S S E O V A H K O R O A D L A Business Center Business Center Troyekurovskaya Grove Business Center R E E N T G P R O S P E K Business Center Lomonosovskiy Prospekt Matveyevskaya Aminyevskaya (under construction) University Ramenki Museum Business Center Church Ochakovo Michurinskiy Prospekt 50 Years of October Park O S P E K T RIN S KIY P R U H M IC Museum Olympic Village Park University Ozyornaya Museum Church Marsovo Pole Church University Museum University New Holland Island Museum University University Business Center Teatra Yunykh Zriteley Garden Tekhnologicheskiy Institut Business Center University University Church University NABEREZHNAYA OBVODNOGO K ANAL A Baltiyskaya Ekateringof Park Museum University Business Center E S S O H S E Y O K S V E I N A F O R T I M Business Center Frunzenskaya T K E P S O R O V S KIY P Church LIG M O S K O V S K I Y Moskovskie Vorota Business Center P R O S P E K T Business Center Museum Church 1 Colliers International estimate as of 31 December 2020 94 PROJECT PORTFOLIO 95 ANNUAL REPORT 2020 COMFORT-CLASS PROJECTS ST PETERSBURG OKHTA HOUSE NET SELLABLE AREA 1 130 THS SQM MARKET VALUE1 5,849 MLN RUB SALES REVENUE1 13,122 MLN RUB ST PETERSBURG The Okhta House project consists of four residential buildings, as well as underground and above-ground parking. The ground floors of the buildings house commercial infrastructure. The residential part was designed in accordance with the Company’s new approach to creating an improved product. Available to buyers is a wide selection of apartments that meet different needs and tastes, including finished apartments. Playgrounds, recreational areas and sports facilities are available on the adjacent grounds. The property is built on a site free of tightly packed buildings, near the Okhta River and numerous parks, such as Polyustrovskiy Park, Ilyinskiy Garden and Armashevskiy Skver Park. Located in such surroundings, Okhta House will enable residents to enjoy countless opportunities Church Polyustrovskiy Park S H O S S E V O K I T E G R E N E Business Center BOLSHAYA PROKHOVSKAYA STREET Business Center T K E P S O R P Georgievskiy Garden Square Church University Business Center Church Armashyovskiy Skver Park Museum I R E V O L U T S I Business Center I N D U S T R I A L N I Y Peredovikov Garden P R O S P E K T Malinovka Park S S A L C T R O F M O C for outdoor activities and walks in the fresh air. Schools, preschools, healthcare facilities, shops, beauty salons and sports centres are all within walking distance. Mitino Emerald Hills Landscape Forest Park Museum M O O O O O S E H K K A Y S S S S E E V L L Church Volokolamskaya University Business Center Opalikha Pavshino Business Center Business Center Penyagino Krasnogorskiy City Park Krasnogorskaya Opalikhovskiy Forest Park The Okhta House residential complex is in the Krasnogvardeiskiy district, which offers excellent transport accessibility. The area has two metro stations and a well-developed road and rail network. The Bolsheokhtinskiy and Nevskiy Bridges provide convenient connections to the city centre. D A O G R W RIN Business Center Lipovaya Roshcha NOVORIZH Arkhangelskoye O C S O M University Museum Church Y I N E S S I L S S E O H S E Y K O S S Y O O K H Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H Piskaryovskiy Park Business Center A D O A R Y A K S V E L E S H U K Lesnaya Museum Business Center A L A B L Y U K H E R A Church University Church Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church Church Butovo Forest Park T E E R T S Y L Y A N O P Ulitsa Skobelevskaya Church Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V HOUSE ON BLYUKHERA Church Georgievskiy Garden Square Polyustrovskiy Park S H O S S E V O K I T E G R E N E Business Center BOLSHAYA PROKHOVSKAYA STREET Business Center T K E P S O R P Church Armashyovskiy Skver Park Museum I R E V O L U T S I Business Center I N D U S T R I A L N I Y Peredovikov Garden P R O S P E K T Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H Piskaryovskiy Park Business Center A D O A R Y A K S V E L E S H U K Lesnaya Museum Business Center A L A B L Y U K H E R A Church Church University Business Center Malinovka Park University Church S S A L C T R O F M O C Church Stroiteley Park 30-letiya Oktyabrya Garden Business Center Museum University Business Center Church O K T Y A B R S K A Y A P R O N S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Museum Obvodniy Kanal Business Center University Olimpiya Garden University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A S L I G O V K S V O N I G R E H C R K I Y P Business Center Moskovskie Vorota Vozdukhoplavatelniy Park Business Center Novaya Derevnya Chyornaya Rechka Lanskaya T E E R T A S Y A K S V O K H Z R O T Pionerskiy Park University University BELOOSTROVSKAYA STREET Business Center Lesnaya University U S H A Stroganovskiy Park KOVSKAYA NABEREZHNAYA Church Tikhiy Otdykh Park Museum Museum University Church Business Center Business Center Church The House on Blyukhera residential complex includes two 17-storey residential buildings connected by a stylobate ground floor. The colour scheme of the facades— with terminal-section projections—gives the project a compact and distinctive appearance. Emerald Hills Landscape Forest Park Volokolamskaya Krasnogorskiy City Park Penyagino Opalikha Business Center Mitino University Museum Church L L V E S S S Y A K K H O O O O O M Business Center Business Center Opalikhovskiy Forest Park Krasnogorskaya S E Pavshino E S S O H Business Center E S K O Y S O K Y E S H O E S S I L S Y I N Church Museum University O C S O M Arkhangelskoye NOVORIZH Lipovaya Roshcha D A O G R W RIN When developing plans for the buildings’ apartments and public spaces, the Company was guided primarily by the desire to create a comfortable living environment for future residents. A wide range of apartments with classic and European layouts, taking into account the latest trends in the housing market, includes living areas with well-designed, functional use of space, large kitchens and living rooms facing scenic streets, and walk-in closets. NET SELLABLE AREA 1 105 THS SQM MARKET VALUE1 26 MLN RUB SALES REVENUE1 8,411 MLN RUB 1 Colliers International estimate as of 31 December 2020 Vagonoremont Park Church Business Center Severnye Dubki Park Beskudnikovo Angarskie Prudy Park 8 0 0 - L E T I Y A M O S K V Y S T R E E T University D M I T R O V S K O Y E S H O S S E University Church Elektrozavodskaya Grachyovskaya N O R T Grachyovskiy Park H - E A S T E X P R E S S W A Y Orlovskiy Garden Church Church Deguninskiy Pond Mosselmash Seligerskaya Svyatoslav Fyodorov Park Business Center The House on Blyukhera residential complex is located in the vicinity of some of the largest parks in St Petersburg: Polyustrovskiy Park, the Forestry Academy Park, the Polytechnic University Park and Sosnovka. The property is located next to the Evropolis shopping centre. Bulvar Dmitriya Donskogo Ulitsa Starokachalovskaya MOSCOW RING ROAD Lesoparkovaya Business Center Business Center Business Center Annino Bitsa Bitsa Park Museum Church Church VILAR Botanical Garden S I M F E R O P O L S K O Y E Butovo Forest Park T E E R T S Y Church O P L Y A N Church S H O S S E Butovo Butovo Forest Park E S S O H S E Y O K S V A H S R A V Ulitsa Skobelevskaya Bulvar Admirala Ushakova Within walking distance of the project are two metro stations: Lesnaya and Ploshchad Muzhestva. Numerous public transport routes pass along Prospekt Marshala Blyukhera and Kushelevskaya Road. The major arterial roads nearby— Kantemirovskaya Street, Prospekt Marshala Blyukhera, Lesnoy Prospekt, Ushakovskaya Naberezhnaya and Vyborgskaya Naberezhnaya—provide easy access for vehicles, and Nevskiy Prospekt can be reached in 15 minutes by car. Church Stroiteley Park 30-letiya Oktyabrya Garden Business Center Museum University Business Center Church O K T Y A B R S K A Y A O N P R S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Museum Obvodniy Kanal Business Center University Olimpiya Garden University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A S L I G O V K S V O N I G R E H C R K I Y P Business Center Moskovskie Vorota Vozdukhoplavatelniy Park Business Center Novaya Derevnya Chyornaya Rechka Lanskaya T E E R T A S Y A K S V O K H Z R O T Pionerskiy Park University University BELOOSTROVSKAYA STREET Business Center Lesnaya University U S H A Stroganovskiy Park KOVSKAYA NABEREZHNAYA Church Tikhiy Otdykh Park Museum Museum University Church Business Center Business Center Church Vagonoremont Park Church Business Center Severnye Dubki Park Beskudnikovo Prudy Park Angarskie 8 0 0 - L E T I Y A M O S K V Y S T R E E T University D M I T R O V S K O Y E S H O S S E Orlovskiy Garden Church Grachyovskaya Church N O R T Grachyovskiy H - E Park A S T E X P R E S S W A Y Deguninskiy Pond Mosselmash Business Center Seligerskaya Svyatoslav Fyodorov Park Medvedkovskiy Park Medvedkovo SHIROKAYA STREET MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Church Gagarinskiy Park Church Los T E E R T S A Y A K S Y E S I N E Y Church Yauza River Park A Y A K S N I N Y A T T E E R T S M A L Y G I N A S T R E E T Business Center Torfyanka Park Babushkinskiy Park Business Center Babushkinskaya Business Center Museum Business Center Business Center Semyonovskaya University University Izmaylovo Partizanskaya S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E N O R T H - E A S T E X P R E S S W A Y Business Center Semyonovskiy Skver Park University Business Center B U D Y O N N O G O P R O S P E K T Museum University Museum University Lefortovskiy Park Business Center Izmailovskiy Park Sokolinaya Gora University Church Elektrozavodskaya Medvedkovskiy Park Medvedkovo SHIROKAYA STREET MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Church Gagarinskiy Park Church Los T E E R T S A Y A K S Y E S I N E Y Church Yauza River Park A Y A K S N I N Y A T T E E R T S M A L Y G I N A S T R E E T Business Center Torfyanka Park Babushkinskiy Park Business Center Babushkinskaya Business Center Museum Business Center Business Center Semyonovskaya University University Izmaylovo Partizanskaya S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E N O R T H - E A S T E X P R E S S W A Y Business Center Semyonovskiy Skver Park University Business Center B U D Y O N N O G O P R O S P E K T Museum University Museum University Lefortovskiy Park Business Center Izmailovskiy Park Sokolinaya Gora 96 PROJECT PORTFOLIO 97 Church University Business Center Malinovka Park ANNUAL REPORT 2020 University Church Armashyovskiy Skver Park Museum I R E V O L U T S I Business Center I N D U S T R I A L N I Y Polyustrovskiy Park S H O S S E Church Business Center Peredovikov Garden P R O S P E K T BOLSHAYA PROKHOVSKAYA STREET Business Center V O K I T E G R E N E T K E P S O R P Georgievskiy Garden Square Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H A L A B Lesnaya A D O A R Y A K S V E L E S H U K L Y U K H E R A Piskaryovskiy Park Business Center Museum Business Center Church Church ST PETERSBURG Church Museum Polyustrovskiy Park ETALON ON THE NEVA BOLSHAYA PROKHOVSKAYA STREET Armashyovskiy Skver Park Peredovikov Garden R E V O L U T S I Business Center Business Center V O K I T E G R E N E Business Center T K E P S O R P S H O S S E Church O N D U N R R K I I I A Y P P S S E T T L I Georgievskiy Garden Square Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H Piskaryovskiy Park Business Center A D O A R Y A K S V E L E S H U K Lesnaya Museum Business Center A L A B L Y U K H E R A Church Church University Business Center Malinovka Park University Church Church Stroiteley Park 30-letiya Oktyabrya Garden Business Center Museum University Business Center Church O K T Y A B R S K A Y A P R O N S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden S S A L C T R O F M O C Museum Obvodniy Kanal Business Center University Olimpiya Garden Baltiyskaya Museum Business Center Business Center Moskovskie Vorota Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A K S V O S L I G O V N I G R E H C R K I Y P Vozdukhoplavatelniy Park University Business Center Borovaya University Church Volkovskaya MOSCOW REGION Business Center T E R T University Novaya Derevnya Lanskaya E EMERALD HILLS BELOOSTROVSKAYA STREET KOVSKAYA NABEREZHNAYA Chyornaya Rechka Pionerskiy Park Stroganovskiy Park Lesnaya Business Center University University University Church A S U H A S O O H R K K A Y S Z V T Tikhiy Otdykh Park Museum Museum Business Center Church Church Business Center Church Opalikha Emerald Hills Landscape Forest Park Mitino Museum V O L O Volokolamskaya Business Center K O L A M S K O Y E Krasnogorskiy City Park Opalikhovskiy Forest Park Business Center S H O S S E University Penyagino Business Center Krasnogorskaya Church Pavshino E S Y O K S Y I N I L E S S O H Business Center NOVORIZH S K O Y Lipovaya Roshcha D A O G R W RIN O C S O M Museum Arkhangelskoye University E S H O S S E Y M O N O C E R E P P U Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church Church Butovo Forest Park T E E R T S Y L Y A N O P Ulitsa Skobelevskaya Church Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V Piskaryovskiy Park 30-letiya Oktyabrya Garden DOMINO Business Center T Y K A O S B R K A Y T E S A P P B R K H E E Z O O A R N B Church Church Stroiteley Park University Olimpiya Garden Emerald Hills Landscape Forest Park Mitino Museum V O L O Volokolamskaya Church Opalikha Business Center K O L A M S K O Y E Krasnogorskiy City Park Opalikhovskiy Forest Park Business Center S H O S S E University Penyagino Business Center Krasnogorskaya Church Pavshino E S Y O K S Y I N I L E S S O H Business Center NOVORIZH S K O Y Lipovaya Roshcha D A O G R W RIN O C S O M E S H O S S E NET SELLABLE AREA 1 77 THS SQM Arkhangelskoye Museum University MARKET VALUE1 3,233 MLN RUB SALES REVENUE1 9,349 MLN RUB ST PETERSBURG Museum Business Center University U K H O V S K O Y N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Vagonoremont Park Church Angarskie Prudy Park 8 0 0 - L E T I Y A M O S K V Y S T R E E T Business Center Severnye Dubki Park Beskudnikovo University D M I T R O V S K O Y E S H O S S E University Orlovskiy Garden Church Seligerskaya Svyatoslav Fyodorov Park Business Center Grachyovskaya N O R T Grachyovskiy Park H - E A S T E X P R E S S W A Y Church Deguninskiy Pond Mosselmash NET SELLABLE AREA 1 39 THS SQM MARKET VALUE1 2,696 MLN RUB SALES REVENUE1 7,199 MLN RUB Church Museum Bitsa Park Bitsa Annino Business Center Business Center Business Center Lesoparkovaya MOSCOW RING ROAD Ulitsa Starokachalovskaya Bulvar Dmitriya Donskogo The Etalon on the Neva residential complex, consisting of 16 variable-height sections, is located in the historic part of St Petersburg’s Nevskiy district. The project combines modern design with a well-crafted living environment, creating a remarkable atmosphere of privacy and comfort. Due to its location along the Neva River, the residential complex offers outstanding views. One feature of the project is the extraordinary apartment layouts: one- and two-level “urban villas” with direct access to adjacent grounds and the Neva Embankment, as well as apartments with large patios. Bulvar Admirala Ushakova Ulitsa Skobelevskaya E S S O H S E Y O K S V A H S R A V VILAR Botanical Garden Butovo Forest Park Butovo Forest Park M F E R O P O L S K O Y E Butovo T E E R T S Y S H O S S E Church Church Church L Y A N S P I O The property is a seven-minute walk from the Elizarovskaya metro station. Cafes and restaurants can be found on Museum Obvodniy Kanal Business Center University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Business Center Moskovskie Vorota Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A K S V O S L I G O V N I G R E H C R K I Y P Vozdukhoplavatelniy Park Church Business Center Severnye Dubki Park Vagonoremont Park the embankment next to the residence. Within walking distance of the complex are preschools, schools, colleges and universities, sports facilities, a swimming pool and an ice rink. The pleasant green courtyards, parks and garden squares surrounding Etalon on the Neva will enable residents to enjoy family walks at any time of the year. The city centre is very close: it takes no more than seven minutes to reach Ploshchad Aleksandra Nevskogo and Nevskiy Prospekt. 8 0 0 - L E T I Y A M O S K V Y S T R E E T Svyatoslav Fyodorov Park Grachyovskaya Beskudnikovo Grachyovskiy Park Mosselmash Seligerskaya Angarskie Prudy Park Orlovskiy Garden Business Center Deguninskiy Pond T R O V S K O Y E University University S H O S S E Church Church M - D T T E E E S S S X P Y A A R R N H O W I Business Center Medvedkovskiy Park MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Medvedkovo SHIROKAYA STREET Church T E E R T S A Y A K S Y E S I N E Y Church Yauza River Park T E E R T S A Y A K S N I N Y A T M A L Y G I N A S T R E E T Church Gagarinskiy Park Church Los Business Center Torfyanka Park Babushkinskaya Babushkinskiy Park Business Center Museum Business Center Business Center Semyonovskaya University Izmaylovo Partizanskaya N O R T H - E A S T E X P R E S S W A Y Izmailovskiy Park Sokolinaya Gora Elektrozavodskaya University Semyonovskiy Skver Park Business Center University Museum S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E Business Center University University B U D Y O N N O G O P R O S P E K T Museum Lefortovskiy Park NET SELLABLE AREA 1 857 THS SQM Business Center MARKET VALUE1 1,519 MLN RUB SALES REVENUE1 60,209 MLN RUB The Emerald Hills residential complex was the Company’s first—and is one of its largest—projects in the Moscow region. It is located just 9 kilometres from the Moscow Ring Road and consists of 20 brick- monolithic buildings, schools, preschools, a clinic for adults and children with an inpatient medical centre, an art school, commercial infrastructure and underground and above-ground parking. Church Museum Polyustrovskiy Park The residential complex is located in one of the most pristine parts of the Moscow region and is surrounded by forested parkland. A part of the forest adjoining the complex has a landscaped park with recreational areas and dedicated paths for pedestrians and cyclists. Some of the apartments offer forest views. In addition, BOLSHAYA PROKHOVSKAYA STREET Georgievskiy Garden Square Armashyovskiy Skver Park Peredovikov Garden R E V O L U T S I Business Center Business Center V O K I T E G R E N E Business Center T K E P S O R P S H O S S E Church Church O N D U N R R K I I I A Y P P S S E T T L I Malinovka Park University Business Center Business Center Novaya Derevnya Chyornaya Rechka Church Tikhiy Otdykh Park Lanskaya E E R T A S Y A University T University K S V O K H Z R O T Pionerskiy Park BELOOSTROVSKAYA STREET Business Center Lesnaya Stroganovskiy Park University U S H A KOVSKAYA NABEREZHNAYA Museum Museum University Church Business Center Business Center Church S S A L C T R O F M O C MOSCOW ETALON CITY Church Opalikha Emerald Hills Landscape Forest Park Mitino Museum V O L O Volokolamskaya Business Center K O L A M S K O Y E Krasnogorskiy City Park Opalikhovskiy Forest Park Business Center S H O S S E University Penyagino Business Center Krasnogorskaya Church Pavshino E S Y O K S Y I N I L E S S O H Business Center NOVORIZH S K O Y Lipovaya Roshcha D A O G R W RIN O C S O M Museum Arkhangelskoye University E S H O S S E most of the grounds of the complex itself is reserved for landscaping and the installation of recreational areas, sports facilities and children’s playgrounds. The project includes an open-air space museum. The proximity of the Volokolamskoye Shosse provides convenient vehicle access to the Moscow Ring Road. Moscow can be reached by surface transport by suburban train from the Opalikha railway station or by the second Moscow Central Diameter rail line. Ploshchad Muzhestva University 30-letiya Oktyabrya Garden Piskaryovskiy Park University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H Business Center A D O A R Y A K S V E L E S H U K Lesnaya Museum Business Center A L A B L Y U K H E R A Church University Church Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church Church Butovo Forest Park T E E R T S Y L Y A N O P Ulitsa Skobelevskaya Church Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V Museum University Business Center Business Center Business Center Izmaylovo Partizanskaya Stroganovskiy Park and Ushakovskaya Naberezhnaya are also located nearby. The project offers excellent transport accessibility: several public transport stops and the Chyornaya Rechka metro station are within a seven-minute walk. The residential complex also offers convenient I Z M A I L O V S K O Y E S H O S S E exits onto Primorskiy Prospekt and the Western High-Speed Diameter, which will allow residents of the property to quickly reach other districts and resort suburbs of St Petersburg. Sokolinaya Gora Elektrozavodskaya Semyonovskaya S H C H E R B A K O V S K AYA Semyonovskiy Skver Park Lefortovskiy Park Izmailovskiy Park Business Center Business Center Business Center E X P R E S S W A Y N O R T H - E A S T University University University University Museum Museum O O O O G U D N N R K B Y P P S E T Church Business Center Dzhamgarovskiy Park SHIROKAYA STREET Medvedkovo Medvedkovskiy Park MOSCOW RING ROAD The Domino comfort-class project on Beloostrovskaya Street in the Primorskiy district of St Petersburg is a 10-storey building with underground and above- ground parking for 219 vehicles. The residential complex offers a wide range of apartments with a variety of floor plans. Most of the apartments are equipped with spacious open or enclosed balconies; apartments with panoramic windows are also available. One of the features of the project will be a closed, pedestrian-only courtyard with a playground for children, sports facilities, a recreation area and an amphitheatre. T E E R T S A Y A K S N I N Y A T T E E R T S A Y A K S Y E S I N E Y Babushkinskaya Babushkinskiy Park Gagarinskiy Park Yauza River Park Torfyanka Park Business Center Business Center Los Church Church Church I L T T E E S Y A A R N G M The Domino residential complex is located in a pleasant area near the Naberezhnaya Chyornoy Rechki. The Saltykovskiy Garden, The Etalon City residential complex is located in an environmentally friendly area with well-developed infrastructure straddling North and South Butovo. Surrounded by forest, the property is adjacent to Butovo Forest Park, the largest park in the Moscow region, with an area of over 1.5 ths hectares. The grounds of Etalon City feature a landscape park and equipped playgrounds and recreational areas; a preschool for 225 children was completed in early 2021, and a school for 625 pupils is being built. The ground floor of the high-rise buildings houses a fitness centre with an area of 10 ths sqm and three swimming pools. The project offers convenient access to the Moscow Ring Road, Kaluzhskoye Shosse and Varshavskoye Shosse, and it is within walking distance of the Ulitsa Skobelevskaya metro station. The project concept features facades with the appearance and atmosphere of world capitals. Each building has a unique facade and interior design reflecting the architecture and views of one of the cities. The facades of the second row of high- rises, known as the Tokyo Towers, are decorated with motifs from one of Japan’s most famous engravings, The Great Wave off Kanagawa. NET SELLABLE AREA 1 366 THS SQM MARKET VALUE1 1,725 MLN RUB SALES REVENUE1 29,203 MLN RUB 1 Colliers International estimate as of 31 December 2020 Church Armashyovskiy Skver Park Museum I R E V O L U T S I Business Center I N D U S T R I A L N I Y Polyustrovskiy Park S H O S S E Church Business Center Peredovikov Garden P R O S P E K T BOLSHAYA PROKHOVSKAYA STREET Business Center Georgievskiy Garden Square V O K I T E G R E N E T K E P S O R P Church University Business Center Malinovka Park Emerald Hills Landscape Forest Park Mitino Church Opalikha Business Center Krasnogorskiy City Park Museum V O L O K O L A M S K Business Center O Y E S H O S S E Opalikhovskiy Forest Park University Penyagino Volokolamskaya Business Center Krasnogorskaya Church Museum Arkhangelskoye Pavshino E S Y O K S Y I N I L E S S O H Business Center D A O G R W RIN O C S O M NOVORIZH Lipovaya Roshcha S K O Y E S H O S S E University Butovo Forest Park O P Church Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H Business Center A D O A R Y A K S V E L E S H U K Lesnaya Museum Business Center A L A B L Y U K H E R A Church University Church Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church Church T E E R T S Y L Y A N Ulitsa Skobelevskaya Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V Church Stroiteley Park 30-letiya Oktyabrya Garden Business Center Museum University Business Center Church O K T Y A B R S K A Y A O N P R S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Museum Obvodniy Kanal Business Center University Olimpiya Garden University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A S L I G O V K S V O N I G R E H C R K I Y P Business Center Moskovskie Vorota Vozdukhoplavatelniy Park Business Center Novaya Derevnya Chyornaya Rechka Lanskaya T E E R T A S Y A K S V O K H Z R O T Pionerskiy Park University University BELOOSTROVSKAYA STREET Business Center Lesnaya University U S H A Stroganovskiy Park KOVSKAYA NABEREZHNAYA Church Tikhiy Otdykh Park Museum Museum University Church Business Center Business Center Church Vagonoremont Park Church Business Center Severnye Dubki Park Beskudnikovo Prudy Park Angarskie 8 0 0 - L E T I Y A M O S K V Y S T R E E T University D M I T R O V S K O Y E S H O S S E Orlovskiy Garden Church Grachyovskaya Church N O R T Grachyovskiy H - E Park A S T E X P R E S S W A Y Deguninskiy Pond Mosselmash Business Center Seligerskaya Svyatoslav Fyodorov Park Medvedkovskiy Park Medvedkovo SHIROKAYA STREET MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Church Gagarinskiy Park Church Los T E E R T S A Y A K S Y E S I N E Y Church Yauza River Park A Y A K S N I N Y A T T E E R T S M A L Y G I N A S T R E E T Business Center Torfyanka Park Babushkinskiy Park Business Center Babushkinskaya Business Center Museum Business Center Business Center Semyonovskaya University University Izmaylovo Partizanskaya S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E N O R T H - E A S T E X P R E S S W A Y Business Center Semyonovskiy Skver Park University Business Center B U D Y O N N O G O P R O S P E K T Museum University Museum University Lefortovskiy Park Business Center Izmailovskiy Park Sokolinaya Gora University Church Elektrozavodskaya Museum Obvodniy Kanal Business Center University Olimpiya Garden University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A S L I G O V K S V O N I G R E H C R K I Y P Business Center Moskovskie Vorota Vozdukhoplavatelniy Park Business Center Novaya Derevnya Chyornaya Rechka Lanskaya T E E R T A S Y A K S V O K H Z R O T Pionerskiy Park University University BELOOSTROVSKAYA STREET Business Center Lesnaya University U S H A Stroganovskiy Park KOVSKAYA NABEREZHNAYA Church Tikhiy Otdykh Park Museum Museum University Church Business Center Business Center Church Medvedkovskiy Park Medvedkovo SHIROKAYA STREET MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Church Gagarinskiy Park Church Los T E E R T S A Y A K S Y E S I N E Y Church Yauza River Park A Y A K S N I N Y A T T E E R T S M A L Y G I N A S T R E E T Business Center Torfyanka Park Babushkinskiy Park Business Center Babushkinskaya Business Center Museum Business Center Business Center Semyonovskaya University University Izmaylovo Partizanskaya S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E N O R T H - E A S T E X P R E S S W A Y Business Center Semyonovskiy Skver Park University Business Center B U D Y O N N O G O P R O S P E K T Museum University Museum University Lefortovskiy Park Business Center Izmailovskiy Park Sokolinaya Gora Church Stroiteley Park Church O K T Y A B R S K A Y A P R O N S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum University Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Vagonoremont Park Church Business Center Severnye Dubki Park Beskudnikovo Angarskie Prudy Park 8 0 0 - L E T I Y A M O S K V Y S T R E E T University D M I T R O V S K O Y E S H O S S E University Church Elektrozavodskaya Grachyovskaya N O R T Grachyovskiy Park H - E A S T E X P R E S S W A Y Orlovskiy Garden Church Church Deguninskiy Pond Mosselmash Seligerskaya Svyatoslav Fyodorov Park Business Center S S A L C T R O F M O C Church Armashyovskiy Skver Park Museum I R E V O L U T S I Business Center I N D U S T R I A L N I Y Polyustrovskiy Park S H O S S E Church Business Center Peredovikov Garden P R O S P E K T BOLSHAYA PROKHOVSKAYA STREET Business Center V O K I T E G R E N E T K E P S O R P Georgievskiy Garden Square Church University Business Center Malinovka Park Ploshchad Muzhestva University University Museum Lesotekhnicheskoy Akademii Park Kushelevka P R O S PEKT M A R S H A L A B Lesnaya A D O A R Y A K S V E L E S H U K L Y U K H E R A Piskaryovskiy Park Business Center Museum Business Center Church PROJECT PORTFOLIO University Church Church Stroiteley Park 30-letiya Oktyabrya Garden Business Center Museum University Business Center Church O K T Y A B R S K A Y A O N P R S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Business Center Museum Zavodskoy Garden Krupskoy Garden Museum Obvodniy Kanal Business Center University Olimpiya Garden Baltiyskaya Museum Business Center Business Center Moskovskie Vorota University Business Center Borovaya University Church Volkovskaya Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A K S V O S L I G O V N I G R E H C R K I Y P Vozdukhoplavatelniy Park 99 98 Business Center Novaya Derevnya Chyornaya Rechka Church Tikhiy Otdykh Park Lanskaya T E E R T A S Y A K S V O K H Z R O T Pionerskiy Park University University BELOOSTROVSKAYA STREET Business Center Lesnaya University U S H A Stroganovskiy Park KOVSKAYA NABEREZHNAYA Museum Museum University Church Business Center Business Center Church ANNUAL REPORT 2020 MOSCOW Emerald Hills Landscape Forest Park Mitino O O V L Church Museum SUMMER GARDEN Opalikhovskiy Forest Park Krasnogorskaya Volokolamskaya Krasnogorskiy City Park Penyagino Business Center Business Center Lipovaya Roshcha Pavshino Opalikha NOVORIZH Business Center University Church Y I N E S I L S L E E S S S S Y K A K K H E S S S O O O Y M O O K H D A O G R W RIN O C S O M Museum Arkhangelskoye University O Y E S H O S S E Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church Business Center Church Butovo Forest Park T E E R T S Y L Y A N O P Ulitsa Skobelevskaya Church Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V ST PETERSBURG Business Center Vagonoremont Park Church Angarskie Prudy Park 8 0 0 - L E T I Y A M O S K V Y S T R E E T Business Center Severnye Dubki Park Beskudnikovo University D M I T R O V S K O Y E S H O S S E University Grachyovskaya N O R T Grachyovskiy Park H - E A S T E X P R E S S W A Y Orlovskiy Garden Church Church Deguninskiy Pond Mosselmash Seligerskaya Svyatoslav Fyodorov Park Business Center S S A L C T R O F M O C Medvedkovskiy Park MOSCOW RING ROAD Business Center Dzhamgarovskiy Park Museum Medvedkovo Polyustrovskiy Park SHIROKAYA STREET S H O S S E Church Church Church T E E R T S A Y A K S Y E S I N E Y M G N A Y L I Yauza River Park T E E R T V S O A K Y I A T K E S G N R I E N N Y A E T BOLSHAYA PROKHOVSKAYA STREET A Business Center S T R E E T Business Center Business Center Georgievskiy Garden Square Church Business Center Babushkinskaya University T K E P S O R P Torfyanka Park Babushkinskiy Park Business Center Armashyovskiy Skver Park Church I R E V O L U T S I Business Center Gagarinskiy Park I N D U S T R I A L N I Y Church Los Peredovikov Garden P R O S P E K T Ploshchad Muzhestva University Church Church Museum Museum University University Business Center Business Center Izmaylovo Business Center University Piskaryovskiy Park Partizanskaya S H C H E R B A K O V S K AYA Semyonovskaya 30-letiya Oktyabrya Garden Elektrozavodskaya Lesotekhnicheskoy Akademii Park PROJECT ON CHERNIGOVSKAYA STREET I Z M A I L O V S K O Y E S H O S S E Sokolinaya Gora Semyonovskiy Skver Park Elizarovskaya Lefortovskiy Park Izmailovskiy Park Zavodskoy Garden Kushelevka Palevskiy Garden University P R O S PEKT M Business Center Business Center Business Center Business Center Business Center Business Center Business Center Business Center Business Center Lesnaya E X P R E S S W A Y N O R T H - E A S T University University University University Museum Museum Museum Museum Museum Church Church A B A R U K A D S H A R S L L E Y A H A K R U H T Y K A O S B O O O O R G U D N N K A R K Y B T V E S S A Y P P P P Y Y S E O B B R K K K R T U H N L N E H E K E Z O O O O O O O V A A E R S A A N B Y Y Malinovka Park Krupskoy Garden Church Stroiteley Park University Olimpiya Garden Museum Obvodniy Kanal Business Center University Business Center Borovaya University Church Volkovskaya Baltiyskaya Museum Business Center Business Center Moskovskie Vorota Frunzenskaya University Business Center M O S K O V S K I Y P R O S P E K T Church O S P E K T T E E R T A S Y A K S V O S L I G O V N I G R E H C R K I Y P Vozdukhoplavatelniy Park Business Center Novaya Derevnya Chyornaya Rechka Church Tikhiy Otdykh Park I T H G L S S E N S U B I Lanskaya E E R T A S Y A University T University K S V O K H Z R O T Pionerskiy Park BELOOSTROVSKAYA STREET Business Center Lesnaya Stroganovskiy Park University U S H A KOVSKAYA NABEREZHNAYA Museum Museum University Church Business Center Business Center Church The Summer Garden residential complex consists of 11 multi-storey residential buildings, a block of non-residential apartments, a school for 800 children, a preschool for 150 children and a three- storey shopping and entertainment centre with a cinema with an area of about 30 ths sqm. State-of-the-art, high-performance technological solutions were used in developing the property. gardens in mind. The complex is designed in accordance with the “city within a city” concept—that is, all of the residential areas have the necessary infrastructure for living, which makes it possible to work, relax and live in one area. Inviting entrance lobbies, designer courtyards and walking areas also create a comfortable living environment. The 38-hectare Angarskiye Prudy Park and an equestrian centre are within a 10-minute walk from the complex. Church Opalikha NET SELLABLE AREA 1 278 THS SQM Church Ploshchad Muzhestva Museum University Museum I R E V O L U T S I Business Center Armashyovskiy Skver Park I N D U S T R I A L N I Y MARKET VALUE1 1,494 MLN RUB Lesotekhnicheskoy Akademii Park Kushelevka Peredovikov Garden P R O S P E K T Lesnaya P R O S PEKT M A R S H University Piskaryovskiy Park Business Center A D O A R Y A K S V E L E S H U K SALES REVENUE1 31,812 MLN RUB Museum Malinovka Park University Church A L A B L Y U K H E R A Church Business Center R P R B S O A K Y T Church Church 30-letiya Oktyabrya Garden The project is divided into residential areas, each of which has its own colour facades. This highlights every square in each residential property and, at the same time, lends the complex as a whole a unique, vivid appearance. The concept for landscaping the adjacent grounds was developed with the idea of different Elizarovskaya Zavodskoy Garden Krupskoy Garden Palevskiy Garden Stroiteley Park Business Center Business Center Business Center Business Center Business Center University Museum K A Y T V E S S A P Y Y B B K K K R U H N N H E E Z O O O O O O O A A R A N B Y Museum Church Polyustrovskiy Park S H O S S E V O K I T E G R E N E Business Center BOLSHAYA PROKHOVSKAYA STREET Business Center T K E P S O R P Georgievskiy Garden Square Church University Business Center Museum Obvodniy Kanal Business Center Church Museum University Olimpiya Garden Polyustrovskiy Park The complex’s convenient location at the intersection of Dmitrovskoye Shosse from the west and 800-letiya Moskvy Street from the south makes it possible to reach any place in the city quickly and easily. V O K Business I T E Center G R E N E Armashyovskiy Skver Park Frunzenskaya Peredovikov Garden Baltiyskaya R E V O L U T S I Borovaya Business Center Business Center Business Center Business Center University University University Museum S H O S S E Church Church O D N U N R R K I I I A Y P P S S E T T L I Business Center University Novaya Derevnya M O BOLSHAYA PROKHOVSKAYA STREET S K O V S K Church Business Center T K E P S O R P T E E R T A S Y A K S V O S L I G O V R K I Y P O S P E K T Volkovskaya Business Center Vozdukhoplavatelniy Park Malinovka Park The residential complex on Chernigovskaya Street, known as the Che Quarter, is being built in a historic part of St Petersburg near the Moscow Gate. On the grounds of the project will be six monolithic buildings of 8–12 storeys, two preschools, above-ground and underground parking, and interactive 8 0 0 - L E T I Y A M O S K V Y S T R E E T areas for recreation, socialising and sports. Vagonoremont Park Beskudnikovo Angarskie Prudy Park Severnye Dubki Park Business Center T R O V S K O Y E University University S H O S S E Church M D I Orlovskiy Garden Church Grachyovskaya Church W O N H R R A A Y P X S S S E E E T T - Museum University Deguninskiy Pond Olimpiya Garden Business Center Business Center Seligerskaya Mosselmash Grachyovskiy Park Svyatoslav Fyodorov Park Obvodniy Kanal The residential complex was conceived as a new-format project combining the best features of classical and modern approaches. The residential area offers a wide selection of apartments with a variety of layouts and areas with high ceilings (up to 3.6 metres on the upper floors), French balconies with glazing to the floor and spacious open-concept kitchen-living rooms. The project won the Premiere of the Frunzenskaya Volkovskaya Baltiyskaya Borovaya Business Center Business Center Business Center Business Center O S P E K T M O S K O V S K University University University P R O S P E K T Museum L I G O V Church Church K I Y P N I G A S Y I R T T V E E E S S Y A R K R C H O Moskovskie Vorota Vozdukhoplavatelniy Park Emerald Hills Landscape Forest Park Mitino Museum V O L O Volokolamskaya Business Center K O L A M S K O Y E Krasnogorskiy City Park Opalikhovskiy Forest Park Business Center S H O S S E University Penyagino Business Center Krasnogorskaya Church Pavshino E S Y O K S Y I N I L E S S O H Business Center NOVORIZH S K O Y Lipovaya Roshcha Museum Arkhangelskoye University E S H O S S E Ploshchad Muzhestva University Lanskaya E E R T A S Y A Pionerskiy Park Museum K S V O K H Z R O T University T Piskaryovskiy Park University Business Center Lesoparkovaya Museum Church Business Center Ulitsa Starokachalovskaya Annino Business Center MOSCOW RING ROAD Bitsa Park Bulvar Dmitriya Donskogo VILAR Botanical Garden Bitsa Business Center Church D A O G R W RIN O C S O M Butovo Forest Park T E E R T S Y L Y A N O P Church Ulitsa Skobelevskaya Bulvar Admirala Ushakova Butovo NET SELLABLE AREA 1 110 THS SQM 30-letiya Oktyabrya Garden S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park Church E S S O H S E Y O K S V A H S R A V Church O K T Y A B R S K A Y A Church Stroiteley Park Chyornaya Rechka Church Tikhiy Otdykh Park Lesotekhnicheskoy Akademii Park Kushelevka BELOOSTROVSKAYA STREET L E K V E S Business Center S H U K P R O S PEKT M Stroganovskiy Park A R S H A D O A R Y A Lesnaya University U S H A Lesnaya KOVSKAYA NABEREZHNAYA Museum A L A B L Y U K H E R A University Church Business Center Business Center Church Church Business Center Church MARKET VALUE1 5,359 MLN RUB Business Center Museum Business Center SALES REVENUE1 18,383 MLN RUB Business Center University Museum P R O N S P E K T O B U K H O V S K O Y A B E R E Z H N A Y A O B O R O N Y Business Center Elizarovskaya Palevskiy Garden Business Center Zavodskoy Garden Krupskoy Garden Museum University Museum Business Center Museum Lesoparkovaya Museum Church Business Center Business Center Business Center MOSCOW Annino Vagonoremont Park Year award for urban residential property at the 2020 Urban Awards in Moscow. M G N R A A Y S E E T T L I Church Church Church Church Los Business Center Dzhamgarovskiy Park SHIROKAYA STREET Yauza River Park Gagarinskiy Park Medvedkovo Medvedkovskiy Park T E E R T S A Y A K S Y E S I N E Y T E E R T S A Y A K S N I N Y A T The Che Quarter offers excellent transport MOSCOW RING ROAD connections thanks to its location in the Moskovskiy district, not far from the centre of St Petersburg. The Moskovskie Vorota metro station is a seven-minute walk away, and the proximity of some of the city’s main thoroughfares—Moskovskiy Prospekt, Ligovskiy Prospekt and Naberezhnaya Obvodngo Kanala—is a great benefit for motorists. The Western High-Speed Diameter can be reached in nine minutes by car; the Ring Road, in 16 minutes; and BELOOSTROVSKAYA STREET Pulkovo Airport, in half an hour. Lanskaya E Chyornaya Rechka Novaya Derevnya Babushkinskaya Babushkinskiy Park Pionerskiy Park Torfyanka Park Business Center Business Center Business Center Lesnaya Business Center University University A S T O O H R K K R A Y S Z E V T T Business Center Museum Business Center Business Center Semyonovskaya University Izmaylovo Partizanskaya Elektrozavodskaya University Semyonovskiy Skver Park Business Center University Lefortovskiy Park Museum Business Center S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E Business Center University University B U D Y O N N O G O P R O S P E K T Museum N O R T H - E A S T E X P R E S S W A Y Izmailovskiy Park Sokolinaya Gora Stroganovskiy Park University U S H A KOVSKAYA NABEREZHNAYA Church Tikhiy Otdykh Park Museum Museum University Church Business Center Business Center Church Business Center Museum Business Center Business Center Semyonovskaya University Izmaylovo Partizanskaya Elektrozavodskaya University Semyonovskiy Skver Park Business Center University Museum Lefortovskiy Park Business Center S H C H E R B A K O V S K AYA I Z M A I L O V S K O Y E S H O S S E Business Center University University B U D Y O N N O G O P R O S P E K T Museum N O R T H - E A S T E X P R E S S W A Y Izmailovskiy Park Sokolinaya Gora S S A L C T R O F M O C Georgievskiy Garden Square Business Center I Y P R O S P E K Church T N I G R E H C Moskovskie Vorota University Medvedkovskiy Park Medvedkovo Church MOSCOW Lesoparkovaya Annino Museum Emerald Hills Landscape Forest Park Mitino Museum V O L O Volokolamskaya Church Opalikha Business Center K O L A M S K O Y E Krasnogorskiy City Park Opalikhovskiy Forest Park Business Center S H O S S E University Penyagino Business Center NORMANDY Bulvar Dmitriya Donskogo Ulitsa Starokachalovskaya MOSCOW RING ROAD Business Center Business Center Business Center Bitsa Bitsa Park Church Church VILAR Botanical Garden Krasnogorskaya Church Pavshino E S Y O K S Y I N I L E S S O H Business Center NOVORIZH S K O Y Lipovaya Roshcha Museum Arkhangelskoye University E S H O S S E D A O G R W RIN O C S O M Church Butovo Forest Park T E E R T S Y L Y A N O P Ulitsa Skobelevskaya Church Bulvar Admirala Ushakova Butovo S I M F E R O P O L S K O Y E S H O S S E Butovo Forest Park E S S O H S E Y O K S V A H S R A V Vagonoremont Park Church Business Center Severnye Dubki Park Beskudnikovo Angarskie Prudy Park 8 0 0 - L E T I Y A M O S K V Y S T R E E T University D M I T R O V S K O Y E S H O S S E Grachyovskaya N O R T Grachyovskiy Park H - E A S T E X P R E S S W A Y Orlovskiy Garden Church Church Deguninskiy Pond Mosselmash Seligerskaya Svyatoslav Fyodorov Park Business Center Emerald Hills Landscape Forest Park MOSCOW RING ROAD Business Center Mitino Museum Dzhamgarovskiy Park Volokolamskaya V O L O SHIROKAYA STREET Business Center K O L A M S K O Y E Krasnogorskiy City Park Church University Opalikha Church Business Center Yauza River Park T E Opalikhovskiy E R Forest T S Park A Y A K S Y E S I N E Y T E E R T S A Y A K S Krasnogorskaya N I N Y A T Church A Pavshino T S R E O S S Church H E S Y E E T O K S Y I N I L S H M O A S L Y S E G I N Penyagino Gagarinskiy Park Business Center Business Los Center Lipovaya Roshcha D A O G R W RIN O C S O M Business Center Torfyanka Park NOVORIZH S K O Y Business Center Babushkinskaya Arkhangelskoye Museum Babushkinskiy Park University E S H O S S E S S A L C T R O F M O C University Business Center Izmaylovo MOSCOW RING ROAD Partizanskaya Bitsa Park Bulvar Dmitriya Donskogo S H C H E R B A K O V S K AYA VILAR Botanical Garden I Z M A I L O V S K O Y E S H O S S E Business Center Ulitsa Starokachalovskaya Semyonovskaya Elektrozavodskaya Butovo Forest Park Business Center T E E R T S Y L Y A N O P University Semyonovskiy Skver Park Ulitsa Skobelevskaya University Church Museum Lefortovskiy Park Bulvar Admirala Ushakova Business Center Church University B U D Y O E S S O H S E Y O K University S V A H S R A V N N O G O P R O S P E K T Museum Butovo Bitsa Church N O R T H - E A S T E X P R E S S W A Y S I M F E R O P O L S K O Y E Izmailovskiy Park S H O S S E Butovo Forest Park Sokolinaya Gora Severnye Dubki Park Church Business Center Business Center SCHASTYE NA SEMYONOVSKOY 8 0 0 - L E T I Y A M O S K V Y S T R E E T T E E R T S A Y A K S N I N Y A T T E E R T S A Y A K S Y E S I N E Y Grachyovskaya Beskudnikovo Medvedkovo Seligerskaya Angarskie Prudy Park Yauza River Park SHIROKAYA STREET Dzhamgarovskiy Park Orlovskiy Garden T R O V S K O Y E University University S H O S S E Church Church Church Church Church Church M D I N L T T E E S Y A A R N G M I Gagarinskiy Park Business Center Torfyanka Park Los Medvedkovskiy Park MOSCOW RING ROAD Business Center O Grachyovskiy Park R T H - E A S T E X P R E S S W A Y Deguninskiy Pond Mosselmash Business Center Svyatoslav Fyodorov Park Business Center Babushkinskaya Babushkinskiy Park University Church distance, including Yauza River Park, Torfyanka Park and Dzhamgarovskiy Park with its cascade of ponds. The property offers convenient transport accessibility, with two metro stations, two suburban train stations and surface public transport stops nearby. The Moscow Ring Road is less than a five-minute drive away, which can then take residents wherever they might want to go in the region. The Normandy residential complex consists of five buildings of 7 to 24 floors with tranquil, unadorned facades and bright architectural accents. The interior is designed and planned down to the last detail in terms of aesthetics and comfort. Convenient pram storage rooms, spacious halls, waiting areas for guests and a concierge area are available for the convenience of residents. The project is conveniently located in a picturesque green area in the north-east of Moscow, near Losiny Ostrov National Park. A low building density, well-developed infrastructure and an abundance of parks make this area of the capital attractive for living and recreation. Several large recreational areas are within walking NET SELLABLE AREA 1 124 THS SQM MARKET VALUE1 3,029 MLN RUB SALES REVENUE1 15,989 MLN RUB The Schastye na Semyonovskoy residential complex will consist of a 13-storey residential building with underground parking and a parking lot for guests. One of the features of the project will be apartments with a variety of floor plans, including highly glazed apartments, as well as apartments with enclosed balconies or French balconies. In addition, the apartments will not have internal load-bearing walls, which will enable future residents to arrange the space however they see fit. The ground floor of the residential complex will house commercial and social infrastructure facilities with a separate entrance, as well as a spacious lobby, a pram storage room and other public spaces necessary for the comfort of residents. On the private landscaped grounds adjacent to the complex, there will be a children’s playground, sports facilities and a softscaped recreational area. The Schastye na Semyonovskoy residential complex is located in a developed green area of Moscow near some of the capital’s largest parks: Sokolniki Park and Izmailovskiy Park. The pleasant Semyonovskiy Park and Public Garden is 250 metres from where the future residential complex will be. Schools, preschools, medical centres, shops, shopping and entertainment centres and sports facilities, including the Krylya Sovetov Stadium, are within walking distance. The property’s proximity to the Semyonovskaya and Elektrozavodskaya metro stations and Izmailovskoye Shosse, as well as convenient exits onto the North-East Expressway and the Third Ring Road, will offer residents excellent transport accessibility. NET SELLABLE AREA 1 6 THS SQM MARKET VALUE1 868 MLN RUB SALES REVENUE1 1,517 MLN RUB 1 Colliers International estimate as of 31 December 2020 100 OPERATING RESULTS 101 ANNUAL REPORT 2020 OPERATING RESULTS 102 Operating results 112 An even more attractive project portfolio 114 Regional sales 26102 OPERATING RESULTS 103 ANNUAL REPORT 2020 OPERATING RESULTS Despite a challenging start to the year, Etalon Group achieved its best-ever operating results, easily exceeding even its most optimistic forecast. NEW CONTRACT SALES BLN RUB in 2020 UP 3 % YEAR-ON-YEAR; 9 % ABOVE TARGET 2018 68.7 2019 77.6 NEW CONTRACT SALES THS SQM in 2020 8 % ABOVE TARGET 2018 2019 628.0 630.4 104 OPERATING RESULTS 105 ANNUAL REPORT 2020 124 149 CASH COLLECTIONS BLN RUB in 2020 UP 5 % YEAR-ON-YEAR 17 % ABOVE TARGET 2018 2019 62.8 77.7 AVERAGE PRICE THS RUB/SQM in 2020 UP 21 % YEAR-ON-YEAR 2018 2019 109 123 106 OPERATING RESULTS 107 ANNUAL REPORT 2020 AVERAGE PRICE (APARTMENTS) THS RUB/SQM in 2020 UP 20 % YEAR-ON-YEAR 2018 124 2019 149 OPERATING RESULTS AT A GLANCE Etalon Group fully achieved its delivery and sales targets, having completed the construction of 540 ths sqm of net sellable area at 12 projects and having sold over 538 ths sqm of NSA in residential properties that have been completed or are still under construction. Record-high new contract sales in monetary terms and cash collections, which amounted to RUB 80 billion and RUB 82 billion, respectively, demonstrate the efficacy of the Company’s pricing policy and sales strategy, which focuses on monetary value as opposed to volume, while also bolstering the Company’s financial performance. Cash collections of RUB 22.9 billion held in escrow accounts during the year enabled us to benefit from a reduced financing rate of less than 3.5 % for projects that we are building, in accordance with the new regulations—and almost as low as 0 % for some projects. At the same time, cash collections in escrow still only make up 28 % of the total. We can use the remaining 72 %—an excellent basis for our operating cash flow—for work on ongoing projects. ROUBLE- DENOMINATED GROWTH DRIVEN BY PRICING POLICY AND NEW SALES STRATEGY In response to new industry regulations last year, we changed our pricing policy by increasing the price per sqm for projects that were being built according to the old rules. In addition, as part of the new strategy introduced in the reporting year, the Company deployed a dynamic pricing system that made it possible to respond more quickly and more flexibly to changes in demand and to increase the profitability of property sales across Etalon Group as a whole. The new approach to pricing drove up the price per sqm and resulted in sales in rouble terms performing better than sales in volume terms. The average price per sqm for all types of properties increased by 25 % over the year and reached RUB 158 thousand in 4Q, up from RUB 127 thousand a year earlier. The cost of apartments increased by 23 % to RUB 192 thousand; in St Petersburg, dynamic pricing increased the price per sqm for apartments in comparable projects by even more—25 %. AVERAGE PRICE PER SQM IN 2019 AVERAGE PRICE PER SQM IN 2020 127 THS RUB IN 4Q 158 THS RUB IN 4Q INCREASE IN AVERAGE PRICE OVER THE YEAR 25 % 108 OPERATING RESULTS 109 ANNUAL REPORT 2020 IN 2020, AVERAGE PRICE PER SQM FOR ALL TYPES OF REAL ESTATE ROSE BY % 25 year-on-year In 2020, average price per sqm for all types of real estate rose by 25% year-on-year, while for apartments the average price per sqm increased by 23% year-on-year. Although our St Petersburg portfolio saw prices rise quarter-on-quarter throughout the year, overall performance was impacted by the strict lockdown measures introduced in the second quarter of 2020, especially in Moscow. Prices recovered quickly in the third quarter, however, and the average price per sqm for apartment prices grew in both quarters during the second half of the year. RECORD DOWN PAYMENTS DRIVE INCREASED CASH FLOW AVERAGE PRICE, THS RUB/sqm 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 159.4 +25 % 158.4 127.1 142.4 122.0 AVERAGE PRICE (APARTMENTS), THS RUB/sqm 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 207.9 165.5 196.4 156.3 130.6 131.6 199.1 159.1 135.5 214.5 186.3 149.2 221.1 +13 % 191.9 +23 % 162.7 +25 % The average down payment remained high, at 92 –93 %, over the last two quarters, up from 83 % in 4Q 2019. Supporting factors were the investment demand for real estate, a state-backed mortgage support programme and, of course, the considerable share of business-class projects that we offer (these apartments are usually paid for in full upon purchase). Amid an unprecedented decline in interest rates, mortgage sales increased throughout the year, reaching a record 65 % of all home purchases in the fourth quarter. With the extension of the preferential mortgage programme until July 2021, we have reason to expect a further expansion of mortgage sales this year. At the same time, we do not see any reason to expect a significant decrease in demand for mortgages in the mid-market segment even once the programme is phased out, since the Bank of Russia’s key rate is still at a historically low level, which will keep mortgage rates at a comfortable level for our target audience. AVERAGE DOWN PAYMENT 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 92 % 93 % 83 % 85 % 86 % SHARE OF MORTGAGE CONTRACTS 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 63 % 44 % 64 % 65 % 47 % 44% 52 % 35 % 52 % 36 % Сombined St Petersburg Moscow All property types Housing 110 OPERATING RESULTS 111 ANNUAL REPORT 2020 4Q 2020: MARKET RECOVERY AND A RAPID IMPROVEMENT IN PERFORMANCE Despite the decrease in sales in the first half of the year due to the spread of COVID-19, the market quickly recovered in the second half of 2020. We also saw by the end of 2020 the first results from the introduction of new technologies and approaches to product creation established by Etalon Group’s new strategy. The last quarter of the year, which was the best in the Company’s history in terms of the value of new contract sales and cash collections, made a major contribution to results for the full year. We sold 167 ths sqm at a cost of RUB 26.4 billion. Cash collections from sales of RUB 29.2 billion represented 36 % of the annual volume and were up by 55 % year-on-year. QUARTERLY OPERATING RESULTS: 4Q 2020 3Q 2020 2Q 2020 1Q 2020 4Q 2019 CHANGE YEAR-ON-YEAR IN 4Q 2020, % New sales, sqm 166,788 150,451 94,984 125,971 171,530 New sales, RUB mln 26,418 23,983 11,585 17,936 21,795 Number of contracts 3,137 2,706 1,559 2,323 2,931 Cash collections, RUB mln 29,203 21,235 13,942 17,604 18,791 Average price, RUB/sqm 158,392 159,405 121,971 142,384 127,060 Average price (apartments), RUB/sqm 191,853 186,327 159,063 165,481 156,271 Deliveries, sqm 347,396 15,570 88,847 88,513 308,294 -3 % 21 % 7 % 55 % 25 % 23 % 13 % OPERATING RESULTS BY REGION Sales in the Moscow region were a major contributor to quarterly results, with strong double-digit gains in all operating indicators. In 4Q 2020, sales growth in St Petersburg was constrained by limited supply; nevertheless, even with lower sales volumes in sqm terms from a year earlier, sales were comparable in monetary terms, and cash collections increased by 21 %. A considerable improvement in nearly every indicator in 4Q helped offset the decline in sales seen at the beginning of the year amid uncertainty and restrictions related to the spread of COVID-19. In St Petersburg, despite the limited supply of new projects, sales in monetary terms were just 4% lower than the year before, while increasing by 8 % year-on-year in Moscow. Cash collections in both regions were up from the previous year. REGIONAL DYNAMICS: MOSCOW AND MOSCOW REGION New sales, sqm New sales, RUB mln Number of contracts Cash collections, RUB mln Average price, RUB/sqm Average price (apartments), RUB/sqm Deliveries, sqm ST PETERSBURG New sales, sqm New sales, RUB mln Number of contracts Cash collections, RUB mln Average price, RUB/sqm Average price (apartments), RUB/sqm Deliveries, sqm 4Q 2020 4Q 2019 CHANGE, % 86,470 15,315 1,715 18,436 177,110 221,118 70,084 10,651 1,167 9,888 151,971 196,420 23 % 44 % 47 % 86 % 17 % 13 % 73,967 102,482 -28 % 80,318 11,103 1,422 10,767 138,241 162,723 273,429 101,445 11,144 1,764 8,903 109,850 130,579 205,812 -21 % 0 % -19 % 21 % 26 % 25 % 33 % NEW CONTRACT SALES, BLN RUB CASH COLLECTIONS, BLN RUB Moscow St Petersburg Moscow St Petersburg +8 % 46.7 43.2 -4 % 33.2 34.4 +7 % 48.7 45.7 +4 % 33.3 32.1 2019 2020 2019 2020 2019 2020 2019 2020 112 OPERATING RESULTS 113 ANNUAL REPORT 2020 AN EVEN MORE ATTRACTIVE PROJECT PORTFOLIO An important component of the Company’s success in the reporting year was its project portfolio, which is well balanced by region and housing class. The share of business-class projects for the year increased from 18 to 30 % by volume and from 31 to 45 % in monetary terms. Despite the steady demand for our comprehensive development projects, such as Galactica, which brought in 17.4 % of annual sales in volume terms, we have noticed the increasing popularity of projects in the higher-class segment. For example, our Wings project generated over 9 % of sales for the year, and 74 % of the property’s apartments had been sold by the end of 2020. The Silver Fountain project is also in great demand, accounting for 8 % of sales for the year. SALES IN 20201 sqm SALES IN 20192 sqm 9 % 9 % 8 % 8 % 5 % 5 % 4 % 1 % 1 % 1 % 1 % 2 % 2 % 2 % 4 % 5 % 6 % 8 % 17 % 11 % 8 % 7 % 6 % 5 % 5 % 4 % 1 % 1 % 1 % 2 % 2 % 2 % 2 % 2 % 3 % 3 % 4 % 6 % 11 % 16 % w o c s o M — s t c e o r p r e h t O j s g n W i s l l i l H d a r e m E i n a t n u o F r e v l i S n e d r a G r e m m u S d n a L - i o n i t a g a N y d n a m r o N y t i C n o a t E l k r a m d n a L i y k s v o r t e P l a r e h k u y B n o e s u o H i o n m o D i a c n a t o B e t a t s E e e l i b u J v o t v a n o m s o K n o e s u o H a v e N e h t n o n o a t E l i t e e r t S a y a k s v o g n r e h C n o t c e o r P j g r u b s r e t e P t j S — s t c e o r p r e h t O e s u o H a t h k O a c i t c a a G l j s t c e o r p t s e v n I - r e d a e L r e h t O s l l i l H d a r e m E n e d r a G r e m m u S i n a t n u o F r e v l i S s g n W i y d n a m r o N y t i C n o a t E l e k d a r g o g o V a n l e y t s a h c S e n s e r P a n e y t s a h c S d n a L - i o n i t a g a N t e e r t S a y a k s v o g o n r e h C n o t c e o r P j k r a m d n a L i y k s v o r t e P l a t i p a C s ’ r a s T s e t a G w o c s o M e s u o H a t h k O i a c n a t o B a v e N e h t n o n o a t E l y t e v s t o m a S l a r e h k u y B n o e s u o H g r u b s r e t e P t j S — s t c e o r p r e h t O a c i t c a a G l TOTAL SHARE OF CONTRACTS TOTAL SHARE OF CONTRACTS TOTAL SHARE OF CONTRACTS TOTAL SHARE OF CONTRACTS 51 % IN MOSCOW 49 %IN ST PETERSBURG 48 % IN MOSCOW 52 %IN ST PETERSBURG 1 Percentages may not add up due to rounding 2 Percentages may not add up due to rounding 114 OPERATING RESULTS 115 ANNUAL REPORT 2020 SHARE OF PURCHASES BY REGIONAL BUYERS, BY CORE GEOGRAPHIES Regional buyers accounted for 32.5 % of all transactions in 2020 St Petersburg 19.2 % Moscow 13.3 % REGIONAL SALES Etalon Group’s residential complexes are of interest not only to residents of Moscow and St Petersburg but also to regional buyers planning to move to Russia’s two biggest cities. Our regional network covering 59 cities throughout Russia has always played a role in building sustainable sales growth, and it became a competitive advantage during the first wave of COVID-19. When our sales offices were closed and we were adapting to a new, remote form of interaction with clients, our regional network helped us support property sales by selling apartments to buyers in regions where severe restrictions had not been introduced. In 2020, about 33 % of all sales transactions were concluded through the regional network. ETALON GROUP’S REGIONAL SALES GEOGRAPHY1 REGION SHARE OF TOTAL CONTRACTS Leningrad region Yamalo-Nenets AD Khanty-Mansi AD Krasnoyarsk Krai Murmansk region Khabarovsk Krai Krasnodar Krai Sakha Arkhangelsk region OTHER RUSSIAN REGIONS FOREIGNERS TOTAL 2.8 % 1.6 % 1.4 % 1.2 % 1.0 % 0.9 % 0.9 % 0.7 % 0.7 % 20.5 % 0.7 % 32.5 % OUTLOOK We expect that further adherence to the strategic course introduced by Etalon Group in November 2020 and the launch of new projects, in which we have fully incorporated our strategic approach to creating modern, technology-driven space, will strengthen our position and contribute to a further expansion of our business. A steady increase in sales even under the challenging conditions we faced in 2020 gives us reason to believe that Etalon Group will continue its strong performance in 2021. At the same time, higher real estate prices give us confidence in the fact that the course we have chosen to increase the profitability of our business will not only continue but will even see a slight uptick relative to earlier reporting periods. 1 Company data for FY 2020 116 116 FINANCIAL RESULTS FINANCIAL RESULTS 117 117 ANNUAL REPORT 2020 ANNUAL REPORT 2020 FINANCIAL RESULTS 26118 FINANCIAL RESULTS 119 ANNUAL REPORT 2020 Etalon Group has strengthened its financial position substantially due to its ongoing implementation of strategic initiatives and its balanced pricing policy. The Company has achieved significant growth across almost all of its key financial metrics. 78.7 BLN RUB ETALON GROUP 2020 REVENUE 25.8 +13 % YEAR-ON-YEAR BLN RUB PRE-PPA (PURCHASE PRICE ALLOCATION) GROSS PROFIT 33 % +6 P.P. YEAR-ON-YEAR PRE-PPA GROSS MARGIN +47 % YEAR-ON-YEAR 16.5 BLN RUB PRE-PPA EBITDA 21% +8 P.P. YEAR-ON-YEAR PRE-PPA EBITDA MARGIN P&L STATEMENT The Company achieved record gross profit of RUB 22 billion for 2020, up 9 % year-on- year; this was despite revenue dropping slightly due to construction restrictions in Moscow and the Moscow region in the first half of the year due to COVID-19. Pre-PPA gross profit increased by 13 % year-on-year in 2020 to RUB 25.8 billion. Meanwhile, the gross margin expanded by 6 p.p. to 33 %, approaching the 35 % target in Etalon Group’s development strategy through 2024. PRE-PPA1 CONSOLIDATED GROSS PROFIT, MLN RUB CONSOLIDATED GROSS PROFIT, MLN RUB 22,735 25,796 20,057 21,915 +13 % +6 p.p. +9 % +4 p.p. 27% 33% 24% 28% 2019 2020 2019 2020 Pre-PPA gross profit Pre-PPA gross profit margin Gross profit Gross profit margin In its main residential development segment, the Company offset much of the revenue decrease that occurred in the first half of the year due to temporary construction restrictions in Moscow. Etalon Group’s residential development revenue for the 12 months of 2020 fell by just 4 % year-on-year to RUB 70.5 billion, while gross profit increased by 7 % to RUB 21.1 billion. The segment’s pre-PPA gross profit rose 11 % year-on-year to RUB 25 billion with a 35 % margin. PRE-PPA1 RESIDENTIAL DEVELOPMENT GROSS PROFIT, MLN RUB RESIDENTIAL DEVELOPMENT GROSS PROFIT, MLN RUB 22,420 24,987 19,742 21,127 +11 % +5 p.p. +7 % +3 p.p. 1.2x VERSUS 1.9Х FOR 2019 NET CORPORATE DEBT / PRE-PPA EBITDA 19.6 -9 % YEAR-ON-YEAR BLN RUB NET CORPORATE DEBT as of 31 December 2020 The pre-PPA gross margin widened to 33 %, close to the 35 % target in Etalon Group’s strategy. The pre-PPA margin for the residential real estate development segment was 35 %. 31 % 35% 27 % 30 % 2019 2020 2019 2020 Pre-PPA gross profit Pre-PPA gross profit margin Gross profit Gross profit margin 1 Purchase price allocation capitalised in cost of sales 120 FINANCIAL RESULTS 121 ANNUAL REPORT 2020 One of the Company’s key priorities remains further optimising commercial and administrative expenses, which fell by 19 % in absolute terms in 2020 and totalled 12 % of revenue versus 14 % in 2019. Meanwhile, selling expenses decreased by 5 % in absolute terms despite sales growing by 3 % year-on-year. Pre-PPA net income nearly doubled year-on-year to RUB 5.9 billion. Net income was RUB 2,036 million versus RUB 186 million for 2019, while pre-PPA net income grew an impressive 89 % from RUB 3,110 million for 2019 to RUB 5,875 million for 2020. GENERAL AND ADMINISTRATIVE EXPENSES, MLN RUB SELLING EXPENSES, MLN RUB 6,992 7,280 5,235 3,318 4,822 4,560 -28 % -5 % -2 p.p. 10 % 9% 7% 5 % 6% 6% 2018 2019 2020 2018 2019 2020 G&A G&A as % of revenue Selling expenses Selling expenses as % of revenue The cost reduction in turn led Pre-PPA EBITDA to increase by 47 % to RUB 16.5 billion. The Pre-PPA EBITDA margin widened by 8 p.p. to 21 %. EBITDA increased by 48 % year-on-year to RUB 12.6 billion, while the EBITDA margin expanded by 6 p.p. PRE-PPA1 EBITDA, MLN RUB EBITDA, MLN RUB 11,175 16,482 8,497 12,601 +47 % +8 p.p. +48 % +6 p.p. 13 % 21% 10 % 16 % 2019 2020 2019 2020 Pre-PPA EBITDA Pre-PPA EBITDA margin EBITDA EBITDA margin 1 Purchase price allocation capitalised in cost of sales PRE-PPA1 NET INCOME, MLN RUB NET INCOME, MLN RUB 3,110 5,875 186 2,036 +89 % +4 p.p. 7 % 4 % 20192 2020 0 % 2019 3 % 2020 Pre-PPA net income Pre-PPA net income margin Net income Net income margin Strong sales figures enabled Etalon Group to accelerate its cash-flow generation. Even excluding funds in escrow accounts, the Company generated a positive operating cash flow less interest paid of RUB 3.9 billion. Meanwhile, operating cash flow before interest payments adjusted for funds arriving in the escrow account for 2020 almost doubled, reaching a record RUB 26.8 billion. Net cash flow adjusted for proceeds deposited in escrow returned to positive territory, totalling RUB 22.3 billion. The balance of funds in escrow accounts as of 31 December 2020 was RUB 23.6 billion, while cash collection on escrow for 2020 came to RUB 22.9 billion. After the transition period ends and escrow accounts begin to open, the Company is set to return to generating robust positive operating and free cash flows. OPERATING CASH FLOW, MLN RUB FREE CASH FLOW, MLN RUB 14,028 26,768 (15,932) 22,292 +91% 22,880 22,880 CASH FLOWS 26.8 BLN RUB CASH FLOWS ADJUSTED FOR CASH COLLECTION IN ESCROW ACCOUNTS 692 692 (588) 13,336 3,906 (16,624) 2019 2020 2019 2020 FY cash collections in escrow accounts FY cash collections in escrow accounts Operating cash flow (OCF) less interest paid Free cash flow (FCF)3 1 Purchase price allocation 2 Pre-PPA net income for FY 2019 adjusted for gain from Leader-Invest bargain purchase, one-off acquisition and integration expenses 3 Free cash flow is calculated as profit for the year adjusted for depreciation, share-based payments, impairments, interest, taxation, change in working capital, and change in invested capital 122 FINANCIAL RESULTS 123 ANNUAL REPORT 2020 BALANCE SHEET The Company had strengthened its financial position by the end of 2020. Gross debt was down to RUB 50.5 billion, while cash and equivalents, including funds in escrow accounts, increased by 55 % to RUB 49.5 billion. Net corporate debt fell by 9 % to RUB 19.6 billion. The Net corporate debt / pre-PPA EBITDA ratio was just 1.2x. Taking into account funds held on escrow, our net debt today would stand at just RUB 1 billion, one of its lowest levels in recent years. CASH AND EQUIVALENTS increased by 55 % in 2020 TO 49.5 BLN RUB TOTAL DEBT, BLN RUB CASH AND CASH EQUIVALENTS, BLN RUB 52.7 50.5 31.9 49.5 -4% 52.7 5.0 45.5 +55% 23.6 0.7 31.2 25.9 31.12.2019 31.12.2020 31.12.2019 31.12.2020 Project debt Corporate debt Cash in escrow accounts Cash and cash equivalents1 NET DEBT (CASH), BLN RUB 1.9x 21.5 1.2x 19.6 (0.7) 4.7x (18.6) 31.12.2019 31.12.2020 L E V E L E T A R O P R O C L E V E L T C E J O R P Net project debt (cash)2 Net corporate debt to pre-PPA LTM EBITDA Net corporate debt Coverage ratio for project finance debt Our debt obligations are still entirely rouble-denominated. A decrease in financing costs on floating-rate loans and the refinancing of existing loans caused the average rate for our loan portfolio to drop from 9.4 % at the end of 2019 and to 8.3 % as of 31 December 2020. This leaves Etalon Group in good standing to achieve its strategic goals and pay dividends. 1 Including bank deposits over 3 months; excluding cash collections in escrow accounts 2 Project finance debt less cash in escrow accounts 124 SUSTAINABILITY 125 ANNUAL REPORT 2020 SUSTAINABILITY 126 Introduction 128 Material issues covered in the report 129 Sustainability management 130 Sustainable development goals and accomplishments in 2020 132 Key highlights and achievements in 2020 134 Stakeholder engagement 138 Occupational health and safety 146 Environment 154 Employees 164 Customers 168 Social responsibility 174 Innovation 180 Business conduct 184 Risk management framework and key risk management functions 194 GRI standards 126 SUSTAINABILITY 127 ANNUAL REPORT 2020 INTRODUCTION One of the most important benchmarks for Etalon Group is the sustainability of its business. The Company seeks to proactively integrate ESG principles throughout its entire production cycle, striving to reduce its negative impact on the environment, to contribute to the development of the regions where it operates and to promote the principles of fair competition and social responsibility. Within Etalon Group, we pay special attention to maintaining and improving our high standards of corporate culture, safety, environmental friendliness and information disclosure. UN SUSTAINABLE DEVELOPMENT GOALS When making disclosures, we continue to be guided by the UN Sustainable Development Goals to 2030. The UN agenda and global goals serve as an additional tool to ensure that Etalon Group’s business strategy is in line with the long-term development trajectory in the regions where the Company operates and also with the values of society. They also help the Company improve its business processes and innovate in areas where such changes are timely and important for the sustainability of businesses and local communities. Of the 17 UN Sustainable Development Goals, we have chosen six key goals related to our operations. We believe that the nature of our business and our capabilities enable us to have the greatest impact in these areas and to make a major contribution to achieving the Sustainable Development Goals. The goals that we focus on may change as we refine our strategy in the area of corporate and social responsibility and as specific measurable targets are established. ETALON GROUP’S KEY SUSTAINABLE DEVELOPMENT GOALS UNDER OUR CURRENT STRATEGY ARE: REPORTING PRINCIPLES AND FRAMEWORK DISCLOSURE STANDARDS For 2020, the Company is once again publishing a report on its sustainability performance as part of its integrated annual report. The report examines our performance in our two key geographies: St Petersburg and the Moscow Metropolitan Area1. The financial indicators included in the report are sourced from the financial statements of Etalon Group or its subsidiaries. Information regarding Etalon Group’s employees is based on the Company’s internal records. Statistics on Occupational health and safety, environmental protection, as well as other non-financial information, are based on the Company’s own data or those submitted by its subcontractors. Our assessments and forward-looking statements are mainly based on our current expectations, estimates of future events and trends that affect the activities of Etalon Group or that may affect them in the future. These forecasts may not take into account certain risk factors that could have a serious impact on the implementation of the strategy and results of Etalon Group, such as macroeconomic changes. When making disclosures, we are guided by individual GRI standards (GRI Standards 2016, Water 2018, Occupational health and safety 2018, Waste Management 2020). From year to year, we aim to improve our transparency and increase the volume of information disclosed. In the reporting year, for example, we expanded the disclosure of information related to corporate governance: the number of meetings of the Board of Directors, issues addressed by the Board of Directors and information on gender and ethnic equality. As part of the implementation of our strategy, we are now introducing a number of new housebuilding technologies and improving business processes to further improve resource efficiency and reduce our environmental impact, which is also reflected in this report. For more information, references to disclosure standards are provided in the index at the end of the “Sustainability” section. 1 Moscow and the Moscow region within 30 km of the Moscow Ring Road 128 SUSTAINABILITY 129 ANNUAL REPORT 2020 MATERIAL ISSUES COVERED IN THE REPORT SUSTAINABILITY MANAGEMENT When choosing topics and indicators for the report, we were guided by their importance for Etalon Group’s business as well as the availability of information. 1 STAKEHOLDER ENGAGEMENT Ongoing stakeholder engagement is an important part of the value chain. Honest dialogue and being attentive to the needs of all stakeholder groups enables Etalon Group to improve its business processes and to inform stakeholders about the Company’s activities, priorities and implementation of strategic initiatives. (p. 134) 2 IMPACT ON COMMUNITY DEVELOPMENT The Company contributes to the development of the regions where it operates by building social infrastructure, rebuilding and preserving historical and cultural heritage sites, promoting healthy lifestyles, supporting charitable initiatives and carrying out awareness-raising initiatives. In addition, Etalon Group strives to support economic growth in the cities where it operates by creating jobs, conducting joint training and development programmes for young professionals, maintaining a culture of fair competition and preventing fraud. (p. 168, 180) 3 ENVIRONMENTAL PROTECTION 4 OCCUPATIONAL HEALTH AND SAFETY 5 INNOVATION Etalon Group, independently or in partnership with other companies, adapts and implements new housing construction technologies, and also develops and improves digital technologies for design and oversight of construction projects. These initiatives are aimed not only at the sustainability of the Company’s business but also at the promotion of best practices throughout the industry (for more details, see p. 174). The Company’s responsible approach to reducing its impact on the environment can be seen in its use of comprehensive environmental monitoring measures and in its search for and use of safe resources and technologies that minimise its negative impact on the environment not only at the construction stage but also during the operation of its properties (for more details, see p. 146). Due to the nature of the industry and the scale of its business, Etalon Group pays a great deal of attention to issues related to protecting the lives and the health of the employees at its construction sites. To ensure a safe working environment, the Company takes number of measures, including the use and improvement of BIM-based monitoring and accident prevention systems (for more details, see p. 138). 6 EMPLOYEE DEVELOPMENT AND TRAINING 7 EQUAL OPPORTUNITIES FOR ALL One of the components of the Company’s sustainable development is a balanced strategy in the area of personnel management. Etalon Group implements programmes aimed at creating a talent pool and recruiting and retaining talented employees, including through collaboration with universities, education programmes for staff, monetary and non-monetary incentive systems and the creation of comfortable conditions for professional growth (for more details, see p. 154). Equal opportunities for employees regardless of their gender, age or cultural/ethnic background allow all employees to realise their potential and enable the Company to create a strong professional team. At Etalon Group, opportunities for development are open equally to men and women, and the Company’s attention to a reasonable work-life balance enables employees to successfully combine their work and family responsibilities (for more details, see p. 162). Etalon Group’s sustainability management system is based on adherence to high standards of corporate governance, environmental protection and the prioritisation of the long-term development goals of our business and society. The Company supports the UN Sustainable Development Goals, although it is not yet a member of the UN Global Compact, and it adheres to the principles enshrined in the Universal Declaration of Human Rights, a policy aimed at preventing any form of discrimination, fraud and violations of the rules of fair competition. procurement specialists. OHS issues fall under the purview of the relevant services and individual specialists at the level of the management company, regional offices and individual subsidiaries. Compliance with environmental requirements is monitored by environmental specialists within the property development department in Group companies. Internal oversight and security services monitor compliance with anti-corruption laws and internal corporate ethics and anti-fraud policies. In addition, Etalon Group operates a single hotline on corruption, fraud and violations of corporate ethics, which serves as an additional tool for monitoring and compliance with legal requirements and internal corporate policies. More detailed information on the management system for specific issues under the ESG agenda is available in the corresponding sections of this report. The principles of sustainability management are reflected in the following Company standards and policies: • Etalon Group Code of Corporate Ethics • Regulation on Conducting Tenders within Etalon Group • Etalon Group Occupational Health and Safety Policy • Policy on Remuneration of Members of the Board of Directors of Etalon Group PLC • Regulation on Etalon Group PLC Committees (being updated) • Etalon Group PLC Management Policy (being updated) • Regulation on the Corporate Secretary of Etalon Group PLC • Relationship Agreement with PJSFC Sistema Strategic issues related to sustainable development come under the purview of Etalon Group’s Board of Directors. Operational management of the Company as a whole, including in this area, is the responsibility of the CEO and his deputies in the relevant areas of business development. In individual subsidiaries, the implementation of policies and processes related to corporate social responsibility fall under the purview of the responsible departments. For example, procurement and oversight of compliance with the tender policy fall under the purview of the tender department, tender committees and 130 SUSTAINABILITY 131 ANNUAL REPORT 2020 SUSTAINABLE DEVELOPMENT GOALS AND ACCOMPLISHMENTS IN 2020 UN SUSTAINABLE UN SUSTAINABLE DEVELOPMENT GOALS COMPANY ACTIONS RESULTS REPORT SECTION DEVELOPMENT GOALS COMPANY ACTIONS RESULTS REPORT SECTION • Maintaining high Occupational health • Zero fatalities and a 6 p.p. and safety standards • Providing accident insurance and supplementary health insurance • Harnessing environmental expertise and implementing measures to reduce the negative impact on the environment throughout the project cycle • Using environmentally friendly materials and technologies • Promoting a healthy lifestyle increase in the safety index to 86 % (with a target value of 75 %) • 2,585 employees insured under the life insurance programme and 2,029 employees provided with private health insurance policies • 225 employees completed Occupational health and safety training (40 h/person) Occupational health and safety (p. 138) People (p. 154) • Promoting “green” construction Implementing the latest digital • technologies at the project design stage • Implementing advanced digital technologies • Maintaining leadership in the use of BIM technology and the full-scale implementation of digital solutions to create an even more efficient design system • Adapting and implementing new industrial technologies for housing construction • Promoting best practices among contractors and other industry companies Environment (p. 146) Strategy (p. 42) • For 2020, the Silver Fountain and Botanica projects were certified in line with the Green Zoom standard • Began implementation of strategic initiatives on the introduction of a standard design system and new industrial technologies for housing construction that will increase the energy efficiency of buildings under construction • A Company project underwent Innovation (p. 174) a completely digital state expert review—a first for Russia • Agreement with Segezha Group on the development and certification of CLT technology for the Russian market, preparations to pilot the use of CLT Strategy (p. 42) • Building social infrastructure facilities in the cities where the Company operates • • Taking part in charitable projects • Collaborating with higher education institutions to jointly develop training programmes, educational events and internships for students In 2020, Etalon Group delivered five educational institutions for children with a total area of over 7 ths sqm, and three preschools for 470 pupils and two schools for 1,450 children are under construction Social responsibility (p. 168) Environment (p. 146) • The volume of investments in programmes for the development of local communities increased 3,4x year-on-year • The Company took part in 14 charitable programmes/ initiatives, providing RUB 46 mln in charitable assistance • In 2020, the Company reduced its energy consumption by 6 % year-on-year to 65 mln kW·h1 • Fuel consumption decreased by 5 % year on year to 2.31 million litres1 • The Company does not produce waste in hazard classes 1–3 (hazardous waste); its volume of non-hazardous waste decreased by 17 % year-on-year, and 233 tonnes of waste was recycled1 • Expenses for waste management amounted to RUB 13.5 mln; in 2021, the Company plans to increase this cost item by 7 %1 • Carrying out a comprehensive environmental impact assessment and applying environmental measures at all stages of project implementation • Recycling all construction waste capable of processing • Selecting responsible suppliers and environmentally friendly materials • Selecting construction technologies and design approaches, including BIM technologies and computer-based microclimate modelling, that help to improve the environmental footprint and energy efficiency of projects 1 Production unit data 132 SUSTAINABILITY 133 ANNUAL REPORT 2020 KEY HIGHLIGHTS AND ACHIEVEMENTS IN 2020 OCCUPATIONAL HEALTH AND SAFETY SUSTAINABLE DEVELOPMENT IN REGIONS OF OPERATIONS 0 FATAL ACCIDENTS AT ETALON GROUP CONSTRUCTION SITES IN 2020 8,918 HOURS OF OCCUPATIONAL SAFETY TRAINING FOR 225 EMPLOYEES EMPLOYEES 4,606 TOTAL HEADCOUNT 31 % OF LEADERSHIP POSITIONS AT ALL LEVELS ARE HELD BY WOMEN 2,029 EMPLOYEES TOOK PART IN THE PRIVATE MEDICAL INSURANCE PROGRAMME 86 % THE SAFETY INDEX INCREASED BY 6 P.P. YEAR-ON-YEAR 56 % OF LINE EMPLOYEES ARE WOMEN 16,150 HOURS OF EMPLOYEE TRAINING IN PROFESSIONAL DEVELOPMENT PROGRAMMES 9.2 MLN RUB IN FINANCIAL ASSISTANCE PROVIDED TO EMPLOYEES >7 THS SQM AREA OF EDUCATIONAL INSTITUTIONS DELIVERED >46 MLN RUB AMOUNT OF CHARITABLE ASSISTANCE PROVIDED, AN INCREASE OF 9 % YEAR-ON-YEAR 1,920 STUDENTS WILL ATTEND SCHOOLS AND PRESCHOOLS NOW BEING BUILT BY ETALON GROUP ENVIRONMENTAL PROTECTION 1 1 Data for the production unit companies 0 FINES FOR NON-COMPLIANCE WITH ENVIRONMENTAL STANDARDS -17 % REDUCTION IN CONSTRUCTION WASTE FROM 203 THS T IN 2019 TO 168 THS T IN 2020 233 TONNES OF CONSTRUCTION WASTE RECYCLED -6 % REDUCTION IN ELECTRICITY CONSUMPTION FROM 69 MLN KW·H TO 65 MLN KW·H -5 % REDUCTION IN GASOLINE AND DIESEL CONSUMPTION FROM 2.44 MLN L IN 2019 TO 2.31 MLN L IN 2020 134 SUSTAINABILITY 135 ANNUAL REPORT 2020 STAKEHOLDER ENGAGEMENT Etalon Group values open and efficient communications with its stakeholders, which is why the Company keeps all interested parties informed about its plans and other endeavours. In doing so, the Company is also able to be better aware of what our stakeholders want and expect. This means we can prioritise what matters and better formulate our development strategy. 1 HONEST DIALOGUE 2 ENSURING OPEN AND TRANSPARENT ACCESS TO INFORMATION Honest dialogue is fundamental to maintaining a trusting relationship based on respect. By maintaining relationships with various groups of stakeholders, the Company does its utmost to understand each and every one of their interests, needs, and expectations. This is essential to establishing open, effective communications. Some stakeholders may have questions about Company plans – the goals, scope and scale, as well as the risks involved. The solution is to provide stakeholders with opportunities for discussion, and provide full access to information not only before important decisions are made, but also at all stages of the implementation process. This is what guarantees the kind of balanced approach most stakeholders expect. THE BASIC PRINCIPLES OF STAKEHOLDER ENGAGEMENT REMAIN UNCHANGED: Improving Honest dialogue and prioritisation Ensuring access to information and inculcating a culture of openness Building trusting relationships with stakeholders ANALYSIS AND PLANNING: Keeping abreast of best practices and studying what stakeholders need and expect CONSIDERING STRATEGY: identifying the stakeholders and defining the strategic goals and priorities ASSESSMENT AND IMPROVEMENT: accruing feedback, carrying out an analysis, and planning and implementing improvements 3 PRIORITISING STAKEHOLDER INTERESTS 4 TRUST 5 IMPROVEMENT When making important decisions, Etalon Group is always guided by the interests of its stakeholders. This approach enables the Company to create additional value for stakeholders through strategic and operational efficiency. We believe that relationships built on trust lead to a productive, stress-free environment that enables people to find solutions to whatever challenge they’re facing. This is why Etalon Group has a strong focus on ensuring mutual understanding and loyalty from its customers, employees, investors partners, and society. We invest in organisational and digital solutions that simplify access to information about the Company, as well as Etalon Group’s services, and which allow stakeholders to interact more effectively with the Company. PREPARING RESOURCES: Building teams and developing resources, as well as the capacity for effective interactions IMPLEMENTATION: Implementing and ongoing refinement of plans DEVELOPING AN APPROACH: Determining the most effective approach, developing an interactive process 136 SUSTAINABILITY 137 ANNUAL REPORT 2020 The frequency and channels of interaction with each group of stakeholders differ depending on what is called for. Below is an overview of Etalon Group’s approach to engaging with various groups of stakeholders. CUSTOMERS EMPLOYEES BUSINESS PARTNERS INVESTORS AND ANALYSTS SOCIETY KEY ISSUES AND GOALS OF INTERACTION FORMS OF INTERACTION • The dissemination of information about Etalon Group’s products • Ensuring customers can give feedback • Analysis of customer needs and what • they seek in our products Improving every stage of the customer journey • Expanding the customer base and encouraging repeat purchases • A safe, healthy working environment • Attracting, training and retaining competent professionals • Offering equal opportunity and inclusiveness • Ensuring employees are fully informed about the Company’s strategy and goals • Streamlining the communication policy, developing precise targeting tools and competencies in analysis of the selection stage of the customer journey • Customising communication channels • and customer offers Interacting with customers through the hotline and social platforms, and providing prompt, effective responses to requests Implementing and refining OHS systems • • Providing life insurance and supplementary health insurance programmes • Cooperating with universities that specialise in issues related to the training of students from institutions focused on the construction industry, and recruiting them • Adaptation programme for young professionals • Training programmes and workshops for employees • Leveraging advanced visualisation • Competitive salaries, a bonus system and techniques, such as VR and developing mobile applications to facilitate the customer’s access to services, as well as providing B2C services to foster customer loyalty non-monetary incentives • Performance feedback and career planning • Implementing an anti-discrimination policy in accordance with the Etalon Group Code of Conduct and legal regulations • Providing a social safety net for employees • Disseminating important information via the corporate intranet and e-mail MAIN EVENTS AND RESULTS OF 2020 • The Company’s regional sales network • covers 59 cities in Russia Implemented a big data-driven target audience analytics system • More than 75 thousand calls were received over the year, with no lost calls • Repeat purchases accounted for 25 % of • No fatal accidents. • The safety index increased by 6 p.p. to 86 % • 504 Company employees underwent training; the total duration of all training programmes exceeded 16 thousand hours – an average of 32 hours per person • 344 employees participated in the adaptation total sales programme • 184 employees received financial support; the total amount of payments exceeded RUB 9 million • 44 people received a corporate pension • Women account for 31 % of the Company's management • Agreement with National Research Moscow State University of Civil Engineering on long- term cooperation in the field of educational and scientific activities • Mutually beneficial cooperation • Financial results and performance • Responsible approach to conducting business Innovation • • Operational efficiency • Etalon Group’s Investment case • Company strategy • Financial and operating results • Dividend payments • The Company’s activities in capital markets • Environmental issues • Social responsibility • Taxes • Creating jobs and improving living conditions wherever the Company is based • Building and maintaining a solid reputation • Policy on combating corruption and • Increasing transparency and information disclosure • violations of antimonopoly legislation, enshrined in the Code of Corporate Ethics and Regulations on Tendering • Applying and disseminating advanced technologies based on BIM (building information modelling) to find solutions that are more efficient and ergonomic, as well as controlling quality and timing throughout the entire project life cycle • Developing and implementing advanced industrial technologies for housing construction • Operational synergy • Exchanging experience and employing best practices • Rolling out a system to standardise design and the first completely electronic system in Russia authorised by the state. • An agreement was concluded with Segezha Group on developing and certifying CLT technology for the Russian market • New contract sales reached a record RUB 80 billion in FY 2020 • Pre-PPA gross profit margin was 33 %, close to the 35 % target set forth in the 2024 strategy • Disclosing information on operational and financial results, important corporate events and stages in the implementation of projects • Publishing annual reports, press releases, presentations and other relevant information on the Company’s website Investing in the development of cities where we operate: creating a social infrastructure, restoring historical monuments, supporting and organising cultural and sports events, as well as charitable programmes • Publishing press releases and • Participating in conferences, organising interviews roadshows and site visits, holding meetings and conference calls with investors and analysts • Maintaining channels of communication with the media • Visits to construction sites, hosting presentations and events for journalists covering Company activities • Publishing important information and updating the project gallery on the Etalon Group website • Board of Directors set a minimum dividend • Tax payments totalled RUB 4.6 billion • There were 11,347 mentions of Etalon Group in the media • Etalon Group professionals took part in more than 60 industry and business events • The Company launched an urban planning laboratory and the Generation ZIL media platform to discuss the future of Moscow’s ZIL-Yug district payment of RUB 12 per share/GDR; dividends paid for the year totalled RUB 3.5 billion. (USD 0.16 per GDR)—in full compliance with policy • Etalon Group GDRs, previously traded only on the London Stock Exchange, were listed on Moscow Exchange, and were included in the Level 1 quotation list, as well as the Moscow Exchange Broad Market Share Index • More than 60 conference calls with investors and analysts were held, and 34 releases were published on the regulatory website • The Company conducted a perception study among investors and analysts • The Information Disclosure Committee was reorganised, with an increase in the number of members and an expansion in positions and powers • Expanded disclosure of financial information in the Company’s IFRS financial statements • The liquidity of Etalon Group GDRs more than tripled year-on-year in 2020 138 SUSTAINABILITY 139 ANNUAL REPORT 2020 OCCUPATIONAL HEALTH AND SAFETY OCCUPATIONAL HEALTH & SAFETY PROCESS MANAGEMENT The health and safety of our employees is Etalon Group’s main priority. The Company takes a proactive approach to ensuring a safe working environment and preventing the risk of injury, implements advanced digital technologies, and conducts regular monitoring and training. The result has been a consistent increase in occupational safety at construction sites and zero fatal accidents. STRUCTURE OF ETALON GROUP’S OHS SERVICE Etalon Group’s OHS process-management system includes the top management as well as health and safety services at the Group's local divisional and individual organisational levels. At the management company level, the functional management of Occupational health and safety processes is headed by the Group’s CEO, while his deputy in the construction department is responsible for day-to-day processes. The organisation and monitoring of health and safety at the local division level and the Group’s individual enterprises is the responsibility of the relevant services and health and safety specialists. The organisation of safe working practices and coordination of contractors’ activities at Etalon Group’s construction sites, as well as certification and training of workers and engineering and technical personnel, are the responsibility of general contractors, both internal and external. The main tasks of Etalon Group’s OHS service specialists include: • Implementing the Group’s OHS policy and the methodology for determining the safety index and key OHS practices and principles • Monitoring and managing OHS risks • Informing and consulting managers and employees on OHS issues • Studying and disseminating best practices in the field of OHS • Organising work to prevent workplace injuries and occupational illnesses, meet OHS requirements and improve working conditions OHS specialists have broad powers that allow them to monitor compliance with the rules and regulations on OHS in Etalon Group, which ensures a high level of safety and helps prevent occupational injuries. In 2021, as part of improvements to the company’s organisational and management structure, the Company plans to revise and update the Regulations on the Occupational Safety Management System at Etalon Group. A new version of the Methodology for Determining the Safety Index at Etalon Group’s Construction Sites is also being prepared for approval, including the methodology to determine the fire safety index and the degree of risk at Etalon Group’s construction sites. The safety index and the degree of risk are discussed in more detail below, in the "OHS activities" section. OCCUPATIONAL HEALTH AND SAFETY POLICY Etalon Group’s Occupational health and safety (OHS) policy is based on the following principles: The priority of preserving the life and health of employees Strict adherence to current Russian legislation, local regulations and internal safety requirements Application of leading industry standards Continuous improvement and development of our own know-how Training and proactivity of employees Etalon Group’s Occupational health and safety policy and measures to ensure occupational safety are regulated by the following key documents: • The Regulations on the Occupational Safety Management System at Etalon Group sets out the key principles for managing the occupational safety & health system and the rights and obligations of divisions and officials in the field of Occupational health and safety, describes the organisation of work for compliance with Occupational health and safety standards at the Group’s construction sites, preventative measures, personnel training and actions in case of accidents. • The Methodology for Determining the Safety Index at Etalon Group’s Construction Sites regulates the methodology for collecting data and the subsequent calculation of the safety index based on it. Health and safety process managemt MANAGEMENT COMPANY ETALON GROUP Coordination of activities and management of the health and safety service in the framework of the local office MOSCOW REGIONAL OFFICE ST PETERSBURG REGIONAL OFFICE Operational health & safety activity CONTRACTOR ORGANISATIONS CONTRACTOR ORGANISATIONS 140 SUSTAINABILITY 141 ANNUAL REPORT 2020 OUR OHS SYSTEM IS BASED ON THE PRINCIPLE OF CONTINUOUS MONITORING AND DEVELOPMENT: OHS ACTIVITIES C O N TINUOUS I M P R OVEMENT CONCEPT Development of a key idea and theoretical foundations of an occupational health & safety management system. A S S E OHS TRAINING IN 2020 T E N M IMPROVEMENT Based on the analysis of the results, measures are continuously implemented to improve the efficiency of the health & safety management system. S S E S S A ASSESSMENT OHS monitoring, including assessment and analysis of processes for compliance with the concept, target performance indicators, Russian legislation and other requirements. S S M E N T ORGANISATION Creation, implementation and maintenance of a health and safety management system. OHS MANAGEMENT MODEL ASSES S M E N T PLANNING AND IMPLEMENTATION Objectives and the process necessary to support results are developed in accordance with the concept, after which the health & safety processes are applied to ongoing activities. Continuous safety monitoring and further improvement of the OHS system in the reporting year resulted in zero fatal accidents. The continuous monitoring system enables us to increase safety at our construction sites every year. In the event of an accident, the Company investigates to determine and address the causes of the incident. Etalon Group’s subsidiaries submit monthly reports to the OHS service of their local administrations on the implementation of OHS rules and regulations and on the situation regarding workplace injuries. This practice helps to analyse incidents of industrial OHS violations at the Group level, to identify patterns and weaknesses, and thus to identify key areas for improving the health and safety system. This approach to the organising the OHS system allows the Company to minimise safety violations, prevent risks and avoid serious and fatal injuries. Equipment security protocol All equipment used by Etalon Group is certified in accordance with Russian legal requirements. The Company also conducts internal equipment inspections to ensure correct installation and regular servicing. Training Etalon Group employees undergo training and periodic testing of their knowledge in accordance with current Russian legislation. All managers responsible for safe working practices are trained and periodically tested (at least once every three years). This training is conducted within the Company or via a third-party educational organisation. In addition, the Company conducts thematic exercises, training and seminars. All employees whose work involves being at a construction site constantly or occasionally must undergo OHS training courses and certification tests. The training programmes are regularly reviewed and improved. In 2020, 8,918 hours of OHS training were implemented, with 225 Etalon Group employees taking part. NUMBER OF ATTENDEES TOTAL PER PERSON STUDY HOURS ST PETERSBURG Management staff Line employees MOSCOW REGION Management staff Line employees TOTAL 39 149 12 25 1,418 6,168 432 900 225 8,918 36 41 36 36 40 Preventing workplace injuries The Company implements a range of measures to prevent injuries and OHS violations, including using safe production systems, administrative measures to limit total time in contact with harmful and hazardous production elements, a preliminary risk analysis before installing new equipment or applying new technologies, and subsequent regular monitoring of the implementation of risk controls. At the Company’s construction sites, to give workers additional protection to prevent falls from heights, catching nets are used, protective screens are installed on mounting horizons, a technological map is being developed, and SkyReach anchor devices are used to prevent falls during the installation of formwork and while performing concrete work. At every construction site, during the work shift, at least two workers constantly monitor the condition of the collective protective equipment being used and the fencing around hazardous areas, and they monitor for gaps, holes, and openings in the elevator shafts on each storey. The Company has strict rules regarding the characteristics, installation, use and dismantling of enclosing structures, scaffolding and decking, compliance with hazardous-area boundaries, and the handling of flammable materials, as well as rubbish and waste. Protective barriers are designed for durability and resistance to alternating force from both horizontal and vertical uniformly distributed standard loads. In order to prevent injuries at all construction sites, the "degree of risk" indicator is used, i.e. the quantitative degree of professional risk of an accident at the control facility, calculated using the Fine-Kinney Method. The calculation of the risk-degree indicator includes three components: the likelihood of a risk, its frequency and its consequences. Following the calculation, an indicator is created for each facility: the higher it is, the higher the risk level at the facility and the more closely the Company monitors its OHS status. In accordance with the assessment scale, the degree of risk for this indicator is nominally divided into several categories, from low to very high: 142 SUSTAINABILITY 143 ANNUAL REPORT 2020 SPHERES REPRESENT CONTROL POINTS White spheres represent control points that have not been checked yet Orange spheres represents control points that have been checked and might have safety violations Etalon Group’s safety index increased by 6 p.p. in 2020 to 86 % versus a target level of 75 %. Green spheres represent control points that have already been checked Improvement of the process and tools for operational oversight and monitoring construction safety The Company conducts operational oversight of compliance with OHS standards at all levels. At the level of Etalon Group subsidiaries, OHS engineers monitor conditions, including working conditions, at construction and production sites, factories and company offices, as well as the work of subcontractors. Employees of the OHS departments of local offices also monitor conditions, including working conditions, at the Group’s construction sites. The Company regularly conducts independent assessments of the safety index for individual facilities and for all of the Group’s construction sites as a whole and monitors the performance of the OHS system and the functional chain of OHS management processes via the safety index. The organisation of regular, independent monitoring based on the safety index at the Company’s facilities is carried out by the heads of Etalon Group’s local departments. Etalon Group subsidiaries also undergo scheduled and unscheduled inspections by regulatory authorities. RISK OF WORKPLACE ACCIDENT PREVENTATIVE MEASURES BY ETALON GROUP LOW OHS system research at the facility POSSIBLE Inspection and analysis of OHS processes, increased focus on implementing all necessary measures and procedures SIGNIFICANT Special control and monitoring of the facility for analysis and improvement HIGH Urgent briefing and knowledge-testing of engineering and technical personnel, immediate improvement of OHS processes VERY HIGH Immediate termination of work until violations are removed Regular monitoring and improvement of OHS systems and procedures resulted in a significant decrease in the overall risk level for all Etalon Group facilities over the year. RISK LEVEL DECREASED BY 36 % OVER THE YEAR Safety index Since 2014, the Company has been determining the level of OHS at construction sites using the safety index, a tool developed in-house. This index is based on data about a number of key parameters obtained during the monitoring of construction facilities using BIM technology: the ratio of the number of positive ratings to their total number of ratings at the control facility. The measurement range is from 0 % to 100 %, while the target index for Etalon Group is at least 75 %. The main parameters when determining Etalon Group’s safety index are: • Prevention of falls: fencing balconies, mounting levels, elevator shafts, openings, open hatches, fencing at foundation pits, etc. • Work process: risks when performing work, adherence to working methods, correct use of personal protective equipment • Rubbish system and collection, storage of materials and equipment: cleanliness at control facilities, timely rubbish collection, storage of materials and equipment in accordance with storage rules • Operation of equipment, tools and devices: hand tools, electric tools, crane counterbalances, slings, machines and equipment, lifting machines, etc. • Scaffolding, walkways, ladders • Electricity and lighting: condition, serviceability and location of electrical equipment, lighting of common areas, local lighting of workplaces, equipment earthing, etc. • Fire extinguishers: availability, serviceability, readiness for use, placement in a strictly designated area, etc. The safety index allows for effective monitoring of OHS practices and equipment at Etalon Group’s construction sites, to receive up-to-date information from controlled sites in real time, to see the locations of safety violations in 3D, and to determine the locations of hazardous situations that require immediate intervention. When conducting inspections using the safety index tool, the inspector inputs the appropriate assessment for the control points (positive or negative) or, in case of factors posing a critical degree of risk, enters the relevant information into a separate functional window of the programme. When the inspection has ended, the results are uploaded to the BIM system, including the safety index for the specific control points and a total for the facility as a whole, as well as the coordinates of control points requiring a prompt response from the relevant employees. The uploaded results and actions needed to rectify the relevant safety issues are transferred to relevant Etalon Group employees. 144 SUSTAINABILITY 145 ANNUAL REPORT 2020 MONITORING CONTRACTORS’ COMPLIANCE WITH INDUSTRIAL SAFETY REQUIREMENTS Over the past four years, Etalon Group has been using the occupational safety index to verify compliance with occupational health & requirements by third-party contractors as part of an audit of these companies’ compliance with established criteria. For example, this type of assessment is conducted when holding tenders to select a contractor or when deciding whether to include or exclude a contractor from the register of organisations accredited by the Company. SAFETY INDEX DEVELOPMENT HISTORY 2014 2015 2017 The safety Index tool was introduced into Etalon Group’s OHS systems to monitor and assess safety levels at construction sites. Regular monitoring using this tool is performed, at least once every two weeks. Etalon Group patented its methodology and programme and began to develop pilot projects for the use of its OHS system for third- party companies. 2018 2019 The methodology for assessing the OHS index was updated to take into account a risk-based approach and the influence of the degree of risk. All of Etalon Group’s construction sites use their own web service to monitor OHS measures using the capabilities of the ICCS (Integrated Construction Control System) digital platform; any user can quickly obtain information about the health and safety status from their mobile device, using a number of dashboards within the system. Developed the Fire-Safety Index for construction camps; the data-processing system is fully automated and allows regular reports to be made. Introduced a three-stage safety control system at construction sites: 1. Daily monitoring of safety indicators is carried out by the construction supervisors and includes visiting all workplaces and identifying and immediately eliminating deficiencies. 2. Weekly monitoring is carried out by the construction supervisors in conjunction with section heads. 3. Monthly monitoring is carried out by a commission with the participation of the construction manager, site foreman and relevant representatives of the contractor. 2020 2021 Research and development of a methodology to calculate other important indicators for assessing the construction process began within Etalon Group, including the Construction Time Frame Compliance Index, which is part of the comprehensive Construction Operation Safety Index assessment. An update is being prepared to the methodology for calculating the safety index to take into account the criteria for the human impact on the risk assessment. Risk will be divided into two types: indirect and direct. For each type, a separate calculation is made of the impact on a construction site’s overall safety index. 146 SUSTAINABILITY 147 ANNUAL REPORT 2020 ENVIRONMENT Etalon Group strives to assess and minimise any adverse impact on the environment at all project implementation stages. The Company maintains the highest environmental management standards, employs the latest technologies, and aims to use natural resources and energy rationally as well as to reduce and recycle its waste. Etalon Group thus strives to achieve significant cost savings for its business while helping to preserve the environment and natural diversity, as well as to create long-term benefits for all stakeholders. ETALON GROUP’S ENVIRONMENTAL MANAGEMENT APPROACH Etalon Group strives to limit the negative environmental impact of its operations. The Company strictly adheres to Russian environmental legislation, including conducting environmental assessments and implementing measures to limit its environmental impact at all project stages. The Company also develops and implements measures that improve the efficiency of its resource usage. At the preparation stage, the Company conducts environmental surveys; assesses noise levels, background air pollution and soil quality; and determines the waste hazard rating. Based on preliminary studies and the scale and particulars of a project, Etalon Group forecasts the possible negative environmental impact from the construction and commissioning stages. When planning construction, standards governing the permissible anthropogenic impact on the environment are considered, and measures are developed to reduce it: these include land reclamation, preventing the loss of natural resources, and preventing harmful emissions into the soil and atmosphere. Construction is carried out according to approved project documentation, in compliance with all relevant technical environmental regulations and factoring in possible environmental risks. During construction, the Company implements measures to prevent environmental pollution, including reclaiming land, protecting the air basin and water resources, imposing noise controls, and monitoring key indicators. Before commissioning facilities, the Company develops and implements measures to restore the environment, conducts landscaping and beautification projects, and creates recreation areas as well as children’s play spaces and sports grounds. The residential buildings at Etalon Group’s facilities comply with sanitary requirements governing heating, ventilation, the microclimate and air quality, natural and artificial lighting, levels of noise, vibration, ultrasound and infrasound, electric and electromagnetic fields and ionising radiation. 2020 HIGHLIGHTS1: WASTE MANAGEMENT FINES OR SANCTIONS for non-compliance with environmental standards, losses resulting from litigation of violations of environmental standards ZERO -6% -5% ELECTRICITY USAGE CUT from 69 mln to 65 mln kW·h in 2020 1 Production unit data FUEL CONSUMPTION CUT from 2.44 mln litres to 2.31 mln litres in 2020 SOLID WASTE PRODUCTION DECLINED from 202.5 ths tonnes to 167.9 ths tonnes in 2020 -17% 233 13.5 MLN RUB WASTE MANAGEMENT COSTS FOR 2020 Etalon Group seeks to minimise its impact on the environment throughout the construction cycle and to plan projects that are energy and resource efficient when they are finished TONNES OF REBAR SCRAP SENT FOR RECYCLING 148 SUSTAINABILITY 149 ANNUAL REPORT 2020 ENVIRONMENTAL MANAGEMENT SYSTEM The work of Etalon Group specialists is governed by environmental legislation, including: Federal Law No. 7-FZ on Environmental Protection Federal Law No. 174-FZ on Environmental Assessment Federal Law No. 89-FZ on Production and Consumption Waste Land Code of the Russian Federation Water Code of the Russian Federation Federal Law No. 96-FZ on the Protection of Atmospheric Air SanPiN 2.2.1 / 2.1.1.1200-03 "Protection zones and sanitary classification of enterprises, structures and other facilities", as well as internal policies and duty descriptions Environmental specialists are employed at the functional subdivisions of the Moscow and St Petersburg regional administrations responsible for construction. They participate in developing project documentation from the viewpoint of environmental legislation and standards, take part in project evaluations, are involved in resolving environmental protection issues arising during the course of Etalon Group’s activities, provide informational and methodological support to the Company’s structural divisions, and analyse the construction process, and take part in organising and coordinating initiatives to improve the integrated quality and environmental management system and are involved in getting it certified. The Etalon Scientific and Technical Centre has a quality control department that monitors and maintains the quality and environmental management system. Etalon Group’s environmental management system is based on strict adherence to legal requirements and internal policies, as well as on developing measures to improve the effectiveness of its environmental protection measures. The Company’s quality and environmental policy1 did not change during the reporting year. The policy is consistent with the Company’s strategic goals and mission, and includes its obligations to protect the environment, meet mandatory requirements and continuously improve. The policy also serves as the basis for setting and analysing the quality and environmental goals that are communicated to personnel and stakeholders. A programme of measures for 2020 was developed to meet the policy objectives. This includes measures to prevent or minimise the possible impact on air, soil and water, and to minimise the impact of noise and vibrations during building and installation work. Materials and equipment of a high environmental quality are used, and environmental inspections are conducted at construction sites. Strict internal environmental monitoring of facilities minimises the Company’s negative impact on the environment, as confirmed by the results of regulatory authorities’ external audits. For example, all facilities in St Petersburg were commissioned without any comments or instructions from inspectors from the State Architecture and Construction Inspectorate’s environment sector. During 2020, the Company operated an integrated quality and environmental management system in accordance with ISO 9001: 2015 and ISO 14001: 2015. The Company’s integrated management system and quality and environmental policy were audited by the Russian Register Baltic Inspectorate. An external audit of JSC Etalon LenSpetsSMU’s integrated management system conducted in June- July 2020 within the company’s structural divisions and at Etalon Group’s construction sites at the Etalon on the Neva and Galactica Premium residential complexes revealed no deviations from international standard requirements. The certification body noted compliance by JSC Etalon LenSpetsSMU’s integrated management system with ISO 9001: 2015 and MS ISO 14001: 2015 requirements relating to the design and construction of buildings and structures, and confirmed the validity of the conformity certificates until 4 July 2023. ENVIRONMENTAL CERTIFICATION CERTIFICATE TERM ISO 14001 Issued for three years until 4 July 2023, subject to annual inspection audits ISO 9001 Issued for three years until 4 July 2023, subject to annual inspection audits GOST R ISO Issued for three years until 4 July 2023, subject to annual inspection audits The Company conducts its own environmental monitoring at various stages during project life cycle, and regularly prepares environmental reports for the Group’s companies or at the request of shareholders. In 2020, these reports were provided within the framework of reporting meetings on quality and environmental issues between JSC Etalon LenSpetsSMU—Etalon Group’s main operating company in St Petersburg—and NTC Etalon Ltd 2. Etalon Group’s internal reports on the results of inspections of its facilities for compliance with environmental standards are independently audited. 1 JSC EtalonLenSpetsSMU unified policy on quality and environment 2 The Etalon Scientific and Technical Centre RESPONSIBLE SUPPLY CHAIN ENVIRONMENTAL PROTECTION EFFORTS The integrated management system requirements apply to contractors conducting construction and installation works as well as materials suppliers. Equipment and materials used at Etalon Group facilities comply with hygiene and ergonomic requirements, as well as current SanPiN requirements (Etalon's products have certificates of conformity, sanitary and epidemiological summaries, quality and fire safety certificates, etc.) and project characteristic requirements. Construction materials—sand, gravel, cement, concrete, paints and varnishes, etc.—have all of the requisite summaries and certificates. Etalon Group is diligent when selecting suppliers and contractors. The Company has a system of tenders, (described in more detail in the “Business conduct” section) that sets formal criteria for selecting suppliers. We give preference to the most responsible companies, and conduct our own incoming inspections of products. The requirements of the integrated management system are relayed to the general contractors responsible for complying with environmental legislation at construction sites. When conducting works, general contractors are obliged to comply with the legal standards and requirements set out in the project documentation regarding natural resources, noise levels, air protection etc. Compliance with environmental legislation is monitored by Etalon Group’s quality and environmental management department and by the main administration of the state construction inspectorate, when a facility is commissioned. Soil and vegetation preservation, wildlife conservation Water and effluent During construction, the Company sources all of its water from the municipal water supply. Water use is strictly controlled: Etalon Group installs meters to monitor water volumes regularly, and observes strict compliance with consumption limits. During construction and commissioning, the Company takes measures to cut water consumption, including recycling water for wheel-washing and using resource-efficient engineering equipment and automated water-metering systems. At the planning stage of a construction project, as well as at the construction stage of the project, measures for implementing environmental protection are factored in: land reclamation, preventing the loss of natural resources and preventing harmful emissions into the soil. If there is a fertile soil layer, it is removed, transported and stored. Soil that is not suitable for reuse is removed and disposed of. Special sites are established for temporary storage of soil intended for reuse. The Company also takes measures to prevent or reduce contamination of soil from fuels and lubricants. The Company also implements measures to protect trees and shrubs, strives to minimise felling, and when construction is complete, it beautifies the territory by planting trees and shrubs or even creating parks and gardens at projects in large residential areas. 150 SUSTAINABILITY 151 ANNUAL REPORT 2020 WATER AND WASTE MANAGEMENT WATER USAGE1 INDICATOR 2018 2019 2020 Total water sourced, ths m3 Total waste water discharged, ths m3 1,230 750 1,159 801 1,275 845 The Company does not produce class 1–3 (hazardous) waste. We adhere to strict rules in managing construction waste. We aim to send waste that can be reused for recycling, while waste that cannot be recycled is sent to a landfill. More than 90 %2 of the waste is recycled. PROTECTING THE ATMOSPHERE AND ENERGY EFFICIENCY To reduce pollutant emissions—depending on the materials used and the work technology and methods required—after a building’s frame is completed, the Company installs dense netting covering all the storeys of the building and covers them with film, or installs double-glazed windows, and workers use special respirators. Dust collectors are installed if necessary, provided for in the working plan. Sanitary protection zones are designed with dust protection in mind. To reduce dust, vehicles’ wheels are washed before they leave the construction site. We no longer use diesel generators for construction, instead using electricity from the municipal grid, which enables us to reduce emissions of nitrogen oxide and small-soot particles into the atmosphere, and to reduce energy consumption. Energy- efficient and long-lasting LED lights are used to illuminate staircases and spaces at construction sites. As a result of these measures, the Company systematically reduced its electricity consumption by 0.6 % year-on-year in 2018, by 4 % in 2019 and by 6 % in 2020 1. ELECTRICITY CONSUMPTION 1 71.3 69 65 0.6 % 4 % 6 % SOLID WASTE MANAGEMENT IN 2020 2 93.4 % Recycled 6.3 % Landfill 0.3 % Neutralised The Company’s waste management expenses came to RUB 13.5 million for 2020, while the Company plans to spend RUB 14.5 million on waste management in 2021—proportional to the planned construction volume. The volume of waste generation decreased by 17 % in 2020, to 168 thousand tonnes, and 233 tonnes of rebar was sent for recycling. 8 1 0 2 9 1 0 2 0 2 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Electricity consumption, mln kW·h Reduction of electricity consumption year-on-year Etalon Group strives to reduce its greenhouse gas emissions by cutting fuel consumption as it optimises its logistics routes. This is part of its improvement of its organisational and management structure, as well as its general focus on increasing its operating efficiency. For example, when delivering concrete mixture to a construction site, the closest concrete plants to the construction site are selected, and when removing non-recyclable construction waste, the closest special landfills (specified in the waste management technological regulations) are chosen. This has led to a 5 % year-on-year reduction in fuel consumption 1. WASTE MANAGEMENT FUEL CONSUMPTION 1 -5 % INDICATOR 2018 2019 2020 Construction materials used, tonnes 956,781 1,000,315 1,056,250 Waste generated, tonnes 255,000 202,537 167,938 Hazardous waste (class 1–3) - - - Non-hazardous waste (class 4–5) 255,000 202,537 167,938 Sent for recycling (rebar), tonnes n/a 347 233 Strict controls by the Company meant that there were no significant spills of pollutants in the reporting year. 2.78 2.44 2.31 87 – – 2020 vs 2019 Petrol, mln litres Diesel, mln litres 0.22 2.56 0.21 2.23 0.20 2.11 8 1 0 2 9 1 0 2 0 2 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Fuel consumption, mln litres Natural gas consumption, ths m3 1 Production unit data 2 Information for Etalon Group's main general contractors, Novator and Rekonstruktsiya 152 SUSTAINABILITY 153 ANNUAL REPORT 2020 NEW TECHNOLOGIES AND METHODS TO REDUCE THE ENVIRONMENTAL IMPACT The introduction of digital technologies allows us to create more-effective planning solutions, including energy-efficient engineering "stuffing", optimal building design and the most environmentally friendly building materials. BIM technologies Etalon Group applies BIM technologies throughout the entire project life cycle. At the design stage, BIM makes it possible to visualise building systems, evaluate various layout options and make them compliant with regulations and standards. The use of BIM software when planning a building’s architectural appearance and engineering systems allows for the creation of parametric models with the allocation of distinctive energy consumption zones and heat-insulation structures, which are subsequently included in energy consumption calculation programmes. Designers can thus optimise a building’s energy, emissions, raw materials usage and other metrics, while still using technologies that surpass traditional methods in terms of speed and cost. The introduction of standard designs will increase design efficiency by reusing and combining the most successful solutions that have been collected in special digital libraries of structural, facade, engineering and planning solutions, as well as by reducing the risk of human errors. As part of the standard design implementation, the Company is now preparing a draft proposal for digital building systems for the ZiL-Yug project. These workings will form the basis of a corresponding library, which will be used to create modern projects using the latest digital solutions to ensure buildings are highly environmentally friendly and resource efficient. CFD modelling To calculate the optimal parameters of the indoor microclimate, the Company uses three-dimensional CFD (computational fluid dynamics) computer modelling, which makes it possible to predict the main indoor comfort elements: temperature, humidity, high-speed, gas and air flows. CFD modelling provides a complete picture of the air distribution at the initial design stage. This enables us not only to visualise the overall distribution of hydro-gasdynamic flows and the influence of external factors (solar radiation, atmospheric pressure, flows from adjacent rooms or openings, etc.), but also to evaluate parameters of interest to us at any point in the room. All of this information is then used to develop project documentation, and enables Etalon Group to create environmentally friendly and energy-efficient premises with the most comfortable microclimates. Latest housebuilding technologies and methods The development and implementation of the latest industrial housebuilding technologies and methods will help reduce the negative environmental impact. The company is developing projects for the application of modular technology and CLT panels1. Etalon Group plans to adapt modular housing construction technology to Russian standards. Modular technology has a number of advantages, including environmental ones: it reduces the volume of construction waste, it cuts energy consumption and harmful emissions at construction sites by reducing the construction time by about 40 %, and the design variability allows for the use of the most environmentally friendly solutions in the project, while using wood and metal that can be recycled also reduces the environmental impact. A construction technology using CLT panels is currently being developed jointly with Segezha Group. This will reduce the environmental impact through highly energy-efficient technology and improved thermal insulation performance. CLT construction will reduce the carbon footprint by cutting CO2 emissions by up to 75 %2. The first hybrid technology pilot project is to be developed jointly with Segezha Group. Importantly, the exclusive cooperation conditions meant that we were able to develop a project concept and adapt production to it. Thus, by the time construction begins, all elements will fit our pilot project perfectly. More detail about the new technologies are provided in the "Strategy" and "Innovation" sections. GREEN CERTIFICATION Modern ‘green’ technologies and methods make it possible to reduce buildings’ resource consumption, as well as to cut residents’ utility bills. Etalon Group’s Silver Fountain and Botanica residential complex projects are certified to the Russian Green Zoom standard3. CASE STUDY Botanica complex—the first facility in St Petersburg certified under the Green Zoom standard. been allocated for green spaces, and an avenue of limes has been created, which the Company is careful to protect during construction. Etalon Group had already received a platinum Green Zoom certificate for the Silver Fountain residential complex in Moscow. This complex uses progressive engineering solutions and ‘green’ technologies, including efficient water taps, indoor climate control, air-supply units with heat recovery and the ability to install charging stations for electric vehicles at the request of residents. This means future residents could save up to 37 % on their energy bills. More than a third of the area of the Silver Fountain complex has As for the Botanica residential complex, which was awarded a gold certificate at the project-development stage, the Company analysed multiple parameters, from the location to the building itself: building materials, internal ecology, innovation, water and energy efficiency, noise insulation, and the level of harmful emissions. The complex has been checked for compliance with requirements for optimising resource consumption and reducing negative impacts on health and the environment. Energy modelling showed that the solutions applied increased the facility’s energy efficiency by 43 % compared to similar facilities where an environmental approach was not applied. And residents of the eco-homes will garner all of the benefits in several areas at once. For example, the latest engineering systems mean that future residents will be able create an independent microclimate within their home. Climatic valves on the windows will provide fresh air without needing to open the windows, and will protect against draughts and street noise. The ventilated facade will allow residents to keep warm with less frequent reliance on heating appliances. In addition to comfort and economy, the property's green system considers the local ecology. Energy modelling has shown that carbon dioxide emissions from Botanica's buildings are 33 % lower. And the complex’s buildings are equipped with an additional system of drinking water purification and filtration. The project’s eco-ideology will also be reflected in improvements to the local area, where a unique landscape project has been created: there is a green boulevard and an alley of trees, bushes and various grasses. Quiet courtyards, paths, flowerbeds, and sports and recreation grounds provide a neat continuation of the eco-concept. 1 CLT (Cross-laminated timber) 2 European Forest Week (19/11/2019), Stora Enso report “Massive wood construction in Europe on the example of CLT: history & outlook” 3 Green Zoom is a Russian system for certifying real estate according to their energy efficiency and environmental standards 154 SUSTAINABILITY 155 ANNUAL REPORT 2020 PEOPLE People—employees, partners and customers—have been the focus of Etalon Group’s attention for more than 30 years. Everyone connected with Etalon Group’s story has made their own individual contribution to it. Our more than 4.5 ths co-workers know what is important to our clients. The experience, views and culture of each one of our employees and partners help us change for the better every day and improve the quality of life for our customers—creating a modern living environment that is a comfortable and pleasant space in which to live and work. EMPLOYEES 4,606 4,915 TOTAL ETALON GROUP HEADCOUNT IN 2020 TOTAL ETALON GROUP HEADCOUNT IN 2019 WORKFORCE AND BREAKDOWN OF EMPLOYEES BY AGE NUMBER AND PERCENTAGES OF MEN AND WOMEN NUMBER AND PERCENTAGES OF EMPLOYEES IN MOSCOW AND ST PETERSBURG 2020 2019 706 854 2,811 2,826 1,089 1,235 3,228 3,481 1,378 1,434 487 508 646 683 3,473 3,724 15 % 17 % 61 % 57 % 24 % 25 % 70 % 71 % 30 % 29 % 11 % 10 % 14 % 14 % 75 % 76 % Under 30 30-50 Over 50 Male Female St Petersburg regional division Moscow regional division Production unit APPROACH TO PERSONNEL MANAGEMENT At the Group level, we adhere to the following principles: maintaining the health and safety of personnel; providing all employees with equal opportunities and fair remuneration, depending solely on each employee’s contribution to the Company’s development; maintaining open dialogue with employees; supporting professional development and employee engagement Etalon Group’s human resources management system includes personnel services at the management company level, headed by the Vice President for Human Resources, as well as personnel services at our subsidiaries. At the management company, the focus is on developing and implementing company- wide personnel policies and processes. The Vice President for Human Resources oversees the work of the Heads of HR administration, selection and training, compensation and benefits, who are responsible for developing and implementing policies at Etalon Group subsidiaries. At the subsidiary level, personnel management is carried out by personnel services responsible for the recruiting, induction, training and maintenance of personnel records. Our personnel management strategy focuses on improving efficiency by recruiting, developing and retaining talented employees. This strategy involves the following aspects: • maintaining an effective incentive system; • developing human resources; • maintaining a healthy corporate culture; • maintaining a policy on avoiding conflicts of interest; • offering excellent customer service and developing the skills of Etalon Group employees through training programmes; • updating existing corporate HR documents in line with the situation in the labour market. This approach enables us to improve incentives for existing employees and make Etalon Group a more attractive employer for job seekers. 156 SUSTAINABILITY 157 ANNUAL REPORT 2020 STAFF DEVELOPMENT Etalon Group provides its employees with a variety of opportunities for professional and career development: OCCUPATIONAL HEALTH AND SAFETY TRAINING IN 2020 St Petersburg Moscow region NUMBER OF PEOPLE TRAINED Management Line employees 225 39 12 149 25 TOTAL NUMBER OF HOURS Management HOURS PER PERSON The following documents outline the basic principles and mechanisms of the Company’s personnel and social policies: Etalon Group’s human resources function is responsible for implementing and monitoring the HR policy for the entire Company. Line employees 1,418 432 6,168 900 36 36 8,918 40 41 36 • Competitive salaries and career planning • Performance-based financial awards • Training and continuing education programmes The Company invests in training its employees either through third-party educational platforms or the development of in-house programmes and workshops adapted for specific objectives or in response to staff requests. Training is offered in various fields: finance, personnel management, sales, law, economic and corporate security, and IT. Professional development programmes promote efficiency, team-building and the shared attainment of the Company’s strategic goals. We encourage personnel to aspire to improve their qualifications: we often cover some or all of the costs of training that employees themselves choose in order to increase their value as professionals. In 2020, the Company covered some of the costs for the training of 40 employees in programmes beyond in-house training. In addition to improving the qualifications of employees in the usual fields, such as business and tax accounting, finance, project management and personnel management, the Company paid particular attention in 2020—in connection with the introduction of digital architecture for all business processes and improvements to the sales system—to training programmes associated with digital technologies, focusing on Autodesk Revit software in particular, as well as training in the field of IT and marketing. In order to ensure that our team has the skills needed to achieve our strategic goals, we have focused on training programmes in areas like data science, data management and analysis, software and IT product management and application interfaces. Some of the specific topics included UX analytics, content marketing, SMM and customer service. Annual workshops and training courses on Occupational health and safety are an important part of training. In 2020, 225 Etalon Group employees took part in such courses. These training courses are discussed in more detail in the “Occupational health and safety” section. In connection with measures to prevent the spread of COVID-19, Etalon Group made an effort to take advantage of available opportunities for remote learning during the reporting year in order to maintain the professional skills of its workforce, including distance learning programmes and resources available through its corporate portal. In those professional fields where remote learning is either impossible or ineffective, the Company took all necessary measures to arrange safe in-person training to the extent necessary to maintain a high level of workplace safety at the Company’s facilities. In expanding the opportunities available for distance learning through its own platform, Etalon Group launched a project in 2020 to create a specialised corporate portal for training and development intended for both Company employees and training partners. The project is expected to be completed in 2021. • The Regulation on Remuneration, Bonuses and Benefits and the Regulation on Etalon Group Corporate Awards govern the system of remuneration and non-financial incentives for employees. • The Corporate Labour Policy and the Regulation on Business Trips determine the basic principles for working arrangements. The key principles of corporate ethics, including the policy of avoiding conflicts of interest, and also on combating corruption and fraud, are reflected in Etalon Group’s Code of Corporate Ethics and in the Regulation on Etalon Group’s Fraud, Corruption and Theft Prevention Hotline. Both documents are described in more detail in the “Business conduct” section. • The Regulation on Employee Orientation outlines the Company’s approach to the integration of new employees. The Occupational health and safety policy and system are discussed in more detail in the “Occupational health and safety” section. • The Regulation on Recruitment and the Regulation on Staff Training and Development, prepared and approved in 2020, determine the mechanism for the selection of personnel and the approach to organising employee training and development. STAFF TRAINING EMPLOYEE CATEGORY: Management Line employees GENDER Female Male NUMBER OF PEOPLE 2020 NUMBER NUMBER OF HOURS NUMBER OF PEOPLE NUMBER 2019 NUMBER OF HOURS TRAINED OF HOURS PER PERSON TRAINED OF HOURS PER PERSON 504 172 332 184 320 16,150 5,870 10,280 4,433 11,717 32 34 31 24 37 974 257 717 311 663 33,289 9,883 23,406 6,990 26,299 34 38 33 22 40 PERSONNEL MANAGEMENT POLICY 158 SUSTAINABILITY 159 ANNUAL REPORT 2020 most prestigious in the Changellenge>> case league line-up. The competition involves solving urgent business problems and helps the participants (students and recent graduates) to study business processes in several industries in just three weeks and to understand the areas where they are most interested in working. Etalon Group presented its own case at Changellenge>> Cup Russia, showcasing ZIL-Yug, which one of our largest development projects. This project involves using the smart city concept to create a new multifunctional urban zone covering an area of more than 100 hectares. Participants in the first round of the championship worked on this case, and submitted over 150 solutions for the case, 11 of which reached the semi-finals. The Company participated in this event with the goal of finding talented young people with systemic knowledge and energy. Etalon Group has been running an orientation programme for new employees for more than five years, helping them integrate into their new team and acquire the skills they need, while also teaching them about the Company’s history and activities, corporate values and standards of behaviour. Each new employee is assigned a mentor, who monitors the employee’s work, provides feedback and also prepares interim and final assessments of their work. We aim not only to ensure our employees’ professional development but also to establish a healthy workplace atmosphere and a close-knit team. As part of these team-building efforts, Etalon Group organises various sporting events for employees and takes part in athletic competitions held within the Sistema ecosystem and in local team sporting events, such as the Construction Workers Spartakiad, which St Petersburg has been hosting since 2003. Several Company employees have had a band called Etalon Group since 2019. Many educational institutions have their own employment services that can recommend successful students to leading companies like Etalon Group. DEVELOPING OUR POTENTIAL WORKFORCE In order to ensure that we are able to recruit and retain qualified personnel, Etalon Group uses various platforms to search for and hire employees. We also work with specialised universities to ensure that specialists have the necessary skills for a potential career with Etalon Group. Our main source for recruiting is online job search services. These provide the largest pool of potential candidates and the ability to identify potential employees for a wide range of positions. Etalon Group often uses social media platforms, such as LinkedIn to search for IT specialists, narrow-profile specialists and creative professionals such as designers, social media and online marketing professionals. In order to recruit young specialists, we cooperate with universities. Many educational institutions have their own employment services that can recommend successful students to leading companies like Etalon Group. In order to provide the construction industry with qualified personnel, Etalon Group cooperates with leading specialised universities, including St Petersburg State University, Peter the Great St Petersburg Polytechnic University and St Petersburg State University of Architecture and Civil Engineering (GASU). The company hosts guest lectures and job fairs and takes part in other events on university campuses. We also run an internship programme, which offers future construction specialists the opportunity to gain experience both in the office and at construction sites. Since 2015, round tables have been held in the Department of Construction Project Management at the St Petersburg State University of Architecture and Civil Engineering involving GASU faculty and students, as well as experts from Etalon Group. In addition, educational programmes have been established, methodological materials developed and lectures given for bachelor’s and master’s students at GASU. Students are given opportunities at Etalon Group to undergo practical training, to complete internships for the implementation of business cases and to conduct research within the Company’s business units. As part of its cooperation with universities, Etalon Group signed an agreement with the National Research Moscow State University of Civil Engineering (NRU MGSU) on 18 November 2020 for the development of long-term cooperation related to education and scientific research. The Company agreed with NRU MGSU on targeted training and professional development for specialists assigned by Etalon Group, on the joint development of advanced educational programmes and on academic staff exchanges. In addition, the Company and NRU MGSU plan to cooperate on scientific research related to the introduction of new materials and technologies: specialists from the university and from Etalon Group will work together to solve problems in the field of analytics and standard-setting, to carry out survey and design work and to conduct applied scientific research in various fields, including with the participation of young scientists. This sort of interaction with educational institutions enables Etalon Group to contribute to the education of young specialists, while also offering top graduates an opportunity to work for the Company. In addition to direct cooperation with universities, In 2020, Etalon Group became the General Partner of the Changellenge>> Cup Russia Case Championship. This is the largest case championship in Russia and the ORIENTATION PROGRAMME FOR NEW EMPLOYEES NUMBER OF EMPLOYEES TAKING PART IN THE ORIENTATION PROGRAMME 2020 2019 2018 St Petersburg Moscow Production unit TOTAL 61 163 120 344 109 94 112 315 86 80 112 278 160 SUSTAINABILITY 161 ANNUAL REPORT 2020 ETALON GROUP SOCIAL POLICY Taking care of the health and safety of our employees is our top priority In addition to the proactive steps to create a safe working environment and prevent injuries at construction sites detailed in the “Occupational health and safety” section, we also devoted significant time and effort in the reporting year—due to the outbreak and spread of the coronavirus—to arranging safe working conditions for our office employees. We had to respond to the new situation quickly and in a flexible manner: we introduced face-mask requirements and temperature checks, set up an on-site doctor’s office and gave due consideration to spatial organisation and the movement of staff. Older employees and those with conditions that increased their risk of infection and severe illness, and later all other line employees, worked remotely form April to August 2020 and from October 2020 to February 2021. In addition, more than 1,000 Group employees were insured in 2020, through a programme that provided compensation in case of a positive COVID-19 diagnosis. In addition to COVID insurance, Company life and health insurance programmes for staff remained in place, covering more than 2.5 thousand people. The life insurance programme provides around-the-clock life insurance for both white- and blue-collar personnel. Etalon Group provides accident insurance for employees working at construction sites and for those employees with high-risk jobs. We provide employees with access to quality healthcare and encourage active lifestyles. As part of the employee benefits package, Etalon Group offers an additional private health insurance programme, which 2,029 Company employees took part in last year. Etalon Group strives to improve its employees’ quality of life Through partnership programmes, discounts are available to Company employees for insurance services, medical services, fitness club memberships and educational programmes at an online language school. In addition, we offer employees the opportunity to purchase apartments at a discount, the size of which depends on the employee’s service time with Etalon Group. The Company supports employees in difficult life situations. In addition, Etalon Group provides financial assistance to employees who retire from the Company, as well as to existing employees when they have a child. In 2020, 184 Company employees received financial support, with the total amount of payments coming to more than RUB 9 million (compared with 224 people and RUB 10 million in 2019). In 2020, payments for employees on sick leave and maternity leave amounted to RUB 79.6 million, compared with RUB 61.9 million in 2019. Employees who devote many years to Etalon Group and make a significant contribution to the Company’s development receive a corporate pension. The number of people receiving such a pension, 44, has not changed over the last three years. 2,029 EMPLOYEES TOOK PART IN ADDITIONAL PRIVATE HEALTH INSURANCE PROGRAMME 184 EMPLOYEES RECEIVED FINANCIAL SUPPORT EMPLOYEE LIFE AND HEALTH INSURANCE NUMBER OF EMPLOYEES TAKING PART IN THE LIFE AND HEALTH INSURANCE PROGRAMME St Petersburg Moscow Production unit TOTAL HEALTH INSURANCE PROGRAMMES NUMBER OF EMPLOYEES TAKING PART IN HEALTH INSURANCE PROGRAMMES St Petersburg Moscow Production unit TOTAL PAYMENTS Death of a close relative Birth of a child Other TOTAL FINANCIAL ASSISTANCE TO EMPLOYEES MLN RUB 2018 489 339 1,466 2,294 2018 437 376 1,168 1,981 2020 483 602 1,500 2,585 2020 483 602 944 2,029 2019 506 683 1,500 2,689 2019 506 683 1,200 2,389 2020 2019 4.1 3.5 1.6 9.2 3.0 3.9 3.3 10.2 EMPLOYEE EVALUATION AND REMUNERATION POLICY Etalon Group adheres to the principle of providing decent wages, which are based solely on each employee’s value to the Company and also provide motivation for the achievement of business goals. The Company: • provides employees with clear and fair remuneration that contributes to the achievement of Etalon Group’s goals; • applies a unified, systematic approach to the remuneration of all employees in all Etalon Group companies; • determines remuneration based on achievement of Etalon Group’s operational and strategic goals and the specific results of the work of each employee; • creates conditions for employees to set ambitious goals and to take responsibility for the achievement of those goals. Remuneration for Etalon Group employees consists of a base salary, bonuses, non-financial incentives and various benefits. We study salary scales every year, which helps us pay salaries at market levels, i.e. higher than median wages. We also strive for an open and honest dialogue with employees, meaning two-way communication about working arrangements, job performance and professional growth, as well as important corporate issues. We notify employees at least eight weeks in advance of significant operational changes that could affect them. The Company’s line employees receive regular feedback from their immediate supervisor. The Company periodically conducts research and surveys among its employees to assess their satisfaction and performance. Another 360-degree survey was conducted In 2020, to assess 29 executives (14 women and 15 men) in the Group’s main business units in Moscow and St Petersburg. About 110 Company employees took part in the survey. 162 SUSTAINABILITY 163 ANNUAL REPORT 2020 WORK-LIFE BALANCE The Company recognises the importance of a reasonable balance between one’s work and one’s personal development. We give our employees the opportunity to successfully combine their work and family responsibilities. In 2020, 93 Etalon Group employees, including five men, took advantage of the right to parental leave, compared with 87 employees a year earlier; 34 employees (31 women and 3 men, compared with 65 employees in 2019) returned from parental leave and are still working for the Company. If necessary and if the nature of their work permits it, we also allow our employees to work on an individual schedule or remotely. In 2020, 95 Company employees (60 women and 35 men) worked on an individual schedule, either remotely or part-time. EQUAL OPPORTUNITIES Etalon Group is committed to the principles of the UN Global Compact, which call on companies to support and observe the provisions enshrined in the Universal Declaration of Human Rights. The Company adheres to a policy of zero tolerance for discrimination on the basis of age, skin colour, ethnicity, sex or any other basis and makes every effort to ensure that career opportunities at Etalon Group depend solely on an employee’s personal and professional qualifications. All Etalon Group companies strive to maintain a corporate culture based on mutual respect and the active participation of all employees in the life of the Company. Despite the specific nature of the industry, women account for around 30 % of managers at all levels within Etalon Group. At the same time, the percentage of women in managerial positions in 2020, was even a little higher than in the Group as a whole: 31.4 % versus 29.9 %. In the Group’s management company, women account for almost half the management team: 34 of 69 executives. The composition of the Board of Directors changed in 2020: it now includes nine members, including two women. ETALON GROUP MANAGEMENT NUMBER OF MANAGERS AT ALL LEVELS 2020 2019 NUMBER PERCENTAGE NUMBER PERCENTAGE AGE Under 30 30–50 Over 50 GENDER Female Male TOTAL 78 752 208 326 712 1,038 8 % 72 % 20 % 31 % 69 % 93 719 260 339 733 1,072 9 % 67 % 24 % 32 % 68 % PERCENTAGE OF WOMEN AMONG ETALON GROUP EMPLOYEES IN 2020 ST PETERSBURG SHARE, % MOSCOW SHARE, % PRODUCTION UNIT SHARE, % TOTAL SHARE, % MANAGERS Female Male LINE EMPLOYEES Female Male BLUE-COLLAR WORKERS: Female Male 79 119 199 90 40 % 60 % 69 % 31 % 88 135 257 166 39 % 61 % 61 % 39 % 159 458 487 482 26 % 74 % 50 % 50 % 326 712 943 738 31 % 69 % 56 % 44 % 109 6 % 109 6 % 1,778 94 % 1,778 94 % 164 164 SUSTAINABILITY SUSTAINABILITY CUSTOMERS CUSTOMER PROFILE1 ST PETERSBURG OCCUPATION Etalon Group targets middle-class customers who seek improved living conditions for themselves and their families. The vertical integration of the business allows the Company to engage in two-way communication with customers regardless of where they are in their relationship with us – whether searching for an apartment or living in finished buildings that we service. 165 165 We use feedback from nearly 350,000 existing and potential customers to constantly improve our product, service quality and range of services. ANNUAL REPORT 2020 ANNUAL REPORT 2020 42 AVERAGE CUSTOMER AGE PURCHASE MOTIVE AGE 38 % 19 % 11 % 11 % 8 % 4 % 3 % 2 % 1 % 1 % 1 % 66 % 21 % 8 % 2 % 2 % 7 % 16 % 29 % 35 % 13 % 1 % Manager, specialist Director, top manager Public sector employee Business owner, entrepreneur Public official Blue-collar worker Retiree Homemaker Student Unemployed Military service member Place for oneself or family to live Place for children to live For investment purposes Place for parents to live Other >60 50–59 40–49 30–39 20–29 <20 MOSCOW OCCUPATION PURCHASE BUDGET, MLN RUB AVERAGE AREA OF ACQUIRED PROPERTY, SQM REPEAT PURCHASE RATE 48 % 15 % 15 % 11 % 9 % 2 % 8 11 10 8 8 11 51 60 59 51 52 56 15 % 26 % 15 % 27 % 15 % 15 % White-collar professional Business owner, entrepreneur Senior management Other Public official Student White-collar professional Business owner, entrepreneur Senior management Other Public official Student White-collar professional Business owner, entrepreneur Senior management Other Public official Student White-collar professional Business owner, entrepreneur Senior management Other Public official Student 1 Etalon Group data 166 SUSTAINABILITY 167 ANNUAL REPORT 2020 24/7 SECURITY IS A SOUGHT AFTER- FEATURE AT OUR PROJECTS FURTHER PRODUCT AND CUSTOMER SERVICE DEVELOPMENT One of the most important elements of our strategy involves creating the best customer experience throughout the customer journey. Variety and availability of choice are seeing increased demand among customers. There is growing demand for mixed types of residential spaces, where there is an opportunity to develop new economic and creative industry clusters—for example, modern studios where you can live and work (light industrial) or office space for small businesses on the ground floors of buildings in which employees of such companies live and work. Studying the needs of target customers helps us to take a strategic approach to product and customer service development. ordering finishing work from the Company, which can also be used for additional services, such as plumbing installation, window washing and dry cleaning. After a home is put into service, the app will receive a push notification about the possibility of receiving the keys and carrying out a final home inspection. The process can also be carried out online by sending all comments through the app. As a result, we will significantly increase our customer value and satisfaction, which will allow us to secure an influx of new customers looking to buy housing in our complexes and to fulfil our plans to increase the scale of the business. The purpose of the study was to learn about the attitudes and preferences of potential customers regarding more than 157 characteristics of modern housing. The study assessed three key indicators: the importance and desirability of each feature, as well as respondents’ willingness to pay for a feature. The results of the study showed that safety is a common value for all groups of business-class homebuyers. Everyone is willing to pay extra for a lighted courtyard, everyone understands the additional costs of providing 24/7 security, and the overwhelming majority agree with an increase in the cost of an apartment if the residential complex has a face recognition system at the entrance to the grounds and a 24/7 concierge service. Another common denominator for consumers is a smart home system. Almost all respondents agree (confidence score of 69–75) that this option costs extra money, and they are willing to pay extra. We are actively improving the interface of our sales website and customer dashboard, creating new channels of interaction and opportunities to provide feedback on our product. In addition, we are devoting particular attention to Etalon My Home, our mobile app, which was created for residents of our complexes. This app should become the basis for increasing our customers’ engagement regarding questions concerning further product improvement. Here we plan to expand the range of added services in cooperation with new partners. We believe that increasing customer engagement through added services will create more opportunities for us in terms of increased share of repeat purchases and an influx of new customers. We are considering combining sales and service infrastructure into a single user- friendly interface in the coming years. Residents of the complexes we have built will always see current offers in their app. When purchasing an apartment, they will earn bonuses that can be used when WORKING WITH CUSTOMERS Etalon Group takes a customer- oriented approach to doing business. We work to understand what is important for our current and potential customers, creating not just homes but also a comfortable living environment for them. When restrictions were introduced to combat the spread of COVID-19, Etalon Group took every possible measure to ensure that the situation did not affect the residents of our buildings or the provision of utilities. The service company began actively developing remote communication services and focused on phone calls and requests sent via e-mail. Inquiries were accepted as usual (24 hours a day), and all requests and questions were processed in full. Additionally, in taking care of residents’ health, the Company began applying comprehensive disinfection measures in residential complexes during the first days of the pandemic response. We regularly disinfect entrances, vestibules, corridors, elevator halls and cabins, staircases, and contact surfaces. The following were cleaned at least three times per day—door handles, switches, handrails, railings, mailboxes, windowsills, elevator buttons, mirrors, and intercoms. Etalon Group not only strives to maintain a high level of service for its residential complexes, but we also seek to better understand the needs of our target customers for continuous improvement of projects and services. The Company carefully studies the preferences and needs of its target customers through a hotline, call centres and the Etalon My Home mobile app. Inquiries and feedback from customers are received, and products and services are developed on the basis of this information. From the evolution of our product to our sales, promotion and follow-up service, we draw on customers’ requirements to create the best product and customer experience. In 2020, we received over 5,000 inquiries, which helped us identify strengths and areas for potential growth. In addition to feedback from existing customers, the Company also worked with Celebrium-X to conduct an urban study of product preferences exhibited by buyers of comfort- and business-class apartments in Moscow. 168 SUSTAINABILITY 169 ANNUAL REPORT 2020 SOCIAL RESPONSIBILITY Etalon Group and its customers understand that the concept of housing quality is now inextricably linked with the quality of the surrounding area. For many years, we have been investing in creating comfortable surroundings and playing an active role in the development of local communities: we develop multifunctional projects and social infrastructure facilities, preserve and reconstruct historical monuments, support charitable programmes and organise cultural and sporting events. DEVELOPMENT OF SOCIAL INFRASTRUCTURE Given the nature of our business, the construction of schools, preschools, medical facilities and other social infrastructure is one of the key aspects of the development of local communities. In St Petersburg, the Company completed three preschool—built within the Galactica residential quarter—designed for a total of 200 pupils, and began construction of another, three-storey preschool for 220 pupils with a total area of more than 5 thousand sqm, a swimming pool, a music room, a gymnasium, playrooms, sleeping rooms, a medical station and a curriculum office. In 2020, Etalon Group also received permits for the construction of a school for 825 pupils as part of the Galactica project. In addition, the Company completed the construction of a preschool in 2020, at the House on Kosmonavtov residential complex as well as a preschool for 140 children at the Okhta House residential complex; the 390 CHILDREN TOTAL CAPACITY OF EDUCATIONAL FACILITIES DELIVERED BY ETALON GROUP IN 2020 Company also handed over to the city a preschool with places for 80 children built as part of the Fusion residential complex. In the future, new preschools will appear in other Group residential complexes as well: in 3Q 2020, the Company received permits for the construction of a preschool at the House on Blyukhera residential complex and another at the Petrovskiy Landmark residential complex. In Moscow during the reporting year, Etalon Group received a statement of conformity with requirements for the design documentation for a preschool building at the Etalon City residential complex. The preschool was delivered in January 2021. The modern three-storey building with an underground service floor has a total area of 3 thousand sqm. It can comfortably accommodate nine groups of 25 children aged 3–7. Thus, a total of 225 children can attend the new preschool. In addition to sleeping rooms, dressing rooms, canteens and lavatories, the new preschool also has rooms for sports and music, as well as medical facilities. The closed landscaped grounds include playgrounds with awnings to offer protection from rain and snow. elevator with an enlarged cab. With high ceilings, daylighting and additional windows in the classrooms that open onto an inner atrium, the classrooms will be illuminated by a large amount of natural light. Group assisted with the procurement and installation of educational equipment: the Lyceum now has smartboards, screens for an information area, equipment for music rooms and chemistry labs, and much more. A school for 625 pupils will also be built on the grounds of the project. In 2019, the initial design of the building was revised at the initiative of the developer, and the total area of the school was increased from 6.2 thousand sqm to 10.8 thousand sqm to ensure that there would be a sufficient amount of educational infrastructure for the residents of the Etalon City residential complex. Etalon Group began construction in September 2020 and expects to complete the facility by the end of 2021. In addition to classrooms, the four-storey building will house two gymnasiums with dressing rooms and showers, a state-of- the-art assembly hall with 375 seats, a dining hall with 313 places and its own kitchen, and a medical station. For children with disabilities, the school will have an As part of the comprehensive improvement project, the grounds adjacent to the new school will be equipped with sports grounds covered with rubber surfaces, horizontal bars and exercise equipment and a grass football field; trees and bushes will be planted, and a network of walking paths will be arranged to connect the school grounds with the surrounding residential buildings. In addition to building schools as part of its projects, the Company also helps expand and improve the social infrastructure in the cities where it operates. In August 2020, a ceremony took place to mark the grand opening of the Pierre de Coubertin Lyceum No. 211, in the Central district of St Petersburg. The renovated Lyceum was reopened after its first major overhaul in the school’s 160-year history. Etalon Educational infrastructure is one of the key added values of our projects and one of the basic conditions for creating a comfortable urban environment; therefore, despite the objective difficulties and restrictions associated with the pandemic, Etalon Group has paid and continues to pay special attention to these facilities. In 2020, Etalon Group delivered five educational institutions for children with a total area of over 7 ths sqm; three preschools for 470 pupils and two schools for 1,450 children are under construction. 170 SUSTAINABILITY 171 ANNUAL REPORT 2020 PRESERVATION OF CULTURAL AND HISTORICAL HERITAGE Etalon Group is always cautious in its approach to the history of the locations where its residential complexes are built. For example, the Company plays a role in the construction of monuments dedicated to Russian military veterans and in the preservation of cultural heritage. Every year, the Company pays tribute to veterans of World War II and hosts commemorative events involving the residents of its residential complexes. In January, just before the anniversary marking the lifting of the siege of Leningrad, Etalon Group helped organise events for veterans, homefront workers and inhabitants of the besieged city. Company employees visited a branch of the Russian Red Cross, where they greeted veterans and presented them with flowers and gifts. The next day, at Utkina Zavod, Etalon Group employees and students from school No. 690 laid flowers at the memorial to the heroic defenders of Leningrad near the Swallow’s Nest residential complex. The memorial, which students have been looking after for several years, was erected by the Company in 2013. Through its development projects, Etalon Group strives to preserve cultural heritage sites and to make them new focal points for the development of modern, advanced and multifunctional urban spaces. One successful project that has managed to preserve the historical heritage and breathe new life into the area is the Silver Fountain business-class residential complex, which the Company is building in Moscow on the site of the former Alekseevskaya water- lifting station. The carefully reconstructed 19th-century Gothic industrial buildings and the historical Wallace Fountain have become the central attraction in the public space surrounding the modern residential complex. In 2020, the Silver Fountain residential complex was named the winner at the seventh NOPRIZ International Professional Competition in the following categories: “Best Project for the Improvement and Creation of a Comfortable Urban Environment” “Best Premium Residential Property Project” “Best Project for the Restoration (Reconstruction) of a Cultural Heritage Site” DEVELOPING LOCAL COMMUNITIES Etalon Group strives to create a comfortable environment for living and for recreation, while also encouraging good relations between residents. Events and initiatives to strengthen communities The company holds events to celebrate the New Year, Knowledge Day, Cosmonautics Day, Victory Day and Maslenitsa, and it also arranges sporting events. In addition to celebrations and subbotniks on the grounds of residential complexes, a number of initiatives and actions were held remotely In 2020, in connection with the pandemic. For example, the Company held photo contests called “Summer Petersburg”, “Pets of Etalon” and “An Etalon-Style New Year”. With restrictions on public events in place, Etalon Group together with the Usadba Deda Moroza amusement park and the Moscow City Park installed a large number of Santa Claus mailboxes at its residential complexes in Moscow and St Petersburg to create a holiday atmosphere for its customers. During the pandemic, Etalon Group took part in initiatives aimed at encouraging people to follow the regulations on self- isolation and to support those who, during this difficult period, were working in order to ensure our safety and comfort. The hashtag #ostavaisyadoma (“stay home”) appeared on billboards and in Etalon Group’s social media accounts. The developer showed solidarity with companies that placed calls in their ads for people to stay home, shop online, take care of their health and practise good hygiene. A large number of residents took part in the “Spasibo” (“Thank You”) campaign organised by the Company at the Emerald Hills residential complex to thank doctors; at the appointed time, residents went out onto their balconies and shouted “Thank you!” This sort of good-neighbourliness is gratifying and inspiring. We also took part in Mail.Ru’s Dobro initiative and offered residents of our properties help delivering food to elderly neighbours who were in self-isolation because of the COVID-19 pandemic. Several action groups from Etalon’s residential complexes responded to the call and disseminated information to their neighbours. COMMUNITY DEVELOPMENT PROGRAMMES 2019 2020 Number of events/programmes 2 17 Amount invested in the development of local communities, RUB ths 871 3,821 172 SUSTAINABILITY 173 ANNUAL REPORT 2020 DEVELOPING LOCAL COMMUNITIES (CONTINUED) 3.8 MLN RUB INVESTED IN THE DEVELOPMENT OF LOCAL COMMUNITIES IN 2020 Creating comfortable surroundings Etalon Group pays careful attention to the improvement of its residential complexes, planning out in detail the location of walking trails, recreation areas, sports facilities and playgrounds, garden squares and green areas on the grounds of its properties. On the grounds of the Etalon City project in Moscow, for example, a small private botanical garden was built for a large variety of plants; signs indicating their names were added so that the residents of the complex can not only admire the trees and shrubs but also learn more about them. At the Wings residential complex, another Company project, there will be accessible terraces on the upper floors of the towers with observation decks, an amphitheatre for holding open-air public events, a photo studio in the form of a covered pavilion, recreation and business areas and an entire park filled with convertible spaces that, depending on the needs of residents, can be turned into a co-working space, an outdoor cinema, an educational centre, meeting rooms or playrooms for children. In its development of the state-of-the-art, multifunctional ZiL-Yug residential quarter, Etalon Group’s flagship project in Moscow, the Company employed the concept of participatory design and launched the Generation Zil media platform and urban planning lab in order to involve a wide range of the Russian and international expert communities as well as Moscow residents in discussions on the future of the ZiL-Yug grounds. Workshops and discussions at the Generation Zil urban planning lab are helping with the formulation of the best approach to combining various typologies for development, public spaces, social infrastructure, transport and pedestrian links, and with the creation of a modern district that will meet the needs of new generations and offer a comfortable place to live, work and relax seven days a week at any time of the year. In the spring and summer, the Company has traditionally undertaken landscaping and beautification work on the grounds adjacent to its residential complexes. In addition to planting trees and flowers in newly built residential properties, Etalon Group began the first stage of its greenspace expansion in Linear Park at the Galactica project, where about a dozen species of trees and bushes were planted. CHARITY Etalon Group provides charitable assistance to cultural institutions, donates funds for the restoration of churches, finances sports and recreational activities, and supports charitable foundations. The Company has been supporting the Gift to an Angel fund and the Dobroshrift project for several years. In the reporting year, the Group also helped finance projects run by the Sistema and Detsky Kino-May foundations as well as a project of the Russian Rugby Federation aimed at developing and popularising rugby in the country. In addition, an Etalon Group team took part in the AdVita foundation’s “What? Where? When?” charity cup competition. All funds raised from the competition were used to pay for the work of the diagnostic laboratories at the R. M. Gorbacheva Research Institute of Paediatric Oncology, Haematology and Transplantology. In total, Etalon Group spent over RUB 46 million on charity programmes in 2020. 46,301 THS RUB IN CHARITABLE AID GIVEN IN 2020 CHARITY PROGRAMMES 2019 2020 Number of charity events/programmes 17 14 Amount of charitable assistance provided, RUB ths 42,495 46,301 174 SUSTAINABILITY 175 ANNUAL REPORT 2020 INNOVATION BUILDING INFORMATION MODELLING Creating residential complexes that meet high standards for comfortable living, are modern and fulfil customers’ needs requires the use of new technologies and approaches throughout project life cycles. Reviewing, adapting and applying innovative solutions in all business processes is the cornerstone of Etalon’s new strategy and the key to achieving leadership in the industry. BIM (building information modelling) technology creates a 3D digital prototype of a planned new building. Etalon is a pioneer in the use of BIM in Russia. The Company began designing and constructing residential complexes using this innovative technology in 2012, when it introduced its own BIM standard, paving the way for a new level of quality. Today, Etalon Group uses BIM technology where possible at all stages of its projects in St Petersburg and Moscow. Benefits of BIM technologies include: • Reducing possible human error through the use of drones and video cameras to enable complete video oversight of construction work. • Project management is based on actual data; all interactions between the customer and general contractor, as well as work by the general contractor, are on the basis of this information. • The digital model is fully transparent, which helps to effectively manage costs. • Storing data in a single information space enables rapid and open access to information for all participants in the process. • Considerable detail in reporting for each • type of work. In addition to the building model, BIM provides analytical materials and processed data in the form of dashboards, which provide predictions regarding project time frames in the medium term, so that the risk of missing deadlines can be assessed accurately. • The information can also be used when holding tenders for contractors (for example, to filter out applications from contractors that underperformed previously). • Rapid access to information about safety and potential hazards at a construction site. Etalon Group has been the BIM leader in the Russian construction industry since 20141. Russia’s BIM Leaders Club (under the auspices of Autodesk) is a non-profit organisation that brings together national architects, construction companies and experts who have achieved outstanding results using BIM technology and are ready to share their knowledge and expertise with other industry players. 1 The Etalon Science and Technology Centre has won an award for its BIM applications In the fourth Russian BIM Technologies Competition (held in 2019/20), Etalon’s Science and Technology Centre won the prize for Information Modelling of Residential Buildings. It was awarded for the Company’s Schastye (“Happiness”) residential projects in Moscow. Etalon Group also received a special diploma for the introduction and large-scale use of information modelling technology in the construction of the Silver Fountain residential complex, also in Moscow. Etalon is systematically introducing BIM technology into the design and subsequent stages of its investment and construction projects, and is spreading knowledge of its own BIM standard to real estate designers outside the Group. The technology has been tested at the construction planning stage, and construction supervisory services and geodetic services are making ever greater use of it. Etalon Group’s Operations Department is also preparing to incorporate information models as part of its work. In 2018, a lack of satisfactory construction industry software led Etalon Group to begin creating in-house IT functions to develop applications capable of addressing its needs. The results of this work are already in use, and our other IT systems are now being integrated with these applications. • The Group has found applications for BIM technology beyond the development of residential projects and monitoring of construction work. It now also uses information modelling technologies for: • maintaining high standards of health and safety at construction sites (see the description of the safety index in the Occupational health and safety section of this report); improving processes during the transfer of ownership of apartments: an online programme called “Transfer of Apartments to Buyers”, developed in 2020, covers all aspects of transfer and has already achieved impressive results in both Moscow and St Petersburg, bringing Etalon Group closer to its goal of ownership transferring all apartments immediately and without complaints from buyers. 176 SUSTAINABILITY 177 ANNUAL REPORT 2020 BIM TECHNOLOGY DEVELOPMENTS BY ETALON: The Etalon Projects general data environment and the construction information classification system are the two pillars of the Group’s digital platform. Etalon Projects is a proprietary tool developed by the Group for project document flow using BIM technology in web format. The tool integrates construction work with office work, and cloud applications with desktop applications for all process participants, from designer to construction worker. Automation has drastically reduced the time needed for generating construction oversight reports. Previously, Company employees had to manually transfer information from the construction model to formats that could be used by inspectors, and this work took up to three days. The new cloud service creates a tool for project workflow from a web browser, which is tied to the information model. Etalon’s in-house document management system is adapted to corporate requirements and processes and has a Russian-language interface. One tangible advantage is that it is no longer necessary to purchase licences and additional programmes for reading and approving project documentation, or expensive graphic stations for construction workers and customer services that need to view the information models. The system is being piloted and will soon be applied to all new Group projects. Development of Etalon Group’s digital platform is ongoing. In 2021, modules will be launched for automating quality control, downloading construction control forms and providing smart dashboards for managers. The Integrated Construction Control System (ICCS) is a modular digital cloud platform that makes it possible to monitor progress in an investment and construction project throughout the life cycle, using only a browser and an Internet connection. The following ICCS modules have been brought into operation: • Health and safety Construction site safety monitoring with a risk-based approach, using BIM models. • Fire safety Fire safety monitoring at construction workers’ accommodations. Monitoring and measurement of accommodation sites. • Transfer of apartments to buyers A tool that automates the process of pre-commissioning and commissioning of completed real estate projects. • Monitoring by investors of timing and volumes of construction work (commissioned in 2020) A tool for analysing progress in construction work. Recording of factually completed work in the BIM model at the construction site, linked to the construction schedule in the cloud environment of the MS Project Server. A new module, the “Engineer’s Interface for Construction Monitoring”, is scheduled for launch in 2021 and is designed to enable full interaction between technical monitoring and the BIM model of the construction site. Etalon will also launch another module, “Acceptance by the Management Company”, in 2021. This module covers transfer to a property management company of common areas, engineering systems and outdoor areas, and also facilitates work with contractors’ warranties. ICCS monitoring is now being tested in pilot projects in St Petersburg: a preschool at the House on Blyukhera residential project (the first in Russia to undergo expert assessment in BIM format using BIM rules); and a preschool at the Petrovskiy Landmark residential project. The portfolio of projects involving web monitoring will gradually be expanded. CASE STUDY A new preschool on Prospekt Marshala Blyukhera in St Petersburg, built by Etalon Group, was the first construction project in Russia to undergo a state expert assessment in digital format. For the first time in Russia, a project designed entirely with the use of BIM technologies successfully passed a state expert assessment in digital format. The project, a preschool, was built as part of Etalon Group's corporate programme for the construction of socially important infrastructure and is included in the register of pilot projects of the Russian Ministry of Construction, Housing and Utilities. The pre-school project is special because it used BIM technologies for other purposes over and above project design. An integrated digital model was created that could be used for providing geodetic support, managing construction work and monitoring progress in implementation (including compliance with safety rules by workers). Etalon Group created the new technology in-house, using its own know-how. This marked the first time in Russia that an official assessment of a new social facility was carried out digitally. The work was carried out quickly, despite its novelty, thanks to automation of the inspection process (inspection of building geometry, materials and compliance with standards). The Ministry of Construction, Housing and Utilities was closely involved in every step of the design work and the actual assessment. The creation of an IT model of the kindergarten on Prospekt Marshala Blyukhera was an important step towards the introduction of BIM technologies throughout the Russian construction industry. The main practical outcome of this pilot project will be the creation of a more advanced algorithm for BIM technology use, adapted to the needs of public bodies. This will make it possible to automate more operations in the future, further accelerating design work for residential buildings and for commercial and social infrastructure. TRAINING AND INNOVATION IN THE INDUSTRY Etalon takes part in all major BIM events and is keen to share its knowledge and experience with young specialists and other industry colleagues. The Group cooperates with universities in St Petersburg that prepare specialists for the construction industry: the ITMO University, Peter the Great St Petersburg Polytechnic University and St Petersburg State University of Architecture and Civil Engineering. Etalon Group provides internships and site visits for students every year. In 2017, the Etalon Science and Technology Centre teamed with ITMO University to design a study programme for BIM technology specialists. In 2020, a course on digital modelling of construction safety was introduced for undergraduate students at the Peter the Great St Petersburg Polytechnic University. In 2021, Russia’s first national-level BIM skills competition for students of universities and technical colleges will be launched and organised by Etalon Group. The winners will be offered internships at leading construction companies and will be included on the Company’s recruitment lists. Etalon Group’s Science and Technology Centre and its staff play an active part in various working groups at the Ministry of Construction, Housing and Utilities, offering reports and helping to design solutions for use throughout the industry. Group staff are part of a ministry expert group responsible for the phased implementation of BIM technologies, as well as other key working groups: for the design of an electronic platform for the transition of state assessments in the construction industry to IT modelling; for the design and implementation of a construction information classifier; and for the Commission for Digitalisation of the Construction Industry. 178 SUSTAINABILITY 179 ANNUAL REPORT 2020 STANDARDISED DESIGN Etalon is introducing a standard design system based on BIM technology as part of its new development strategy. The overall approach is to create projects based on libraries of standard elements. A range of combinations of repeating elements can be formed using typical layouts and standard structural and engineering solutions (towers, detached or corner sections, urban villas and other housing types). Standardisation also facilitates the apartment layout for each floor of a new building. For example, multilevel apartments with separate exits on the ground floor, studios and small apartments on lower floors and spacious apartments with terraces on upper floors. Various standard building solutions can be combined into master plans for residential complexes and whole districts (the basis of computer-aided design systems). Creating digital models and deploying a standard design system is labour- intensive during initial stages, but provides transparency, convenience and time savings in the future. As much more information is entered into the model than when using a traditional approach, the Company receives much of the working documentation at the first stage of a project, so that significantly less time is spent on preparing cost estimates. The quality of design solutions is improved, while design time and costs are reduced. The system also allows standardised projects to be constantly updated, which keeps them relevant and ensures that they fulfil changing customer needs. The Company is currently working on a standardised comfort-class product, Etalon. Comfort, which should be completed by the end of 2021. Etalon Group intends to create libraries of standard elements and solutions for the following: • Construction solutions • Layout • Engineering systems • Lifts and stairways • Facades A library of layouts has already been created using formats that the Company has already used in its projects, and that have proved most attractive and popular. It currently contains around 385 layouts. Their number will be reduced to 200-250 (the most successful) in the future, offering a broad selection of apartments as well as flexibility to ensure that Etalon’s projects are unique. Improvements in the efficiency and speed of design are assured. 385 STANDARD LAYOUTS XS S M L XL MODULES CONCEPT (ISOMETRY) Module width based on size of exterior tiles NEW CONSTRUCTION TECHNOLOGIES STUDIO 1-BEDROOM 2-BEDROOM 3-BEDROOM 4-BEDROOM 27 164 136 34 24 Designs based on carefully planned and well-matched standard elements enable a wide range of options and a multiplicity of dimensions, as well as maximise efficiency in the use of building materials. For example, the dimensions of modules can be planned taking account of the step dimensions of staircases, and the width and height of facade tiles. Module size optimised relative to dimensions of staircase One of Etalon Group’s priorities is to certify and adopt environmentally friendly technologies in residential construction in Russia using CLT panels. Together with Segezha Group, it plans to adapt and certify CLT technology for the Russian market, and is also preparing to produce CLT panels to its standards for use in new projects. Etalon’s plans for the short term include manufacturing facades for residential buildings and constructing apartments using hybrid CLT technology (as developer) and office buildings (as general contractor). Medium-term plans include the design and construction of high-end (Etalon.Plus) residential developments using CLT panels. In addition to its libraries of typical layouts, Etalon has begun work on a library of standard engineering solutions. A plan of basic engineering solutions has been prepared, and Group specialists are selecting the best of them based on ergonomics and efficiency. Work is advanced on a set of standard approaches in construction operations: current work is focused on procedures for assembling reinforced concrete structures, to be followed by the design of standard facade solutions. Etalon is also working on terms of reference for smart building systems in the Zil-Yug project in Moscow. These developments will provide future standards for digital building systems. Features of buildings using CLT: • hybrid buildings • buildings made entirely from wood Architectural solutions: • unlimited architectural possibilities due to excellent use properties of CLT panels and elements Benefits of CLT panels: • Reduction of the production cycle by 25 % • High-quality precision assembly of structures • Reduction of construction waste • Increased strength and lightness (six times lighter than reinforced concrete) at costs comparable to block-and-slab construction • Low carbon footprint: reduction of CO2 emissions by up to 75 %1 • Reduced energy consumption in production and better overall energy efficiency of buildings • Better sound and heat insulation • Increased fire resistance 1 Source: European Forest Week (19/11/2019); report by Stora Enso “Massive wood construction in Europe on the example of CLT: history & outlook” 180 SUSTAINABILITY 181 ANNUAL REPORT 2020 BUSINESS CONDUCT FAIR COMPETITION Etalon Group adheres to regulatory requirements and upholds high ethical standards throughout its operations. We aim to ensure that any contractors, consultants and agents representing our interests also follow legal requirements and best practices in terms of Business conduct. Our fundamental values and principles of Business conduct, as well as the methods we use to monitor corporate ethics rules, are enshrined in Etalon Group’s Code of Corporate Ethics and the Regulations on Conducting Tenders. In accordance with these documents, the Company has established and maintains a zero- tolerance policy towards corruption and discrimination, as well as a fair selection procedure for suppliers and contractors. Etalon Group selects its suppliers and contractors on a competitive basis. The main principle in the selection process is to ensure fair and open competition. Tender procedures are governed by the Regulations on Conducting Tenders: • The Company does not permit violations • of antitrust laws, including unfair competition; In order to carefully monitor the selection of contractors, the Company maintains a master schedule—a complete list of tenders for the performance of work, the provision of services and the supply of goods; • All applicants must undergo a standard screening process. The requirements for applicants have been formalised and include: - positive experience working with large construction companies; - high quality in terms of the materials supplied, equipment used and work performed; strict compliance with deadlines; - In addition to these documents, in 2020, the Company developed and is implementing "Regulations on the Hotline for Countering Fraud, Corruption and Embezzlement". The Regulations determine the main goals, objectives, principles of the hotline, its operating procedures and the distribution of tasks and responsibilities between Etalon Group and its subsidiaries. - availability of sufficient human resources and the necessary production and technical facilities; sound financial standing; solid business reputation; and - - - compliance with regulatory requirements, including the availability of the necessary licences and certificates. In 2020, additional criteria for evaluating candidates were introduced in terms of technical and functional capabilities, as well as financial and commercial requirements. The first involves, inter alia, ensuring that the project is completed on time in accordance with Etalon Group’s schedule, as well as confirming relevant project implementation experience in terms of number, volume and complexity. • Companies that do not fulfil these requirements and thus are not listed in Etalon Group’s Register of Accredited Counterparties and Suppliers are not eligible to participate in tenders for the performance of work for, or the provision of supplies to, Etalon Group for six months. Decisions to include a counterparty in the Register or to remove a counterparty from the Register are made by the Accreditation Committee in the region where the applicant company in question is located. • Group employees have no conflicts of interest and do not create advantages for individual suppliers or contractors. The Company has a standing Tender Committee, which is designed to ensure open competition between counterparties and to determine the best-possible conditions for Etalon Group in terms of collaboration. The Tender Committee selects the winners of competitive tenders and appoints experts on technical and economic issues in the framework of the tender process. The Tender Committee also has the right to select a second (reserve) winner in case the company that wins the tender decides not to sign the contract. • For tenders totalling less than RUB 40 million, the winners are determined by in-person or absentee voting by the Tender Committee on the basis of the proposals submitted by all participants. In respect of larger contracts, an in-person • auction is conducted, and the winner is determined by in-person voting on the part of the Tender Committee. An in-person procedure enables members of the Tender Committee to make an informed decision on the basis of a direct discussion. • The Company creates a dossier on every counterparty in the Register of Accredited Counterparties and Suppliers that contains information about the Company’s relations with the counterparty, including an assessment of its performance. • The Company conducts random quarterly reviews of counterparties on the basis of the following key criteria: quality, compliance with deadlines, safety, fulfilment of contractual obligations and accounts receivable owed to the Company. Disreputable contractors are excluded from the Register and are not considered as candidates for collaboration in the subsequent 12 months. In 2020, 476 companies were included in the Register of Accredited Counterparties and Suppliers of Etalon Group in St Petersburg and the Moscow region; 83 companies were excluded from the Register. In addition to the Register of Accredited Counterparties and Suppliers, the Company maintains a Register of Strategic Partners for companies that have a long history with Etalon Group. Because of the Company’s proven track record with its strategic partners, as well as the opportunity to pool resources and coordinate activities in a mutually beneficial manner, Etalon Group can do business with such companies without conducting tender procedures. The choice of a strategic partner in each specific case is determined by the Tender Committee; that said, the cost of services should correspond to the rates established in the Register of Strategic Partners for the company in question. • Decisions to include or exclude companies from the Register of Strategic Partners are made by the Accreditation Committee. The Committee holds meetings on the Register of Strategic Partners no more than once every three months. 182 SUSTAINABILITY 183 ANNUAL REPORT 2020 CODE OF CORPORATE ETHICS In the event of a violation of internal regulations by a Company employee, disciplinary measures are applied to said employee in accordance with labour laws. If there is reason to believe that an employee has committed an administrative or criminal offence, information on the alleged violation is transmitted immediately to the relevant state oversight body responsible for investigating administrative or criminal offences. In addition, Etalon Group conducts annual ethics reviews. Employees complete a questionnaire—the Declaration on Ethics and Conflicts of Interest—as a means of verifying whether they are in compliance with the Company’s key requirements and principles. Declarations are completed not only as part of ethics reviews but also when employees are hired and in cases where a conflict of interest occurred during the calendar year. The questionnaire enables the Company to identify conduct violations, as well as circumstances that require further discussion and consideration by the Company’s senior management. Issues related to the clarification and enforcement of the Code of Corporate Ethics are the responsibility of Company management and the Corporate Ethics Officer. Employees at all levels, as well as counterparties, are made familiar with the Company’s anti-corruption policies and procedures. Suppliers and contractors planning to start cooperation with Etalon Group are also subject to mandatory checks by the Security Directorate to confirm their financial stability, impeccable reputation and honest business practices. Etalon Group employees who need advice or who wish to report conduct violations may contact their immediate supervisor. Concerning a number of issues, they may contact the Corporate Conduct Officer directly through official communication channels (by email or by writing to the Company’s head office). The Company guarantees that any information provided by employees about violations of the Code will not be publicised and will not affect the position of the employee reporting the information. The Corporate Conduct Officer is responsible for responding to conduct violations, eliminating conflicts of interest and clarifying the procedure for applying the Code. The Officer may convene a Commission on Corporate Conduct to address challenging situations. COUNTERPARTIES INFORMED ABOUT ETALON GROUP’S ANTI-CORRUPTION POLICY IN 2020 COUNTERPARTIES Number of suppliers Share of total (%) Number of counterparties Share of total (%) MOSCOW ST PETERSBURG 540 30 % 1,261 70 % 1,340 40 % 2,009 60 % TOTAL 1,880 36.5 % 3,270 63.5 % ANTI-CORRUPTION POLICY The Code of Corporate Ethics establishes the basic principles and measures of the Company’s anti-corruption policy: • The Company and its employees should avoid situations in which there may be a conflict of interest. Since 2020, the Company has operated a hotline for combating fraud, corruption and embezzlement. The telephone and email address of the hotline are publicly available on the websites of the Company and its individual projects. Any employee, client, partner or person not related to the Company who has information regarding employees or counterparties of Etalon Group about corrupt behaviour, violations of business ethics or of Etalon Group policies and procedures, violations of current legislation, or other violations and/or abuses of office may send a message to hotmail@etalongroup.com or call 8 800 300 81 03 to report these cases. When processing information, the confidentiality of the identity of the applicant, and of the information submitted is ensured, as is the anonymity of the applicants who do not want to disclose their personal data. Any measures of influence against the person who provided the information are prohibited. In the reporting year, no court cases were initiated against the Company or its employees in connection with corruption. • Etalon Group employees are required to comply, both in Russia and abroad, with the requirements and restrictions established by anti-corruption laws. • Etalon Group does not tolerate any form of unlawful or unethical influence on the decisions of state bodies in the interests of the Company or Group companies, including bribery, offering inappropriate gifts, the practice of nepotism involving civil servants, or engaging in charity or sponsorship at the request of civil servants in an effort to influence their decisions in the Company’s favour. • Etalon Group does not participate in political activities and does not finance political organisations. • The employees of Etalon Group are prohibited from representing the Company in business relations with organisations in whose activities they have a significant personal interest that differs from the interests of the Group, including the financial and equity interests of an employee or their relatives. • Employees are prohibited from engaging in business and other commercial activities that involve the use of the Company’s assets, resources and/ or information, including business contacts. • Etalon Group Employees are prohibited from accepting gifts either in kind or in monetary terms from any third parties in connection with the performance of their official duties. ANTI- DISCRIMINATION POLICY In 2020, the Company had no cases of violations of human rights or incidents of discrimination. In implementing its anti-discrimination policy, Etalon Group is guided by the following principles: • Etalon Group does not tolerate any form of discrimination based on age, race, ethnicity, sex or other grounds in accordance with the laws of the Russian Federation. • No form of harassment, including sexual harassment, or coercion is acceptable, whether in verbal, written, visual, physical or other form. • Etalon Group provides employees with favourable conditions, as well as equal opportunities to upgrade their qualifications and achieve their potential. • Etalon Group welcomes so-called work dynasties, where specific skills are passed down from one generation to the next, but protectionism based on nepotism is prohibited. The Company limits cases of direct or indirect subordination involving relatives. • The Company ensures protection against any form of discrimination. In the implementation of the Company’s personnel, wage and social security policies, any preferences based on nationality, gender, age, etc. are prohibited. 184 SUSTAINABILITY 185 ANNUAL REPORT 2020 RISK MANAGEMENT FRAMEWORK AND KEY RISK MANAGEMENT FUNCTIONS KEY RISK MANAGEMENT FUNCTIONS Management is responsible for the day-to-day implementation of Etalon Group’s risk management assessment, monitoring and mitigation procedures. The main bodies responsible for risk management are the Board of Directors, and the Audit Committee. We also believe that the Company’s functional units play significant part in the risk management system. While ultimate responsibility for the Group’s risk management rests with the Board of Directors, the Audit Committee plays a key role in this process. With assistance from the Head of Internal Audit, the Audit Committee oversees and challenges management’s assessment of the principal risks to the Group’s strategy and the risk appetite for each of those risks, as well as the effectiveness of established risk management controls and assurance activities. In addition, it sets the Group’s risk management policies and procedures and monitors compliance with the approved policies. The Board of Directors determines Etalon Group’s strategy and agrees the nature and profile of the risks it is willing to take to achieve its strategic objectives. The Board of Directors is accountable for ensuring that a sound system of internal control and risk management is in place, including approval of all related policies that are recommended by the Audit Committee. Functional units implement the Risk Management Policy in their respective area and ensure timely and robust submissions of significant risks to management. Successful management of existing and emerging risks is critical to the long-term sustainability and success of our business and to the achievement of our strategic objectives. In order to successfully take advantage of market opportunities, Etalon Group must accept a certain degree of risk. Risk management is therefore an integral component of our corporate governance system. Our risk management policy focuses on maintaining a medium to low and predictable risk profile. We continuously monitor all material risks to our operations, taking action as necessary to mitigate and manage them, as well as to anticipate new risks. We have developed a robust culture of risk management at Etalon Group, which we believe is important to delivering sustainable value to our stakeholders: the Company’s risk management systems and processes are designed to minimise potential threats to achieving our goals; internal control and risk management systems are continuously reviewed to incorporate market best practices. Our risk management view is cascaded top-down from the Company’s Board of Directors and through management, employee and connected stakeholder activities, as we believe that a proactive, risk-aware culture across the business is crucial for effective risk identification and mitigation. Etalon Group takes a comprehensive approach to implementation of its risk management policy. Key policy principles remain unchanged regardless of changes in the Company's corporate governance or shareholder structure. The risk management process at Etalon Group applies across all functions and comprises four main stages: identification, assessment, response and reporting. IDENTIFICATION ASSESSMENT RESPONSE REPORTING Identification Assessment Response Reporting Once identified, risk factors are assessed to determine the potential quantitative and qualitative impact that they might have on Etalon Group’s business, and the likelihood that such an event may occur. Together these make up a risk profile. Our aim is to identify and assess risks at the earliest possible stage and to implement appropriate risk responses and internal controls in advance. In order to achieve this, we have designed our procedures with the aim of creating shared responsibility for risk identification while avoiding gaps. Risk identification requirements are also taken into account in the design of accounting and documentation systems in order to be able to identify and process information on potential risk triggers. Ongoing monitoring processes are embedded in our day-to-day operations. These track the effective application of internal control and risk management policies and procedures, including internal audit and specific management reviews. Risk matrices and assurance maps are used to re-evaluate and adjust controls in response to changes in Etalon Group’s objectives, its business and the external environment. If management is comfortable with the current risk score, then the risk is accepted and no further action is required. Controls are implemented on an ongoing basis, and management monitors the risk, the controls and the risk landscape to ensure that the risk score stays stable and in line with management’s risk tolerance. If, however, management assesses that a risk is too high, then an action plan is drawn up in order to introduce new or stronger controls that will help to reduce the impact and/ or the likelihood of the risk to an acceptable, tolerable and justifiable level. 186 SUSTAINABILITY 187 ANNUAL REPORT 2020 RISKS HIGH MEDIUM LOW The Russian real estate market is cyclical in nature and is generally dependent on the state of the Russian economy, the growth of which also tends to be cyclical. Our business, financial condition, results of operations and the value of different types of properties related to our business activities may, therefore, be adversely affected by the cyclical nature of the real estate market and the Russian economy in general. Etalon Group develops and sells large- scale housing construction projects in Moscow and St Petersburg. Etalon Group’s sales income depends, inter alia, on the supply and demand in the market, price per sqm, construction costs and ongoing maintenance costs. These factors can fluctuate over time due to changes in the risks listed below; however, this list is not exhaustive and only includes the main risks. Negative macroeconomic trends Interest rates Regional risks Exchange rate risks Customers’ credit risk Liquidity risk Difficulties in accessing capital Changing consumer preferences/market trends New changes in regulations Availability of land Availability of construction materials An inability to recruit and retain key personnel Subcontractors Accidents at construction sites Level of potential impact Likelihood RISK WHY IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT MACROECONOMIC, INDUSTRY RISKS NEGATIVE MACROECONOMIC TRENDS Decrease in purchasing power of Russian citizens could negatively affect demand. Inflation, on the other hand, could adversely affect the Company and lead to an increase in land cost, materials and labour. REGIONAL RISKS Deteriorated economic situation affecting all market participants in key markets could equally have a negative impact on the Company. CHANGING CONSUMER PREFERENCES/MARKET TRENDS The Company’s ability to manage inventory is intrinsically linked to current and forecast consumer demand. Unanticipated changes in consumer preferences can have an adverse effect on the business, particularly given long project life cycles in the industry. Medium likelihood / medium level of impact Low likelihood / low level of impact Low likelihood / medium level of impact • • The Company can independently regulate the volumes and rates of construction, depending on actual demand for real estate in a given area. In case of a decline in demand, the Company may reschedule the launch and construction of new projects to match potential construction costs with expected cash collections from sales. • The Company maintains land bank volume that is sufficient for 4–5 years of construction and sales without new land acquisitions. Real estate is viewed as a good investment in a low-rate environment with new taxes introduced on bank deposit interest income, as well as a hedge against inflation: while inflation was 4.91 % in 2020 and is expected to reach around 4.7–5.2 % in 2021, an uptick in inflation rates could lead potential buyers to accelerate purchases. • The Company has chosen to focus on Russia’s two most resilient and economically stable regions, where economic downturns are less likely to affect demand than in other parts of Russia. • The Company is not dependent on any development programmes financed by the federal budget; therefore, its financial position would not be affected by government expenditure cuts on these programmes. • The poured-concrete construction technology allows for free-pattern floor plans and architectural design flexibility, and it has the advantage of high scalability. • The Company has a substantial portfolio of complementary business- and comfort-class projects, with a wide range of apartments to suit different tastes within each project. • Etalon Group is developing alternatives to its brick-monolithic construction techniques, including modern prefabricated construction methods, modular construction and construction from CLT (cross-laminated timber) panels, which can significantly reduce costs and/or construction time, while improving the quality of the final product. • The Company conducts research, both with the help of independent specialists and by monitoring customers’ feedback at every stage of cooperation, including after commissioning, in order to monitor changes in demand and adjust the product accordingly. 188 SUSTAINABILITY 189 ANNUAL REPORT 2020 RISKS (CONTINUED) RISK WHY IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT RISK WHY IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT REGULATORY RISKS NEW CHANGES IN REGULATIONS OPERATIONAL RISKS AVAILABILITY OF LAND Medium likelihood / medium level of impact The Company operates in a business that is highly regulated; any failure to comply with the regulations might negatively impact the Company’s operating and financial performance. Failure to receive timely approval of a project might lead to delays in the development process. • The Company monitors any legislative changes that may affect its business in order to address them proactively and decrease associated risks. • Etalon Group’s management participates in committees established by the industry in order to reconcile different views and to develop potential amendments with regard to regulatory changes and additional requirements for developers. For more details about the potential impact of the new regulations, please see page 35 • A strong financial position, efficient financial planning, access to a variety of sources of capital and one of the longest track records in the industry enable Etalon Group to meet the requirements of changing industry regulation, as was the case with the introduction of mandatory settlements using escrow accounts. AVAILABILITY OF LAND (CONTINUED) AVAILABILITY OF CONSTRUCTION MATERIALS An inability to find and purchase adequately priced land for future development might negatively affect the Company’s business and its operational and financial results. • The Company maintains its land bank at a level sufficient to ensure construction and sales for a period of at least four years. The Company’s current project portfolio of 2.8 mln sqm of unsold NSA represents 5.3x the volume of new contract sales for FY 2020. • The Company’s territorial offices carry out Low likelihood / medium level of impact SUBCONTRACTORS continuous monitoring of the land market and maintain a database of sites whose parameters (location, town planning and permits, proposed terms of acquisition, etc.) satisfy the Company’s marketing strategy, required profitability and financial capabilities. • Amendments to the Federal Law on Share Participation Agreements for Construction provide additional opportunities for the Company to purchase new projects and market entrants. Greater transparency in zoning procedures and further experience in zoning of plots during the implementation of the Galactica and Zil-Yug projects enabled the Company to revise its approach to replenishing its land bank and to consider purchasing unzoned plots and independent zoning. Low likelihood / low level of impact Low likelihood / low level of impact Changes in exchange rates could trigger an increase in the cost of imported materials; inflation, on the other hand, could cause an increase in the cost of domestic materials. Any supply interruption or shortages could delay the construction of our projects, which, in turn, could harm our reputation with our customers and could result in lost sales opportunities. An inability to find qualified subcontractors and enter into subcontracting arrangements on acceptable terms could lead to an increase in costs. Furthermore, the Company relies on external subcontractors to perform certain types of construction and development activities and therefore, assumes additional risks associated with the subcontractors—low quality of their work, delays, accidents, etc. The advantages of this approach include a wider selection of building spots and lower land acquisition costs. In addition, thanks to a strategy aimed at achieving cost leadership, Etalon Group plans to significantly increase its competitiveness in purchasing new land plots in Moscow and St. Petersburg, both zoned and unzoned. • The Company’s vertically integrated business model helps maintain the optimal load of companies with internal orders. • As one of the biggest real estate developers in Russia with over 30 years of operations and с. 1 mln sqm under construction, the Company can choose the most reliable external suppliers and decrease costs of materials through bulk purchases. • The share of imported construction materials and the cost of maintaining imported equipment used in construction historically constituted about 15 % of the total construction budget of the Company’s facilities; therefore, the change in price of imported materials/ equipment would not have a significant impact on the cost of construction. • The Company uses a tender procedure to identify and select the best suppliers, as well as to create a competitive environment. • The Company constantly monitors and evaluates its suppliers against various criteria. • All subcontractors are subject to compulsory annual accreditation to ensure compliance with the Company’s requirements. • The Company puts in place retention plans for subcontractors to further control costs, quality and timely delivery of projects. • The Company requires its subcontractors to provide weekly reports on work progress, its safety index, etc. • The Company conducts comprehensive inspections at production sites of factories that supply concrete and mortar mixes; all suppliers are inspected against a comprehensive list of over 40 items. • Thanks to its vertically integrated structure, the Company can minimise its dependence on subcontractors in both construction and service maintenance areas. 190 SUSTAINABILITY 191 ANNUAL REPORT 2020 RISKS (CONTINUED) RISK WHY IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES ACCIDENTS AT CONSTRUCTION SITES Etalon Group operates in the construction industry, where workplace accidents relating to the Company’s operations could be costly in terms of potential liability and reputational damage. AN INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY’S BUSINESS Etalon Group’s future success depends on its ability to find qualified personnel in various business areas. An inability to motivate key personnel could also have a negative impact on operations. FINANCIAL RISKS DIFFICULTIES IN ACCESSING CAPITAL Real estate development is a capital-intensive industry, and the Сompany should always have access to capital to finance its projects. • The Company complies with relevant health and safety regulatory requirements. • All employees attend workshops on occupational safety. • All equipment is certified by relevant authorities and additionally inspected by the Company. • • The Company is a pioneer in Russia for using Building Information Modelling to increase safety at construction sites. In 2020, the BIM-based security monitoring tool, the Security index, continued to improve. A methodology for calculating the construction time compliance index is being developed, which is included in a comprehensive safety assessment, and an update is being prepared into the safety index calculation methodology to take into account the criteria of human (employee) influence on the risk assessment. • The Company maintains an extensive talent pool to attract qualified staff for strategically important positions. The pool is developed through direct searches on job sites and cooperation with verified recruitment agencies. The Company looks for sector specialists at all levels of management, and regularly adds new applicants to the pool. • The Company offers competitive salary packages, life insurance, financial assistance, and flexible working hours to motivate current personnel. • The Company’s funding sources are diversified, including a variety of debt instruments, project financing and cash collections from presales (for projects sold under the old rules). • With new amendments to the law on shared construction, the Company successfully introduced new schemes for working with escrow accounts as part of project finance agreements. As of the end of 2020, escrow account coverage enabled the Company to secure project financing at preferential rates of 0.01 % to 3.5 %. • As a public company, Etalon Group also has the ability to raise equity capital to finance large acquisitions. LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Low likelihood / low level of impact Low likelihood / low level of impact Low likelihood / high level of impact RISK LIQUIDITY RISK CUSTOMERS’ CREDIT RISK EXCHANGE RATE RISKS INTEREST RATES WHY IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Low likelihood / high level of impact • The Company adheres to a conservative financing policy and strives to maintain low debt levels, with a target Net corporate debt / pre-PPA LTM EBITDA ratio of below 2x. FY 2020 Net corporate debt / pre-PPA EBITDA ratio amounted to 1.2x. The Company’s failure to meet its financial obligations could result in operational delays, damage to its reputation, increased credit rates in the short term, and bankruptcy in the long term. The Company could suffer financial losses if customers fail to meet their contractual obligation on financial instruments used for the purchase of real estate. Appreciation of foreign currencies against the rouble could lead to an increased burden for those companies that issued debt instruments in foreign currencies. Furthermore, this could lead to a price increase of imported construction materials. An increase in mortgage rates might limit customers’ ability to finance the purchase of new apartments, thus decreasing new sales volume. On the other hand, an increase in the rates on the Company’s outstanding debt obligations will cause unexpected growth in expenditures. • Receivables from customers are secured against sold apartments. Low likelihood / low level of impact Medium likelihood / low level of impact • The Company does not have any debt instruments in foreign currencies. Its current debt structure includes bonds denominated in roubles issued by its subsidiaries, LenSpetsSMU and Leader-Invest. Imported goods make up only a small part of the Company’s business costs; issues related to the import of construction materials are discussed further under "Availability of construction materials" in the table on p. 189. • • If mortgage interest rates increase or the number of available mortgages decreases, the Company could offer its customers more instalment payment options. Medium likelihood / low level of impact • To avoid paying high interest rates, the Company might repay certain loans before maturity; it could renegotiate loan terms or look for alternative financing sources. 192 SUSTAINABILITY 193 ANNUAL REPORT 2020 ESG RISKS Environmental, social, and governance (ESG) risks and opportunities can impact an entity’s capacity to meet its financial commitments in many ways. Globally, real estate companies have average exposure to environmental risks and average exposure to social risks compared to other industries, but are relatively more exposed to social factors such as labour availability and workers’ safety, and environmental factors such as greenhouse gas emissions, land use, and water consumption. ESG SECTOR RISK ATLAS1 0 2 4 6 8 10 12 14 RISK SCORE SOCIAL EXPOSURE Social risks include human capital management, safety management, community impacts, and consumer- related impacts from customer service and changing behaviour to the extent influenced by environmental, health, human rights, and privacy. Measures to prevent and mitigate social risks: • Providing comfortable working conditions, decent wages, a system of monetary and non-monetary bonuses, and measures of social support for employees; • Cooperation with educational institutions, and offering internships and training at Etalon Group to attract the best graduates and enhance staff potential; • Strict adherence to legal requirements in relation to safety, internal protocols for checking equipment, multi-stage safety monitoring at all facilities using developments based on BIM technologies, and systematic improvement of the method for calculating and monitoring the safety index with the inclusion of additional components (for example, fire safety index, human impact factor); a single digital space for monitoring the construction process enables the Company to quickly determine the risk zones for workplace injuries and take proactive measures; the extensive capabilities of analytics of safety indicators are the basis for the systematic improvement of the Occupational health and safety system; • Development of local communities through the creation of social infrastructure, restoration of historical monuments, support for cultural and sports events, charity; the construction of large residential complexes involves the creation of commercial infrastructure, which contributes to the creation of new jobs and the economic development of the surrounding region; high standards for the living environment increase the comfort of residents and create a certain level of requirements for the quality of housing in general, thereby setting the bar for the industry; • Studying customer preferences through a wide sales network (internal data) and conducting research enables the Company to constantly update project features in accordance with modern standards and customer demand. Real estate operators Business and consumer services Technology software and services Healthcare Consumer products Telecom Retail Homebuilders and developers Engineering and construction Building materials Transportation Power generation (excl. coal) Automobiles and auto parts Power generation (coal) Oil and gas Metals and mining ENVIRONMENTAL EXPOSURE Environmental risks Social risks GOVERNANCE Several ESG risks are described in more detail in the Company’s general list of risks. The list below presents an overview of ESG risks in general and ways that the Company seeks to mitigate them. Environmental risks are weighted towards exposure to increasing climate change risk and includes greenhouse gas (GHG) emissions, including carbon dioxide, pollution, waste, and water and land usage. Risk of remediation for biodiversity or restitution for incorrect land use is usually low for the construction of high-rise buildings. Measures to prevent and mitigate environmental risks: • Careful assessment of risks and their possible impact on the environment before the implementation of project; • Development of a set of measures to prevent or minimise any impact; • Use of environmentally friendly materials and technologies; • Development of projects with high standards of environmental friendliness, as well as energy and resource efficiency; • Reduction of fuel and energy consumption through lean use, optimisation of logistics routes, use of energy-efficient equipment; • Reduction of dust and suspended particle emissions into the atmosphere through the use of environmentally friendly materials and technologies, the use of protective nets and fences, and improvement of construction technologies and the production chain; • Compliance with the rules and regulations for the treatment of water and land resources, strict control and accounting of water, its reuse, and restoration of soil and vegetation cover. 1 ESG Industry Report Card: Building Materials And Engineering And Construction, 3 June 2019 The inherent complexity of projects exposes companies to contingent liabilities, and litigation risks grow in tandem with challenges to complete a project profitably and on time. These challenges include client cancellations and delays, change orders, and subcontractor risk. The construction sector is also exposed to bribery, corruption, and anticompetitive practices. Ethical breaches typically result in investigations by public authorities, and large fines, settlement costs, and reputational damage can affect financial performance. Measures to prevent and minimise risks in the field of corporate governance: • Strict adherence to legal regulations, establishing and upholding internal policies and monitoring of compliance with rules and procedures for combating corruption, fraud and violations of corporate ethics; • • • Formalised tender procedures for the selection of suppliers and contractors; Improvement of the management structure and business processes, as well as other measures listed in more detail under "Operational risks" in the table on p. 188; Increasing transparency and accessibility of information that the Company discloses, improving functional structures, as well as standards and practices in the field of information disclosure—for example, the reformation of the Disclosure Committee, and expanding the transparency and detailing of financial statements starting from 2020 by including additional indicators and new sections. 194 SUSTAINABILITY 195 ANNUAL REPORT 2020 GRI STANDARDS GRI STANDARD REPORT SECTION / COMMENTARY DISCLOSURE GRI STANDARD REPORT SECTION / COMMENTARY DISCLOSURE GENERAL DISCLOSURE ORGANISATION’S PROFILE 102-1 Name of the organisation 102-2 Activities, brands, products, and services ETALON GROUP PLC Project portfolio, p. 62 102-4 Number of countries where the organisation operates, and the names of the countries where it has significant operations and/or that are relevant to the topics covered in the report Etalon Group operates in the following regions of Russia: Moscow, the Moscow region and St Petersburg. Fully disclosed Fully disclosed Fully disclosed ETHICS AND INTEGRITY 102-16 102-17 A description of the organisation’s values, principles, standards, and norms of behaviour. A description of internal and external mechanisms for: i. seeking advice about ethical and lawful behaviour, and ii. organisational integrity; reporting concerns about unethical or unlawful behaviour, and organisational integrity Business conduct, p. 180 Fully disclosed Business conduct, p. 180 Fully disclosed 102-5 Ownership and legal form Shareholder interactions, p. 212 Fully disclosed GOVERNANCE 102-6 Markets served, including: i. geographical locations where products and services are Introduction, p. 5 Partially disclosed 102-22 The reporting organisation shall report the following information: a. Composition of the highest governance body and its Corporate governance, p. 198 Fully disclosed offered; ii. sectors served; iii. types of consumers and beneficiaries 102-7 Scale of organisation, including: total number of employees; i. ii. total number of operations, iii. net sales (for private sector organisations) or net revenues (for People, p. 154 Operating results, p. 100 Financial results, p. 116 Fully disclosed public sector organisations); iv. total capitalisation (for private sector organisations) broken down in terms of debt and equity; v. quantity of products or services provided. 102-8 Information on employees and other workers, including: a. Total number of employees by employment contract People, p. 154 Partially disclosed (permanent and temporary), by gender. b. Total number of employees by employment contract (permanent and temporary), by region. c. Total number of employees by employment type (full-time and part-time), by gender. d. Whether a significant portion of the organisation’s activities are performed by workers who are not employees. e. Any significant variations in the numbers reported in Disclosures 102-8-a, 102-8-b, and 102-8-c (such as seasonal variations in the tourism or agricultural industries). f. An explanation of how the data have been compiled, including any assumptions made. STRATEGY 102-14 The reporting organisation shall report the following information: a. A statement from the most senior decision-maker of the organisation (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the organisation and its strategy for addressing sustainability. Chairman’s statement, p. 20 Fully disclosed 102-15 The reporting organisation shall report the following information: a. A description of key impacts, risks, and opportunities. Risk management framework, p. 184 Partially disclosed committees by: independence; i. executive or non-executive; ii. iii. tenure on the governance body; iv. number of each individual’s other significant positions and commitments, and the nature of the commitments; v. gender; vi. membership of under-represented social groups; vii. competencies relating to economic, environmental, and social topics; viii. stakeholder representation. 102-23 The reporting organisation shall report the following information: a. Whether the chair of the highest governance body is also an executive officer in the organisation. b. If the chair is also an executive officer, describe his or her function within the organisation’s management and the reasons for this arrangement. 102-26 102-35 The reporting organisation shall report the following information: a. Highest governance body’s and senior executives’ roles in the development, approval, and updating of the organisation’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental, and social topics. The reporting organisation shall report the following information: a. Remuneration policies for the highest governance body and senior executives for the following types of remuneration: i. Fixed pay and variable pay, including performance-based pay, equity-based pay, bonuses, and deferred or vested shares; ii. Sign-on bonuses or recruitment incentive payments; iii. Termination payments; iv. Clawbacks; v. Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and all other employees. b. How performance criteria in the remuneration policies relate to the highest governance body’s and senior executives’ objectives for economic, environmental, and social topics. Corporate governance, p. 198 Fully disclosed Corporate governance, p. 198 Fully disclosed Corporate governance, p. 198 Partially disclosed 196 SUSTAINABILITY 197 ANNUAL REPORT 2020 GRI STANDARDS (CONTINUED) GRI STANDARD REPORT SECTION / COMMENTARY DISCLOSURE GRI STANDARD REPORT SECTION / COMMENTARY DISCLOSURE STAKEHOLDER ENGAGEMENT 306-4 Waste diverted from disposal Environment, p. 146 102-40 List of stakeholder groups engaged by the organisation Stakeholder engagement, p. 134 Fully disclosed 306-5 Waste directed to disposal Environment, p. 146 102-43 The organisation’s approach to stakeholder engagement, including frequency of engagement by type and by stakeholder group, and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process. Stakeholder engagement, p. 134 Fully disclosed REPORTING PRACTICE 102-45 Entities included in the consolidated financial statements Financial reporting 102-47 List of material topics 102-50 Reporting period 102-51 The date of the most recent previous report Sustainability, p. 124 Sustainability, p. 124 2019 Annual Report 102-52 Reporting cycle (annual or biennial etc.) Annual Fully disclosed Fully disclosed Fully disclosed Fully disclosed Fully disclosed Partially disclosed Partially disclosed Partially disclosed 307-1 Non-compliance with environmental laws and regulations Environment, p. 146 SOCIAL TOPICS EMPLOYMENT 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees People, p. 154 Fully disclosed 401-3 Parental leave People, p. 154 Partially disclosed 102-53 Contact point for questions regarding the report Shareholder interactions, p. 212 Fully disclosed LABOUR-MANAGEMENT RELATIONS 102-55 GRI content index 102-56 External Assurance (audit) MANAGEMENT APPROACH Sustainability, p. 124 Sustainability, p. 124 Fully disclosed Fully disclosed 402-1 Minimum notice periods regarding operational changes People, p. 154 Fully disclosed OCCUPATIONAL HEALTH AND SAFETY 403-1 Occupational health and safety management system Occupational health and safety, p. 138 Fully disclosed 103-1 Explanation of the material topic and its boundary Sustainability, p. 124 Fully disclosed 403-2 Hazard identification, risk assessment, and incident investigation Occupational health and safety, p. 138 Fully disclosed 103-3 The management approach and its components Stakeholder engagement, p. 134 Environment, p. 146 People, p. 154 Partially disclosed ANTI-CORRUPTION 205-2 Communication and training about anti-corruption policies and procedures Business conduct, p. 180 Fully disclosed ENVIRONMENTAL TOPICS 301-1 Materials used by weight or volume 302-1 Energy consumption within the organisation Environment, p. 146 Environment, p. 146 303-1 Interactions with water as a shared resource Environment, p. 146 303-3 Water withdrawal 303-4 Water discharge Environment, p. 146 Environment, p. 146 306-2 Waste by type and disposal method Environment, p. 146 Fully disclosed Partially disclosed Partially disclosed Partially disclosed Partially disclosed Partially disclosed 306-3 Waste generated Environment, p. 146 Fully disclosed 403-5 Worker training on Occupational health and safety Occupational health and safety, p. 138 Fully disclosed 403-9 Work-related injuries Occupational health and safety, p. 138 TRAINING AND EDUCATION 404-1 Average hours of training per year per employee People, p. 154 404-2 Programmes for upgrading employees' skills and transition assistance programmes People, p. 154 Partially disclosed Partially disclosed Partially disclosed DIVERSITY AND EQUAL OPPORTUNITY 405-1 Diversity of governance bodies and employees People, p. 154 Fully disclosed NON-DISCRIMINATION 406-1 Incidents of discrimination and corrective actions taken Business conduct, p. 180 Fully disclosed LOCAL COMMUNITIES 413-1 Operations with local community engagement, impact assessments, and development programmes Social Responsibility, p. 168 Fully disclosed 198 CORPORATE GOVERNANCE 199 ANNUAL REPORT 2020 CORPORATE GOVERNANCE 201 Board of directors 208 Board committees 200 CORPORATE GOVERNANCE 201 ANNUAL REPORT 2020 The Group’s corporate governance framework combines leadership with collaboration, and lies at the heart of our robust decision-making process. The Company continues to be committed to maintaining the highest standards of corporate governance based on the following principles: BOARD OF DIRECTORS 1 EQUAL TREATMENT OF ALL SHAREHOLDERS AND STRICT PROTECTION OF THEIR LEGITIMATE INTERESTS AND RIGHTS 2 TIMELY DISCLOSURE OF RELIABLE AND ACCURATE INFORMATION ABOUT THE COMPANY’S ACTIVITIES 3 EFFICIENT AND RELIABLE MAINTENANCE OF RECORDS OF OWNERSHIP RIGHTS 4 OPEN DIALOGUE WITH ALL STAKEHOLDERS AND RESPECT FOR THEIR RIGHTS AND LEGITIMATE INTERESTS 5 ACCOUNTABILITY OF THE BOARD OF DIRECTORS TO SHAREHOLDERS, AND ACCOUNTABILITY OF EXECUTIVE BODIES TO THE GENERAL MEETING OF SHAREHOLDERS AND THE BOARD OF DIRECTORS The Company is governed by the General Meeting of Shareholders and by the Board of Directors and its committees, which act in accordance with the Company’s statutory documents, resolutions passed by shareholders at general meetings and applicable legislation. The main objective of the Board of Directors (“the Board”) is to ensure the Company’s long-term success and sustained returns for shareholders. This includes setting strategic goals, overseeing financial and human resource structures, reviewing management performance and determining the Company’s risk appetite. The Board of Directors sets the tone at the top and helps to establish the Company’s management culture. The Board is also driven by its advisory role to complement and support the executive team as it implements the Company’s strategy. The Board believes that it has the necessary skills and experience to provide effective leadership and control of the Company. When recommending directors for appointment, the Remuneration and Nomination Committee ensures that there is an appropriate balance of skills, experience and backgrounds relevant to the Company’s success. The Board comprises independent directors and non-executive directors. Independent directors are an important element of the contemporary corporate governance system. The essential features of independent directors are their autonomy, independence of decision-making and impeccable business reputation. Independent directors play an important role in determining the Company’s development strategy and reviewing reports on its implementation, evaluating the performance of the Company’s executive bodies and assessing the performance of the risk management and internal control systems. The Company highly appreciates the contribution of independent directors in enhancing the effectiveness of the Board of Directors. The non-executive directors provide an essential independent element to the Board and a solid foundation for strong corporate governance. They are responsible for constructively challenging the strategies proposed by the executive directors and scrutinising the performance of management in achieving agreed goals and objectives. They also play a key role in the functioning of the Board and its committees. Between them, the current non-executive directors have an appropriate balance of skills, experience, knowledge and independent judgement to undertake their roles effectively. In 2020, the composition of the Board of Directors underwent only minor changes. On 20 February 2020, the Company accepted the resignation of Kirill Bagachenko, Executive Director and Chief Financial Officer. Ilya Kosolapov took over from Kirill and was appointed Chief Financial Officer. As of 31 December 2020 the Board of Directors consisted of nine directors. One director is an executive director, and eight directors are non-executive directors, six of whom are also independent directors. 202 CORPORATE GOVERNANCE 203 ANNUAL REPORT 2020 CORPORATE GOVERNANCE STRUCTURE THE BOARD OF DIRECTORS As of 31 December 2020, the Board and its committees were structured as follows: SHAREHOLDERS THE BOARD (leadership, strategy, risks, governance, values and standards) AUDIT COMMITTEE REMUNERATION AND NOMINATION COMMITTEE STRATEGY COMMITTEE INVESTOR RELATIONS AND INFORMATION DISCLOSURE COMMITTEE Martin Cocker (Chairman) Sergey Egorov (Chairman) Maxim Berlovich (Chairman) Petr Kryuchkov (Chairman) • Boris Svetlichny • Ganna Khomenko • Oleg Mubarakshin • Ganna Khomenko • Martin Cocker • Charalampos Avgousti • Dennis Vinokourov • Nikolai Minashin • Oleg Mubarakshin • Sergey Egorov • Gennadiy Shcherbina • Artyom Zasursky • Marina Ogloblina • Dennis Vinokourov EXECUTIVE MANAGEMENT SERGEY EGOROV Chairman of the Board of Directors, Chairman of the Remuneration and Nomination Committee, Non-Executive Director Sergey Egorov was born in 1982. He graduated from the Kyrgyz State National University in 2004 with a degree in finance. Since 2012, he has worked at Sistema, currently as a Managing Partner and before that as the Director of Special Projects. Sergey also sits on the boards of directors of certain Sistema portfolio companies. Before joining Sistema, Sergey was a Vice President at Intellect Telecom, and he also has significant experience at several companies including Sberbank Capital, United Capital Partners and EY. OLEG MUBARAKSHIN Non-Executive Director Oleg Mubarakshin was born in 1968. He graduated from the Moscow State Academy of Law in 2000 with a degree in law, and from the Finance Academy under the Government of the Russian Federation in 2002 with a degree in Finance. Since 2013, he has worked at Sistema, currently as a Managing Partner and before that as a Senior Vice President and the Head of the Legal Function. Before joining Sistema, he was the head of legal at EastOne Group, and before that he spent more than a decade at InBev Group, where he rose to the position of Vice President for Legal Affairs for Western Europe. MAXIM BERLOVICH Head of Moscow Operations, Chairman of the Strategy Committee, Executive Director Maxim Berlovich was born in 1987. He graduated from the Peter the Great St Petersburg Polytechnic University in 2009 with a degree in world economy and from the Vlerick Business School in 2013 with an MBA degree. Before joining Etalon Group in 2014, Maxim was a deputy CEO of one of the largest power grid construction companies in Russia. From 2017 to 2019, he served as the head of the Company’s construction and maintenance division. In 2019, Maxim became the Head of Moscow Operations. 204 CORPORATE GOVERNANCE 205 ANNUAL REPORT 2020 THE BOARD OF DIRECTORS (CONTINUED) MARINA OGLOBLINA GANNA KHOMENKO MARTIN COCKER BORIS SVETLICHNY DENNIS VINOKOUROV CHARALAMPOS AVGOUSTI Independent Non-Executive Director Independent Non-Executive Director Chairman of the Audit Committee, Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Marina Ogloblina was born in 1957. She graduated from the Moscow Finance University in 1980 with a degree in finance. Most recently, she served as Minister for Construction and the Residential and Utility Sector of the Moscow region, before being appointed as an advisor for construction (with ministerial rank) to the regional governor. Prior to that, she worked for 20 years in economic planning roles in the Moscow city administration, eventually becoming the Minister and the Head of the Economic Planning and Development Department, and also heading the city’s Main Supervision Department. Marina began her career at the State Bank of the USSR before being appointed a senior auditor for two districts of Moscow at the Russian SFSR Finance Ministry’s Audit Directorate. She also served as a professor and the head of the Department of Finance, Accounting and Audit at the Moscow government’s Moscow State University of Administration. Ganna Khomenko was born in 1977. She graduated from Keele University in 1999 with a degree in law and international politics. She also completed a Legal Practice Course at the College of Law in Chester. She currently acts as a consultant providing services in trust and corporate administration, accounting and financial management, and international tax planning, and she also sits on the boards of Ros Agro and Interpipe. Ganna previously held a number of senior legal and management positions. Martin Cocker was born in 1959. He graduated from the University of Keele in 1981 with a joint honours degree in mathematics and economics. From 1981 to 1992, he served as an auditor and later as an audit manager and senior audit manager at Ernst & Young (United Kingdom). From 1992 to 1995, he worked in the oil industry with Amerada Hess before returning to the audit profession in 1996 as a partner with Ernst & Young in Moscow. Between 1998 and 2007, Mr Cocker occupied various management positions, including the posts of audit director at Deloitte & Touche (United Kingdom), managing audit partner at KPMG Kazakhstan (Almaty), managing audit partner Central Asia at Deloitte & Touche (Almaty) and managing partner at Deloitte & Touche (St Petersburg). He runs his own development business in Portugal. Since 2010, Mr Cocker has been an independent non-executive director on the Company’s Board of Directors and chairman of the Audit Committee. Boris Svetlichny was born in 1961. He graduated from the University of Massachusetts in 1985 with a degree in accounting and from Carnegie Mellon University in 1992 with an MBA degree. He brings to the Company 29 years of international financial and senior management experience. He has held various senior finance positions at Orange Business Services in Russia, VimpelCom and Golden Telecom. From March 2014 to August 2016, Mr Svetlichny served as the CFO of the Company. Dennis Vinokourov was born in 1969. He graduated from the Moscow State Institute of International Relations in 1993 with a degree in law with highest honours, Central European University with a Master of Laws degree, New York University with a Master of Laws degree and the Stern Business School with an MBA degree. He has held senior investment roles at Vi Holding Development, the Russian Direct Investment Fund and East Capital. He started his career as a corporate lawyer with White & Case. Charalampos Avgousti was born in 1982. He graduated from the Democritus University of Thrace in 2007 with a degree in law and Northumbria University in Newcastle with a Master of Laws degree in 2010. He is the Founder and Managing Director of Ch. Avgousti & Partners LLC (Advocates & Legal Consultants). Previously he worked at several law firms, including E&G Economides LLC—Totalserve Group and Nasos A. Kyriakides & Partners. Mr Avgousti is a board member at CYTA (Cyprus Telecommunication Authority), a member of the Advisory Council of Limassol for the Central Cooperative Bank, and until February 2016 he was a board member of Periferiaki Cooperative Credit Society Nicosia Limited. 206 CORPORATE GOVERNANCE 207 ANNUAL REPORT 2020 THE FOLLOWING TABLE PROVIDES THE NAME, AGE, YEAR OF APPOINTMENT AND POSITION ON THE BOARD OF DIRECTORS FOR EACH DIRECTOR NAME AGE POSITION FIRST YEAR APPOINTED SERGEY EGOROV OLEG MUBARAKSHIN 38 52 Chairman of the Board of Directors Non-Executive Director MAXIM BERLOVICH 33 Executive Director 2019 2019 2018 MARINA OGLOBLINA 63 Independent Non-Executive Director 2019 GANNA KHOMENKO 43 Independent Non-Executive Director 2019 MARTIN COCKER 61 Independent Non-Executive Director 2010 BORIS SVETLICHNY 59 Independent Non-Executive Director 2013 DENNIS VINOKOUROV 51 Independent Non-Executive Director 2018 CHARALAMPOS AVGOUSTI 39 Independent Non-Executive Director 2016 MATTERS SPECIFICALLY RESERVED FOR THE BOARD INCLUDE: • approval of the Company’s long-term objectives and corporate strategy; • approval of material acquisitions, disposals, investments, contracts, expenditures and other transactions; • approval, following a recommendation from the Audit Committee, of interim and final results, the annual report and accounts, including the corporate governance statement, the dividend policy and any declaration of interim dividends and the recommendation of final dividends; • approval, following a recommendation from the Remuneration and Nomination Committee, of any appointments to the Board and of other key senior management committee members; review, following a recommendation from the Audit Committee, of the effectiveness of the internal control and risk management systems; and • • approval of the Company’s corporate governance policies and procedures. BOARD FOCUS DURING THE YEAR In 2020, the Board addressed a wide variety of issues, including but not limited to: • business strategy • actions in response to the COVID-19 pandemic; • budgets and long-term plans for the • Company; review of estimates of future cash flows, financing arrangements and fundraising; • development of the Company’s corporate governance; • overall Group performance and future • • capital expenditures; financial statements and announcements; review of reports from the committees reporting to the Board; • shareholder feedback and reports from brokers and analysts; risk management and risk oversight. • BOARD ATTENDANCE DURING THE YEAR In 2020, the Board of Directors held five meetings in person, with an additional 14 meetings held in absentia. While travelling was constrained due to the COVID-19 pandemic, the Board meetings and committee sessions were held remotely. ATTENDANCE AT ATTENDANCE AT IN-PERSON BOARD BOARD MEETINGS IN ABSENTIA MEETINGS (WRITTEN RESOLUTIONS) (A TOTAL OF FIVE IN 2020) (A TOTAL OF 14 IN 2020) BOARD DIVERSITY AND EXPERTISE BOARD COMPOSITION BOARD NATIONALITY 22 % Female 22 % Cyprus 11 % USA SERGEY EGOROV OLEG MUBARAKSHIN MAXIM BERLOVICH MARINA OGLOBLINA GANNA KHOMENKO MARTIN COCKER BORIS SVETLICHNY DENNIS VINOKOUROV CHARALAMPOS AVGOUSTI KIRILL BAGACHENKO (until February 2020) 5 5 5 4 5 5 5 5 5 1 14 14 14 14 14 14 14 14 14 1 REMUNERATION 78 % Male 56 % Russia 11 % UK Directors who are not independent. The Policy came into force on 1 January 2020; thus only independent directors received remuneration for 2020. On 17 July 2020, the Board approved the Policy on Remuneration and Compensation Payable to Members of Board of Directors, which sets forth the principles, grounds, conditions and procedure for payment of remuneration to members of the Company’s Board of Directors. According to the above-mentioned Policy, no remuneration for serving on the Board of Directors will be paid to members of the Board of 208 CORPORATE GOVERNANCE 209 ANNUAL REPORT 2020 BOARD COMMITTEES AUDIT COMMITTEE The Board has delegated specific responsibilities to four committees: the Audit Committee, the Remuneration and Nomination Committee, the Strategy Committee and the Investor Relations and Information Disclosure Committee. As of 31 December 2020, the members of the Audit Committee were as follows: MARTIN COCKER Committee Chairman and Independent Non-Executive Director BORIS SVETLICHNY Independent Non-Executive Director GANNA KHOMENKO Independent Non-Executive Director THE AUDIT COMMITTEE HELD A NUMBER OF MEETINGS IN 2020, WHERE THE KEY MATTERS FOR CONSIDERATION WERE: • • the year-end financial results, together with the associated report of the external auditor; the half-year interim results, together with the associated report of the external auditor; • matters raised by the external auditor as part of the audit process requiring the attention of management and the actions taken by management to address those matters; reviewing the performance and independence of the external auditor; recommending to the Board the reappointment of the external auditor and the fee for audit services; • • • • approving any non-audit services proposed to be undertaken by the external auditor during the year; receiving reports from Internal Audit on the results of their engagements and considering the remedial actions taken by management in respect of any matters arising; reviewing the accounting policies adopted by the Group and approving any changes to those policies on the recommendation of management or the external auditor. • Responsibilities: External audit • monitoring the integrity of the financial statements of the Company and the Group prepared under International Financial Reporting Standards (the “Financial Statements”); reviewing the Group’s internal controls and risk management systems; • • monitoring and reviewing the effectiveness of the Group’s internal audit function (“Internal Audit”); • making recommendations to the Board, for shareholders’ approval at a general meeting, concerning the appointment of the external auditor and approval of the remuneration and terms of engagement of the external auditor; reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements; • • developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm. The Audit Committee continues to be satisfied with the performance of Deloitte and has recommended to the Board that they be reappointed as auditors. The Audit Committee also considered and approved non-audit services performed by the external auditor during the year to ensure that those services did not threaten the auditor’s independence. The Audit Committee regularly meets with the external auditor without management present. Internal Audit The Group’s Internal Audit function provides independent objective assurance and advisory oversight of the business’s operations and systems of internal control and helps the business accomplish its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes. The Audit Committee regularly meets with the head of Internal Audit without management present. Internal controls and risk management systems The Audit Committee, and the Board as a whole, continues to ensure that effective risk management systems are adopted to ensure that key risks faced by Etalon Group are identified and evaluated. Appropriate limits and controls are set, maintained and monitored to ensure compliance. In particular, the risk management framework identifies risks that might, if not appropriately managed, materially affect the Group’s ability to achieve its objectives or that might lead to a material misstatement in the Group’s financial results. The Audit Committee periodically reviews risk management policies and systems to ensure that they remain appropriate, relevant and comprehensive, taking into account any variations in market conditions and the Group’s activities. Reviews also consider whether identified risks are being managed effectively. The Audit Committee is responsible for overseeing how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework. In this, the Audit Committee is assisted by the Internal Audit function. While progress continues to be made in this area, the Audit Committee continues to monitor the Group’s risk management processes and to provide support for, and oversight, the amendments undertaken. While only members of the Audit Committee are entitled to attend meetings, the external auditors, head of Internal Audit and other members of senior management are invited to attend meetings as necessary and appropriate. All committees act within their remit, report to the Board on their activities and take decisions or make recommendations to the Board concerning decisions within their remit. 210 CORPORATE GOVERNANCE 211 ANNUAL REPORT 2020 REMUNERATION AND NOMINATION COMMITTEE STRATEGY COMMITTEE As of 31 December 2020, the members of the Remuneration and Nomination Committee were as follows: As of 31 December 2020, the members of the Strategy Committee were as follows: SERGEY EGOROV Committee Chairman, Board of Directors Chairman, Non-Executive Director OLEG MUBARAKSHIN Non-Executive Director GANNA KHOMENKO Independent Non-Executive Director MARTIN COCKER Independent Non-Executive Director CHARALAMPOS AVGOUSTI Independent Non-Executive Director Responsibilities The Committee advises the Board of Directors on the remuneration of executive management and other senior employees, and reviews the terms and conditions of employment agreements for all senior appointments. The Committee is also responsible for drafting the selection criteria and appointment of members of the Board of Directors and for reviewing the Board’s structure, size and composition on a regular basis. In undertaking this role, the Committee considers the skills, knowledge and experience required at Etalon Group’s stage of development and the requirements of current legislation, and makes recommendations to the Board as to any changes. The Committee also considers and makes recommendations regarding the membership of the Audit Committee, Strategy Committee and Investor Relations and Information Disclosure Committee. The Committee held a number of meetings in 2020 at which it considered the Board remuneration policy, as well as changes to the membership of the Board and its committees. MAXIM BERLOVICH Committee Chairman, Executive Director OLEG MUBARAKSHIN Non-Executive Director SERGEY EGOROV Non-Executive Director GENNADIY SHCHERBINA Chief Executive Officer DENNIS VINOKOUROV Independent Non-Executive Director MARINA OGLOBLINA Independent Non-Executive Director ARTYOM ZASURSKY PJSFC Sistema, Vice President and Head of Strategy Responsibilities The Strategy Committee’s terms of reference set out its responsibilities in detail. In summary, the Strategy Committee’s role is to assist the Board in fulfilling its oversight responsibilities relating to Etalon Group’s medium- and long-term strategic direction and development. The Strategy Committee provides advice and expertise so that strategic options may be explored fully before being tabled at Board meetings for deliberation and approval. The Strategy Committee held several meetings in 2020, where the key matters for consideration were Etalon Group’s strategy, buyback, changes to the current dividend policy, review of Etalon Group’s development priorities and strategic guidelines, further improvements in operational efficiency and consideration of new development opportunities. INVESTOR RELATIONS AND INFORMATION DISCLOSURE COMMITTEE On 17 July 2020, the Board of Directors approved the transformation of the Information Disclosure Committee into the Investor Relations and Information Disclosure Committee. As of 29 January 2021, the members of the Investor Relations and Information Disclosure Committee were as follows: PETR KRYUCHKOV Director for Corporate Investment and Strategy at Etalon Group DENNIS VINOKOUROV Independent Non-Executive Director NIKOLAI MINASHIN Managing Director for Investor Relations at PJSFC Sistema As of 31 December 2020, the members of the Investor Relations and Information Disclosure Committee were as follows: PETR KRYUCHKOV Director for Corporate Investment and Strategy at Etalon Group DENNIS VINOKOUROV Independent Non-Executive Director Responsibilities The Investor Relations and Information Disclosure Committee is responsible for improving communication between institutional investors, shareholders and other stakeholders arising from the Company’s public status and determining the key principles for information disclosure. The Committee analyses the Etalon Group Information Disclosure Policy on a regular basis and makes recommendations to the Board regarding any changes. The Investor Relations and Information Disclosure Committee held several meetings in 2020, where it considered matters of insider information disclosure, adjustment of the Group’s approach to insider dealing and dealing of persons discharging managerial responsibilities. CHIEF EXECUTIVE OFFICER The Chief Executive Officer at Etalon Group is Gennadiy Shcherbina, who has worked in the construction industry for many years, having started his career with Etalon Group in 2003. He has been in charge of Etalon Group’s St Petersburg operations since 2007. Gennadiy holds a PhD in economics, and he graduated from the Marshal A. A. Grechko Naval Academy and the St Petersburg State University for Architecture and Civil Engineering. The CEO’s responsibilities include the implementation of decisions of the Board of Directors and the development of plans and programmes for the Company’s activities. The CEO is accountable to the Board of Directors. Key responsibilities: (a) implementation of strategic and business decisions as approved by the Board of Directors; (b) management of day-to-day operations; (c) representation of Etalon Group interests in negotiations pertaining to any transactions made by Etalon Group companies. 212 SHAREHOLDER INTERACTIONS 213 ANNUAL REPORT 2020 SHAREHOLDER INTERACTIONS 215 Share value and shareholder returns 216 Ownership structure 217 Dividend policy 218 Shareholder relations 220 Analyst coverage 221 Investor calendar 2021 214 SHAREHOLDER INTERACTIONS 215 ANNUAL REPORT 2020 As a publicly traded company, Etalon Group has enjoyed successful relations with capital markets for 10 years. SHARE VALUE AND SHAREHOLDER RETURNS Since April 2011, Etalon Group’s global depositary receipts GDRs have been traded on the London Stock Exchange, which is still our main trading venue. To expand its investor base, the Company submitted an application to Moscow Exchange in January 2020 and then successfully completed the listing process for its GDRs. Etalon Group securities are included in Moscow Exchange’s Level 1 quotation list, and they have been traded under the ticker ETLN since 3 February 2020. Since March 2020, they have been included in the calculation base for Moscow Exchange’s Broad Market Index. KEY INFORMATION LSE (as of 11 February 2021) Ticker Market MOEX (as of 11 February 2021) ETLN: LI Ticker ETLN: RX MAIN MARKET Full name Global depositary receipts for ETALON GROUP PLC ordinary shares FTSE Sector Real Estate Investments & Services FTSE Subsector Real Estate Ownership & Development MIFID Status Regulated Market Short name ETLN-gdr Type of security Depositary receipts for shares of a foreign issuer ETALON GROUP GDR PERFORMANCE IN 2020 40 SHARE PERFORMANCE, % TRADED VALUE, USD ths 10,000 20 0 -20 -40 -60 8,000 6,000 4,000 2,000 0 January 2020 March 2020 May 2020 July 2020 September 2020 November 2020 January 2021 ETLN traded value, USD ths (RHS) RTSI (LHS) ETLN GDR (LHS) SEDOL B5TWX80 Listing level Level 1 ISIN NUMBER US29760G1031 ISIN NUMBER US29760G1031 Etalon Group’s GDRs have increased in value by 6 % since the beginning of 2020, outpacing the Broad Market Index. COST OF ONE GDR In USD (closing price) 1.81 In Russian roubles (closing price) 133.24 52-week maximum price (USD) 2.25 52-week maximum price (RUB) 143.00 52-week minimum price (USD) 1.00 52-week minimum price (RUB) 77.80 MARKET CAPITALISATION Market capitalisation (USD mln) 533.9 Market capitalisation (RUB mln) 39,300 TRADING VOLUME Trading volume for 2020 (USD mln) 121.9 Trading volume for 2020 (RUB mln) 9,997 AVERAGE DAILY TRADING VOLUME (ADTV) USD mln1 Partly due to its listing on Moscow Exchange, the liquidity of Etalon Group’s GDRs more than tripled year-on-year in 2020. The ADTV for Etalon Group’s GDRs increased from USD 300 ths in 2019 to USD 990 ths in 2020. 0.30 1 Bloomberg. Changes in results are calculated without rounding 225% 0.99 145% 0.74 2019 1H 2020 FY 2020 216 SHAREHOLDER INTERACTIONS 217 ANNUAL REPORT 2020 OWNERSHIP STRUCTURE DIVIDEND POLICY During the reporting period, Etalon Group’s share capital and the number of shares issued by the Company remained unchanged. As of the end of 2020, the Company had 294,957,971 outstanding ordinary shares in addition to 20,000 redeemable preference shares with neither voting rights nor the right to receive dividends. Sistema remains the Company’s majority shareholder. In January 2021, Prosperity Capital Management—one of the largest Russia-focused asset managers in the world with around USD 3.9 billion in assets under management—purchased a stake in Etalon Group: the fund acquired 5.34 % of the Company’s GDRs and became its largest minority investor. The free float percentage increased from 62 to 68 % in 2020, making Etalon Group a leader among publicly traded Russian real estate developers. At the moment, PJSFC More than 70 % of the Company’s diverse base of institutional investors are located in Scandinavia, the United Kingdom and the United States of America. decided to supplement it with a minimum guaranteed dividend payment of RUB 12 per share/GDR, provided the Company’s EBITDA / interest expense ratio does not fall below 1.5x. Our business’s core principle is to create value for shareholders and investors, including through the distribution of dividends. Since 2013, the Company has steadily increased the target level for dividend payments from 15–30 % to 40–70 % of its IFRS net profit, as approved in May 2017. As part of its review of the dividend policy in January 2020, the Board of Directors decided to keep the range of dividend payments unchanged but DIVIDEND RATIO % of consolidated IFRS net profit Nov 2013 15–30 % THE COMPANY’S SHAREHOLDING STRUCTURE 1 GEOGRAPHICAL DISTRIBUTION OF INSTITUTIONAL INVESTORS2 DIVIDEND PAYMENTS 25.6 % PJSFC Sistema 5.3 % Prosperity Capital 0.8 % Management 16 % Continental Europe 12 % Asia 15 % US May 2016 May 2017 30–50 % Jan 2020 MINIMUM DIVIDEND PAYMENT 12 RUB/GDR 40–70 % 40–70 % 18 19 16 3 CENTS/GDR CENTS/GDR CENTS/GDR 3.6 BLN RUB 3.6 BLN RUB 3.5 BLN RUB 68.3 % Free Float 28 % UK 30 % Scandinavia 2018 2019 2020 1 According to Etalon Group data as of 26 January 2021 2 Ipreo, data as of 10 February 2021; notification forms 3 RUB 12 per share at the exchange rate of the Bank of Russia three business days before the date of payment (16 December 2020) 218 SHAREHOLDER INTERACTIONS 219 ANNUAL REPORT 2020 SHAREHOLDER RELATIONS We continued to develop our shareholder relations practices in 2020, including by conducting a comprehensive perception study and creating the renewed Information Disclosure and Investor Relations Committee. Throughout 2020, and despite COVID- 19-related restrictions, Etalon Group’s management and IR team used every available opportunity to maintain virtual contact with the investment community: they communicated with investors by means of correspondence and online conferences, and they also held more than 60 calls with investors and analysts. In order to further improve our relations with investors in the reporting year, the Company, together with BNY Mellon’s Global Investor Relations Advisory team and the market data provider IHS Markit, conducted a perception study to gather investment community feedback on the Company’s strategy, management team, investment case and communications efforts. The results of the study helped us to better understand how investors and analysts perceive our investment story, to identify focus areas and growth points, and to incorporate these results into our IR action plan and strategy for the coming years. The next step was a decision of the Board of Directors to transform the Information Disclosure Committee into the Investor Relations and Information Disclosure Committee. The new committee is tasked with developing a unified strategy for interaction with investors and information disclosure, providing effective feedback between the investment community and the Board of Directors, and making Etalon Group’s securities a more attractive investment. Nikolai Minashin, Managing Director of Investor Relations at PJSFC Sistema, joined the committee in early 2021. Determining the Company’s main growth areas, creating a unified IR strategy and drawing on new expertise will establish an excellent basis for improving our practices in the areas of investor relations and information disclosure. The following are the members of the Investor Relations and Information Disclosure Committee (as of 29 January 2021): Petr Kryuchkov, Committee Chairman, Director of Corporate Investments and Strategy; Dennis Vinokourov, Independent Non-Executive Director; Nikolai Minashin, Managing Director of Investor Relations, PJSFC Sistema. As part of our regulatory disclosures, we published the following information throughout the year: Results of shareholder meetings Results of key meetings of the Board of Directors Information on changes in the ownership structure Information on important personnel changes in the management structure Quarterly operating results Financial results for the half-year and year Following best practices for investor relations and disclosure of additional information, the Company also published the following: News about important stages of project implementation, including acquisition, obtaining permits, the start of sales and delivery Visual information on the status of project implementation The results of evaluations of the Company’s project portfolio THE CAPITAL MARKETS DAY The live broadcast of Etalon’s virtual CMD in November 2020 was attended by more than 140 investors, analysts and other participants. In addition, the Capital Markets Day (CMD) held in November with the participation of the Company’s management and members of the Board of Directors, was a landmark event in 2020 in terms of our efforts to improve transparency and open dialogue with investors and analysts. At the event, Etalon Group presented its new strategy to 2024, which calls for accelerating changes and taking advantage of promising opportunities for business growth. Etalon Group’s CMD was held in a format that was new for us and for the Russian market as a whole: Etalon Group became one of the first companies to present its strategy completely online, with viewers able to ask questions through a web interface. The CMD brought together more than 250 people who connected to the live stream or watched a recording of the event. At the CMD, the management team and members of the Board of Directors of Etalon Group spoke about the main focal points of the new strategy, planned changes and expected quantitative and qualitative results; presented the first successful results of strategic initiatives and specific cases reflecting the Company’s new approach to doing business, such as the ZIL-Yug project, which takes into account current trends in urban planning and combines traditional cast-on-site and state-of-the-art industrial construction technologies. The strong interest in the presentation of our strategy and feedback from the investment community clearly indicate that we have chosen the right course in terms of expanding our interaction with investors and further improving the quality of the information we publish. The market response has reinforced our decision to regularly inform the investment community and in as much detail as possible about our interim results and further plans for the implementation of the new strategy so that our initiatives are in line with shareholder interests, the market situation and current trends. We commented on our progress and future plans for the first time in early 2021 on a conference call dedicated to our operational results for 2020, and we plan to continue discussing on a regular basis with the investment community the steps we are taking to implement the strategy and the results of those steps. 220 SHAREHOLDER INTERACTIONS 221 ANNUAL REPORT 2020 ANALYST COVERAGE 6 OF 9 ANALYSTS THAT CURRENTLY RATE ETALON GROUP SHARES HAVE A BUY RECOMMENDATION Etalon Group’s operations are covered by analysts from 10 international and Russian brokerage firms who prepare reviews of Russian companies in the residential real estate development sector. Regular meetings, calls and e-mail correspondence with analysts help us provide complete and accurate coverage of the Company’s operations based on a comprehensive understanding of our strategy, performance, assets and the work of the management team. In 2020, the European brokerage firm Wood & Co began covering the Company’s operations for the first time. In addition, the following brokerage firms prepare reports and analytical notes on Etalon Group’s operations: Goldman Sachs, J.P. Morgan, VTB Capital, Renaissance Capital, BCS, Sberbank CIB, Gazprombank, Aton, and Sova Capital. BUY 67 % HOLD 33 % 25%1 GROWTH POTENTIAL 2.27 USD AVERAGE TARGET PRICE COMPANY ANALYST DATE RECOMMENDATION Goldman Sachs Andrey Pavlov-Rusinov 19 January 2021 J.P. Morgan Elena Jouronova 15 October 2020 VTB Capital Maria Kolbina 23 November 2020 BCS Anastasia Egazaryan 14 January 2020 Buy Hold Hold Hold Sberbank CIB Fedor Kornachev 21 September 2020 Review Renaissance Capital Artem Yamschikov 15 July 2020 Gazprombank Marat Ibragimov 15 October 2020 Aton Mikhail Ganelin 20 January 2021 Sova Capital Artur Galimov 16 July 2020 Wood & Co Jakub Caithaml 10 September 2020 Buy Buy Buy Buy Buy 1 The growth potential of the Company’s GDRs is calculated relative to the price at the close of trading on 11 February 2021: USD 1.81 per GDR INVESTOR CALENDAR 2021 The calendar indicates preliminary dates. Exact dates may vary, and conferences may be cancelled. APRIL APRIL MAY PUBLICATION CONFERENCE CONFERENCE 1Q 2021 Operating Results Moscow Exchange Conference Sova Capital Conference 24–26 JUNE MAY–JUNE MAY CONFERENCE CONFERENCE CONFERENCE Annual Renaissance Capital Conference Annual Sberbank CIB Conference Wood & Co Conference for Retail JULY SEPTEMBER OCTOBER PUBLICATION PUBLICATION PUBLICATION 1H 2021 Operating Results 1H 2021 Financial Results 9M 2021 Operating Results NOVEMBER OCTOBER–NOVEMBER ROADSHOW CONFERENCE Offline/Virtual NDR MOEX Conference 8–9 NOVEMBER 7–10 DECEMBER CONFERENCE CONFERENCE Goldman Sachs 13th CEEMEA Conference Wood’s Annual Winter Conference CONTACT INFORMATION ETALON GROUP IR TEAM Petr Kryuchkov, Vice President for Corporate Investments and Strategy petr.kryuchkov@etalongroup.com Alexandr Ugryumov, Head of Capital Markets alexandr.ugryumov@etalongroup.com Zakhar Ivanov, Head of IR and ESG zakhar.ivanov@etalongroup.com IR CONTACTS ir@etalongroup.com Tel.: +44 (0)20 8123 1328 GDR Depository Bank The Bank of New York Mellon 101 Barclay Street New York 10286 Attention: ADR Division Fax: +1 212 571 3050 ETALON GROUP CONTACT INFORMATION Etalon Group PLC 2–4 Capital Centre Arch. Makariou III Avenue Nicosia, Cyprus Tel.: +44 (0)20 8123 1328 Fax: +44 (0)20 8123 1328 222 FINANCIAL STATEMENTS 223 ANNUAL REPORT 2020 FINANCIAL STATEMENTS 224 Consolidated financial statements 304 Parent Company financial statements 224 FINANCIAL STATEMENTS 225 ANNUAL REPORT 2020 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 BOARD OF DIRECTORS AND OTHER OFFICERS CONTENTS BOARD OF DIRECTORS Board of Directors and other Officers Consolidated Management Report Corporate Governance Report Responsibility statement CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 225 226 229 231 239 241 243 244 246 SERGEY EGOROV (appointed on 19 February 2019) OLEG MUBARAKSHIN (appointed on 19 February 2019) MARINA OGLOBLINA (appointed on 19 February 2019) GANNA KHOMENKO (appointed on 19 February 2019) MARTIN ROBERT COCKER (appointed on 12 November 2010) BORIS SVETLICHNY (appointed on 15 April 2013) CHARALAMPOS AVGOUSTI (appointed on 10 November 2016) MAKSIM BERLOVICH (appointed on 27 April 2018) DENIS VINOKUROV (appointed on 9 November 2018) KIRILL BAGACHENKO (appointed on 15 November 2013 and resigned on 20 February 2020) SECRETARY INDEPENDENT AUDITORS G.T. Globaltrust Services Limited Deloitte Limited Themistokli Dervi, 15 Margarita House, 5th floor, flat/office 502 1066 Nicosia Cyprus Certified Public Accountants and Registered Auditors 24 Spyrou Kyprianou Avenue 1075, Nicosia Cyprus REGISTERED OFFICE 2-4 Arch. Makariou III Avenue Capital Center, 9th floor 1065 Nicosia Cyprus 226 FINANCIAL STATEMENTS 227 ANNUAL REPORT 2020 CONSOLIDATED MANAGEMENT REPORT The Board of Directors of Etalon Group PLC (the “Company”) presents to the members its Consolidated Management Report together with the audited Consolidated Financial Statements of the Company and its subsidiaries (together referred to as the “Group”) for the year ended 31 December 2020. The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113. REVIEW OF THE DEVELOPMENT AND PERFORMANCE OF THE GROUP’S BUSINESS AND ITS POSITION The results of the Group for the year ended 31 December 2020 are set out on page 239 of the consolidated financial statements. (a) Revenue The Group’s total revenue for the year ended 31 December 2020 amounted to RUB 78,655 million compared to RUB 84,330 million for the year ended 31 December 2019, a decrease of RUB 5,675 million or 7 %. Revenue of the reportable segment “Residential development” decreased by RUB 3,008 million or 4 %, due to a decrease in the revenues recognised from the sales of flats by RUB 698 million or 1 %, a decrease in the revenues recognised from the sales of parking places by RUB 1,232 million or 24 %, and a decrease in the revenues recognised from the sale of built-in commercial premises by RUB 1,078 million or 18 %. External revenues of the reportable segment “Construction services” decreased by RUB 2,474 million or 44 % mainly due to the overall reduction of activity in the sector as the result of the COVID-19 pandemic. External revenues of the reportable segment “Other” decreased by RUB 193 million or 4 % due to a decrease in the sales of construction materials by RUB 246 million or 9 % and a decrease in rental revenue by RUB 181 million or 21 % partially offset by an increase in the sale of stand-alone commercial premises by RUB 122 million and an increase in other revenue related to servicing of premises by RUB 112 million or 7 %. The decrease of revenue was mainly driven by overall turbulence as the result of COVID-19 pandemic (refer to paragraph “COVID-19 and other significant events” below). (b) Gross profit Gross profit for the year ended 31 December 2020 amounted to RUB 21,915 million compared to RUB 20,057 million for the year ended 31 December 2019, an increase of RUB 1,858 million or 9 %, which was mainly driven by the increase in gross profit of the reportable segment “Residential development” by RUB 1,385 million or 7 %. (c) Results from operating activities Profit from operating activities during the year ended 31 December 2020 amounted to RUB 10,218 million compared to RUB 6,484 million for the year ended 31 December 2019, an increase of RUB 3,734 million or 58 %. During the year ended 31 December 2020, general and administrative expenses decreased by RUB 2,045 million or 28 %, selling expenses decreased by RUB 262 million or 5 %, other expenses, net decreased by RUB 151 million or 9 %, as compared to the year ended 31 December 2019. (d) General and administrative expenses The decrease in general and administrative expenses was mainly caused by contraction in payroll and related taxes by RUB 1,601 million or 33 %, other taxes by RUB 277 million or 53 % and audit and consulting services by RUB 192 million or 45 %. interest income – financing component under IFRS 15 by RUB 77 million or 105 %. borrowings), secures the Group’s solid over- performance of the ratio, currently being minus 3.16. (e) Selling expenses The decrease of RUB 262 million was driven by a decrease in advertising expenses by RUB 640 million or 36 %, partially offset by an increase in agency fees by RUB 358 million or 36 % and an increase in payroll and related taxes by RUB 97 million or 11 %. (f) Other expenses, net During the year ended 31 December 2020, other expenses, net, decreased by RUB 151 million or 9 % mainly due to a decrease in impairment loss on inventories of RUB 611 million or 47 %, partially offset by a decrease in gain from disposal of property, plant and equipment by RUB 223 million or 81 %, loss on disposal of inventories under construction and development of RUB 200 million and contingent consideration for acquisition of Leader-Invest of RUB 143 million, that were incurred in 2020. (g) Net finance costs Net finance costs for the year ended 31 December 2020 increased by RUB 783 million or 17 % as compared to the year ended 31 December 2019. Finance income decreased by RUB 975 million or 33 % mainly due to a decrease in interest income on cash and cash equivalents and bank deposits by RUB 991 million or 47 %, mainly caused by a significant decrease of the Bank of Russia key rate (from 6,25 % at 31.12.2019 to 4.25 % as at 31.12.2020), and substantial introduction of escrow accounts that led to decrease of cash volume, and a decrease in the amount credited to the income statement in respect of the unwinding of the discount on trade receivables of RUB 71 million or 10 %, offset by an increase in Finance costs decreased by RUB 192 million or 2 % due to a decrease in financing component under IFRS 15 by RUB 1,220 million or 47 %, partially offset by an increase in borrowing costs by RUB 537 million or 12 % due to the transition from the scheme of customer financing to the bank project financing scheme, and an increase in the amount debited to the income statement in respect of the unwinding of the discount on other payables by RUB 744 million or 435 %, which was mainly caused by unwinding of the discount on long-term accounts payable for the acquisition of land plot (82 % share in LLC “Specialized Developer “ZIL-YUG”). (h) Income tax expense Income tax expense for the year ended 31 December 2020 amounted to RUB 2,686 million compared to an income tax expense of RUB 1,585 million during the year ended 31 December 2019. (i) Profit for the year The profit for the year ended 31 December 2020 amounted to RUB 2,036 million, compared to a profit of RUB 186 million for the year ended 31 December 2019. (j) Adjusted net debt/adjusted EBITDA and net corporate debt/adjusted EBITDA ratios As described in note 23 and in the Supplementary Information section, certain bank loans are subject to restrictive covenants which are calculated based on the consolidated financial statements of the Group. The loans used to finance the acquisition of JSC “Leader Invest” require the Group to maintain adjusted net debt/ adjusted EBITDA ratio below 4. The current structure of the Group’s adjusted net debt, being negative (specified assets exceed The Group also monitors the ratio of net corporate debt (total loans and borrowings less secured project financing less cash and cash equivalents less bank deposits over 3 months) to adjusted EBITDA. Following the transition to settlements with customers through escrow accounts and to financing of construction by means of project financing, the classical net debt/EBITDA indicator distorts the actual debt burden. At the appropriate level of coverage of project loan with cash on escrow accounts, nominal interest rates on such debt are reduced to near-zero values, while market rates vary from 8-10 % per annum. As of 31 December 2020, the ratio amounted to 1.19 which is in line with the Group’s target for the ratio being less than 2-3x. PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties faced by the Group are disclosed in the notes 1(b), 2(d) and 26 of the Consolidated Financial Statements. FUTURE DEVELOPMENTS OF THE GROUP The Board of Directors expects continued growth in the Group’s operations in all markets of its presence, and the improvement in the financial position and financial performance of the Group. BRANCHES The Group operated through branches in Moscow and Saint Petersburg and 15 representative (sales) offices across the Russian Federation during the year ended 31 December 2020. The Company did not operate through any branches other than in Moscow and Saint Petersburg. USE OF FINANCIAL INSTRUMENTS BY THE GROUP The classes of financial instruments used by the Group, the Group’s financial risk management objectives and policies as well as the Group’s exposure to credit risk, liquidity risk and market risk are disclosed in the note 26 of the consolidated financial statements. DIVIDENDS On 20 July 2020, the Board of Directors recommended a final dividend of RUB 12 per share for the year ended 31 December 2019. The final dividend for the total amount of RUB 3,539 million was approved by the Annual General Meeting of shareholders on 23 October 2020, and the dividends were paid on 16 December 2020. Up to the date of approval of these consolidated financial statements, no dividends were recommended for distribution for the year ended 31 December 2020. CHANGES IN THE COMPANY’S SHARE CAPITAL ACTIVITIES RELATED TO RESEARCH AND DEVELOPMENT There were no changes in the Company’s share capital during 2020. The Group has not undertaken any activities in the field of research and development during the year ended 31 December 2020. CHANGES IN THE COMPOSITION, ALLOCATION OF RESPONSIBILITIES OR COMPENSATION OF THE BOARD OF DIRECTORS The changes in the composition and allocation of responsibilities of the Board 228 FINANCIAL STATEMENTS 229 ANNUAL REPORT 2020 CONSOLIDATED MANAGEMENT REPORT CONTINUED of Directors during 2020 are disclosed in the Board of Directors and other Officers section of these consolidated financial statements. The changes in the compensation of certain members of the Board of Directors are disclosed in note 10 to these consolidated financial statements. COVID-19 AND OTHER SIGNIFICANT EVENTS As the Russian Federation produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market. In March 2020 oil prices dropped by more than 40 %, which resulted in the immediate weakening of Russian Ruble against major currencies. In addition, starting from early 2020, a new coronavirus disease (COVID-19) began rapidly spreading all over the world resulting in an announcement of pandemic status by the World Health Organization in March 2020. Responses put in place by the Russian Federation to contain the spread of COVID-19 resulted in significant operational disruption for many companies and had a significant effect on businesses across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. The quarantine measures introduced in the Russian Federation included the closure of the Group’s sales offices. In addition, the Government of Moscow imposed a temporary ban on construction works that lasted from the 13th of April until the 12th of May. The Group managed to provide the necessary conditions for the safe conduct of construction works on all of its construction sites. In the Moscow region, the Group resumed construction shortly after the temporary ban on construction was lifted due to the flexible construction technology and the availability of its own general contractors and sub-contractors. In Saint- Petersburg construction works continued uninterrupted. As a result, all projects that were planned for completion during the year ended 31 December 2020 were completed on time. In the first weeks following the introduction of restrictive measures, the Group launched an online real estate sales service, formed operational teams of managers, and strengthened its call center. The Group developed a new model of interaction with clients including virtual showrooms and virtual and augmented reality projects that provide a complete picture of the future apartments. The Group’s office-based employees were successfully moved to remote working. The quarantine measures, accompanied by the reduction in the disposable income of households and the increase in unemployment rates, led to the overall decrease of the demand for real estate. At the same time, the Government of the Russian Federation implemented various measures to support both the construction industry and its clients, including the introduction of the preferential 6,5 % p.a. mortgage program and an increase of its price limits on apartments, that had a significant positive impact on the demand for real estate. As of the reporting date, most of the restrictions imposed by the government authorities in the Russian Federation due to the COVID-19 pandemic have been lifted, including on the operation of the Group’s sales offices, and the Group observes that the demand for real estate has recovered. Significant events subsequent to the reporting date are disclosed in note 33 of the Consolidated Financial Statements. INDEPENDENT AUDITORS On 20 October 2020, the Annual General Meeting of shareholders of the Company appointed Deloitte Limited as auditor of the Company to hold office until the conclusion of the next annual general meeting and authorised the Board of Directors to fix the auditor’s remuneration. CORPORATE GOVERNANCE REPORT COMPANY’S INTERNAL CONTROL AND RISK MANAGEMENT IN RELATION TO THE PREPARATION OF THE FINANCIAL STATEMENTS The main documents regulating the activities of the Company are the Cyprus Companies Law, Cap. 113, the UKLA Listing, Prospectus and Disclosure and Transparency Rules, together with the Memorandum and Articles of Association of the Company. The Company has also enacted a number of governance policies and procedures, such as the Management Policy and Committee terms of reference, to ensure that a proper system of corporate governance is in place. The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors 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, the Board of Directors is responsible for making an assessment of the Group’s and the Company’s ability to continue as a going concern, taking into account all available information about the future and for disclosing any material uncertainties related to events or conditions that may cast significant doubt upon the Group’s and the Company’s ability to continue as a going concern. The Audit Committee is responsible for monitoring the financial reporting process and the integrity of the Company’s financial statements. It is also responsible for reviewing internal controls, overseeing how management monitors compliance with the Group’s risk management policies and procedures, the effectiveness of the Group’s Internal Audit function and the independence, objectivity and the effectiveness of the external audit process. The Audit Committee is also responsible for considering the terms of appointment and remuneration of the external auditor. Each of the subsidiaries of the Group keeps accounting records for statutory purposes. The preparation of consolidated IFRS financial statements involves the transformation of the statutory accounting records into IFRS and the consolidation of financial statements. The Group continues the process of implementing a single Group-wide information system featuring automated consolidation of the accounts that will strengthen internal control and risk management in relation to the preparation of the consolidated financial statements. The Group believes that its financial reporting functions and internal control systems are sufficient to ensure compliance with the requirements of the FSA’s Disclosure and Transparency Rules as a listed company and with the requirement of Cyprus Companies Law, Cap. 113. SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS (INCLUDING INDIRECT SHAREHOLDINGS THROUGH PYRAMID STRUCTURES AND CROSS-SHAREHOLDINGS) Those charged with governance are responsible for the implementation of internal control necessary for the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and in particular for the design, implementation and maintenance of internal control to prevent and detect fraud and error. The share capital of the Company is GBP 34,748 divided into 294,957,971 ordinary Shares having the par value of GBP £0.00005 each and 20,000 preference shares having the par value of GBP 1 each. 193,747,322 ordinary shares (65,7 %) are deposited for the issuance of Global Depositary Receipts (GDRs) pursuant to the Deposit Agreement between the Company and the Bank of New York Mellon. The GDRs represent one ordinary share each and are listed and traded on the Main Market of the London Stock Exchange. Starting from 3 February 2020, the Company’s GDRs started trading on Moscow Stock Exchange. As at 31 December 2020, the Company was aware of the following interests in its share capital: SHAREHOLDERS Free float Sistema PJSFC Management of the Company TOTAL % 73.6 25.6 0.8 100 THE HOLDERS OF ANY SHARES WITH SPECIAL CONTROL RIGHTS AND A DESCRIPTION OF THESE RIGHTS The Company does not have any shares with special control rights. RESTRICTIONS IN EXERCISING OF VOTING RIGHTS OF SHARES The 20,000 preference shares having the par value of GBP 1 each issued by the Company, bear no voting rights. The Company does not have any other restrictions in exercising of the voting rights of its shares. THE RULES REGARDING THE APPOINTMENT AND REPLACEMENT OF BOARD MEMBERS The Company may by ordinary resolution appoint any person as a director and may by ordinary resolution of which special notice has been given, in accordance with sections 178 and 136 of the Cyprus Companies Law, cap. 113 (the Law), remove a director. Any such director will receive special notice of the meeting and is entitled to be heard at 230 FINANCIAL STATEMENTS 231 ANNUAL REPORT 2020 CORPORATE GOVERNANCE REPORT CONTINUED the meeting. Any director has to confirm in writing that he is eligible under the Law. A director may resign from office as a director by giving notice in writing to that effect to the Company, which notice shall be effective upon such date as may be specified in the notice. THE RULES REGARDING THE APPOINTMENT AND REPLACEMENT OF BOARD MEMBERS (CONTINUED) The directors have the power from time to time, without sanction of the Company in general meeting, to appoint any person to be a director, either to fill a casual vacancy or as an additional director. The office of a director shall be vacated if the director: (a) becomes of unsound mind or an order is made by a court having jurisdiction (whether in Cyprus or elsewhere) in matters concerning mental disorder for their detention or for the appointment of a receiver, curator or other person to exercise powers with respect to their property or affairs; or (b) is prohibited from acting as director in accordance with section 180 of the Law; or (c) becomes bankrupt or makes any arrangement or composition with their creditors generally or otherwise has any judgment executed on any of their assets; or (d) dies; or (e) resigns their office by written notice to the Company; or (f) the Company removes them from their position in accordance with section 178 of the Law. BY ORDER OF THE BOARD OF DIRECTORS CHARALAMPOS AVGOUSTI SERGEY EGOROV Director Director Nicosia 22 March 2021 RESPONSIBILITY STATEMENT OF THE DIRECTORS AND MANAGEMENT OF THE COMPANY IN ACCORDANCE WITH THE TRANSPARENCY LAW THE RULES REGARDING THE AMENDMENT OF THE ARTICLES OF ASSOCIATION Subject to the provisions of the Law, the Company may, by special resolution, alter or add to its articles of association. Any alteration or addition shall be as valid as if originally contained therein, and be subject in like manner to alteration by special resolution. We, the members of the Board of Directors and the Company officials responsible for the drafting of the consolidated financial statements of ETALON GROUP PLC (the ‘Company’), the names of which are listed below, in accordance with the requirements of the Section 9 of the Transparency Requirements (Security Admitted to Trading) Law 190(I)/2007 (hereinafter the “Transparency Law”), as amended, confirm that we have complied with the requirements in preparing the financial statement and that to the best of our knowledge: (a) The consolidated annual financial statements for year ended 31 December 2020: (i) Have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), in accordance with the provisions of section 9(4) of the Transparency Law and in accordance with Cyprus Companies Law, Cap.113; (ii) Give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidated financial account as a whole, and (b) The management report provides a fair overview on information required as per Section 9(6)(a) of the Transparency Law. SERGEY EGOROV, Chairman of the Board of Directors MAKSIM BERLOVICH, Member of the Board of Directors OLEG MUBARAKSHIN, Member of the Board of Directors MARINA OGLOBLINA, Member of the Board of Directors GANNA KHOMENKO, Member of the Board of Directors MARTIN ROBERT COCKER, Member of the Board of Directors BORIS SVETLICHNY, Member of the Board of Directors CHARALAMPOS AVGOUSTI, Member of the Board of Directors DENIS VINOKUROV, Member of the Board of Directors GENNADII SHCHERBINA, Chief Executive Officer ILYA KOSOLAPOV, Chief Financial Officer 22 March 2021 232 FINANCIAL STATEMENTS 233 ANNUAL REPORT 2020 Deloitte Limited 24 Spyrou Kyprianou Avenue CY-1075 Nicosia, Cyprus Mail: P.O.Box 21675 CY-1512 Nicosia, Cyprus Tel: +357 22 360 300 Fax: +357 2 5 360 400 infonicosia@deloitte.com www.deloitte.com/cy Independent Auditor’s Report To the Members of Etalon Group PLC Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Etalon Group PLC (the “Company”) and its subsidiaries (the “Group”), which are presented in pages 19 to 87 and comprise the consolidated statement of financial position as at 31 December 2020 and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113. 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 remained independent of the Group throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards ( IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independent Auditor’s Report (continued) To the Members of Etalon Group PLC Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud 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. Why the matter was determined to be a key audit matter Revenue recognition How the matter was addressed in the audit Our audit procedures included amongst others: In accordance with IFRS 15 Revenue from Contracts with Customers, the Group recognizes revenue from sale of real estate inventories as performance obligations are satisfied (i.e. over time) or when performance obligations are satisfied (i.e. at a point in time) depending on the type of contract and the date of its registration with the state authorities. We consider revenue recognition under IFRS 15 to be a key audit matter due to: • • significance of judgments applied when determining at the reporting date percentage of construction completion and the progress toward satisfying the Group’s performance obligations and cost to completion under share participation agreements giving rise to over-time revenue recognition; the complexity of judgements involved in determining the financing component for the particular share participation agreements, as well as calculating the correct portion to be recognized in profit or loss of the reporting period. The accounting policies on revenue under share participation agreements and key sources of estimation uncertainly are disclosed in Note 2(d) and Note 3(i). For other disclosures of revenue refer to Note 6. • • We analyzed the Group’s contracts with customers to identify the rights and obligations of the parties, challenged the appropriateness of revenue recognition method used by the Group, taking into account current legal practices in respect of such contracts. We obtained an understanding, assessed design and implementation and tested the operating effectiveness of controls over the construction costs budgeting process and assessed the appropriateness of assumptions related to estimating the planned costs and expected construction timeline, which are used by the Group’s management in measuring the progress toward completion when revenue is recognized over time. In addition, we performed a retrospective analysis of the Group’s fulfilment of the budgets and construction milestones in the past. On a sample basis, we verified the costs of particular construction stages in accordance with the agreements with contractors signed by the reporting date to the costs in the respective stages of the construction budgets. In addition, we inspected a sample of primary documentation supporting the cost of construction incurred by contractors by the reporting date. We also verified the Group’s calculations of recognized revenue and significant financing component by performing the following: • on a sample basis, we traced input data in the calculations to the respective share participation agreements; we verified that the discount rates applied by the Group reflect the credit characteristics of the party receiving financing in the contract, and that the rates determined at contract inception are applied consistently over the contract term; we checked the arithmetical accuracy of the Group’s calculations. 12 We reviewed the disclosures in the consolidated financial statements for compliance with the requirements of IFRS 15. All the above procedures were completed in a satisfactory manner. 13 234 FINANCIAL STATEMENTS 235 ANNUAL REPORT 2020 To the Members of Etalon Group PLC Independent Auditor’s Report (continued) Why the matter was determined to be a key audit matter How the matter was addressed in the audit Net realizable value of inventories The Group has significant inventory balance (refer to Note 17 in the consolidated financial statements), which includes real estate under construction and development, as well as completed properties, construction materials and other inventories. The Group measures its inventories at the lower of cost and net realizable value. We consider this area to be a key audit matter because it requires use of observable and unobservable inputs and application of a significant degree of judgment when developing assumptions, in particular in relation to: • • • the cost to complete construction; expected timing and prices of sales; the level of overhead expenses as percentage of revenue; the discount rate used to arrive to the present value of the future expected cash flows. • The accounting policies on inventories key sources of estimation uncertainly are disclosed in Note 2(d) and Note 3(h). Our audit procedures included amongst others: We evaluated the appropriateness of management’s assumptions applied in calculating the carrying value of inventories including: • understanding the Group’s processes and • • procedures for developing assumptions used; assessing the appropriateness of the discount rate used; reviewing, recalculating and critically assessing the reasonableness of the assumptions used in calculation of allowance for inventories considering: • historical turnover and prices of sales in these and/or similar projects; price growth rates for future sales; budgeted costs to complete construction; budgeted general, administrative and selling expenses. • • • We also assessed whether the disclosure in the consolidated financial statements in respect of the inventory allowances is in compliance with IFRS requirement. All the above procedures were completed in a satisfactory manner. Independent Auditor’s Report (continued) To the Members of Etalon Group PLC Reporting on other information The Board of Directors is responsible for the other information. The other information comprises the information included in the Consolidated Management Report and the Responsibility Statement of the Directors and management of the Company in accordance with the Transparency Law of the Directors and Management of the Company, which are presented in pages 4 to 11, and the supplementary information included in pages 88 to 89 presented for the purpose of additional analysis, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do 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, 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. Responsibilities of the Board of Directors and those charged with governance for the Consolidated Financial Statements The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors 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, the Board of Directors 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 the Board of Directors 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 Statements Our 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: 14 15 236 FINANCIAL STATEMENTS 237 ANNUAL REPORT 2020 Independent Auditor’s Report (continued) Independent Auditor’s Report (continued) To the Members of Etalon Group PLC To the Members of Etalon Group PLC Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continue) • 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, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; • Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or 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’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease 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 the underlying transactions and events in a manner that achieves a true and fair view; • Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. 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, actions taken to eliminate threats or safeguards applied. 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. Report on Other Legal and Regulatory Requirements Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the following information in our Independent Auditor’s Report, which is required in addition to the requirements of International Standards on Auditing. Appointment of the Auditor and Period of Engagement We were first appointed as auditors of the Group on 19 December 2019 by an Extraordinary Meeting of shareholders. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of two years. Consistency of the Additional Report to the Audit Committee We confirm that our audit opinion on the consolidated financial statements expressed in this report is consistent with the additional report to the Audit Committee of the Company, which we issued on 19 March 2021 in accordance with Article 11 of the EU Regulation 537/2014. Provision of Non-audit Services We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation 537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-audit services which were provided by us to the Group and which have not been disclosed in the consolidated financial statements or the consolidated management report. Other Legal Requirements Pursuant to the additional requirements of the Auditors Law of 2017, we report the following: • • • • • In our opinion, based on the work undertaken in the course of our audit, the Consolidated Management Report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the consolidated financial statements. In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the Consolidated Management Report. We have nothing to report in this respect. In our opinion, based on the work undertaken in the course of our audit, the information included in the corporate governance report in accordance with the requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, and which is included as a specific section of the Consolidated Management Report, have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and is consistent with the consolidated financial statements. In our opinion, based on the work undertaken in the course of our audit, the corporate governance report includes all information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. We have nothing to report in this respect. 16 17 238 FINANCIAL STATEMENTS 239 ANNUAL REPORT 2020 Independent Auditor’s Report (continued) To the Members of Etalon Group PLC Other Matters This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. The engagement partner on the audit resulting in this independent auditor’s report is Kerry Whyte. Kerry Whyte Certified Public Accountant and Registered Auditor for and on behalf of Deloitte Limited Certified Public Accountants and Registered Auditors Nicosia, 22 March 2021 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 MLN RUB NOTE 2020 2019 Revenue from sale of real estate accounted for at historical cost 51,801 62,609 Revenue from sale of real estate acquired through business combinations and recognised at fair value at initial recognition 18,675 10,875 Other revenue REVENUE 8,179 10,846 6 78,655 84,330 Cost of sales of real estate accounted for at historical cost (33,744) (44,150) Cost of sales of real estate acquired through business combinations and recognised at fair value at initial recognition (15,605) (9,592) Other cost of sales COST OF SALES Gross profit from sales of real estate accounted for at historical cost Gross profit from sales of real estate acquired through business combinations and recognised at fair value at initial recognition Gross profit from other sales GROSS PROFIT General and administrative expenses Selling expenses Impairment loss on trade and other receivables Gain from bargain purchase Other expenses, net RESULTS FROM OPERATING ACTIVITIES Finance income—interest revenue Finance income – other Finance costs NET FINANCE COSTS POFIT BEFORE INCOME TAX Income tax expense PROFIT FOR THE YEAR TOTAL COMPREHENSIVE INCOME FOR THE YEAR (7,391) (10,531) (56,740) (64,273) 18,057 18,459 3,070 1,283 788 315 21,915 20,057 (7,280) (4,822) (476) 729 – (1,573) (1,724) 10,218 6,484 1,887 129 2,872 119 (7,512) (7,704) (5,496) (4,713) 4,722 1,771 7 (5,235) (4,560) 26 (b)(iii) (329) 27 8 11 11 11 12 (2,686) (1,585) 2,036 2,036 186 186 18 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 240 FINANCIAL STATEMENTS 241 ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 (CONTINUED) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 MLN RUB PROFIT ATTRIBUTABLE TO: Owners of the Company Non-controlling interest PROFIT FOR THE YEAR TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Non-controlling interest TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE Basic and diluted earnings per share (RUB) NOTE 2020 2019 2,036 – 2,036 2,036 – 2,036 795 (609) 186 795 (609) 186 MLN RUB ASSETS NON-CURRENT ASSETS Property, plant and equipment Investment property Other long-term investments Trade and other receivables Deferred tax assets TOTAL NON-CURRENT ASSETS CURRENT ASSETS 22 6.90 2.70 Inventories under construction and development Inventories – finished goods Other inventories Advances paid to suppliers Costs to obtain contracts Contract assets Trade receivables Other receivables Short-term investments Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS NOTE 2020 2019 13 14 15 18 16 17 17 17 18 18 18 18 19 20 3,508 691 424 4,253 6,692 3,561 1,065 190 4,692 3,921 15,568 13,429 102,179 85,270 11,291 14,286 1,975 8,137 840 7,138 6,358 6,991 212 1,133 9,750 752 2,463 7,444 5,486 203 25,830 31,128 170,951 157,915 186,519 171,344 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 242 FINANCIAL STATEMENTS 243 ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2020 (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2020 MLN RUB EQUITY AND LIABILITIES EQUITY Share capital Share premium Reserve for own shares Retained earnings TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Non-controlling interest TOTAL EQUITY NON-CURRENT LIABILITIES Loans and borrowings Trade and other payables Provisions Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Loans and borrowings Trade and other payables Contract liabilities Provisions TOTAL CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES NOTE 2020 2019 ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 21 21 21 23 25 24 16 23 25 25 24 2 2 15,486 15,486 (1) (1) 35,586 37,089 51,073 52,576 – – 51,073 52,576 34,636 42,258 26,734 3,227 129 7,930 116 6,463 69,429 52,064 15,869 10,434 21,399 19,142 28,351 36,439 398 689 66,017 66,704 186,519 171,344 MLN RUB CAPITAL PREMIUM OWN SHARES EARNINGS TOTAL INTEREST SHARE SHARE RESERVE FOR RETAINED NON- CONTROLLING TOTAL EQUITY Balance as at 1 January 2019 2 15,486 (1) 39,802 55,289 2 55,291 TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR – – TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY Dividends to equity holders Dividends to non-controlling shareholders of JSC "Leader-Invest" Acquisition of subsidiary with NCI (note 27) Acquisition of NCI (note 21) TOTAL TRANSACTIONS WITH OWNERS BALANCE AS AT 31 DECEMBER 2019 – – – – – 2 – – – – – – – – – – – 795 795 795 795 (609) (609) 186 186 (3,577) (3,577) – (3,577) – – (13) (13) – 69 15,289 15,289 (14,669) (14,600) 69 – (3,508) (3,508) 607 (2,901) 15,486 (1) 37,089 52,576 – 52,576 MLN RUB CAPITAL PREMIUM OWN SHARES EARNINGS TOTAL INTEREST ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY SHARE SHARE RESERVE FOR RETAINED NON- CONTROLLING TOTAL EQUITY Balance as at 1 January 2020 2 15,486 (1) 37,089 52,576 – 52,576 TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR – – TRANSACTIONS WITH OWNERS, RECORDED DIRECTLY IN EQUITY Dividends to equity holders TOTAL TRANSACTIONS WITH OWNERS BALANCE AS AT 31 DECEMBER 2020 – – 2 – – – – – – – – 2,036 2,036 2,036 2,036 (3,539) (3,539) (3,539) (3,539) 15,486 (1) 35,586 51,073 – – – – – 2,036 2,036 (3,539) (3,539) 51,073 These Consolidated Financial Statements were approved by the Board of Directors on 22 March 2021 and were signed on its behalf by: CHARALAMPOS AVGOUSTI SERGEY EGOROV Director Director The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 244 FINANCIAL STATEMENTS 245 ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 MLN RUB OPERATING ACTIVITIES: PROFIT FOR THE YEAR ADJUSTMENTS FOR: Depreciation Gain on disposal of property, plant and equipment Gain on disposal of investment property Loss on disposal of inventories under construction and development Impairment loss on inventories Impairment loss on trade and other receivables, advances paid to suppliers and investments 26 (b)(iii) Gain on disposal of subsidiary Gain from bargain purchase Significant financing component from contracts with customers recognised in revenue Savings on escrow-backed loans recognised in revenue Finance costs, net Income tax expense CASH FROM OPERATING ACTIVITIES BEFORE CHANGES IN WORKING CAPITAL AND PROVISIONS Change in inventories Change in accounts receivable Change in accounts payable Change in provisions Change in contract assets Change in contract liabilities 27 11 12 24 18 25 NOTES 2020 2019 MLN RUB NOTES 2020 2019 13, 14 8 8 8 17 2,036 186 Proceeds from disposal of property, plant and equipment INVESTING ACTIVITIES: 481 (51) (103) 200 676 418 – – 542 (274) (13) – 1,287 578 (87) (729) (1,210) (1,703) (448) 5,496 2,686 10,181 – 4,713 1,585 6,085 (15,619) 12,506 2,642 544 24,390 (9,511) (278) (4,675) (8,088) (420) (1,219) 9,290 Proceeds from disposal of investment property Interest received Acquisition of property, plant and equipment Loans given Loans repaid Proceeds from disposal of subsidiaries, net of cash disposed of Acquisition of subsidiary, net of cash acquired Acquisition of other investments Disposal of other investments NET CASH FROM/(USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES: Proceeds from borrowings Repayments of borrowings Acquisition of non-controlling interest Payments for lease liabilities, excluding interest Dividends paid NET CASH (USED IN)/FROM FINANCING ACTIVITIES NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations 265 440 1,103 (396) (216) 2 – – (139) 105 346 76 2,167 (496) 48 – 19 (10,481) (75) 1,359 1,164 (7,037) 8,691 30,332 (10,108) (4,432) – (14,600) (645) (939) (3,527) (3,599) (5,589) 6,762 (5,322) 8,237 31,128 23,066 24 (175) 15, 19 15, 19 23 23 21 (e) 28 CASH GENERATED FROM OPERATING ACTIVITIES 8,553 17,275 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 20 25,830 31,128 Income tax paid Interest paid NET CASH (USED IN)/FROM OPERATING ACTIVITIES (4,647) (4,803) (897) (3,939) (4,824) 8,512 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements set out on pages 246 to 303 246 FINANCIAL STATEMENTS 247 ANNUAL REPORT 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 1. BACKGROUND a) ORGANISATION AND OPERATIONS Etalon Group PLC (Etalon Group Public Company Limited before 27 July 2017 and Etalon Group Limited before 5 April 2017) (the “Company”) and its subsidiaries (together referred to as the “Group”) comprise Russian joint stock companies and limited liability companies, as defined in the Civil Code of the Russian Federation, and companies located abroad. The Company was incorporated on 8 November 2007 in the Bailiwick of Guernsey. On 5 April 2017, the Company migrated from Guernsey, Channel Islands, and was registered in the Republic of Cyprus under the name of Etalon Group Public Company Limited. On 27 July 2017, the Annual General Meeting of Shareholders resolved to change the name of the Company from Etalon Group Public Company Limited to Etalon Group PLC. On 8 August 2017, the change of the Company’s name was approved by the Registrar of Companies and Official Receiver of the Republic of Cyprus. The Company’s registered office is located at: 2-4 Arch. Makariou III Avenue Capital Center, 9th floor 1065 Nicosia Cyprus The Group’s principal activity is residential development in the Saint-Petersburg metropolitan area and the Moscow metropolitan area, both of which are located in the Russian Federation. In April 2011, the Company completed an initial public offering and placed its ordinary shares in the form of global depository receipts (“GDR”) on the Main Market of the London Stock Exchange. b) BUSINESS ENVIRONMENT Starting from early 2020, a new coronavirus disease (COVID-19) began rapidly spreading all over the world resulting in an announcement of pandemic status by the World Health Organization in March 2020. Responses put in place by the Russian Federation to contain the spread of COVID-19 resulted in significant operational disruption for many companies and had a significant effect on businesses across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. The quarantine measures introduced in the Russian Federation included the closure of the Group’s sales offices. In addition, the Government of Moscow imposed a temporary ban on construction works that lasted from the 13th of April until the 12th of May. The quarantine measures, accompanied by the reduction of disposable income of households and the increase in unemployment rates, led to the overall decrease of the demand for real estate. At the same time, the Government of the Russian Federation implemented various measures to support both the construction industry and its clients, including the introduction of the preferential 6,5 % p.a. mortgage program and an increase of its price limits on apartments, that had a significant positive impact on the demand for real estate. As of the reporting date, most of the restrictions imposed by the government authorities in the Russian Federation due to the COVID-19 pandemic have been lifted, including on the operation of the Group’s sales offices, and the Group observes that the demand for real estate is recovering. The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation, which display the characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which contribute together with other legal and fiscal impediments to the challenges faced by entities operating in the Russian Federation. Starting in 2014, the United States of America, the European Union and some other countries have imposed and gradually expanded economic sanctions against a number of Russian individuals and legal entities. The imposition of the sanctions has led to increased economic uncertainty, including more volatile equity markets, a depreciation of the Russian rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. As a result, some Russian entities may experience difficulties accessing the international equity and debt markets and may become increasingly dependent on state support for their operations. The longer-term effects of the imposed and possible additional sanctions are difficult to determine. The consolidated financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management’s assessment. 2. BASIS OF PREPARATION a) STATEMENT OF COMPLIANCE These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union (EU), and the requirements of the Cyprus Companies Law, Cap. 113. b) BASIS OF MEASUREMENT AND GOING CONCERN PRINCIPLE The consolidated financial statements are prepared on the historical cost basis. Management prepared these consolidated financial statements on a going concern basis. When making an assessment of the Group’s ability to continue as a going concern over the next 12 months, the management took into account all available information about the future, noting that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern. c) FUNCTIONAL AND PRESENTATION CURRENCY The national currency of the Russian Federation is the Russian Rouble (“RUB”), which is the Company’s functional currency and the currency in which these consolidated financial statements are presented. The functional currency of most of the most Group’s subsidiaries, including foreign operations, is the RUB, as the activities of foreign operations are carried out as an extension of the activities of the Group in the Russian Federation. All financial information presented in RUB has been rounded to the nearest million. 248 FINANCIAL STATEMENTS 249 ANNUAL REPORT 2020 d) USE OF ESTIMATES AND JUDGMENTS The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Critical accounting judgments The following is the critical accounting judgement (apart from judgements involving estimation which are dealt with separately below), made during the year that had the most significant effect on the amounts recognised in the consolidated financial statements. Effective from 1 January 2019, the Group ceased capitalisation of borrowing costs into the cost of inventories under construction and development, revenue for which is recognized over time. The change in accounting policy was driven by a change in significant judgment that the land cost, being the part of inventory (work-in-progress), is not a qualifying asset for capitalisation of borrowings costs as defined in IAS 23 Borrowing Costs. Key sources of estimation uncertainty Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes: • Note 6 – revenue: measurement of the progress towards complete satisfaction of the performance obligation, including estimation of the total costs to satisfy the performance obligation; • Note 17 – inventories – impairment provisions: the discount rate and the years of turnover of parking places; recognition of obligations for the construction of social infrastructure: construction budgets and timing of construction; • Note 26(b)(ii) – measurement of Expected Credit Loss (ECL) allowance for trade and other receivables and contract assets: probability of default and loss given default; • Note 27 – acquisition of subsidiary: fair value of the assets acquired and liabilities assumed. e) CHANGES IN ACCOUNTING POLICIES The Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements. i) New Standards and Interpretations The Group adopted all new standards and interpretations that were effective from 1 January 2020. The adoption of these standards and interpretations did not have any material effect on the Group’s consolidated financial statements. NEW AND AMENDED STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE The following amendments to the standards and interpretations are effective for annual periods beginning on or after 1 January 2021. The Group has not yet analysed the likely impact of the new standards and interpretations on its financial position or performance. • Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Finally, the amendments add an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination. The amendments are effective for business combinations for which the date of acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier. • IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 1 Presentation of Financial Statements – classification of liabilities as current or non-current – (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 9 Financial Instruments as a result of the 2018-2020 Annual Improvements to IFRSs. – fees in the “10 percent” test for derecognition of financial liabilities (effective for annual periods beginning on or after 1 January 2022); • Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates – sale or contribution of assets between an investor and its associate or joint venture (effective date to be determined by the IASB); • Amendments to IAS 16 Property, Plant and Equipment, prohibiting companies from deducting from the value of property, plant and equipment the amounts received from sale of manufactured items while the company is preparing the asset for its intended use (effective for annual periods beginning on or after 1 January 2022); • Amendments to IAS 37 – costs to be included in assessing onerous contracts (effective for annual periods beginning on or after 1 January 2022); • Other annual improvements to IFRSs. 3. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF CONSOLIDATION (i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The identifiable assets acquired and the liabilities assumed, as well as the consideration transferred in the acquisition are measured at their acquisition-date fair values. The Group recognises goodwill as of the acquisition date as acquisition-date fair value consideration transferred plus the amount of any non-controlling interest in the acquiree plus the acquisition-date fair value of the acquirer’s previously held equity interest in the acquire (in a business combination achieved in stages) less the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. 250 FINANCIAL STATEMENTS 251 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls another entity when it holds more than half of the voting rights of the other entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The Group’s significant subsidiaries are disclosed in note 32. (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. b) FOREIGN CURRENCY Transactions in foreign currencies are translated to the functional currency of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising in retranslation are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. c) FINANCIAL INSTRUMENTS (i) Recognition and initial measurement Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. (ii) Classification and subsequent measurement Financial assets On initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. Financial assets – Business model assessment The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Group’s • • management; the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets. Financial assets – assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: terms that may adjust the contractual coupon rate, including variable-rate features; • contingent events that would change the amount or timing of cash flows; • • prepayment and extension features; and • terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features). 252 FINANCIAL STATEMENTS 253 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A prepayment feature is consistent solely with the payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. Financial assets – Subsequent measurement and gains and losses Financial assets at amortised cost These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial liabilities – Classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. The Group has fixed rate bank loans for which the banks have the option to revise the interest rate following the change of key rate set by the Central Bank of Russia (CBR). The Group have an option to either accept the revised rate or redeem the loan at par without penalty. The Group considers these loans as in essence floating rate loans. (iii) Modification of financial assets and financial liabilities Financial assets If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different (referred to as ’substantial modification’), then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value. The Group performs a quantitative and qualitative evaluation of whether the modification is substantial, i.e. whether the cash flows of the original financial asset and the modified or replaced financial asset are substantially different. The Group assesses whether the modification is substantial based on quantitative and qualitative factors in the following order: qualitative factors, quantitative factors, combined effect of qualitative and quantitative factors. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset deemed to have expired. In making this evaluation the Group analogizes to the guidance on the derecognition of financial liabilities. If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in profit or loss. The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset. Financial liabilities The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in profit or loss. If a modification (or exchange) does not result in the derecognition of the financial liability the Group applies accounting policy consistent with the requirements for adjusting the gross carrying amount of a financial asset when a modification does not result in the derecognition of the financial asset, i.e. the Group recognises any adjustment to the amortised cost of the financial liability arising from such a modification (or exchange) in profit or loss at the date of the modification (or exchange). Changes in cash flows on existing financial liabilities are not considered as modification if they result from existing contractual terms, e.g. changes in fixed interest rates initiated by banks due to changes in the CBR key rate, if the loan contract entitles banks to do so and the Group have an option to either accept the revised rate or redeem the loan at par without penalty. The Group treats the modification of an interest rate to a current market rate using the guidance on floating-rate financial instruments. This means that the effective interest rate is adjusted prospectively. The Group performs a quantitative and qualitative evaluation of whether the modification is substantial considering qualitative factors, quantitative factors and combined effect of qualitative and quantitative factors. The Group concludes that the modification is substantial as a result of the following qualitative factors: • change in the currency of the financial liability; • change in collateral or other credit enhancement; • • change in the subordination of the financial liability. inclusion of conversion option; For the quantitative assessment the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. (iv) Derecognition Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss. 254 FINANCIAL STATEMENTS 255 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Offsetting Evidence that a financial asset is credit-impaired includes the following observable data: Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. (vi) Impairment Financial instruments and contract assets The Group recognises loss allowances for ECLs on: financial assets measured at amortised cost; • • debt investments measured at FVOCI; and • contract assets. The Group uses a simplified approach to measure loss allowance at an amount equal to lifetime ECLs for trade receivables and contract assets that result from transactions that are within the scope of IFRS 15, irrespective of whether they contain a significant financing component or not. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. For measuring of loss allowance for trade receivables and contract assets, the Group allocates those financial assets into the following two categories based on shared credit risk characteristics that are determined by existence of a collateral: • Trade receivables and contract assets arising from sales of real estate; • Trade receivables and contract assets arising from provision of construction services and other operations. The Group does not transfer title for sold properties to customers until they settle their accounts in full. In case a customer fails to settle obligations in a reasonable time as determined in their sales contract, the Group initiates termination of the sales contract, the properties are returned to the Group and in addition, the Group withholds a penalty from the amount of consideration it returns to the customer. The properties are subsequently sold to other customers, and the cash flows from sale of collateral are included into the cash flows that the Group expects to receive under the initial contract. The Group estimates and recognises ECLs on trade receivables based on its own statistics about contract termination and credit losses incurred. For the second category of receivables and contract assets, the Group calculates ECL based on individual credit risk ratings of each debtor and the remaining terms to maturity. The Group determines the inputs for calculation of ECL such as probability of default and loss given default using both internal and external statistical data. ECLs are a probability- weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). The Group defines default event when a financial asset is more than 90 days past due or it is unlikely that the debtor’s obligations to the Group will be repaid in full without the Group taking such actions as the sale of the collateral (if any). Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. • significant financial difficulty of the borrower or issuer; • a breach of contract such as a default or being more than 90 days past due; • the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is probable that the borrower will enter bankruptcy or other financial reorganisation; or the disappearance of an active market for a security because of financial difficulties. • • Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Write-off The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery of a financial asset. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. d) ADVANCES PAID AND CONTRACT LIABILITIES Due to the nature of its activities, the Group receives significant advances from customers (designated as contract liabilities), and makes significant prepayments to sub-contractors and other suppliers. Advances paid are recognised on an undiscounted basis. The Group adjusts contract liabilities for the significant financing component if the timing of payments agreed to by the parties provides the Group with a significant benefit of financing. e) CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and bank balances and call deposits with original maturities of three months or less. In accordance with IFRS 9, cash and cash equivalents are classified at amortised cost. f) PROPERTY, PLANT AND EQUIPMENT (i) Recognition and measurement Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalisation is on or after 1 January 2008, the date of transition to IFRSs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within “other income” in profit or loss. 256 FINANCIAL STATEMENTS 257 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows: Buildings and constructions Machinery and equipment Vehicles Other assets 7-30 years 5-15 years 5-10 years 3-7 years Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. No estimates in respect of plant and equipment were revised in 2020. g) INVESTMENT PROPERTY Investment property is measured at cost less accumulated depreciation and any accumulated impairment losses. Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. h) INVENTORIES Inventories comprise real estate properties under construction and development (including residential premises, stand-alone and built-in commercial premises) when the Group acts in the capacity of a developer, finished goods, and construction and other materials. The Group accounts for stand-alone and built-in commercial properties within inventories because it does not intend to engage in renting-out those assets and keeping those as investment properties to generate rental income and benefit from appreciation. Properties classified as inventory may be rented out on a temporary basis while the Group is searching for a buyer. Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of real estate properties under construction and development is determined on the basis of specific identification of their individual costs. The costs of individual residential units and built-in commercial premises are arrived at by allocating the costs of a particular development project to individual apartments and built-in premises on a pro rata basis relative to their size. Since 1 January 2017, for items on which revenue is recognized over time, real estate property under construction and development is treated as an asset ready for sale in its current condition and is not a qualifying asset for the capitalization of borrowing costs. The costs of real estate property comprise costs of construction and other expenditure directly attributable to a particular development project. The cost of inventories, other than construction work in progress intended for sale, is based on the weighted average cost formula and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Cost of manufactured inventories and work in progress includes an appropriate share of overheads based on normal operating capacity. Transfer from real estate properties under construction and development to the stock of finished goods occurs when the respective building is approved by the State commission established by the local regulating authorities for acceptance of finished buildings and the building is ready for housing. The Group’s inventory is not limited to 12 months and may be of longer term since the development cycle exceeds 12 months. Inventories are classified as current assets even when they are not expected to be realised within twelve months after the reporting date. i) REVENUE (i) Revenue from sale of real estate properties (including flats, commercial premises and parking places) Revenue is measured based on the consideration specified in a contract with a customer adjusted for the effect of the time value of money (significant financing component) if the timing of payments agreed to by the parties provides the customer or the Group with a significant benefit of financing. The timing of satisfaction of the Group’s performance obligations does not necessarily correspond to the typical payment terms, as the Group either accepts full down payments at the inception of construction, or provides instalment plans for the whole period of construction or beyond it. The Group recognises revenue when (or as) it transfers control over an asset to a customer. Transfer of control may vary depending on the individual terms of the sales contracts. For contracts for the sale of finished goods, the Group generally considers that control have been transferred on the date when a buyer signs the act of acceptance of the property. For each performance obligation satisfied over time (promise to transfer an apartment specified in the contract with a customer in a multicompartment building under construction), the Group recognises revenue over time by measuring the progress towards satisfaction of that performance obligation using the input method. The Group applies the input method because it believes that there is a direct relationship between the Group’s inputs and the transfer of control of goods or services to a customer. The measurement of the value to the customer of the goods or services transferred to date, applied under the output method, is not available for the Group without undue cost. The Group excludes from the input method the effects of any inputs that do not contribute to the Group’s progress in satisfying the performance obligation. Under the input method, revenue is recognised on the basis of costs incurred relative to the total expected costs to the satisfaction of that performance obligation that is the proportion of costs incurred to date to construct a multicompartment building to the total costs to construct the building in accordance with a business plan. The progress is considered to be the same for all apartments within a building, irrespective of their floors, and revenue is recognised with respect to apartments that are contracted under share participation agreements. Costs used to measure progress towards complete satisfaction of performance obligation include costs of design and construction of a multicompartment building and exclude the cost of acquisition of land plots. The cost of acquisition of land plot is recognised in cost of sales consistently with the transfer to the customers of the apartments to which the land plot relates. 258 FINANCIAL STATEMENTS 259 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In relation to sales via housing cooperatives, revenue is recognized on the date when sold real estate property is transferred to, and accepted by, the cooperative. Before that date, the respective building has to be approved by the State commission for acceptance of finished buildings. When adjusting the promised amount of consideration (monetary or non-monetary) for a significant financing component, the Group applies discount rates that would be reflected in a separate financing transaction between the entity and its customer at contract inception that is typically the average mortgage rate for contract assets and the Group’s incremental borrowing rate for contract liabilities. When the Group finances construction of residential buildings using project financing backed by balances on escrow accounts, it adjusts transaction price for the difference between interest expense on borrowings calculated using the base interest rate and the preferential interest rate. Interest rate on project financing depends on the proportion of balances on escrow accounts to the balance of project loan and varies from base interest rate (no balances on escrow accounts) to preferential interest rates (balances on escrow accounts exceed or equal balance of project loan). As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if the Group expects, at contract inception, that the period between the transfer of a promised good to a customer and the customer’s payment for that good will be one year or less. COSTS TO OBTAIN CONTRACTS The Group recognises as an asset the incremental costs of obtaining a contract with a customer. These costs usually include sales commissions and insurance payments for share participation agreements. Such assets are amortised on the basis of the progress towards complete satisfaction of respective performance obligations and are included into selling expenses. (ii) Revenue from construction services For accounting purposes, the Group distinguishes two types of construction contracts: 1) Contracts for provision of construction services; 2) Contracts for construction of an asset. For the first type of contracts, revenue from construction services rendered is recognized in the consolidated statement of Profit or Loss and Other Comprehensive Income when the Group transfers control of a service to customer. These contracts are normally short-term, therefore revenue is recognised when the customer signs the act of acceptance of the construction service. For the second type of contracts revenue is recognized over time by measuring progress towards complete satisfaction of the performance obligation at the reporting date, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, using the input method. Contract costs are recognised as expenses in the period in which they are incurred except when the costs are the costs that generate or enhance resources of the entity that will be used in satisfying a performance obligation in future. Some or all of an amount of variable consideration is included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when that uncertainty associated with the variable consideration is subsequently resolved. The Group accounts for a contract modification (change in the scope or price (or both)) when that is approved by the parties to the contract. Where the outcome of a performance obligation cannot be reasonably measured, contract revenue is recognised to the extent of costs incurred in satisfying the performance obligation that is expected to be recovered. When it becomes probable that total contract costs will exceed total contract revenue, the Group recognises expected losses from onerous contract as an expense immediately. (iii) Revenue from sale of construction materials Revenue from the sale of construction materials is recognised in the consolidated statement of profit or loss and other comprehensive income when the Customer obtains control of a promised asset. j) LEASES Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises right-of-use assets and lease liabilities primarily for its operating leases of land plots for development purposes. The Group does not present right-of-use assets for land plots separately in the statement of financial position but includes such assets within inventories under construction and development. The depreciated part of right-of-use asset arising from lease of land plots is recognised within cost of sales on the same basis as the cost of acquisition of land plots, see note 3(h)(i). The Group presents lease liabilities in “Trade and other payables” (note 25) in the statement of financial position. In accordance with IFRS 16 variable payments which do not depend on an index or rate, i.e. do not reflect changes in market rental rates, should not be included in the calculation of lease liability. In respect of municipal (or federal) land leases where the lease payments are based on cadastral value of the land plot and do not change until the next potential revision of that value or payments (or both) by the authorities, the Group determined that these lease payments are not considered as either variable (that depend on an index or rate or reflect changes in market rental rates) or in-substance fixed, and therefore these payments are not included in the measurement of the lease liability. The lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. LEASE MODIFICATIONS A lessee accounts for a lease modification as a separate lease if both: (a) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (b) the consideration for the lease increases by an amount commensurate with the stand- alone price for the increase in scope and any appropriate adjustments to that stand- alone price to reflect the circumstances of the particular contract. For lease modifications that are not accounted for as separate leases, lease liabilities are remeasured by discounting the revised lease payments using revised discount rates and making corresponding adjustments to the right-of-use assets. 260 FINANCIAL STATEMENTS 261 ANNUAL REPORT 2020 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) k) INCOME TAX Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • • • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries and associates to the extent that it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. In accordance with the tax legislation of the Russian Federation, tax losses and current tax assets of a company in the Group may not be set off against taxable profits and current tax liabilities of other Group companies. In addition, the tax base is determined separately for each of the Group’s main activities and, therefore, tax losses and taxable profits related to different activities cannot be offset. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. IFRIC 23 Uncertainty over Income Tax Treatments clarified how to account for a tax liability or a tax asset when there is an uncertainty over income tax treatments by the taxation authorities. The tax amounts recorded in these consolidated financial statements are consistent with the tax returns of the Group’s subsidiaries and therefore no uncertainty is reflected in measurement of current and deferred taxes, as the Group believes that it is probable that the taxation authorities will accept the treatment in tax returns. The Group will reassess its judgements and estimates whenever there is a change in facts and circumstances—e.g. examinations of taxation authorities, changes in tax legislation or expiration of rights to examine tax amounts. 4. DETERMINATION OF FAIR VALUES A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and for disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. 5. OPERATING SEGMENTS a) NON-DERIVATIVE FINANCIAL ASSETS The fair value of trade and other receivables, excluding construction work in progress and held to maturity investments, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. b) NON-DERIVATIVE FINANCIAL LIABILITIES Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market rate of interest is determined by reference to similar liabilities that do not have a conversion option. For finance leases, the market rate of interest is determined by reference to similar lease agreements. Further information about the assumptions made in measuring fair values in course of business combinations is included in the note 27 – Acquisition of subsidiary. The Group has three reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. The following summary describes the operations in each of the Group’s reportable segments: • Residential development. Includes construction of residential real estate including flats, built-in premises and parking places. • Construction services. Includes construction services for third parties and for internal purpose. • Other operations. Include selling of construction materials, construction of stand- alone premises for commercial use and various services related to sale and servicing of premises. None of these meets any of the quantitative thresholds for determining reportable segments during the year ended 31 December 2020 or 2019. Performance of the reportable segments is measured by the management based on gross profits, on the way in which the management organises the segments within the entity for making operating decisions and in assessing performance. Starting from 2020, the performance of the reportable segment “Residential development” is additionally assessed on the basis of gross profit adjusted for purchase price allocation from acquisition of Leader-Invest. The information for that reportable segment in respect of the year ended 31 December 2019 is provided for the comparability purposes. General and administrative expenses, selling expenses, finance income and finance costs are treated as equally attributable to all reporting segments and are not analysed by the Group on a segment-by-segment basis and therefore not reported for each individual segment. 262 FINANCIAL STATEMENTS 263 ANNUAL REPORT 2020 c) RECONCILIATIONS OF REPORTABLE SEGMENT REVENUES AND GROSS PROFIT MLN RUB 2020 2019 RECONCILIATION OF REVENUE Total revenue for reportable segments Elimination of inter-segment revenue CONSOLIDATED REVENUE 97,263 100,143 (18,608) (15,813) 78,655 84,330 RECONCILIATION OF GROSS PROFIT ADJUSTED FOR PURCHASE PRICE ALLOCATION FROM ACQUISITION OF LEADER-INVEST TO PROFIT BEFORE TAX Total gross profit for reportable segments adjusted for purchase price allocation from acquisition of Leader-Invest 25,796 22,735 Purchase price allocation from acquisition of Leader-Invest included in cost of sales (3,881) (2,678) CONSOLIDATED GROSS PROFIT 21,915 20,057 UNALLOCATED AMOUNTS General and administrative expenses Selling expenses (5,235) (4,560) (329) – (7,280) (4,822) (476) 729 (1,573) (1,724) 2,016 2,991 (7,512) (7,704) 4,722 1,771 5. OPERATING SEGMENTS (CONTINUED) The transition from the scheme of customer financing to the bank project financing backed by escrow accounts led to the emergence of significant assets and liabilities that are attributable only to the reportable segment Residential development and are not attributable to other segments. Under the circumstances, the Board of Directors elected to focus on the measures of profit or loss of each reportable segment. Therefore the information about reportable segments’ assets and liabilities, including the amounts for the year ended 31 December 2019, were excluded from the information about reportable segments. a) INFORMATION ABOUT REPORTABLE SEGMENTS RESIDENTIAL CONSTRUCTION DEVELOPMENT SERVICES OTHER TOTAL 2020 2019 2020 2019 2020 2019 2020 2019 70,476 73,484 3,137 5,611 5,042 5,235 78,655 84,330 MLN RUB External revenues INCLUDING: St. Petersburg metropolitan area Moscow metropolitan area 30,649 32,463 39,827 41,021 INTER-SEGMENT REVENUE – – 16,459 15,187 2,149 626 18,608 15,813 TOTAL SEGMENT REVENUE 70,476 73,484 19,596 20,798 7,191 5,861 97,263 100,143 Etalon without Leader-Invest 51,801 62,609 19,422 20,798 6,693 5,538 77,916 88,945 Impairment loss on trade and other receivables Leader-Invest sub-group 18,675 10,875 174 – 498 323 19,347 11,198 GROSS PROFIT ADJUSTED FOR PURCHASE PRICE ALLOCATION FROM ACQUISITION OF LEADER-INVEST 24,987 22,420 251 110 558 205 25,796 22,735 Gross profit adjusted for purchase price allocation from acquisition of Leader-Invest, % 35 % 31 % Gain from bargain purchase Other expenses, net Finance income and interest revenue Finance costs CONSOLIDATED PROFIT BEFORE INCOME TAX GROSS PROFIT INCLUDING: St. Petersburg metropolitan area Moscow metropolitan area GROSS PROFIT, % INCLUDING: St. Petersburg metropolitan area Moscow metropolitan area 21,127 19,742 251 110 537 205 21,915 20,057 8,556 7,571 12,571 12,171 30 % 27 % 28 % 32 % 23 % 30 % b) GEOGRAPHICAL INFORMATION In presenting information on the basis of geographical information, revenue is based on the geographical location of properties. Non-current assets exclude financial instruments and deferred tax assets. MLN RUB 2020 2019 2020 2019 REVENUES NON-CURRENT ASSETS St. Petersburg metropolitan area Moscow metropolitan area 37,679 40,976 40,640 43,690 78,655 84,330 2,982 1,217 4,199 3,190 1,436 4,626 264 FINANCIAL STATEMENTS 265 ANNUAL REPORT 2020 6. REVENUE MLN RUB Sale of flats – transferred at a point in time Sale of flats – transferred over time Sale of built-in commercial premises – transferred at a point in time Sale of built-in commercial premises – transferred over time Sale of parking places – transferred at a point in time Sale of parking places – transferred over time 2020 2019 13,781 14,032 48,077 48,524 1,973 2,815 2,199 1,631 3,033 2,833 3,521 1,541 TOTAL REVENUE – SEGMENT RESIDENTIAL DEVELOPMENT (note 5 (a)) 70,476 73,484 Long term construction contracts – transferred over time Short term construction services – transferred at a point in time TOTAL REVENUE OF SEGMENT CONSTRUCTION SERVICES (note 5 (a)) Sale of construction materials – transferred at a point in time Sale of stand-alone commercial premises – transferred over time Other revenue – transferred over time TOTAL OTHER REVENUE (note 5 (a)) 2,368 769 3,137 2,429 122 1,807 4,358 4,922 689 5,611 2,675 – 1,695 4,370 TOTAL REVENUES FROM CONTRACTS WITH CUSTOMERS 77,971 83,465 Rental revenue (note 5 (a)) TOTAL REVENUES 684 865 78,655 84,330 CONTRACT BALANCES The following table provides information about receivables, contract assets and contract liabilities from contracts with customers MLN RUB Trade receivables Contract assets Contract liabilities 2020 2019 10,413 12,073 7,138 2,463 (28,351) (36,439) Contract assets primarily relate to the Group’s rights to consideration for work completed but not billed at the reporting date on sale of flats and built-in commercial premises under share participation agreements and for long-term construction contracts. Contract assets are transferred to trade receivables when the rights become unconditional. Payment terms for contracts on the sale of flats and built-in commercial premises under share participation agreements usually include advance payments, payments in installments until the date of completion of construction and for specific projects – payment in arrears of 2 to 5 years after the date of completion of construction. Contract liabilities include advance consideration received from customers. The explanation of significant changes in contract asset and contract liability balances during the reporting period is presented in the table below. MLN RUB BALANCE AT 1 JANUARY Revenue recognised in the reporting year that was included in the contract liability balance at the beginning of the year 2020 2019 CONTRACT CONTRACT CONTRACT CONTRACT ASSETS LIABILITIES ASSETS LIABILITIES 2,463 (36,439) 1,244 (27,149) – 33,524 – 28,984 Increases due to cash received, excluding amounts recognized as revenue during the year – (24,037) – (28,590) Acquisition through business combination – – 134 (7,065) Transfers from contract assets recognised at the beginning of the year to receivables (1,552) – (1,037) – Increase as a result of changes in the measure of progress 6,077 – 2,049 – Financing component under IFRS 15 BALANCE AT 31 DECEMBER CHANGE DURING THE YEAR 150 (1,399) 73 (2,619) 7,138 (28,351) 2,463 (36,439) 4,675 8,088 1,219 (9,290) The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date. 31 DECEMBER 2020 2021 2022 2023 TOTAL MLN RUB Residential development 28,867 9,270 691 38,828 Construction services 569 – – 569 Construction of stand-alone commercial premises 2,591 1,931 – 4,522 TOTAL 32,027 11,201 691 43,919 31 DECEMBER 2019 2020 2021 2022 2023 TOTAL MLN RUB Residential development 23,294 5,434 869 98 29,695 Construction services 2,313 – – – 2,313 TOTAL 25,607 5,434 869 98 32,008 The Group applies a practical expedient included in par. 121 of IFRS 15 and does not disclose information about its remaining performance obligations for contracts that have an original expected duration of one year or less. 266 FINANCIAL STATEMENTS 267 ANNUAL REPORT 2020 7. GENERAL AND ADMINISTRATIVE EXPENSES MLN RUB Payroll and related taxes Services Other taxes Audit and consulting services Depreciation Bank fees and commissions Repair and maintenance Materials Other TOTAL 2020 2019 3,224 4,825 655 244 237 227 111 75 50 412 460 521 429 218 156 102 73 496 5,235 7,280 Remuneration of the statutory audit firm for the year ended 31 December 2020 amounted to RUB 7.7 million for audit services (2019: RUB 5.9 million) and RUB 0.9 million for other assurance services (2019: RUB 3 million). Remuneration of other members of the statutory auditors’ network for the year ended 31 December 2020 amounted to RUB 4.7 million for audit services (2019: RUB 4.7 million) and RUB 0.8 million for other assurance services (2019: RUB 7.9 million). 8. OTHER EXPENSES, NET MLN RUB 2020 2019 OTHER INCOME Fees and penalties received Gain on disposal of investment property Gain on disposal of property, plant and equipment Reversal of impairment of an investment in an associate Gain on disposal of subsidiary OTHER INCOME OTHER EXPENSES Impairment loss on inventories (note 17) Other taxes Loss on disposal of inventories under construction and development Fees and penalties incurred Cost of social infrastructure for completed projects Сontingent consideration for acquisition of Leader-Invest Charity Other expenses OTHER EXPENSES, NET 220 103 51 38 – 151 563 (676) (265) (200) (67) (178) (143) (38) (569) 153 13 274 – 87 74 601 (1,287) (493) – (231) (125) – (29) (160) (2,136) (2,325) (1,573) (1,724) 9. PERSONNEL COSTS MLN RUB Wages and salaries Social security contributions 2020 2019 7,121 1,567 8,688 8,030 1,729 9,759 Remuneration to employees in respect of services rendered during the year is recognised on an undiscounted basis as an expense in the consolidated statement of profit or loss and other comprehensive income as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or other profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. The Group pays fixed contributions to Russia’s State pension fund and has no legal or constructive obligation to pay further amounts. During the year ended 31 December 2020, personnel costs and related taxes included in cost of production amounted to RUB 4,480 million (year ended 31 December 2019: RUB 4,032 million). The remaining part of personnel expenses was subsumed within general and administrative expenses and selling expenses in the total amount of RUB 4,208 million (year ended 31 December 2019: RUB 5,727 million). The average number of staff employed by the Group during the year ended 31 December 2020 was 4,671 employees (year ended 31 December 2019: 4,821 employees). 10. SHARE- BASED PAYMENT ARRANGEMENTS SHARE OPTION PROGRAMME (EQUITY-SETTLED) On 8 June 2018, the Company granted awards in the form 5,550,000 GDRs of the Company’s ordinary shares under the Company’s management incentive plan to senior management team employees and executive directors. There were no vesting conditions in the share based payment, but a restriction (lock up period) of 7 years, during which the participants were not entitled to sell, transfer or otherwise dispose any respective GDRs received from the Group, unless such sale, transfer or disposal has been approved by the Group. Following the share based payment dated 8 June 2018, the Group has no share-based payment arrangements in place. As of the date these consolidated financial statements have been authorised for issue, senior management team employee currently employed by the Group, continues holding the granted GDRs. 268 FINANCIAL STATEMENTS 269 ANNUAL REPORT 2020 12. INCOME TAX EXPENSE The Company’s applicable tax rate under the Cyprus Income Tax Law is 12.5 %. The Cypriot subsidiaries’ applicable tax rate is 12.5 %. For the Russian companies of the Group the applicable income tax rate is 20 % (year ended 31 December 2019: 20 %). MLN RUB 2020 2019 CURRENT TAX EXPENSE Current year (Over)/under-provided in prior year DEFERRED TAX EXPENSE Origination and reversal of temporary differences INCOME TAX EXPENSE 3,991 3,390 (4) 9 3,987 3,399 (1,301) (1,814) 2,686 1,585 Reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rate 20 %: MLN RUB Profit before income tax Theoretical income tax at statutory rate of 20 % ADJUSTMENTS DUE TO: (Over)/under-provided in prior year Tax losses for which no deferred tax asset was recognised Write-off of previously recognised deferred tax assets Tax effect of dividends from Russian subsidiaries Expenses not deductible and income not taxable for tax purposes, net INCOME TAX EXPENSE 2020 2019 4,722 944 (4) 84 273 233 1,156 2,686 1,771 354 9 – – 115 1,107 1,585 11. FINANCE INCOME AND FINANCE COSTS MLN RUB 2020 2019 RECOGNISED IN PROFIT OR LOSS FINANCE INCOME Interest income under the effective interest method on: - Cash and cash equivalents (except bank deposits) - Unwinding of discount on trade receivables - Bank deposits – at amortised cost - Interest income – financing component under IFRS 15 518 634 585 150 1,358 705 736 73 TOTAL INTEREST INCOME ARISING FROM FINANCIAL ASSETS MEASURED AT AMORTISED COST 1,887 2,872 Gain on write-off of accounts payable Impairment (loss)/reversal on investments Net foreign exchange gain FINANCE INCOME – OTHER FINANCE COSTS Financial liabilities measured at amortised cost: - Interest expenses- financing component under IFRS 15 - Interest expenses – borrowing costs - Interest expense on leases - Unwinding of discount on other payables Impairment loss on advances paid to suppliers Other finance costs Net foreign exchange loss FINANCE COSTS NET FINANCE COSTS RECOGNISED IN PROFIT OR LOSS 105 (12) 36 129 (1,399) (4,924) (167) (915) (9) (98) – (7,512) (5,496) 111 8 – 119 (2,619) (4,387) (233) (171) (102) (20) (172) (7,704) (4,713) In addition to interest expense recognised in the consolidated statement of profit or loss and other comprehensive income, the following amounts of borrowing costs and significant financing component have been capitalised into the cost of real estate properties under construction and development (revenue for which is not recognised over time): MLN RUB 2020 2019 Borrowing costs and significant financing component capitalised during the year 274 397 Weighted average capitalisation rate 14,86 % 14,86 % During the year ended 31 December 2020, borrowing costs and significant financing component that have been capitalised into the cost of real estate properties under construction and development (revenue for which was not recognised over time) in the amount of RUB 212 million (year ended 31 December 2019: RUB 1,164 million), were included into the cost of sales upon construction and sale of those properties—including borrowing costs in the amount of RUB 116 million (year ended 31 December 2019: RUB 808 million) and significant financing component in the amount of RUB 96 million (year ended 31 December 2019: RUB 356 million). 270 FINANCIAL STATEMENTS 271 ANNUAL REPORT 2020 13. PROPERTY, PLANT AND EQUIPMENT During the year ended 31 December 2020, depreciation expense of RUB 239 million (year ended 31 December 2019: RUB 281 million) has been charged to cost of sales, RUB 13 million (year ended 31 December 2019: RUB 16 million) to cost of real estate properties under construction and development, RUB 28 million to other expenses, net (year ended 31 December 2019: RUB 12 million) and RUB 179 million (year ended 31 December 2019: RUB 218 million) to general and administrative expenses. MLN RUB COST BUILDINGS MACHINERY CONSTRUCTION AND CONSTRUCTIONS AND EQUIPMENT VEHICLES OTHER L AND IN PROGRESS TOTAL Balance at 1 January 2019 2,344 2,537 133 270 121 210 5,615 Additions Acquisition through business combination Disposals Transfers 319 372 (188) 81 66 6 27 – 64 20 (130) (42) (39) 3 – 14 – – (1) – 154 5 (2) (98) 630 403 (402) – BALANCE AT 31 DECEMBER 2019 2,928 2,482 118 329 120 269 6,246 Balance at 1 January 2020 Additions Disposals Transfers BALANCE AT 31 DECEMBER 2020 DEPRECIATION AND IMPAIRMENT LOSSES Balance at 1 January 2019 Depreciation for the year Disposals Balance at 31 December 2019 Balance at 1 January 2020 Depreciation for the year Disposals BALANCE AT 31 DECEMBER 2020 CARRYING AMOUNTS Balance at 1 January 2019 Balance at 31 December 2019 Balance at 1 January 2020 Balance at 31 December 2020 2,928 144 (215) 70 2,927 (378) (287) 105 (560) (560) (232) 182 (610) 1,966 2,368 2,368 2,317 2,482 118 329 120 269 6,246 90 5 83 (113) (12) (33) – – 69 – (3) – 143 465 – (376) (139) – 2,459 111 448 117 273 6,335 (1,788) (159) (91) (18) (163) (61) 94 36 25 (1,853) (1,853) (140) 101 (73) (73) (16) (199) (199) (69) 10 22 (1,892) (79) (246) – – – – – – – – – – – – – – – – (2,420) (525) 260 (2,685) (2,685) (457) 315 (2,827) 749 629 629 567 42 45 45 32 107 121 210 3,195 130 120 269 3,561 130 120 269 3,561 202 117 273 3,508 14. INVESTMENT PROPERTY MLN RUB COST Balance at 1 January Acquisition through business combination Additions Disposals BALANCE AT 31 DECEMBER ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES Balance at 1 January Depreciation for the period Disposals BALANCE AT 31 DECEMBER 2020 2019 1,375 – – (358) 1,017 (310) (37) 21 (326) 587 838 15 (65) 1,375 (281) (31) 2 (310) Carrying amount at 1 January CARRYING AMOUNT AT 31 DECEMBER 1,065 306 691 1,065 The Group’s investment properties represent various commercial property. The Group accounts for investment properties at cost less accumulated depreciation and impairment losses. As at 31 December 2020, the fair value of investment property amounted to RUB 1,027 million (31 December 2019: RUB 1,289 million), which was determined based on discounted cash flows from the use of the property. Fair value estimate represents level 3 of the fair value hierarchy. The Group did not identify any indicators of impairment as at 31 December 2020 and 31 December 2019, and did not recognise any impairment losses for investment property during the year ended 31 December 2020 and 2019. 272 FINANCIAL STATEMENTS 273 ANNUAL REPORT 2020 15. OTHER LONG-TERM INVESTMENTS MLN RUB 2020 2019 b) UNRECOGNISED DEFERRED TAX LIABILITY Loans – at amortised cost Investment in associate Bank promissory notes – at amortised cost Loss allowance for loans given Loss allowance for promissory notes 321 124 3 448 (24) – 424 106 – 96 202 (11) (1) 190 As at 31 December 2020, bank promissory note in the amount of RUB 3 million (31 December 2019: nil) was pledged as security for secured bank loan, see note 23. The Group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 26. 16. DEFERRED TAX ASSETS AND LIABILITIES a) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: MLN RUB Property, plant and equipment Investments Inventories Contract assets and trade and other receivables Deferred expenses Loans and borrowings Provisions Contract liabilities and trade and other payables Tax loss carry-forwards OTHER Tax assets/(liabilities) SET OFF OF TAX 2020 178 169 9,269 1,750 19 52 141 5,285 1,295 155 ASSETS LIABILITIES 2019 2020 2019 288 26 6,541 698 483 53 614 (255) (28) (3,522) (4,034) (1,051) (73) (5,179) (3,605) – (729) (130) (95) (29) (37) 2020 (77) 141 5,747 (2,284) 19 (78) 46 NET 2019 (763) (47) 1,362 (2,907) (246) 24 577 1,483 (11,146) (2,706) (5,861) (1,223) 845 78 – (341) (1) (241) 1,295 (186) 844 (163) 18,313 11,109 (19,551) (13,651) (1,238) (2,542) (11,621) (7,188) 11,621 7,188 – – NET TAX ASSETS/(LIABILITIES) 6,692 3,921 (7,930) (6,463) (1,238) (2,542) At 31 December 2020, a deferred tax liability arising on temporary differences of RUB 70,777 million (31 December 2019: RUB 66,132 million) related to investments in subsidiaries was not recognized because the Company controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future. c) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE PERIOD MLN RUB Property, plant and equipment Investments Inventories Contract assets and trade and other receivables Deferred expenses Loans and borrowings Provisions Contract liabilities and trade and other payables Tax loss carry-forwards Other 1 JANUARY RECOGNISED 2020 IN PROFIT OR LOSS (763) (47) 1,362 (2,907) (246) 24 577 (1,223) 844 (163) (2,542) 685 188 4,385 623 265 (102) (531) (4,638) 451 (25) 1,301 31 DECEMBER 2020 (77) 141 5,747 (2,284) 19 (78) 46 (5,861) 1,295 (186) (1,238) 1 JANUARY RECOGNISED THROUGH BUSINESS 31 DECEMBER ACQUISITION MLN RUB 2019 IN PROFIT OR LOSS COMBINATION Property, plant and equipment Investments Inventories Contract assets and trade and other receivables Deferred expenses Loans and borrowings Provisions Contract liabilities and trade and other payables Tax loss carry-forwards Other (692) (28) 3,909 (4,915) (330) 20 362 2,898 73 (90) 1,207 16 (2) 2,623 1,837 84 7 109 (3,023) 236 (73) 1,814 2019 (763) (47) 1,362 (2,907) (246) 24 577 (87) (17) (5,170) 171 – (3) 106 (1,098) (1,223) 535 – 844 (163) (5,563) (2,542) 274 FINANCIAL STATEMENTS 275 ANNUAL REPORT 2020 17. INVENTORIES MLN RUB INVENTORIES UNDER CONSTRUCTION AND DEVELOPMENT Own flats under construction and development Built-in commercial premises under construction and development Parking places under construction and development 2020 2019 81,898 70,831 14,453 8,526 8,406 8,394 104,877 87,631 • Discount rates—11,5 % – 25 % per annum, a rate within this range was used, depending on year of recognition of land component and stage of the project. Project 2, year ended 31 December 2015 The fair value of the investments rights acquired equal to RUB 4,522 million. The following key assumptions were used by the appraiser: Less: Allowance for inventories under construction and development (2,698) (2,361) • Cash flows were projected based on the business plans for construction of residential TOTAL INVENTORIES UNDER CONSTRUCTION AND DEVELOPMENT 102,179 85,270 INVENTORIES – FINISHED GOODS Own flats Built-in commercial premises Parking places Less: Allowance for inventories – finished goods TOTAL INVENTORIES – FINISHED GOODS OTHER INVENTORIES Construction materials Other Less: Allowance for other inventories TOTAL OTHER INVENTORIES TOTAL a) BARTER TRANSACTIONS 4,684 2,426 5,993 7,157 2,563 5,495 13,103 15,215 (1,812) (1,466) 11,291 13,749 1,297 700 1,997 939 760 1,699 (22) (29) 1,975 1,670 115,445 100,689 During 2013 – 2019, the Group entered into several transactions for the acquisition of investment rights for land plots in five construction projects, where certain parts of the acquisition price had to be paid by means of transfer of specified premises constructed on these land plots. The Group included the land component of these construction projects into inventories at fair value of the investment rights acquired, while the respective liabilities to the sellers of land plots (landlords) were recognised within contract liabilities. Such liabilities will be settled against revenue recognised from transfer of specified premises to these landlords. The fair values of land plots were determined by independent appraisers based on discounted cash flows from the construction and sale of properties. The details of transactions are specified below. property; Inflation rates—4,5 %-6,4 % per annum; • • Discount rate—23 % per annum. Project 3, year ended 31 December 2017 The fair value of the investments rights acquired equal to RUB 4,395 million. The following key assumptions were used by the appraiser: • Cash flows were projected based on the business plans for construction of residential property; Inflation rates—2,5 %-4 % per annum; • • Discount rate—13 % per annum. Project 4, year ended 31 December 2017 The fair value of the investments rights acquired equal to RUB 1,800 million. The following key assumptions were used by the appraiser: • Cash flows were projected based on the business plans for construction of residential property; Inflation rates—2,5 %-4 % per annum; • • Discount rate—13 % per annum. Project 5, year ended 31 December 2019 The Group entered into a transaction for the acquisition of investment rights for two land plots where part of the acquisition price is to be paid by means of transfer of certain premises that were in the course of construction on the previously acquired land plots. The fair value of the investments rights acquired equal to RUB 1,193 million was determined based on discounted cash flows from the construction and sale of properties in previously acquired land plots. The following key assumptions were used by the appraiser: Project 1, years ended 31 December 2013-2016 • Cash flows were projected based on the business plans for construction of residential The fair value of the investments rights acquired equal to RUB 1,862 million (land plot acquired in 2013), RUB 3,835 million (land plot acquired in 2014), RUB 3,105 million (land plot acquired in 2015), RUB 222 million (land plot acquired in 2016). The following key assumptions were used by the appraiser: • Cash flows were projected based on the business plans for construction of residential • property; Inflation rates—4,5 %-6,4 % per annum, a rate within this range was used, depending on year of recognition of land component; property; Inflation rates—0,9 % – 1 % per annum; • • Discount rate—12,78 % per annum. Accordingly, at 31 December 2020, the cost of land plots (Project 1) measured as described above and related to sold premises, was recognised in cost of sales during 2013—2020 in the amount of RUB 8,514 million, while the remaining balance of RUB 260 million is included into finished goods and RUB 250 million – into inventories under construction and development. 276 FINANCIAL STATEMENTS 277 ANNUAL REPORT 2020 17. INVENTORIES (CONTINUED) At 31 December 2020, the cost of land plots (Project 2) measured as described above and related to premises sold under share participation agreements concluded since 1 January 2017, was recognised in cost of sales during the year ended 31 December 2020 in the amount of RUB 3,712 million, while the remaining balance of RUB 10 million is included in finished goods and RUB 799 million in inventories under construction and development. At 31 December 2020, the cost of land plots (Project 3) measured as described above and related to premises sold under share participation agreements concluded since 1 January 2017, was recognised in cost of sales during the year ended 31 December 2020 in the amount of RUB 4,132 million, while the remaining balance of RUB 66 million is included in finished goods and RUB 197 million in inventories under construction and development. At 31 December 2020, the cost of land plots (Project 4) measured as described above and related to premises sold under share participation agreements concluded since 1 January 2017, was recognised in cost of sales during the year ended 31 December 2020 in the amount of RUB 1,770 million, while the remaining balance of RUB 13 million is included in finished goods and of RUB 17 million in inventories under construction and development. At 31 December 2020, the cost of land plots (Project 5) measured as described above and related to premises sold under share participation agreements, was recognised in cost of sales during the year ended 31 December 2020 in the amount of RUB 396 million, while the remaining balance of RUB 797 million is included in inventories under construction and development. In the course of implementation of several development projects the Group has to construct and transfer certain social infrastructure to City authorities. As at 31 December 2020, the cost of such social infrastructure amounts to RUB 1,001 million and is included into the balance of finished goods and inventories under construction and development (31 December 2019: RUB 1,219 million). These costs are recoverable as part of projects they relate to. The cost of social infrastructure is recognised in cost of sales consistently with the transfer to the customers of the apartments to which this social infrastructure relates. b) ALLOWANCE FOR IMPAIRMENT OF INVENTORIES The following is movement in the allowance for impairment of inventories: MLN RUB Balance at 1 January Impairment loss on inventories (note 8) BALANCE AT 31 DECEMBER 2020 2019 3,856 676 2,569 1,287 4,532 3,856 As at 31 December 2020, the net realizable value testing resulted in an amount which was less than the carrying amount by RUB 4,532 million (31 December 2019: RUB 3,856 million) and the respective allowance was recognised in other expenses, see note 8. As at 31 December 2020, the allowance of RUB 4,283 million relates to parking places (31 December 2019: RUB 3,414 million). The balance of parking places is equal to RUB 14,519 million as at 31 December 2020 (31 December 2019: RUB 13,889 million). An impairment allowance was made based on the following key assumptions: • Cash flows were projected during the expected period of sales equal to years of turnover of parking places determined based on historical information on contracts concluded with customers; • Discount rate –10,96 % per annum; • • Inflation rates—3,55—4,19 % per annum; In case there was no historical information on sales of certain parking places, the Group considered historical information in relation to similar parking places. Growth of discount rate Growth of inflation rates Reduction of turnover of finished goods Reduction of revenue from uncontracted parking places Growth of discount rate Growth of inflation rates Reduction of turnover of finished goods Reduction of revenue from uncontracted parking places The determination of net realizable value for parking places is subject to significant estimation uncertainty and, as such, the impairment allowance is judgmental. Changes in the above assumptions – in particular the discount rate and the years of turnover of parking places – could have a material impact on the impairment allowance amount. The following table demonstrates changes in key inputs and sensitivity of measurement of allowance for impairment: CHANGE OF IMPACT ON ALLOWANCE IN MONETARY PARAMETER FOR IMPAIRMENT TERMS (MLN RUB) 31 DECEMBER 2020 2 % 2 % 1 2 % 5 % -7 % 3 % 2 % 207 (278) 104 83 31 DECEMBER 2019 CHANGE OF IMPACT ON ALLOWANCE IN MONETARY PARAMETER FOR IMPAIRMENT TERMS (MLN RUB) 2 % 2 % 1 2 % 5 % -6 % 4 % 3 % 159 (199) 121 101 c) RENT OUT OF PROPERTY CLASSIFIED AS INVENTORIES— FINISHED GOODS The Group has temporarily rented out a part of certain items of property classified as inventories—finished goods in these consolidated financial statements. As at 31 December 2020, the total carrying value of these items of property was RUB 361 million (31 December 2019: RUB 327 million). The Group is actively seeking buyers for these properties. d) PLEDGES As at 31 December 2020, inventories with a carrying amount of RUB 16,505 million (31 December 2019: RUB 7,139 million) are pledged as security for borrowings, see note 23. e) COST OF ACQUISITION OF CONSTRUCTION PROJECTS (LAND PLOTS) The following table summarises cash spent on acquisition of construction projects (land plots) and related costs incurred during the reporting period. MLN RUB 2020 2019 Cost of acquisition of rights for land plots during the year Including fees for changing of the type of permitted use of land plots Capitalised lease payments for land plots TOTAL 1,496 539 896 2,392 3,706 805 1,020 4,726 278 FINANCIAL STATEMENTS 279 ANNUAL REPORT 2020 18. CONTRACT ASSETS, TRADE AND OTHER RECEIVABLES 19. SHORT-TERM INVESTMENTS The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 26. MLN RUB 2020 2019 LONG-TERM TRADE AND OTHER RECEIVABLES Trade receivables 4,082 4,596 Less: Allowance for doubtful trade accounts receivable (27) (57) LONG-TERM TRADE RECEIVABLES LESS ALLOWANCE 4,055 4,539 Other receivables Less: Allowance for doubtful other accounts receivable LONG-TERM OTHER RECEIVABLES LESS ALLOWANCE Advances paid to suppliers 231 (34) 197 1 164 (11) 153 – TOTAL LONG-TERM TRADE AND OTHER RECEIVABLES 4,253 4,692 SHORT-TERM TRADE AND OTHER RECEIVABLES Contract assets Trade receivables Less: Allowance for doubtful trade accounts receivable SHORT-TERM TRADE RECEIVABLES LESS ALLOWANCE Advances paid to suppliers Less: Allowance for doubtful advances paid to suppliers SHORT-TERM ADVANCES PAID TO SUPPLIERS LESS ALLOWANCE VAT recoverable Income tax receivable Financial asset arising from preferential rate on escrow-backed loans Other taxes receivable Other receivables due from related parties OTHER RECEIVABLES Less: Allowance for doubtful other accounts receivable Short-term other receivables less allowance 7,138 6,993 (635) 13,496 8,384 (247) 8,137 3,656 1,434 1,053 70 187 2,463 8,134 (690) 9,907 9,988 (238) 9,750 3,231 696 – 73 108 1,521 2,130 (930) 6,991 (752) 5,486 TOTAL SHORT-TERM TRADE AND OTHER RECEIVABLES 28,624 25,143 TOTAL MLN RUB Bank promissory notes – at amortised cost Bank deposits (over 3 months) Loans – at amortised cost Loss allowance for loans given TOTAL 32,877 29,835 2020 2019 91 100 109 300 (88) 212 108 80 146 334 (131) 203 The Group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 26. 20. CASH AND CASH EQUIVALENTS MLN RUB Cash in banks, in RUB Cash in banks, in USD Cash in banks, in EUR Cash in banks, in GBP Petty cash Cash in transit Short-term deposits (less than 3 months) TOTAL 2020 2019 10,456 18,423 163 18 2 2 1 89 15 2 2 – 15,188 12,597 25,830 31,128 The Group keeps significant bank balances in major Russian banks with credit ratings assigned by international rating agencies of BBB-, ВВ+, ВВ, BB-, В+, В, B-, as well as in foreign bank with credit rating А+. At 31 December 2020, the most significant amount of cash and cash equivalents held with one bank totalled RUB 13,707 million (31 December 2019: RUB 10,309 million). At 31 December 2020, the Group had outstanding loans and borrowings with the same bank that held the most significant amount of cash and cash equivalents in the amount of RUB 28,342 million (outstanding loans and borrowings with the same bank that held the most significant amount of cash and cash equivalents at 31 December 2019: nil). The bank has a Standard & Poor’s/ Moody’s credit rating credit rating of BBB-. At 31 December 2020, short-term deposits bore interest rate ranging from 2.27 % to 4.56 % per annum (31 December 2019: 3.73 % to 6.7 % per annum). The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 26. BANK BALANCES ON ESCROW ACCOUNTS – SUPPLEMENTARY DISCLOSURE MLN RUB 2020 2019 Bank balances in escrow accounts 23,572 692 Bank balances kept in escrow accounts are not included in the balance of cash and cash equivalents in the Group’s consolidated statement of financial position. They represent funds received by authorized banks from escrow-account holders – participants of share participation agreements for construction of real estate as a means of payment of consideration under such agreements. The funds will be transferred to the Group’s bank accounts upon completion of construction of respective real estate. The table below demonstrates the movement of funds on escrow accounts during the reporting period. MLN RUB Balance at 1 January Receipts of funds on escrow accounts Release of funds from escrow accounts BALANCE AT 31 DECEMBER 2020 2019 692 22,880 - 23,572 - 692 - 692 280 FINANCIAL STATEMENTS 281 ANNUAL REPORT 2020 During the year ended 31 December 2020, the Company paid dividends in the amount of RUB 3,527 million (year ended 31 December 2019: RUB 3,577 million). e) NON-CONTROLLING INTERESTS IN SUBSIDIARIES On 19 February 2019, the Group acquired a 51 % stake in JSC “Leader-Invest” (note 27). The non-controlling interest was measured as a 49 %-share of the recognised amounts of the acquiree’s net identifiable assets and amounted to RUB 15,289 million. On 16 August 2019, the Group acquired the remaining 49 % of the share capital of JSC “Leader-Invest” for the consideration of RUB 14,600 million, while the carrying amount of the share of net assets acquired amounted to RUB 14,669 million. The excess of RUB 69 million of the share of net assets acquired over the consideration transferred was recognised as an increase in retained earnings. 22. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares outstanding during the year, as shown below. The Company has no dilutive potential ordinary shares. NUMBER OF SHARES UNLESS OTHERWISE STATED 2020 2019 Issued shares at 1 January 294,954,025 294,954,025 Weighted average number of shares for the year ended 31 December 294,954,025 294,954,025 Profit attributable to the owners of the Company, mln RUB Basic and diluted earnings per share (RUB) 2020 2,036 6.90 2019 795 2.70 21. CAPITAL AND RESERVES a) SHARE CAPITAL The table below summarizes the information about the share capital of the Company. NUMBER OF SHARES UNLESS OTHERWISE STATED ISSUED SHARES 2020 2019 ORDINARY PREFERENCE ORDINARY PREFERENCE SHARES SHARES SHARES SHARES Par value at the beginning of the year 0.00005 GBP 1 GBP 0.00005 GBP 1 GBP On issue at the beginning of the year 294,957,971 20,000 294,957,971 20,000 PAR VALUE AT THE END OF THE YEAR 0.00005 GBP 1 GBP 0.00005 GBP 1 GBP ON ISSUE AT THE END OF THE YEAR, FULLY PAID 294,957,971 20,000 294,957,971 20,000 At 31 December 2019 and at 31 December 2020, the number of authorised and issued shares was 294.957.971. All issued ordinary shares are fully paid. The holders of ordinary shares are entitled to receive dividends and to one vote per share at meetings of the Company. b) SHARE PREMIUM The Company’s share premium account originated from the initial public offering of 71,428,571 ordinary shares at a value USD 7 each in form of global depository receipts (GDR’s) on the London Stock Exchange on 4 April 2011, and from issuance of 117,647 ordinary £0.01 shares for a consideration of USD 82,352,900 in March 2008. c) RESERVE FOR OWN SHARES During 2011-2017, the Company acquired 8,216,378 GDRs (Global Depositary Receipts) for own shares under the GDRs repurchase programme. During the year ended 31 December 2018, the Group transferred 8,212,432 shares to certain members of its key management personnel as part of their remuneration, see note 10. As at 31 December 2020 and 31 December 2019, the total number of own shares acquired by the Group amounted to 3,946 shares or 0.001 % of issued share capital. The consideration paid for own shares, including directly attributable costs, net of any tax effects, is recognised as a deduction from equity. When own shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings. GDR BUYBACK PROGRAMME On 24 January 2020, the Board of Directors of the Company authorised a buyback programme to purchase up to 10 % of the Company’s issued capital in the form of GDR until 14 April 2021. On 22 March 2020, the program was approved by the extraordinary general meeting of shareholders. As at 31 December 2020, no shares have been purchased. d) DIVIDENDS As the majority of the Company’s subsidiaries are incorporated in the Russian Federation, and in accordance with Russian legislation, the subsidiaries’ distributable reserves are limited to the balance of retained earnings as recorded in their statutory financial statements prepared in accordance with Russian Accounting Principles. 282 FINANCIAL STATEMENTS 283 ANNUAL REPORT 2020 23. LOANS AND BORROWINGS This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group’s exposure to interest rate, foreign currency and liquidity risk, see note 26. MLN RUB CURRENCY OF 31 DECEMBER MATURITY FACE VALUE AMOUNT FACE VALUE NOMINAL INTEREST RATE AS YEAR OF CARRYING 2020 2019 CARRYING AMOUNT MLN RUB 2020 2019 SECURED BANK LOANS NON-CURRENT LIABILITIES Secured bank loans Secured project financing Unsecured bank loans Unsecured bond issues CURRENT LIABILITIES Current portion of secured bank loans Current portion of unsecured bank loans Current portion of unsecured bond issues 26,571 27,965 4,995 1,375 1,695 – 4,316 9,977 34,636 42,258 2,329 4,988 8,552 2,393 4,438 3,603 15,869 10,434 The reconciliation of movements of liabilities to cash flows arising from financing activities during the reporting period is presented in the table below. MLN RUB Secured bank loans Secured project financing Unsecured bank loans Unsecured bond issues 1 JANUARY PROCEEDS FROM REPAYMENT OF 2020 BORROWINGS BORROWINGS OTHER CHANGES 31 DECEMBER 2020 30,358 - 8,754 13,580 52,692 787 5,782 2,122 - 8,691 (2,236) - (4,518) (3,354) (10,108) (10) (787) 5 22 (771) 28,899 4,995 6,363 10,248 50,505 MLN RUB 2019 BORROWINGS BORROWINGS CHANGES (NOTE 27) 2019 1 JANUARY PROCEEDS FROM REPAYMENT OF OTHER SUBSIDIARIES 31 DECEMBER Secured bank loans Unsecured bank loans Unsecured bond issues 1,622 9,298 9,992 20,912 30,048 284 - 30,332 (1,313) (1,469) (1,650) (4,432) (220) 25 (78) (273) 221 616 5,316 6,153 30,358 8,754 13,580 52,692 CHANGES FROM ACQUISITION OF During the year ended 31 December 2020, the Group received new credit line facilities to finance construction of residential buildings with variable interest rates adjusted based on the volume of escrow accounts balances (designated as “Project financing” in these consolidated financial statements). The loans’ rates have two components: the base rate and the preferential rate applied to debt covered by escrow account balances. In case of excess of balances on escrow accounts over outstanding loans, the rate is capped depending on the amount of the excess. Secured bank loan Secured bank loan Secured project financing Secured project financing Secured bank loan Secured bank loan Secured project financing Secured project financing Secured bank loan UNSECURED BANK LOANS Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan Unsecured bank loan UNSECURED BOND ISSUES Unsecured bonds Unsecured bonds Unsecured bonds Unsecured bonds RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB CBR’s key rate + 3 % CBR’s key rate + 2,35 % 0,01 % – 9,5 % 0,01 %-7,1 % CBR’s key rate + 3,5 % 10,00 % 0,01 %-7,1 % 0,01-9 % 10,50 % 7,15 % 9,25 % CBR’s key rate + 1 % 4,25 – 8,9 % 8,75 % 4,25 – 8,7 % CBR’s key rate + 1,75 % 4,25 % – 9,70 % CBR’s key rate + 1,75 % 4,50 % – 9,00 % 8,30 % 11,70 % 8,95 % 11,85 % 7,95 % 2027 2024 2025 2024 2022 2020 2024 2022 2023 2022 2022 2021 2021 2021 2022 2021 2021 2021 2020 2020 2021 2022 2021 2020 35,023 33,896 30,658 30,358 14,642 14,522 14,642 14,566 13,700 13,529 15,224 15,000 3,402 1,539 482 – 440 445 373 2,814 1,372 482 – 407 404 366 – – 460 332 – – – – – 460 332 – – – 6,371 6,363 8,754 8,754 2,124 2,124 827 482 751 501 501 500 435 250 – – 819 482 751 501 501 500 435 250 – – – 902 740 – 902 740 1,502 1,502 501 501 500 1,458 250 1,200 1,200 501 501 500 1,458 250 1,200 1,200 10,289 10,246 13,652 13,580 5,215 3,919 1,155 – 5,181 3,911 1,154 – 5,213 5,022 3,363 54 5,166 5,005 3,355 54 51,683 50,505 53,064 52,692 284 FINANCIAL STATEMENTS 285 ANNUAL REPORT 2020 23. LOANS AND BORROWINGS (CONTINUED) As of 31 December 2020, the weighted average interest rate on current credit portfolio amounted to 8,31 % p.a. (31 December 2019: 9,47 % p.a.). 24. PROVISIONS Bank loans are secured by: • inventories with a carrying amount of RUB 16,505 million (31 December 2019: RUB 7,139 million), see note 17; • pledge of bank promissory note in the amount of RUB 3 million (31 December 2019: nil), note 15; • pledge of 48 % of shares in subsidiary company JSC “Zatonskoe” which represents RUB 2,866 million in its net assets 1 (31 December 2019: 68 % of shares represents RUB 4,198 million in net assets); • pledge of 100 % of shares in subsidiary company LLC “Specialized Developer “LS-Rielty” which represents RUB 4,151 million in its net assets 1 (31 December 2019: RUB RUB 2,259 million in net assets); • pledge of 100 % shares of JSC “Leader-Invest” and 100 % of other 45 subsidiary companies of JSC “Leader-Invest” which collectively represent RUB 43,927 million in net assets 1 (31 December 2019: RUB 36,059 million in net assets); • pledge of 100 % shares of JSC “Etalon LenSpetsSMU”, LLC “ZhK Moskovskiy” and LLC “Zolotaya Zvezda”, which collectively represent RUB 45,994 million in net assets 1 (31 December 2019: RUB 46,695 million in net assets); • pledge of 98,3 % shares of LLC “Specialized Developer “Serebryaniy Fontan” which represents RUB 3,487 million in its net assets. The bank loans are subject to certain restrictive covenants. Financial covenants are based on the individual financial statements of certain entities of the Group, as well as on the consolidated financial statements of the Group. Operating covenants prescribe certain legal actions to be executed by the Group or the level of operations to be maintained with a bank. Except as described further, there has been no breach of any of the financial covenants during the reporting period. However, at the end of the year, the Group breached operating covenants on several loans. The Group obtained waivers from the banks, and the obligations were not transferred to current liabilities. MLN RUB WARRANTY PROVISION FOR FOR ONEROUS PROVISION DEFERRED WORKS CONTRACTS LITIGATIONS AND CL AIMS TOTAL PROVISION PROVISION FOR Balance at 1 January 2019 121 909 52 – 1,082 Provisions made during the year 48 403 – 93 544 Assumed through business combination – 47 – 95 142 Provisions used during the year (53) (822) – (54) Provision reversed during the year – (30) (4) (929) (34) BALANCE AT 31 DECEMBER 2019 116 507 48 134 805 Balance at 1 January 2020 116 507 48 134 805 Provisions made during the year 173 1,825 – 5 2,003 Provisions used during the year (54) (1,905) – (52) Provision reversed during the year (106) (58) (23) (83) (2,011) (270) BALANCE AT 31 DECEMBER 2020 129 369 25 4 527 Non-current Current 129 – – – 129 – 369 25 4 398 129 369 25 4 527 a) WARRANTIES The provision for warranties relates mainly to the residential units sold during the year. The provision is based on estimates made from historical experience from the sale of such units. The Group expects the expenses to be incurred over the next three years on average. The warranty provision relates to construction works done. b) PROVISION FOR DEFERRED WORKS The Group records provisions in respect of the Group’s obligation to incur additional costs associated with landscaping and other works after finishing the construction of apartment buildings. The provision is estimated based on historical experience. The Group expects the expenses to be incurred over the next year. 1 *net assets are based on individual IFRS accounts of the relevant companies. 286 FINANCIAL STATEMENTS 287 ANNUAL REPORT 2020 25. CONTRACT LIABILITIES, TRADE AND OTHER PAYABLES MLN RUB LONG-TERM Trade payables Lease liabilities Other payables SHORT-TERM Contract liabilities Trade payables VAT payable Payroll liabilities Income tax payable Other taxes payable Lease liabilities Other payables TOTAL 2020 2019 25,695 1,462 998 1,365 41 400 26,734 3,227 28,351 36,439 6,396 5,382 3,466 3,383 928 183 874 105 302 348 864 673 9,260 8,377 49,750 55,581 76,484 58,808 Long-term trade payables mainly consist of an obligation equal to RUB 25,245 million (31 December 2019: nil) for acquisition of 88 % of share capital of LLC “Specialized Developer “ZIL-YUG” (an entity owning the land plot in the Moscow metropolitan area), payable in 2022-2024. In addition, the short-term part of the obligation in the amount of RUB 2,265 million (31 December 2019: nil) is included into short-term trade payables. The carrying amounts of these payable were calculated by discounting the consideration of RUB 32,200 million payable in 2021-2024 described in the note 30 (b) to reflect the time value of money. Short-term other payables mainly consist of an obligation equal to RUB 6,847 million (31 December 2019: RUB 6,394 million) to construct social infrastructure objects and a liability of RUB 1,928 million (31 December 2019: RUB 1,096 million) to the City authorities for change of intended use of land plot recognised as part of inventories. Contract liabilities include advances from customers in the amount of RUB 1,777 million which will be satisfied after 12 months from the reporting date (31 December 2019: RUB 2,563 million). They are classified within short-term liabilities as the development cycle of construction projects exceeds one year. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 26. 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT a) ACCOUNTING CLASSIFICATIONS AND FAIR VALUES The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1 inputs Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs Level 3 inputs are unobservable inputs for the asset or liability. 31 DECEMBER 2020 MLN RUB CARRYING AMOUNT FAIR VALUE AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 TOTAL FINANCIAL ASSETS NOT MEASURED AT FAIR VALUE Loans and receivables (excluding taxes receivable and advances paid to suppliers) 14,194 14,194 Bank deposits (over 3 months) Bank promissory notes Cash and cash equivalents FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE Secured bank loans Secured project financing Unsecured bank loans Unsecured bond issues Trade and other payables 31 DECEMBER 2019 MLN RUB Bank deposits (over 3 months) Bank promissory notes Cash and cash equivalents FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE Secured bank loans Unsecured bank loans Unsecured bond issues Trade and other payables 100 100 94 94 – – – 13,846 13,846 100 100 93 93 25,830 25,830 25,830 – 25,830 40,218 40,218 25,830 14,039 39,869 (28,899) (28,899) – (30,438) (30,438) (4,997) (4,997) (4,592) (4,592) (6,363) (6,363) – (6,526) (6,526) (10,246) (10,246) (10,147) – (10,147) (44,175) (44,175) – (37,179) (37,179) (94,680) (94,680) (10,147) (78,735) (88,882) CARRYING AMOUNT FAIR VALUE AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 TOTAL 80 80 203 203 – – – 13,272 13,272 80 80 231 231 31,128 31,128 31,128 – 31,128 45,144 45,144 31,128 13,583 44,711 (30,358) (30,358) – (31,233) (31,233) (8,754) (8,754) – (8,805) (8,805) (13,580) (13,580) (15,066) – (15,066) (18,533) (18,533) – (17,497) (17,497) (71,225) (71,225) (15,066) (57,535) (72,601) FINANCIAL ASSETS NOT MEASURED AT FAIR VALUE Loans and receivables (excluding taxes receivable and advances paid to suppliers) 13,733 13,733 288 FINANCIAL STATEMENTS 289 ANNUAL REPORT 2020 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Fair values of financial assets and financial liabilities were determined by quantitative maturity analysis of contractual cash flows according to remaining contractual maturities, discounted using the following Central Bank of Russia rates: Receivables (excluding taxes receivable and advances paid to suppliers) Weighted average rate on mortgages issued during the year 7,36 % 9,56 % DISCOUNTING FACTOR 2020 2019 Loans given Unsecured loans and bond issued, and trade and other payables Bank promissory notes Weighted average interest rates on loans to non-financial organizations Weighted average interest rate on deposits of non-financial organizations 6,88 % 8,33 % 6,88 % 8,33 % 4,30 % 5,87 % The Group has exposure to the following risks from its use of financial instruments: • credit risk; • liquidity risk; • market risk. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. Risk management framework The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, has developed a disciplined and constructive control environment in which all employees understand their roles and obligations. b) CREDIT RISK Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from cash and cash equivalents, deposits with banks as well as credit exposures to customers, including outstanding trade and other receivables. Credit risk with regards to cash and cash equivalents and deposits with banks is managed by placing funds primarily in the banks listed in note 20. Credit risk connected with trade receivable arising from the sale of apartments to individuals is managed by securing those receivables against sold apartments. A significant share of such sales is made on a prepayment basis. To manage the credit risk of trade receivables from legal entities the Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are applied. (i) Trade and other receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. As at 31 December 2020, receivables from one customer equalled to RUB 284 million or 2 % of the Group’s consolidated trade and other receivables (31 December 2019: RUB 610 million or 4 %). (ii) Exposure to credit risk The carrying amount of financial assets and contract assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: MLN RUB 31 DECEMBER 2020 31 DECEMBER 2019 CARRYING AMOUNT FINANCIAL ASSETS AND CONTRACT ASSETS Loans and receivables (excluding taxes receivable, advances paid to suppliers), including contract assets 1 Bank promissory notes Bank deposits (over 3 months) Cash and cash equivalents 10,627 7,409 94 100 25,830 36,651 203 80 31,128 38,820 The amount of trade and other receivables including contract assets represents the maximum exposure to credit risk without taking account of trade receivables covered by collateral. The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was concentrated in the St. Petersburg region. The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was concentrated on industrial customers—legal entities included in the segment “Construction services”. MATURITY ANALYSIS AND IMPAIRMENT The ageing of trade receivables at the reporting date was: GROSS IMPAIRMENT GROSS IMPAIRMENT MLN RUB Not past due Past due 0-30 days Past due 31-90 days Past due 91-120 days Past due more than 120 days 2020 7,650 (7) 10,293 318 395 198 2,514 11,075 – – – (655) (662) 461 513 60 1,493 (305) 12,820 (747) 2019 (153) (5) (275) (9) The ageing of loans given at the reporting date was: MLN RUB Not past due Past due 0-30 days Past due more than 120 days GROSS IMPAIRMENT GROSS IMPAIRMENT 2020 (24) – (88) (112) 342 – 88 430 120 46 86 252 2019 (10) (46) (86) (142) 1 presented net of receivables arising from the sale of real estate that is secured by a pledge of the sold real estate (see 3(c)(vi)). 290 FINANCIAL STATEMENTS 291 ANNUAL REPORT 2020 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Allowance for impairment in respect of trade receivables The movement in the allowance for impairment in respect of trade receivables during reporting period was as follows: MLN RUB Balance at 1 January Amounts written off Net remeasurement of loss allowance BALANCE AT 31 DECEMBER 2020 2019 747 (137) 52 662 719 (89) 117 747 The Group calculates lifetime expected credit losses for trade receivables at an individual asset and a collective level. All individually significant assets were individually assessed for impairment. Assets that were not individually significant were collectively assessed for impairment. Collective assessment was carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group used historical information published by Moody’s Investors Service about the probabilities of default (PD) and losses given default (LGD) for issuers with different credit ratings and financial instruments with different durations. To assess the probability of default of individual debtors, the Group assigned to them credit ratings similar to the classification of Moody’s Investors Service. Speculative ratings (speculative-grade) were assigned to debtors that do not have official ratings and are not undergoing bankruptcy procedures. Such counterparties represent a major part of the Group debtors. The Group defines a default event when a financial asset is more than 90 days past due. The Group established an allowance for accounts receivable arising from the sale of real estate, in accordance with the methodology, described in the note 3(c)(vi). During the reporting period, there were no changes in the quality of the collateral. There were no changes in the collateral policies of the Group during the year 2020. Allowance for impairment in respect of other receivables The movement in the allowance for impairment in respect of other receivables during the reporting period was as follows: MLN RUB Balance at 1 January Amounts written off Net remeasurement of loss allowance BALANCE AT 31 DECEMBER 2020 2019 763 (72) 273 964 524 (129) 368 763 Allowance for impairment in respect of financial investments (loans given and promissory notes) The movement in the allowance for impairment in respect of loans given during the reporting period was as follows: MLN RUB Balance at 1 January Amounts written off Net remeasurement of loss allowance BALANCE AT 31 DECEMBER 2020 2019 143 (43) 12 112 157 (6) (8) 143 Allowance for impairment of cash and cash equivalents The Group assessed impairment of cash and cash equivalents on the 12-month expected loss basis that reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. The Group uses a similar approach for assessment of expected credit losses for cash and cash equivalents to those used for debt securities. Allowance for impairment in respect of advances paid to suppliers During the reporting period, the movement in the allowance for impairment in respect of advances paid to suppliers, which are outside the scope of IFRS 9, was as follows: MLN RUB Balance at 1 January Amounts written off Increase during the year BALANCE AT 31 DECEMBER 2020 2019 238 (68) 77 247 348 (212) 102 238 The Group includes a specific loss component that relates to individually significant exposures in its allowance for impairment of advances paid to suppliers. c) LIQUIDITY RISK Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Each year the Group prepares a cash flow budget to forecast possible liquidity deficits and to define the sources of financing of those deficits. 292 FINANCIAL STATEMENTS 293 ANNUAL REPORT 2020 The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. However, repayment of secured project financing may occur prior to their contractual maturities—as soon as construction projects are completed and funds from escrow accounts are released. IN RUB USD 1 EUR 1 AVERAGE RATE REPORTING DATE SPOT RATE 2020 2019 2020 2019 31 DECEMBER 31 DECEMBER 72.32 82.84 64.62 72.32 73.88 90.68 61.91 69.34 CONTRACTUAL MATURITIES OF FINANCIAL LIABILITIES WERE AS FOLLOWS: (ii) Interest rate risk 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) 31 DECEMBER 2020 MLN RUB CARRYING CONTRACTUAL AMOUNT CASH FLOWS 0 – 12 MTHS 1-2 YRS 2-3 YRS 3-4 YRS 4-5 YRS OVER 5 YRS NON-DERIVATIVE FINANCIAL LIABILITIES Loans and borrowings Trade and other payables (excluding taxes payable and contract liabilities) 50,505 42,313 60,507 18,994 11,779 9,984 11,395 4,358 3,997 42,315 11,810 1,881 9,836 18,569 217 2 Lease liabilities 1,862 1,460 593 366 183 25 26 267 94,680 104,282 31,397 14,026 20,003 29,989 4,601 4,266 31 DECEMBER 2019 MLN RUB CARRYING CONTRACTUAL AMOUNT CASH FLOWS 0 – 12 MTHS 1-2 YRS 2-3 YRS 3-4 YRS 4-5 YRS OVER 5 YRS NON-DERIVATIVE FINANCIAL LIABILITIES Loans and borrowings Trade and other payables (excluding taxes payable and contract liabilities) 52,692 16,495 66,263 14,655 17,164 10,227 9,847 6,864 7,506 16,587 10,155 3,032 1,271 1,217 867 45 Lease liabilities 2,038 2,622 972 806 388 182 20 254 71,225 85,472 25,782 21,002 11,886 11,246 7,751 7,805 d) MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. (i) Currency risk The Group’s exposure to foreign currency risk is limited. As at 31 December 2020 and 31 December 2019 the Group’s net positions in foreign currency were as follows: MLN RUB USD GBP EUR USD GBP 2020 Cash and cash equivalents (see note 20) NET EXPOSURE 163 163 2 2 18 18 89 89 2 2 2019 EUR 15 15 The following significant exchange rates applied during the year: Interest rate risk is the risk that changes in floating interest rates will adversely impact the financial results of the Group. The Group does not use any derivative instruments to manage interest rate risk exposure. PROFILE At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was: MLN RUB FIXED RATE INSTRUMENTS Financial assets Financial liabilities VARIABLE RATE INSTRUMENTS Financial liabilities CARRYING AMOUNT 2020 2019 19,806 17,598 (22,602) (22,009) (2,796) (4,411) (29,765) (31,356) (29,765) (31,356) CASH FLOW SENSITIVITY ANALYSIS FOR VARIABLE RATE INSTRUMENTS MLN RUB 200 BP INCREASE 100 BP DECREASE 200 BP INCREASE 100 BP DECREASE PROFIT OR LOSS EQUITY 31 December 2020 Variable rate instruments Cash flow sensitivity (net) 31 December 2019 Variable rate instruments Cash flow sensitivity (net) (595) (595) (627) (627) 298 298 314 314 (595) (595) (627) (627) 298 298 314 314 FAIR VALUE SENSITIVITY ANALYSIS FOR FIXED RATE INSTRUMENTS The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. 294 FINANCIAL STATEMENTS 295 ANNUAL REPORT 2020 26. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) e) CAPITAL MANAGEMENT The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to equity holders through the optimisation of the debt and equity balance. The management of the Group reviews the capital structure on a regular basis. As part of this review, the management considers the cost of capital and the risks associated with it. The capital structure of the Group consists of net debt (total loans and borrowings offset by cash and bank balances and bank deposits over 3 months) and equity of the Group (comprising issued capital and retained earnings as detailed in note 21). Certain subsidiaries of the Group may be subject to externally imposed capital requirements in accordance with Russian law. The Group’s debt to capital ratio at the end of the reporting period was as follows: MLN RUB Loans and borrowings, note 23 Less: cash and cash equivalents, note 20 2020 2019 50,505 52,692 (25,830) (31,128) Less: bank deposits over 3 months, notes 19 and 15 (100) (80) NET DEBT TOTAL EQUITY Debt to capital ratio at end of period 24,575 21,484 51,073 52,576 0,48 0,41 At 31 December 2020, lease liabilities of RUB 1,888 million (31 December 2019: RUB 2,038 million) are included in trade and other payables (see notes 25 and 28) and are not included in the total amount of borrowings. 27. ACQUISITION OF SUBSIDIARY On 19 February 2019, the Group acquired 51 % of the shares and voting interests in JSC “Leader-Invest” from Sistema PJSFC and its affiliates for the cash consideration of RUB 15,185 million. JSC “Leader-Invest” is a Moscow-based residential developer focusing on projects in the comfort, business and premium-class segments. As at 19 February 2019, its portfolio included 31 projects under construction and development or at the design stage, unsold inventory at twelve completed residential complexes, and commercial real estate, with a total NSA of 1.3 million square meters. The primary reason for the acquisition was to increase the Group’s share of the Moscow residential real estate market and to replenish its land bank. Consideration transferred The acquisition-date fair value of the total consideration transferred (cash payment) amounted to RUB 15,185 million. Сontingent consideration The Group has agreed to pay the selling shareholders the Group’s share of dividends received from Leader-Invest’s affiliate company for three years following the acquisition as a deferred adjustment to the consideration described above. Due to the uncertainty of the outcome, the Group did not adjust the cost of combination in these consolidated financial statements. During the year ended 31 December 2020, the Group paid out the consideration in the amount of RUB 143 million, which was recognised within net other expenses. Acquisition-related costs The Group incurred acquisition-related costs of RUB 256 million related to external legal fees and due diligence costs, which have been included in administrative expenses in the Group’s consolidated statement of profit or loss and other comprehensive income. Identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date. MLN RUB NON-CURRENT ASSETS Property, plant and equipment Investment property Other long term investments Deferred tax assets CURRENT ASSETS Inventories Trade and other receivables Advances issued Short-term investment Cash and cash equivalents Other current assets NON-CURRENT LIABILITIES Loans and borrowings Long-term trade and other payables Deferred tax liabilities CURRENT LIABILITIES Loans and borrowings Trade and other payables Provisions TOTAL IDENTIFIABLE NET ASSETS Total identifiable net assets acquired (51 %) Non-controlling interest (49 %) RECOGNISED FAIR NOTE VALUES ON ACQUISITION 13 14 403 838 4 94 45,655 1,057 1,781 752 4,704 187 (5,779) (998) (5,657) (374) (11,322) 24 (143) 31,202 15,913 15,289 Trade and other receivables comprised gross contractual amounts due of RUB 1,383 million, of which RUB 326 million was expected to be uncollectable at the date of acquisition. 296 FINANCIAL STATEMENTS 297 ANNUAL REPORT 2020 27. ACQUISITION OF SUBSIDIARY (CONTINUED) Indemnification assets The seller in a business combination had contractually indemnified the Group for the outcome of uncertainties related to specific liabilities, including losses above a specified amount by specified subsidiaries, liabilities arising from tax contingencies and recultivation costs above specified limit. The Group did not recognise such liabilities at the acquisition date and therefore did not recognise any indemnification assets. Measurement of fair values The valuation techniques used for measuring the fair value of material assets acquired were as follows. INVENTORIES The acquiree’s inventories are mainly represented by real estate development projects at different stages of development. The fair values of real estate development projects were determined by an independent appraiser based on discounted cash flows from the construction and sale of such real estate. The following key assumptions were used by the appraiser: • Cash flows were projected based on the business plans for construction and sale of real estate; Inflation rates—in the range 3,5 %-4,5 % per annum; • • Discount rates—12,3 % – 23 % per annum, depending on the class of the project, stage of development of a particular project and the availability of construction permits. Bargain purchase The Group recognised the excess of the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed over consideration transferred in the amount of RUB 729 million as a gain from bargain purchase in its consolidated statement of profit or loss and other comprehensive income. From the date of acquisition to 31 December 2019 JSC “Leader-Invest” and its subsidiaries contributed revenues of RUB 11,198 million and a loss of RUB 3,145 million. If the acquisition of the business had occurred on 1 January 2019, management estimates that consolidated revenue would have been RUB 86,132 million, and consolidated loss for the year would have been RUB 58 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2019. 28. LEASES The Group leases a number of land plots for the purpose of the construction of residential and commercial premises for sale, as well as land plots occupied by its own production and office facilities. The leases typically run for the years of construction of premises for sale. The following table summarises the movement in the right-of-use assets and lease liabilities during the reporting period. MLN RUB CONSTRUCTION AND EQUIPMENT TOTAL INVENTORIES UNDER PROPERTY, PL ANT RIGHT-OF-USE ASSETS Balance at 1 January 2020 Additions to right-of-use assets Modifications of lease contracts Depreciation charge BALANCE AT 31 DECEMBER 2020 LEASE LIABILITIES Balance at 1 January 2020 Settlement of lease liabilities, including interest Interest expense on lease liabilities Additions to lease liabilities Modifications of lease contracts BALANCE AT 31 DECEMBER 2020 2,080 482 (31) (136) 2,395 1,636 (632) 132 481 (31) 1,586 400 69 (41) (116) 312 402 (180) 35 66 (47) 276 2,480 551 (72) (252) 2,707 2,038 (812) 167 547 (78) 1,862 MLN RUB CONSTRUCTION AND EQUIPMENT TOTAL INVENTORIES UNDER PROPERTY, PL ANT RIGHT-OF-USE ASSETS Balance at 1 January 2019 Additions to right-of-use assets Termination of lease contracts Depreciation charge Acquired through business combination BALANCE AT 31 DECEMBER 2019 LEASE LIABILITIES Balance at 1 January 2019 Settlement of lease liabilities, including interest Interest expense on lease liabilities Additions to lease liabilities Termination of lease contracts Assumed through business combination BALANCE AT 31 DECEMBER 2019 1,786 4 – (342) 631 2,079 1,786 (975) 190 4 – 631 1,636 135 134 (39) (149) 319 400 135 (197) 43 136 (34) 319 402 1,921 138 (39) (491) 950 2,479 1,921 (1,172) 233 140 (34) 950 2,038 Future cash outflows to which the Group is exposed that are not reflected in the measurement of lease liabilities arising from variable lease payments amount to RUB 812 million (31 December 2019: RUB 789 million). 298 FINANCIAL STATEMENTS 299 ANNUAL REPORT 2020 29. CAPITAL COMMITMENTS As at 31 December 2020, the Group had no capital commitments (31 December 2019: nil). 30. CONTINGENCIES a) INSURANCE The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Group does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group’s operations and financial position. b) LITIGATION During the year ended 31 December 2019 and 2020, the Group was involved in a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. One of the Group’s subsidiaries was involved in an arbitral process as defendant, where plaintiff obliges the Group to purchase from the plaintiff 22 % of share capital of LLC “Specialized Developer “ZIL-YUG” for the consideration of RUB 7,305 million. The Group declined to proceed with the acquisition since the project planning documentation provided by the plaintiff contradicted technical and economical parameters established in the initial tender documentation and agreed with the plaintiff. On 30 July 2020, a mediation agreement, involving independent professional mediator of the Board of Mediators for Conciliatory Procedures at the Chamber of Commerce and Industry of the Russian Federation was prepared and signed by the parties. Under the terms of the agreement, the Group accepted project planning documentation provided by the plaintiff, and the plaintiff agreed to transfer to the Group the remaining 88 % of share capital of LLC “Specialized Developer “ZIL-YUG” for the consideration of RUB 32,200 million payable in 2021-2024. As a result of the mediation agreement, the plaintiff dismissed the claims to the Group described above. In the opinion of management, there are no other current legal proceedings or other claims outstanding, which could have a material effect on the result of operations or financial position of the Group and which have not been accrued or disclosed in these consolidated financial statements. 31. RELATED PARTY TRANSACTIONS a) TRANSACTIONS WITH MANAGEMENT (i) Management remuneration Key management received the following remuneration during the year, which is included in personnel costs (see note 9): MLN RUB Short-term employee benefits – salaries and bonuses Termination benefit paid to key management personnel 2020 312 3 315 2019 1,599 57 1,656 During the year ended 31 December 2020 and 2019, the Group did not grant any loans and pensions to its key management personnel. During the year ended 31 December 2020, the remuneration of the members of the Board of Directors of the Company amounted to RUB 28 million (2019: RUB 48 million). b) TRANSACTIONS WITH OTHER RELATED PARTIES The Group’s other related party transactions are disclosed below. MLN RUB Other related parties TRANSACTION VALUE OUTSTANDING BAL ANCE 2020 409 409 2019 113 113 2020 218 218 2019 613 613 All outstanding balances with related parties are to be settled in cash. None of the balances are secured. (ii) Expenses MLN RUB Other related parties TRANSACTION VALUE OUTSTANDING BAL ANCE 2020 (178) (178) 2019 (123) (123) 2020 (116) (116) 2019 (221) (221) All outstanding balances with related parties are to be settled in cash. None of the balances are secured. (iii) Loans MLN RUB Loans given Loans received AMOUNT LOANED / RECEIVED OUTSTANDING BAL ANCE 2020 (5) (1,210) (1,215) 2019 4 (298) (294) 2020 2 2019 6 (5,145) (3,935) (5,143) (3,929) All outstanding balances with related parties are to be settled in cash. None of the balances are secured. (iv) Other transactions MLN RUB Current accounts in banks – related parties Proceeds from investments in associates Interest payable TRANSACTION VALUE OUTSTANDING BAL ANCE 2020 262 12 157 431 2019 (469) 117 (51) (403) 2020 276 – (6) 270 2019 14 – (163) (149) 300 FINANCIAL STATEMENTS 301 ANNUAL REPORT 2020 32. GROUP ENTITIES SIGNIFICANT SUBSIDIARIES SUBSIDIARY COUNTRY OF 31 DECEMBER 31 DECEMBER INCORPORATION 2020 2019 “Etalon Group company” AO Russian Federation 100,00 % 100,00 % LLC “EtalonAktiv” Russian Federation 100,00 % 100,00 % JSC “Etalon LenSpetsSMU” Russian Federation 100,00 % 100,00 % JSC “Novator” Russian Federation 100,00 % 100,00 % JSC “LenSpetsSMU-Reconstruktsiya” Russian Federation 100,00 % 100,00 % LLC “Etalon-Invest” Russian Federation 100,00 % 100,00 % JSC “Zatonskoe” Russian Federation 100,00 % 100,00 % LLC “SPM-Zhilstroy” Russian Federation 100,00 % 100,00 % LLC “Specialized Developer “Serebryaniy Fontan” Russian Federation 99,97 % 99,97 % LLC “Specialized Developer “Etalon Galaktika” Russian Federation 100,00 % 100,00 % LLC “Specialized Developer “Etalon Development” Russian Federation 100,00 % 100,00 % JSC “Leader-Invest” Russian Federation 100,00 % 100,00 % LLC “Razvitiye” Russian Federation 100,00 % 100,00 % LLC “Specialized Developer “ZIL-YUG” Russian Federation 100,00 % 12,00 % LLC “Specialized Developer “MBI” Russian Federation 100,00 % 100,00 % JSC “Lobachevskogo 120” Russian Federation 100,00 % 100,00 % As at 31 December 2020, the Group controlled 119 legal entities (31 December 2019: 128). Their assets, liabilities, revenues and expenses have been included in these consolidated financial statements. The above is a list of the most significant subsidiaries. 33. EVENTS SUBSEQUENT TO THE REPORTING DATE OPERATING EVENTS Commitment for acquisition of a land plot The Group is finalising negotiations on the acquisition of a land plot located in the St. Petersburg metropolitan area for the consideration of RUB 1,100 million payable in 2021-2022 Share capital increase and offering of newly issued ordinary shares On 26 February 2021, the Board of Directors of the Company held a meeting where it was proposed that extraordinary general meeting of shareholders (“EGM”) of the Company authorises the Board of Directors to consider a potential share capital increase for a potential public or private placement. If approved, proceeds from such placement will enable the Company to replenish and develop its land bank, as well as finance the early development of new projects. Subject to approval of EGM, the authorised share capital of the Company will be increased from £34,747.899 to £39,172.2686 by the creation of 88,487,391 ordinary shares of nominal value of £0.00005 each, and the authority will be given to the Board of Directors to allot and issue, out of the authorised but unissued share capital of the Company, up to 88,487,391 ordinary shares at par or at a premium as they deem appropriate, and such authority to expire on 22 March 2023. The share capital increase is expected to be structured in the form of one or several public and /or institutional offerings of newly issued ordinary shares represented by GDRs. On 22 March 2021, the EGM resolved that the authorised share capital of the Company be increased from £34,747.899 to £39,172.2686 by the creation of 88,487,391 ordinary shares of nominal value of £0.00005 each. FINANCING EVENTS Subsequent to the reporting date, the Group has repaid loans and borrowings outstanding as at 31 December 2020 for the total amount of RUB 2,609 million and unsecured bonds for the total amount of RUB 1,257 million. Subsequent to the reporting date, the Group has obtained additional tranches of loans for the total amount of RUB 6,019 million with nominal interest rates of 0,01 % – 10,5 % and repayable by 2025. Subsequent to the reporting date, coupon rate on JSC «Leader-Invest» unsecured bond issue decreased from 11,7 % to 7,95 %. 302 FINANCIAL STATEMENTS 303 ANNUAL REPORT 2020 SUPPLEMENTARY INFORMATION In this note, additional information is disclosed. We believe that the adjusted net debt/ adjusted EBITDA ratio, together with measures determined in accordance with IFRS, provides the readers with valuable information and a further understanding of the underlying performance of the business. The below non-IFRS measures should be considered and read in addition to, but not as a substitute for, the information contained in the consolidated financial statements. Non-IFRS measures are not uniformly defined by all companies, including those in the Group’s industry. Therefore, the non-IFRS measures used by the Group may not be comparable to similar measures and disclosures made by other companies. ADJUSTED NET DEBT/ADJUSTED EBITDA RATIO MLN RUB Loans and borrowings Less: cash and cash equivalents Less: bank deposits over 3 months, note 19 2020 2019 50,505 52,692 (25,830) (31,128) (100) (80) Add: contract liabilities, reportable segment Residential development 25,530 32,798 Less: Inventories under construction, note 17 ADJUSTED NET DEBT Gross profit Less: General and administrative expenses Less: Selling expenses Adjusted operating profit Add: Depreciation and amortisation EBITDA Add: Purchase price allocation from acquisition of Leader-Invest included in cost of sales ADJUSTED EBITDA ADJUSTED NET DEBT/ADJUSTED EBITDA (102,179) (85,270) (52,074) (30,988) 2020 2019 21,915 20,057 (5,235) (4,560) 12,120 481 12,601 3,881 (7,280) (4,822) 7,955 542 8,497 2,678 16,482 11,175 (3.16) (2.77) Adjusted net debt represents net total of loans and borrowings less cash and cash equivalents and bank deposits over 3 months adjusted for contract liabilities in the Residential development segment less balance of inventories under construction and development. Adjusted net debt measures the Group’s net indebtedness that provides an indicator of the overall balance sheet strength. Adjusted EBITDA represents gross profit for the year adjusted by general and administrative expenses, selling expenses, depreciation and amortisation and effect of purchase price allocation from acquisition of subsidiary. The result is the equivalent of profit (loss) for the year before net finance costs, income tax expense, depreciation and amortization and effect of purchase price allocation, impairment loss on trade and other receivables, gain from bargain purchase from acquisition of subsidiary and other operating expenses. We believe that adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures and other investments and our ability to incur and service debt. Adjusted net debt/adjusted EBITDA ratio is used by creditors, credit rating agencies and other stakeholders. NET CORPORATE DEBT/ADJUSTED EBITDA Net corporate debt represents net debt as defined in the note 26 (e) adjusted for the amount of project financing (borrowings backed by balances on escrow accounts). MLN RUB Loans and borrowings Less: secured project financing TOTAL CORPORATE BORROWINGS Less: cash and cash equivalents 2020 2019 50,505 52,692 (4,995) – 45,510 52,692 (25,830) (31,128) Less: bank deposits over 3 months, notes 15 and 19 (100) (80) NET CORPORATE DEBT 19,580 21,484 NET CORPORATE DEBT/ADJUSTED EBITDA 1.19 1.92 Net corporate debt and Adjusted net debt are not balance sheet measures under IFRS and they should not be considered as an alternative to other measures of financial position. Although Net corporate debt and Adjusted net debt are non-IFRS measures, they are widely used to assess liquidity and the adequacy of a company’s financial structure. The Group believes that Net corporate debt and Adjusted net debt provide an accurate indicator of its ability to meet financial obligations, represented by gross debt, from available cash and future proceeds from sales. However, the use of Net corporate debt and Adjusted net debt effectively assumes that gross debt can be reduced by cash. In fact, it is unlikely that the Group would, or could, use all of its cash to reduce gross debt all at once, as those Group companies which sell properties using shared construction agreements are not entitled to use cash received from their customers for any purposes until commissioning of the relevant project. THE MOVEMENT OF THE PURCHASE PRICE ALLOCATION (PPA) FROM THE ACQUISITION OF LEADER-INVEST, RECOGNISED WITHIN PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTY, INVENTORIES PPA is a significant non-operational factor that significantly affects the Group’s financial performance and will continue to do so in the next few years. The disclosure increases the transparency of the reporting and enables users of the financial statements to correctly assess the effect of PPA on the financial results. MLN RUB Balance at 1 January 2020 2019 25,695 – Adjustment to fair value of identified net assets of Leader-Invest – 29,386 Included in Cost of sales Included in General and administrative expenses Included in Other expenses, net BALANCE AT 31 DECEMBER (3,881) (2,678) – (918) (38) (975) 20,896 25,695 304 FINANCIAL STATEMENTS 305 ANNUAL REPORT 2020 PARENT COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTENTS Board of Directors and other Officers Management Report Responsibility statement of the Directors and management of the Company in accordance with the Transparency Requirements Independent Auditors’ Report Statement of financial position Statement of profit or loss and other comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements BOARD OF DIRECTORS AND OTHER OFFICERS BOARD OF DIRECTORS 305 306 310 311 317 318 319 320 321 SERGEY EGOROV (appointed on 19 February 2019) OLEG MUBARAKSHIN (appointed on 19 February 2019) MARINA OGLOBLINA (appointed on 19 February 2019) GANNA KHOMENKO (appointed on 19 February 2019) MARTIN ROBERT COCKER (appointed on 12 November 2010) BORIS SVETLICHNY (appointed on 15 April 2013) CHARALAMPOS AVGOUSTI (appointed on 10 November 2016) MAKSIM BERLOVICH (appointed on 27 April 2018) DENIS VINOKUROV (appointed on 9 November 2018) KIRILL BAGACHENKO (appointed on 15 November 2013 and resigned on 20 February 2020) SECRETARY INDEPENDENT AUDITORS G.T. Globaltrust Services Limited Deloitte Limited Themistokli Dervi, 15 Margarita House, 5th floor, flat/office 502 1066 Nicosia Cyprus Certified Public Accountants and Registered Auditors 24 Spyrou Kyprianou Avenue 1075, Nicosia Cyprus REGISTERED OFFICE 2-4 Arch. Makariou III Avenue Capital Center, 9th floor 1065 Nicosia Cyprus 306 FINANCIAL STATEMENTS 307 ANNUAL REPORT 2020 MANAGEMENT REPORT The Board of Directors presents its report together with the audited financial statements of Etalon Group PLC (the “Company”) for the year ended 31 December 2020. COUNTRY OF INCORPORATION Etalon Group PLC was registered in the Republic of Cyprus on 5 April 2017. Its registered office is 2-4 Arch. Makariou III Avenue, Capital Center, 9th floor, 1065 Nicosia, Cyprus. In April 2011, the Company completed an initial public offering and placed its ordinary shares in the form of global depository receipts (“GDR”) on the London Stock Exchange’s Main Market. In 2017 the Company was re-domiciled from Guernsey to Cyprus. PRINCIPAL ACTIVITIES The principal activities of the Company, which are unchanged from last year, are the holding of investments and provision of financing to related parties. The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS- EU) and the requirements of the Cyprus Companies Law, Cap. 113. CHANGES IN GROUP STRUCTURE On 30 November 2020, the Company’s subsidiary, Etalon Group Limited, approved a transfer to the Company of 440.250 shares in JSC GK Etalon with nominal value of RUB 1.200. As a result of the transaction, the Company increased its share of ownership in JSC GK Etalon to 26.16%. REVIEW OF DEVELOPMENTS, POSITION AND PERFORMANCE OF THE COMPANY’S BUSINESS The profit of the Company for the year ended 31 December 2020 was Russian Ruble (‘RUB’)’000 8.018.572 (2019: profit of RUB’000 2.266.908). The main source of profit for the period is the change in fair value of investments in subsidiaries in the amount of RUB’000 4.458.099 (2019: the dividend income from subsidiaries in the amount of RUB’000 1.647.653). On 31 December 2020, the total assets of the Company were RUB’000 73.746.552 (31 December 2019: RUB’000 69.145.867) and the net assets were RUB’000 73.057.213 (31 December 2019: RUB’000 68.578.137). Investment in subsidiaries was RUB’000 64.769.755 (31 December 2019: RUB’000 60.311.656). The financial position, development and performance of the Company as presented in these financial statements are considered satisfactory. More details are set out on pages 317 and 318 (statement of financial position and statement of profit or loss and other comprehensive income). RESEARCH AND DEVELOPMENT ACTIVITIES The Company did not carry out any research and development activities during the year. PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties faced by the Company are disclosed in Note 3 of the financial statements. This operating environment may have a significant impact on the Company’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Company’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. USE OF FINANCIAL INSTRUMENTS BY THE COMPANY The Company's activities expose it to a variety of financial risks: market risk, currency risk, credit risk and liquidity risk. The Company's risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The Board provides principles for overall risk management, such as foreign exchange risk, interest rate risk, credit risk and liquidity risk. The detailed analysis of the Company’s exposure to financial risks as at the reporting date and the measures taken by the Management in order to mitigate those risks are disclosed in Note 3 of the financial statements. FUTURE DEVELOPMENTS OF THE COMPANY The Board of Directors does not expect any significant changes or developments in the operations, financial position and performance of the Company in the foreseeable future. SHARE CAPITAL During the year ended 31 December 2020, there were no changes to the share capital of the Company. ACQUISITION OF OWN SHARES As of 31 December 2020 the total number of own shares acquired by the Company amounted to 3.946 shares or 0,001% of issued share capital. BOARD OF DIRECTORS The members of the Board of Directors of the Company at 31 December 2020 and at the date of this report are shown on page 305. The details of all appointment and resignations of Directors are shown on page 305. COVID-19 AND OTHER SIGNIFICANT EVENTS As the Russian Federation produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market. In March 2020, oil prices dropped by more than 40%, which resulted in the immediate weakening of Russian Ruble against major currencies. In addition, starting from early 2020, a new coronavirus disease (COVID-19) began rapidly spreading all over the world resulting in an announcement of pandemic status by the World Health Organization in March 2020. Responses put in place by the Russian Federation to contain the spread of COVID-19 resulted in significant operational disruption for many companies and had a significant effect on businesses across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. the Government of Moscow imposed a temporary ban on construction works that lasted from the 13th of April until the 12th of May. The Group managed to provide the necessary conditions for the safe conduct of construction works on all of its construction sites. In the Moscow region, the Group resumed construction shortly after the temporary ban on construction was lifted due to the flexible construction technology and the availability of own general contractors and sub-contractors. In Saint- Petersburg construction works continued uninterrupted. As a result, all projects that were planned for completion during the year ended 31 December 2020 were completed on time. In the first weeks following the introduction of restrictive measures, the Group launched an online real estate sales service, formed operational teams of managers, and strengthened its call center. The Group developed a new model of interaction with clients including virtual showrooms, virtual and augmented reality projects that provide a complete picture of the future apartments. authorities in the Russian Federation due to the COVID-19 pandemic have been lifted, including on the operation of the Group’s sales offices, and the Group observes that the demand for real estate has recovered. INDEPENDENT AUDITORS On 20 October 2020, the Annual General Meeting of shareholders of the Company appointed Deloitte Limited as auditor of the Company to hold office until the conclusion of the next annual general meeting and authorised the Board of Directors to fix the auditor’s remuneration. DIVIDENDS On 20 July 2020, the Board of Directors recommended that the Company pay a final dividend for FY 2019 in the amount of RUB 12 per share. The final dividend for the total amount of RUB 3 539 million was approved by the Annual General Meeting of shareholders on 23 October 2020, and the dividends were paid on 16 December 2020. The Group’s office-based employees were successfully moved to remote working. BRANCHES The Company did not operate through any branches during the year ended 31 December 2020. The quarantine measures, accompanied by a reduction in the disposable income of households and an increase in unemployment rates, led to the overall decrease of the demand for real estate. At the same time, the Government of the Russian Federation has implemented various measures to support both the construction industry and its clients, including the introduction of a preferential 6,5% p.a. mortgage program and an increase of its price limits on apartments, that had a significant positive impact on the demand for real estate. The quarantine measures introduced in the Russian Federation included the closure of the Group’s sales offices. In addition, As of the reporting date, most of the restrictions imposed by the government 308 FINANCIAL STATEMENTS 309 ANNUAL REPORT 2020 CORPORATE GOVERNANCE REPORT COMPANY’S INTERNAL CONTROL AND RISK MANAGEMENT IN RELATION TO THE PREPARATION OF THE FINANCIAL STATEMENTS uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. The main documents regulating the activities of the Company are the Cyprus Companies Law, Cap. 113, the UKLA Listing, Prospectus and Disclosure and Transparency Rules, together with the Memorandum and Articles of Association of the Company. The Company has also enacted a number of governance policies and procedures to ensure that a proper system of corporate governance is in place, such as the Management Policy and Committee terms of reference. The Board of Directors is responsible for the preparation of the financial statements that give a true and fair view in accordance with the International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for making an assessment of the Company’s ability to continue as a going concern, taking into account all available information about the future and for disclosing any material Those charged with governance are responsible for implementation of internal control necessary for the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and in particular for the design, implementation and maintenance of internal control to prevent and detect fraud and error. The Audit Committee is responsible for monitoring the financial reporting process and the integrity of the Company’s financial statements. It is also responsible for reviewing internal controls, overseeing how management monitors compliance with the Company’s risk management policies and procedures, the effectiveness of the Company’s Internal Audit function and the independence, objectivity and the effectiveness of the external audit process. The Audit Committee is also responsible for considering the terms of appointment and remuneration of the external auditor. The Company believes that its financial reporting functions and internal control systems are sufficient to ensure compliance with the requirements of the FSA’s Disclosure and Transparency Rules as a listed company and with the requirements of Cyprus Companies Law, Cap. 113. SIGNIFICANT DIRECT OR INDIRECT SHAREHOLDINGS As at 31 December 2020, the Company is aware of the following interests in its share capital: SHAREHOLDERS Free float Sistema PJSFC Management of the Company TOTAL % 73,6% 25,6% 0,8% 100% THE HOLDERS OF ANY SHARES WITH SPECIAL CONTROL RIGHTS AND A DESCRIPTION OF THESE RIGHTS The Company does not have any shares with special control rights. THE RULES REGARDING THE AMENDMENT OF THE ARTICLES OF ASSOCIATION Subject to the provisions of the Law, the Company may, by special resolution, alter or add to its articles of association. Any alteration or addition shall be as valid as if originally contained therein, and be subject in like manner to alteration by special resolution. The office of a director shall be vacated if: (a) he becomes of unsound mind or an order is made by a court having jurisdiction (whether in Cyprus or elsewhere) in matters concerning mental disorder for his detention or for the appointment of a receiver, curator or other person to exercise powers with respect to his property or affairs; or (b) he is prohibited from acting as director in accordance with section 180 of the Law; or (c) becomes bankrupt or makes any arrangement or composition with his creditors generally or otherwise has any judgment executed on any of his assets; or (d) he dies; or (e) he resigns his office by written notice to the Company; or (f) the Company removes them from their position in accordance with section 178 of the Law. RESTRICTIONS IN EXERCISING OF VOTING RIGHTS OF SHARES The 20.000 preference shares having the par value of GBP 1 each issued by the Company, bear no voting rights. The Company does not have any other restrictions in exercising of the voting rights of its shares. THE RULES REGARDING THE APPOINTMENT AND REPLACEMENT OF BOARD MEMBERS The Company may by ordinary resolution appoint any person as a director and may by ordinary resolution of which special notice has been given, in accordance with sections 178 and 136 of the Cyprus Companies Law, cap. 113 (the Law), remove a director. Any such director will receive special notice of the meeting and is entitled to be heard at the meeting. Any director has to confirm in writing that he is eligible under the Law. A director may resign from office as a director by giving notice in writing to that effect to the Company, which notice shall be effective upon such date as may be specified in the notice. The directors have the power from time to time, without sanction of the Company in general meeting, to appoint any person to be a director, either to fill a casual vacancy or as an additional director. BY ORDER OF THE BOARD OF DIRECTORS CHARALAMPOS AVGOUSTI Director Nicosia, 26 April 2021 310 FINANCIAL STATEMENTS 311 ANNUAL REPORT 2020 RESPONSIBILITY STATEMENT OF THE DIRECTORS AND MANAGEMENT OF THE COMPANY IN ACCORDANCE WITH THE TRANSPARENCY REQUIREMENTS (SECURITIES ADMITTED TO TRADING) LAW OF 2007 Deloitte Limited 24 Spyrou Kyprianou Avenue CY-1075 Nicosia, Cyprus Mail: P.O.Box 21675 CY-1512 Nicosia, Cyprus Tel: +357 22 360 300 Fax: +357 2 5 360 400 infonicosia@deloitte.com www.deloitte.com/cy Independent Auditor's Report To the Members of Etalon Group PLC Report on the Audit of the Financial Statements (a) The annual financial statements for year (b) The Management Report includes a Opinion We, the members of the Board of Directors and the Company officials responsible for the drafting of the financial statements of ETALON GROUP PLC (the ‘Company’), the names of which are listed below, in accordance with the requirements of the Section 9 of the Transparency Requirements (Security Admitted to Trading) Law 190(I)/2007 (hereinafter the “Transparency Law”), as amended, confirm that we have complied with the requirements in preparing the financial statement and that to the best of our knowledge: ended 31 December 2020: (i) Have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), in accordance with the provisions of section 9(4) of the Transparency Law and in accordance with Cyprus Companies Law, Cap.113; (ii) Give a true and fair view of the assets, liabilities, financial position and profit or loss of the parent Company included in the financial account, and fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company face. The management report provides a fair overview on information required as per Section 9(6)(a) of the Transparency Law. We have audited the financial statements of parent company Etalon Group PLC (the "Company"), which are presented in pages 14 to 38 and comprise the statement of financial position as at 31 December 2020 and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the parent company Etalon Group PLC as at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113. 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 Financial Statements section of our report. We remained independent of the Company throughout the period of our appointment in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) ("IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. SERGEY EGOROV, Chairman of the Board of Directors MAKSIM BERLOVICH, Member of the Board of Directors OLEG MUBARAKSHIN, Member of the Board of Directors MARINA OGLOBLINA, Member of the Board of Directors GANNA KHOMENKO, Member of the Board of Directors MARTIN ROBERT COCKER, Member of the Board of Directors BORIS SVETLICHNY, Member of the Board of Directors CHARALAMPOS AVGOUSTI, Member of the Board of Directors DENIS VINOKUROV, Member of the Board of Directors GENNADII SHCHERBINA, Chief Executive Officer ILYA KOSOLAPOV, Chief Financial Officer 312 FINANCIAL STATEMENTS 313 ANNUAL REPORT 2020 Independent Auditor's Report (continued) Independent Auditor's Report (continued) To the Members of Etalon Group PLC Why the matter was determined to be a key audit matter Fair value of investments in subsidiaries As at 31 December 2020, the carrying value of the Company’s investments in subsidiaries is RUB'000 64,769,755 which represented 88% of the total assets of the Company. The fair value hierarchy of investments in subsidiaries belongs to Level 3 as a fair value measurement uses unobservable inputs that require significant adjustment. for The Company’s accounting policy investments in subsidiaries, disclosed in Note 2, is to measure them at fair value through profit or loss and significant estimates and judgments are disclosed in Note 4. Determination of fair value of investments in subsidiaries is a key audit matter given the significance of the balance and the significant degree of judgement involving estimations associated with the fair value assessment. How the matter was addressed in the audit Our audit procedures included amongst others: of the methodology -we obtained understanding of key controls over processes and procedures for developing assumptions used. -we have reviewed the report by independent valuer on which the valuation was based - evaluating, with the assistance of internal experts, the the appropriateness reasonableness of the estimation of fair value of investments in subsidiaries as at 31 December 2020; -we assessed the competence, capabilities and objectivity third party valuer, as well as of management’s independence; - evaluating the appropriateness of management’s assumptions used in calculating the fair value of investments in subsidiaries including: • the assumptions underlying and • assessing the appropriateness of the discount rate used; reviewing, recalculating and critically assessing the reasonableness of the assumptions including: • historical turnover and prices of sales in these and/or similar projects; budgeted costs to complete construction; budgeted general, administrative and selling expenses; • • - total area available for sale and actual sales occurring before 31 December 2020 - assessing completeness and accuracy of cash flows from financing activities through review of existing portfolio of loans and borrowings - assessing whether the disclosure in the financial statements in respect of the fair value accounting of investments in subsidiaries and disclosures for significant accounting judgments and estimates are in compliance with IFRS requirements. All the above procedures were completed in a satisfactory manner. To the Members of Etalon Group PLC Key audit matters incorporating the most significant risks of material misstatements, including assessed risk of material misstatements due to fraud (continued) Recoverability of loans receivable receivable At 31 December 2020, the Company had related parties from loans amounting to RUB'000 8,134,746, which represented 11% of the total assets of the Company. The Company’s accounting policy for loans receivable is disclosed in Note 2 and significant estimates and judgments are disclosed in Note 4. The recoverability of the loans receivable and the estimation of expected credit losses (“ECL”) is a key audit matter due to the significance of the balances and the significant degree of judgement involving the ECLs estimations associated with assessment. Our audit procedures included amongst others: - we obtained understanding of key controls over processes and procedures for developing assumptions used. - assessing the appropriateness of the methodology applied for estimation of expected credit losses for loans receivables disclosed in Note 10; - testing the completeness and accuracy of the data used in the calculation of ECLs, through reconciliation to the source systems and testing inputs; - assessing mathematical accuracy of the model used for calculation of ECLs; - identification and measurement the individually assessed provisions, - assessing whether the disclosure in the financial statements in respect of the ECL disclosures and significant accounting judgments and estimates are in compliance with IFRS requirements. All the above procedures were completed in a satisfactory manner. Reporting on other information The Board of Directors is responsible for the other information. The other information comprises the information included in the Management Report and the Responsibility Statement of the Directors and Management of the Company in accordance with the Transparency Law, which are presented in pages 2 to 7, but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the 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 financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, 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. 314 FINANCIAL STATEMENTS 315 ANNUAL REPORT 2020 Independent Auditor's Report (continued) To the Members of Etalon Group PLC Responsibilities of the Board of Directors and those charged with governance for the Financial Statements The Board of Directors is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the Company'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 the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the 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 financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control; • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; • Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company'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's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern; • Independent Auditor's Report (continued) To the Members of Etalon Group PLC Auditor's Responsibilities for the Audit of the Financial Statements (continued) • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view. 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 financial statements of the current period, and are therefore the key audit matters. Report on Other Legal and Regulatory Requirements Pursuant to the requirements of Article 10(2) of the EU Regulation 537/2014 we provide the following information in our Independent Auditor's Report, which is required in addition to the requirements of International Standards on Auditing. Appointment of the Auditor and Period of Engagement We were first appointed as auditors of the Group on 19 December 2019 by an Extraordinary Meeting of shareholders. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of two years. Consistency of the Additional Report to the Audit Committee We confirm that our audit opinion on the financial statements expressed in this report is consistent with the additional report to the Audit Committee of the Company, which we issued on 23 April 2021 in accordance with Article 11 of the EU Regulation 537/2014. Provision of Non-audit Services We declare that no prohibited non-audit services referred to in Article 5 of the EU Regulation 537/2014 and Section 72 of the Auditors Law of 2017 were provided. In addition, there are no non-audit services which were provided by us to the Company and which have not been disclosed in the financial statements or the management report. 316 FINANCIAL STATEMENTS 317 ANNUAL REPORT 2020 Independent Auditor's Report (continued) To the Members of Etalon Group PLC Other Legal Requirements Pursuant to the additional requirements of the Auditors Law of 2017, we report the following: • • • • • In our opinion, based on the work undertaken in the course of our audit, the management report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the financial statements. In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the management report. We have nothing to report in this respect. In our opinion, based on the work undertaken in the course of our audit, the information included in the corporate governance statement in accordance with the requirements of subparagraphs (iv) and (v) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113, and which is included as a specific section of the management report, have been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and is consistent with the financial statements. In our opinion, based on the work undertaken in the course of our audit, the corporate governance statement includes all information referred to in subparagraphs (i), (ii), (iii), (vi) and (vii) of paragraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the corporate governance statement in relation to the information disclosed for items (iv) and (v) of subparagraph 2(a) of Article 151 of the Cyprus Companies Law, Cap. 113. We have nothing to report in this respect. Other Matters This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Article 10(1) of the EU Regulation 537/2014 and Section 69 of the Auditors Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. We also have reported separately on the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2020. The engagement partner on the audit resulting in this independent auditor's report is Kerry Whyte. Kerry Whyte Certified Public Accountant and Registered Auditor for and on behalf of Deloitte Limited Certified Public Accountants and Registered Auditors Nicosia, 26 April 2021 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 ASSETS NON-CURRENT ASSETS Investments in subsidiaries Loans receivable TOTAL NON-CURRENT ASSETS CURRENT ASSETS Loans receivable Other receivables and prepayments Cash and cash equivalents TOTAL CURRENT ASSETS TOTAL ASSETS EQUITY Share capital Share premium Reserve for own shares Capital contribution Retained earnings TOTAL EQUITY CURRENT LIABILITIES Other payables and accruals Borrowings TOTAL CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES NOTE 2020 2019 9 10 10 11 12 13 13 13 13 14 15 64,769,755 60,311,656 6,008,715 8,451,946 70,778,470 68,763,602 2,126,031 — 349,435 300,922 492,616 81,343 2,968,082 382,265 73,746,552 69,145,867 2,266 2,266 15,486,109 15,486,109 (694) (694) 16,584,198 16,584,198 40,985,334 36,506,258 73,057,213 68,578,137 17,424 25,251 671,915 542,479 689,339 567,730 73,746,552 69,145,867 On 26 April 2021, the Board of Directors of Etalon Group PLC authorized these financial statements for issue. CHARALAMPOS AVGOUSTI SERGEY EGOROV Director Director The notes on pages 321 to 339 are an integral part of these financial statements 318 FINANCIAL STATEMENTS 319 ANNUAL REPORT 2020 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 NOTE RUB’000 2020 2019 RUB’000 9 4,458,099 1,189,623 Balance at 1 January 2019 2,266 15,486,109 16,584,198 (694) 37,816,736 69,888,615 SHARE CAPITAL PREMIUM CONTRIBUTION OWN SHARES RUB’000 RUB’000 RUB’000 RUB’000 SHARE CAPITAL RESERVE FOR RETAINED EARNINGS RUB’000 TOTAL RUB’000 Change in fair value of investments in subsidiaries Interest income Interest expenses 435,797 424,174 PROFIT FOR THE YEAR 16(v) (24,340) (21,416) Profit for the year Dividend income from subsidiaries 16(vi) 3,870,116 1,647,653 TOTAL COMPREHENSIVE INCOME FOR THE YEAR (Impairment)/reversal of impairment on trade, other receivables and loans 16(iii), (iv), 9 (1,551,724) 77,438 Administrative expenses Other expenses Other income 5 (148,468) (189,619) TRANSACTIONS WITH OWNERS (28,249) (8,204) Dividends paid – 241 TOTAL TRANSACTIONS WITH OWNERS OPERATING PROFIT BEFORE NET FINANCE INCOME 7,011,231 3,119,890 – – – – – – – – – – – – – – – – 2,266,908 2,266,908 2,266,908 2,266,908 (3,577,386) (3,577,386) (3,577,386) (3,577,386) Finance income Finance expenses 1,115,244 67,388 (105,533) (919,032) Balance at 1 January 2020 2,266 15,486,109 16,584,198 (694) 36,506,258 68,578,137 Balance at 31 December 2019 2,266 15,486,109 16,584,198 (694) 36,506,258 68,578,137 NET FINANCE INCOME/(EXPENSES) 6 1,009,711 (851,644) PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR 8,020,942 2,268,246 Profit for the year PROFIT FOR THE YEAR 8 (2,370) (1,338) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 8,018,572 2,266,908 TRANSACTIONS WITH OWNERS OTHER COMPREHENSIVE INCOME FOR THE YEAR – – Dividends paid TOTAL TRANSACTIONS WITH OWNERS TOTAL COMPREHENSIVE INCOME FOR THE YEAR 8,018,572 2,266,908 – – – – – – – – – – – – – – – – 8,018,572 8,018,572 8,018,572 8,018,572 (3,539,496) (3,539,496) (3,539,496) (3,539,496) BALANCE AT 31 DECEMBER 2020 2,266 15,486,109 16,584,198 (694) 40,985,334 73,057,213 The notes on pages 321 to 339 are an integral part of these financial statements The notes on pages 321 to 339 are an integral part of these financial statements 320 FINANCIAL STATEMENTS 321 ANNUAL REPORT 2020 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year before tax ADJUSTMENTS FOR: NOTES RUB’000 2020 2019 RUB’000 8,018,572 2,266,908 1. GENERAL INFORMATION Change in fair value of investments in subsidiaries 9 (4,458,099) (1,189,623) (Impairment)/reversal of impairment on trade, other receivables and loans 16(iii), (iv), 9 1,551,724 (77,438) Loss from write-off of loans and receivables Reversal of prior year over accrual Dividend income from subsidiaries Interest income on bank deposits Interest income on loans issued Interest expenses Foreign exchange (gains)/losses, net CASH FLOWS USED IN OPERATIONS BEFORE CHANGES IN WORKING CAPITAL Change in other receivables and prepayments Change in other payables and accruals NET CASH (USED IN)/FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Repayment of loans by subsidiaries Repayment of interest on loans by subsidiaries Dividends received from subsidiaries NET CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents 5 5 – 1,785 (12,133) (114,823) 16(vi) (3,870,116) (1,647,653) (26) (95) 16(iii) (435,771) (424,079) 16(v) 24,340 21,416 (1,010,146) 851,338 (191,655) (312,264) (39,431) 359,462 11,040 (16,941) (220,046) 30,257 16(iii) 16(iii) 282,066 1,287,255 – 853,327 16(vi) 3,867,746 1,511,762 4,149,812 3,652,344 (3,539,496) (3,577,386) (3,539,496) (3,577,386) 390,270 105,215 81,343 101,196 21,005 (125,068) Cash and cash equivalents at end of year 12 492,618 81,343 Non-cash transactions are disclosed in notes to these financial statements The notes on pages 321 to 339 are an integral part of these financial statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COUNTRY OF INCORPORATION Etalon Group PLC (the “Company”) was incorporated on 8 November 2007 in Bailiwick of Guernsey as a limited liability company under the Companies (Guernsey) Law. Its registered office was St. Julian’s Avenue, Redwood House, St. Peter Port, Guernsey, GY1 1WA, the Channel Islands. In April 2011, the Company completed an initial public offering and placed its ordinary shares in the form of global depository receipts ("GDR") on the London Stock Exchange's Main Market. On 5 April 2017, the Company migrated from Guernsey, Channel Islands, and was registered in the Republic of Cyprus under the name of Etalon Group Public Company Limited. Its registered office became 2-4 Arch. Makariou III Avenue, Capital Center, 9th floor, 1065 Nicosia, Cyprus. On 27 July 2017, the shareholders at the Annual General Meeting resolved to change the name of the Company from Etalon Group Public Company Limited to Etalon Group PLC. On 8 August 2017, the change of the Company’s name was approved by the Registrar of Companies and Official Receiver of the Republic of Cyprus. PRINCIPAL ACTIVITY The principal activity of the Company, which remained unchanged from the prior year, is the holding of investments and provision of financing services to related companies. The principal accounting policies applied in the preparation of these financial statements are set out below. BASIS OF PREPARATION а) STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with IFRS as adopted by the European Union (IFRS-EU) and the requirements of the Cyprus Companies Law, Cap. 113. The Company has also prepared consolidated financial statements in accordance with IFRS as adopted by EU and Cyprus Companies Law, Cap. 113 for the Company and its subsidiaries (the “Group”). The consolidated financial statements can be obtained from the registered office of the Company at 2-4 Arch. Makariou III Avenue, Capital Center, 9th floor, 1065 Nicosia, Cyprus and the Company’s website. Users of these separate financial statements should be read together with the Group’s consolidated financial statements as at and for the year ended 31 December 2020 in order to obtain a proper understanding of the financial position, the financial performance and the cash flows of the Company and the Group. 322 FINANCIAL STATEMENTS 323 ANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) BASIS OF MEASUREMENT The financial statements have been prepared under the historic cost conversion except for investments in subsidiaries that are measured at fair value. The preparation of financial statements in conformity with IFRS-EUs requires the use of certain critical accounting estimates and requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4 to the financial statements. c) GOING CONCERN Management prepared these financial statements on a going concern basis. In making this judgement management considered the impact of Covid-19 as discussed in the Management Report and the Group financial statements. FOREIGN CURRENCY TRANSLATION (I) FUNCTIONAL AND PRESENTATION CURRENCY The financial statements are presented in Russian Rubles (RUB), which is the Company's functional and presentation currency. All financial information has been rounded to the nearest thousand, except when otherwise indicated. (II) TRANSACTIONS AND BALANCES Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss and other comprehensive income. ADOPTION OF NEW AND REVISED IFRS-EUS During the current year the Company adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2020. This adoption did not have a material effect on the accounting policies of the Company. NEW STANDARDS AND INTERPRETATIONS A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2021 and earlier application is permitted. The Company has not early adopted these new or amended standards in preparing these financial statements and has not yet analysed the likely impact of the new standards and interpretations on its financial position or performance. • Amendments to IFRS 3 – Reference to the Conceptual Framework; • IFRS 17 Insurance Contracts (effective for annual periods beginning on or after 1 January 2023); • Amendments to IAS 1 – classification of liabilities as current or non-current – (effective for annual periods beginning on or after 1 January 2023); • Amendments to IFRS 9 as a result of the 2018-2020 Annual Improvements to IFRSs. – fees in the "10 percent" test for derecognition of financial liabilities (effective for annual periods beginning on or after 1 January 2022); • Amendments to IFRS 10 and IAS 28 – sale or contribution of assets between an investor and its associate or joint venture (effective date to be determined by the IASB); • Amendments to IAS 16, prohibiting companies from deducting from the value of property, plant and equipment the amounts received from sale of manufactured items while the company is preparing the asset for its intended use (effective for annual periods beginning on or after 1 January 2022); • Amendments to IAS 37 – costs to be included in assessing onerous contracts (effective for annual periods beginning on or after 1 January 2022); • Other annual improvements to IFRSs. FINANCIAL INSTRUMENTS (I) FINANCIAL ASSETS The Company’s financial assets, classified at amortised cost category as defined by IFRS 9, comprise of loans receivable, other receivables and cash and cash equivalents. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS The Company classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI or through profit or loss), and those to be measured at amortised cost. The classification and subsequent measurement of debt financial assets depends on: (i) the Company's business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. On initial recognition, the Company may irrevocably designate a debt financial asset that otherwise meets the requirements to be measured at amortized cost or at fair value through other comprehensive income (FVOCI) or at fair value through profit or loss (FVTPL) if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see “Impairment of financial assets” below). Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. IMPAIRMENT OF FINANCIAL ASSETS The impairment model under IFRS 9 – an “expected credit loss” (ECL) model – applies to financial assets measured at amortised cost and debt investments at FVOCI, but not to investments in equity instruments. The Company assesses on a forward-looking basis the ECL for debt instruments measured at amortised cost. 324 FINANCIAL STATEMENTS 325 ANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The financial assets at amortised cost consist of loans receivable, other receivables and cash and cash equivalents. Under IFRS 9, loss allowances are measured on either of the following bases: • 12-month expected credit losses: these are expected credit losses that result from • possible default events within the 12 months after the reporting date, and lifetime expected credit losses: these are expected credit losses that result from all possible default events over the expected life of a financial instrument. Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for receivables. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company considers a financial asset to be in default when: • • there is a breach of financial covenants by the debtor; or information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Company, in full (without taking into account any collateral held by the Company). Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due. The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk. Measurement of Expected credit losses Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the contractual cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Presentation of impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Impairment losses related to trade and other receivables are presented separately in the statement of profit or loss. Investments in subsidiaries Subsidiaries are all the entities which the Company has control. The Company controls an entity when the Company 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 over the entity. As at 31 December 2018 considering the fact that the Company financial statements are publically available and can be used by investors for their economic decisions, the management has decided that measurement of investments in subsidiaries at fair value would provide more reliable and more relevant information about the Company’s financial position than the measurement of investments at cost. Therefore the Сompany management decided to change the accounting policy and from 2018 financial statements started to measure investments in its subsidiaries at fair value in accordance with IFRS 9. Investments in subsidiary companies are classified as investments at fair value through profit or loss and are measured at fair value. Gains or losses on investments in subsidiary companies are recognised in profit or loss. Fair value hierarchy The Сompany uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3 inputs are unobservable inputs for the asset or liability. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables are held to collect the contractual cash flows, and their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Such financial assets are classified at amortised cost in accordance with IFRS 9. The company assessed individual impairment based on discounted cash flows attributed to certain loans amount. For others loans and receivables the Company calculates ECL based on of the credit risk rating assigned to respective debtors and the remaining maturity of financial instruments. The Company determines the inputs for calculation of ECL such as probability of default and loss given default using both internal and external statistical data. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. In accordance with IFRS 9, cash and cash equivalents are classified at amortised cost. (II) FINANCIAL LIABILITIES The Company has the following non-derivative financial liabilities: loans and borrowings, trade and other payables. At initial recognition, the Company measures a financial liability at its fair value plus transaction costs that are directly attributable to the issuance of the financial liability. Financial liabilities are subsequently measured at amortised cost using the effective interest method. The Company derecognises a financial liability when its obligations specified in the contracts are discharged or cancelled or expire. The Company recognises financial assets or financial liabilities in its statement of financial position when it becomes party to the contractual provisions of the instrument and, as a consequence, has a legal right to receive or a legal obligation to pay cash. 326 FINANCIAL STATEMENTS 327 ANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Other payables and accruals Other payables and accruals represent amounts outstanding at the reporting date and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Tax Tax is recognised in the statement of profit or loss and other comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the country in which the Company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. If applicable tax regulation is subject to interpretation, it establishes a provision where appropriate on the basis of amounts expected to be paid to the tax authorities. Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the financial statements in the period in which the dividends are appropriately authorised and are no longer at the discretion of the Company. More specifically, interim dividends are recognised as a liability in the period in which these are authorised by the Board of Directors and in the case of final dividends, these are recognised in the period in which these are approved by the Company's shareholders. Share capital Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account. The capital contribution reserve relates to the fair value of the shares issued to the shareholders in exchange for investment in subsidiary (Note 13). The preference shares bear no voting rights and no rights to dividend, and shall be redeemed within thirty days of giving notice by the Company to a holder of shares at a price per share at which each share was issued. Since the option to redeem the Company's shares are at the discretion of the Company and not the holders of the shares, the preference shares are classified as equity. Share-based payment arrangements The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase of share options reserve in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. For share based-payment awards with vesting market conditions, which creates variability in the number of equity instruments that will be received by employees, the Company determines the grant-date fair value of the 3. FINANCIAL RISK MANAGEMENT AND TAX RISK right to receive a variable number of equity instruments reflecting the probability of different outcomes. Interest income Interest income includes loan interest income which is recognised in the statement of profit or loss on an accrual basis using the effective interest rate method. Interest expenses Interest expenses include interest expense on amounts payable to related parties which is recognised in the statement of profit or loss on an accrual basis using the effective interest rate method. Dividend income Dividend income is recognised in the statement of profit or loss and other comprehensive income when the right to receive payment is established. Finance income Finance income includes foreign exchange gains, which are recognised in the statement of profit or loss and other comprehensive income as incurred. Finance expenses Finance expenses include foreign exchange losses and bank charges, which are recognised in the statement of profit or loss and other comprehensive income as incurred and on an accrual basis, respectively. FINANCIAL RISK FACTORS The Company's activities expose it to credit risk, liquidity risk, market price risk and currency risk, arising from the financial instruments it holds. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect market conditions and the Company’s activities. CREDIT RISK Credit risk arises when a failure by counter parties to discharge their obligation could reduce the amount of future cash inflows from financial assets on hand at the reporting date. Credit risk arises from cash and cash equivalents as well as credit exposures to outstanding receivables and committed transactions. Credit risk with regards to cash and cash equivalents is managed by placing funds primarily in the banks with high credit-ratings assigned by international credit-rating agencies. In order to minimise credit risk of other receivables, the Company has a policy of dealing with creditworthy counterparties, obtaining sufficient collateral, where appropriate, and monitoring on a continuous basis the ageing profile of its receivables as a means of mitigating the risk of financial loss from defaults. The Company considers the probability of default upon initial recognition of an asset and whether there has been a significant increase in credit risk on an ongoing basis throughout 328 FINANCIAL STATEMENTS 329 ANNUAL REPORT 2020 3. FINANCIAL RISK MANAGEMENT AND TAX RISK (CONTINUED) each reporting period. To assess whether there is a significant increase in credit risk the company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. In particular, the following indicators are incorporated: internal credit rating; • • external credit rating (as far as available); • future cash flows from construction projects are compared to the current value of the financial asset; • actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the borrower’s ability to meet its obligations; • actual or expected significant changes in the operating results of the borrower/ counterparty; • significant increases in credit risk on other financial instruments of the same borrower/ counterparty; • significant changes in the value of the collateral supporting the obligation; • significant changes in the expected performance and behaviour of the borrower/ counterparty, including changes in the payment status of counterparty in the group and changes in the operating results of the borrower. The Company’s current credit risk grading framework comprises the following categories and the assumptions underpinning the Company's expected credit loss model: CATEGORY Performing Doubtful In default Write-off DESCRIPTION BASIS FOR RECOGNISING EXPECTED CREDIT LOSSES The counterparty has a low risk of default and does not have any past-due amounts Amount is >30 days past due or there has been a significant increase in credit risk since initial recognition 12-month ECL Lifetime ECL—not credit-impaired Amount is >90 days past due or there is evidence indicating the asset is credit-impaired Lifetime ECL— credit-impaired There is evidence indicating that the debtor is in severe financial difficulty and the Group has no realistic prospect of recovery Amount is written off The carrying amount of financial assets represents the maximum credit exposure. The tables below detail the credit quality of the Company’s financial assets, as well as the Company’s maximum exposure to credit risk by category of financial assets: 31.12.2020 NOTE Loans receivable Other receivables Cash and cash equivalents 11 12 13 31.12.2019 NOTE Loans receivable Other receivables Cash and cash equivalents 11 12 13 "12-MONTH/ LIFETIME ECL" Lifetime ECL Lifetime ECL 12-month "12-MONTH/ LIFETIME ECL" Lifetime ECL Lifetime ECL 12-month GROSS CARRYING LOSS ALLOWANCE NET CARRYING AMOUNT AMOUNT 14,140,993 (6,006,247) 350,822 492,616 (1,387) – 8,134,746 349,435 492,616 GROSS CARRYING LOSS ALLOWANCE NET CARRYING AMOUNT AMOUNT 12,198,255 (3,746,309) 8,451,946 301,614 81,343 (692) – 300,922 81,343 Allowance for impairment in respect of loans given The movement in the allowance for impairment in respect of loans given during the reporting period was as follows: BALANCE AT 1 JANUARY Change of impairment for the period FOREX BALANCE AT 31 DECEMBER LIQUIDITY RISK 2020 RUB’000 (3,746,309) (1,547,668) (712,270) (6,006,247) 2019 RUB’000 (4,257,627) 75,792 435,526 (3,746,309) Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company’s management monitors its liquidity on a continuous basis and acts accordingly. Each year the Company prepares a cash flow budget to forecast possible liquidity deficits and to define the sources of financing of those deficits. 31 DECEMBER 2020 Borrowings Other payables and accruals TOTAL 31 DECEMBER 2019 Borrowings Other payables and accruals TOTAL CARRYING AMOUNTS RUB’000 CONTRACTUAL BETWEEN 0-12 CASH FLOWS RUB’000 MONTHS RUB’000 671,915 17,424 689,339 542,479 25,251 567,730 684,187 17,424 701,611 563,047 25,251 588,298 684,187 17,424 701,611 563,047 25,251 588,298 The following are the contractual maturities of financial liabilities, including estimated interest payments: MARKET PRICE RISK Market risk is the risk that changes in market prices, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. Interest rate risk Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Loans receivable and borrowings issued at fixed rates expose the Company to fair value interest rate risk. The Company's management monitors the interest rate fluctuations on a continuous basis and acts accordingly. 330 FINANCIAL STATEMENTS 331 ANNUAL REPORT 2020 3. FINANCIAL RISK MANAGEMENT AND TAX RISK (CONTINUED) CURRENCY RISK Sensitivity analysis Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's functional currency. The Company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to US Dollars (US$) and Euro (EUR). The Company's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 RUB’000 ASSETS US DOLLAR Cash and cash equivalents Loans receivable Other receivables TOTAL EURO Cash and cash equivalents Other receivables TOTAL LIABILITIES US DOLLAR Other payables and accruals Borrowings TOTAL EURO Other payables and accruals TOTAL NET POSITION US Dollar EURO 158,885 6,608,667 74 6,767,626 6,522 268,464 274,986 (207,967) (671,915) (879,882) (16,480) (16,480) 76,586 5,572,412 132,441 5,781,439 1,030 188,132 189,162 (236,732) (542,479) (779,211) (8,747) (8,747) 5,887,744 258,506 5,002,228 180,415 The following significant exchange rates applied during the year: IN RUB USD 1 EUR 1 AVERAGE RATE REPORTING DATE SPOT RATE 2020 2019 31 DECEMBER 31 DECEMBER 72.15 82.45 64.73 72.50 2020 73.88 90.68 2019 61.90 69.34 A 10 % strengthening of the US$ against the RUB at 31 December 2020 and 31 December 2019 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10 % weakening of the US$ against the RUB, there would be an equal and opposite impact on profit and equity. US DOLLAR US DOLLAR EQUITY 2020 PROFIT OR LOSS 2020 RUB’000 588,774 RUB’000 588,774 EQUITY 2019 PROFIT OR LOSS 2019 RUB’000 500,223 RUB’000 500,223 A 10% strengthening of the Euro against the RUB at 31 December 2020 and 31 December 2019 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the Euro against the RUB, there would be an equal and opposite impact on profit and equity. EURO EURO EQUITY 2020 PROFIT OR LOSS 2020 RUB’000 25,851 RUB’000 25,851 EQUITY 2019 PROFIT OR LOSS 2019 RUB’000 18,042 RUB’000 18,042 A 10% strengthening of the GB Pound against the RUB at 31 December 2020 and 31 December 2019 would not have any material effect on equity and profit or loss. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimation of expected credit losses Expected credit losses are an estimate weighted by the probability of credit losses. Credit losses are measured as the present value of all expected cash losses. The amount of expected credit losses is discounted using the effective interest rate on the relevant financial asset. The Company measures ECL and recognises credit loss allowance at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 332 FINANCIAL STATEMENTS 333 ANNUAL REPORT 2020 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) In assessing ECL, the Company used information published by Moody’s Investors Service about the probabilities of default (PD) and losses given default (LGD) for counterparties with different credit ratings and financial instruments with different durations. Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from collateral and integral credit enhancements. 6. NET FINANCE INCOME/ (EXPENSES) Foreign exchange gains FINANCE INCOME Foreign exchange losses Bank charges FINANCE EXPENSES 2020 RUB’000 1,115,244 1,115,244 (105,098) (435) (105,533) 2019 RUB’000 67,388 67,388 (918,726) (306) (919,032) NET FINANCE INCOME/(EXPENSES) 1,009,711 (851,644) 7. SHARE- BASED PAYMENT ARRANGEMENTS GDR BUYBACK PROGRAMME On 24 January 2020, the Board of Directors of the Company authorised a buyback programme to purchase up to 10 % of the Company’s issued capital in the form of GDR until 14 April 2021. On 22 March 2020, the program was approved by the extraordinary general meeting of shareholders. As at 31 December 2020, no shares have been purchased. 8. INCOME TAX EXPENSE The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the applicable tax rate as follows: Profit before tax Tax calculated at the applicable tax rate of 12,5 % (2019: tax rate of 12,5 %) Tax effect of expenses not deductible and income not taxable for income tax purposes, net Tax withheld on dividends from Russian Federation Notional Interest Deduction (NID) Application of group relief Tax for the period 2020 RUB’000 8,020,942 2019 RUB’000 2,268,246 1,002,618 283,531 (951,042) (236,777) 2,370 (41,896) (9,680) 2,370 1,338 (40,592) (6,162) 1,338 Probability of default constitutes a key input in measuring ECL. Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions. The other assumptions and methods used for estimating of expected credit losses are disclosed in note 2 (“Impairment of financial assets”, “Loans and receivables”) and note 3 (“Credit risk”). • Fair value of investments in subsidiaries The fair value of investments in subsidiaries are assessed by an independent appraiser. The fair value of investments in subsidiaries recorded in the statement of financial position cannot be derived from active markets, and they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates and assumptions were made, and a degree of judgment has been applied in establishing fair values. Changes in assumptions about these factors could affect the reported fair value of investments in subsidiaries. The assumptions and methods used for estimating the fair value of investments in subsidiaries are disclosed in Note 9. • Functional currency The Management of the Company has considered which currency is the currency of the primary economic environment in which the Company operates. In making this assessment, Management has used judgment to determine the functional currency that most faithfully represents the underlying transactions, events and conditions of the Company. Management has concluded that the functional currency of the Company is the RUB because the Company is seen as an extension of its subsidiaries operating in the Russian Federation. Insurance expenses Legal, consulting and other professional services Staff costs (Note 16(i)) Payroll tax Auditors’ remuneration Accounting and administration expenses Social insurance contribution Secretarial fees Reversal of prior year over accrual of staff costs Other expenses TOTAL 2020 RUB’000 59,366 44,122 31,791 8,712 7,708 5,114 2,740 1,048 (12,133) – 148,468 2019 RUB’000 13,426 180,893 51,138 19,738 27,486 8,371 827 778 (114,823) 1,785 189,619 Reversal of prior year accrual include the amounts of staff costs, that were over-accrued in the previous year. In 2019, the excessive accruals were written off, since the obligations to certain directors no longer existed. Remuneration of the statutory audit firm for the year ended 31 December 2020 amounted to RUB 7.7 million for audit services (2019: RUB 5.9 million). 5. ADMINISTRATIVE EXPENSES 334 FINANCIAL STATEMENTS 335 ANNUAL REPORT 2020 9. INVESTMENTS IN SUBSIDIARIES At beginning of year 01 January Change in fair value of investments in subsidiaries AT END OF YEAR 31 DECEMBER 2020 RUB’000 60,311,656 4,458,099 64,769,755 2019 RUB’000 59,122,033 1,189,623 60,311,656 The Company’s main subsidiaries, which are unlisted, are as follows: NAME PRINCIPAL ACTIVITY COUNTRY OF 31 DECEMBER 2020 31 DECEMBER 2019 Etalon Group Limited Holding of investments Elzinga Holdings Limited Holding of investments Fagestrom Limited Provision of financing services JSC GK Etalon Holding of investments INCORPORATION Cyprus Cyprus Cyprus Russia 99,99 % 100 % 100 % 26,16 % 99,99 % 100 % 100 % 1 % 10. LOANS RECEIVABLE The investments are measured at fair value. In 2020, there was a transfer of shares of JSC GK Etalon from a Company’s subsidiary, Etalon Group Limited, to the Company. As a result of the transaction, the valuation of the fair value of the investment in JSC GK Etalon increased and the valuation of the fair value of the investment in Etalon Group Ltd decreased. The effect of these changes in fair value have been accounted for as part of the valuation. As at 31 December 2020 and 31 December 2019 the Company holds 26,16% and 1% in JSC GK Etalon respectively, but the Company is exposed to variable returns from its involvement with the entity and has the ability to affect those returns through its power over other subsidiaries owning the remaining 73,84% and 99% in the subsidiary at each reporting date. The fair value of investments in subsidiaries at 31 December 2020 and 31 December 2019 was assessed by an independent appraiser. The fair value hierarchy of investments in subsidiaries belongs to Level 3 as a fair value measurement uses unobservable inputs that require significant adjustment. To determine the fair value of investments in subsidiaries, the independent appraiser projected cash flows from development projects and objects completely constructed and owned by the respective subsidiaries. These cash flows were adjusted by the fair value of other assets and liabilities controlled by those subsidiaries, and minority interest, where applicable and discounted at an-applicable, risk-adjusted rate. The fair value has been reduced by the payables of the subsidiaries towards the Company. The provision made against loans from subsidiaries as described in Note 10 has therefore resulted in a corresponding increase in the fair value of investments in subsidiaries at 31 December 2020. The key assumptions used in the estimation of the fair value of subsidiaries are set out below. CAPM (discount rate) 18.47 % 19.00 % 31 DECEMBER 2020 31 DECEMBER 2019 The values assigned to the key assumptions represented management’s assessment of future trends in residential development and were based on historical data from both external and internal sources. The cash flows projections included specific estimates for 8 years. As a result of this assessment, the Company has recognized an increase in the fair value of investments in subsidiaries in the amount of RUB’000 4.458.099 for the year ended 31 December 2020 (31 December 2019: increase of RUB’000 1.189.623). Sensitivity analysis The following tables demonstrate changes in key inputs and sensitivity of fair value measurement: 31 DECEMBER 2020 Growth of discount rate Growth of cost of construction projects Reducing of revenue from construction projects Growth of expenses on non-developer types of activities 31 DECEMBER 2019 Growth of discount rate Growth of cost of construction projects Reducing of revenue from construction projects Growth of expenses on non-developer types of activities NON-CURRENT Loans to related parties (Note 16(iii)) TOTAL NON-CURRENT LOANS RECEIVABLE CURRENT Loans to related parties (Note 16(iii)) TOTAL CURRENT LOANS RECEIVABLE TOTAL LOANS RECEIVABLE CHANGE OF IMPACT ON IN MONETARY PARAMETER FAIR VALUE TERMS, RUB'000 1 % 5 % (5 %) 5 % 1 % 5 % (5 %) 5 % (2,56 %) (1,659,089) (11,61 %) (7,517,902) (16,60 %) (10,754,329) (3,82 %) (2,471,086) (1,77 %) (1,069,408) (10,92 %) (6,584,595) (14,93 %) (9,004,814) (5,72 %) (3,451,783) 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 RUB’000 6,008,715 6,008,715 2,126,031 2,126,031 8,134,746 8,451,946 8,451,946 – – 8,451,946 Due to the significant devaluation of the RUB against the US$ subsequent to the issuance of US$-denominated loans, the Company concluded that there is an objective evidence that an impairment loss on loans has been incurred. The Company assessed individual impairment based on discounted cash flows attributed for part of its loans through their recoverable amount. The recoverable amount of loans was determined based on the present value of the expected cash flows to be received from the loans, discounted at the original effective interest rate of 3,5%, and a provision in the amount of RUB’000 5.968.063 was recognised as at 31 December 2020 (31 December 2019: RUB’000 3.683.671). For others loans, the Company calculates ECL based on of the credit risk rating assigned to respective debtors and the remaining terms to maturity. The Company determines the inputs for calculation of ECL such as probability of default (PD) and loss given default (LGD) using both internal and external statistical data. If the LGD rates on loans and receivables had been 10 per cent higher (lower) and PD rates on loans and receivables had been 0,5 per cent higher (lower) as of 31 December 2020, the loss allowance on loans and receivables would have been RUB’000 3.787 higher (lower). There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the loss allowance for these financial assets. The Board of Directors believes carrying values of loans approximate its fair value. The fair value hierarchy of loans receivable belongs to Level 3. 336 FINANCIAL STATEMENTS 337 ANNUAL REPORT 2020 11. OTHER RECEIVABLES AND PREPAYMENTS Receivable from related parties (Note 16(iv)) 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 349,435 349,435 RUB’000 300,922 300,922 The fair values of other receivables and prepayments approximate their carrying amounts. For receivables, the Company calculates ECL based on of the credit risk rating assigned to respective debtors and the remaining maturity of the financial instruments. The Company determines the inputs for calculation of ECL such as probability of default and loss given default using both internal and external statistical data. 12. CASH AND CASH EQUIVALENTS Cash at bank 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 492,616 RUB’000 81,343 13. SHARE CAPITAL AND SHARE PREMIUM At 31 December 2019 and at 31 December 2020, the authorized share capital of the Company was GBP 14.748 divided into 294.957.971 ordinary shares having a par value of GBP £0,00005 each. All issued ordinary shares are fully paid. The holders of ordinary shares are entitled to receive dividends and to one vote per share at meetings of the Company. 14. OTHER PAYABLES AND ACCRUALS During the year ended 31 December 2017, the Company issued 20.000 preference shares of GBP 1 each. The shares bear no voting rights and no rights to dividend and shall be redeemed within thirty days of giving notice by the Company to a holder of shares at a price per share at which each share was issued. Preference shares were fully paid in February 2017. Since the option to redeem the Company's shares is at the discretion of the Company and not the holders of the shares, the preference shares are classified as equity. 15. BORROWINGS NAME "At 31 December 2019 and 31 December 2020" NUMBER OF ORDINARY SHARES NUMBER OF SHARE CAPITAL RESERVE FOR SHARE PREMIUM REDEEMABLE PREFERENCE SHARES RUB’000 OWN SHARES RUB’000 RUB’000 TOTAL RUB’000 294,954,025 20,000 2,266 (694) 15,486,109 15,487,681 (i) Own shares As of 31 December 2020 and 31 December 2019, the total number of own shares acquired by the Company amounted to 3.946 shares or 0,001% of issued share capital. (ii) Share premium The Company’s share premium account originated from initial public offering of 71 428 571 ordinary shares at a value USD 7 each in form of global depository receipts (GDR`s) on the London Stock Exchange on 4 April 2011, and from issuance of 117 647 ordinary £0.01 shares for a consideration of USD 82.352.900 in March 2008. (iii) Share options reserve The share options reserve is used to recognise the value of equity-settled share-based payments provided to certain members of the Company’s subsidiaries’ key management personnel up to 2018, as part of their remuneration. 16. RELATED PARTY TRANSACTIONS (iv) Dividends As at 31 December 2020, the retained earnings were RUB’000 40.985.334 (31 December 2019: RUB’000 36.506.258). During the year ended 31 December 2020, the AGM of shareholders approved Board of Directors recommendation for dividends in the amount of RUB’ 000 3.539.496 (31 December 2019: RUB’000 3.577.386). (v) Capital contribution Capital contribution represents the excess of the deemed cost of shares in its subsidiary, Etalon Group Limited, transferred to the Company by its shareholder in 2008, over the book value of these shares as at the date of transaction. Deemed cost was determined at the date of transfer by reference to the terms of a transaction with an unrelated party for the acquisition of a minority stake in the Company which took place close to the date of issuance of shares by the Company. Accrued audit fees Other payables and accruals Accrued accounting and administration expenses Remuneration payable to Board of Directors TOTAL 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 13,832 1,419 2,173 – 17,424 RUB’000 11,714 1,105 853 11,579 25,251 The fair value of other payables and accruals which are due within one year approximates their carrying amount at the reporting date. CURRENT Borrowings from subsidiary (Note 16(v)) TOTAL CURRENT BORROWINGS 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 RUB’000 671,915 671,915 542,479 542,479 On 14 August 2018, the Company signed a loan agreement with a related party for a total amount of US$10.000.000. The loan bears interest of 4% per annum. In December 2020, the Company signed an amendment agreement for the loan contract, extending the repayment date from 31 December 2020 to 30 June 2021. The Board of Directors believes carrying values of loans approximate its fair value. The fair value hierarchy of loans belongs to Level 3. The following transactions were carried out with related parties: Directors’ remuneration (Note 5) Payroll and social tax (Note 5) TOTAL 2020 RUB’000 31,791 11,452 43,243 2019 RUB’000 51,138 20,565 71,703 As at 31 December 2020, outstanding balances of remuneration payable to the Board of Directors was nil (Note 15) (31 December 2019: RUB’000 11.579). 338 FINANCIAL STATEMENTS 339 ANNUAL REPORT 2020 (ii) Year-end balances (vi) Dividend income/dividend receivable from subsidiary companies Receivables from subsidiary companies (Note 11) Borrowings from subsidiary company (Note 15) Loans due from subsidiary companies (Note 10) (iii) Loans due from subsidiary companies On 1 January Loans repaid during the year Interest charged Interest repaid during the year (Impairment)/reversal of impairment for loans receivable Foreign exchange gains/(losses) ON 31 DECEMBER (NOTE 10) 31 DECEMBER 2020 31 DECEMBER 2019 RUB’000 349,435 (671,915) 8,134,746 2020 RUB’000 8,451,946 (282,066) 435,771 – (1,547,668) 1,076,763 8,134,746 RUB’000 300,922 (542,479) 8,451,946 2019 RUB’000 10,863,179 (1,287,255) 424,079 (853,327) 75,792 (770,522) 8,451,946 As at 31 December 2020, the loans amounted to RUB’000 8.134.746 (31 December 2019: RUB’000 8.451.946), were denominated in US Dollars and Russian rubles and bear interest 3,5-6 % per annum. During 2019, the loans were prolonged from 31 December 2019 to 31 December 2021 and 31 December 2025. Modification of loans maturity dates had no material impact on the fair value of the loans. (iv) Receivables from subsidiary companies On 1 January Transfers of funds under reimbursement agreements Write-off of receivables (Impairment)/reversal of impairment for receivables Dividends receivables (Note 16(vi)) Dividends paid for prior period (Note 16(vi)) Foreign exchange gains/(losses) ON 31 DECEMBER (NOTE 11) (v) Borrowings from subsidiary company On 1 January Interest accrued Foreign exchange losses/(gains) ON 31 DECEMBER (NOTE 15) 2020 RUB’000 300,922 174,180 (3,360) (696) – (130,330) 8,719 349,435 2020 RUB’000 542,479 24,340 105,096 671,915 2019 RUB’000 547,614 (356,785) (2,987) 1,646 132,379 – (20,945) 300,922 2019 RUB’000 585,688 21,416 (64,625) 542,479 17. EVENTS AFTER THE REPORTING PERIOD On 1 January Dividends declared by subsidiaries Income tax withheld on dividends (Note 8) Dividends settled by subsidiaries in shares Dividends received from subsidiaries in cash prior year Dividends received from subsidiaries in cash current year Foreign exchange losses On 31 December (Note 16(iv)) 2020 RUB’000 132,379 16,976,026 (2,370) (13,105,910) (130,330) 2019 RUB’000 – 1,647,653 (1,338) – – (3,867,746) (1,511,762) (2,049) – (2,174) 132,379 SHARE CAPITAL INCREASE AND OFFERING OF NEWLY ISSUED ORDINARY SHARES On 26 February 2021, the Board of Directors of the Company held a meeting where it was proposed that an extraordinary general meeting of shareholders (“EGM”) of the Company authorises the Board of Directors to consider a potential share capital increase for a potential public or private placement. If approved, proceeds from such placement will enable the Company to replenish and develop its land bank, as well as finance the early development of new projects. Subject to approval of EGM, the authorised share capital of the Company will be increased from £34,747.899 to £39,172.2686 by the creation of 88,487,391 ordinary shares of nominal value of £0.00005 each, and the authority will be given to the Board of Directors to allot and issue, out of the authorised but unissued share capital of the Company, up to 88,487,391 ordinary shares at par or at a premium as they deem appropriate, and such authority to expire on 22 March 2023. The share capital increase is expected to be structured in the form of one or several public and / or institutional offerings of newly issued ordinary shares represented by GDRs. On 22 March 2021, the EGM voted in favor of the proposed share capital increase and subsequent offering of newly issued ordinary shares in the form of GDRs. On 19 April 2021, the Company announced the results of a Board of Directors meeting held on 16 April 2021, at which the Board of Directors reviewed and approved an offering of up to 88,487,391 ordinary shares of the Company representing 30% of the Company’s total issued ordinary shares. The Offering will consist of an offering of rights to subscribe for New Shares to eligible existing holders of the Company’s equity securities followed by a marketed offering to institutional investors of any New Shares not taken up during the Rights Offering in the form of global depositary receipts (“GDRs”). The subscription price for each of the Rights Offering and the Rump Offering will be USD 1.7 per New Share (or GDR). There were no other material events after the reporting period, which have a bearing on the understanding of the financial statements of the Company for the year ended 31 December 2020. 340 FINANCIAL STATEMENTS ALTERNATIVE PERFORMANCE MEASURES USED IN THE 2020 ANNUAL REPORT We have included certain measures of financial and operating performance in Annual Report, defined below, that are not recognised by international financial reporting standards (IFRS). We have included these APMs for the reasons described below; however, these measures should not be used instead of, or considered as alternatives to, our historical financial results based on IFRS. THE COMPANY HAS DEFINED THE FOLLOWING: FINANCIAL METRICS: • Net corporate debt: loans and OPERATING METRICS: • Pre-PPA gross profit: gross profit less purchase price allocation (PPA) from the acquisition of Leader-Invest included in the costs of sales. • EBITDA: gross profit minus general and administrative expenses, minus selling expenses, plus depreciation and amortisation. • pre-PPA EBITDA1: gross profit minus general and administrative expenses, minus selling expenses, plus depreciation and amortisation, plus purchase price allocation from the acquisition of Leader-Invest included in the cost of sales. borrowings minus cash and cash equivalents, minus bank deposits with terms over 3 months, minus secured project financing. • Net corporate debt to pre-PPA EBITDA: ratio calculated by dividing net corporate debt by pre-PPA EBITDA (each as defined above). We use these measures as the principal metrics for evaluating the impact of the total size of our net borrowings on our operations, and our ability to service our debt and to maintain the liquidity and solvency of our business. • Pre-PPA gross profit margin: Pre-PPA gross profit as defined above divided by revenue. • Pre-PPA EBITDA margin: Pre-PPA EBITDA as defined above divided by revenue. • Operating cash flow adjusted for cash collections held in escrow accounts: net cash (used in)/from operating activities plus interest paid, plus receipt of funds on escrow accounts. • Free cash flow: profit for the year We believe that the inclusion of pre-PPA gross profit, EBITDA, pre-PPA EBITDA, as well as pre-PPA gross profit margin, EBITDA and pre-PPA EBITDA margins is necessary because they (i) enhance investors’ understanding of our financial performance, (ii) are used by us as important supplemental measures to assess the Company’s financial performance, including our ability to fund discretionary spending such as capital expenditures and other investments and our ability to incur and service debt, and (iii) pre-PPA EBITDA is a measure incorporated into certain financial ratios in our loan instruments. adjusted for depreciation, impairments, interest, taxation, change in working capital, and change in invested capital. • Free cash flow adjusted for cash collections held in escrow accounts: profit for the year adjusted for depreciation, impairments, interest, taxation, change in working capital, and change in invested capital, plus receipt of funds on escrow accounts. We use these measures as we believe these indicators are important for better understanding of the Company’s cash flow generating performance during the transition period to operating under the escrow account scheme. • New contract sales (pcs): number of sales contracts that have been entered into with customers (regardless of whether contracts were subsequently terminated). • New contract sales (sqm): net sellable area of flats, commercial premises and parking places for which sales contracts have been entered into with customers (regardless of whether contracts were subsequently terminated). • New contract sales (RUB): monetary value of sales contracts for flats, commercial premises and parking places for which contracts have been concluded with customers (regardless of whether contracts were subsequently terminated). • Cash collections (RUB): actual amount of money received by the Company for concluded contracts during the reported period, including cash collection to escrow accounts. • Deliveries (sqm): total net sellable area of the project that was commissioned. Includes apartments built-in commercial premises, as well as parking places and social infrastructure that are part of the project. We use these operating measures as the principal metrics for evaluating the Company’s operating performance. These are the most commonly used metrics in our industry, and they are frequently used by securities analysts, investors and other interested parties. 1 Pre-PPA EBITDA is the Company’s disclosure is defined as adjusted EBITDA in the supplementary information to the IFRS statements ETALON GROUP IR TEAM Phone: +44 (0) 20 8123 1328 Email: ir@etalongroup.com ETALON GROUP WEBSITE www.etalongroup.com TWITTER twitter.com/EtalonIr ANNUAL REPORT 2020 etalongroup.com 

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