ETALON GROUP PLC
Annual Report 2022

Plain-text annual report

ANNUAL REPORT ’22 BUILDING MODERN CITIES WITH CARE Contents 1 INTRODUCTION About this report 4 About Etalon Group 5 Our strengths 6 Acquisition of YIT Russia 7 Key regions and segments 10 Business management structure 12 Value creation 13 Investment case 14 2022 in brief 15 Chairman’s statement 17 CEO’s statement 18 2 MARKET OVERVIEW AND TRENDS Macroeconomic context 20 Factors driving demand 21 Supply redistribution 24 Competitive environment 24 3 STRATEGY 2024 Strategy 2024 26 Strategic goals and their implementation 27 Strategy for developing the value chain 28 Strategic initiatives 29 4 PROJECT PORTFOLIO Portfolio highlights 33 Project portfolio additions 34 Current project portfolio 35 Integrated development projects 38 Business-class projects 47 Comfort-class projects 54 5 OPERATING RESULTS Operating results 64 6 FINANCIAL RESULTS Financial results 73 7 SUSTAINABILITY Introduction 76 Stakeholder engagement 80 Occupational health and safety 85 Environment 90 Employees 94 Customers 101 Social responsibility 104 Innovations 114 Data protection and cybersecurity 121 Business conduct 122 Responsible supply chain 127 Risk management framework 132 GRI Standards 141 8 CORPORATE GOVERNANCE Corporate governance 145 Board committees 152 10 FINANCIAL STATEMENTS Consolidated financial statements 161 Parent Company financial statements 210 9 SHAREHOLDER INTERACTIONS 11 ALTERNATIVE PERFORMANCE MEASURES Alternative performance measures used in the 2022 Annual Report 236 Shareholder interactions 155 Share value 156 Ownership structure 156 Dividend policy 157 Investor relations 157 Analyst coverage 158 Investor calendar 158 Bonds and credit ratings 159 2 ANNUAL REPORT 20221 IntroductIon REPORT 2022 1 ANNUAL INTRODUCTION About this report 4 About Etalon Group 5 our strengths 6 Acquisition of YIt russia 7 Key regions and segments 10 Business management structure 12 Value creation 13 Investment case 14 2022 in brief 15 chairman’s statement 17 cEo’s statement 18 3 3 11ANNUAL REPORT 20221 1 IntroductIon About this report Reporting period Material issues The Annual Report provides information on Etalon Group’s activities Following the above-mentioned reporting standards, this report in 2022 and its financial and non-financial results, including addresses material issues related to Etalon Group’s economic, its consolidated audited IFRS statements. environmental and social impact that could affect the assessments The sections of the report that provide an overview of the Company and its business as well as its work in the areas of sustainability, corporate governance practices and investor relations may include events that occurred after the reporting date. and decisions of stakeholders. We have identified and prioritised these issues based on their importance to stakeholders and the availability of measurable data. Reporting form and standards In 2023, consistent with the objectives set out in its ESG Policy, the Company is publishing two separate reports for 2022: an Annual Report and a Sustainability Report. This Annual Report informs all stakeholders about how Etalon Group is creating value in the short, medium and long term and outlines the Group’s sustainability initiatives. More detailed ESG-related information is provided in the Sustainability Report. The Annual Report is based on best practices and standards as well as relevant data from management reports, which ensures that the information it contains is as transparent, accurate and relevant as possible. The Annual Report is consistent with a number of guidelines, including the selected GRI Sustainability Reporting Standards. In line with the requirements of the GRI Standards, this report includes a GRI Index, which presents a clear structure for users of the report. Forward-looking statements Certain statements in this report are forward-looking in nature, and final results could differ considerably. In addition to factors explicitly mentioned in the report, other factors could have a material impact on actual results. These factors include, but are not limited to, the general business environment, regulatory changes, interest rate fluctuations, political events, the activities of competitors and their pricing policies, product development, commercialisation, technical problems, supply disruptions, etc. External assurance The report did not undergo external assurance. 4 ANNUAL REPORT 202211 1 IntroductIon About Etalon Group Etalon Group is one of russia’s largest and longest-established development and construction companies. during the 35 years of its existence, Etalon Group has become one of the leading nationwide players, with operations in eight regions of russia and the best margins in the industry. As part of its strategy, the company plans to further scale up its business and improve its efficiency by increasing regional expansion, developing new technologies and digitalising the entire value chain. In May 2022, the Сompany completed a lucrative transaction to acquire YIT Russia that included 19 projects at the design and construction phases in five regions of Russia, exclusive rights to Dispatcher 24 software for managing apartment buildings, project design documentation and a library of standard design solutions for cast-in-place construction and buildings made of prefabricated panels, as well as service companies with 2.5 mln sqm under management. Etalon Group’s assets as of the end of 2022 included a land bank with a net sellable area of 6.4 mln sqm as well as a construction and maintenance division that includes the Company’s own general contracting and subcontracting companies, service businesses, as well as IT companies and manufacturing enterprises, including a production facility for modular construction. 38 % pre-PPA gross profit margin % 16 net profit margin 5 11ANNUAL REPORT 20221 IntroductIon AnnuAL rEPort 2022 About Etalon Group >35 Years in the market 1 8.6 MLN SQM Delivered throughout the Company’s history 6.4 MLN SQM Project portfolio 2 288 BLN RUB In assets 2 8 REGIONS St Petersburg, Moscow and the Moscow region, Kazan, Ekaterinburg, Omsk, Novosibirsk and Tyumen 38 Projects at the design and construction stages TOP 3 Among the top 3 nationwide developers 3 TOP 10 Among the top 10 companies in a rating of confidence in developers according to Forbes 4 TOP 5 Among the top 5 in terms of the volume of housing deliveries 5 1 As of the date of publication of the Annual Report. 2 According to Nikoliers’ valuation of Etalon Group’s assets as of 31 December 2022. 3 A rating of developers with operations in six or more regions in terms of the volume of ongoing construction as of 1 January 2023, according to data available from nash.dom.rf. 4 Position in a rating of confidence in Russian developers in the category of mass housing for 2022. 5 Rating of Russian developers in terms of the amount of floor space delivered in 2022, according to data available Our strengths 1 2 3 One of the largest nationwide developers in Russia, with an extensive geographical footprint A company with a broad range of competencies and an integrated business model New technologies and digital solutions to improve business efficiency The Company’s current project portfolio includes 38 projects in Russia’s largest regions and in cities with a population of more than 1 million (Moscow and the Moscow region, St Petersburg, Omsk, Novosibirsk, Ekaterinburg, Kazan, Tyumen). The Company’s entry into fragmented regional markets with an offer of an affordable and high-quality product provides the Group with opportunities to expand its business and consolidate the industry. In 2022, Etalon Group was the leader in terms of expansion into new regions (adding five regions during the year), growth in construction volumes (up 38% year-on-year) and deliveries (up 74% year-on-year). For more information about the structure and valuation of the Company’s portfolio, see the section Project portfolio. Etalon Group provides a full range of project implementation services and the preparation of all necessary documentation right up to the sale, delivery and servicing of new homes. The Company’s business model is based on the use of its software platform and the integration of new technologies, which supports the flexibility, efficiency and scalability of projects as well as the ability to quickly adapt operational processes to changing market conditions. In addition, the Company ensures strict cost and quality control at all project stages, including by achieving economies of scale through centralised procurement, improving its product in response to customer feedback and automating support functions. For more on the business model and creating additional value, see page 13. Etalon Group is one of the leaders in the Russian real estate market when it comes to using digital solutions and innovations.6 The Company was one of the first in Russia and the CIS countries to develop and approve its own BIM design standard, and it continues the systematic development of its in-house design and construction know- how. In 2022, the Company switched to the full-scale use of standardised design and a standardised product in regional projects; the Company is also building a pilot modular production facility and has already begun assembling test modules. The integration of technologies and innovative approaches obtained as part of the acquisition of YIT Russia not only strengthens our competitive advantages but also creates a foundation for successful competition in new markets for the Company. For more about new technologies and digital solutions, see Innovations on page 114. from nash.dom.rf. 6 Since 2014, Etalon Group has been the industry leader in the field of BIM technologies in Russia according to Autodesk. 6 111 IntroductIon Acquisition of YIT Russia In May 2022, the Сompany completed its acquisition of YIt russia, enlarging its land bank with the addition of 19 projects at the design and construction phases in five regions of russia – Moscow and the Moscow region, St Petersburg, the Sverdlovsk region, Kazan and tyumen – with an nSA of more than 0.6 mln sqm. Regional breakdown Stages of construction St Petersburg Moscow and the Moscow region Kazan Ekaterinburg and the Sverdlovsk region Tyumen 6 Ekaterinburg and the Sverdlovsk region 3 3 5 2 Construction Design YIT Russia, as of 28 February 2022 Ekaterinburg Moscow region Kazan Construction Design Completed St Petersburg Tyumen 19 5 projects in its portfolio regions of operations 245 THS SQM under construction 0.6 MLN SQM of NSA 7 7 11ANNUAL REPORT 20221 IntroductIon Acquisition of YIT Russia Dispatcher 24 THE LARGEST PRIVATE B2C PLATFORM FOR HOUSING AND COMMUNAL SERVICES IN RUSSIA Dispatcher 24 is a contact centre and an ecosystem for housing and communal services � Affordable and high-quality services for customers � Full-fledged dispatch service for a management company or housing cooperative � Utilities: data entry and payments � Communication with the service company � Additional services In addition to the portfolio of projects, Etalon Group received a number of digital products and technologies as part of the transaction. Synergistic effect: � the possibility of creating fully automated housing and communal services enterprises � � � increased customer loyalty by combining well-known brands with a solid reputation integration with Etalon Group’s smart home systems integration with the Etalon Group’s digital platform to receive feedback from customers for further product improvement � scalable service business and ecosystem development 48 % revenue CAGR in 2018-2021 19 % CAGR of the subscriber base in 2018-2021 585 THS apartments are under management >180 service organizations in 28 cities Area under service, mln sqm 37 6.3 BEFORE TRANSACTION (MANAGED BY ETALON GROUP) AFTER TRANSACTION (“DISPATCHER 24” COVERAGE) Innovative technologies and design management KEY PRINCIPLES OF YIT RUSSIA DESIGN MANAGEMENT Standardisation Project management 80% of building components are standardised; diversity is achieved thanks to the fact that 20% of the elements are non-standardised proactive approach to design management – creating and following housing construction trends Work with contractors Innovation framework agreements with suppliers, established pool of design contractors centralised innovation development process, integrated innovation base (all projects are created using BIM technology) Synergistic effect: � strengthened competencies in the development of standard projects in regional markets � ready-made database of reliable suppliers and contractors for work in regional markets � expertise in flexible structures and modular furnishing projects � effective integration of projects due to the complementarity of the functionality of the YIT platform with Etalon Group’s digital platform 8 11ANNUAL REPORT 20221 IntroductIon Acquisition of YIT Russia YIt russia’s portfolio of projects, service business and building management division as well as its innovative technologies not only enable us to extract significant operational synergies from the pooling of assets but also have a positive impact on our financial results. the cost of acquiring the asset in monetary terms amounted to ruB 1.9 billion at the fair value of identifiable assets of ruB 14.2 billion. thus, the recognised benefit from the acquisition exceeded ruB 12 billion, which made it possible to obtain a record net profit in 2022. Financial synergies: � economies of scale � increased cash flows due to the merger of large companies with a strong financial position � the possibility of using YIT Russia’s credit lines at lower rates The rapid, seamless integration process also helped the Company achieve operational and financial efficiency – sales of YIT projects under the Etalon Group brand began three months after the transaction, and the following works were completed by the end of 4Q 2022: the geographical distribution of YIt russia’s projects and the company’s experience in the residential real estate market are perfectly in line with Etalon Group’s strategic plans to 2024, which include expanding the scope of activities as well as strengthening market positions and developing technologies. The acquisition of the company’s projects in five regions and the integration of innovative technologies enabled us to do the following: � accelerate regional expansion beyond key regions with the support of product standardisation; it was important to enter the promising market of Kazan; � strengthen loyalty to the Etalon brand in regions of operations; � promote projects started by YIT Russia through Etalon Group’s extensive regional sales network. � integration of architectural and planning solutions; STRATEGIC GOAL IMPACT OF TRANSACTION ON ACHIEVEMENT OF THE GOAL ETALON GROUP TODAY 4.3× Increase in net profit in 2022 due to the lucrative acquisition of a major player with advanced technological expertise due to the low level of corporate and project-related debt, the combined business of Etalon Group and YIt russia has a strong cash position. � combination of competencies for successful regional business; � � � integration of YIT Russia projects into the Etalon sales network; integration of digital solutions – product standardisation approach, Dispatcher 24 and others; and integration of design systems and completion of product standardisation work. CONCLUSION OF DEAL StArt oF SALES At YIt ruSSIA ProJEctS undEr tHE EtALon GrouP BrAnd (3 MontHS AFtEr SIGnInG) INTEGRATION COMPLETED May 2022 INTEGRATION August 2022 4Q 2022 Expansion of the project portfolio to over 6 mln sqm, expansion into 5 new regions by 2024 Digital and technological business transformation Entering a large new market in Kazan (with no competition with other nationwide players) with a large population and an income level above the average in Russia Integrated product management system during design based on standardisation, automation and innovation Ecosystem development and customer loyalty enhancement Exclusive rights to the Dispatcher 24 apartment building management program were purchased Product standardisation 80% of YIT’s standardised solutions have been integrated into Etalon’s digital platform A nationwide player operating in 8 regions of Russia A company that develops modular technologies for housing construction and expands competencies in terms of creating a standardised product Etalon’s customers show a high degree of brand loyalty due to continuous improvements, ecosystem development and response to feedback Reducing costs and construction time, improving housing affordability and quality through standardisation 9 11ANNUAL REPORT 20221 IntroductIon Key regions and segments the Group’s portfolio is highly diversified and includes quality projects in the affordable segment and partially in the upper price segment in St Petersburg, Moscow and the Moscow region, as well as in five new regions: omsk, Ekaterinburg, Kazan, tyumen and novosibirsk. considering the high degree of competition, customer needs and strategic objectives for business growth, the company is increasing its offer in the mass housing segment. Approach to portfolio development An attractive level of profitability and complementarity remain the most important criteria for selecting projects to expand the portfolio. In order to remain resilient to macroeconomic changes and fluctuations in demand, the Company aims to diversify its land bank in terms of the size of projects and their geography. In 2022, we increased the pace of implementation of our regional expansion programme, which was launched in May 2021, and we have already entered the markets of five promising cities beyond Moscow and St Petersburg with a population of over 1 million. Our current portfolio includes real estate in the middle and more affordable price segment; however, further replenishment of the portfolio is aimed at the consistent development of the most popular segment of residential real estate, the mass segment, thus supplying the market for high-quality affordable housing in Russia’s regional markets and in peripheral areas around Moscow and St Petersburg. New regional markets and peripheral areas of Russia’s two largest cities Increasing the supply in the mass-market segment P R E M I U M PREMIUM BUSINESS CLASS COMFORT CLASS UPPER ECONOMY CLASS ECONOMY CLASS Access to the mass segment and its affordability are achieved through cost competition. Project standardisation contributes to cost effectiveness, thanks to attractive conditions for the purchase of materials and equipment due to economies of scale. M I D - M A R K E T St Petersburg and Moscow A portion of the projects under construction and completed projects from the current portfolio M A S S M A R K E T 10 11ANNUAL REPORT 2022 1 IntroductIon Our geography Etalon Group’s expansion into regional markets enabled the company to become one of the largest nationwide developers. the target regions for the company are large cities with a population of more than 1 million and a developed real estate market. Entering less competitive regional markets with a product for the large lower price segment provides opportunities for business scaling on the strategic horizon. 8 REGIONS OF OPERATIONS 25 SALES OFFICES 11 REPRESENTATIVE OFFICES Established relationships / partnerships with local sales agencies Etalon Group’s sales offices / representatives MOSCOW MOSCOW REGION ST PETERSBURG TYUMEN REGION SVERDLOVSK REGION NOVOSIBIRSK REGION OMSK REGION REPUBLIC OF TATARSTAN 12.6 117.3 7.8 67.9 5.4 81.4 16.6 8.4 8.0 374.7 160.0 231.2 3.8 59.2 2.7 97.0 4.3 53.2 3.6 113.1 2.8 50.2 1.9 44.6 3.9 50.3 3.1 0.5 2.2 106.1 89. 0 134.2 Population, millions 1 Average per capita income, RUB ths per month 2 Volume of ongoing construction, mln sqm 3 Average cost per sqm in the primary market,4 RUB ths 1 Source: Rosstat, size of the resident population of the respective region as of 1 January 2022. 2 Estimate for the period from January to October 2022 based on preliminary data from Rosstat. 3 Volume of ongoing shared-equity housing construction, including on the basis of project financing through escrow accounts, as of 1 January 2023. Source: nash.dom.rf. 4 Source: Rosstat, data for 4Q 2022 for all types of apartments sold in the primary market. 11 11ANNUAL REPORT 20221 IntroductIon Business management structure After expanding into regional markets, Etalon Group revised its management structure and adapted it to its new strategic goals, improving efficiency and speeding up decision-making. The overall management and planning of strategic development as well as oversight of the implementation of all initiatives are carried out by Etalon Group. The Company consists of three large operating divisions in the regions where the Group operates – St Petersburg, Moscow and other regions – as well as a construction and maintenance division and service companies whose operations are controlled by Etalon Group. This structure makes it possible to quickly adapt the business for entry into new regions and for increasing the volume of business, as well as reducing administrative overhead costs during the implementation of the Company’s strategy and improving efficiency. ETALON GROUP General management and strategic development, monitoring compliance and implementing policies throughout the Company Operations in St Petersburg Operations in the Moscow region Operations in other Russian regions Production and service companies Development and sales Development and sales Development and sales Construction works, industrial construction under external contracts, operation of the Group’s residential complexes Results achieved thanks to the updated management structure: Understanding the specifics of regional markets fast, high-quality decision-making Creation of separate operational divisions by region Centralisation of support functions (finance and accounting, HR, legal support and security) full responsibility for financial and operational results at the level of each region reduction of administrative costs Creation of new divisions within the Strategic Marketing Department customer and brand focus Creation of an Innovation and Development Department strengthening the innovation and IT functions 12 11ANNUAL REPORT 20221 IntroductIon Value creation At every stage of its development, Etalon Group is committed to maximising investment returns and creating profit for stakeholders, thereby maintaining the company’s investment appeal and encouraging loyalty to the Etalon brand. The stages of value creation and business model development in accordance with the Company’s current strategic course are discussed in detail in the Strategy section of this report. In addition to actively replenishing our land bank, we also manage land assets, thus ensuring high returns on investment and diversification. We are increasing the share of the affordable price segment in our portfolio, while choosing projects with target profitability that can become the basis for creating a quality product. We are continuously improving the quality of our projects, and we consider the opinion of buyers, thus improving the maintenance of our buildings and expanding our range of services, including by bolstering our competencies since the acquisition of YIT Russia. Thanks to this approach, our completed projects remain appealing to residents and potential buyers in the long term. We focus on customer requests and ensure high- quality service and sales efficiency by focusing on digitalisation in identifying target groups, as well as studying best practices in the area of user experience. LAND ASSETS DESIGN OPERATIONS MANAGEMENT PRODUCTION SALES CONSTRUCTION/ASSEMBLY We are developing state-of-the-art automated digital design systems as well as affordable products: we are increasing the variety of options and reducing the cost by launching a library of standardised elements, digital technical specifications, as well as automated master planning. We are developing new industrial technologies for housing construction: in 2022, we began the production of test housing kits using modular technology and plan to start scaling up its use. We are committed to shortening the construction cycle, reducing costs and improving safety. To do this, in addition to using prefabricated cast-in- place technology, we also use hybrid technology and are actively developing modular technology for housing construction 13 11ANNUAL REPORT 20221 IntroductIon Investment case rapid scaling and adaptation of our business at a time of turbulence and market consolidation 1 2 3 Active expansion of geographic footprint Successful experience of inorganic growth Industry-leading efficiency 4 5 Rapid introduction of innovations for successful cost competition Commitment to ESG values The Company’s strategy to 2024 assumes a Over the past three years, the Company has More efficient work with prime cost due to balanced portfolio of projects in at least eight completed two M&A transactions that provided standardisation and improvement of process IN 2022, THE COMPANY: regions with a volume of at least 6 mln sqm. significant business synergies. At the beginning management enabled the Company to take a Since the beginning of 2021, thanks to organic of 2019, Etalon Group acquired the Moscow leading position in terms of profitability among and inorganic growth, Etalon Group’s project developer Leader-Invest, increasing the value the largest developers. Pre-PPA gross margin portfolio has more than doubled, from 2.8 mln of the Company’s portfolio by 39%, from RUB 127 at the end of 2022 reached 38% (No. 2 among sqm to 6.4 mln sqm, and the Company has billion to RUB 177 billion. In 2022, Etalon Group the largest Russian developers and above the entered five new regions. Our strategic goal is completed the acquisition of YIT Russia. The industry average); in the segment of housing to achieve a steady double-digit annual sales successful integration of YIT Russia’s assets development in regional markets, it reached growth rate thanks to regional expansion and was one of the key factors that enabled us an impressive 43%. The Company’s net profit business growth. to significantly increase our construction and margin is the highest in the industry, at 16%. delivery volumes, while also strengthening our competencies in terms of digitalisation, design and building maintenance. Сonstruction volumes, ths sqm Deliveries, ths sqm 2 Project portfolio before regional expansion, as of 1 January 2021 Project portfolio now, as of 31 December 2022 4 +38 % +74 % 1,164 735 844 421 2021 2022 2021 2022 Middle and premium segments Mass segment 2.8 MLn SQM ×2 6.4 MLn SQM +129 % � completed work on the creation of a product standard; � rolled out a digital integration platform for testing and prepared to put the system into commercial operation; � started production of test modules; � implemented elements of the Digital Neighbourhood system at a number of projects in Moscow and St Petersburg; � launched a procurement automation project and transferred 95% of applications to the digital ecosystem. The large-scale application of a standardised approach to design, the digitalisation of operational processes and the development of state-of-the-art house-building technologies allows for more efficient cost management and, consequently, makes the Company more competitive in a market that is being consolidated. Innovative technologies make more efficient implementation of the portfolio in the mass segment possible: the share of this segment in the portfolio has doubled since the beginning of 2021. By basing its approach to business on the principles of social responsibility and sustainability, the Company is able to build partnerships with shareholders, investors and customers. In 2022, we continued to implement best ESG practices in our daily activities: we developed and approved a Supplier Code and continued to work on the establishment of specific measurable goals and strategies in the area of ESG as well as the implementation of a pilot project for green certification of apartment buildings according to a new standard. the company’s global depositary receipts remain undervalued, which creates strong growth potential on the strategic horizon. 14 11ANNUAL REPORT 20221 IntroductIon 2022 in brief Implementation of the plans outlined in the strategy for 2022 enabled us to achieve robust financial results. In the future, we will focus on new advances in technology, improved operational efficiency to make a larger percentage of our product affordable, successful regional expansion and the launch of new regional projects. 1Q 2Q Etalon Group entered A transaction was The Schastye na the Ekaterinburg market completed to acquire Semyonovskoy and Wings to implement a housing a 50% stake in Strana residential complexes were YIT Russia was acquired. The Green River We introduced our own service for assessing the Sales were launched at residential complex in investment appeal of development projects; Omsk – a flagship project the Board of Directors decided to postpone Monograph, a comfort- class residential complex construction project. Etalon LLC, a joint delivered. beyond Moscow and consideration of the matter of dividend payments in St Petersburg. venture created with Strana Development Group to carry out construction in Tyumen. St Petersburg – was put for 2021 until constraints currently in force are on sale. removed. 1Q22 RESULTS: 1H22 RESULTS: 19.7 BLn ruB 32 % New contract sales from the beginning of the year Increase in the average price per sqm y-o-y 175.7 tHS SQM Deliveries 21.2 BLn ruB Cash collections from the beginning of the year 29.3 BLn ruB 10 % New contract sales from the beginning of the year Increase in the average price per sqm y-o-y 235.0 tHS SQM Deliveries 32.6 BLn ruB Cash collections from the beginning of the year 15 15 11ANNUAL REPORT 20221 IntroductIon 2022 in brief 3Q 4Q Sales began in the A new phase of the Sales began for a new Sales began at the Sales began at the new The Che Quarter in The final buildings at the The Domino residential An agreement was signed Solnechniy residential Domino Premium phase of the Novoorlovskiy new Schastye v Kazani Schastye v Tyumeni St Petersburg was Rifey residential complex complex in St Petersburg on the construction and district of Ekaterinburg. residential complex was residential complex in residential complex. residential complex. delivered. in the Sverdlovsk region was delivered. launched. St Petersburg. were delivered. subsequent operation of the interuniversity student campus at the world-class Eurasian Scientific and Educational Centre in Ufa. 9M22 RESULTS: 12M22 RESULTS: 42.6 BLn ruB 8 % New contract sales from the beginning of the year Increase in the average price per sqm y-o-y 326.0 tHS SQM Deliveries 43.8 BLn ruB Cash collections from the beginning of the year 71.8 BLn ruB 6 % New contract sales from the beginning of the year1 Increase in the average price per sqm y-o-y 734.8 tHS SQM Deliveries 75.0 BLn ruB Cash collections from the beginning of the year2 1 Including cumulative sales at YIT projects under development. 2 Including cash from YIT development operations. 16 16 11ANNUAL REPORT 20221 IntroductIon Chairman’s statement dear shareholders, Foreign-policy developments and changes in market conditions in 2022 had a huge impact on global business and the investment community. Etalon Group, like other market players, had to adapt to the new environment by taking a flexible approach to the restructuring of its business management, operational processes and supply chains. Last year’s results show that we were able to respond to external challenges in a timely manner: we transformed our approaches to business management, bolstered our competencies when it comes to new technologies and the efficiency of our internal processes, and took advantage of opportunities for inorganic growth. As a result of these changes, Etalon Group has become stronger and more efficient, and we are better prepared to work in a challenging market environment. It was impossible that geopolitical tensions, sanctions pressure and related restrictions, including the suspension of trading in Russian securities on a number of international platforms, would not have an impact on public companies. Nevertheless, Etalon Group remains committed to respecting the rights of all groups of investors, continues to disclose information to the same extent and does not take any decisions that could adversely affect a particular group of shareholders. Despite everything, we are committed to complying with the principle of transparency because we believe that feedback from shareholders and their involvement in decision-making helps us correctly formulate our shared strategic goals and plans for further action. Alongside transparency, one of our key principles remains the independence of the Board of Directors, which saw changes to its membership during the reporting year, as Martin Cocker, Oleg Mubarakshin and Maxim Berlovich all stepped down. In an effort to continue to ensure balanced and impartial decision- making, the Board of Directors nominated and approved a new independent director, Vitaly Pyltsov, who has many years of experience in finance, auditing and strategy development. Five of the eight members of the Board of Directors are independent. It should be noted that when making decisions at any level, starting with the level of the Board of Directors, we are always guided by the principles of corporate and social responsibility. In 2021, we systematised our approach to this issue, approving a single ESG policy for all Group companies, and we have strictly followed the steps outlined in that policy ever since. In particular, in the context of the policy, we plan to issue a separate sustainability report this year. At the operational level, we continue to implement best ESG practices, including by taking measures to reduce our environmental impact, develop local communities and integrate innovative technologies. Since 2014, we have been using our own occupational safety monitoring system based on information modelling technologies, and we have not recorded a single fatal accident in the past seven years. During the reporting year, we also joined a public–private partnership project that is building innovative student campuses: in December, we signed a concession agreement for the construction and subsequent operation of the interuniversity student campus at the world- class Eurasian Research and Education Centre in Ufa. Despite the external environment, we achieved during the reporting year many of the goals that we had set for ourselves for the strategic horizon. I would like to sincerely thank our management and all our employees for their professionalism and perseverance, as well as our shareholders for their support and loyalty. I am confident that our openness, commitment to the principles of responsible business and focus on results will help us continue to successfully deal with all the challenges that we encounter. SERGEY EGOROV Chairman of the Board of Directors 17 11ANNUAL REPORT 20221 IntroductIon CEO’s statement dear shareholders, the year 2022 was a jubilee year for Etalon Group: in June we celebrated our 35th anniversary. during this period, we have built one of the largest and most efficient real estate and construction corporations in russia with a respected and stable reputation. In recent decades, we have significantly changed the scale of our business, our approaches to design and construction and our financial situation. But there are aspects that have remained unchanged, such as the professionalism and cohesion of our team, our customer focus and the high level of service offered by Etalon Group. The last few years have demonstrated that we are resilient to crises and to any turbulence in the business environment. Despite all the challenges of 2022, Etalon has remained true to its principle of fulfilling its obligations to its customers, employees and partners. In a short period of time, the team managed to adapt to the new environment, not only keeping the business stable but also achieving sustainable results. In the reporting year, we continued to implement our development strategy to 2024. We focused on the regional expansion of our business and on the operational efficiency of Etalon Group. As a result, we entered five new regional markets and added approximately 20 projects to our portfolio. Etalon Group now has a presence in eight Russian regions. We also acquired YIT Russia, thereby expanding our business and strengthening our leading position in the market. By implementing digital cost control solutions, improving sales efficiency and reacting promptly to external changes, we achieved a record gross margin of 38%, exceeding the target level of 35% set out in our development strategy. Operating results Over the past few years, Etalon Group has noticeably expanded its project portfolio and geography of operations through organic and inorganic growth. In 2022, we continued to develop our land bank, expanding it to 6.4 mln sqm and raising the value of our assets to a record RUB 288 billion, up 7% from 2021. This was made possible thanks to the lucrative acquisition of YIT Russia as well as the launch of new projects in regions such as Omsk, Ekaterinburg, Tyumen and Kazan, among other things. By adding projects to our portfolio that are at different stages of completion, we increased the amount of NSA delivered by 74% year-on-year to 735 ths sqm – a record high for the Company. Since the Company was founded, we have delivered a total of 8.6 mln sqm. And in 2022 Etalon Group considerably bolstered its position among the five largest developers in Russia. In the reporting year, our sales volume amounted to 423 ths sqm in terms of floor space and RUB 71.8 billion in monetary terms including YIT Russia’s accumulated sales. Sales trends varied throughout 2022. Nevertheless, the challenging external environment and temporary supply constraints at the beginning of the year were partially offset by the active expansion of the Company’s portfolio, the improved affordability of its product and the launch of new buildings in the second half of 2022, which enabled the Company to restore positive sales trends by the end of the year. An important driver of the sales recovery in the new economic environment was the increase in the share of regional projects in the affordable price segment, including projects from YIT’s portfolio. Financial results In a turbulent and increasingly competitive development market, we focused on increasing our operational efficiency and maintaining high margins. Among other things, we turned our attention to technological transformation to reduce the production cost of projects. As a result, Etalon Group’s gross profit increased from RUB 27.8 billion to RUB 28.2 billion in 2022. Pre-PPA gross profit margin once again showed year-on-year growth from 36% to 38% (and 43% in regional markets), exceeding the target of 35% set in the Group’s strategy. Thanks to the lucrative acquisition of YIT Russia, Etalon Group’s net profit more than quadrupled during the year and reached a record RUB 13 billion. EBITDA in 2022 amounted to RUB 16.5 billion. Despite the costs associated with the deal, EBITDA margin remained flat year-on-year at 20.5%. In spite of the external environment, we managed to maintain a comfortable level of leverage and low debt servicing costs. The ratio of net corporate debt to pre-PPA EBITDA was less than 1x, significantly below the target level of 2x–3x. The average borrowing rate decreased from 6.5% at the end of 2021 to 5.2% as of 31 December 2022. Strategic objectives Etalon Group’s strategic goal is to become one of the leaders in the industry in terms of business efficiency. Regional expansion and technological transformation were initially among the priority vectors of our strategy to 2024. In 2022, we were convinced once again that we chose the right path. Expanding into large regional markets enables us to ensure business growth, while digitalisation and new technologies allow us to keep production costs in check and remain competitive in terms of overhead. With market consolidation and with the entry of major players into regional markets, we aim to make our product even more affordable. In 2021, we worked on product standardisation, and in 2022 we will apply the approach we developed to new regional projects. We are also testing state-of-the-art modular construction technology and preparing to launch our own production facilities. The standardisation of our product and the application of new approaches to construction enable us to significantly reduce the need for materials and, consequently, the production cost. In addition, our approach makes it possible to improve the quality of construction while reducing project time frames. All of these factors put in place the prerequisites for us to compete successfully with other players and to consolidate the market. In conclusion, I would like to emphasise that Etalon Group is ready for change and is able to take on potential challenges. In 2023, we will continue to move confidently towards our strategic goals. I am convinced that, with a professional team, and with a stable and flexible business model that ensures continuous improvement of our efficiency and profitability, we will further expand our business even if market conditions remain challenging. Thank you for your confidence in Etalon Group. GENNADIY SHCHERBINA Chief Executive Officer 18 11ANNUAL REPORT 20222 MArKEt o VErVIEw And trEnd S AnnuAL rEPort 2022 REPORT 2022 2 ANNUAL MARKET OVERVIEW AND TRENDS Macroeconomic context 20 Factors driving demand 21 Supply redistribution 24 competitive environment 24 19 ANNUAL REPORT 2022112 MArKEt o VErVIEw And trEnd S Market overview and trends the year 2022 tested the resilience of the development industry. the market was turbulent throughout the year as a result of uncertain consumer demand, a tight monetary policy, inflation and rapidly increasing production costs. A variety of instruments were utilised to support demand: state mortgage programmes were extended, developers provided individualised offers for mortgage subsidies as well as personal discounts, and the key rate dropped in the second half of 2022. As a result, there was pent-up demand, but inflation risk remained high at the same time, so consumers were looking for alternative investments to preserve capital instead of putting their money in savings deposits with low returns. Key market players continued to expand their portfolios, and developers also entered new regional markets and segments, which were important means of diversifying their portfolios and creating a quality offer in regional markets. Macroeconomic context the russian economy turned out to be more stable than analysts were expecting in mid-2022, and the forecast growth rate remains at the same level or higher than that of the Eu. Despite challenges associated with the geopolitical context and tight monetary policy, the Russian economy demonstrated strong GDP results last year. In the middle of the year, IMF analysts predicted that Russia’s GDP would decrease by 6%, while the World Bank estimated in June a contraction of 8.9%. However, GDP was supported in the second half of the year, largely thanks a strong budget surplus, driven by oil and gas revenues, as well as the appreciation of the rouble and an expansionary monetary policy. The result was a less severe recession with underlying potential for rapid recovery and growth. According to IMF forecasts, the Russian economy will expand by 0.3% in 2023, the same as in the Eurozone, and in 2024 Russia’s GDP will grow by 2.1%, outpacing the majority of countries in the EU. Russia USA Germany EU France +4.3 p. p -1.0 p. p -0.5 p. p -1.9 p. p -1.0 p. p United Kingdom -3.2 p. p 4.1 % 3.5 % 2.6 % 2.1 % 2.0 % 1.9 % 1.4 % 1.4 % 1.0 % 0.3 % 0.1 % 1.6 % 1.6 % 0.8 % 0.7 % 0.9 % -2.2 % -0.6 % 2022 2023 2024 High inflation during the year gave way to a steady Key rate, annual % Inflation, % year-on-year deflationary trend, and the result for the year was better than that of most Eu countries. Inflation in Russia reached 11.9% in 2022, three times the Bank of Russia’s target. Nevertheless, an inflationary spiral was avoided thanks to a tight monetary policy in early 2022, and the inflation rate began to decrease rapidly in the second half of 2022. According to the Bank of Russia, inflation will return to target levels in 2024, while the key rate will remain at 7.5% in 2023, dropping to 6.8% in 2024. 20 12 10 5 0 January 2022 February 2022 March 2022 April 2022 May 2022 June 2022 July 2022 August 2022 September 2022 October 2022 November 2022 December 2022 January 2023 20 11ANNUAL REPORT 20222 MArKEt o VErVIEw And trEnd S Factors driving demand More affordable housing in key regions of operations the key demand driver in 2022 was the fact that mortgage-backed purchases of housing in new developments became more affordable thanks to state mortgage programmes and individualised offers from developers to subsidise mortgage rates. Average monthly income to mortgage payment Weighted average interest rate on mortgage loans One of the trends of 2022 was the opportunity for buyers to purchase real estate in the primary market at subsidised mortgage rates. Due to the tight monetary policy in April, the key rate was at 17%, and the state-backed preferential mortgage rate was 12%, which strongly discouraged consumers from purchasing property. However, a subsequent reduction in the key rate and preferential mortgage rates supported sales, while developers began offering subsidised preferential mortgages at record-low rates. As a result, the ratio of average wages to monthly mortgage payments increased to 2.2x in the Russian Federation, 2.6x in Moscow and 2.7x in St Petersburg, which made purchasing a home with a mortgage more affordable. In regional markets, since the price of the average listing met the criteria for getting a preferential mortgage rate, property also became more affordable beyond Moscow and St Petersburg. In Russia In Moscow In St Petersburg In the Sverdlovsk region 9.5 % 6.5 % 5.9 % 2.1 × 2.0 × 1.8 × 4.3 % 2.2 × 9.3 % 2.1 × 6.6 % 6.3 % 2.3 × 2.2 × 4.3 % 2.6 × 9.5 % 6.7 % 5.9 % 9.4 % 6.8 % 6.1 % 5.6 % 2.5 × 2.4 × 2.2 × 4.0 % 2.7 × 1.7 × 1.9 × 2.1 × 2.1 × 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 In the Omsk region In Tatarstan In the Tyumen region In the Novosibirsk region 9.5 % 6.5 % 5.8 % 4.3 % 9.2 % 6.2 % 5.4 % 1.7 × 1.5 × 1.6 × 1.6 × 1.9 × 1.9 × 4.2 % 2.1 × 9.5 % 2.7 × 6.7 % 3.3 × 5.9 % 3.4 × 5.2 % 3.6 × 6.6 % 6.0 % 5.5 % 2.0 × 2.0 × 2.0 × 9.5 % 1.7 × 1.4 × 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 21 11ANNUAL REPORT 20222 MArKEt o VErVIEw And trEnd S Factors driving demand Need for improved living conditions Considerable increase in mortgage lending Population growth in megacities and ageing housing stock together with the russian government’s priority of Preferential mortgages, subsidised mortgages from developers, and key mortgage programmes for regional increasing the average amount of living space per person have been driving improvements to the quality of markets and It specialists played a major role in supporting sales rates, while mortgage lending as a percentage of housing conditions. GdP reached 10%. Russian housing stock by period of construction after 1995 1971–1995 1946–1970 1921–1945 before 1920 Mortgage lending has been gaining new momentum from year to year, and its share of retail lending has increased significantly, from 40% in 2016 to 52% in 2022. Thanks to this instrument, more and more families have an opportunity both to upgrade their housing conditions and to purchase their first home. Thanks to subsidised mortgages from developers and preferential programmes from the state, last year’s results surpassed the record set the previous year in terms of the amount of mortgage loans granted to individuals for the purchase of housing in the primary market, reaching RUB 2.1 trillion. And the weighted average mortgage rate in the primary market reached a record low of 3.5%. According to the forecast of the Bank of the Russia, the percentage of mortgage-backed housing purchases is expected to rise to 12%–16% in 2023. In terms of the amount of available living space both in megacities and in the Russian Federation as a whole, the average amount of space per person has been increasing. At the same time, according to the Strategy for the Development of the Construction Industry and Housing and Communal Services of the Russian Federation for the period to 2030, the amount of available living space per person should be no less than 33.3 sqm. Sixty-six per cent of the housing stock in the Russian Federation was built before 1995. The quality of this housing no longer meets the needs of the modern consumer, and buildings that are more than 50 years old and in need of renovation account for about 30% of Russia’s housing stock. Russia’s unemployment rate in 2022 reached a record low of 3.7% of the working-age population, which in turn will stimulate wage growth and make residential real estate more affordable. Amount of living space, sqm/person Unemployment in Russia Share of mortgages as percentage of retail lending Moscow St Petersburg Warsaw London Stockholm Rome Berlin 22 33.3 Target by 2030 28 34 33 34 39 40 5.9 % 5.1 % 4.8 % 4.6% 4.3 % 3.7 % 46 % 46% 50 % 48 % Amount of mortgage loans issued, RUB bln 52 % Amount of mortgage loans issued during the year, RUB bln Weighted average interest rate on mortgage loans in the primary market 2,063 1,880 9.4 % 8.3 % 1,500 871 923 5.8 % 5.9 % 3.5 % 2017 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 22 11ANNUAL REPORT 20222 MArKEt o VErVIEw And trEnd S Factors driving demand Considerable increase in mortgage lending Capital preservation through low mortgage rates Despite the impressive rate of mortgage lending and the increase in the percentage of retail lending that mortgages account for, the ratio of mortgage debt to GDP is 10% in the Russian Federation, while this figure is above 50% in the United States, the United Kingdom, Canada and Sweden. There has been a steady downward trend in terms of the amount of overdue mortgage debt relative to total mortgage debt. Overdue debt in 2018 amounted to 0.96% of a total debt of RUB 6.4 trillion; in 2022, the percentage decreased to 0.4% of a total debt of RUB 13.9 trillion. the lack of alternative ways to save capital during periods of economic uncertainty pushes investors and consumers towards established instruments, one of which is real estate. Capital and stock markets, derivatives and other risky instruments fade into the background during periods of economic instability. People increasingly choose simpler, more conservative investment instruments where they can acquire a physical asset while simultaneously earning a tax deduction and thereby maximising profit. Higher inflation and sanctions imposed on banks had a negative impact on deposits in the first quarter of 2022. As a result of a subsequent increase in the key rate and stabilisation of the situation, the inflow of deposit funds returned to normal. But even despite the inflow of funds into deposit accounts in 2022, the real rate of return was negative. As a result, according to the Bank of the Russia, the average rate of return on rouble deposits increased from 5.1% in 2021 to 5.4% in 2022, but the inflation rate in 2022 was 11.9%. Ratio of mortgage debt to GDP, by country Overdue debt on mortgage loans, RUB bln Amount of deposits and rate of return Negative real income on deposits 10 % 11 % 21 % Russia Hungary Poland Germany France USA UK Canada Sweden 43 % 44 % 56 % 66 % 73 % 88 % Amount of overdue mortgage debt, RUB bln Deposits, RUB trn Share of overdue mortgage debt relative to total mortgage lending portfolio, % Interest rate on deposits Inflation Interest rate on deposits 72 59 55 61 64 0.96 % 0.84 % 0.77 % 0.51 % 0.40 % 6.5 % 24.2 28.5 5.6 % 30.5 4.7 % 26.0 5.3 % 36.6 34.7 32.8 5.1 % 5.4 % 3.4 % 11.94 % 8.39 % -6.5 % 5.1 % 5.4 % 6.5 % 5.38 % 5.3 % 5.6 % 4.7 % 4.91 % 4.27 % 3.05 % 3.4 % 2.52 % 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 23 11ANNUAL REPORT 20222 MArKEt o VErVIEw And trEnd S Supply redistribution Shift in main supply and demand to regional markets – large cities home to major companies and new industrial centres Competitive environment Improved affordability and increased demand in regional markets Increase in investments and creation of new jobs in regional markets Industry consolidation As a consequence of the pandemic, there has been a trend in recent years towards remote work in many sectors of the economy: IT, services, consulting and even residential real estate development prefer to keep some of their staff out of the office, which enables them to save on administrative costs. More and more companies from Moscow and St Petersburg are hiring personnel from other regions to work remotely, which gives those employees an opportunity to earn more than they would in the local labour market. Moreover, many applicants, seeing positive changes in regional cities, are deciding to relocate from metropolitan areas to more environmentally friendly cities. Regional markets are seeing the development of effective demand that is being fuelled by preferential mortgage programmes: general programmes as well as specialised programmes for IT workers, families and others. In Moscow and St Petersburg, the limit for preferential mortgages is RUB 12 million, but the price of an average listing of 50 sqm in Moscow typically exceeds the limit by a large amount, and it is near the limit in St Petersburg. As a result, the decision to apply for a preferential mortgage is a difficult one. At the same time, the average listing price in regional markets does not exceed the limit, which is RUB 6 million, thus enabling access to mortgages at a reduced interest rate. Percentage of average price of 50 sqm listing covered by preferential mortgage limit Wage growth in regional markets in 2022 outstripped inflation Percentage of average price of 50 sqm listing covered by preferential mortgage limit 12 MLN RUB Moscow St Petersburg 18.7 64 % Moscow 11.6 104 % St Petersburg 11.9 % inflation in Russia 9 % 9 % The country’s economy faced a challenging environment in 2022, as it became necessary to find new markets for exports and to invest in the development of enterprises manufacturing products for import substitution. A significant percentage of investments were made in regional markets. For example, capital investments in Tatarstan, the Sverdlovsk region and the Tyumen region in 2022 increased by 27%–29%; the average for the Russian Federation as a whole was only 20%. The implementation of large infrastructure projects in regional megacities creates new growth points. The creation of new jobs helped reduce the unemployment rate. In all of Etalon Group’s new regions of operations, unemployment fell below 5% – a psychologically important level – which is considered low, indicating that regional markets are healthy. The decline in unemployment to record low levels in regional markets as well as the migration of qualified personnel from Moscow and St Petersburg led to wage growth in the regions that outstripped inflation. The unemployment rate in regional markets dropped considerably below the psychologically important level of 5% Omsk region Novosibirsk region Tyumen region Sverdlovsk region Republic of Tatarstan 6 MLN RUB Republic of Tatarstan 6.7 89 % Republic of Tatarstan Sverdlovsk region 5.7 106 % Novosibirsk region 5.3 113 % Tyumen region 4.8 124 % Omsk region 4.5 135 % Sverdlovsk region Novosibirsk region Tyumen region Omsk region 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 16 % 14 % 15 % 13 % 17 % 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 2017 2018 2019 2020 2021 2022 the trend towards industry consolidation continues and by 2026 the top 20 developers are expected to account for a record 49% of the supply of apartment buildings in the key regions of Etalon Group’s operations, and the number of small and medium-sized players will continue to decline. One of the main factors driving the decrease in the number of small players in the market remains the complicated procurement and transportation process that supports uninterrupted operating capacity for construction. And since the key rate was high throughout the year, it became increasingly difficult for a large number of small and medium- sized players to conclude new financing agreements, so the rate of organic portfolio growth through the acquisition of land plots slowed down considerably, while key market players had an opportunity to actively expand their land banks thanks to free cash savings or through inorganic growth. Top 20 developers will strengthen their position Total delivery of apartment buildings, mln sqm Market share of top 20 49 % 49.5 37 % 17.6 43 % 43 % 47 % 44 % 18.6 18.2 19.4 20.1 2018 2019 2020 2021 2022 2023–2026 Data on Etalon Group’s delivery of apartment buildings in key regions is from Dom.rf: Moscow, the Moscow region, St Petersburg, the Republic of Tatarstan, the Omsk region, the Tyumen region, the Sverdlovsk region and the Novosibirsk region. Data on expectations for 2023–2026 was taken from ERZ.rf. 24 11ANNUAL REPORT 20223 StrAtEGY 2024 REPORT 2022 3 ANNUAL STRATEGY 2024 Strategy 2024 26 Strategic goals and their implementation 27 Strategy for developing the value chain 28 Strategic initiatives 29 2525 11ANNUAL REPORT 20223 StrAtEGY 2024 Strategy 2024 digitalisation of the entire value chain and the development of an affordable product in regional markets will ensure more dynamic development of the company’s business in a challenging market environment. The acquisition of new projects as well as further expansion into regional markets will facilitate the implementation of the Company’s plans to increase the scale of its business. Taking new industry challenges into account, the Company will improve its business efficiency through the development of an affordable product and standardisation as well as the development of proprietary software that will shorten the construction cycle and reduce costs. Etalon Group’s strategy involves the re-engineering of all the Company’s business processes: from working with land assets and design to construction, the sale of apartments and residential occupancy at Etalon Group complexes. In accordance with its strategy, Etalon Group is focused on developing technologies that can already effectively reduce costs and that offer high potential for commercialisation. By incorporating positive changes in its key processes, Etalon Group is adapting its operations to a changing environment and creating sustainable long-term competitive advantages and value for all stakeholders. AnnuAL rEPort 2022 26 26 113 StrAtEGY 2024 Strategic goals and their implementation our current strategy was approved in late 2020. Since its announcement, we have been consistently achieving our goals, demonstrating excellent profitability, actively expanding our regional presence and bolstering our position as one of the largest technologically advanced nationwide players. 2024 2020 2022 STRATEGIC GOAL STRATEGY ANNOUNCEMENT CURRENT PROGRESS Key qualitative strategic goals: PROGRESS IN 2022: Digitalisation of the value chain, from land acquisition to after-sales service � The development of individual modules of the digital platform was completed, and testing of the modules began; notably. PROJECT PORTFOLIO, MLN SQM NUMBER OF REGIONS OF OPERATIONS 6.0+ 8 SALES GROWTH IN MONETARY TERMS DOUBLE-DIGIT GROWTH PRE-PPA GROSS MARGIN RATIO OF NET CORPORATE DEBT TO PRE-PPA EBITDA RATIO OF SELLING AND ADMINISTRATIVE EXPENSES TO REVENUE >35 % 2 × –3 × 10 % 1 3.3 2 +3 % 29 %2 1.8 × 10 % 1 In the context of the announced strategy, this metric is indicated as of the end of 2019. 2 Based on 1H 2020 financial results. 3 Taking into account the costs associated with the acquisition and integration of YIT as well as the launch of sales at new projects. 6.4 8 ABOVE TARGET -15 % (decrease in the face of a sharp rise in the key rate and negative geopolitical factors) ON TRACK (return to annual growth thanks to expansion into regional markets and a more affordable product) Development of modular housing construction and prefabrication technologies 38 % 0.9 × 15 % 3 ABOVE TARGET BELOW TARGET ON TRACK (factoring in technological advancements, we expect this metric to recover) � The design process was automated (a library of architectural solutions and master planning elements was developed). � Testing of the system for digital technical specifications got under way. � Modules were tested, and construction of the Company’s own modular production facility began � Prefabricated elements were used successfully in a number of Company projects � A pilot project for the use of easy- to-assemble piping systems and partitions was launched. Centralisation of procurement to achieve economies of scale � The majority of procurement was transferred to a digital ecosystem. � A project to automate procurement procedures was launched, increasing the speed of processing requisitions by 24% and reducing personnel costs by 9%. 27 ANNUAL REPORT 2022113 StrAtEGY 2024 Strategy for developing the value chain the transformation of our business model will enable us to adapt to changing conditions and create an environment for the sustainable development of the company as an innovative construction and development business. I E D M ANAGEM E N T A D M I N I S T R AT I O N N I F U LAND ASSET MANAGEMENT In the property development stream, in the context of industry consolidation and facing a high degree of competition for land assets, the Group aims to implement projects with high margins and expand its presence in regional markets. SERVICES We are developing our property management business: by improving the quality of customer relations and providing additional services at the occupancy stage, we are committed to further increasing customer loyalty and generating repeat purchases. PROCUREMENT We prefer to choose counterparties through a competitive selection procedure and arrange uninterrupted supplies with due regard for cost- effectiveness and production efficiency, including through automation and digitalisation of our procurement activities. Centralised procurement helps us achieve economies of scale. DESIGN At the design stage, the main priority is product standardisation, which enables the Company to make its product more affordable, which is especially important at a time of expansion into regional markets. The development of digital tools for procurement, long-term planning and the effects of economies of scale will also help optimise costs. CONSTRUCTION We continue to develop prefabrication and modular housing construction technologies, which enable us to reduce the amount of work performed at construction sites by manufacturing certain elements off-site. We are building our own modular production facility and have started manufacturing the first pilot modules, and we are also testing prefabricated piping systems and partitions. New technologies have enabled us to improve business efficiency and speed up construction. SALES We are constantly improving our approach to effective sales and improving the quality of customer relations in order to encourage loyalty and repeat purchases. 28 11ANNUAL REPORT 20223 StrAtEGY 2024 Strategic initiatives 1Increasing business scale through the development of mass-market projects and operations in new regions the main objective of the company’s land bank strategy is to ensure a balanced portfolio and maintain a minimum balance of nSA that is sufficient to scale up the company’s business. today, the company is successfully implementing a strategic regional expansion programme and has already launched new projects in the affordable price segment in five regional markets in addition to its three key regions of operations: Moscow, the Moscow region and St Petersburg. Etalon Group’s key goal in terms of quality affordable housing is to become a cost leader: ensuring the best production price while maintaining the high quality of its product. Standardisation Land affordability Reducing specific overhead costs when scaling up Results in 2022: Entering regional markets and the lower price segment in traditional markets with a standardised product make it possible to engineer the cost of construction and installation works and to obtain better terms when purchasing construction materials and equipment as a result of economies of scale. In the face of increasing competition in the industry, making the Company’s product line more affordable is a key component of its product strategy. The introduction of product standards that help reduce the cost of production facilitates a further increase in construction and sales volumes at target margins. In 2022, the Company worked on developing standard solutions and updating its library of apartment and section layouts while factoring in the integration of innovative YIT solutions. 1 The average selling price per sqm of housing in regional markets in 4Q 2022. The development of partnership arrangements to take part in projects through the creation of joint ventures with local players, the conclusion of investment agreements with regional governments, as well as other partnership arrangements and the purchase of existing businesses (M&A) will greatly reduce the cost of taking part in projects in the context of the rapid consolidation of the industry. Thanks to an effective regional business management system achieved through the centralisation of the back-office, procurement and design functions, we will be able to count on project margins that are commensurate with those of our key markets. Increased affordability as a result of lower costs and greater competitiveness � Expansion of the Company’s geographic footprint to eights regions, including five new regional markets (Omsk, Kazan, Ekaterinburg, Novosibirsk, Tyumen) � Transition to a standardised product for the middle-class and mass-market segments, and applying the new product standard both in our new regions of operations and for projects being built in outlying areas around Moscow and St Petersburg � The gross margin of regional projects reached 43% with an average selling price of RUB 123.6 thousand per sqm.1 Work aimed at efficiency improvements will enable the Company to make housing more affordable for Etalon Group customers. At the same time, having a reserve under management enables the Company to improve affordability at a competitive price during market downturns, and to support margins during periods of recovery. At the same time, our consumers are able to customise the product thanks to the development of a methodology for large- scale customisation during the design phase, which enables the Company to meet the needs of a wide range of consumers with comparable incomes. Efficiency gains from changes in the market environment UNDER THE CURRENT STRATEGY BEFORE ADOPTING THE STRATEGY TO 2024 HIGH QUALITY OF PRODUCT + ATTRACTIVE PROFIT MARGIN CONSIDERABLE COST REDUCTION THROUGH STANDARDISATION POTENTIAL TO MAKE PRODUCT MORE AFFORDABLE AND HEDGE RISKS ASSOCIATED WITH INCREASED CONSTRUCTION COSTS ABOVE MARKET AVERAGE PRODUCTION COST COST OF LAND MARGIN 30% PRODUCTION COST COST OF LAND 29 ANNUAL REPORT 2022113 StrAtEGY 2024 Strategic initiatives 2Development of components of software platform for efficient management of business growth and development of new product solutions Expanding the scale of our business generates a need for faster decision-making and more transparency in our business processes. our priority was to build a business management software platform that includes in a single seamless cycle all stages involved in the creation of a development project – from market analysis to construction, collecting feedback at the stage of occupancy and property management, and customer and partner relations. the following are the key projects involved in the development of the software platform: Predictive analytics Digital technical specifications Master planning robot Installation of an AI-based location analytics system to determine the most important parameters in selecting the project segment and forecasting the cost per sqm. Etalon Group is planning, during the strategic horizon, to automate the process of creating and revising its technical design specifications, as well as to link its technical specifications with its library of structural elements and materials through its BIM system. Automated master planning with functions for creating concepts for mixed-use development morphotypes, including transportation and social infrastructure, site-specific solutions, ready-made collections of standardised design solutions and algorithms for use at the design and working-documentation stages. CONTRUST Centralised procurement BIM during operations Launch of a real-time construction oversight system that uses digital tools to manage the timing, cost and quality of in-progress investment and construction projects. Proprietary information systems have been developed that customers can use to follow daily updates and project dynamics, leave comments and monitor progress in terms of document approval. Automation of the centralised procurement and supply system aimed at reducing costs and construction time. The existence of an automated centralised procurement system as part of the software platform enables the rapid integration of new suppliers and reorientation towards new procurement channels; it will also make it possible to optimise supply chains and achieve economies of scale when managing a business with a broad geographic footprint. Integration of utilities and telecommunication systems into a single network in order to reduce costs and provide seamless services for the developer and the management company. Results in 2022: � As part of design automation, prototypes of architectural solutions and master planning elements (modular grid, zoning, logistics, etc.) were developed. � Testing of individual modules of the CONTRUST platform, a real-time construction oversight system, is ongoing. � Automation of the process of creating and adjusting the technical design specifications was completed, and pilot testing is under way. � About 95% of requisitions for materials were transferred to the digital ecosystem. the digitalisation of processes makes it possible to greatly reduce the time needed to retrieve information, to reduce the overall project completion time, to achieve an exceptional level of security and, in general, to improve the efficiency of work processes. 30 ANNUAL REPORT 2022113 StrAtEGY 2024 Strategic initiatives 3 Development of new technologies Etalon Group is transitioning to off-site production, incrementally increasing the degree of prefabrication in the context of existing cast- in-place technology (installation of manufactured panels for external and internal load-bearing walls, application of modular components and engineering systems) and developing a new technology – modular housing construction. Development of modular technology Prefabrication: development of an off-site production facility Since 2021, the Che Quarter and Galactica projects have been using hybrid technology, which increases the amount of prefabrication from 20% to 40% of the cost of construction and installation works. This is achieved thanks to factory- made structural elements for buildings, such as internal partitions and prefabricated facade panels. Etalon Group properties also use technology for prestressed floor slabs. The main advantage of this technology is the considerable length of spans that can be achieved with minimal production costs and installation time while maintaining a high degree of reliability. In the future, the Company will increase prefabrication by means of off-site production of key assemblies, engineering systems, plumbing and other finishing details insofar as customers’ preferences shift towards shorter wait times between the acquisition of a mortgage for a property under construction and moving into a finished apartment. This technology has the potential to increase prefabrication to 60% of the cost of construction and installation works. Modular technology involves off-site production. Focusing on cost reduction, Etalon Group is developing technologies for prefabricated apartment buildings, the construction cycle of which may be reduced by 15%–20% by moving 85% of the construction cycle for a modular building off-site. The modules are made of lightweight steel elements to optimise transport and assembly at the construction site. The technological solutions employed improve insulation in comparison with traditional technology. At the same time, the technology enables Etalon Group to maintain all of its existing apartment layouts. The modular technology was successfully tested in late 2022, and production of test modules got under way. The strategy calls for the Company to build its own modular production facility: DELIVERY: 2023 FIRST PHASE PRODUCTION CAPACITY: 2024 SECOND PHASE 1,000 MODULES PER YEAR Results in 2022: � Pilot production of modules and production of test modules began. � Piloting of prefabricated construction of piping systems and partitions for further testing at regional projects was completed. 31 ANNUAL REPORT 2022114 ProJEct PortFoLIo REPORT 2022 4 ANNUAL PROJECT PORTFOLIO Portfolio highlights 33 Project portfolio additions 34 current project portfolio 35 Integrated development projects 38 Business-class projects 47 comfort-class projects 54 32 32 11ANNUAL REPORT 20224 ProJEct PortFoLIo Portfolio highlights the year 2022 was a successful one for Etalon Group in terms of replenishing its project portfolio. thanks to the acquisition of YIt russia, the company was able to expand its geographic footprint by adding promising new projects to its portfolio. As of the end of the year, the company had 6.4 mln sqm of housing of various classes in its portfolio and was carrying out construction work on 28 properties. 272 BLN RUB Portfolio market value +6% y-o-y Current project portfolio Project portfolio by region, sqm (unsold NSA) As of 31 December 2022, the market value of Etalon Group’s project portfolio was RUB 272 billion. The portfolio includes 38 projects with a total NSA of 6.4 mln sqm in St Petersburg, Moscow, the Moscow region, Omsk, Tyumen, 2020 26% 2021 14 % 31 % Novosibirsk, Ekaterinburg and Kazan. 2022 14 % 26 % 74 % 55 % 60 % 2.8 MLN SQM RUB 191 BLN 6 MLN SQM RUB 256 BLN 6.4 MLN SQM RUB 272 BLN St Petersburg Moscow and the Moscow region Other regions 2022 portfolio breakdown, sqm (unsold NSA) Comfort Business Premium Construction Design Completed Flagship projects, up to 1 mln sqm Mid-size projects, 50–300 ths sqm Small-size projects, 5–30 ths sqm Our portfolio consists of comfort- and Thirty-eight Etalon Group properties are at various stages of development. These business-class projects. In addition, we include recently acquired projects as well as residential complexes where project are implementing several integrated phases are under construction. We firmly believe that it is important to provide development projects, such as Zil- buyers with a large selection of real estate from different housing segments Yug, Nagatino i-Land, Galactica and so that everyone can find an offer that meets their needs in terms of budget, Green River. location, floor space, etc. 33 ANNUAL REPORT 2022114 ProJEct PortFoLIo Project portfolio additions Our approach to further diversification of our portfolio: In May 2022, Etalon Group completed its acquisition of YIt russia, including a portfolio of projects with an nSA of more than 0.6 mln sqm, exclusive rights to dispatcher 24 software for managing apartment buildings, project design documentation and a library of standard design solutions for cast-in-place construction and buildings made of prefabricated panels. The integration of YIT Russia enabled Etalon Group to achieve several important goals, including expanding the scope of its operations and bolstering its market position. YIT Russia’s projects are a perfect addition to Etalon Group’s portfolio: the land bank acquired included 19 projects at the design and construction phases in five regions of Russia: Moscow and the Moscow region, St Petersburg, the Sverdlovsk region, Kazan and Tyumen. Thanks to YIT’s successful experience in regional markets, reliable reputation and experienced construction and sales experts, Etalon Group was able to accelerate its regional expansion, ramping up the pace of construction of its projects in Ekaterinburg and Tyumen as well as adding promising new projects to its portfolio. In addition, the acquisition of YIT Russia enabled the Company to enter one of the most promising markets in Russia, Kazan, thereby expanding its geographic footprint to eight regions while also increasing its supply in Moscow and St Petersburg. The Company also sees huge potential from the acquisition with respect to further transforming the technological aspect of its business and becoming a leader in terms of the adoption of new technologies. Combining the design solutions developed by YIT Russia and Etalon Group will further accelerate the Company’s work on standardisation and the creation of the best product in the market. In addition, the Dispatcher 24 platform will help the Company take a leading position among Russian providers of additional services for residents, and integration with the platform will enable seamless feedback for further product improvement. 1 Optimal portfolio structure in terms of project size We maintain a land bank structure that envisages 1 anchor project of about 1 mln sqm, 5–6 medium-sized projects and up to 10 infill development projects. 2 Regional expansion Launching operations and expanding our business in Russian cities with a population of over a million. In 2022, the Company launched new projects in Omsk, Ekaterinburg, Kazan and Tyumen. 3 Making our product more affordable and ensuring that it is of the highest quality The Company’s portfolio includes both business-class projects and affordable housing in its key regions of operations as well as beyond Moscow and St Petersburg. The Company’s priority in regional markets as well as in commuter towns around Moscow and St Petersburg is to develop an affordable, high- quality product through the introduction of uniform standards and digital technologies. 8 regions +5 regions in 2022 34 11ANNUAL REPORT 2022TOTAL NSA THS SQM UNSOLD NSA THS SQM1 UNSOLD PARKING SPACES OMV RUB MLN INCOME FROM SALES RUB MLN 2 CONSTRUCTION BUDGET RUB MLN 3 OUTSTANDING BUDGET RUB MLN 3 4 ProJEct PortFoLIo Current project portfolio St Petersburg PROJECT 1 Galactica 2 Domino 3 Project on Professor Popov Street (Petrogradskiy district) 4 Project on Kievskaya Street 5 6 Monograph Pushkin Village 7 Class! 8 9 Shushary, Shkolnaya, zone 9 Shushary, Shkolnaya, zone 25 10 Novoorlovskiy 11 iLona 12 Wellamo 13 Tsarskoselskie holmi STATUS Construction Construction Design stage Design stage Construction Design stage Construction Construction Construction Construction Construction Construction Design stage 14 Project on Chernigovskaya Street Construction 15 Project in the Krasnogvardeiskiy district Design stage 665 40 61 35 36 143 42 28 35 49 23 7 13 129 24 130 30 53 34 33 117 42 28 35 20 17 3 13 67 24 1,135 330 493 278 100 634 100 100 100 321 139 25 0 854 217 TOTAL St Petersburg 1,330 645 4,826 51,053 238,228 1 Including parking. The parking area at 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 31.12.2022. 3 Excluding land acquisition costs. 13,101 3,175 90,174 10,604 50,576 4,227 6,371 1,621 10,123 34,379 11,053 10,850 1,414 1,679 2,748 1,771 968 1,328 1,570 3,212 869 571 7,273 1,251 7,537 6,746 20,379 7,302 4,685 6,052 9,563 6,437 1,881 2,291 22,724 7,475 5,006 3,788 13,375 3,960 2,680 3,312 3,855 2,180 519 1,119 10,456 3,507 119,613 4,502 3,392 13,169 3,922 2,665 3,292 1,686 1,252 210 1,110 2,282 3,506 59,830 Source: Nikoliers estimate as of 31.12.2022 10 2 3 11 15 12 4 1 14 5 7 8 9 13 6 35 11ANNUAL REPORT 20224 ProJEct PortFoLIo Current project portfolio Moscow and the Moscow region PROJECT 1 2 3 Zil-Yug Nagatino i-Land Voxhall 4 Silver Fountain 5 Wings 6 Emerald Hills 7 8 9 Project on Oktyabrskaya Street Design stage Fotievoi 5 Zorge 3 Design stage Design stage 10 Bolshaya Cherkizovskaya Street 4 Design stage 11 Desyatka Construction STATUS TOTAL NSA THS SQM UNSOLD NSA THS SQM1 UNSOLD PARKING SPACES OMV RUB MLN INCOME FROM SALES RUB MLN 2 CONSTRUCTION BUDGET RUB MLN 3 OUTSTANDING BUDGET RUB MLN 3 Construction 1,253 1,083 10,097 86,797 470,235 237,268 224,477 Construction Construction Construction Construction Construction 32,234 84,655 253 66 190 169 431 10 11 12 7 32 186 63 49 26 4 10 11 12 7 38 1,148 563 1,056 215 120 81 72 99 46 8,005 7,692 2,032 0 981 1,640 796 288 248 1,943 32,910 47,747 39,470 59,965 4,848 6,090 3,845 2,058 8,144 6 39,051 14,993 21,711 18,998 10,708 2,604 2,177 2,664 1,452 2,747 27,802 12,962 2,883 5,507 2,501 2,604 2,177 2,664 1,452 2,122 TOTAL Moscow and the Moscow region 2,434 1,490 13,745 142,408 759,967 354,372 287,150 Source: Nikoliers estimate as of 31.12.2022 1 Including parking. The parking area at launched projects with partially sold parking lots is calculated as 30 sqm per 1 parking space. 2 Income from sales includes potential and received incomes as of 31.12.2022. 3 Excluding land acquisition costs. 4 7 10 9 5 8 3 1 2 11 36 11ANNUAL REPORT 20224 ProJEct PortFoLIo Current project portfolio Other regions PROJECT Omsk 1 Green River Novosibirsk region STATUS TOTAL NSA THS SQM UNSOLD NSA THS SQM1 UNSOLD PARKING SPACES OMV RUB MLN INCOME FROM SALES RUB MLN 1 CONSTRUCTION BUDGET RUB MLN 2 OUTSTANDING BUDGET RUB MLN 2 Construction 1,440 1,376 12,546 12,359 160,356 78,254 77,055 2 Project in Novosibirsk Design stage 275 275 995 4,482 35,228 24,582 24,476 Ekaterinburg Project in Ekaterinburg Construction 1,625 1,619 5,097 3 4 5 Suomen Ranta Rauta 6 Baltym Park 7 Rifey Tyumen 8 9 Project in Tyumen City Zen Kazan 10 Schastye v Kazani 11 Kvartal Suita 12 Green Construction Construction Construction Construction Construction Construction Construction Construction Construction 34 103 234 18 219 59 56 31 23 26 95 225 5 109 40 57 19 11 355 550 0 0 809 753 554 182 87 22,175 1,403 2,703 525 428 2,161 889 3,135 3,058 325 258,563 104,389 103,823 5,048 12,939 29,430 2,144 9,594 5,454 13,227 6,791 2,555 2,448 7,873 26,558 1,087 6,167 4,270 7,320 3,047 1,550 2,059 7,406 26,015 28 5,916 3,253 7,237 2,221 693 10-12 Kazan 3-7 Ekaterinburg 8-9 Tyumen 1 Omsk 2 Novosibirsk TOTAL CURRENT PROJECTS COMPLETED PROJECTS Residential property in completed projects Completed stand-alone commercial properties TOTAL COMPLETED PROJECTS TOTAL ETALON GROUP PROJECTS PRODUCTION UNIT Production Unit's business and properties 7,881 5,992 40,499 247,104 1,539,528 741,530 607,161 3,413 0 3,413 11,293 417 3 420 6,412 18 7,867 24,837 300,332 123 7,867 24,960 300,332 48,366 272,064 1,839,855 741,530 607,161 16,310 16,310 TOTAL ASSETS VALUE 11,293 6,429 48,366 288,374 1,839,855 741,530 607,161 1 Sales revenue includes potential and received revenues as of 31 December 2022. Source: Nikoliers estimate as of 31.12.2022 2 Excluding land acquisition costs. 37 11ANNUAL REPORT 20224 ProJEct PortFoLIo PROJECTS INTEGRATED DEVELOPMENT 38 38 11ANNUAL REPORT 20224 ProJEct PortFoLIo Zil-Yug AVtoZAVodSKAYA St. ZIL- YUG 25 min to red Square 7 km 15 min to the Garden ring 5 km Zil-Yug is a large-scale integrated development project on the grounds of the former ZIL plant in Moscow. the project entails the transformation of the industrial zone into a multifunctional space based on the “15-minute city” principle: the creation of a new district consisting of housing, social amenities and business centres, where all the necessary infrastructure is within a 15-minute walk from anywhere in the neighbourhood. 1 According to the valuation by Nikoliers as of 31 December 2022. 2021 2030 СONSTRUCTION TIMELINE 470.2 BLN RUB Income from sales 1 86.8 BLN RUB Market value 1 1,253 THS SQM Net sellable area 1 39 11ANNUAL REPORT 20224 ProJEct PortFoLIo Zil-Yug AVtoZAVodSKAYA St. About the project Experts in urban planning, sociology and other related fields were engaged to create the development plan, and local residents were also consulted: the project was discussed on Generation Zil, an urban planning and media platform. When planning the neighbourhood, special attention was paid to the organic development of the site, taking into account nearby areas, the development of transport infrastructure, and the creation within the neighbourhood of a highly diverse urban environment to meet the needs of a variety of lifestyles. The project involves a mix of all types of urban buildings, from townhouses to apartment towers. On the western side of the site, the project’s first phase, adjacent to the Chagall Embankment, blends seamlessly into the surrounding natural environment. This part of the complex includes low- and medium-rise residential buildings surrounded by water and landscaped public parks. Closer to the metro, the project takes on more and more urban features. Thus, the areas adjacent to the metro station and business cluster form a modern urban space filled with commercial, leisure and business infrastructure: social and cultural facilities, multifunctional centres, municipal buildings, etc. Well-designed transport links, including for pedestrians and cyclists, expand the space of every resident to include not only the courtyard of their building but also tree-lined streets, parks, a unique landscaped area along the Moscow River extending over 10 km, along with the Chagall Embankment, piers, and areas for sports and recreation. It takes no more than 15 minutes on foot or by bicycle to reach the nearest amenities. Public spaces – private courtyards, tree-lined streets and squares inside the complex as well as public embankments and parks – have an intuitive design that makes their intended purpose clear. Location The complex is located on the banks of the Moscow River and the Novinki Backwater, next to the modernised and fully developed Chagall Embankment. Since the project is located in a green area surrounded by parks, such as Tyufeleva Roshcha and Kozhukhovo National Park, residents will feel like they are in complete harmony with nature. Along the Moscow River Embankment, which stretches for more than 6 km, there is also a park with a large number of walking trails, jogging and cycling paths, as well as a riverside amphitheatre. Plans are also in place to add swimming pools, a garden on the water and architectural installations. Its proximity to the Third Ring Road and Prospekt Andropova ensures excellent transport accessibility for the residential complex, which is also within walking distance of the ZIL, Tekhnopark and Avtozavodskaya metro stations. 40 11ANNUAL REPORT 20224 ProJEct PortFoLIo Nagatino i-Land AndroPoVA AVE. NAGATINO I-LAND 15 min to red Square 11 km 10 min to the Garden ring 7 km nagatino i-Land is a true residential island in the middle of Moscow. the project is located in the danilovskiy district of the Southern Administrative division, very close to the nagatino i-Land business cluster and Port Plaza, occupying a site with banks of the Moscow river on two sides. the nagatino i-Land complex will include residential and commercial space along with social amenities with a total nSA of about 253 ths sqm. 1 According to the valuation by Nikoliers as of 31 December 2022. 2019 2026 СONSTRUCTION TIMELINE 84.7 BLN RUB Income from sales 1 32.2 BLN RUB Market value 1 253 THS SQM Net sellable area 1 41 11ANNUAL REPORT 20224 ProJEct PortFoLIo Nagatino i-Land AndroPoVA AVE. About the project The project concept — maximum comfort for every resident – combines the features of a modern urban space with elements of nature to create an organic, balanced living environment. The buildings in the project are of varied heights – from 5 to 35 storeys. The complex’s multilevel structure and excellent insolation will enable residents to enjoy sunshine and fresh air all year round. The apartments overlook the picturesque embankments of the Moscow River, quiet green courtyards that are free of cars as well as the project’s own landscape park. The buildings of Nagatino i-Land form cosy neighbourhoods and courtyards that are accessible only to residents of the complex, where there will be recreation areas, artificial ponds as well as spaces for socialising and sports. the complex’s multilevel structure and excellent insolation will enable residents to enjoy sunshine and fresh air all year round. Proximity to the centre of Moscow is combined with outstanding conditions for peaceful relaxation. The goal of the project is to create a green residential zone in the middle of the city: more than 25% of the grounds will enjoy the benefits of a landscaping programme that will include a single landscape park for the entire project, tree-lined pedestrian boulevards, garden squares and a green promenade. At the same time, the residents of Nagatino i-Land will feel close to nature even inside their apartments: the project offers exclusive housing designs with private terraces as well as spacious apartments with ceilings up to 3.3 metres high and spectacular apartments with panoramic views of the Moscow River Embankment. Nagatino i-Land is a project that meets all the demands of a state-of-the-art development. Residents will enjoy comfort and safety thanks to top-of-the- line engineering solutions: monolithic buildings with enhanced soundproofing, a heating control system in every apartment, a state-of-the-art fire safety system, high-speed silent lifts and a supply and exhaust ventilation system that ensures that the air is continuously exchanged. Location With the Tekhnopark and ZIL metro stations within easy reach as well as convenient access onto two main thoroughfares – Prospekt Andropova and the Third Ring Road – the project offers residents excellent transport options. At the same time, the project is only four metro stops from the very heart of the city – the Kremlin and the Bolshoi Theatre. 42 11ANNUAL REPORT 20224 ProJEct PortFoLIo Galactica MItroFAnIEVSKoYE SHoSSE — oBVodnIY KAnAL EMB. — VArSHAVSKIY ProEZd GALACTICA 25 min to the airport 16 km 10 min to nevskiy Prospekt 5 km Galactica is the largest redevelopment project in central St Petersburg, on the grounds of the former warsaw railway line. the residential complex consists of 30 multi-storey brick monolithic buildings that form an avenue that runs lengthwise with closed courtyards between them. the project also includes 3 schools, 10 preschools and a public space with sports grounds and recreation areas. 1 According to the valuation by Nikoliers as of 31 December 2022. 2016 2023 СONSTRUCTION TIMELINE 90.2 BLN RUB Income from sales 1 13.1 BLN RUB Market value 1 665 THS SQM Net sellable area 1 43 11ANNUAL REPORT 20224 ProJEct PortFoLIo Galactica MItroFAnIEVSKoYE SHoSSE — oBVodnIY KAnAL EMB. — VArSHAVSKIY ProEZd About the project The project offers a wide range of apartments with both classic and atypical layouts. Virtually every apartment has a balcony, sunroom or open terrace, and there are options with oversized windows, master bedrooms and spacious kitchens. The northern and southern parts of the complex are home to the Galactica Premium and Galactica Pro business-light properties, which are notable for their apartment layouts and unique building features. Location The residential complex is located in the central part of St Petersburg, straddling the Admiralteiskiy and Moskovskiy districts, alongside Naberezhnaya Obvodnogo Kanala and Moskovskiy Prospekt. A wide range of commercial, social and recreational infrastructure is within walking distance, including Varshavskiy Ekspress, a shopping and entertainment complex with a cinema, a concert venue and a sports area, as well as supermarkets, department stores, restaurants and cafes, garden squares and museums. 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. 44 11ANNUAL REPORT 20224 ProJEct PortFoLIo Green River KIroVSKIY AdMInIS trAtIVE dIStrIct, VoLGoGrAd SKAYA St. GREEN RIVER 25 min to the airport 13 km 20 min to the historical city centre 10 km Green river, a large-scale residential complex in omsk, is Etalon Group’s first project beyond Moscow and St Petersburg. developed in line with the “city within a city” concept, the project offers a large selection of apartments of different sizes with a variety of floor plans: from classic to open-plan layouts. AnnuAL rEPort 2022 2022 2030 СONSTRUCTION TIMELINE 160.4 BLN RUB Income from sales 1 12.4 BLN RUB Market value 1 1.4 MLN SQM Net sellable area 1 1 According to the valuation by Nikoliers as of 31 December 2022. 45 114 ProJEct PortFoLIo Green River KIroVSKIY AdMInIS trAtIVE dIStrIct, VoLGoGrAd SKAYA St. About the project Location Particular attention has been paid to developing the grounds of the property: a wide promenade passing through varying terrain will join the project’s open public spaces, such as playgrounds and sports facilities, recreation areas and landscaped garden squares. The plans for the first phase of the project include a pump track as an additional recreation space. The track’s state-of-the-art surface, high-quality fencing and well-designed course will ensure safety. In 2022, Etalon Group launched sales at the first phase of the project, which includes 14 residential buildings, a preschool, commercial premises, parking lots and landscaped courtyards. The Green River residential complex is located on the left bank of the Irtysh River, in the Kirovskiy district of Omsk, which is the most promising, best-equipped and most modern district in the city. The construction site occupies the area from Baucentre on Volgogradskaya Street to Kondratyuka Street and Verkhnedneprovskaya Street. Schools, preschools, sports facilities and grocery stores are all within a 10-minute walk. nearby public transport stops and major thoroughfares provide convenient transport connections for residents. 46 11ANNUAL REPORT 20224 ProJEct PortFoLIo PROJECTS BUSINESS CLASS 47 47 11ANNUAL REPORT 20224 ProJEct PortFoLIo Voxhall 4 LEtnIKoVSKAYA St. VOXHALL 25 min to red Square 5 km 15 min to the Garden ring 1 km Voxhall, a multifunctional business-class complex located on Letnikovskaya Street, in the prestigious Zamoskvorechye district in the heart of Moscow, includes a seven-section residential complex and two aparthotel towers. the residential building is designed as a single urban block with its own commercial amenities to complement the extensive infrastructure already available in the district. 1 According to the valuation by Nikoliers as of 31 December 2022. 2021 2025 СONSTRUCTION TIMELINE 32.9 BLN RUB Income from sales 1 8.0 BLN RUB Market value 1 66 THS SQM Net sellable area 1 48 11ANNUAL REPORT 20224 ProJEct PortFoLIo Voxhall 4 LEtnIKoVSKAYA St. About the project The project offers unique architecture and an excellent location combined with functional layouts, panoramic windows, master bedrooms, high ceilings, designer lobbies, a living environment designed by well-known companies and high-quality construction and finishing materials. The living environment is well suited to the district’s status: the dynamically zoned interior space was designed to ensure harmony with nature. The project offers wonderful views thanks to its convenient location 5 km from the Kremlin and near the Moscow River Embankment. In 2022, Etalon Group launched sales at the first phase of the project, which includes 14 residential buildings, a preschool, commercial premises, parking lots and landscaped courtyards. Construction and installation works are currently ongoing. Location The multifunctional business-class complex is located in the very heart of the capital, in the immediate vicinity of the Paveletskaya metro station. The complex is easily accessible by personal and public transport. Only 350 metres away, to the north of Letnikovskaya Street, is Paveletskiy station, where Aeroexpress trains depart for Domodedovo Airport. The property’s excellent transport accessibility is coupled with the district’s wide range of developed infrastructure and amenities as well as proximity to a promenade and parks. Residents will have access to all the benefits of living in the prestigious centre of Moscow, with its modern residential, business and entertainment infrastructure alongside cultural attractions and the city’s main business centres. Voxhall is near business districts where a number of financial institutions and major companies are headquartered. Just four minutes from the residential complex, a new landscape park has been laid out on Paveletskaya Square, with an underground shopping centre, fountains, developed green space and an open-air amphitheatre. Gorkiy Park, one of the largest and most popular recreational areas in the capital, can be reached in 20 minutes by scooter. 49 11ANNUAL REPORT 20224 ProJEct PortFoLIo Silver Fountain 16 noVoALEKSEEVSKAYA St. SILVER FONTAIN 30 min to red Square 10 km 20 min to the Garden ring 5 km the Silver Fountain business-class residential complex is located in the historical Alekseevskiy district of Moscow. the complex consists of five buildings, including residential and commercial buildings as well as a business centre, social amenities and parking facilities. the project is being built among 19th-century architectural monuments, with a restored vintage fountain, in the middle of a century-old linden alley, that serves as the centrepiece of the entire complex. 1 According to the valuation by Nikoliers as of 31 December 2022. 2017 2023 СONSTRUCTION TIMELINE 47.7 BLN RUB Income from sales 1 7.7 BLN RUB Market value 1 190 THS SQM Net sellable area 1 50 11ANNUAL REPORT 20224 ProJEct PortFoLIo Silver Fountain 16 noVoALEKSEEVSKAYA St. About the project The total NSA of the project will be 190 ths sqm, including a two- level underground parking garage for more than 2 thousand vehicles. The facades of the first phase of the Silver Fountain residential complex emphasise its relationship to its immediate surroundings and the seamless use of architectural techniques typical of this part of Moscow. High windows without horizontal lattices draw attention to the brickwork while illuminating the interior as much as possible. To ensure efficient operations, 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. The residential complex’s third building has been certified as a smart home and included in the register of new smart buildings established by the Unified Register of Russian Developers. Silver Fountain’s high degree of energy efficiency and environmental friendliness have been confirmed by a Green Zoom platinum certificate. Location Thanks to its location 500 metres from the Alekseevskaya metro station, alongside 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. 51 11ANNUAL REPORT 20224 ProJEct PortFoLIo Petrovskiy Landmark 7 PEtroVSKIY SPIt PETROVSKIY LANDMARK 30 min to the airport 30 km 20 min to the Lakhta centre 15 km 10 min to the Spit of Vasilievskiy Island 7 km this business-class residential complex, located on the neva embankment, in one of the most interesting and most promising areas in central St Petersburg, was delivered in early 2022. the project was designed by the well-known architectural firm Intercolumnium. 1 According to the valuation by Nikoliers as of 31 December 2022. 2018 2021 СONSTRUCTION TIMELINE 19.1 BLN RUB Income from sales 1 7.6 BLN RUB Market value 1 62 THS SQM Net sellable area 1 52 11ANNUAL REPORT 20224 ProJEct PortFoLIo Petrovskiy Landmark 7 PEtroVSKIY SPIt About the project Location The residential complex is located on Petrovskiy Island, a prestigious and rapidly developing part of the city. The historical city centre can be reached in 10 minutes by car. In such a location, residents have every possible opportunity to lead an active lifestyle and to relax in a peaceful environment. Three metro stations are located within walking distance, but not on Petrovskiy Island itself, which ensures excellent transport accessibility while maintaining the district’s peaceful island-like atmosphere. Not far from Petrovskiy Landmark is a riverside yacht club with a large marina and service area. The neighbouring Krestovskiy Island is home to a high-end residential development and extensive recreation, leisure and sports facilities. Each of Petrovskiy Landmark’s buildings has its own unique design; at the same time, the entire complex shares a unified style thanks to details made of natural Jurassic stone, niello and Flemish brick. The suspended facades of building A are made of hand-moulded red brick; the ground floors, where commercial premises are housed, feature panoramic windows and are adorned with light-coloured stone. Similar in style to classical architecture, the building blends in with the symmetrical architecture of the Petrograd Side, which can be seen through the building’s windows. The location next to the Malaya Neva is one of the property’s biggest selling points, and it was used in the project’s design. The complex offers apartments with oversized windows, panoramic or corner glazing as well as floor-to-ceiling windows offering access to open balconies, enclosed balconies with floor-to-ceiling windows, open terraces or glazed winter gardens. The complex features a central air-conditioning system, silent lifts, round-the-clock monitoring of utility systems, a closed heating system, underground parking and a preschool. The stylish design of the inner courtyards, with small architectural shapes, benches and elegant lamps, is part of the project’s overall concept. the location next to the Malaya neva is one of the property’s biggest selling points, and it was used in the project’s design. 53 11ANNUAL REPORT 20224 ProJEct PortFoLIo PROJECTS COMFORT CLASS 54 11ANNUAL REPORT 2022ANNUAL REPORT 2022 4 ProJEct PortFoLIo Normandy MoScow 9 tAInIn SKAYA St. 2017 2021 СONSTRUCTION TIMELINE Normandy is a comfort-class residential complex in the north- east of Moscow, located on Taininskaya Street. The property has been delivered and consists of five buildings of 7 to 24 floors with minimalist facades and bright architectural accents. For the convenience of residents, the project offers easily acces- sible pram storage rooms, spacious halls with finishings made of eco-friendly materials, waiting areas for guests and a con- cierge area, underground parking, landscaped grounds with walking trails, elegant benches and areas for relaxation, equipped playgrounds for children and sports grounds, a security and video surveillance system, as well as shops, bakeries and beauty salons on the ground floors. The project is conveniently located in a picturesque green area of Moscow, alongside Losiny Ostrov National Park. The Losino- ostrovskiy district of Moscow’s North-Eastern Administrative Division offers well-developed social amenities, with a wide range of healthcare facilities and educational institutions, sports stadiums and fitness clubs, and shopping and entertainment infrastructure available in the area. In addition, the district is home to several universities, including the Moscow Suvorov Military School, the Academy of Economic Security of the Ministry of Inter- nal Affairs of the Russian Federation, the Moscow Institute of the Border Guard Service of the Federal Security Service and others. Thanks to its parks and forests, including the famous Losiny Ostrov National Park, the district is one of the most environmentally friendly parts of the capital. Nearby parks and garden squares are popular recreational areas for Muscovites: Babushkinskiy Park, Torfyanka Park with its pondside recreation area, Dzhamga- rovskiy Park, and the beautifully developed Yauza River valley with its numerous playgrounds. The project offers convenient transport accessibility thanks to two nearby metro stations – Babushkinskaya and Medvedkovo – two suburban train stations and surface public transport stops. The Moscow Ring Road is less than a five-minute drive away, which makes it easy for residents to travel anywhere in the region. Summer Garden MoScow 107 dMItroVSKoYE SHoSSE 2016 2021 СONSTRUCTION TIMELINE Summer Garden is a residential complex consisting of 11 residential buildings that have already been constructed. It is located in one of the most developed areas of Moscow, near two metro stations: Seligerskaya is a 15-minute walk away, while the Yakhromskaya station can be reached in 2 minutes on foot (set to open in 2023). Spacious lobbies flooded with sunshine through panoramic windows are a continuation of the distinctive style of the bright multicoloured facades. The enclosed structure of the neighbourhood keeps the wind and urban noise at bay, creating a calm, peaceful atmosphere. In addition to the 11 Residential buildings comfort-class residential buildings, amenities, a garden, parking facilities and a three-storey shopping centre have already been built on the grounds of the project. The 38-hectare Angarskiye Prudy Park and an equestrian centre are a 10-minute walk away. The project offers excellent transport accessibility thanks to its own convenient exit from Dmitrovskoye Shosse, which makes it possible to reach anywhere in the city quickly and easily. 34 THS SQM Net sellable area1 55 MLN RUB Market value1 16 BLN RUB Income from sales1 146 THS SQM Net sellable area1 1.9 BLN RUB Market value1 34 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 55 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Etalon City MoScow 13 StAroKrYMSKAYA St. 2013 2018 СONSTRUCTION TIMELINE Etalon City is a high-rise comfort-class residential complex located in the middle of one of the largest forest parks in Moscow, in a pristine area with well-developed infrastructure straddling North and South Butovo. All the buildings in the complex have already been delivered. The project includes nine comfort-class residential buildings, commercial space and social amenities. The buildings are brick monolithic structures with suspended ventilated facades. The complex features a unique architectural concept, whereby every building has its own look symbolising a particular city. The first-phase facades reflect the skylines of New York, 9 Comfort-class residential buildings Chicago, Barcelona and Monaco. In addition to the facades, the finishing in the common areas and the landscape design of the surrounding grounds continue the theme. The residential complex was designed in line with the latest urban planning trends in the capital: the project includes enclosed, vehicle-free courtyards with landscaped walking areas, playgrounds for children and sports facilities. The grounds of the complex include a preschool and school; courts for volleyball, basketball and futsal; a fitness centre; and underground parking. The project provides convenient access onto the Moscow Ring Road, Kaluzhskoye Shosse and Varshavskoye Shosse; the Ulitsa Skobelevskaya metro station is a 15-minute walk away. Stops on nine surface transport routes are within easy reach of the complex, from where residents can travel to the Bulvar Dmitriya Donskogo, Annino, Ulitsa Akademika Yangelya and Yasenevo metro stations. Schastye na Semyonovskoy MoScow 20 IZMAILoVSKoYE SHoSSE 2020 2022 СONSTRUCTION TIMELINE 1 13-storey residential building The Schastye na Semyonovskoy project, delivered in 2022, consists of a 13-storey residential building with underground parking and an aboveground parking lot for guests. The complex features a variety of layouts, including highly glazed apartments as well as apartments with closed or French balconies. The ground floor of the residential complex houses commercial amenities with a separate entrance, as well as a spacious lobby, a pram storage room and other public spaces for the comfort of residents. The Schastye na Semyonovskoy residential complex is located in a developed green area of Moscow alongside two of the capital’s largest parks: Sokolniki Park and Izmailovskiy Park. The Semyonovskiy Park and Public Garden is 250 metres from the complex. 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, ensures excellent transport accessibility for residents. 298 THS SQM Net sellable area1 1.3 BLN RUB Market value1 29 BLN RUB Income from sales1 6 THS SQM Net sellable area2 0.5 BLN RUB Market value2 1.6 BLN RUB Income from sales2 1 According to the valuation by Nikoliers as of 31 December 2022. 2 Source: Colliers International estimate as of 31 December 2021. 56 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Emerald Hills MoScow rEGIon KrASnoGorSK, KoSMonAVtoV BLVd. - MErLouSHKInA St. 20 Residential buildings 2009 2023 СONSTRUCTION TIMELINE Finskiy residential complex MoScow rEGIon SHcHELKoVo, FrunZE St. 2017 2023 СONSTRUCTION TIMELINE The Emerald Hills residential complex was the Company’s first – and one of its largest – projects in the Moscow region. It is located in one of the greenest parts of the region and is surrounded by forest parkland – in Krasnogorsk, a pristine suburb north-west of Moscow. The project is located just 8 km from the Moscow Ring Road and close to the Opalikha Moscow Central Diameter station. A large part of the grounds of the complex itself is reserved for green space and the development of recreational areas, sports facilities and playgrounds for children. The project also includes an open-air space museum, Cosmonaut Alley, featuring life- size models of spacecraft. A landscaped park with recreational areas and dedicated paths for pedestrians and cyclists has been laid out in the forest adjoining the complex. Emerald Hills is a fully inhabited residential neighbourhood with functioning infrastructure and amenities as well as three working schools and preschools. The complex consists of 20 residential buildings. The final phase in the construction of the neighbourhood will be buildings 18, 19 and 20, known as the “New Emeralds”. The Finskiy residential complex is an Etalon Group project located in the western part of the Shchelkovo district centre. This pristine area with developed infrastructure and amenities, within commuting distance of Moscow, will be a wonderful place to live for both young families and older people. The modern architecture of the complex and the layout of the apartments have been thought through down to the smallest detail in order to provide the most comfortable setting possible for future residents. Residents can enjoy active recreation at any time of year, given that every possible type of fun and entertainment for young people and families with children is available in the Shchelkovo residential area. Alongside the Finskiy residential complex is a preschool and a secondary school, and a short walk away can be found 24-hour pharmacies, polyclinics and supermarkets, a post office and a bank. The project offers a variety of options for family recreation: from visiting an amusement park or rope park to walking around pleasant garden squares. The Finskiy complex is located far away from polluting industries and major highways; the picturesque Klyazma River passes near the complex. The air is very clean thanks to the wealth of forestland nearby. In addition, the materials used in the construction of the Finskiy residential complex are environmentally friendly. 431 THS SQM Net sellable area1 0 MLN RUB Market value1 60 BLN RUB Income from sales1 38 THS SQM Net sellable area1 0.5 BLN RUB Market value1 6 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 57 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Desyatka MoScow rEGIon rAMEnSKoYE, MoLodEZHnAYA St. Domino St PEtEr SBurG 28 BELooStroVSKAYA St. 2017 2024 СONSTRUCTION TIMELINE The concept for the Desyatka residential complex calls for the creation of a compact, environmentally friendly and pleasant “city within a city”. Located in the peaceful Ramenskiy district, the complex was designed for people who value peace and comfort. Plans are in place to include not only zones for townhouses with land plots but also cosy apartment buildings. There are also opportunities for active outdoor recreation that will enable residents to make the most of their free time throughout the year. The homes are being built in an area bordering forestland near Lake Plotina. In addition, the Ramenskiy State Park of Culture and Recreation is a 30-minute walk from the complex, and the Dergaevskoye Reservoir is a 15-minute walk away. The centre of the city of Ramenskoye can be reached in only 10 minutes on public transport, and it takes about an hour by car or suburban train to reach the centre of Moscow. The architectural design is marked by a contemporary minimalist aesthetic and laconic solutions. The range of available apartments feature a huge number of functional planning solutions: from compact studios to so-called transformer apartments. All the necessary amenities can be found on the grounds of the residential neighbourhood: a preschool, a school, sports facilities for people of different age groups, shopping centres, shops and a building supplies market. 2020 2024 СONSTRUCTION TIMELINE Domino is a comfort-class residential complex that includes a 10-storey residential building with underground and aboveground parking for 219 vehicles. It is located in the historical part of the Primorskiy district, within walking distance (600 m) from the Chyornaya Rechka metro station. The complex is located alongside parks and picturesque areas suitable for walking: Stroganovskiy Park, the Saltykovskiy Garden, the Bolshaya Nevka River embankment, as well as the parks and palaces of Kamenniy Island. The combination of minimalist architectural lines, state-of-the-art technologies, infrastructure and amenities, landscaping and thoughtful apartment design guarantee future residents a high level of comfort. There are no studio apartments in the residential complex. Various floor plans are available – from cosy one-room apartments to spacious five-room apartments. There are also several apartment options with open-plan kitchen– living rooms. One of the project’s key features is that there are four to six apartments on each floor. Every apartment has a glazed sunroom, including some with oversized windows. The apartments are equipped with Airbox micro-ventilation valves in the windows, which ensure a flow of fresh air even when the windows are closed. The complex has a closed, vehicle-free courtyard as well as guarded grounds with 24-hour video surveillance and a dispatch service. The project includes landscaped and outfitted recreation areas for adults and children, an amphitheatre, as well as a bicycle path and sports grounds. There are already developed infrastructure and amenities in the area surrounding the complex, including theatres, museums, shops, cafes, schools and preschools. 32 THS SQM Net sellable area1 1.9 BLN RUB Market value1 8.1 BLN RUB Income from sales1 40 THS SQM Net sellable area1 3.2 BLN RUB Market value1 10.6 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 58 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Monograph St PEtEr SBurG SHKoLnAYA St. 2022 2025 СONSTRUCTION TIMELINE Monograph is a new comfort-class residential complex from Etalon Group. The complex is located in the town of Shushary, in the Pushkinskiy district, near the suburbs of St Petersburg and major city roads, 15 minutes to the Kupchino metro station. Important social amenities, including a school, a preschool and a polyclinic, are located within walking distance from the Monograph residential complex. The complex was created with Novoorlovskiy St PEtEr SBurG SuZdALSKoYE SHoSSE the comfort and safety of residents in mind: the project includes well-considered, ergonomic layouts, and state-of-the-art technological solutions were used. The project provides modern, safe recreation areas for children and adults, a parking area for bicycles, pram storage rooms, a 24-hour dispatch service, commercial premises and video surveillance systems. Social amenities can be found in the immediate vicinity of the project. A school with places for 1,925 pupils is already being built, and plans are in place to open a preschool with places for 320 children. 2013 2024 СONSTRUCTION TIMELINE Novoorlovskiy is a large-scale Etalon Group project in the northern part of St Petersburg that combines residential neighbourhoods separated by small streets. All of the residential areas are built using the same architectural style – neoclassical. They include modern buildings with light facades and surrounded by a forest park. In total, the project foresees the construction of six 25-storey towers and five 7–9-storey apartment buildings. Two preschools and a secondary school have already opened on the grounds of the project. At the heart of the project is a pedestrian shopping street filled with shops, pharmacies, beauty salons and other properties. All the necessary social and commercial infrastructure and amenities are readily available. The ground floor of the residential complex will be for commercial purposes. Sports facilities, playgrounds for children and recreation areas will be developed alongside the residential buildings. With convenient exits onto the Ring Road, the Western High- Speed Diameter and the main highways in the northern part of St Petersburg, the Novoorlovskiy residential complex offers excellent transport connections to the city centre and the suburbs of St Petersburg. 36 THS SQM Net sellable area1 1.7 BLN RUB Market value1 6.7 BLN RUB Income from sales1 49 THS SQM Net sellable area1 1.6 BLN RUB Market value1 9.6 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 59 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Rauta EKAtErInB urG ZHELEZnodoroZHnIY dIS trIct, nAdEZHdIn SKoY-PEKHotIntSEV St. Suomen Ranta EKAtErInB urG oKtYABr SKIY dIStrIct, LuGAnSKAYA - SAVVY BELYKH St. 2021 2027 СONSTRUCTION TIMELINE This project includes nine residential buildings and several aboveground multilevel parking garages. The ground floors house space for offices, shops, cafes and hairdressers. The landscaped grounds include recreational areas, playgrounds for children and sports facilities, as well as pedestrian and bicycle paths. The grounds of the residential area were designed based on the safe home concept (a car-free courtyard). The Rauta residential complex is located in the Zheleznodorozhniy district of Ekaterinburg. The district’s distinctive features include developed commercial and transport infrastructure as well as social amenities. Nearby are a railway station and the northern bus station, an arena for team sports, the Cosmos cinema and concert hall, the Olympic Embankment along the Iset River, a park for walking and relaxing, schools and preschools, supermarkets, shops and cafes. The Rauta residential complex took part in a pilot project for certification according to the new GOST R green standard (developed for apartment buildings by Dom.rf). The project meets the transitional criteria of the green GOST R standard for residential buildings: a high energy-efficiency rating, landscaped grounds with green space, the use of environmentally friendly materials and accessibility. 2022 2024 СONSTRUCTION TIMELINE The Suomen Ranta residential complex was added to Etalon Group’s portfolio in 2022 as part of the acquisition of YIT Russia. The project includes five residential buildings, three of which have already been delivered, as well as underground and aboveground parking areas. The complex offers a wide range of layouts, including open-plan apartments with kitchen–living rooms, walk-in closets and utility rooms, as well as the possibility of dividing apartments into common and private areas. Space for seasonal storage is available in the underground part of the buildings. The ground floors house commercial infrastructure, including a supermarket and a marketplace pickup point. All the buildings in the complex have the same type of facade; the concept calls for a functional layout for the ground floor with barrier-free access and a passageway into the courtyard. The grounds include separate areas for games, sports and general recreation as well as bicycle and pedestrian paths. The complex is located in a developed area of Ekaterinburg, on the banks of the Iset River, within easy reach of Mayakovskiy Park, the largest park in the city. Within walking distance can be found all the necessary commercial infrastructure and social amenities as well as public transport stops and two metro stations: Botanicheskaya and Chkalovskaya. A convenient exit onto one of the city’s key roadways, the Novokoltsovskiy Highway, a bypass road, ensures excellent accessibility for motorists. The city centre, airport, train station and surrounding districts can be reached in 10–15 minutes by car. 103 THS SQM Net sellable area1 2.7 BLN RUB Market value1 12.9 BLN RUB Income from sales1 34 THS SQM Net sellable area1 1.4 BLN RUB Market value1 5.0 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 60 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Solnechniy district EKAtErInB urG cHKALoVSKIY dIStrIct, ZoLotIStIY BLVd. - LucHIStAYA St. 2022 2034 СONSTRUCTION TIMELINE The architecture of the Solnechniy residential district is notable for its modern European style. The buildings are of varying heights, thus ensuring that the apartments and courtyards enjoy plenty of natural light. Another architectural feature is the oversized windows in the residential buildings. The project design calls for the installation of French and corner windows as well as sunrooms with glass walls. The project offers a new housing format that is unique for the district: apartments on the ground floor have their own separate entrance and terrace. Terraces around the project’s perimeter will be surrounded by shrubbery, thus creating a sense of seclusion from the bustle of the city. Places for relaxation can also be set up on the outdoor balconies or sunrooms that are planned for nearly every apartment in the quarter. State-of-the-art utility systems – meters, silent lifts and a ded- icated furnace room capable of maintaining a microclimate at any time of year by providing an uninterrupted supply of heat and hot water – will help ensure the comfort of residents. Play areas for children of various age groups, football fields, sports grounds and space for relaxation will be built in the closed courtyards. The customised landscape design calls for the arrangement of lawns as well as the planting of shrubs and trees. Residents of the residential complex will enjoy a high level of security thanks to an advanced video surveillance network, monitoring centre, access control and the presence of alarm buttons on the grounds. It should also be noted that parents also have access to surveillance cameras that can monitor their children remotely through a special app. The Solnechniy project will be home to the IT-Kub centre for digital education, a modern space where schoolchildren can learn about trends in the world of IT. In addition, the Ice Hockey Academy, which helps develop physical education and promotes the values of a healthy lifestyle in the Sverdlovsk region, is also located on the grounds of the project. Essential social amenities can be found within walking distance from the complex: the Governor’s Lyceum, a vocational school for 1,200 students (under construction); an innovative preschool with places for 300 children; and the Centre for Rhythmic Gymnastics – the largest in the Urals and the No. 3 centre in the country in terms of size and available facilities. Quantorium, a technology park for children that will help young- sters choose a future profession at a very early age, will be hou- sed in the Governor’s Lyceum building. The district offers excellent transport accessibility thanks to convenient exits onto the Ekaterinburg Ring Road and nearby public transport routes. There will be convenient aboveground parking alongside the residential buildings. 1,625 THS SQM Net sellable area1 22.2 BLN RUB Market value1 259 BLN RUB Income from sales1 1 According to the valuation by Nikoliers as of 31 December 2022. 61 11ANNUAL REPORT 2022 4 ProJEct PortFoLIo Schastye v Kazani Schastye v Tyumeni KAZAn noVo-SAVInoVSKIY dIStrIct, GAVrILoVA St. 2021 2026 СONSTRUCTION TIMELINE In 2022, Etalon brought its umbrella Schastye brand to its new regions of operations: Schastye v Kazani was the Company’s first project as part of the its regional expansion of the brand. The first phase of the project includes two buildings – of 19 and 20 floors – with built-in commercial and office space as well as a two-level enclosed parking garage. According to the project plans, the NSA of the first phase will be 20 ths sqm, including 19 ths sqm of residential and commercial real estate. The project offers a diverse range of functional layouts. Apartments are available with either a classic or open-plan layout: apartments with spacious kitchen–living rooms and apartments with walk- in closets, master bedrooms as well as saunas. The landscaping concept for the grounds surrounding the project was developed in collaboration with landscape desig- ners and environmental experts. The Company plans to build operational terraces and publicly accessible recreation areas atop the project’s stylobate; the adjacent grounds will feature recreation and sports facilities, playgrounds as well as an extensive walking area. The residential complex is located in a developed green area with extensive social and commercial infrastructure: within walking distance are schools, shops and cafes, several shopping centres and sports facilities. The complex is located in close proximity to the picturesque Savinovo recreation park, on the banks of the Kazanka River. The project offers convenient access onto Prospekt Yamasheva, one of the most important thoroughfares in Kazan. tYuMEn tSEntrALnIY dIS trIct, ProFSoYuZnAYA St. - oLoVYAnnIKoVA St. - SEVErnAYA-dAoudELnAYA St. 2022 2024 СONSTRUCTION TIMELINE The Schastye v Tyumeni residential complex is the Company’s fourth regional project brought to market since the beginning of 2022. The project’s NSA is expected to be 38 ths sqm, including 27 ths sqm of residential and commercial real estate. Located in Tyumen, the new residential complex consists of three buildings of 15 to 25 floors along with an aboveground multilevel parking garage. The project offers a wide range of apartments with open-plan layouts with a combined kitchen–living room as well as a master bedroom. Some of the apartments on the upper floors have terraces offering panoramic views. The grounds of the complex will feature playgrounds for children of different ages as well as small islands for recreation. A gym with outdoor training equipment will be located on the roof of the parking garage. The project also plans to include a promenade that will run alongside a gallery of shops and offices with display windows on the ground floor. The Schastye v Tyumeni residential complex is located in the very centre of the city, at the intersection of Profsoyuznaya Street and Olovyannikova Street. This convenient location ensures that residents will have access to developed social amenities and commercial infrastructure. Near the complex can be found schools, preschools, universities, medical centres, banks, shopping and business centres, sports facilities and many small cafes and restaurants. Within walking distance of the project are several parks and garden squares, including the City Park of Culture and Recreation, and a well-equipped promenade along the Tura River embankment. Transport accessibility is provided by convenient access to the city’s major thoroughfares: 50 let Oktyabrya Street, Profsoyuznaya Street and Respubliki Street. 56 THS SQM Net sellable area1 3.1 BLN RUB Market value1 13.2 BLN RUB Income from sales1 38 THS SQM Net sellable area 889 MLN RUB Market value2 5.5 BLN RUB Income from sales2 1 According to the valuation by Nikoliers as of 31 December 2022. 2 According to the valuation by Nikoliers as of 31 December 2022. Schastye v Tyumeni is included in the valuation report as part of the City Zen project. The presented market value and income from sales refer to City Zen. 62 11ANNUAL REPORT 2022 5 5 oPErAtInG rESuL tS oPErAtInG rESuL tS REPORT 2022 5 ANNUAL OPERATING RESULTS 63 63 ANNUAL REPORT 20221111ANNUAL REPORT 20225 5 oPErAtInG rESuL tS oPErAtInG rESuL tS Operating results 71.8 RUB BLN 1 new contract sales 01 Continuing regional expansion Factors driving sales on the strategic horizon 02 Offering affordable housing in regional markets and the suburbs of Moscow and St Petersburg 03 Expanding offer by increasing land bank and maintaining it at a level of at least 6 mln sqm of NSA 1 Including accumulated sales at YIT projects under development. 64 ANNUAL REPORT 20221111ANNUAL REPORT 20225 5 oPErAtInG rESuL tS oPErAtInG rESuL tS 652 THS SQM new launches 2.3× y-o-y 65 ANNUAL REPORT 20221111ANNUAL REPORT 20225 5 oPErAtInG rESuL tS oPErAtInG rESuL tS 735 THS SQM record delivery volume +74% y-o-y 75.0 RUB BLN 1 cash collections 1 Including funds accumulated from YIT Russia’s development business as of the moment of Etalon Group’s takeover. 66 ANNUAL REPORT 20221111ANNUAL REPORT 20225 5 oPErAtInG rESuL tS oPErAtInG rESuL tS 261.7 RUB THS Average apartment price per sqm +10% y-o-y 67 ANNUAL REPORT 20221111ANNUAL REPORT 20225 oPErAtInG rESuL tS Operating results at a glance In 2022, Etalon Group concluded a lucrative Deliveries, ths sqm Deliveries by region, ths sqm deal to acquire YIt russia. the successful takeover enabled the company to come close to achieving its strategic goals: its portfolio expanded to over 6.4 mln sqm of nSA in eight regions. The considerable expansion of the Company’s business was reflected in the amount of space delivered, which increased by 74% in 2022, reaching 735 ths sqm. While the Moscow region and St Petersburg remain Etalon Group’s key regions in terms of housing deliveries, the Company completed a number of buildings in regional projects in 2022, delivering space at three properties – in Ekaterinburg, the Sverdlovsk region and Kazan. And in early 2023, the Company received permits for the construction of the first building at its first project in Novosibirsk. The macroeconomic environment and geopolitical factors had an impact on new contract sales and cash collections in 2022. During the year, the Company sold 292.4 ths sqm of NSA worth RUB 58.7 billion, not including YIT Russia’s sales as of the date of its acquisition. Etalon Group’s cash collections from new contract sales, taking into account funds accumulated from YIT Russia’s development business at the time of the takeover, amounted to RUB 75.0 billion. For more on the acquisition of YIT Russia and the operational synergies achieved through the integration, see About Etalon Group. 735 +74% 421 2021 2022 19 PROJECTS Factors driving sales in 2022 Launch of new NSA in key regions and in new regions In total, the Company put 652 ths sqm of NSA on sale in 2022, an increase of 131% year-on-year. The majority of the new space was launched towards the end of 2Q 2022 or later, driving a gradual recovery in monthly sales dynamics in the second half of the year. Space put on sale, NSA,1 ths sqm 652 282 New contract sales, RUB bln Moscow and the Moscow region St Petersburg Other regions 1 Net sellable area 2021 2022 84.4 71.8 13.1 58.7 –15% Accumulated new contract sales at YIT Russia projects under construction 2021 2022 Cash collections, RUB bln 84.1 75 14.6 60.4 –11% Funds from YIT Russia’s development business Despite a slowdown in new contract sales, in both monetary and volume terms, stemming from a drop in consumer confidence and a sharp increase in the key rate in early 2022, the Company was able to return to a sales growth trajectory by the end of 2022 thanks to the launch of new and more affordable space in connection with the extension of the state mortgage programme and recovery from ongoing shocks. Cash collections, RUB bln New contract sales, RUB bln 7.3 7.1 7.8 7.1 6.2 5.4 6.4 4.4 6.9 6.2 5.2 4.1 4.9 4.2 5.4 4.2 5.0 4.9 3.2 2.7 3.2 3.0 2.3 2.1 2021 2022 January February March April May June July August September October November December 68 11ANNUAL REPORT 20225 oPErAtInG rESuL tS Sales breakdown by region During the year, the Company continued to launch sales at new phases of popular projects, such as Nagatino i-Land and Zil-Yug, in Moscow. The considerable share of such projects supported price trends and enabled the Company to offset, to a certain extent, the temporary decline in demand for real estate. At the same time, the Company launched new projects in 2022 in promising and less competitive regional markets, where there is effective demand for quality housing. In the last quarter of the reporting year, less than a year after the active launch of regional projects, they already accounted for 34% of sales in terms of NSA and 21% in monetary terms. Share of contracts 1 in sqm in Moscow and the Moscow region Share of contracts 1 in sqm in other regions 2022 14 % 7 % 6 % 3 % 2 % 2 % 1 % Zil-Yug Nagatino i-Land Silver Fountain Wings Normandy Voxhall Emerald Hills 11 % 6 % 7 % 8 % 6 % 7 % Other projects in MMA 2 9 % 5 % 1 % 42% 2021 53% In regional markets, the Company sold apartments at 15 comfort-class projects, where the average price of an apartment in 4Q was RUB 123.6 ths per sqm, an increase of 13% from 2Q 2022. 5 % 3 % 3 % 2 % 1 % 4 % Other regional projects Zil-Yug Nagatino i-Land Silver Fountain Wings Normandy Voxhall Emerald Hills Other projects in MMA Suomen Ranta Solnechniy Green River Suita Quarter City Life Share of contracts 1 in sqm in St Petersburg Regional breakdown 2022 15 % 41% 3 % 3 % 2 % 2 % 2 % 1 % 1 % 1 % 1 % Galactica Che Quarter Okhta House Etalon on the Neva Jubilee Estate Petrovskiy Landmark Swallow’s Nest Domino Tsar’s Capital Botanica Other projects in St Petersburg 2021 17 % 17 % 9 % 1 The total may not add up to 100% due to rounding. 2 MMA – Moscow Metropolitan Area. 47% 4 % 5 % 4 % 2 % 2 % 1 % 2 % 1 % 2 % 7 % Galactica Che Quarter Okhta House Etalon on the Neva Jubilee Estate Petrovskiy Landmark Swallow’s Nest Domino Tsar’s Capital Botanica Other projects in St Petersburg Ekaterinburg Omsk Tyumen Kazan 69 11ANNUAL REPORT 20225 oPErAtInG rESuL tS Sales portfolio: average price trends Affordable mortgages Construction progress coupled with the considerable percentage of projects in the upper price segment in Moscow (Zil-Yug, Nagatino i-Land) supported price trends. The average price of an apartment increased by 33% year-on-year in St Petersburg and by 14% in Moscow; however, the increase in the average apartment price in the portfolio as a whole was influenced by the launch of Etalon Group projects in regional markets, with lower prices. Nevertheless, prices rose in regional markets, which is an indicator of growth in these promising markets. Despite the fact that the key rate reached 20% in March 2022, its subsequent reduction and the continuation of preferential mortgage programmes meant that Etalon Group customers were able to get mortgages at comfortable rates. Amid a growing supply in regional markets and the expansion of state-subsidised mortgage programmes, the share of sales with mortgage financing increased by 9 p. p., reaching the same level as in late 2021. At the same time, the increase in mortgage-backed sales supported a high average down payment, which recovered to 86% following a period of macroeconomic uncertainty. 200.6 RUB THS average price per sqm for all types of real estate in 2022 79% 86% percentage of high average down mortgage-backed sales payment thanks to in 4Q 2022 increased percentage of mortgage-backed sales Average price, RUB ths/sqm Average apartment price, RUB ths/sqm Share of new mortgage contracts, % Average down payment, % Average apartment price Average price Moscow St Petersburg Moscow region Other regions Apartments All property types Average down payment 290.1 294.1 217.6 181.7 261.1 192.5 250.3 199.0 383.6 366.2 380.3 +14 % 332.5 340.6 261.1 258.2 261.9 +33 % 229.3 -12% 195.3 +1 % 236.5 197.1 149.3 159.2 70 40 61 33 55 37 55 25 79 58 87 81 86 86 74 4Q 21 1Q 22 2Q 22 3Q 22 4Q 22 4Q 21 1Q 22 109.4 84.9 2Q 22 128.9 114.4 123.6 120.1 +13 % -20 % 3Q 22 4Q 22 4Q 21 1Q 22 2Q 22 3Q 22 4Q 22 4Q 21 1Q 22 2Q 22 3Q 22 4Q 22 70 11ANNUAL REPORT 20225 oPErAtInG rESuL tS 256 partner agencies in 2022 ~30 % share of annual sales attributed to the regional network Regional sales network Etalon Group’s regional marketing network, which includes sales offices and partner agencies, enables the Company’s customers to consult with specialists and purchase an apartment in a convenient nearby region. With the expansion of business beyond Moscow and St Petersburg, the sales network has become one of Etalon Group’s competitive advantages, enabling the Company to analyse the market in terms of the potential to enter a particular region and launch new projects there. In addition, thanks to the Company’s many years of experience selling property in St Petersburg and Moscow through its regional network, customers from cities throughout Russia are already familiar with the Etalon brand and the quality of the Company’s product. In 2022, the share of regional customers was 30.1% Etalon Group’s regional sales1 REGION PERCENTAGE OF ALL CONTRACTS Leningrad region Krasnoyarsk Krai Krasnodar Krai Yamalo-Nenets AD Novosibirsk region Khanty-Mansi AD Republic of Bashkortostan Omsk region Republic of Tatarstan Foreigners Other Russian regions TOTAL 3.0% 1.2% 1.1% 1.0% 0.8% 0.8% 0.8% 0.7% 0.7% 0.3% 19.6% 30.1% Despite market volatility in 2022, Etalon Group demonstrated its resilience and achieved excellent results. The Company completed a lucrative deal to acquire YIT Russia – and successfully integrated it by the end of the year – expanded into five new regions and put more than 650 ths sqm of NSA from its updated portfolio on sale, twice as much as the year before. In addition, the Company delivered 735 ths sqm last year, setting a new record and bolstering its position among the five largest developers in Russia. Active portfolio expansion, improved product affordability and the launch of new buildings helped Etalon Group return to its trajectory of month-on-month sales growth by the end of the year. Further work in this area will enable the Company to support sustainable business growth and achieve its strategic goals to 2024. 1 Data for 2022. The percentage of regional customers who have concluded a contract for the purchase of housing at Etalon Group projects in Moscow and St Petersburg 71 ANNUAL REPORT 2022116 FInAnc IAL rESuL tS REPORT 2022 6 ANNUAL FINANCIAL RESULTS 72 72 11ANNUAL REPORT 20226 FInAnc IAL rESuL tS Financial results thanks to efforts to improve business efficiency and the acquisition of YIt russia on profitable terms, in 2022 the company achieved a high level of gross profitability and record net profit. Revenue, RUB bln Pre-PPA gross profit, RUB bln Net profit, RUB bln Margin Margin 84.3 78.7 87.1 80.6 72.3 38 % 36 % 31.0 30.5 33 % 25.8 27 % 24 % 22.7 17.1 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 , 80.6 ruB BLn Revenue outpaced operating results on the back of record delivery volumes 13.0 ruB BLn Thanks to the profit generated by the M&A deal for the strategic acquisition of YIT Russia +332 % y-o-y 4.3× growth 16 % 13.0 3.5 % 3.5 % 3.0 2.0 0.2 -0.7 2018 2019 2020 2021 2022 Statement of profit or loss Despite the challenging market environment and lower consumer confidence, Etalon Group’s revenue for 2022 was RUB 80.6 billion, down just 7.6% year-on-year. A supporting factor was record delivery volumes, which unlocked funds held in escrow, resulting in recognition of revenue for completed properties. In an increasingly competitive environment we have been focusing on improving operational efficiency and maintaining high profit margins. As a result of our efforts, our gross profit increased from RUB 27.8 billion to RUB 28.2 billion. Our pre-PPA gross profit margin increased from 36% in 2021 to 38% in 2022, exceeding the target level of 35% set in our strategy to 2024. In our core segment of residential property development, pre-PPA profitability increased from 38% to 40%. Projects implemented as part of the regional business expansion programme showed the highest profitability: in the regional markets, the pre-PPA residential development gross margin reached an impressive 43%. Gross profit at the consolidated level was up 2% to RUB 28.2 billion, and profitability grew by 3 p. p. to 35%, and in the residential development segment to 37% (+3 p. p.). EBITDA was RUB 16.5 billion, after adjusting for purchase price allocation (PPA) of RUB 18.8 billion. Despite the costs associated with the acquisition and integration of YIT Russia, our EBITDA margin remained flat year-on-year, at 20.5%. Thanks to the deal with YIT on favourable terms for Etalon Group, net profit for the year more than quadrupled, reaching a record RUB 13 billion. Pre-PPA1 residential development gross profit, RUB mln Pre-PPA gross profit Pre-PPA gross margin MOSCOW ST PETERSBURG OTHER REGIONS 16,065 13,377 12,883 12,761 Pre-PPA gross margin Pre-PPA gross margin, main segment Comfortable financial position 38 % Above the 35% target stated in the strategy +2 p. p. y-o-y 40 % 0.8 × In the housing development segment, and an impressive 43% in regional projects Ratio of net corporate debt to pre-PPA EBITDA: less than 1x, and well below the target of 2×-3× +2 p. p. y-o-y 37 % 38 % + 1 p. p. 40 % 42 % + 2 p. p. 43 % 1,474 LAUNCH OF REGIONAL EXPANSION PROGRAMME 2021 2022 2021 2022 2021 2022 1 Purchase price allocation. 73 11ANNUAL REPORT 20226 FInAnc IAL rESuL tS Cash flows Cash flows came under pressure due to the acquisition of YIT Russia, higher payments on project acquisitions, and an increase in the number of projects at the stage of construction and design. But notably, since the end of 2021 the Company has increased its portfolio to 6.4 mln sqm, the number of regions has grown from 3 to 8, and over 650 ths sqm of NSA that can generate future profits has been put on the market. Balance sheet In the reporting year, the Company maintained a strong financial position. As of 31 December 2022, the total balance of funds held in escrow had increased to RUB 60.4 billion, enabling the Company to attract project financing at a lower rate of 3% to 4%, even in the face of upward movement in the Bank of Russia’s benchmark interest rate. Interest rates on our loan portfolio also remained at a comfortable level during the reporting period. The weighted average cost of servicing the debt portfolio was 5.2%, compared to 6.5% in 2021. Operating cash flow,1 RUB mln Free cash flow,1 RUB mln Net debt (cash), RUB bln 18,838 36,180 (17,342) 60.4 27,772 (45,552) (17,780) 14,557 36,180 (21,623) 27,772 (51,458) (23,686) 0.1 × 0.8 × Net corporate debt to LTM pre-PPA EBITDA ratio 14.5 1.1 × (5.6) Coverage ratio for project finance debt 1 2.6 1.6 × (23.5) 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 2021 2022 2021 2022 31.12.2021 31.12.2022 Cash inflows into escrow accounts (net balance) and repayments of project financing in 2022 offset against funds released from escrow Cash inflows into escrow accounts (net balance) and repayments of project financing in 2022 offset against funds released from escrow Net corporate debt Net project debt (cash)2 Operating cash flow (OCF) less interest paid Free cash flow (FCF)2 Operating cash flow (OCF) adjusted for cash inflows into escrow accounts and repayments of project financing in 2022 offset against funds released from escrow Free cash flow (FCF) adjusted for cash in escrow accounts and repayments of project financing in 2022 offset against funds released from escrow The ratio of net corporate debt to pre-PPA EBITDA was 0.8х, which was less than 1x, and well below our target of 2×-3×. Our debt continues to be entirely in roubles, and thanks to sufficient liquidity reserves and the terms of existing loan agreements we are able to keep the average interest on our loan portfolio at a comfortable level, even against a backdrop of rising interest rates, thus ensuring that we can fulfill our obligations to lenders, partners and customers. At the same time, we are in a strong financial position to implement strategic programmes in key areas, allowing us to follow through on the planned expansion of the business in new regions where we operate. 1 Incl. cash inflows into escrow accounts. 2 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. 1 Project debt used in calculating the coverage ratio includes escrow adjustments. 2 Project finance debt less cash in escrow accounts. Source: IFRS financial statements, Company data; year-on-year change and net debt were calculated without rounding. 74 11ANNUAL REPORT 2022 7 SuStAInABILItY REPORT 2022 7 ANNUAL SUSTAINABILITY Introduction 76 Stakeholder engagement 80 occupational health and safety 85 Environment 90 Employees 94 customers 101 Social responsibility 104 Innovations 114 data protection and cybersecurity 121 Business conduct 122 responsible supply chain 127 risk management framework 132 GrI Standards 141 7575 75 11ANNUAL REPORT 20227 SuStAInABILItY Introduction In today’s world, a business must adhere to high standards in terms of environmental protection, social responsibility and corporate governance (ESG). In an effort to support long-term mutually beneficial collaboration with customers, partners and local communities, Etalon Group uses state-of-the-art technologies and the latest approaches to the design of residential complexes to create comfortable urban environments, develops infrastructure and amenities, carries out public-interest projects, takes measures to reduce its environmental impact, and is discerning in its choice of partners and counterparties. The principles of sustainability are deeply integrated into the Company’s daily operations and underpin Etalon Group’s corporate values. Reporting principles and framework UN Sustainable Development Goals This section of the report provides a brief overview of the Company’s ESG performance in 2022 and early 2023. More detailed information on Etalon Group’s ESG activities in 2022 is included in a separate sustainability report that the Company is publishing for the first time in 2023. Etalon Group previously disclosed its non-financial reporting as part of its integrated annual report, which was published in April 2022 and is available on the Company’s website, etalongroup.com. In preparing this report, the Company relied on the principles and standards recommended by the Global Reporting Initiative’s sustainability reporting guidelines. In deciding on the content of the report, the principles of materiality, stakeholder coverage, and completeness were used. To ensure the quality of disclosure, the principles of balance, comparability, accuracy, timeliness, clarity and verifiability were used. The report discusses Etalon Group’s results for its traditional regions (St Petersburg, Moscow and the Moscow region) as well as its new regional markets: Omsk, the Novosibirsk region, Ekaterinburg, Tyumen and Kazan. 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 that submitted by its subcontractors. Unless indicated otherwise, the reporting includes YIT Russia’s results for the period since it was acquired by Etalon Group. Our assessments and forward-looking statements are based mainly on our current expectations, estimates of future events and trends that affect Etalon Group’s operations or that may affect them in the future. These forecasts are subjective in nature and may not take into account certain risk factors that could have a serious impact on the implementation of Etalon Group’s strategy and results. For questions related to the report and the data presented in it, please contact the Investor Relations and ESG Department: ir@etalongroup.com. Disclosure standards When making disclosures, we were guided by individual GRI standards that were part of GRI’s updated reporting guidance published in 2021. In addition to GRI standards, the report includes a number of data sets in line with the requirements of the SASB Real Estate and SASB Home Builders standards. For more information, references to disclosure standards are provided in the index at the end of the Sustainability section. 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 our business strategy is in line with the long-term development trajectory in the regions where we operate and also with the values of society. They also help us improve our business processes and incorporate innovations for the sustainability of our business and local communities. Of the 17 UN Sustainable Development Goals, we continue to adhere to five key goals that are in line with the specific nature of our business and our ability to have a socially significant impact in a given area: � Good health and well-being � Industry, innovation and infrastructure � Sustainable cities and communities � Responsible consumption and production � Climate action The goals where we focus our efforts may change as we refine our strategy in the area of corporate and social responsibility and as specific measurable targets are established. Our current sustainability goals and plans to expand our ESG practices are listed in Etalon Group PLC’s ESG Policy, which was approved in December 2021 and is available on our website. Etalon Group’s key sustainable development goals under its current strategy: 76 11ANNUAL REPORT 20227 SuStAInABILItY Material topics covered in the report In identifying material topics, we were guided by Identification of material topics the analyses of market conditions and the situation in the industry that are conducted on a regular basis by the Group’s divisions as part of their daily activities. These analyses identified bottlenecks and growth points in today’s turbulent market landscape. Feedback from stakeholders in the context of events held by the Company or with its participation – such as question-and-answer sessions for employees with the Company’s management, direct engagement with investors, dialogue with existing and potential suppliers, etc. – made it possible to identify the most important issues for stakeholders and to rank them in order of importance. 1 2 3 4 Analysis of the external context as part of regular monitoring of the industry Identification of the main risks for the Company and its stakeholders, as well as the Company’s potential impact on the external environment under current conditions Assessment of the significance of these risks and their impact for stakeholders during engagement with investors, employees, partners and local communities Identification of the most important topics and their prioritisation Мaterial topics Stakeholder engagement Corporate governance standards Innovation Equal opportunities Concern for the environment Occupational safety Impact on community development 77 11ANNUAL REPORT 20227 SuStAInABILItY Sustainability management Etalon Group’s sustainability management system is based on Some of Etalon Group’s standards and policies are publicly available adherence to high standards of corporate governance, environmental on the Company’s website. protection and the prioritisation of the long-term development goals of its business and society. The Company supports the UN Sustainable Development Goals and adheres to the principles enshrined in the Universal Declaration of Human Rights and to a policy aimed at preventing any form of discrimination, fraud or violations of the rules of fair competition. The principles of sustainability management are reflected in the following Company standards and policies: � Etalon Group PLC ESG Policy � Etalon Group Code of Corporate Ethics � Etalon Group Anti-corruption Policy � Regulation on Conducting Tenders within Etalon Group, including the Supplier’s Code � 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 � Etalon Group PLC Management Policy � Etalon Group PLC Disclosure Policy � Regulation on the Corporate Secretary of Etalon Group PLC Strategic issues related to sustainability come under the purview of Etalon Group’s Board of Directors. The Investor Relations and Information Disclosure Committee is responsible for ESG issues. Operational management of the Company as a whole, including in this area, is the responsibility of the CEO and his deputies in the corresponding areas of business development. At the level of ESG-related operational processes, the coordinating body is the Corporate Investment and Strategy Division, which includes the Investor Relations and ESG Department. The implementation of policies and processes related to corporate social responsibility within Etalon Group and individual subsidiaries – including issues of monitoring compliance with anti-corruption laws and internal policies, personnel management, procurement, environmental issues, etc. – fall under the purview of the responsible divisions and departments. 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. 78 11ANNUAL REPORT 20227 SuStAInABILItY Sustainable Development Goals and accomplishments in 2022 COMPANY ACTIONS � Maintaining high occupational health and safety � Incorporating advanced digital technologies � Building social amenities in the cities where the � Carrying out a comprehensive environmental impact standards � Maintaining leadership in the use of BIM technology Company operates � Providing accident insurance and supplementary and the full-scale implementation of digital solutions � Taking part in charitable projects health insurance to create an even more efficient design system � Collaborating with higher education institutions � Harnessing environmental expertise and implementing � Adapting and incorporating new industrial to jointly develop training programmes, assessment and taking environmental measures at all stages of project implementation � Recycling all construction waste capable of being processed measures to reduce the negative impact on the technologies for housing construction educational events and internships for students � Selecting responsible suppliers and environmentally environment throughout the project cycle � Promoting best practices among contractors � Using environmentally friendly materials and other industry companies and technologies � Promoting a healthy lifestyle 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 RESULTS � Safety standard for construction sites developed � Using available prefabrication technologies � In 2022, Etalon Group opened three preschools and � The Company does not produce waste in hazard and incorporated and adapting them for use in combination with delivered a secondary school, with a total capacity classes 1–3 (hazardous waste); most of its waste � Zero fatalities and an increase in the safety index from traditional cast-in-place technology of 1,095 pupils 87% to 89% during the year (with a target of 75%); � Building our own modular production facility � RUB 2.4 million was invested in the development LTIFR of 0.36 (2021: 0.43) and beginning the assembly of test modules of local communities � 3.9 thousand employees insured under the life � Industry BIM Leader since 2014 � The Company participated in more than 40 charitable insurance programme; 3.5 thousand employees provided with private health insurance policies � 133 employees completed occupational health and safety training � Introducing a standardised approach to design for regional projects � Developing seamless digital IT architecture programmes/initiatives, providing RUB 154 million in charitable assistance � Signed an agreement to build and subsequently operate the interuniversity student campus at the was sent for recycling (99%) � Operating expenses associated with waste management and the treatment of emissions and discharges in 2022 amounted to RUB 5.1 million � An Etalon Group project was one of the first to undergo a pilot assessment in line with the green GOST R standard for apartment buildings world-class Eurasian Scientific and Educational � Codes of conduct for suppliers Centre, in Ufa and contractors approved � Signed a cooperation agreement with St Petersburg State Agrarian University REPORT SECTION � Occupational health and safety occupational health and safety Employees � Employees � Strategy Strategy � Innovation Innovation � Social responsibility Employees � Employees Social responsibility � Environment responsible supply chain � Responsible supply chain Environment 79 11ANNUAL REPORT 20227 SuStAInABILItY Stakeholder engagement Stakeholders with the goal of becoming a leading nationwide player and being aware of its responsibility to those impacted by its operations, Etalon Group engages in open and effective dialogue on a regular basis with all its stakeholders: customers, partners and suppliers, employees, shareholders and investors, government agencies and local communities. we create long-term value at each stage of property development by taking into account the interests and expectations of various groups of stakeholders when formulating and implementing our strategy. Key principles of stakeholder engagement: Local communities Customers Partners Employees Regulators Investors and shareholders 01 02 03 Honest dialogue Honest dialogue is the basis of respectful and trust-based Openness and information transparency Prioritising stakeholder interests We regularly disclose all necessary A company committed to the relations with stakeholders. We information about the results values of sustainability cannot aim to understand and take of our operations and our further make important decisions alone. into account the primary needs, plans. This approach enables us We are always guided by the interests and expectations of our to keep stakeholders informed interests of our stakeholders stakeholders in order to improve our and to receive detailed feedback and avoid activities that could performance. from them. harm them. Fundamental approach to stakeholder engagement We familiarise ourselves with best practices and examine the needs of stakeholders We develop our staff and communication formats We determine the most effective means of communication We follow our established approach We analyse feedback, plan and incorporate improvements We specify the strategic goals of engagement CONSIDERING STRATEGY 04 05 Responsibility Improvement We are responsible for our In order to raise awareness of our commitments, and we aim to be activities among stakeholders, we both a low-risk partner for other are constantly improving means businesses and a reliable developer of communication and investing in for our customers, which helps build long-term loyalty to the Etalon brand. organisational and digital solutions that facilitate access to Etalon Group information and services. Our goal is to create long- term value for stakeholders at each stage of the project life cycle. RESOURCE PREPARATION ANALYSIS AND PLANNING IMPROVEMENT IMPLEMENTATION DEVELOPMENT OF OUR APPROACH 80 11ANNUAL REPORT 20227 SuStAInABILItY Customers Business partners and suppliers Key issues and goals of engagement � Analysis of customer needs and development of a quality product � Raising awareness of Etalon Group’s product � Getting feedback from buyers Active development of digital means of communication Profitbase Office Key issues and goals of engagement � Mutually beneficial cooperation � Financial and operating results service for convenient online sales covering the entire � Responsible approach to conducting business Supply chain reengineering and digitalisation of procurement activities Incorporation of BIM in the e-procurement system � Improving every stage of the customer journey customer journey � Focus on innovation more effective joint planning, decreased workload for staff � Expanding our customer base and increasing repeat purchases thanks to brand loyalty Сustomer Data Platform Means and frequency of communication Digitalisation of procurement Means and frequency of communication customer data management platform CONTINUOUS: together with Smartis, developed and incorporated our own CONTINUOUS: 2 × � Streamlining our communication policy, developing precise increase in initial qualified leads from potential customers thanks to targeting tools and competencies in analysing the selection stage intelligent targeting of the customer journey � Personalising communication channels and offers for customers � Communicating with customers through the hotline and social platforms, and providing prompt, effective responses to requests � Leveraging advanced visualisation techniques, such as VR, and developing mobile apps to facilitate the customer’s access to services, as well as providing B2C services to foster customer loyalty CONTRUST a single platform is being developed that will combine all of our previous systems; it will also include improvements and additions based on feedback from internal stakeholders and from customers To find out more about Etalon’s customer profile, see the Customers section of this report. Etalon official accounts on social platforms Etalon Group feedback form Etalon Group personal accounts for the purchase of real estate: from property choice to conclusion of the transaction etalongroup.ru/msk/hotline Personal account Mobile App � Implementation of new and improvement of existing policies, publication of tender schedules � Incorporation of digital solutions to create platforms for engaging potential partners, as well as to increase operational synergies � Applying and disseminating BIM-based technologies to find solutions that are more efficient and ergonomic, as well as to control quality and monitor deadlines throughout the entire project life cycle � Developing and incorporating advanced industrial technologies for housing construction � Sharing experiences and best practices, establishing partnerships Internal documents � Code of Corporate Ethics � Tender Regulation and Supplier Code (approved in 2022) � Anti-corruption and Antitrust Policy verified responsible platforms and suppliers, increased transparency for external contractors connected to the platforms Development of our own partner database direct deliveries with the ability to reduce the Company’s and partners’ overhead costs, supply chain transparency Strict selection of suppliers � A methodology for assessing counterparties is being developed with a score assigned according to two scales - > reduction of financial risks, ability to meet deadlines and high-quality supplies � Development of standards for supplier engagement (Supplier Code) means involvement of partners in solving environmental, social and management problems; assessment of partners’ responsibility in terms of sustainability issues More detailed information on interaction with suppliers is presented in the section Responsible supply chain. Corporate ethics � Anti-corruption clause in contractual documents with counterparties Partner portal Etalon Group hotline 8 800 300 81 03 2022 RESULTS 32 % percentage of repeat purchases in sales vs 31% in 2021 0.76 % lost call rate vs 1.41 % in 2021 9.9/10 customer satisfaction index 2022 RESULTS 1,751 counterparties in the register of accredited suppliers +27 % y-o-y 373 new partnerships +47% y-o-y 81.4 % of applications for the supply of materials are processed through an automated procurement system 8181 11ANNUAL REPORT 20227 SuStAInABILItY Shareholders and investors, analysts Employees Key issues and goals of engagement � Etalon Group’s investment case � Company strategy � Financial and operating results � Dividend payments and respect for shareholder rights � The Company’s activities in capital markets Means and frequency of communication CONTINUOUS: publication of the Group’s key news, participation in conferences, organisation of on-site presentations and visits to construction sites, holding meetings and conference calls with investors and analysts QUARTERLY: publication of operating results SEMI-ANNUALLY: publication of the Group’s financial results ONCE A YEAR: publication of the Annual Report on the Company’s website More detailed information on interaction with retail and For more detailed information about staff treatment, see the institutional investors and results is presented in the section Employees section of this report. "Interaction with shareholders and investors", on page XX Key issues and goals of engagement � A safe and healthy working environment � Respect for human rights, equal opportunities and inclusion � Recruiting, training and retaining competent professionals � Ensuring that employees are aware of the Company’s strategy and goals � Fair remuneration Means and frequency of communication the company upholds the rights of all shareholders – individuals and legal entities, minority and majority shareholders – in an equal manner More detailed information on interaction with retail and institutional investors and results is presented in the section Shareholder interactions. CONTINUOUS: ANNUALLY: � Implementing an anti-discrimination policy and protecting human � Identifying needs and planning training rights in accordance with Etalon Group’s Code of Corporate Ethics � Employee satisfaction survey, performance feedback and career and legal regulations planning � Disseminating important information via the corporate intranet and e-mail � Responding to questions from employees submitted using the electronic form in the HR section of the internal portal � “Dialogue with the President” project, which gives every employee a chance to ask the Company’s top executives questions Ir contacts for investors and shareholders Etalon Group feedback form website for shareholders in russian and English with feedback form +44 (0) 20 8123 1328 ir@etalongroup.com etalongroup.com 2022 RESULTS 30 press releases published 4 major webinars conducted for private investors 2 channels for private investors created on the Tinkoff Pulse and BCS Profit platforms 2022 RESULTS >2,000 SuBScrIBErS an online space was launched for employees where they can express gratitude, share their feelings, conduct surveys and hold contests, and publish attractive corporate offers 219 releases about Company news on the corporate portal >100 1.1 tHS questions submitted in the context of the “Dialogue with the President” project employees surveyed on employee satisfaction and engagement 78 % employee satisfaction rate 8282 11ANNUAL REPORT 20227 SuStAInABILItY Government agencies Key issues and goals of engagement � Construction safety � Minimising the Company’s negative environmental impact � Compliance of the Company’s operations with legal regulations � Technological development of the industry � Tax receipts � Facilitating the development of social amenities Means and frequency of communication CONTINUOUS: � Providing government agencies with financial and operational reports � Communication on issues related to construction permits, compliance with standards and urban planning regulations � Participation in construction industry working groups, round tables and commissions For more detailed information see the Project portfolio section of this report. the joint work of the city government and Etalon Group in developing the grounds of the Zil-Yug project testifies to the high quality and impact of dialogue between the city government and stakeholders. Through its dialogue with the city, the Company consciously began revitalising the former industrial zone and is also developing a master plan for the project to strengthen existing and create new urban connections and to improve the penetration, safety and diversity of modes of transport. Local communities Key issues and goals of engagement � Environmental protection issues � Creating jobs and improving quality of life in regions of operations � Tax payments to local budgets � Building social amenities and developing human capital Means and frequency of communication CONTINUOUS: � Investing in developing the cities where we operate: building social amenities, restoring historical monuments, supporting and organising cultural and sports events as well as charitable programmes, collaborating with universities � Developing formalised approaches and policies to ensure sustainability and responsible business practices � Publishing press releases and interviews � Maintaining effective channels of communication with leading media � Visiting construction sites, giving presentations and arranging events for journalists covering the Company’s operations the company’s management supports accessibility projects that take into account the inclusive needs of residents and participates in initiatives regarding the voluntary certification of projects. we are shaping the buyer’s lifestyle; we are developing the concept of the 15-minute city – residents can reach all the necessary infrastructure and amenities within 15 minutes of their home on foot or by bicycle. 2022 RESULTS 5.6 ruB BLn tax payments +57% y-o-y 133 tHS SQ.M total area of the innovative student campus of the Eurasian Scientific and Educational Centre to be built in Ufa through a public–private partnership between Etalon Group and the Government of the Republic of Bashkortostan 2022 RESULTS 15 tHS SQM of social amenities delivered 15,900 mentions in the media +22% y-o-y 953 mentions of our ESG agenda +41% y-o-y 20 events supported by the Company 8383 11ANNUAL REPORT 20227 SuStAInABILItY Main topics of engagement in 2022 Creating value for stakeholders at all stages of operations TOPIC CUSTOMERS PARTNERS EMPLOYEES REGULATORS INVESTORS AND SHAREHOLDERS LOCAL COMMUNITIES Improving the quality of products and services Fair and transparent commercial policies Business development strategy Increased profitability and business efficiency Innovation and new technologies Environmental impact management Occupational health and safety Equal opportunities and rights, inclusion and working conditions Sustainable supply chain Engagement with local communities / development programmes Business transparency and responsibility the company’s engagement with all stakeholder groups contributes to the creation of long-term benefits from mutual cooperation. 01 02 03 Operational and financial efficiency: Digitalisation and innovation: Sustainability: � We are formulating an ESG � We maintain a high-quality � We are incorporating end-to-end strategy and policies product while reducing costs through standardisation, the use of new housing construction technologies and process automation � We are expanding into new regions while maintaining the high level of profitability of our projects digital architecture and design technologies � We employ digital modelling in the process of construction and safety oversight in the workplace � We are developing automated systems for big data analysis for acquisition planning, taking into � We take a balanced approach to account customer comments and debt financing building a marketing strategy � We are creating partnerships and synergies � We are improving the quality of our corporate governance � We are developing social projects and protecting human rights � We are taking steps to protect the health and safety of our customers, employees and society � We are minimising our negative impact on the environment SUSTAINABILITY OPENNESS SAFETY INTEGRITY EFFICIENCY DEVELOPMENT QUALITY COLLABORATION 84 11ANNUAL REPORT 20227 SuStAInABILItY Occupational health and safety our top priority is the health and safety of our employees. we pay close attention to regular monitoring of compliance with requirements on occupational health and safety (oHS) and improve our security procedures to avoid accidents at our facilities. Occupational health and safety policy ETALON GROUP’S OCCUPATIONAL HEALTH AND SAFETY POLICY IS BASED ON THE FOLLOWING: � the unquestioned priority of protecting the life and health of employees � strict compliance with applicable laws specifying the requirements for occupational health and safety, and facilitating state oversight and monitoring of compliance with OHS requirements � targeted monitoring and assessment of working conditions, including additional multistage monitoring of workplace safety and the development of OHS measures � providing PPE for employees at construction sites; � arranging OHS training and medical examinations for employees working in hazardous and/or harmful working conditions � protecting the legitimate interests of employees injured in accidents at work as well as the interests of their family members In its operations, Etalon Group is guided by applicable laws and best practices, and also uses digital technologies to monitor compliance with workplace safety requirements. When carrying out its operations, the Company is committed to ensuring workplace safety in such a way so as to minimise the risks of injury and protect the health of both its personnel and the employees of contractors. ETALON GROUP IS GUIDED BY STANDARDS AND POLICIES BASED ON COMPLIANCE WITH THE REQUIREMENTS OF RUSSIAN OHS LAWS: � Regulation on the Occupational Health and Safety Management System at Etalon Group � Methodology for Determining the Safety Index at Etalon Group Construction Sites � Methodology for Monitoring Fire Safety at Temporary Construction Camps at Etalon Group Construction Sites and for Determining the Fire Safety Index � Procedure for the Authorisation and Monitoring of Contractors for the Performance of Construction and Installation works at Etalon Group Facilities � Rules and Regulations for Providing the Company’s Employees with Personal Protective Equipment (PPE) and First-Aid Equipment Occupational health and safety system 2 Organisation Based on standards and regulations, the Company takes actions aimed at the creation, application and functioning of the OHS management system. CONTINUOUS IMPROVEMENT 1 Concept The Company regularly develops new approaches to OHS management based on the leading global and Russian standards. 3 Planning and application In achieving every one of its goals, the Company operates in strict compliance with its OHS concept. 5 4 Steps for improvement The Group constantly analyses its OHS management results and introduces changes to make the system more effective. Assessment (oversight) Safe and efficient operations are impossible without oversight of the processes involved in ensuring occupational health and safety: monitoring, measuring and analysing results, as well as their compliance with OHS-related laws, internal policies and approaches. 85 11ANNUAL REPORT 20227 SuStAInABILItY Safe operations are an unwavering priority for Etalon Group. We set ourselves a goal and do everything possible to protect our workers from exposure to occupational hazards, to prevent workplace accidents and occupational diseases, and to improve our culture of safe operations and productivity. Key elements of the OHS system: � Managers at all levels are personally responsible for ensuring an adequate level of occupational health and safety in the divisions and companies they manage. � The construction process takes place in strict compliance with OHS requirements. � Regular independent risk monitoring is carried out at Etalon Group properties. � Participants in the construction process are motivated to ensure occupational safety and health. Organisation of the OHS service Etalon Group has established a functional oHS hierarchy as a separate part of its oversight system, which helps ensure that the system operates as intended. The functional hierarchy is headed by the CEO of Etalon Group, who is responsible for monitoring OHS issues through the HR Director. The functional hierarchy for occupational health and safety includes the following Etalon Group divisions and employees: � Etalon Group HR Director � Etalon Group’s Occupational Health and Safety Department � Managers at all levels within Etalon Group companies � Company employees undergo systematic OHS training. � OHS departments and OHS specialists at the level of Etalon Group companies Main indicators of the effectiveness of the OHS system: � the level of security and of occupational health and safety at construction sites, as expressed through the safety index and risk assessments (for more about the safety index, see p. 89) � the accident rate at construction sites In the event of an accident or emergency, the Company conducts an investigation to identify the causes of the incident and prevents the recurrence of such events in the future. The OHS service receives monthly reports on compliance with OHS rules and regulations and on the situation regarding workplace injuries from every Etalon Group company. This practice makes it possible to identify and analyse OHS violations at the Group level as well as to identify key areas where the OHS system can be improved in order to minimise safety violations, prevent risks and avoid serious and fatal injuries. Contractors also operate at Etalon Group’s construction sites. In accordance with OHS regulatory requirements, general contractors are responsible for coordinating the operations of other contractors. The main duties of staff responsible for occupational health and safety include managing activities in order to prevent occupational injuries and diseases and to comply with OHS requirements at construction sites; studying, incorporating and disseminating OHS-related best practices; conducting safety monitoring; and informing and advising employees on OHS issues. Construction and installation works are carried out in accordance with project plans and process checklists that are approved in accordance with established procedures. our construction sites are extremely safe thanks to the precautions we take and the constant improvement of our oHS system. CEO fo Etalon Group Etalon Group HR Director Managers at all levels within Etalon Group companies General contractors in the Moscow region General contractors in the St Petersurg region General contractors in other regions Occupational health and safety specialists 86 11ANNUAL REPORT 20227 SuStAInABILItY OHS activities Risk identification and assessment Equipment safety protocol In the event of any changes or innovations in work practices, the selection of materials, work processes and equipment, Etalon Group employees take steps to identify hazards and assess risks. All equipment used by Etalon Group is certified in accordance with Russian legal requirements. The Company also conducts internal equipment inspections to ensure that it is installed properly and serviced on a regular basis. The main risk groups are included in a unified register of the main hazards, sources and causes. The safety index and fire safety index are used to monitor these risks. Monitoring results are posted on the bulletin board at each construction site. Before starting work at a construction site, a list of preventive and oversight measures is drawn up to ensure safe working conditions. In addition to regular monitoring, an additional mechanism for minimising risks is for employees to inform managers or OHS specialists about existing risks as they are discovered. Employees’ job descriptions stipulate that they are obliged to refuse to perform any work that poses a risk to their health or their life. In such a case, the employee has to prepare a memo addressed to their manager that indicates the reasons for refusing to perform the work in question. There is no penalty for refusing to perform work in such a case. The manager is obliged to take measures to eliminate risk factors, and the employee in question will continue their work only once corrective actions have been taken. Preventing workplace injuries In order to prevent injuries and safety violations, the Company implements a range of measures, such as incorporating safe production systems, limiting the total time that employees are in contact with harmful or hazardous production factors, and conducting a preliminary risk analysis and subsequent regular safety monitoring. A dedicated assessment of working conditions is carried out at all workplaces. Employees performing work duties at construction sites are given protective clothing, footwear and other personal protective equipment, and employees undergo periodic medical examinations based on the results of an assessment of their working conditions. Workplace injuries are investigated in accordance with the laws of the Russian Federation. Contracts concluded with healthcare providers stipulate that a general practitioner will be available on-site for all groups of employees once a month. 2020 - 3 0.11 0.56 - - 2021 - 2 0.09 0.43 - - 2022 - 2 0.07 0.36 - - In 2022, there were no fatal work-related incidents involving company employees. Rate of workplace injuries Number of fatal accidents Number of employees of contractors (employed at Company properties) injured as a result of work-related accidents TRIR 1 LTIFR 2 Number of registered cases of occupational diseases Number of registered deaths due to occupational diseases Occupational injury rates LTIFR TRIR 0.56 0.43 0.36 0.11 0.09 0.07 2020 2021 2022 1 The total recordable incident rate (TRIR) is the overall number of accidents*200,000 / total number of working hours during the year. 2 The lost time injury frequency rate (LTIFR) is the number of lost-time injuries occurring in the workplace*1,000,000 / total number of hours worked by all employees. 87 11ANNUAL REPORT 20227 SuStAInABILItY Monitoring Etalon Group is committed to providing safe working conditions at its construction sites and requires the same on the part of contractors; therefore, the Company carries out strict oversight of compliance with OHS requirements on the part of contractors performing work at Etalon Group properties. For example, it conducts OHS assessments when holding tenders to select contractors and when deciding whether to add a contractor to, or remove one from, its register of accredited companies. Contractors are granted access to sites based on the results of an assessment of their readiness to begin work, which includes, among other things, an assessment of their compliance with OHS and fire safety requirements. Once every two weeks, construction sites are monitored pursuant to the methodology for determining the safety index and degree of risk. Monitoring results, including photographic evidence of violations, are shared on a special platform that can be accessed by all managers of the companies concerned. Based on the monitoring results, the necessary measures are taken to correct any identified violations. To encourage compliance with the corporate safety culture, the best construction site in terms of occupational health and safety is chosen twice a year; the winning site receives a flag that identifies it as the winner as well as a gift from Etalon Group. Strict rules are in place regarding the To monitor and maintain a high level technical features, installation, use and of construction safety, the Company dismantling of enclosing structures, developed and introduced a safety Etalon Group uses a three-stage system for monitoring compliance with OHS and fire safety requirements at its scaffolding and walkways; observance index — a workplace safety monitoring construction sites: Three-stage system for monitoring compliance with OHS and fire safety requirements: of hazardous-area boundaries; and the system based on BIM technologies — handling of flammable materials, garbage that it continues to refine every year. and waste that are mandatory for all Independent safety index assessments Etalon Group employees. At construction of individual properties and of all Etalon sites, all safety fencing is regularly Group construction sites in general are checked for strength and resistance to conducted on a regular basis. The safety variable force. In order to prevent injuries, the degree of risk – the quantitative degree of risk of a workplace accident at the property in question, as calculated in accordance with the Fine–Kinney method – is used at all construction sites. In accordance with the established risk level, the Company takes the necessary measures to eliminate or minimise the risks. index is also used to monitor the impact of the OHS system and the functional hierarchy for the management of OHS processes. The heads of regional divisions are responsible for arranging regular independent monitoring of Company properties based on the safety index. Etalon Group companies also undergo scheduled and spot inspections by regulatory authorities DAILY WEEKLY MONTHLY A commission that includes the construction manager, the site manager and designated representatives of contractors carries out insprections. Following each inspection, a report is drawn up that is then sent to the OHS specialist at the corresponding regional office. Site supervisors in conjunction with superintendents carry out inspections; the result are logged, timelines are set for addressing any deficiencies, and the individuals responsible for doing so are appointed. Managers working for the project owner have the right to monitor the general contractor’s fulfilment of OHS rules and regulations as well as on-site regulations on occupational health and safety, industrial safety and fire safety. At each construction site, at least two employees during every shift are responsible for continuous monitoring of the collective protection measures in use as well as the fencing around hazardous areas; they make sure there are no uncovered process-oriented openings, holes or open elevator shafts on every floor of the property. During workplace rounds throughout the day, the superintendent monitors compliance with OHS requirments. Any violations discovered are immediately rectified. 88 11ANNUAL REPORT 20227 SuStAInABILItY Safety index Since 2014, the Company has been using its safety index, a tool developed in-house, to determine its degree of compliance with OHS regulations at construction sites. The index is calculated based on an objective assessment of compliance with OHS standards; the same approach is taken to calculate the safety index at all Etalon Group construction sites. The index enables the Company to quickly identify hazards that require immediate intervention. The safety index at every Etalon Group property is updated at least once every two weeks. The main criterion for assessing the degree to which OHS standards are met is a construction site’s compliance with national OHS standards and the Company’s internal OHS regulations. The managers of the general and other contractors that work for Etalon Group are required to ensure that the safety index at Group properties does not fall below the minimum permissible score. Scores can range from 0% to 100%, but the target index for Etalon Group is a minimum of 75%. If an accident results in a serious injury or death, the safety index score for the construction site where the accident occurred drops to 0%. Safety index Average safety index for the year 86% 87% 89% 2020 2021 2022 Etalon Group’s high safety index score is an indicator of the company’s compliance with safety standards and regulations. 89 % the average safety index score in 2022, 14 percentage points higher than the target Training To ensure that employees have a high level of competence in terms of OHS matters, the Company arranges systematic training and testing. The Company has approved a training programme on occupational health and safety, and commissions verify employees’ knowledge. Staff not only undergo training but also take exams at specialised training centres operated by Rostekhnadzor, Energonadzor and other organisations. The head of every Etalon Group company whose job function involves being at construction sites (including infrequent visits, checks, inspections, etc.) must be OHS-certified in accordance with the procedure established by the applicable laws. Employees are informed about occupational health and safety during OHS briefings. All new employees are required to familiarise themselves with the results of a dedicated assessment of their working conditions and with their job description, including OHS-related duties. OHS training in 2022 Moscow and the Moscow region Management Line employees St Petersburg Management Line employees Other regions Management Line employees TOTAL Employees who are required to undergo compulsory training do so at specialised training centres. The results of the training are subsequently monitored by Etalon Group’s commissions to verify employees’ knowledge of OHS requirements. Training sessions are conducted not only with Etalon Group staff but also with employees of contractors. In 2022, OHS briefings covered the following main topics: � the requirement to take OHS issues into account when performing construction and installation works � the safety index and risk assessment training The decrease in the number of OHS training hours per person was due to an extension of existing accreditations. Nevertheless, the Company regularly certifies employees based on their knowledge of OHS standards. 1,749 hours of OHS training was conducted in 2022 for 133 Etalon Group employees NUMBER OF PEOPLE TRAINED NUMBER OF HOURS totAL PEr PErSon — 9 49 72 3 — 133 — 324 969 408 48 — 1,749 — 36 20 6 16 — 13 89 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Environment Etalon Group is committed to minimising its negative impact on the environment and aims to optimise its business processes in accordance with its Sustainability Policy. The Company tracks its responsible use of resources, protects biodiversity and the ambient air, and properly disposes of waste during its operations. In addition to strict compliance with Russian environmental laws, the Company also takes additional steps to improve measures aimed at environmental protection. Etalon Group’s approach to environmental management Environmental management system The architectural and urban-planning concept for every one of Etalon Group’s projects is based on a risk analysis and efforts to minimise the Company’s negative impact on the environment. The Company takes into account international experience and trends in the construction industry in order to present design solutions for environmental remediation and the construction of sustainable infrastructure, especially at former industrial sites. At the design stage, Company specialists develop measures to reduce the anthropogenic impact on the environment, such as restoring land, averting the loss of natural resources, and preventing harmful emissions into the soil and atmosphere. During the construction phase, Etalon Group carefully monitors compliance with its design and working documentation as well as its adherence to construction deadlines, which enables the Company to carry out measures to protect the environment against any possible negative impact. When implementing integrated development projects, the Company restores natural areas near the construction site, thus creating a pleasant environment. Etalon Group specialists are guided by environmental laws, including the following: � 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 � The Land Code of the Russian Federation � The Water Code of the Russian Federation � The Forest Code of the Russian Federation � Federal Law No. 96-FZ on the Protection of the Ambient Air � SanPiN 2.2.1/2.1.1.1200-03 on Controlled-Access Zones and Sanitary Classification of Enterprises, Structures and Other Facilities � Federal Law No.52-FZ on Sanitation and Epidemiological Safety � Presidential Decree No. 666 on Reducing Greenhouse Gas Emissions � Federal Law No. 296-FZ on Limiting Greenhouse Gas Emissions Internal policies and job descriptions are also taken into account. Technical departments in every region of operations are responsible for environmental oversight. The following are within the remit of the Company’s specialists and environmental engineers: � Conducting expert reviews of design documentation � Supporting project assessments � Solving problems related to environmental protection � Providing informational and technical support to the Company’s business units � Monitoring and analysing the construction process In order to improve the quality of environmental oversight, Etalon Group created a Quality Control Department, which implements measures aimed at environmental protection and conservation, among other things. The Department’s main objective is to identify and register criteria for the safe conduct of construction works. Thanks to its environmental monitoring at every stage of project implementation in all regions of operations, the Company is able to minimise its negative impact on the environment, which is confirmed by external inspections conducted by regulatory authorities. 90 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Supply chain management Environmental protection efforts Etalon Group works with responsible suppliers and is committed to using in its projects only environmentally friendly materials and equipment that are not harmful to the environment or residents. During implementation of the Zil-Yug project, an expert contractor was engaged to develop recommendations on the use of environmentally friendly materials that are suitable for Russia. All materials and equipment comply with both SanPiN regulations (products have certificates of conformity, sanitary and epidemiological inspection reports, quality certificates, fire safety certificates, etc.) and project-specific requirements. When selecting responsible suppliers of services and products, Etalon Group uses its internal oversight systems and a formal procedure for conducting tenders that has enabled it to establish a pool of reliable partners involved in the implementation of its projects. With its integrated management system in every region of operations, the Company is able to take a unified approach to the oversight of general contractors, which enables effective monitoring of compliance on the part of those contractors with legal standards and the requirements enshrined in project documentation concerning natural resources, noise levels, protection of the ambient air, etc. More information on supplier selection is available in the Responsible supply chain section. 1 Nature-based solutions are aimed at the sustainable management and careful use of natural features in response to social and environmental challenges. 2 As a result of measures to improve the efficiency of its operations, Etalon Group updated its organisational structure in the spring of 2021. Previous reporting periods covered the companies that were liquidated in the process of establishing Etalon Group’s new organisational model. The processes involved in managing investment and construction projects and in collecting data also changed. Protection of soils, vegetation and wildlife The design and construction stages of all Company projects involve strict compliance with a full slate of environmental protection measures. Prior to the start of construction, Group specialists conduct a number of studies and take a variety of measures that include a preliminary assessment of the environmental conditions; a study of the extent and nature of impacts on biodiversity, plant and animal communities; the development of possible alternatives with the aim of reducing negative impacts; and forecasting changes in biodiversity following construction. Water resources2 Despite the fact that Etalon Group’s activities do not involve exposed water intake from natural sources, the Company attaches great importance to monitoring the use of water resources and does so in full compliance with applicable laws. Water is supplied to construction sites by third-party providers. As a result of measures to reduce water intake at some Group construction sites, water obtained from the drawdown of the construction pit or during the drainage of foundation structures is used, which enables the Company to reduce its water intake To assess the impact of the construction of the Schastye v Kazani residential complex on biodiversity and plant life in the nearby floodplain of the Kazanka River, experts from the Institute of Ecology and Environmental Management at Kazan (Volga) Federal University presented research and recommended environmental protection measures. Also, for one of the Company’s largest redevelopment projects, Zil-Yug, a concept was developed for the environmental remediation of the former industrial site and to ensure a healthy environment as part of the development of environmentally friendly infrastructure on the grounds of the project. In terms of environmental conservation, the Company is guided in part by international experience, and it develops nature- based solutions1 aimed at the sustainable management and careful use of natural features in response to social and environmental challenges. Etalon Group does not conduct any activities other than construction that could have a possible impact on biodiversity. considerably. In addition to using this method of water intake more extensively, the Company is developing new technological solutions to decrease its water consumption. Water consumption is metered and discharges monitored at all Etalon Group construction sites and office buildings; before the discharge, all wastewater undergoes preliminary treatment or is transferred to specialised companies (operators of municipal water utilities) for mechanical and biological treatment. At the operational stage, all Etalon Group projects install individual meters for residents that are integrated into automated commercial metering systems for water, heat and energy consumption. All apartments in projects managed by the Group’s service companies are equipped with water meters. As a result, our customers can take a responsible approach to resource consumption, thus reducing the negative impact on the environment. Water usage in 2020–20223 Recycled and reused water3 INDICATOR Total water sourced, ths m3 3 For 2020, data for the construction and maintenance division is in line with the Total waste water discharged, ths m3 information disclosed in annual reports for previous periods. 4 The excess volume of water discharged in comparison with the volume of water sourced in St Petersburg is due to the methodology established by Vodokanal Sankt Peterburg, the state enterprise responsible for the collection and treatment of waste water, for calculating storm water drainage based on the area of a site and with allowances made for storm run-off. 2020 1,275 845 20214 874 1,148 20224 INDICATOR 667 783 Recycled and reused water, ths m3 Proportion of recycled and reused water, % 2020 2.5 0.22 2021 1.5 0.22 2022 1.7 0.26 91 11ANNUAL REPORT 20227 7 SuStAInABILItY Environmental protection efforts Waste management Energy consumption and efficiency Waste of various classes is generated during the course of Etalon Group’s activities, including construction, the operation of the Company’s office premises and the operation of residential complexes managed by Etalon Group. The Company assesses the risks involved in the handling of construction waste at the construction stage and closely monitors the activities of general contractors. All generated waste is handed over to licensed companies for processing, recycling or disposal in accordance with all applicable requirements and regulations in every region where the Company operates. At the same time, the Company does not produce hazardous waste in classes 1–3 during the construction process. Waste minimisation, sorting, reusability and recycling are of increasing interest to the Company and are an area ripe for innovation and technological development. In 2022, 99% of the Company’s waste – 909 thousand tonnes – was sent for recycling. The Company is taking measures to reduce energy consumption by improving the efficiency of its supply chains and using electricity from municipal grids in the construction process. These steps also reduce emissions of nitrogen oxide and fine particles of soot into the atmosphere. Etalon Group is committed to ensuring the energy efficiency of functional building systems, including utility systems, and to using durable, environmentally friendly materials with low thermal conductivity and hygroscopic coefficients. Waste management1 INDICATOR Construction materials used, ths tonnes Waste generated, ths tonnes Hazardous waste (class 1–3) Non-hazardous waste (class 4–5) thanks to the company’s strict oversight, there were no significant spills of pollutants during the reporting year. 2020 1,056 168 – 168 2021 1,664 709 – 709 2022 1,842 914 – 914 Energy purchased for consumption, by type INDICATOR Electricity Heat energy in hot water and steam UNITS mln kW·h Gcal 2020 23.3 41,902 2021 39.1 25,893 Energy-efficiency classes of properties as of the end of 2022 PROPERTIES BY ENERGY-EFFICIENCY CLASS, THS SQM Completed Under construction А 317 454 В+ - 280 В 369 173 2022 42.8 19,918 С 191 112 1 For 2020, data for the construction and maintenance division for 2021, data for Etalon Group according to the updated organisational structure. 92 11ANNUAL REPORT 20227 7 SuStAInABILItY Measures to reduce carbon footprint and environmental impact Green projects one of the main goals of the Paris Agreement1 in recent years has been a reduction in carbon footprint and resilience to climate change. In implementing our projects, we rely on these goals and are committed to reducing our carbon footprint. At the initial stages of project design at a number of our projects, we apply three-dimensional computational fluid dynamics (CFD) computerised modelling technology, which enables us to predict the main parameters necessary to ensure the comfort of residents inside our residential complexes and to create environmentally friendly and energy-efficient rooms with the most comfortable microclimate possible. We also use BIM technologies, which we have been improving since 2012, at all project stages. These technologies enable us to improve energy efficiency as well as to optimise emissions, the use of raw materials and performance in other areas, especially during the construction and operation phases. When landscaping the grounds of our projects, we make every effort to use natural surfaces made of granular materials (sand, wood chips, pebbles, shells) for playgrounds and sports venues. These materials allow the soil to breathe, are beneficial to humans and require the consumption of very little energy for their procurement. In fire lanes and parking lots, projects use hard surfaces on grass pavers, which allows the soil to breathe and creates a green surface. the company’s portfolio already includes three properties that have received a Green Zoom certificate: the Botanica residential complex, in St Petersburg; and the Silver Fountain residential complex and residence on Pokrovskiy Boulevard, in Moscow. In early 2023, the first building at the Company’s Rauta project, in Ekaterinburg, successfully completed the pilot assessment for compliance with the GOST R 70346-2022 national green standard for apartment buildings at the project stage. The standard was developed by Russia’s Ministry of Construction together with the Dom.rf development institute and approved in September 2022. At the testing stage, Dom.rf carried out a preliminary assessment of pilot projects’ compliance with the standard. The Rauta residential complex meets all the standard’s key criteria: it offers class A energy efficiency and a white box finish; water- and energy-saving systems have been installed; the temperature at the property is maintained at a comfortable level; the complex is accessible and barrier-free; and the project meets the requirements for responsible construction. The project also meets a sufficient number of the standard’s additional (optional) criteria for compliance purposes. Types of atmospheric emissions TYPES OF EMISSIONS, TONNES NOx SOx Volatile organic compounds (VOCs) Particulate matter (PM) Other standard categories of atmospheric emissions used in relevant regulations 2020 44.7 6.1 13.1 7.9 49.1 2021 30.5 2.6 8.3 5.0 13.1 2022 147.0 16.2 13.1 23.5 40.9 1 The Paris Agreement is an agreement under the United Nations Framework Convention on Climate Change that regulates measures to reduce the amount of carbon dioxide in the atmosphere. 93 11ANNUAL REPORT 20227 7 SuStAInABILItY Employees Thanks to the Company’s regional expansion programme and the acquisition of YIT Russia, Etalon Group’s headcount increased by 23% in 2022, as the Company added 1,114 highly qualified personnel in a variety of specialisations. As of the end of year, 8% of the Group’s employees were working in regional markets, which is commensurate with the volume of real estate delivered beyond St Petersburg and Moscow. As of the end of 2022, all of the Company’s salaried employees were full-time; at the same time, 3% of staff members (up from 1.4% in 2021) worked remotely or according to a personalised schedule. The Company did not have any employees with zero-hour contracts – that is, contracts that do not specify a minimum number of working hours. Workforce and breakdown of employees by age Number and percentage of employees by region2 2021 2022 2021 2022 Under 30 827 17% Under 30 948 16% St Petersburg 653 14% St Petersburg 973 17% 30–50 3,062 64% 30–50 3,634 62% Moscow and the Moscow region 723 15% Moscow and the Moscow region 616 10% Over 50 876 18% Over 50 1,297 22% Production unit 3,379 71% Production unit 3,837 65% Other regions 10 0.20% Other regions 453 8% Number and percentage of men and women Number and percentage of employees by contract type in 20223 2021 2022 ST PETERSBURG MOSCOW OTHER REGIONS PRODUCTION UNIT COMPANY TOTAL Permanent contract, total: Men Women Fixed-term contract, total: Men Women 967 17% 457 510 6 17% 5 1 609 10% 296 313 7 19% 6 1 446 8% 181 265 7 19% 7 - 3,821 65% 2,870 951 16 44% 16 - 5,843 3,804 2,039 36 34 2 4,765 Total Etalon Group headcount in 2021 1 5,879 Total Etalon Group headcount in 2022 1 +23 % increase in headcount in 2022 Some 99.4% of employees had permanent contracts; only 36 staff members worked on a fixed-term contract. Men Women 1 As of 31 December of the year indicated. 2 The redistribution of percentages between regions is due to the centralisation of a number of functions within the management company in the context of improving the Company’s organisational structure and completing the acquisition of YIT Russia. Production and service companies, whose employees work in several regions, are assigned to the production unit. 3 The total may not add up to 100% due to rounding. 94 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Approach to personnel management Personnel management policy Employees are Etalon Group’s key asset. In personnel management, the company adheres to unchanging principles based on protecting the health and safety of its employees, providing them with equal opportunities for professional development, ensuring open dialogue and offering fair remuneration. Key personnel management principles 1 Protecting health and safety 2 Equal opportunities and fair remuneration 3 4 Open and honest dialogue Supporting engagement and professional development Etalon Group’s resources management system is led by the Company’s Personnel Management Division, and Group subsidiaries have their own HR departments. DEPARTMENT OF ORGANISATIONAL DEVELOPMENT AND RECRUITMENT DOCUMENTATION SUPPORT DEPARTMENT PERSONNEL MANAGEMENT DIVISION DEPARTMENT OF LABOUR RELATIONS, COMPENSATION AND BENEFITS ADMINISTRATIVE SUPPORT DEPARTMENT Successful implementation of Etalon Group’s overall strategy is impossible without recruiting, developing and retaining talented professionals. The Company’s personnel management strategy covers the following aspects: � maintaining an effective incentive system � developing human resources � promoting and developing the Company’s HR employer brand Processes relating to personnel management, HR policy and automation are set by the � maintaining a healthy corporate culture management company; within individual subsidiaries, personnel management is supervised by the heads of HR departments, who are responsible for the recruitment, onboarding and training of personnel as well as compliance with the Group’s HR policies and procedures. � 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 Etalon Group’s Personnel Management Division is responsible for implementing and monitoring the HR policy for the entire Company. The Company has documents in place that reflect the basic principles and mechanisms for the implementation of its personnel and social policies. Remuneration and non-financial incentives: � Regulation on Remuneration, Bonuses and Benefits � Regulation on Etalon Group Corporate Awards Basic principles of working arrangements: � Corporate Labour Policy � Regulation on Material, Technical and Information Support � Onboarding of new employees: � Regulation on Employee Orientation Recruitment and approach to professional training and development: � Regulation on Recruitment � Regulation on Staff Training and Development In addition to the documents listed above, the Company has policies in place to avoid conflicts of interest and to combat corruption and fraud, as reflected in Etalon Group’s Code of Corporate Ethics and Anti-Corruption Policy, as well as in the Regulation on Etalon Group’s Fraud, Corruption and Theft Prevention Hotline. These documents are described in more detail in the Business conduct section. 10 ТОР Etalon Group was included in HeadHunter’s annual ranking of top employers Gold in the Employees and Society and Corporate Governance categories in Forbes ranking the occupational health and safety policy and system are discussed in more detail in the occupational health and safety section. 95 11ANNUAL REPORT 20227 7 SuStAInABILItY Staff development In order to incentivise staff and reinforce their commitment Since the Company encourages employee initiatives aimed at to the Company, Etalon Group provides employees with a large professional development and efficiency gains, it often covers some variety of opportunities for professional and career development. or all of the costs of training that employees themselves choose. Staff training The Company offers employees a competitive salary, performance- based bonuses, as well as training through both professional and personal development programmes. Workshops and programmes on occupational health and safety (OHS) are an important part of training. In 2022, 133 Etalon Group employees took part in OHS programmes and workshops covering Every year, the Company makes a list of training needs, assesses a total 1,749 hours. requests and monitors the progress of programme participants. Following the completion of any course, feedback is collected in order to improve the process. Employees are able to undergo training not only through third- party educational platforms but also thanks to investments in the development of in-house training programmes. In early 2022, recognising the effectiveness of distance education, the Company launched its own training platform for employees called Etalon4Upgrade, which provides access to beneficial External training was conducted mainly on the following topics: � industrial and civil engineering and design � accounting and taxation � marketing and sales � personnel management and document management � data analysis courses and materials in a variety of subject areas: courses to help � courses on a variety of software employees improve their Microsoft Office skills, materials related to � occupational health and safety construction technologies and sales techniques, a distance course for new employees, as well as webinars on various topics and an electronic library of business literature. 2021 2022 NUMBER OF PEOPLE TRAINED NUMBER OF HOURS NUMBER OF HOURS PER PERSON NUMBER OF PEOPLE TRAINED NUMBER OF HOURS NUMBER OF HOURS PER PERSON Employee category Management Line employees Gender Women Men Total 153 616 245 524 769 5,185 13,605 4,135 14,655 18,790 34 22 17 28 24 762 1,608 1,126 1,244 2,370 30,402 39,832 15,257 54,977 70,234 40 25 14 44 30 In 2022, nearly equal numbers of men and women participated in training programmes; however, the number of hours of training per person for women differed given that the Group’s female staff are employed primarily in managerial and administrative positions, where training programmes are shorter than the specialised professional programmes for the production unit, where most of the personnel are men. The following factors had an impact on training metrics in 2022: the increase in the Company’s headcount, the launch of new programmes, the increasing popularity of a philoso- phy of continuous professional development, as well as the resumption of in-person programmes. oHS training courses are discussed in more detail in the occupational health and safety section. 30 TRAINING HOURS PER PERSON +25 % YEAR-ON-YEAR increase in the number of hours of training per person 96 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Developing workforce capacity In order to ensure that it is able to recruit and retain qualified personnel, Etalon Group uses various platforms to search for and hire employees, and it also develops programmes and events for students in partnership with specialised universities. At the initiative of Etalon Group and with the support of design, construction and development companies, relevant government agencies, the Government of St Petersburg, the professional community and leading industry experts, the BIMSkills competition Recruitment services are used for the placement of vacancies and the selection of candidates. Partnership with universities Etalon Group cooperates with leading specialised universities, including St Petersburg State University, Peter the Great St Petersburg Polytechnic University, St Petersburg State University of Architecture and Civil Engineering (GASU), the Higher School of Economics National Research University, Moscow State University of Civil Engineering, the Russian Presidential Academy of National Economy and Public Administration, and the St Petersburg Stieglitz State Academy of Art and Design. In 2022, Etalon Group and for architectural and design works using information modelling technologies was held for the second year in a row. In 2022, the competition took place in every federal district of the Russian Federation; more than 300 students from specialised higher educational institutions as well as institutions of secondary vocational education from 35 Russian cities applied to take part in the competition. The winners were given an opportunity to complete an internship with the possibility of subsequent employment at leading Russian development and design companies that use information modelling technologies in their work. Team-building St Petersburg State Agrarian University entered into an agreement Etalon Group is committed to maintaining a highly skilled professional on cooperation in the field of education. workforce. For this purpose, the Company creates comfortable The Company hosts guest lectures, job fairs and other events at university campuses, and also provides students with an opportunity to take part in Etalon Group internships. working conditions and career opportunities for existing employees, while also recruiting talented new professionals. New employees and staff turnover in 2022 Percentage of new hires relative to the average annual headcount Personnel turnover 1 Women Percentage of new hires relative to 32% the average annual headcount Personnel turnover 1 12% 18–24 25–30 77% 38% 51% 28% 31–40 35% 19% 41–50 ABOVE 50 TOTAL 32% 17% 23% 12% 35% 19% Men 36% 23% Etalon Group’s key asset is its employees. The Company is concerned not only with its employees’ professional development but also with the establishment of an efficient, close-knit team functioning in a healthy working environment. The orientation programme for new employees helps them quickly become part of their new team; acquire the skills they need to do their jobs; learn about the Company’s operations, standards and values; and also identify their strengths and weaknesses in their new positions. Every new employee is assigned a mentor who prepares a list of orientation assignments, keeps track of their performance and provides feedback. In 2022, the number of employees participating in the orientation programme increased considerably, as the successful integration of YIT Russia would not have been possible without paying careful attention to the onboarding of new staff. Orientation programme for new employees Number of employees taking part in the orientation programme 2019 315 2020 344 2021 113 2022 821 As part of its team-building efforts, Etalon Group arranges a variety of contests, events and sporting competitions for employees. In 2022, Etalon Group employees participated in the Builders Football Cup, which took place at the Nova Arena in St Petersburg; the Race of Heroes, a patriotic sport-related project in the Republic of Tatarstan; the Tsarskoye Selo Marathon, in the town of Pushkin; the Fontanka SUP, an international paddle board festival; and ZaBeg races across the country. 1 The percentage of the number of former employees relative to the average annual headcount in the corresponding category. 97 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Etalon Group social policy Taking care of the health and safety of employees In 2022, as in previous years, Etalon Group continued to offer One of the priorities of Etalon Group’s HR strategy is the health and safety of employees, which the Company protects, first and foremost, by creating safe working conditions and preventing workplace injuries. employees life and health insurance programmes, which covered nearly 4,000 people. Private health insurance programmes were available to more than 3,500 employees regardless of the region. Employee life and health insurance Private health insurance programme NUMBER OF EMPLOYEES NUMBER OF EMPLOYEES taking part in the life and health insurance programme 2019 2020 St Petersburg Moscow and the Moscow region Other regions Production unit TOTAL 506 683 - 1,500 2,689 483 602 - 1,500 2,585 2021 642 708 10 1,200 2,560 2022 973 616 305 2,042 3,936 Concern for employees’ quality of life Etalon Group is committed not only to providing safe working conditions for its employees in the workplace but also to improving the quality of their life outside work. That is why the Company has developed partnership programmes that offer employees discounts on insurance services, medical services, recreation, fitness club memberships and educational programmes. In addition, Company employees are able to purchase apartments at a discount, depending on the length of their service time with Etalon Group. The Company supports employees facing challenging life circumstances and provides financial assistance to retirees as well as to existing employees upon the birth of a child or the loss of a close relative. In 2022, the Company provided 415 employees with financial support totalling RUB 12.9 million. Thirty-eight individuals who had made a major contribution to Etalon Group’s development and who had spent a long time working for the Company were awarded a corporate pension at the end of 2022. taking part in private health insurance programme 2019 2020 St Petersburg Moscow and the Moscow region Other regions Production unit TOTAL 506 683 - 1,200 2,389 483 602 - 944 2021 642 708 10 842 2,029 2,202 2022 973 616 434 1,515 3,538 Financial assistance provided to employees in 2022 AMOUNT OF ASSISTANCE, RUB MLN NUMBER OF EMPLOYEES RECEIVING ASSISTANCE Total amount of financial assistance paid out: for the death of a close relative for the birth of a child for other purposes TOTAL 4.1 4.3 4.4 12.9 126 163 126 415 98 11ANNUAL REPORT 2022 7 7 SuStAInABILItY Employee evaluation and remuneration policy one of the company’s key personnel management Etalon Group’s employee evaluation and remuneration policy ensures that the Company does the following: 1 2 3 4 Provides employees with fair, clearly Applies a unified, systematic approach Determines remuneration based on the Сreates conditions for employees to set specified remuneration that contributes to to the remuneration of all employees achievement of Etalon Group’s operational ambitious goals and to take responsibility the achievement of the Group’s goals in all Etalon Group companies and strategic goals and the specific results for the achievement of those goals of the work of each employee principles is to offer decent, fair and non-discriminatory remuneration based solely on each employee’s professional value. In addition to the base salary, Etalon Group employees’ remuneration consists of bonuses, non-financial incentives and various other benefits. In 2022, the Company did not employ anyone whose salary was below the minimum wage; the average salary last year was nearly six times higher than the minimum wage. In order to retain sought- after professionals and recruit talented employees, the personnel service regularly studies salary scales and ensures that employees are paid at market rates. Open and honest dialogue with employees and feedback from their immediate supervisor make it possible to properly assess the quality of their work and potential opportunities for career growth. The Company regularly conducts studies and surveys on employee satisfaction and engagement: in 2022, 1,128 people took part in such a survey. It is clear that employees are unable to work effectively if they are unaware of the main changes taking place within the Company. The Company notifies employees at least eight weeks in advance of changes that could affect them. The Group uses the following channels to keep employees up to date on Company news: � the corporate intranet � a portal created in 2022 to mark Etalon Group’s 35th anniversary that is used for publishing news, holding discussions, hosting competitions, conducting surveys and expressing gratitude to co-workers � the corporate newsletter � the Dialogue with the President project, which enables staff to ask questions of Etalon Group’s President and get detailed answers 99 11ANNUAL REPORT 20227 7 SuStAInABILItY Equal opportunities All opportunities for career advancement and salary increases Despite the specific nature of the industry, women accounted for 35% are available equally to men and women regardless of their age, of all Company employees as of the end of 2022, up 6 percentage nationality, skin colour, religion or other factors. When making points from 2021. decisions about recruitment and personnel management, the Company pays particular attention to an individual’s personal and professional qualities. Women also filled 36% of managerial positions in 2022. As of 24 April 2023, there were two women on Etalon Group’s eight-member Board of Directors. Etalon Group management1 Number of managers at all levels nuMBEr PErcEntAGE nuMBEr PErcEntAGE nuMBEr PErcEntAGE 2020 2021 2022 Age Under 30 30–50 Over 50 Gender Women Men TOTAL 78 752 208 326 712 1,038 8% 72% 20% 31% 69% 89 823 223 454 681 1,135 8% 73% 20% 40% 60% 85 906 253 448 796 1,244 7% 73% 20% 36% 64% 36 % 58 % of Etalon Group’s managerial staff in 2022 were women of the Company’s line employees in 2022 were women 201 EMPLOYEES (3%) worked remotely or according to a personalised schedule in 2022 1 Total amounts may not add up to 100% due to rounding. Percentage of women among Etalon Group employees in 2022 Managers Women Men Line employees Women Men Blue-collar workers Women Men ST PETERSBURG MOSCOW OTHER REGIONS PRODUCTION UNIT TOTAL PERCENTAGE 289 127 44% 162 56% 638 377 59% 261 41% 46 7 15% 39 85% 185 78 42% 107 58% 424 236 56% 188 44% 7 - - 7 100% 98 36 37% 62 63% 326 229 70% 97 30% 30 1 3% 29 97% 672 207 31% 465 69% 1,118 617 55% 501 45% 2,046 126 6% 1,920 94% 1,244 448 796 2,506 1,459 1,047 2,129 134 1,995 36% 64% 58% 42% 6% 94% Work–life balance Etalon Group takes into account the fact that, in addition to their work duties, employees should be able to lead a full life, with enough time for family matters, hobbies and recreation or downtime. The Company fully respects and supports employees’ right to personal time; it does so mainly by offering standard working hours and time off. Employees who are unable to work according to a standard schedule may be offered a personalised schedule provided that such an arrangement is not detrimental to operations. In 2022, 201 Group employees – 100 women and 101 men – worked remotely or according to a personalised schedule (regardless of the epidemiological situation). Company employees are free to exercise their right to parental leave. In 2022, 98 employees, including two men, took parental leave (compared with 75 employees, including four men, in 2021). In order to help parents financially in the first months after the birth of their child, the Group provides additional support payments beyond the benefits required by law. The Company values the fact that the majority of employees return to their jobs following parental leave. In 2022, 29 employees returned from parental leave (compared with 28 employees, including one man, in 2021). 100 11ANNUAL REPORT 2022 7 SuStAInABILItY Customers Most of our customers are middle-class individuals aged 35–45 who want to improve their housing conditions for themselves and their family. Customer profile 1 1/3 In 2022, the percentage of customers aged 35–44 in St Petersburg increased from the previous year, reaching 36%. Most of our customers are line personnel, while business owners and civil servants have started making repeat purchases more often. In 2022, the number of customers purchasing housing as an investment or for their children increased. Most of the people who bought an apartment in St Petersburg were registered in the city, but there was also a high percentage – 42% – of customers from other regions and from abroad. In terms of payment, customers in St Petersburg predominantly chose to pay in full up front, although mortgage financing and instalment plans were also popular. 14 MLN RUB Average budget 57 SQM Average area of purchased apartment 46 % Percentage of repeat purchases St Petersburg AGE REASON FOR BUYING A HOME CUSTOMER LOCATION <25 4 % For the buyer’s personal residence / for the buyer’s family 65 % St Petersburg and the Leningrad region 58 % 29 % For the buyer’s children 20 % Other regions 37 % 36 % As an investment 13 % 21 % For the buyer’s parents 2 % Moscow and the Moscow region 4 % Foreign jurisdictions 0.5 % 25-34 35-44 45-54 55-64 8 % >65 2 % OCCUPATION PERCENTAGE OF REPEAT PURCHASES METHOD OF PAYMENT Professional 36 % Manager 21 % 24 % 19 % Mortgage 31 % Paid in full up front 41 % Business owner 17 % 65 % Instalments 28 % 1 According to customer surveys conducted by Etalon Group in 2022. Civil servant 5 % Other 21 % Totals may not add up due to rounding. 43 % 35 % 101 11ANNUAL REPORT 2022 7 SuStAInABILItY Customer profile 1 2/3 2/3 Etalon Group’s main customers in Moscow in 2022 were professionals, managers or business owners aged 35–44. They acquired housing as their personal residence. Most of the people who purchased an apartment in Moscow or the Moscow region were Muscovites, but residents of other regions were also active in purchasing apartments in 2022. Compared with 2021, the percentage of customers in Moscow who paid for their apartment in full up front increased considerably, from 39% to 52%. 23 MLN RUB Average budget 65 SQM Average area of purchased apartment 28 % Percentage of repeat purchases Moscow AGE REASON FOR BUYING A HOME CUSTOMER LOCATION <25 4 % For the buyer’s personal residence / for the buyer’s family 71% Moscow and the Moscow region 61 % 22 % For the buyer’s children 13 % Other regions 36 % 40 % As an investment 15 % 20 % For the buyer’s parents 1 % St Petersburg and the Leningrad region 2 % Foreign jurisdictions 1 % 25-34 35-44 45-54 55-64 8 % >65 6 % OCCUPATION PERCENTAGE OF REPEAT PURCHASES METHOD OF PAYMENT Professional Manager 30 % 31 % Business owner 25 % Civil servant 4 % 11 % 15 % 15 % 8 % Other 10% 30 % Mortgage 32 % Paid in full up front 52 % Instalments 16 % 1 According to customer surveys conducted by Etalon Group in 2022. Totals may not add up due to rounding. 102 11ANNUAL REPORT 2022 7 SuStAInABILItY Customer profile 1 3/3 A third of the apartments purchased at Etalon Group projects are bought by people 25–34 years of age. Nearly 80% of customers used mortgage programmes to purchase housing. Not many repeat purchases were made in regional markets, as the Company began its regional expansion programme only in 2021, in contrast to Etalon Group’s key markets of Moscow and St Petersburg. 1 According to customer surveys conducted by Etalon Group in 2022. 6 MLN RUB Average budget 48 SQM Average area of purchased apartment 1 % Percentage of repeat purchases Regional markets AGE REASON FOR BUYING A HOME CUSTOMER LOCATION <25 6 % For the buyer’s personal residence / for the buyer’s family 65% Omsk 36 % 32 % For the buyer’s children 21% Ekaterinburg 31 % 37 % As an investment 12 % Tyumen 7 % 17 % For the buyer’s parents 2 % Tatarstan 4 % Other 22% 25-34 35-44 45-54 55-64 5 % >65 3 % OCCUPATION PERCENTAGE OF REPEAT PURCHASES METHOD OF PAYMENT Professional 49 % Manager 18 % Business owner 15 % Civil servant 11 % Other 7 % Totals may not add up due to rounding. 3 % 9 % 1 % 4 % 26 % Mortgage 78 % Paid in full up front 20 % Instalments 2 % 103 11ANNUAL REPORT 2022 7 SuStAInABILItY Social responsibility Social responsibility is an important aspect of the company’s policy. For many years, Etalon Group has been supporting a variety of educational, environmental, social and charitable projects as well as projects related to historical education and sports. In doing so, the company’s aims are to promote a positive environment and a healthy society, to encourage socio- economic development in the regions where it operates and to establish a conducive business environment in those regions. Development of social infrastructure In 2022, Etalon Group opened three preschools and delivered one general secondary school. House on Blyukhera residential complex, St Petersburg A state-of-the-art preschool for 160 pupils opened at the House on Blyukhera residential complex. Galactica Premium residential complex, St Petersburg A preschool for 220 children and an advanced office for paediatrics, a branch of the city’s paediatric polyclinic No. 35, opened on the grounds of the Galactica Premium project. Once construction is completed, the project will be home to nine preschools and two schools. Petrovskiy Landmark residential complex, St Petersburg A three-storey preschool for 90 children, with a total area of about 3 ths sqm, opened at the Petrovskiy Landmark residential complex. Etalon City residential complex, Moscow A general secondary school for 625 pupils was delivered as part of the Etalon City residential complex. In 2021, a preschool was delivered as part of the project. The preschool’s proximity to the school means that children will be able to continue their education without having to leave the microdistrict, which will also help them form strong social connections. In the future, the Group plans to build preschools and schools at other residential complexes as well. For example, the Company plans to build six preschools, two schools and a polyclinic at its Shagal residential project. The concept for one of the preschools, developed in 2022, calls for the use of natural materials, the landscaping of about 40% of the grounds and the use of custom solutions to enable meaningful interaction between teachers and parents regarding the upbringing and development of their children. The Company will pay particular attention to the establishment of social amenities and infrastructure in its new regions of operations. the educational institutions delivered by Etalon Group in 2022 are designed to serve up to 785 pupils. the new preschools opened in 2022 and the school built by the company have a combined area of c. 24 ths sqm. 104104 ANNUAL REPORT 2022117 SuStAInABILItY Development of social infrastructure Preservation of cultural and historical heritage one of the fundamental principles of Etalon Group’s philosophy is to respect the history of the locations where its projects are being developed. Preservation of urban heritage Etalon Group is building the Silver Fountain residential complex and, at the same time, carrying out restoration work at the site of the Alekseevskaya water-lifting station, which is part of the capital’s cultural and historical heritage. The Company preserved the historical buildings, which, after restoration, were used to develop infrastructure for the residential complex, and it also restored the legendary Wallace fountain, the only one in Moscow. Interuniversity student campus at the Eurasian Scientific and Educational Centre In 2022, Etalon Group and the Government of the Republic of Bashkortostan signed a concession agreement for the construction and subsequent operation of the interuniversity student campus at the world-class Eurasian Scientific and Educational Centre in Ufa. The innovative, state-of-the-art campus will include residential buildings with room for 4,400 students, instructors and guests; an IQ park; a building that houses an auditorium and laboratory facilities; and a genome centre. The total area of all of the facilities is expected to be at least 133 ths sqm; the final parameters will be determined once the design documentation is completed. 105 11ANNUAL REPORT 20227 SuStAInABILItY Participation in events commemorating Russian history 9 May – Victory Day In the lead-up to Victory Day, Etalon Group took part in commemorative events in St Petersburg, Moscow and Omsk. 78th anniversary of the complete lifting of the siege of Leningrad In the lead-up to the 78th anniversary of the complete lifting of the siege of Leningrad, Etalon Group took part in the organisation of commemorative events: Company employees together with students from school No. 690 – whose new building was constructed by Etalon Group – laid flowers at a monument to the heroic defenders of Leningrad, a memorial established by Etalon Group in 2013 in Utkina Zavod, near the Swallow’s Nest residential complex. In addition, representatives of the Company visited the Moskovskiy district branch of the Russian Red Cross in St Petersburg to greet veterans. 106 11ANNUAL REPORT 20227 SuStAInABILItY Developing local communities Creating comfortable surroundings The needs of future residents are a constant priority when designing new residential complexes. The Company is changing the concept of the urban environment by developing projects where every important facility for residents inside the development can be reached within 15 minutes. This unique integrated-development concept is the basis of the Zil-Yug project, for example, which Etalon Group is building in the south of Moscow: a variety of housing types and architectural solutions, well-planned social amenities and transport infrastructure are within walking distance from any point in the development; the project ensures excellent visual permeability; pedestrian and transport routes are separated; and there is an abundance of landscaped green areas for recreation and walks – all of these features are combined to ensure comfortable conditions for future residents. In addition, Etalon Group is committed to simplifying the management of its services and making them more efficient both for residents and for the operating company by applying new smart solutions. At the Silver Fountain residential complex in Moscow, for example, the Company is piloting a “digital neighbourhood” project that links up the utilities infrastructure of the residential buildings with the business processes of the developer and the service company. Besides, Etalon Group participates in social projects aimed at creating a friendly urban community. At the very end of 2022, 17 Etalon Group sales offices in five regions of operations – St Petersburg, Ekaterinburg, Omsk, Kazan and Tyumen – took part in a kid-friendly social project to create a favourable urban environment for children. 107 11ANNUAL REPORT 20227 SuStAInABILItY Developing local communities 4th Atmofest Eurasian Festival of Landscape Art Ekaterinburg hosted the fourth Atmofest Eurasian Festival of Landscape Art, a major event for the city, where Etalon Group presented a multifunctional platform featuring a children’s play area, workshops and other activities. Children’s Day in Omsk Etalon Group helped arrange the celebration of Children’s Day at the 30th Anniversary of the Komsomol Culture and Entertainment Park. Local festivals Every year, Etalon Group hosts events at its finished properties to celebrate the new Year, Knowledge day, cosmonautics day, Victory day and Maslenitsa, and the company also pays a great deal of attention to regional holidays, which are especially important for the local population. Knowledge Day in the Emerald Hills microdistrict On 1 September, Knowledge Day was celebrated at school No. 18, located in the Emerald Hills microdistrict. Builder’s Day in Ekaterinburg Etalon Group took part in celebrations to mark Builder’s Day in Ekaterinburg and organised an attention-grabbing photo zone as well as workshops. City anniversaries To mark the anniversary of the founding of Ekaterinburg’s Solnechniy district, which Etalon Group continues to develop, local businesses as well as youth performers and sports teams from the district presented an entertainment programme and conducted a variety of workshops. On the 299th anniversary of Ekaterinburg’s founding, the Company took part in Dance KB, a traditional dance festival, and held a competition for the best duo that featured the participation of the Company’s mascot. Festivities were also organised to celebrate the founding of St Petersburg and Omsk. 108 11ANNUAL REPORT 20227 SuStAInABILItY Education and awareness-raising Etalon Group plays a role – as partner or organizer – in numerous educational projects aimed at informing residents about the specific features of their place of residence. the company also works with schoolchildren and students to encourage an interest in architecture and to create a pool of talented young professionals. Etalon Group is happy to share its experience, and in return it gets a fresh new look at solutions to urban-planning issues. Moscow through the eyes of an engineer In late 2022, Etalon Group became a partner for the social and educational project “Moscow through the Eyes of an Engineer”, which discusses the architecture of the capital and monuments to the art of engineering. Builders of the future As part of RBC’s Second Annual Forum on the Development of Infrastructure Projects in Russia, a foresight session called “Builders of the Future: Open Meeting of the Children’s Council under the Public Council of the Russian Ministry of Construction, Housing and Utilities” was held, where representatives of Etalon Group discussed the Company’s projects with young members of the Children’s Council. Following the session, Etalon Group was invited to join the working group for the “I Am a Builder of the Future!” project, to promote construction-related professions and incorporate ground-breaking new ideas from young people into its projects. 4th United Eurasian Congress “BIM Community 2022: People, Technologies, Strategy” The fourth United Eurasian Congress “BIM Community 2022: People, Technologies, Strategy” was held in Moscow, at the House of Architects, with the support of Etalon Group. The Congress was attended by representatives of industry- related regional and federal government agencies, heads of professional associations and non-governmental organisations, universities, property developers and design bureaus, as well as developers of information systems. Participants discussed issues related to the digital transformation of the construction industry, an issue that both the state and the Company are now paying particular attention to. BIMSkills-2022 BIMSkills-2022, the second nationwide competition for architectural and design works using information modelling technologies, was held in St Petersburg – one of the main events related to digitalisation in Russia, which is traditionally held at the initiative of and with support from Etalon Group. The competition was held in every federal district of the Russian Federation; more than 300 students from specialised higher educational institutions as well as institutions of secondary vocational education from 35 Russian cities applied to take part. The winners were given an opportunity to complete an internship with the possibility of subsequent employment at leading Russian development and design companies that use information modelling technologies in their work. Open City educational project Etalon Group, as an official partner of the Open City educational project, conducted a tour for project participants of the construction site of the Shagal residential district. The most important goal of the project is to engage students from architectural universities in real architectural processes in collaboration with leading professionals from the architectural and development community. Sistema Fest Etalon Group supported Sistema Fest, which was held in Omsk 23–25 September. The programme for the charity sociocultural festival included career guidance workshops, featuring speakers from Etalon Group, for students from schools and colleges; an environmental event; and a nationwide campaign focused on culture. During the festival, more than 2,000 spruce trees were planted, and participants were offered a tour of the construction site of the Green River residential complex. 109 11ANNUAL REPORT 20227 SuStAInABILItY Education and awareness-raising Educational Laboratory for the Parametric Design of Objets d’Art Etalon Group together with the Moscow Museum of Modern Art launched the Educational Laboratory for the Parametric Design of Objets d’Art for talented students in an effort to engage young professionals in the processes of designing and improving the urban environment. Functional Diagram for the 300th Anniversary of Omsk Park Etalon Group arranged a competition for students from construction-related educational institutions in Omsk to develop functional diagrams for the 300th Anniversary of Omsk Park. The finalists were offered a paid internship at the Company. Cooperation with St Petersburg State Agrarian University Etalon Group and St Petersburg State Agrarian University signed a cooperation agreement aimed at implementing educational projects in the area of industrial and civil construction. Tour of the Silver Fountain residential complex Etalon Group conducted a tour, for students from the Russian Presidential Academy of National Economy and Public Administration and Moscow State University of Civil Engineering, of the Silver Fountain residential complex, during which Etalon Group specialists described the structure of the state-of-the- art development project and explained how it is being built. Tour of the construction site of the Moscow Gates II residential complex Etalon Group conducted a tour for students from Peter the Great St. Petersburg Polytechnic University of the construction site of the Moscow Gates II project. Etalon Group specialists told students about the organisation of the construction process, described the main technologies used in housing construction as well as the materials used. In addition, they talked about occupational health and safety and the Company’s success using information modelling technologies. 110 11ANNUAL REPORT 20227 SuStAInABILItY Sport and health Etalon Group encourages the adoption of a healthy lifestyle not only by sponsoring sporting events but also by engaging its own employees in sports. Partnership with the Novosibirsk Region Athletics Federation Etalon Group became the general partner of the Novosibirsk Region Athletics Federation. In this context, the Company will support the A. Raevich Siberian Running Festival (Novosibirsk half-marathon), a major event. Builders Football Cup The Etalon Group team was one of the prize winners at the Builders Football Cup, which took place at the Nova Arena in St Petersburg. Race of Heroes Etalon Group took part in the Race of Heroes, in the Republic of Tatarstan, a patriotic project that includes an extreme cross- country race. Tsarskoye Selo Marathon The Etalon Group team participated in the Tsarskoye Selo Marathon, held in the town of Pushkin. ZaBeg races Etalon Group employees competed in races across the country, demonstrating their love for sports and their team spirit. Fontanka SUP The Group took part in the Fontanka SUP international paddle board festival for the fourth time, having expanded its team to over 100 employees. 111 11ANNUAL REPORT 20227 SuStAInABILItY Environment Healthy City project In August 2022, an environmental drive was launched, with Etalon Group’s support, in the Siberian capital of Novosibirsk, as part of the Healthy City social project. Using the +1Gorod interactive online service, participants performed tasks related to responsible consumption and environmental impact reduction, attended online educational lectures given by experts, and also received interesting assignments and prizes from the project’s strategic partner and co-organiser, Etalon Group. Tree-planting drive Etalon Group supported a tree-planting drive in the Kalininskiy district of St Petersburg. As part of the event, participants put down lawns and flower beds, and they also planted trees and shrubs at the House on Blyukhera project. Omsk Garden City volunteer movement Etalon Group participated in a campaign to create green space along a river embankment in Omsk; the event was organised by the Omsk Garden City volunteer movement. The Company purchased more than 600 seedlings for the campaign. Planting maple trees Etalon Group once again supported an environmental initiative of Delovoi Peterburg, at Hero Cities Park (Pulkovo Park), where maple trees were planted as part of the Business Alley project. Zil Veterans Alley at the Shagal residential project An alley in honour of former employees of the Zil automobile factory was established at the Shagal development project. Company executives and employees together with former staff of the Zil factory planted 15 five-metre-tall maple trees and erected a commemorative plaque. Community development programmes Community development programmes Number of events/programmes Amount invested in the development of local communities, RUB ths 2020 2021 2022 17 3,821 19 2,500 20 2,390 Omsk Garden City volunteer movement 2.4 MLN RUB was invested by the Company in the development of local communities in 2022 112 11ANNUAL REPORT 2022 7 SuStAInABILItY Charity Every year, Etalon Group provides charitable assistance to various social facilities, finances sports and recreational events, and supports charitable foundations. New Year’s Miracle and Tree of Wishes In late 2022, Etalon Group employees were involved in supporting New Year’s Miracle, an online campaign to raise funds to arrange individual tutoring for children in the child- welfare system. The New Year’s Miracle campaign was held for the second time as part of a fundraising project. The project helps children living in child-welfare institutions to prepare for their final exams and post-secondary entrance exams in order to help them learn a profession, which would give them a chance to find employment and improve their lives. During the campaign, about RUB 600 thousand was collected in the form of private donations, which will be spent on nearly a thousand hours of individual classes with teachers to help the children fill in academic gaps and prepare for exams. In addition, among the more than 20 companies that took part, the largest total donation came from Etalon Group employees. A winter garden in every home Etalon Group was a partner for the Winter Garden in Every Home charity event in St Petersburg. As part of this campaign, Company employees and other volunteers carefully prepared plants from the winter garden of the former Leningrad Youth Centre and gave them to St Petersburg–based organisations as well as interested residents. Everyone involved was able to take the plants home free of charge, and they also received keepsakes. Wastepaper collection The Company supported an initiative to collect wastepaper as part of a charity project to support children’s education. Etalon Group was the leader among participating companies. Special event at Family Support Centre On Knowledge Day, 1 September, Komsomolskaya Pravda v Sankt-Peterburge together with its partners, including Etalon Group, organised a special event at Family Support Centre No. 2, on Vasilievskiy Island. Charity Number of charity events/programmes 14 28 48 Amount of charitable assistance provided, RUB ths 46,301 53,900 154,389 2020 2021 2022 113 11ANNUAL REPORT 2022 7 SuStAInABILItY Innovations Technology platform In 2022, Etalon Group elevated the strategic In 2022, Etalon Group’s It departments worked hard to develop a digital importance of It innovations and of innovative integration platform that will improve business efficiency considerably. construction technologies as independent the project is expected to be ready for commercial operation in 2Q 2023. businesses in light of the emergence of demand for domestic software and the expansion of innovative programmes. The Company began developing proprietary digital products that are specially adapted to its business needs. All digital products were integrated into a single technology platform. The pivot towards the development of proprietary solutions was a necessary response to challenges stemming from the geopolitical situation and the departure of a number of IT companies from the Russian market. The platform will integrate all of our IT resources – about thirty digital products altogether – and will enable them to be managed in a consistent and highly efficient manner. The platform supports the following: 1 2 the integration of all Group digital the automation of business products into a single management processes and a considerable environment reduction in the amount of time spent on manual labour 3 4 data analysis using machine learning and artificial intelligence (AI) the creation of accurate forecasts for planning and making strategic management decisions 5 6 the creation of a single entry point for interaction among all participants in the Group’s business processes, including for customers a high level of security and data protection 114 11ANNUAL REPORT 20227 SuStAInABILItY End-to-end digital architecture saves time, money and materials UNIFIED DIGITAL PLATFORM End-to-end data transfer across the entire value chain PRE-DEVELOPMENT STAGE: LIMIT COSTS AND REDUCE TIME REQUIRED BY UP TO 6 MONTHS REAL-TIME MONITORING OF COSTS AND TIMING FEEDBACK ON PRODUCT PRICING AND PRODUCT INPUT LIMITATIONS GO / NO GO DECISION 99% ACCURACY WITH MASTER PLANNING STAGE MARKET ANALYSIS GIS Big data system for real- time and forecast data analysis (price, demand, supply and competition level for any location) Automated screening for appropriate land plots Land scanning with drones and transfer to automated master planning solutions Deep integration with third- party GIS services MASTER PLANNING AND CONCEPT Express master plan and budget Automated data transfer to BIM DESIGN Automated project documentation Online permitting process Automated generation of working documentation Full integration with BIM CONSTRUCTION SERVICE Build information model for construction coordination and control Dashboard for real-time cost control Facility information model for ongoing maintenance and building repairs PARTNERS Joint ventures Share participation Long-term exclusive agreements Inputs for further product improvement Suppliers Proposal request Tendering best practice Selection of best- value solution Supply of materials and Collecting feedback components at contracted price from residents of Etalon properties Sales 115115 11ANNUAL REPORT 20227 SuStAInABILItY BIM CONTRUST one of Etalon Group’s promising developments is the multimodule web platform contruSt, which several of the company’s development teams from the technology Platform department are working on at the same time. contruSt will bring together all the main parties involved in the implementation of investment and construction projects, support seamless data transfer, and digitalise and automate routine operations, both in the office and at construction sites. As the system’s modules are put into operation, the work acceptance process at construction sites will become simpler and more transparent, since the system can automatically calculate the amount of work and volume of construction materials at every stage of construction. Providing digital tools for managing the timing, cost and quality of investment and construction projects being carried out reduction in SG&A expenses DESIGN Digital technical specifications CONSTRUCTION Investment oversight Construction oversight As-built documentation Occupational health and safety Fire safety DigiLab SERVICE Takeover by management company Guarantee Apartment handover to owners Management company BIM Приоб ретени е земл и Noteworthy results in 2022: 1 Testing of the “As-Built Documentation” module got under way. 2 Development of the core framework for the CONTRUST platform began. “As-Built Documentation” module One of Etalon Group’s proprietary digital products for the CONTRUST web platform is a tool to facilitate the work of engineering supervisors, whereby work that used to be done on paper is transformed into a construction project information model. Testing of the “As-Built Documentation” module began in 2022. Automation of engineering supervisor’s routine processes Use of visual aids Automated preparation of package of as-built documentation General contractor’s dashboard Системати зация задач Наглядность Реестр замеч ани й Системати зация задач Каби нет генер ального под рядчика Наглядность Статусн ые моде ли документов Выгруз ки Реестр замеч ани й документо в по стандартн ым формам Каби нет генер ального под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Systematisation of tasks Системати зация задач Системати зация задач Наглядность Наглядность Реестр замеч ани й Реестр замеч ани й Каби нет генер ального под рядчика Каби нет Статусн ые генер ального моде ли документов под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Прое ктировани е Строите льство Приоб ретени е земл и Продажи Прое ктировани е Эксплуа тация недвиж имости Строите льство Продажи Comments register Document status models Выгруз ки документо в по стандартн ым формам Эксплуа тация недвиж имости Uploading documents according to standard forms Системати зация задач Наглядность Реестр замеч ани й Системати зация задач Наглядность Каби нет генер ального под рядчика Реестр замеч ани й Статусн ые моде ли документов Приоб ретени е земл и Приоб ретени е земл и Прое ктировани е Прое ктировани е Строите льство Выгруз ки Каби нет документо в генер ального по стандартн ым под рядчика формам Строите льство Продажи Статусн ые моде ли документов Продажи Эксплуа тация недвиж имости Выгруз ки документо в по стандартн ым формам Эксплуа тация недвиж имости 116116 Приоб ретени е земл и Прое ктировани е Приоб ретени е Строите льство Прое ктировани е Продажи земл и Эксплуа тация Строите льство недвиж имости Продажи Эксплуа тация недвиж имости 11ANNUAL REPORT 20227 SuStAInABILItY BIM Building information modelling (BIM) within Etalon Group this year marks 10 years since Etalon Group began using BIM. the company has automated many processes in recent years, such as its analysis of target construction data, scheduling and as-built documentation. In 2022, the company independently developed cdE (common data environment) software. At the same time, Etalon Group completed the transfer of sales-related data, such as apartment layouts and their parameters, from the BIM model directly to the crM. All these steps make it possible to work with an enormous amount of data, to quickly analyse information and to make decisions under tight deadlines. As a strategic priority, BIM is one of the key components of Etalon Group’s entire technology platform (or digital integration platform). The Group is aware of the need to create uniform transparent technical standards for exchanging information with various government agencies, which makes it easier for businesses to integrate their digital platforms. That is why the Company takes into account current developments and trends in the construction industry in the context of digitalisation, key government objectives as well as the challenges facing businesses in connection with the processes involved in the transformation of the construction industry. BIM development in 2022 In 2022, Etalon Group developed and approved a business process that expands the scope in which information modelling technologies are used at all stages of the life cycle of investment and construction projects. The requirements for preparing BIM-compatible design and working documentation for construction projects were also standardised. A T A D Design standardisation: � architectural solutions � construction solutions � engineering equipment and networks � vendor list Standard master plan Сollections of standard solutions O M A T I O N T U A Digital technical design specifications Section automation Architecture automation: � generation of housing groups and facades Master plan automation S S E S E C O R P Development of technical design specifications: � design � site evaluation � master plan preparation � development of facade solutions � cost assessment Thanks to interconnected data, end-to-end business processes and automation, the Company’s digital products are able to optimise the design process considerably; speed up the construction process; improve quality control of work performance and oversight of construction volumes, the enforcement of schedules, and occupational health and safety; and, as a result, reduce the cost of Etalon Group projects. 117117 11ANNUAL REPORT 20227 SuStAInABILItY BIM Consistent leadership in the industry Digital Neighbourhood � Fully developed on the basis of information modelling � Etalon Group, together with the Moscow Department of technologies, the design for a preschool at the House on Blyukhera project, in St Petersburg, successfully passed a state expert review in digital format for the first time in Russian practice. In June 2022, Etalon Group received the permits necessary to deliver the preschool. Thanks to the use of BIM, this event took place ahead of schedule. � Etalon Group’s Omsk projects won awards at the BIM Leaders 2021/22 competition:1 the Green River residential district took first place in the category “Information Modelling for Residential Buildings”; the sales office that opened in May on Karl Liebknecht Street took second place in the category “BIM Interiors”. The Company used BIM technologies to design its office in Omsk, which is located in the historical building that used to house the Tver Textile Mill. Etalon Group experts created a 3D model of the building that was then used to identify protected areas and spaces that could be transformed. The project enabled the creation of an office that combines history, modernity and digital technologies. Students from Peter the Great St Petersburg Polytechnic University were also winners of the BIM Leaders 2021/22 competition. The students, supervised by Vladimir Sharmanov, an Etalon Group process engineer, prepared a project entitled “Application of BIM Technology for Modelling Safe Working Conditions at Construction Sites”. Etalon Group and the Polytechnic University have enjoyed fruitful cooperation for many years in the areas of science and technology as well as research methodology with the aim of retraining and upgrading the skills of young specialists. Urban Development Policy, the Moscow Foundation for the Renovation of Residential Buildings, the City Development research and design centre, JSC Vneshstroyimport and NOTIM, is a member of a working group involved in the implementation of a pilot project analysing the use of information modelling technologies in construction. Etalon Group’s role in this project is to act as a consultant on the organisation of business processes when implementing investment and construction projects using BIM. � The BIMSkills competition (held at the initiative of Etalon Group) is a unique Russia-wide project aimed at finding the top current students and graduates of universities and colleges in the Russian Federation specialising in digital construction. The competition provides participants with a unique opportunity to apply their knowledge in real projects being implemented by the largest construction companies in the country. The main prize for participants is an opportunity to undertake a paid internship. In 2022, the competition was held in every federal district of the Russian Federation; more than 300 students from specialised higher educational institutions as well as institutions of secondary vocational education from 35 Russian cities applied to take part in the competition. Based on the results, 10 finalists who were developing information models and also performing the tasks of BIM coordinators to support design were accepted for internships. Etalon Project, an Etalon Group company, hired four interns for its projects and has plans for long-term collaboration with them. An integral part of a large project to create a digital integration platform was the unification of all digital products used to manage the company’s digital neighbourhood. In 2022, Etalon Group switched to the independent implementation of its Digital Neighbourhood hardware and software project, which is aimed at the digitalisation of residential complexes and the provision of digital services to the residents of those complexes. The purpose is to create a single digital ecosystem for a residential complex that integrates the property’s utility and technical infrastructure into the information systems and business processes of the developer and the management company. The requirements for digitalisation are established during the conceptualisation phase of the residential complex and are included in the technical specifications for the design of all facilities. Digital technologies are being incorporated that make it easier for residents to interact with the infrastructure of the residential complex and the management company: an IP intercom, an access control and management system, contactless access to apartment areas, automobile access to the parking area, automatic transfer of meter readings, creation of requests for the provision of services by the management company, a marketplace, etc. Work is ongoing to strengthen the mobile communications signal in underground parking areas, common areas, elevator shafts, staircases, spaces between apartments and entrance lobbies. In early 2022, elements of the Digital Neighbourhood system were incorporated into the Silver Fountain project; were designed for incorporation at the Shagal and Nagatino i-Land residential complexes; and are being designed for use at the Voxhall residential complex, in Moscow, and the Che Quarter project, in St Petersburg. The Company is also working on incorporating the system into its regional projects (Omsk, Kazan, etc.). The low-current systems and infrastructure at buildings in the Silver Fountain project that have already been delivered were upgraded to increase the comfort of residents. A pilot project for the digitalisation of apartments at the Silver Fountain residential complex was carried out. The following functionalities were incorporated into the mobile app: an IP intercom; lighting control, including dimming; socket control; air conditioning control; leakage, lighting, presence and opening/ closing sensors. During the reporting year, the IT company Udobnye Resheniya (Convenient Solutions), the developer of the mobile application for residents and Etalon Group housing and communal services management companies (Our Home Etalon), became part of Etalon Group. 1 The international competition BIM Leaders 2021/22 was held with the support of the Ministry of Construction Industry, Housing and Utilities Sector of the Russian Federation. This year, more than 150 companies and organisations from nearly 30 Russian regions took part in the competition. 118 11ANNUAL REPORT 20227 SuStAInABILItY BIM Product standardisation (integration with BIM) Standardisation methods Improving operating efficiency at every stage of implementation by bringing together all process participants in the BIM system Product development and standardisation are among Etalon Group’s strategic priorities. You can read more about standardisation management, design automation and digital technical specifications in the 2021 report. IMPLEMENTED IN 2022: � technical specifications for the development of an information model � a classification system for construction-related information � a common data environment � automation of architectural solutions and master plans � scheduling � investor oversight of construction and installation works � management of design and working documentation ADVANTAGES OF A STANDARDISED APPROACH: class ratio � shorter timeline for design, preparation of documentation and construction � reduced costs at all project stages � increased product appeal thanks to improved quality and affordability Land acquisition Rapid analysis and a more competitive position Системати зация задач Наглядность Реестр замеч ани й Каби нет генер ального под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Системати зация задач Наглядность Реестр замеч ани й Каби нет генер ального под рядчика Design Speed, product programming and cost engineering Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Прое ктировани е Приоб ретени е земл и Приоб ретени е земл и Прое ктировани е Строите льство Продажи Эксплуа тация недвиж имости Системати зация задач Наглядность Реестр замеч ани й Каби нет генер ального под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Construction Speed, quality, cost control PRODUCT DEVELOPMENT STANDARD Строите льство Продажи Эксплуа тация недвиж имости DESIGN STANDARD COLLECTIONS OF STANDARD SOLUTIONS STANDARDISED PRODUCT BY CLASS Системати зация задач Наглядность Реестр замеч ани й Каби нет генер ального под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Sales Exact match to product segments > higher sales rates Системати зация задач Наглядность Реестр замеч ани й Каби нет генер ального под рядчика Статусн ые моде ли документов Выгруз ки документо в по стандартн ым формам Приоб ретени е земл и Прое ктировани е Строите льство Продажи Эксплуа тация недвиж имости COMPUTER-AIDED DESIGN Property management Прое ктировани е Строите льство Продажи Приоб ретени е земл и Эксплуа тация недвиж имости Fewer flaws, easier maintenance and management of facilities Digital technical specifications Automation of the process of creating and editing technical specifications for project design, and linking the technical specifications with the library of construction elements and materials through BIM. Impact from incorporation � Transparent system for the creation, approval and amendment of technical specifications; integration with existing tools and common data environment � Shortening of the construction cycle by at least two weeks by reducing the time needed to prepare the concept and so-called stage P Noteworthy results in 2022 1 2 3 Database created and populated with parameters Limited testing performed Version 1.0 developed; pilot testing in progress 119119 � development of an optimal product line in terms of price-to- Приоб ретени е земл и Прое ктировани е Строите льство Продажи Эксплуа тация недвиж имости 11ANNUAL REPORT 20227 SuStAInABILItY BIM Standardisation methods STANDARD ARCHITECTURAL SOLUTION ELEMENT APARTMENTS SECTION MORPHOTYPE STANDARD MASTER PLAN LANDSCAPING MODULES SURFACES. PROFILES 5 4 3 2 1 5 4 3 2 1 5 4 3 2 1 5 4 3 2 1 GLOBAL GRID Architectural solution gridlines + Master plan gridlines BuILdInG ASSEMBLY FunctIonAL FAcAdE cELLS BuILdInG FAcAdE System-wide solutions Global bindings � grid plan for architectural solutions for sections = facade grid Facade generation � Placement of all architectural elements in the assigned cells Global system of spatial planning architectural solutions (bindings, connections, gridlines, etc.) in accordance with the architectural solutions standard Design code Building appearance Set of rules for determining the visual appearance of buildings in standard and comfort class in accordance with Etalon Group’s standard patterns � the grid forms modular cells in � Assignment of all finishing materials steps specified by the architectural along the facade planes solution standard � each cell has its own function Library of elements � Database of standard architectural elements (windows, curtain walls, balconies, entrance lobbies) � Database of facade finishing materials Database of typical patterns � LEVEL 1. Pattern for the main materials for facade finishing � LEVEL 2. Pattern for the placement of architectural elements � LEVEL 3. Pattern for finishing cells Assessment Preliminary calculation of the cost per sqm of the facade 120120 11ANNUAL REPORT 20227 SuStAInABILItY AnnuAL rEPort 2022 Customers’ personal data protection Protection of the Company’s information systems As the construction industry becomes increasingly digitalised, the risks associated with cybersecurity are growing. The storage of large amounts of information about properties in electronic form, including technical, financial, confidential and other data, as well as the processing of the personal data of our customers raises questions about the construction industry’s potential increased vulnerability to hackers. That is why we pay a great deal of attention to protecting our own data and that of our customers by improving cybersecurity. Maintaining data confidentiality and creating secure channels for data transmission are of paramount importance to us. Etalon Group’s Security Division is responsible for developing policies and standards as well as for implementing them and putting the necessary information infrastructure in place. When collecting, processing and storing personal data, the Company is guided by the laws of the Russian Federation and its own by-laws. In order to ensure the confidentiality of customer data, Etalon Group adheres to the following key documents on information security: � Information Security Policy � Personal Data Processing Policy � Information Security Standards � Methodological Instructions and Requirements Relating to Information Security � Information Security Concept THE BEST INDUSTRY SOLUTIONS AND STATE-OF-THE- ART SOFTWARE ARE USED TO ENSURE THE PROTECTION OF INFORMATION, INCLUDING PERSONAL DATA: � Protection against unauthorised or unlawful access � Centralised anti-virus protection � Firewalling � Data leak prevention system � Data classification system � Data backup and recovery system In addition, software is being introduced to manage information security events. Etalon Group’s Security Division successfully countered external cyber threats during the reporting year. The information security department processed more than 1,000 negative events that could have posed a threat to cybersecurity. No fewer than 10 of them were classified as highly pernicious incidents, and the necessary response measures were taken in a timely manner, enabling the Company to avoid suspending any services. In order to mitigate risks, the Company upgraded the security measures it deploys to protect against attacks on its information systems; these measures identified 327 and blocked 254 malicious e-mails, including links to malware, and also blocked more than 25,000 phishing messages. Etalon Group’s Security Division developed and introduced a staff training system during the reporting year aimed at raising awareness of various cyber threats and forms of cyber fraud. To date, 1,500 Etalon Group employees have successfully completed training and testing. 78 % of unsafe email messages blocked by the Company’s security system 1,500 employees trained and tested on cyber threats and cyber fraud 121 121 Data protection and cybersecurity 11ANNUAL REPORT 20227 SuStAInABILItY Business conduct At the core of Etalon Group’s corporate culture and policies are high ethical standards; zero tolerance for human rights violations, discrimination and corruption; as well as the principles of fair competition. The Company has documents in place that enshrine the fundamental values and principles of corporate behaviour as well as methods for monitoring the rules of corporate ethics: � Etalon Group Code of Corporate Ethics � Regulation on Conducting Tenders � Anti-corruption Policy The rules of corporate conduct apply both to relations between co-workers and to relations with the Company’s business partners. The Company operates a hotline for confidential reports of violations of business ethics and applicable laws as well as corruption and abuse of power within the Company. The main goals, objectives and principles of the hotline, its operating procedures and the distribution of tasks and responsibilities between Etalon Group divisions and its subsidiaries are specified in the Regulation on the Hotline for Countering Fraud, Corruption and Embezzlement. As of 2022, 100% of employees and counterparties were briefed on the company’s requirements and policies, including human rights provisions. Respect for human rights Etalon Group supports and protects internationally proclaimed human rights and complies with legal requirements in this area. In line with high ethical standards, the Company strictly observes and carefully monitors compliance on the part of its partners with fundamental human rights enshrined at the Russian and international levels. Concerning human rights, the Company is guided by the following key external documents: Laws of the Russian Federation The Universal Declaration of Human Rights The principles of the UN Global Compact KEY EXTERNAL DOCUMENTS International covenants on human rights The UN Guiding Principles on Business and Human Rights The International Labour Organization’s Declaration on Fundamental Principles and Rights at Work Etalon Group supports equal opportunities; creates a working environment free of harassment and persecution; does not discriminate on the basis of race, nationality, religious beliefs, gender, origin, age or other grounds; and expects employees and contractors to treat one another with respect and dignity, and to integrate these principles into all processes in the value chain. The Company does not permit any form of child or forced labour, and it makes every effort to create favourable working conditions, to ensure equal pay for work of equal value, to protect families and mothers, and to enable rest and leisure, education, and participation in cultural and sporting life. All employees and contractors are required to familiarise themselves with the human rights provisions included in Etalon Group’s main policies regarding corporate ethics and anti-corruption. In addition, when screening contractors and suppliers, the Company’s Security Division conducts procedures to confirm that they have an impeccable reputation and follow fair business practices. no human rights violations were identified within Etalon Group in 2022. 122122 11ANNUAL REPORT 20227 SuStAInABILItY Respect for human rights Etalon Group’s main impacts in the area of human rights 1 2 3 As an employer, the Company: As a developer, the Company: As a contractor, the Company: the main provisions and regulations reflecting Etalon Group’s fundamental approach to ethical and social values, including human rights, are listed in the corresponding sections: Code of Corporate Ethics � ensures compliance with industrial safety requirements Anti-corruption � cares for the environment � ensures decent working conditions � is responsible for protecting the environment � prohibits the use of child and forced labour � ensures that work is performed in a safe manner � prevents discrimination and harassment � develops infrastructure, including social amenities, that respects � ensures work–life balance equal rights and opportunities THESE PRINCIPLES ARE OBSERVED THANKS TO: THESE PRINCIPLES ARE OBSERVED THANKS TO: � strict compliance with the law, in particular the provisions of the � compliance with environmental laws, including by conducting Labour Code � decent wages based solely on professionalism � the development of human resources � equal conditions for career growth and salary increases regardless of gender, age, religion, skin colour or other factors � support for employees in difficult life circumstances or upon the birth of a child (flexible working hours, material assistance, social benefits) environmental impact assessments and taking measures to limit the impact on the environment at all stages of a project � use of resource-efficient equipment as well as environmentally friendly materials and technologies � collaboration with leading experts and local residents for optimal project development (for example, the Generation ZIL platform, which enables open discussions concerning the Zil-Yug project) � construction of commercial infrastructure and social amenities, including schools and preschools � a wide range of convenient, high-quality services for tenants THESE PRINCIPLES ARE OBSERVED THANKS TO: � compliance with high standards of occupational health and safety as well as environmental safety � compliance with and continuous monitoring of the sustainability of the supply chain (a high degree of environmental, social and financial responsibility on the part of partners as well as their compliance with legal requirements), including through the competitive selection of partners and a formalised screening system CHANNELS OF COMMUNICATION ON HUMAN RIGHTS VIOLATIONS: CHANNELS OF COMMUNICATION ON HUMAN RIGHTS VIOLATIONS: � the Company’s specialised services: HR, security, etc. � the Etalon Group hotline (anonymous reporting is possible) � the Etalon Group hotline (anonymous reporting is possible) � the service company’s call centre � the Corporate Conduct Officer CHANNELS OF COMMUNICATION ON HUMAN RIGHTS VIOLATIONS: � the Etalon Group hotline (anonymous reporting is possible) Employees Occupational health and safety Environment Social responsibility Responsible supply chain 123 11ANNUAL REPORT 20227 SuStAInABILItY Code of Corporate Ethics compliance with the principles of business ethics Parties involved in handling ethical issues Monitoring bolsters Etalon Group’s reputation today and supports the company’s future sustainability. Handling matters of corporate ethics The Code of Corporate Ethics reflects the commitment of Etalon Group and its management to high ethical standards of business conduct (conducting business openly and fairly); these standards were designed to improve the corporate culture, to ensure adherence to best corporate governance practices and to protect the business reputation of Etalon Group companies. Issues related to the clarification and monitoring of compliance with the Code of Corporate Ethics are the responsibility of Etalon Group management and the Corporate Conduct Officer. In 2022, no conflicts of interest were identified within the company. Group ethics guidelines 1 Board of Directors and CEO � Setting policies and standards � Providing a personal example of high standards in terms 2 HR Management Division � Informing all employees about the Code of Corporate Ethics and other standards of corporate conduct of the corporate management culture � Conducting training and reviews on issues relating to ethical behaviour 3 4 Security Division, Corporate Conduct Officer Internal Audit Service � Providing advice on corporate ethics and � Monitoring compliance with by-laws conflicts of interest � Analysing violations and formulating conflict resolution � Registering and responding to violations measures Trust Professionalism Openness Impartiality and objectivity Respect for people Zero tolerance for corruption and unfair competition In order to verify compliance on the part of employees with the Company’s corporate ethics principles, Etalon Group conducts ethics reviews. When undergoing a review, employees complete a Declaration on Ethics and Conflicts of Interest in the form of a questionnaire. The questionnaires are then analysed and a report is generated with suggestions for conflict resolution measures, which is sent for review to the CEO and the Chairman of the Board of Directors. Advice and whistle-blowing For advice or to report violations of corporate ethics, Etalon Group employees may contact their immediate supervisor, the Corporate Conduct Officer or the hotline. The Company guarantees confidentiality in respect of any person reporting a violation of corporate ethics. Based on the reports received by the Corporate Conduct Officer, a decision is made aimed at preventing violations of corporate ethics, eliminating conflicts of interest or explaining the procedure for applying the Code. The Officer may convene a commission on corporate conduct to address challenging situations. In the event of a violation of internal regulations by a Company employee, disciplinary measures are applied to the 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. Hotline Since 2020, the Company has been operating a hotline for combating fraud, corruption and embezzlement. In 2022, the hotline received 15 reports, including one from a Company employee. All reports were carefully reviewed; six of them were recognised as violations on the part of Company employees. Following an official investigation in each case, precautionary steps were taken, ranging from preventive measures to dismissal. 124 11ANNUAL REPORT 20227 SuStAInABILItY Anti-discrimination policy Anti-corruption policy In addition to russian laws, Etalon Group’s internal the Group has a strict zero-tolerance policy for corruption in all its forms and manifestations in policies, including the code of corporate Ethics and its relations with all stakeholders: shareholders and investors, counterparties, representatives of the regulation on conducting tenders, are aimed at government agencies, subsidiaries, employees and others. countering discrimination. In all its activities, Etalon Group takes a zero-tolerance approach to discrimination in all its forms, including on the basis of age, race, ethnicity, gender or any other grounds. The Company also prohibits any form of harassment, including sexual harassment and coercion in verbal, written, visual, physical or other form. Employees’ career growth, as well as their salary, benefits and bonuses, depends solely on their professional competencies. The Company encourages so-called work dynasties, where professional skills are passed down from one generation to the next, but prohibits protectionism based on nepotism, limiting cases of direct or indirect subordination involving relatives. Cases of discrimination can be reported to the Corporate Conduct Officer through official communication channels – for example, by contacting the hotline. The Company guarantees anonymity and that there will not be any negative repercussions for the career of employees who contact the Corporate Conduct Officer. In 2022, no cases of discrimination were identified within the company. Regulatory framework Anti-corruption management system Etalon Group’s anti-corruption policy is based on the following guidelines and regulations: Management principles Etalon Group and its management are committed to improving corporate governance practices and the corporate culture, thus maintaining its excellent business reputation. All Company employees, regardless of their position, must comply with the requirements of the Code of Corporate Ethics and the Anti-corruption Policy. Etalon Group welcomes and encourages compliance with the requirements of its anti-corruption policy on the part of counterparties and other third parties, and also strives to advance a culture of anti-corruption within the Company and in society in general. Notably, the Company conducts its anti- corruption efforts in cooperation with state and regulatory authorities as well as with local communities and associations, partners and counterparties. Criminal Code of the Russian Federation Code of Administrative Offences of the Russian Federation Federal Law on Combating Corruption Etalon Group Code of Corporate Ethics Etalon Group Anti-corruption Policy Etalon Group has established several anti-corruption goals. First, the Company is committed to minimising the risk of involving Etalon Group itself or members of its Board of Directors, its CEO or its employees in corrupt activities, including by: � clarifying the provisions of anti-corruption laws and Company by-laws � enshrining official obligations to comply with them � developing procedures to prevent corrupt practices Second, in its relations with shareholders, the investment community, counterparties, members of management bodies, employees and other parties, Etalon Group is committed to creating a company brand with zero tolerance for corruption in all its form and manifestations. In accordance with the Group’s Anti-corruption Policy, senior executives demonstrate how to meet these standards by setting an example through their own ethical behaviour. The CEO of Etalon Group is responsible for orchestrating all measures aimed at living up to the principles and requirements of the anti-corruption policy, including the appointment of individuals responsible for the development, implementation and oversight of anti-corruption procedures. In addition to communicating to employees the importance of avoiding corrupt activities, Etalon Group conducts integrity due diligence in relation to all counterparties. Members of the Board of Directors and of Board committees as well as all Etalon Group employees, regardless of their position, are personally responsible for compliance with the principles and requirements of the anti-corruption policy as well as for actions or omissions on the part of their subordinates that violate these principles and requirements. 125 11ANNUAL REPORT 20227 SuStAInABILItY Anti-corruption policy Monitoring and risk assessment HR management Effecting payments Etalon Group regularly monitors compliance with anti- corruption procedures, including through periodic audits by the Internal Audit Service. To protect potentially vulnerable business processes, the Company periodically updates its industry- specific corruption risk factors, and develops and incorporates suitable corruption prevention procedures to respond to identified risks. Working with counterparties Etalon Group makes reasonable efforts and takes measures to avoid entering into business relations with unreliable counterparties and to avoid getting involved in corrupt activities. To do this, the Company scrutinises each counterparty’s business reputation, adds anti-corruption clauses to contracts and finds out whether a counterparty has its own policies regarding ethics and corruption. When joining organisations and associations as well as joint ventures, the Company strives to comply with anti-corruption principles and requirements. Etalon Group advocates the adoption of similar anti-corruption policies in joint ventures, organisations and associations in order to prevent or uncover violations so as to avoid the Group’s involvement in corrupt activities. According to the Code of Ethics, all suppliers and contractors working with the Company must be familiar with Etalon Group’s anti-corruption policy. In addition to carrying out integrity due diligence in respect of counterparties, the Company also considers the professional reputation of applicants for vacant positions. When signing an employment contract, employees are required to familiarise themselves with the Code of Corporate Ethics and Anti- corruption policy. Participation in charitable activities and sponsorship Etalon Group does not finance charitable or sponsorship projects in order to obtain commercial advantages in specific Company projects. Social and political activities and dealings with government officials Etalon Group does not participate in the activities of political or religious organisations and does not finance their activities. The Company does not make facilitation payments to government authorities, public officials or others, and also refrains from covering any expenses for or on behalf of government officials or their close relatives or in order to obtain commercial benefits for Etalon Group projects. In combating corruption, Etalon Group cooperates with state and regulatory bodies as well as with companies and associations, partners and counterparties. Informing contractors about the anti-corruption policy in 2022 NUMBER OF COUNTERPARTIES INFORMED ABOUT THE COMPANY’S ANTI-CORRUPTION POLICY AND PROCEDURES MOSCOW ST PETERSBURG OTHER REGIONS Number of suppliers Number of contractors 1,811 2,409 1,782 2,030 234 190 TOTAL 3,827 4,629 Etalon Group does not solicit its representatives or other third parties to perform any actions that contravene its anti- corruption policy or applicable anti-corruption laws, and it also does not effect payments if there is reason to believe that all or part of said payments will be used for corrupt purposes. Information sharing and training The Company is open about its stance against corruption; welcomes compliance with the principles and requirements of its anti-corruption policy on the part of all counterparties, employees and other individuals and entities; and promotes advancements in its anti-corruption culture through information sharing and training. Introductory training is conducted for new employees, and periodic information seminars are held in person or remotely for existing employees. Ethics reviews are conducted annually for senior executives and middle management. Any employee, customer, partner or person not related to the Company who has information regarding employees or counterparties of Etalon Group involved in corrupt behaviour, violations of business ethics or of Etalon Group policies and procedures, violations of applicable laws, or other violations or abuses of office may report such violations through the available channels, including Etalon Group’s hotline for combating fraud, corruption and embezzlement. In 2022, Etalon Group’s hotline received and resolved four reports concerning abuse of power. That said, no cases of corruption were identified. Responsibility for compliance with the anti-corruption policy According to Etalon Group’s anti-corruption policy, an internal investigation is initiated in response to any reasonably justified suspicion or established fact of corruption. Employees found guilty of violating anti-corruption laws or the Company’s anti- corruption policy may be subject to disciplinary action as well as other forms of liability in accordance with applicable law. Audit, control and reporting Etalon Group conducts internal and external audits on a regular basis in order to verify that information concerning the Company’s financial and operating position in its accounting and other systems is complete and accurate and also in compliance with Company by-laws and legal requirements. Audits verify the implementation of key business processes, confirm that payments have been made and review their rationale and legality, and also check compliance with anti- corruption requirements. Compliance on the part of employees and contractors with the principles and requirements of the anti-corruption policy is subject to review by senior management. no cases of corruption were identified in 2022. 126 11ANNUAL REPORT 20227 SuStAInABILItY Responsible supply chain when procuring works, services, materials and equipment, Etalon Group prefers to choose counterparties through a competitive selection procedure and arranges uninterrupted supplies with due regard for cost-effectiveness and production efficiency. ETALON GROUP’S KEY PROCUREMENT PRINCIPLES AND APPROACHES TO COMPLIANCE WITH THOSE PRINCIPLES: � fair competition, by conducting procedures aimed at creating a reasonable level of competition among potential participants � equal treatment of and a uniform approach to all participants in the procurement process, by establishing equal competitive opportunities and uniform rules for all participants before the procedure begins � economic feasibility, by assessing the need for procurement at any stage of procurement activities � transparency of the procurement procedure, by enabling procurement oversight at any stage Procurement management Etalon Group has a central unit that is responsible for issues related to its procurement activities: the Tender and Procurement Department, which is part of the Cost Control and Procurement Division. The department includes regional tender services (Moscow, St Petersburg and other regions) as well as the Department for Tender Accreditation and Oversight. The department develops and approves the procurement methodology, initiates and conducts procurement procedures in the Company’s various business streams, and provides methodological support to all Group subsidiaries and structural units. In order to achieve operational efficiency, the Group’s subsidiaries also have procurement units. CENTRALISED GROUP PROCUREMENT LOCAL PROCUREMENT WITHIN SUBSIDIARIES Etalon Group Cost Control and Procurement Division Tender and Procurement Department Tender service — Moscow Tender service – St Petersburg Tender service – regional markets Department for Tender Accreditation and Oversight Subsidiaries’ procurement units 127127 11ANNUAL REPORT 20227 SuStAInABILItY Regulatory framework and approach to procurement Approach to the selection of suppliers and contractors and to procurement planning Since ensuring the fair selection of contractors is the core principle of Etalon Group’s procurement activities, the Company selects suppliers and contractors on a competitive basis. The applicable laws of the Russian Federation provide the basic rules for relations with counterparties in the procurement process. The by-law regulating tenders is the Regulation on Conducting Tenders within Etalon Group, the main purpose of which is to avoid violations of antitrust law and unfair competition, as well as to oversee the selection of suppliers of materials, works and services. The Regulation contains requirements for companies participating in procurement procedures in order to ensure that all participants in the process comply with the principles of due diligence. The Tender Committee, an Etalon Group standing committee, helps ensure open competition between counterparties and helps determine the Group’s optimal conditions for collaboration. The Tender Committee appoints experts on specific issues and determines the winners of competitive tenders. The Committee is also authorised to select a reserve winner in case the company that wins the tender decides not to sign a contract. To keep a record of the Company’s relations with each counterparty and to assess its performance, Etalon Group creates a dossier for every counterparty in the Register of Accredited Contractors and Suppliers. Etalon Group prepares a quarterly tender schedule for the purposes of procurement planning. In 2022, the procedures were updated to include an improved methodology for determining the procurement plan for the entire Group, and oversight of implementation of the plan was bolstered in order to identify the reasons for any potential deviations from the plan. Posting the schedule in the public domain ensures that the Group’s procurement procedures are transparent and accessible to all market participants. 1 3 5 2 4 After undergoing standard vetting, all candidates for participation in tender procedures – if they meet all the requirements – are added to Etalon Group’s Register of Accredited Contractors and Suppliers. Then, once a quarter, the Company conducts random 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 Etalon Group. Based on a decision of Etalon Group’s Board of Directors in 2022, measures were initiated to develop a new regulation on the Group’s procurement activities, for which a working group was formed from specialised units for the purpose of improving and developing the business processes involved in procurement activities with due regard for the main market development trends and challenges. The new regulation will contain more stringent requirements for participants in procurement procedures and a methodology for conducting procurement through electronic trading platforms. In addition, the concept of categorised procurement management and sustainability and social responsibility measures (ESG principles) will be taken into account for the first time when selecting suppliers. 128128 11ANNUAL REPORT 20227 SuStAInABILItY Procedure for screening suppliers and contractors To ensure that procurement is competitive, Etalon Group establishes additional criteria for assessing counterparties in terms of their technical and functional capabilities as well as financial and economic requirements. In 2022, together with Etalon Group’s oversight units, new, more stringent requirements were developed and incorporated in the form of qualifying benchmarks. In 2022, the Group’s list of potential suppliers included more than 7,000 counterparties, 1,751 of which were included in the Register of Accredited Contractors and Suppliers and entitled to participate in Group tenders worth RUB 3 million or more. 1 2 3 4 5 THE VERIFICATION AND SELECTION OF COUNTERPARTIES ARE CARRIED OUT IN SEVERAL STAGES: An initial review of the supplier on the basis of a questionnaire and also on the basis of open and accessible information about the counterparty. The standard review by the Economic Security Department is aimed at identifying risks and confirming trustworthiness in the context of counterparties’ financial and economic activities, as well as confirming that a counterparty has the necessary experience, permits and special-purpose authorisations. 1,751 +27 % The Register of Accredited Contractors and Suppliers includes 1,751 counterparties year-on-year thanks to regional expansion and diversification of the supplier pool The accreditation of counterparties is aimed at populating and updating Etalon Group’s Register of Accredited Contractors and Suppliers, and it provides an accredited company with an opportunity to participate in Etalon Group tenders worth RUB 3 million or more. Decisions to add counterparties to or remove them from the register is taken by the standing Accreditation Committee, which includes the heads of Etalon Group companies and specialised units. Etalon Group’s Tender and Procurement Department monitors the fulfilment of obligations on the part of counterparties selected through procurement procedures. Reviews of counterparties are carried out according to the key criteria, such as quality, compliance with deadlines, safety, fulfilment of contractual obligations, and whether or not they have any outstanding accounts receivable owing to Etalon Group companies. The Department consolidates information on each counterparty and keeps a record of it in company dossiers. Companies from the Register of Accredited Contractors and Suppliers that have enjoyed long-term, mutually beneficial partnerships with the Group may be considered for inclusion in the Group’s Register of Strategic Partners. The decision to add a company to or remove it from the Register of Strategic Partners is made by Etalon Group’s Board of Directors. 129129 11ANNUAL REPORT 20227 SuStAInABILItY Minimisation of ESG risks in the supply chain Supply structure Etalon Group pays close attention to compliance on the part of its suppliers and contractors with established requirements in the areas of fire and industrial safety, occupational health and safety, waste and natural resources management, and public health. The Company does a lot of work to monitor compliance with these requirements and purchases materials exclusively from environmentally responsible suppliers that have been duly certified. Progress in minimising ESG risks in the supply chain in 2022: � Codes of business ethics were developed and introduced for suppliers and contractors, stipulating that the Group’s partners must comply with sustainability principles. Violators of these requirements are subject to the penalties provided for in the corresponding contracts, including possible removal from the Group’s Register of Accredited Contractors and Suppliers. � A safety standard for construction sites was developed and incorporated; in accordance with the applicable methodology, the standard determines the level of safety at a particular property, and it also reinforces the basic requirements of laws on safe working practices and environmental protection. Etalon Group carries out centralised procurement through its Tender and Procurement Department, while local procurement is carried out by the tender divisions of Etalon Group companies. The Group’s procurement activities are conducted through direct interaction with counterparties, without intermediaries. In 2022, the Group continued taking steps to centralise its procurement. In this context, by-laws aimed at centralising the procurement of construction materials, works and services were developed and approved. As a result, up to 90% of the Company’s core construction materials (depending on the region and the project) are procured centrally through UPTK- Etalon, a Group-wide trading company. The development of centralised procurement and regional expansion led to a 13% year-on-year increase in Etalon Group’s procurement volume in 2022. Supply chain SUPPLIERS Moscow Number of local suppliers Number of other suppliers St Petersburg Number of local suppliers Number of other suppliers Other regions Number of local suppliers Number of other suppliers Group total Local suppliers Other suppliers 2020 2021 2022 495 26 537 67 - - 1,032 93 644 41 637 56 - - 1,281 97 745 65 710 75 128 28 1,583 168 90 % of the Group’s core construction materials are purchased centrally through a Group-wide trading company 90.6 % of procurements made from SMEs Procurement structure in 2022 71 % Contract work Procurement volume, RUB mln 31,836 38,204 43,335 Procurement volume PROCUREMENT, RUB MLN Procurement volume, RUB mln Including the volume of procurement from small and medium-sized enterprises (SMEs),1 RUB mln Number of SME suppliers 1 Companies with up to 100 employees. 2020 2021 2022 31,836 25,955 731 38,204 43,335 31,146 923 39,261 1,187 23 % Materials 6% Other procurements, including services provided by monopolies 130 11ANNUAL REPORT 2022 7 SuStAInABILItY Procurement automation Challenges in 2022 Relations with suppliers and contractors one of the company’s strategic priorities is to In March 2022, the construction industry entered In order to improve the procurement process, � The hotline on the Group’s website automate and digitalise its procurement activities. a challenging period, partly in connection with establish beneficial collaboration and improve In 2022, the automation of the centralised procurement of materials continued: � Thanks to the introduction of specialised software for automated processing of applications to supply materials, up to 95% of applications were transferred to the Company’s digital ecosystem, which increased the speed of application processing by 24% and reduced personnel costs by 9%. � In conjunction with the Project Oversight and Analytics Department, a project was launched to automate procurement procedures using 1C software. In 2022, the Company digitalised tender procedures for a number of stock item groups as well as construction and installation works. � In November 2022, following testing, providers of the largest electronic trading platforms were approved for use for Etalon Group’s procurement. Under the new Procurement Regulation, up to 80% of the Group’s procurement will be carried out through independent electronic trading platforms. disruptions in logistics and the supply chain. the quality of services provided by suppliers and contractors, the company regularly collects and analyses feedback from suppliers and contractors, through two main communication channels: The Group’s core business units carried out systematic work to establish new supply chain logistics for materials and equipment: � A working group was formed to coordinate and amend the Group’s existing design solutions in order to take measures to replace materials with others that were more accessible from a logistics perspective (import substitution measures). � Contracts were concluded with customs brokers and arrangements were made for supplies of construction materials and equipment from countries such as China and Turkey. � A large amount of experience was gained in terms of successful supplies of materials from China and Turkey. Thanks to the effective implementation of the above steps, the Group currently has very little dependence on materials supplied mainly from European countries. � A checklist that contractors complete after fulfilling a contract. The checklist gives contractors and suppliers space to add all their comments and recommendations concerning their collaboration with Group divisions and companies; that feedback is then taken into account in order to create conditions for mutually beneficial cooperation 2022 AUTOMATION RESULTS 95 % of material requisitions are processed through the Company’s digital ecosystem 24 % increase in the speed of application processing UP TO 80 % of the Group’s procurements will be carried out through independent electronic trading platforms To ensure the quality of services provided by contractors and the overall development of professionalism in the industry, the Company regularly conducts training activities: 1 2 3 The Group’s partners provide training for contractors on the use of new materials and equipment when delivering supplies to properties. Etalon Group’s Quality Department and Testing Laboratory arrange training for contractors where specialised departments demonstrate the standard way to perform certain types of work in accordance with regulatory and technical documentation. Specialised training for staff regarding equipment installation is carried out by the manufacturer’s technical experts. 131131 11ANNUAL REPORT 2022 7 SuStAInABILItY Risk management In connection with the current geopolitical situation and sanctions imposed on russia and russian companies, a number of risks – mainly macroeconomic as well as operational and financial – were realised during the reporting period. the fast-changing environment was the driver behind the rapid transformation of the company’s business and improvements to its risk management system. Based on the realisation of negative scenarios and market uncertainties, Etalon Group developed additional measures to prevent or reduce negative impacts, including approaches to project financing, changes to supply chains and efforts to reduce production costs, etc. Approach to risk management Integrated risk management system Risk management methodology Etalon Group’s risk management complies with the generally accepted conceptual framework for risk management. Risk management is carried out as part of the core function of all Etalon Group employees, which includes the identification, analysis, assessment and prioritisation of risks as well as the development and implementation of a set of procedures for responding to risk events and monitoring the effectiveness of the risk management process. Risk management is an integral part of Etalon Group’s strategic management, operational management, business planning and investment activities. Risk management is aimed at providing a reasonable guarantee that the Company will be able to achieve its strategic goals and maintain its risk level within limits that are acceptable to the Company’s management. Development of the risk management system is one of the factors involved in improving the quality of strategic management decisions during a period of high uncertainty, and making it possible to identify, monitor and minimise the negative impact of critical risks on the Company’s activities during periods of high volatility. THE RISK MANAGEMENT SYSTEM INCLUDES THE FOLLOWING: � aligning the Company’s risk appetite with its strategy, ensuring that management takes the Company’s risk appetite into account when assessing options for strategic development, setting goals accordingly and developing mechanisms for managing the associated risks � improving risk management decisions, taking a careful approach to ensure that the risk management methodology chosen is suitable � reducing the number of unforeseen events and losses in business activities by improving the ability to identify potential events and to establish methods for managing them � identifying and managing the full range of risks by responding effectively to interdependent risks and applying a uniform methodology to manage repeated risks � improving capital utilisation by obtaining reliable information on risks in order to make an impactful assessment of the total capital requirements and to improve how capital is utilised Etalon Group’s risk management principles Integrated approach Continuity Feasibility The Company takes a systematic approach to managing all types of risks inherent in its business. Etalon Group supports cross-functional interaction and coordination of business units when managing risks outside their specialisations, while also taking into account the interplay of risks facing different units. A single channel is in place for informing management about the entire spectrum of risks in order to ensure that the information provided for each decision-making level is complete, sound and comparable. Implementing a set of consistent risk management procedures on a regular basis. Analysing the ratio of the cost of reducing a risk to the potential damage from its realisation. Etalon Group’s management is constantly improving the methodology for the company’s risk management system. Risk avoidance Risk avoidance/aversion means refusing to perform certain actions or forgoing high-risk assets. Risk avoidance is applied in exceptional cases as a way to cover risks and where the cost of risk treatment is too high, or where such treatment would not reduce the risk to an acceptable level, and also where the risk cannot be passed on to a third party or when doing so would not have the desired impact. Risk reduction Risk control and prevention are a means of risk management that implies risk retention alongside active risk treatment on the part of the Company. Measures are aimed at reducing the probability of the occurrence of a risk event as a preventive measure and/or reducing the potential damage from the occurrence of a risk event to an acceptable level that is in line with Etalon Group’s risk appetite. Risk reduction is the risk management priority by default. Risk acceptance Accepting a risk without treatment as a means of risk coverage is used in cases where the risk is at an acceptable level or where treatment of the impact is impossible or costly. Risk transfer Risk transfer is carried out in cases where treatment using Etalon Group’s available resources is impossible or economically unjustified, and where the level of risk exceeds the Company’s permissible level. Risk transfer can be carried out through insurance, hedging, outsourcing, etc. 132132 11ANNUAL REPORT 20227 SuStAInABILItY Compliance system Etalon Group’s main objectives are to be highly competitive in its target market segments, combining economic success with social responsibility, which is inextricably linked with the need to operate in line with the compliance system for managing compliance risks. The compliance system is a set of elements that are part of Etalon Group’s corporate culture, values and ethics, organisational structure, and rules and procedures regulated by the Group’s corresponding by-laws, and its policy for managing risk management and counteracting threats, all of which ensure that Etalon Group’s employees adhere to the Company’s compliance principles regardless of their position. An integral part of the compliance system is the organisational structure, ethical standards for conducting business in an open and honest manner, adherence to best corporate governance practices and maintaining Etalon Group’s business reputation at the appropriate level. THE COMPLIANCE SYSTEM’S MAIN OBJECTIVES ARE AS FOLLOWS: to ensure that Etalon Group’s to manage compliance risks that activities comply with the applicable arise in the course of Etalon Group’s legal requirements, internal standards and other binding documents activities Areas of compliance: Anti-corruption compliance Tax compliance Covers the risks of the commission Covers tax risks and helps configure of anti-corruption offences by employees, the likelihood of business processes to ensure that they are in line with frequently involving the Company (through its changing regulatory documents employees) in situations connected from the Federal Tax Service and the with a risk of legal violations or loss Ministry of Finance. of reputation. Construction compliance Data protection compliance Procurement compliance Aimed at creating mechanisms for protection against failure to Prevents information leaks, insider Facilitates the creation of an open trading and market manipulation, and transparent procedure for meet deadlines and substandard protects against the actions of selecting contractors on the most workmanship, prevention of safety unfair competitors, and ensures the favourable terms for Etalon Group violations, and non-compliance protection of personal data. and promotes competition. with occupational health and safety requirements. Legal compliance Antitrust compliance Aimed at avoiding lost profit for Covers the risks of negative the Company. It is carried out by repercussions associated with analysing the compliance of the antitrust violations (including when Compliance in the area of labour relations and management of conflicts of interest Company’s activities with the dealing with securities); is aimed Facilitates oversight of compliance applicable laws and identifying risks at identifying violations by the with labour law on the part of both of failure to comply with contractual Company, and not by the regulator; staff and management; stipulates obligations and of facing civil and/ helps to prevent or considerably the procedure for identifying and or administrative liability. reduce the risks of prosecution resolving conflicts of interest, with and of the resulting costs for the the Company’s interests taking Company for the payment of fines precedence over personal interests. and legal fees. 133133 11ANNUAL REPORT 20227 SuStAInABILItY Compliance system In order to develop its compliance system, Etalon Group took the following measures in 2022: Etalon Group’s next steps to improve its compliance system 1 2 3 IN THE AREA OF TAX COMPLIANCE: Developed a tax clause – a condition requiring that the parties to a contract comply with the requirements of tax laws and stating the consequences of violations of this obligation A FOUNDATIONAL DOCUMENT WAS PREPARED Draft Etalon Group Compliance Policy DATA PROTECTION COMPLIANCE The Regulation on Personal Data Processing within JSC Etalon Group was approved (order No. 80 of 3 September 2021). The Policy of Etalon Group JSC on Personal Data Processing was approved (Order No. 80 of 3 September 2021). Consent forms for the processing of personal data were updated. A new consent form for the processing of website users’ personal data was introduced. The inclusion of a tax clause in contracts with counterparties will provide additional grounds for reimbursement of losses incurred by Etalon Group companies that could arise as a result of the improper fulfilment of tax obligations on the part of any of the counterparties within a chain of transactions. This document stipulates the main principles and objectives of the compliance system, which are aimed at preventing the risk that Etalon Group companies will be held liable on account of non-compliance with legal requirements. As a result of the implementation of these measures, all existing legislative innovations and law enforcement trends at the time of approval were taken into account; the list of duties of the person responsible for personal data processing was expanded, and the person responsible for personal data processing was appointed. developing regulatory documents in the above- mentioned and new areas of compliance Making additions to training and informing Group Analysing the results of the employment contracts and employees: familiarising implementation of these job responsibilities employees with by-laws, conducting training and providing individual consultations by-laws conducting regular Building a system for Implementing a compliance monitoring, auditing activities managing compliance risk system at all Etalon Group and analysing the results companies 134 11ANNUAL REPORT 20227 SuStAInABILItY Organisation of risk management In developing its risk management system, Etalon Group takes into account the generally accepted conceptual framework for risk management: � ISO 31000, Risk Management – Guidelines � GOST R ISO 31000-2019, Risk Management – Principles and Guidelines � the Committee of Sponsoring Organizations of the Treadway Commission (COSO) document “Enterprise Risk Management: Integrating with Strategy and Performance” (2017) � the COSO document (concept) “Internal Control – Integrated Framework” (2013) � the risk management standards developed by the Federation of European Risk Management Associations (FERMA) (2002), which take into account international practices (including those on risk management related to compliance with FATCA requirements) and have been adapted to the business environment that Etalon Group operates within with due regard for the specifics of the Company’s activities and management structure Division of powers concerning risk management � developing proposals regarding the acceptable level of risk (risk appetite) when preparing Etalon Group’s strategy, and making management and investment decisions � developing and monitoring the implementation of action plans to prevent, manage or respond to realised risks � taking part in the external audit process Functional units implement the Risk Management Policy in their respective area and ensure timely and robust submissions of significant risks to management. In 2022, by decision of Etalon Group’s Management Board,1 a Risk Management Committee was established that is responsible for the following: � developing and coordinating organisational and administrative documents for the risk management system � developing a methodology and tools for identifying, assessing and managing risks � analysing and clarifying the role and responsibilities of the Company’s employees and business units involved in risk management (including the identification of risk owners), and taking actions to improve their risk management competencies � organising the process of establishing and updating of the list of risks, assessing them in accordance with the applicable methodology, and preparing and maintaining a risk map � arranging regular monitoring and the preparation of reports in the area of risk management The Board of Directors determines the general requirements for the risk management system, approves key risk management parameters (risk appetite), determines Etalon Group’s strategy and approves the nature and parameters of acceptable risks when making decisions in the process of achieving the Group’s strategic goals. The Board of Directors delegates to the Audit Committee responsibility for oversight of the effectiveness of risk management and for making proposals to improve the risk management system. 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 approved policies. Etalon Group management (the Management Board) takes decisions within its remit with due regard for the risk management parameters approved by the Board of Directors; takes into account the current list of risks and risk appetite when developing Etalon Group’s strategy, business plans and budgets at all levels; determines the need for resources necessary for managing risks and achieving strategic and operational goals; and takes measures to develop a risk management culture within Etalon Group. 1 The Audit, Finance and Risk Committee under the Board of Directors of Etalon Group JSC (the subsidiary that manages the Group’s Russia business). 135 11ANNUAL REPORT 20227 SuStAInABILItY Risk reporting Etalon Group prepares risk reports on a regular basis Internal corporate reporting: � A risk report for Etalon Group JSC’s Risk Management Committee: in accordance with the Committee’s meeting schedule but at least once every six months. � A risk report for the Audit, Finance and Risk Committee under Etalon Group JSC’s Board of Directors: as required but at least once every six months. � A report for Etalon Group JSC’s Board of Directors: at the recommendation of the Audit, Finance and Risk Committee, at least once a year. Reporting for external users: � A section on risks for quarterly reports from companies that are issuers of equity securities as well as during the preparation of each securities prospectus. The information in the prospectus / quarterly reports must be disclosed in accordance with the laws of the Russian Federation on securities. � A section on risks for Etalon Group’s Annual Report: once a year in accordance with the timing for the publication of the Annual Report. Risk reporting principles To manage risks, Etalon Group has developed reporting forms that meet the following requirements and criteria: 1 2 3 Completeness � Reporting should cover all possible risk categories in every area of the Company’s activities. � The risk management reporting system should also contain quantitative and qualitative risk assessments. Consistency across time and risk categories � Adherence to a common reporting format and updates to that format on an established regular basis. � The reporting system standards adopted ensure consistency and adherence to the methodologies used within Etalon Group and in individual companies. Regularity � Reporting should be prepared in a timely manner, as scheduled. � Prepared reports should be provided to Etalon Group’s management bodies in a timely manner (according to the level of decision-making). � The system for reporting on risk events should be structured in such a way that appropriate measures are taken in response if necessary. 4 Veracity � The reporting system should reflect the existing risk profile as accurately as possible. Risks Level of potential impact Likelihood EXCHANGE RATE RISKS CUSTOMERS’ CREDIT RISK LIQUIDITY RISK NEGATIVE MACROECONOMIC TRENDS INTEREST RATES REGIONAL RISKS HIGH M EDIUM LOW CHANGING CONSUMER PREFERENCES / MARKET TRENDS NEW CHANGES IN REGULATIONS AVAILABILITY OF LAND DIFFICULTIES IN ACCESSING CAPITAL AVAILABILITY OF CONSTRUCTION MATERIALS AN INABILITY TO RECRUIT AND RETAIN KEY PERSONNEL ACCIDENTS AT CONSTRUCTION SITES SUBCONTRACTORS 136136 11ANNUAL REPORT 20227 SuStAInABILItY Risks RISK HOW IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Macroeconomic, industry risks Negative macroeconomic trends The deterioration of the financial situation of potential buyers, � The Group’s highly diversified portfolio of projects in various locations in Moscow and Russian regional markets at various stages of High likelihood / medium level of impact a decrease in real disposable incomes, a decrease in consumer completion. confidence and a resulting drop in demand for housing; an increase in the cost of land, materials and labour on the back of inflation. � Developed sales channels, including a network of the Company’s own sales offices and extensive experience of collaborating with agents in key regions of operations. Risks realised � An established excellent reputation among homebuyers, the perception of the Group as a reliable developer with a quality product and a high degree of financial stability. � State programmes to support the construction industry, including state mortgage subsidy programmes: in 2022, the preferential mortgage programme was expanded and extended until 1 July 2024. � A wide range of available payment terms (including discounts when paying in full up front, various types of instalment plans, joint mortgage programmes with banks). Regional risks A deteriorated economic situation affecting all market participants in � The Company conducts market research with due regard for current trends, assesses the growth potential and outlook of regional High likelihood / medium level of impact key markets could equally have a negative impact on the Company. markets in terms of demand and the potential of investment and development activities. � Maintaining regional diversification in terms of the project portfolio, reducing dependence on individual regions: in 2022, the Group launched new projects in five high-potential regional markets and became one of the top three nationwide developers with a Risks realised presence in at least six regions of Russia. Changing consumer preferences / The Company’s ability to manage inventory is intrinsically linked to � An analysis of development trends in the real estate market and its individual segments, a shift in the structure of the project portfolio Medium likelihood / medium level of impact market trends current and forecast consumer demand. Unanticipated changes in towards segments with the most stable level of effective demand: since the beginning of 2022, the Company has more than doubled consumer preferences can have an adverse effect on the business, its share of mass-market projects, from 29% to 74%. particularly given long project life cycles in the industry. � The Company is developing innovative construction technologies in order to implement its portfolio in the mass-market segment as Risks realised efficiently as possible. � Monitoring the real estate market on a regular basis, and developing and periodically reviewing the pricing strategy for the Company’s projects. � Developing additional services and new business streams that provide stable revenue and cash collections during periods of fluctuating demand for real estate. Regulatory risks New changes in regulations The Company operates in a business that is highly regulated; any failure � The Company monitors any regulatory changes that could affect its business in order to address them proactively and decrease Medium likelihood / medium level of impact to comply with regulations might negatively impact the Company’s associated risks. operating and financial performance. Failure to receive timely approval of a project might lead to delays in the � 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. development process. � A sustainable 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. 137 11ANNUAL REPORT 20227 SuStAInABILItY Risks RISK HOW IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Operational risks Reduced availability of land A risk of increased competition among developers for land and a risk � Confirmed experience and competence in the field of redevelopment, implementation of integrated development projects and Medium likelihood / medium level of impact of rising costs for the acquisition of land as well as decreased margins large-scale investment projects in the area of residential and other construction, which creates greater possibilities for the Group to in the Company’s main business stream. A reduction in the size of the select land plots for inclusion in its portfolio. Group’s land bank as a result of an increase in time spent and financial costs to replenish the land bank could limit the Group’s ability to support the launch of new projects and the volume of ongoing construction and � Expansion of the land bank through inorganic growth thanks to the departure of foreign players and market consolidation on the part of large companies (in 2022, the Company completed the acquisition of YIT Russia, which included a land bank in five regions, a library of design solutions and Dispatcher 24, the largest private IT platform in Russia for servicing apartment buildings and service sales, which would have a negative impact on the Company’s operating companies). and financial performance. � Improving the efficiency of land bank management by improving process management and increasing the number of regions of operations. In 2022, the Company’s geographic footprint increased to eight regions; gross margin (pre-PPA) reached 38% at the consolidated level and 43% in the residential real estate development segment in regional markets – above the target level of 35% envisaged by the business development strategy to 2024. Risks associated with fluctuations Increased prices for resources (equipment and materials) and/or services � Cost controls for the services of contractors and purchases of materials and raw materials on the part of subsidiaries. High likelihood / medium level of impact in prices for the main types of raw as well as for construction and installation works used by Etalon Group � Reducing production and management costs through the introduction of new design technologies, the digitalisation of procurement, materials, goods, works and services companies in the construction process could drive up the production and construction oversight and management. used by the Company in its activities cost of properties under construction and, as a result, diminish the consolidated financial performance of the Company’s activities. � Introducing product standards and developing new construction technologies in order to optimise production costs while maintaining Risk realised the target consumer features of properties under construction. Any violation of delivery schedules and volumes could lead to delays � Creating strategic partnerships with major suppliers of materials, equipment and services. in the construction of projects, which, in turn, could damage the Company’s reputation in the eyes of customers and lead to a loss of homebuyers. � Using domestic analogues of construction materials and equipment. � Developing relations with suppliers and manufacturers of construction materials and equipment that continue to ship to the Russian Federation. � Selecting the most efficient contractors and equipment suppliers through tender procedures. � When developing a strategy and conducting efficiency calculations, using conservative forecasts for stress tests and other measures aimed at improving the Company’s financial stability. Subcontractors An inability to find qualified subcontractors and enter into � The Company uses a tender procedure to identify and select the best suppliers, as well as to create a competitive environment. Low likelihood / low level of impact subcontracting arrangements on acceptable terms could lead to an � The Company constantly monitors and evaluates its suppliers against various criteria. 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. � 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 the timely delivery of projects. � The Company conducts comprehensive inspections at the production sites of factories that supply concrete and mortar mixes; all suppliers are inspected against a comprehensive list of criteria. � Thanks to its vertically integrated structure, the Company can minimise its dependence on subcontractors in both construction and service maintenance areas. 138 11ANNUAL REPORT 20227 SuStAInABILItY Risks RISK HOW IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Accidents at construction sites Etalon Group operates in the construction industry, where workplace � The Company complies with relevant health and safety regulatory requirements. Low likelihood / low level of impact accidents relating to the Company’s operations could be costly in terms � All employees attend workshops on occupational safety. of potential liability and reputational damage. � 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 improve safety at construction sites, having developed its own safety index, a tool for monitoring and assessing safety at construction sites. The safety index score at the Group’s construction sites was 89% in 2022. � No workplace fatalities; LTIFR decreased steadily from 2020, from 0.56 to 0.36; and TRIR, from 0.11 to 0.07. Inability to recruit and retain key Etalon Group’s future success depends on its ability to find qualified � The Company maintains an extensive talent pool to attract qualified staff for strategically important positions. The pool is developed Low likelihood / low level of impact personnel personnel in various business areas. An inability to motivate key through direct searches on job sites and cooperation with verified recruitment agencies. The Company looks for sector specialists at personnel could also have a negative impact on operations. 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. � Headhunter and Forbes included the Company in their rankings of top employers. Financial risks Limited access to financing Real estate development is a capital-intensive industry, and the � Long-term reputation as a reliable borrower. Medium likelihood / high level of impact Company should always have access to capital to finance its projects. � The fact that Etalon Group’s controlling entity is considered a strategically important company, which enables it to receive state support (including subsidies to reimburse the Group for certain categories of costs, tax deferrals, state guarantees) during periods of economic crises. In the context of economic instability and increased state regulation of the economy, maintaining the status of Increased risks a strategically important company lowers the risk of diminished financial stability and enhances the Company’s reputation among homebuyers, suppliers and creditors. � A stable financial position, monitoring indicators of financial stability and providing liquidity buffers when planning operations and taking investment decisions. � Developing relations with the largest lenders in terms of project financing, and developing comprehensive cooperation programmes with banks. � Using a wide range of debt instruments for financing activities (public debt, corporate general-purpose loans, bridge loans, project debt) along with an optimal financing structure while taking into account the economic parameters and limitations of individual projects and business streams. � Considerable balances in escrow accounts, which are the main means of repaying project financing, planning project implementation with due regard for balancing funds in escrow accounts against project debt. Liquidity risk The Company’s failure to meet its financial obligations could result in � The Company adheres to a conservative financing policy and strives to maintain low debt levels, with a target net corporate debt / Medium likelihood / high level of impact operational delays, damage to its reputation, increased credit rates in pre-PPA LTM EBITDA ratio significantly below the target of 2x. The FY 2022 net corporate debt / pre-PPA EBITDA ratio amounted to 0.8x. the short term and bankruptcy in the long term. Increased risks 139 11ANNUAL REPORT 20227 SuStAInABILItY Risks RISK HOW IT AFFECTS THE COMPANY MITIGATION/MINIMISATION OF THE CONSEQUENCES LIKELIHOOD / LEVEL OF POTENTIAL IMPACT Customers’ credit risk The Company could suffer financial losses if customers fail to meet their � Receivables from customers are secured against sold apartments. Medium likelihood / low level of impact contractual obligation on financial instruments used for the purchase of real estate. Increased risks Exchange rate risks Appreciation of foreign currencies against the rouble could lead to an � The Company does not have any debt instruments in foreign currencies. Its current debt structure includes bonds denominated in High likelihood / low level of impact increased burden for those companies that issued debt instruments in roubles issued by its subsidiaries LenSpetsSMU and Etalon Finance (formerly Leader-Invest). foreign currencies. Furthermore, this could lead to a price increase for � Imported goods make up only a small part of the Company’s business costs. imported construction materials. Risk realised Interest rates An increase in mortgage rates might limit customers’ ability to finance � If mortgage interest rates increase or the number of available mortgages decreases, the Company could offer its customers more High likelihood / medium level of impact the purchase of new apartments, thus decreasing new sales volume. instalment payment options. On the other hand, an increase in the rates on the Company’s outstanding debt obligations will cause unexpected growth in expenditures. � 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. Risk realised � The subsidised mortgage programme for families with children, which is available until 1 July 2024, will support mortgage sales amid double-digit standard mortgage rates. 140 11ANNUAL REPORT 20227 SuStAInABILItY GRI Standards GRI STANDARD GENERAL DISCLOSURE Organisation’s profile 2-1 organisational details Name of the organisation Location of headquarters REPORT SECTION/COMMENTARY DISCLOSURE GRI STANDARD Governance 2-9 Governance structure and composition REPORT SECTION/COMMENTARY DISCLOSURE ETALON GROUP PLC Parent company ETALON GROUP PLC (Cyprus), main operating company JSC Etalon Group (St Petersburg) 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 As of February 2023, Etalon Group was operating in the following regions of Russia: Moscow, Moscow region, St Petersburg, Omsk, Ekaterinburg, Tyumen, Kazan and Novosibirsk Fully disclosed Fully disclosed Fully disclosed 2-13 2-11 2-12 2-19 Governance structure; committees responsible for economic, environmental and social topics Composition of the highest governance body and its committees Section: Corporate Governance, p. 153 Fully disclosed Section: Corporate Governance, p. 147 Fully disclosed Delegation of responsibility for managing impacts Section: Sustainability – Introduction, p. 76 Fully disclosed Chair of the highest governance body Section: Corporate Governance, p. 148 Fully disclosed Role of the highest governance body in overseeing the management of impacts Section: Corporate Governance, p. 145 Fully disclosed Remuneration policies Section: Corporate Governance, p. 151 Partially disclosed Ownership and legal form Section: Shareholder Interactions, p. 156 Fully disclosed Stakeholder engagement 2-6 Activities, value chain and other business relationships Activities, brands, products and services Section: About Etalon Group, p. 5 Section: Project Portfolio, p. 33 Markets served, including geographical locations where products and services are offered, sectors served, types of consumers and beneficiaries Section: About Etalon Group, p. 5 Section: Project Portfolio, p. 33 Section: Customers, p. 101 Scale of organisation Section: About Etalon Group, p. 5 Section: Employees, p. 94 Section: Operating Results, p. 64 Section: Financial Results, p. 73 Fully disclosed Fully disclosed Fully disclosed Supply chain Employees Section: Responsible Supply Chain, p. 127 Fully disclosed Section: Employees, p. 94 Fully disclosed Statement on sustainable development strategy Section: Chairman’s Statement, p. 17 Fully disclosed 2-7 Strategy 2-22 Ethics and integrity 2-23 2-26 Policy commitments Section: Business Conduct, p. 122 Mechanisms for seeking advice and raising concerns Section: Business Conduct, p. 123 Fully disclosed Fully disclosed 2-29 Approach to stakeholder engagement List of stakeholder groups engaged by the organisation 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. Section: Stakeholder Engagement, p. 80 Fully disclosed Section: Stakeholder Engagement, p. 80 Fully disclosed Reporting practice 2-2 3-1 3-2 2-3 Entities included in the organisation’s sustainability reporting Financial Statements, p. 160 Fully disclosed Process to determine material topics Section: Sustainability – Introduction, p. 77 Fully disclosed List of material topics Section: Sustainability – Introduction, p. 77 Fully disclosed reporting period, frequency and contact point Reporting period Section: About This Report, p. 4 Section: Sustainability – Introduction, p. 76 Reporting cycle (annual or biennial, etc.) Annual Fully disclosed Fully disclosed Contact point for questions regarding the report Section: Sustainability – Introduction, p. 76 Fully disclosed 2-5 External assurance Section: About This Report, p. 4 Fully disclosed 141 11ANNUAL REPORT 20227 SuStAInABILItY GRI STANDARD Management approach 3-3 Management of material topics REPORT SECTION/COMMENTARY DISCLOSURE GRI STANDARD REPORT SECTION/COMMENTARY DISCLOSURE Explanation of the material topic and its boundary Section: Sustainability, p. 76 The management approach and its components Section: Stakeholder Engagement, p. 80 Section: Environment, p. 90 Section: Employees, p. 94 Section: Social Responsibility, p. 104 Section: Business Conduct, p. 122 Section: Responsible Supply Chain, p. 127 Fully disclosed Fully disclosed PROCUREMENT PRACTICES 204-1 Percentage of local suppliers Section: Responsible Supply Chain, p. 130 Fully disclosed ANTI-CORRUPTION Operations assessed for risks related to corruption Section: Business Conduct – Anti-corruption Policy, p. 125 Partially disclosed Communication and training about anti-corruption policies and procedures Section: Business Conduct - Anti-corruption Policy, p. 126 Confirmed incidents of corruption and actions taken Section: Business Conduct – Anti-corruption Policy, p. 126 ENVIRONMENTAL TOPICS Materials used by weight or volume Section: Environment, p. 92 Energy consumption within the organisation Section: Environment, p. 92 Interactions with water as a shared resource Section: Environment, p. 91 Water withdrawal Water discharge Emissions Section: Environment, p. 91 Section: Environment, p. 91 Section: Environment, p. 93 Management of significant waste-related impacts Section: Environment, p. 92 Occupational health and safety 403-1 403-2 403-4 403-5 403-8 403-9 Occupational health and safety management system Hazard identification, risk assessment and incident investigation Worker participation, consultation and communication on occupational health and safety Section: Occupational Health and Safety, p. 85 Fully disclosed Section: Occupational Health and Safety, p. 87 Fully disclosed Section: Occupational Health and Safety, p. 88 Partially disclosed Worker training on occupational health and safety Section: Occupational Health and Safety, p. 89 Fully disclosed Workers covered by an occupational health and safety management system Section: Occupational Health and Safety, p. 86 Fully disclosed Work-related injuries Section: Occupational Health and Safety, p. 87 Partially disclosed Training and education 404-1 404-2 Average hours of training per year per employee Section: Employees, p. 96 Programmes for upgrading employees’ skills and transition assistance programmes Section: Employees, p. 96 Partially disclosed Partially disclosed Diversity and equal opportunities 405-1 Diversity of governance bodies and employees Section: Employees, p. 100 Fully disclosed Non-discrimination 406-1 Child labour 408-1 Incidents of discrimination and corrective actions taken Section: Business Conduct – Anti-discrimination Policy, p. 125 Fully disclosed Operations and suppliers at significant risk of incidents of child labour Section: Business Conduct – Respect for Human Rights, p. 122 Fully disclosed Forced or compulsory labour 409-1 Operations and suppliers at significant risk of incidents of forced or compulsory labour Section: Business Conduct – Respect for Human Rights, p. 122 Fully disclosed Fully disclosed Fully disclosed Fully disclosed Partially disclosed Partially disclosed Partially disclosed Partially disclosed Partially disclosed Partially disclosed Waste generated Section: Environment, p. 92 Fully disclosed Human rights Waste diverted from disposal Section: Environment, p. 92 Partially disclosed 412-1 Operations that have been subject to human rights reviews or impact assessments Section: Business Conduct – Respect for Human Rights, p. 122 Fully disclosed New employee hires and employee turnover Section: Employees, p. 97 Benefits provided to full-time employees that are not provided to temporary or part-time employees Section: Employees, p. 96, 98, 99 Fully disclosed Fully disclosed Parental leave Section: Employees, p. 100 Partially disclosed Local communities 413-1 Operations with local community engagement, impact assessments and development programmes Section: Social Responsibility, p. 104 Fully disclosed Labour–management relations 402-1 Minimum notice periods regarding operational changes Section: Employees, p. 99 Fully disclosed 142 205-1 205-2 205-3 301-1 302-1 303-1 303-3 303-4 305-7 306-2 306-3 306-4 SOCIAL TOPICS Employment 401-1 401-2 401-3 11ANNUAL REPORT 20227 SuStAInABILItY SASB Standards SASB STANDARD HOME BUILDERS Land Use and Ecological Impacts IF-HB-160a.1 Redevelopment sites IF-HB-160a.4 Integration of environmental considerations into site selection, site design, and site development and construction Workforce Health and Safety IF-HB-320a.1 Total recordable incident rate (TRIR) Design for Resource Efficiency IF-HB-410a.3 Number of homes delivered certified to a third-party multi-attribute green building standard Community Impacts of New Developments REPORT SECTION/COMMENTARY SASB STANDARD REPORT SECTION/COMMENTARY Section: Project Portfolio, p. 38 Section: Environment, p. 90 Section: Occupational Health and Safety, p. 87 Section: Environment, p. 93 REAL ESTATE Energy Management IF-RE-130a.2 IF-RE-130a.4 Water Management Total energy consumed Section: Environment, p. 92 Portfolio energy rating Section: Environment, p. 92 IF-RE-140a.2 Total water withdrawn Section: Environment, p. 91 Management of Tenant Sustainability Impacts IF-RE-410a.2 Metered grid electricity consumption and water withdrawals Section: Environment, p. 91 IF-HB-410b.2 IF-HB-410b.3 Development on infill sites Section: Portfolio, p. 33 Compact developments (cluster development, mixed-use development and/ or traditional neighbourhood development) Section: Portfolio, p. 33 143 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E REPORT 2022 8 ANNUAL CORPORATE GOVERNANCE corporate governance 145 Board committees 152 144 11ANNUAL REPORT 2022ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Corporate Corporate governance governance Etalon Group considers business ethics to be of the utmost importance, in particular internationally recognised principles concerning sustainability and corporate social responsibility. The Company actively encourages its employees to comply with the Code of Ethics, which formulates and enshrines the core principles for the type of collective and individual behaviour that is required in the workplace. The Company prides itself on strictly adhering to these high standards in its relations with shareholders, investors, government agencies, business partners and employees, as well as when applying these standards during the implementation of projects in every area in which Etalon operates. Management of the Company’s operations at various levels is carried out by the General Meeting of Shareholders as well as the Board of Directors and its committees. The committees, for their part, act in strict accordance with the Company’s statutory documents, decisions adopted by the General Meeting of Shareholders as well as applicable legislation. Etalon Group implements a system of corporate governance that successfully combines elements of management and cooperation. this approach provides a solid foundation for effective decision- making. the company continues to adhere to high standards of corporate governance that are based on the following principles: Еqual treatment of all shareholders and strict Тimely disclosure of reliable and accurate protection of their legitimate interests and rights. information about the Company’s activities. Qualified and reliable maintenance Open dialogue with all stakeholders and Accountability of the Board of Directors to of the shareholder register. recognition of their rights and legitimate shareholders, and accountability of executive interests. bodies to the General Meeting of Shareholders and the Board of Directors. 145 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E General Meeting of Shareholders the Annual General Meeting of Shareholders (AGM) was held on 21 december 2022, with the owners of 35.37% of voting shares taking part. the AGM considered and adopted the following decisions by the required majority of votes: 1. 2. 3. To consider and approve the Company’s consolidated financial statements and Etalon Group PLC’s individual financial statements for the 12 months ended 31 December 2021, together with the reports of directors and the report of the auditor on the above-mentioned statements, and to ratify the steps taken by the Secretary to present the financial statements to the Registrar of Companies of the Republic of Cyprus. To authorise the directors to determine the auditor’s remuneration. To appoint NSP Sagehill Partners Ltd as the Company’s auditor to perform its duties from the conclusion of this meeting until the next Annual General Meeting of Shareholders, where the Company’s financial statements will be presented. Board of Directors the Board of directors’ primary objective is to ensure the company’s long-term sustainability and success, leading to stable, lucrative returns for shareholders. Setting and overseeing the fulfilment of strategic goals as well as ensuring effective management of the company’s financial and human resources are important elements of the Board’s remit. the Board also analyses the effectiveness of existing management practices and determines the company’s appetite for possible risks that could arise in the future. thus, the Board of directors leads by example in establishing a high- performance management culture. The Board of Directors’ advisory functions are an important part of its activities: the Board complements and supports 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 oversight 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 necessary to the Company’s success. The Board of Directors includes 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 assessing the performance of the risk management and internal control systems. The Company highly values the contribution of independent directors in enhancing the effectiveness of the Board of Directors. 8 DIRECTORS ON THE BOARD The Board of Directors consists of eight members, including one executive director and seven non-executive directors, five of whom are independent. 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 the management team in achieving stated 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 qualifications, experience, knowledge and independent judgement to undertake their roles effectively. In order to judge the performance of the Board of Directors and its committees as well as the compliance of their work with the Group’s development needs and to identify areas where the work of the Board of Directors and its committees could be improved, the Board of Directors conducts an annual self-assessment concerning its performance and that of its committees. In March 2022, following the recommendations of the British Institute of Directors, Martin Cocker resigned from the Board of Directors. On 4 April 2022, Vitaly Pyltsov joined the Board of Directors as an independent non-executive director. Later, in February 2023 and April 2023, the Board of Directors accepted the resignations of Maxim Berlovich, Oleg Mubarakshin and Charalampos Avgousti. 146 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Corporate governance structure As of 24 April 2023, the Board of directors and its committees were structured as follows. SHAREHOLDERS BOARD OF DIRECTORS (leadership, strategy, risks, governance, values and standards) Audit Committee Remuneration and Nomination Committee Strategy Committee Investor Relations and Information Disclosure Committee • • • Vitaly Pyltsov, Chairman1 Boris Svetlichny Ganna Khomenko • • Sergey Egorov, Chairman Ganna Khomenko • • • • • • Gennadiy Shcherbina, Chairman2 Sergey Egorov Artyom Zasursky Marina Ogloblina Denis Vinokourov Petr Kryuchkov • • • Petr Kryuchkov, Chairman Denis Vinokourov Boris Svetlichny Following the reporting date, on 16 February 2023 and later on 21 April 2023, the Board of Directors accepted the resignations of executive director Maxim Berlovich, non-executive director Oleg Mubarakshin and independent non-executive director Chalampos Avgousti, who decided to step down from the Board of Directors and its committees. 1 Since 4 April 2022. Martin Cocker held this position until 4 March 2022. On 11 March 2022, after the end of the reporting period, Martin Cocker resigned from the Board of Directors and its committees. 2 Since 16 February 2023. 147 EXECUTIVE MANAGEMENT 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Board of Directors1 1/2 SERGEY EGOROV chairman of the Board of directors, 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 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 other companies, including Sberbank Capital, United Capital Partners and Ernst & Young. 1 As of 24 April 2023. GENNADIY SHCHERBINA chief Executive officer DENIS VINOKOUROV non-executive director ALEXANDER VOLOSHIN Independent non-executive director BORIS SVETLICHNY Independent non-executive director Gennadiy Shcherbina was born in 1955. Having started his career in 2003, he has around 20 years of experience in the construction industry. He has been the Head of Etalon Group’s St Petersburg operations since 2007. Gennadiy has a candidate of sciences degree in economics, and he graduated from the Marshal A. A. Grechko Naval Academy and St Petersburg State University of Architecture and Civil Engineering. Denis Vinokourov was born in 1969. He graduated from Alexander Voloshin was born in 1956. He graduated Boris Svetlichny was born in 1961. He graduated from the Moscow State Institute of International Relations in from the Moscow Institute of Transport Engineers the University of Massachusetts in 1985 with a degree 1993 with a degree in law with highest honours, Central in 1978 and then from the All-Union Academy of Foreign in accounting and from Carnegie Mellon University European University with a Master of Laws degree, New Trade. He has over 30 years of experience in economics, in 1992 with an MBA degree. York University with a Master of Laws degree and the investment and asset management. Stern Business School with an MBA degree. He has spearheaded a number of investment funds of international financial and senior management He brings to the Company more than 30 years He has held senior investment roles at Vi Holding and brokerage companies; in 1997–1998, he was experience. He has held senior finance positions Development and East Capital. He started his career as a member of the Exchange Council of Moscow at Orange Business Services in Russia, VimpelCom a corporate lawyer at White & Case. Exchange. He later held senior positions in the Russian and Golden Telecom. From March 2014 to August 2016, Presidential Administration: aide (1997–1998), Deputy he served as Etalon Group’s CFO. Chief of Staff to the Russian President (1998–1999) and Chief of Staff to the Russian President (1999–2003). Alexander has served as the Chairman of the Board of Directors of RAO UES, Norilsk Nickel, Uralkali and Freight One. He is currently a partner and co-owner of the venture capital fund Genome Ventures. 148 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Board of Directors1 2/2 MARINA OGLOBLINA Independent non-executive director GANNA KHOMENKO Independent non-executive director VITALY PYLTSOV Independent non-executive director Marina Ogloblina was born in 1957. She graduated from Ganna Khomenko was born in 1977. She graduated Vitaly Pyltsov has 30 years of experience in finance, audit the Moscow Finance University in 1980 with a degree in from Keele University in 1999 with a degree in law and management, including strategy development at finance. Until recently, she served as Minister for Construc- and international politics. She also completed Russian and international companies. For more than tion and the Residential and Utility Sector of the Moscow a Legal Practice Course at the College of Law in Chester, 20 years, Vitaly worked at Russian and international offices region, before being appointed as an advisor for construc- in the United Kingdom. She currently acts as a consultant of Ernst & Young in a number of positions, including COO tion (with ministerial rank) to the regional governor. Prior providing services in trust and corporate administration, for the CIS region and Audit Partner. From 2013 to 2015, to that, she worked for 20 years in economic planning accounting and financial management, and international he was COO of the Russian Direct Investment Fund (RDIF) roles in the Moscow city administration. She was later tax planning, and she also sits on the boards of Ros and Co-COO of the Russia–China Investment Fund, appointed Minister and Head of the Department of Econo- Agro and Interpipe. Ganna previously held a number a company created by the RDIF and the China mic Policy and Development, and she also headed the of senior management positions, including dealing Investment Corporation. In 2021–2022, he served as an city’s Office of the Comptroller-General. Marina began with legal issues. 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 Depar- tment of Finance, Accounting and Audit at the Moscow government’s Moscow State University of Administration. 1 As of 24 April 2023. independent director and head of the Audit Committee at Renaissance Insurance Group. Vitaly graduated with distinction from the Moscow Institute of Finance (now the Financial University Under the Government of the Russian Federation) in international economic relations, including studies at Humboldt University in Berlin. 149 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E The following table provides the name, age, year of appointment and position on the Board of Directors of each director: Board attendance during the year NAME 1 Sergey Egorov 2 3 Gennadiy Shcherbina Marina Ogloblina 4 Ganna Khomenko 5 6 7 Boris Svetlichny Denis Vinokourov Alexander Voloshin 8 Vitaly Pyltsov AGE (AS OF THE DATE OF PUBLICATION) POSITION 40 68 65 45 61 53 67 55 Chairman of the Board of Directors, Non-executive Director Chief Executive Officer Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director Non-executive Director Independent Non-executive Director Independent Non-executive Director FIRST YEAR APPOINTED 2019 2021 2019 2019 2013 2018 2021 2022 NAME 1 Sergey Egorov 2 3 Gennadiy Shcherbina Marina Ogloblina 4 Ganna Khomenko 5 6 7 Boris Svetlichny Denis Vinokourov Alexander Voloshin 8 Vitaly Pyltsov (from 4 April 2022) ATTENDANCE AT IN-PERSON BOARD MEETINGS (A TOTAL OF 6 MEETINGS IN 2022) ATTENDANCE AT BOARD MEETINGS IN ABSENTIA (WRITTEN RESOLUTIONS) (A TOTAL OF 13 MEETINGS IN 2022) 6 6 6 6 6 6 6 5 12 13 12 13 11 11 13 9 In 2022, the Board of directors held 6 in-person meetings and an additional 13 meetings in absentia. 6 IN-PERSON MEETINGS IN 2022 13 MEETINGS IN ABSENTIA IN 2022 150 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Matters specifically reserved for the Board Board focus during the year Board composition Remuneration � approval of the Company’s long-term objectives and In 2022, the Board of Directors addressed a wide variety corporate strategy of issues, including but not limited to: Board gender diversity1 Board members by age1 � 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 financial statements, including the corporate governance statement, the dividend policy and any � business strategy � budgets and long-term plans for the Company � the Company’s dividend policy and sustainability policy � review of estimates of future cash flows, financing arrangements and fundraising declaration of interim dividends and the recommendation � development of the Company’s corporate governance of final dividends � approval, following a recommendation from the Remuneration and Nomination Committee, of any appointments to the Board and other key senior management posts � review, following a recommendation from the Audit Committee, of the effectiveness of the internal control and risk management systems � approval of the Company’s corporate governance policies and procedures � overall Group performance and future capital expenditures � financial statements and disclosures � review of Board committee reports � shareholder feedback and reports from brokers and analysts � risk management and risk oversight Men Women over 50 30–50 Nationality of Board members1 Russia Cyprus USA 1 As of 24 April 2023. The principles, grounds, conditions and procedure for payment of remuneration to members of the Board of Directors are set out in the Policy on Remuneration and Compensation Payable to Members of the Board of Directors, approved by the Board of Directors on 17 July 2020. According to this policy, remuneration for participation in the work of the Board of Directors is paid only to independent directors and consists of the following elements (all amounts are before tax): 1 Basic remuneration for participation in the work of the Board of Directors: EUR 56,190 2 Additional remuneration for participation in the work of one of the Board committees: EUR 9,365 3 Additional remuneration for chairing one of the Board committees: EUR 18,730 4 Reimbursement of expenses Remuneration is paid in cash on a quarterly basis, in equal instalments at the end of the corresponding quarter but not later than 10 working days after the end of the quarter. 151 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Board committees the Board has delegated specific responsibilities to four committees: the Audit committee, the remuneration � reviewing the results of the tender for auditing consolidated and Internal control and risk management systems and nomination committee, the Strategy committee, and the Investor relations and Information disclosure committee. individual financial statements � reviewing the performance and independence of the external All committees act within their remit, report to the Board on their activities and take decisions or make auditor The Audit Committee and the Board as a whole continue to ensure that effective risk management systems are adopted to make certain that key risks faced by Etalon Group are identified and recommendations to the Board concerning issues within their remit. Audit Committee Responsibilities As of 24 April 2023, the members of the Audit Committee were as follows: Vitaly Pyltsov Committee Chairman and Independent Non-executive Director Boris Svetlichny Independent Non-executive Director Ganna Khomenko Independent Non-executive Director � 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”) � recommendations to the Board of Directors on the appointment evaluated. Appropriate limits and controls are set, maintained and of an external auditor and the fee for audit services monitored to ensure compliance. In particular, the risk management � 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 framework identifies risks that might, if not properly managed, materially affect the Group’s ability to achieve its objectives or that could 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 � reviewing the accounting policy adopted by the Group and comprehensive, taking into account any variations in market and approving any changes to this policy on the recommendation conditions and the Group’s activities. Reviews also consider whether of management or the external auditor identified risks are being managed effectively. The Audit Committee � making recommendations to the Board, for shareholders’ approval External audit at a general meeting, concerning the appointment of the The Audit Committee is satisfied with Deloitte’s performance. external auditor and approval of the remuneration and terms The Audit Committee also reviewed and approved the non-audit 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. of engagement of the external auditor services that Deloitte provided for the Group and confirmed that the While progress is being made in this area, the Audit Committee � 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 a 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 an external audit firm The Audit Committee held a number of meetings in 2022, where the key matters for consideration were the following: � the year-end financial results, together with the corresponding report of the external auditor � the half-year interim results, together with the corresponding report of the external auditor provision of such services did not affect the auditor’s independence. continues to monitor the Group’s risk management processes The Audit Committee regularly meets with the external auditor and to ensure that they are supported and adjusted. without management present. Although only members of the Audit Committee are entitled to Due to the current geopolitical situation, however, Deloitte informed attend meetings, the lead partner of the external auditor, the head the Company that it could no longer act as the Company’s auditor, of Internal Audit and other members of senior management are so the Annual General Meeting of Shareholders appointed NSP invited to attend meetings as necessary and appropriate. Sagehill Partners Ltd as the Company’s new auditor. Internal audit The Group’s Internal Audit function provides independent, objective assurance and advisory oversight of the Company’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. � matters raised by the external auditor as part of the audit process The Audit Committee regularly meets with the head of Internal and requiring the attention of management as well as the actions Audit without management present. taken by management to address those matters 152 11ANNUAL REPORT 20228 corPorAtE Go VErnAnc E Remuneration and Nomination Committee Strategy Committee Investor Relations and Information Disclosure Committee Chief Executive Officer As of 24 April 2023, the members of the Remuneration As of 24 April 2023, the members As of 24 April 2023, the members of the Investor Relations Etalon Group’s Chief Executive Officer is Gennadiy Shcherbina, and Nomination Committee were as follows: of the Strategy Committee were as follows: and Disclosure Committee were as follows: whose key responsibilities are as follows: Sergey Egorov Committee Chairman, Chairman of the Board of Directors, Non-executive Director Gennadiy Shcherbina1 Committee Chairman, Chief Executive Officer Petr Kryuchkov Deputy CEO for Corporate Investments and Strategy at Etalon Group implementation of strategic and business decisions as approved by the Board of Directors Ganna Khomenko Independent Non-executive Director Sergey Egorov Non-executive Director Denis Vinokourov Non-executive Director Marina Ogloblina Denis Vinokourov Non-executive Director Boris Svetlichny management of day-to-day operations Independent Non-executive Director representation of Etalon Group’s interests in negotiations pertaining to any transactions made by Etalon Group companies Responsibilities 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 Petr Kryuchkov1 for all senior appointments. Deputy CEO for Corporate Investments and Strategy at Etalon Group 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 Artyom Zasursky basis. In undertaking this role, the Committee considers the skills, PJSFC Sistema, Vice President for Strategy 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 Etalon Group’s Information Disclosure Policy on a regular basis and makes recommendations to the Board regarding any changes. knowledge and experience required at a given stage of Etalon Group’s 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 2022 where it considered changes in the membership of the Board of Directors and its committees. 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 recommendations and expertise so that strategic options may be explored fully before being tabled at Board meetings for deliberation and approval. 1 Since 16 February 2023. 153 11ANNUAL REPORT 20229 SHArEHoLdEr IntErA ctIon S REPORT 2022 9 ANNUAL SHAREHOLDER INTERACTIONS Shareholder interactions 155 Share value 156 ownership structure 156 dividend policy 157 Investor relations 157 Analyst coverage 158 Investor calendar 158 Bonds and credit ratings 159 154 154 11ANNUAL REPORT 20229 SHArEHoLdEr IntErA ctIon S Shareholder interactions Etalon Group has been a successful player in capital markets since its listing on the London Stock Exchange more than 10 years ago. the focus of the company’s current Ir strategy is to expand dialogue with retail investors and eliminate restrictions on the enjoyment of rights by all shareholder groups while also taking further active measures to support its share price and increase the liquidity of the company’s securities. Although Etalon Group’s global depositary receipts (GDRs) have been listed on the London Stock Exchange since April 2011, trading in the Company’s GDRs has been temporarily suspended since March 2022. In 2020, the Company successfully completed the process for listing its GDRs on Moscow Exchange. Etalon Group’s securities are included in Moscow Exchange’s Level 1 quotation list, and its GDRs are included in the calculation base for the Broad Market Index as well as the SMID Index and the Construction Index (Moscow Exchange and RTS). LSE AS OF 30 DECEMBER 2022 MoEX AS OF 30 DECEMBER 2022 Code Market ETLN:LI MAIN MARKET FTSE Sector Real Estate Investments & Services FTSE Subsector Real Estate Ownership & Development MIFID Status SEDOL ISIN NUMBER Regulated Market B5TWX80 US29760G1031 Code Full name Short name ETLN: ME Global depositary receipts for ETALON GROUP PLC ordinary shares ETLN-gdr Type of security Depositary receipts for shares of a foreign issuer Listing level ISIN NUMBER Level 1 US29760G1031 78 MLN USD market capitalisation 5.42 MLN USD trading volume in 2022 18 BLN RUB market capitalisation 6.44 BLN RUB trading volume in 2022 GDR PRICE 1.31 USD 52-week maximum price 0.20 USD closing price 0.20 USD 52-week minimum price GDR PRICE 46.36 RUB closing price 96.66 RUB 52-week maximum price 41.78 RUB 52-week minimum price 155 11ANNUAL REPORT 2022 9 SHArEHoLdEr IntErA ctIon S Share value Etalon Group GDR performance in 2022 Market volatility and ongoing sanctions had a negative impact on the company’s share price and liquidity in 2022. ETLN traded value, RUB mln (RHS) ETLN GDR share performance, MOEX (LHS) IMOEX (LHS) 20% 10% 0 -10% -20% -30% -40% -50% -60% Ownership structure As of the end of 2021, following an additional issue, the Company had 383,445,362 ordinary shares outstanding in addition to 20,000 redeemable preferred shares with neither voting rights nor the right to receive dividends. The Company did not issue additional GDRs or conduct any GDR buyback programmes in 2022. Over 50% of Etalon Group’s share capital include the GDRs held by major institutional investors, such as Mubadala, Kopernik and Prosperity Capital, and also the free float. 200 150 100 50 0 January 2022 February 2022 March 2022 April 2022 May 2022 June 2022 July 2022 August 2022 September 2022 October 2022 November 2022 December 2022 156 11ANNUAL REPORT 20229 SHArEHoLdEr IntErA ctIon S Dividend policy Investor relations Etalon Group’s dividend policy is based on balancing the Company’s interests with those of its shareholders. Beginning in 2013, Etalon Group systematically raised the target level for its dividend payments from 15%–30% to 40%–70% of net profit under IFRS, as approved in May 2017. In January 2020, Etalon Group established a minimum annual payment as a temporary measure aimed at reducing the negative impact on shareholders of reduced profitability and of the specifics of accounting for the acquisition of Leader-Invest in 2019. In 2021, however, the Board of Directors decided to return to calculating dividends as a percentage of net profit in order to ensure a proportional increase in dividend payments as the business grows. To make dividend payments more predictable, the basis for distribution was adjusted and is now based on pre-PPA net profit; in addition, the dates for recommending and paying out dividends are fixed. In 2022, the complex geopolitical situation, sanctions and mutual restrictions, including concerning the payment of funds through international payment and clearing systems, had a significant impact on the Company’s ability to pay out dividends in line with the current dividend policy to all groups of Company shareholders. Based on the principles of the equality of interests of all groups of shareholders, the Board of Directors decided to postpone consideration of the issue of dividend payments for 2021 until the restrictions currently in place are lifted. In order to ensure that securities market participants are fully aware of our activities, we maintain a continuous dialogue with a wide range of investors and are developing our shareholder relations practices. 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 � all of the Company’s results for the reporting year in our Annual Report In accordance with best practices in terms of relations with investors and other stakeholders, we also published additional relevant information about our business: � news about important stages of project implementation, including acquisitions, 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 Despite changes in the way some issuers disclose information due to sanctions risks and market volatility, Etalon Group continues to make full disclosures. Work with institutional investors In the context of trade restrictions caused by geopolitical instability, institutional investors have reduced their positions in Russian companies. Throughout 2022, however, Etalon Group’s IR team and management used every available opportunity to maintain contact with the investment community: they answered questions that arose by means of correspondence and private calls, published detailed information about the Company’s operations and results, and held calls and meetings with investment funds. Work with retail investors The structure of the stock market has changed considerably since early 2022: according to Moscow Exchange, retail investors account for 80% of traded value. In the context of these structural changes, Etalon Group’s IR team and management are adapting their strategy and information disclosure by paying a great deal of attention to working with private investors. Russian-language website Participation in events for retail investors In order to provide equal, convenient and fast access to key information about the Company’s activities for all groups of investors, the Company maintains two versions – English and Russian – of its IR website: www.etalongroup.com. All the latest presentations are also available in Russian. Communication with retail investors through social networks Since 2018, the Company has maintained its own Twitter account. In 2022, the Company launched accounts on Tinkoff Pulse and BCS Profit – social media platforms for investors. In 2022, the Company participated in a number of conferences, events and webinars for private investors (Aton, Smart-lab, BCS). Dealing with requests We regularly deal with requests from private investors through official communication channels: the feedback form on the Company’s website and the Company’s IR email address ir@etalongroup.com. In the future, the Company plans to adapt its information materials and website to meet the needs of retail investors. 157 11ANNUAL REPORT 20229 SHArEHoLdEr IntErA ctIon S Analyst coverage Analysts from five Russian brokerage firms regularly cover Etalon Group’s activities and publish analytical reviews of Russian companies in the residential real estate development sector. Regular meetings and calls are held with analysts to help them gain a comprehensive understanding of the Company’s strategy, performance, assets and management. In the current environment, the following brokerages prepare reports and analytical notes on Etalon Group’s activities: BCS, Sberbank CIB, Gazprombank, Aton and Sinara. Analyst recommendations the calendar indicates the preliminary dates for publication of the company’s results. Investor calendar Buy Hold Neutral January 2023 March 2023 4Q and FY 2022 operating results Results of the appraisal of the Company’s project portfolio FY 2022 IFRS financial results July 2023 May 2023 1H 2023 operating results 1Q 2023 operating results Analytical coverage and recommendations1 BANK BCS Sberbank CIB Gazprombank Aton Sinara ANALYST REPORT DATE RECOMMENDATION Elena Tsareva Georgy Ivanin 28 March 2023 30 March 2023 Marat Ibragimov 17 October 2022 Mikhail Ganelin Irina Fomkina 22 March 2022 24 January 2023 Buy Buy Buy Neutral Hold 93-107 RUB average target price 54-77 % growth potential2 September 2023 October 2023 1H 2023 IFRS financial results 9M 2023 operating results 1 As of 7 April 2023. 2 The growth potential of the Company’s GDRs is calculated relative to the price at the close of trading on 6 April 2023: RUB 60.48 per GDR. 158 11ANNUAL REPORT 20229 SHArEHoLdEr IntErA ctIon S Bonds and credit ratings the Group’s loan portfolio covers bank loans, including project financing, public debt and other borrowings. As of 31 december 2022, two issues of rouble-denominated exchange- traded bonds from Etalon-Finance JSc for a total of ruB 15 billion were in circulation. All bond issues are included in Moscow Exchange’s Level 2 quotation list. INSTRUMENT ISIN AMOUNT ISSUED DATE OF ISSUE MATURITY DATE COUPON RATE PAYMENT FREQUENCY No. 4B02-02-55338-H-001P of 6 December 2017 RU000A0ZYU39 RUB 5 billion 21 February 2018 15 February 2023 11.70% for coupon payments 1–6 Twice a year 7.95% for coupon payments 7–10 No. 4B02-03-55338-H-001P of 13 September 2021 RU000A103QH9 RUB 10 billion 21 September 2021 15 September 2026 9.10% Four times a year INSTRUMENT ISIN AMOUNT ISSUED DATE OF ISSUE MATURITY DATE PUT OPTION COUPON RATE PAYMENT FREQUENCY 4B02-01-55338-H-002P of 17 February 2023 RU000A105VU7 RUB 8 billion 22 February 2023 3 February 2038 in 3 years 13.70% Four times a year Credit ratings The Expert RA rating agency affirmed the credit rating for issue No. 4B02-03-55338-H-001P of 13 September 2021 and assigned a credit rating of ruA- to issue No. 4B02-01-55338- H-002P of 17 February 2023. Instrument No. 4B02-02-17644-J-001P (RU000A0ZYA66), issued by Etalon LenSpetsSMU JSC on 6 September 2017, matured on 9 September 2022. In February 2023, after the reporting period, Etalon-Finance JSC (part of Etalon Group) issued exchange-traded bonds with a total par value of RUB 8 billion. The placement attracted strong interest from investors: the total demand exceeded the initial par value by 50%, thus increasing the value of the bond issue from the initially announced RUB 5 billion up to RUB 8 billion. On 15 February 2023, after the reporting period, instrument No. 4B02-02-55338-H-001P (RU000A0ZYU39), issued by Etalon- Finance JSC on 6 December 2017, matured. Contact information ETALON GROUP IR TEAM Petr Kryuchkov Deputy CEO for Corporate Investments and Strategy petr.kryuchkov@etalongroup.com Maria Bevzyuk Head of Investor Relations and ESG mariya.bevzyuk@etalongroup.com Alexandr Ugryumov Head of Capital Markets alexandr.ugryumov@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 159 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S REPORT 2022 10 ANNUAL FINANCIAL STATEMENTS consolidated financial statements 161 Parent company financial statements 210 160 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Consolidated Financial Statements for the year ended 31 december 2022 Board of Directors and Other Officers Contents СHAPTER Board of Directors and Other Officers Consolidated Management Report Responsibility Statement of the Members of the Board of Directors and Management of the Company Independent Auditor’s Report Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Supplementary Information — non-IFRS Measures (Unaudited) РАGE NAME Board of Directors 161 162 165 166 169 170 171 172 173 208 Gennadii Shcherbina Alexander Voloshin Sergey Egorov Marina Ogloblina Ganna Khomenko Denis Vinokurov Vitaly Pyltsov Boris Svetlichny Charalampos Avgousti Martin Robert Cocker Oleg Mubarakshin Maksim Berlovich DATE appointed on 30 April 2021 appointed on 30 April 2021 appointed on 19 February 2019 appointed on 19 February 2019 appointed on 19 February 2019 appointed on 9 November 2018 appointed on 4 April 2022 appointed on 15 April 2013 appointed on 10 November 2016 appointed on 12 November 2010 and resigned on 4 March 2022 appointed on 19 February 2019 and resigned on 16 February 2023 appointed on 27 April 2018 and resigned on 16 February 2023 Secretary Registered Office Independent auditors G.T. Globaltrust Services Limited Themistokli Dervi, 15 Margarita House, 5th floor, flat/office 502 1066 Nicosia Cyprus 2-4 Arch. Makariou III Avenue Capital Center, 9th floor 1065 Nicosia Cyprus AO BST, Saint Petersburg Branch Lit. K, bld. 1, 38 Sredniy Prospect 199004, Saint Petersburg Russia 161 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Consolidated Management Report the Board of directors of Etalon Group PLc Review of the development and performance of the Group’s business and its position (the “company”) presents 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 2022. 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. The results of the Group for the year ended 31 December 2022 are set out on page 18 of the consolidated financial statements. stand-alone commercial premises transferred over time by RUB 206 million or 29% and an increase in rental revenue by RUB 8 million or 1%. (a) Revenue (b) Gross profit The Group’s total revenue for the year ended 31 December 2022 amounted to RUB 80,556 million compared to RUB 87,138 million for the year ended 31 December 2021, a decrease of RUB 6,582 million or 8%. Revenue of the reportable segment “Residential development” decreased by RUB 6,161 million or 8%, due to a decrease in the revenues recognised from the sales of flats by RUB 5,548 million or 8%, decrease in the revenues recognised from the sales of parking places by RUB 541 million or 13%, and a decrease in the revenues recognised from the sale of built-in commercial premises by RUB 72 million or 2%. External revenues of the reportable segment “Construction services” decreased by RUB 263 million or 11% mainly due to completion of long- term construction contracts entered into in previous periods and not entering into new ones, aiming to reduce the Group’s presence in the segment. External revenues of the reportable segment “Other” decreased by RUB 158 million or 2% due to a decrease in other revenue transferred at a point in time by RUB 2,184 million, a decrease in the sales of construction materials by RUB 545 million or 16%, a decrease in the sales of stand-alone commercial premises transferred at a point in time by RUB 252 million or 70%, partially offset by an increase in other revenue related to servicing of premises by RUB 2,609 million or 118%, an increase in the sales of Gross profit for the year ended 31 December 2022 amounted to RUB 28,203 million compared to RUB 27,782 million for the year ended 31 December 2021, an increase of RUB 421 million or 2%, which was mainly driven by the increase in gross profit of the reportable segment “Other” by RUB 497 million or 23%. (c) Results from operating activities Profit from operating activities during the year ended 31 December 2022 amounted to RUB 25,055 million compared to RUB 13,246 million for the year ended 31 December 2021, an increase of RUB 11,809 million or 89%, which was mainly driven by the gain from bargain purchase of Russian business of YIT Corporation (“YIT Russia”) of RUB 12,038 million. During the year ended 31 December 2022, general and administrative expenses increased by RUB 1,475 million or 26%, selling expenses increased by RUB 362 million or 8%, other income decreased by RUB 380 million or 53%, while other expenses decreased by RUB 2,310 million or 50%, as compared to the year ended 31 December 2021. (d) General and administrative expenses The increase in general and administrative expenses was mainly caused by the increase in payroll and related taxes by RUB 1,205 million or 34%. YIT Russia contributed RUB 470 million to general and administrative expenses. (e) Other income and other expenses (g) Income tax expense Income tax expense for the year ended 31 December 2022 amounted to RUB 2,886 million compared to an income tax expense of RUB 2,842 million for the year ended 31 December 2021, an increase of RUB 44 million or 2%, despite the growth of profit before income tax in 2022 by RUB 10,038 million or 172%, which was mainly caused by non- taxable gain from bargain purchase YIT Russia. (h) Profit for the year The profit for the year ended 31 December 2022 amounted to RUB 13,001 million, compared to a profit of RUB 3,007 million for the year ended 31 December 2021. (i) Adjusted net debt/adjusted EBITDA and net corporate debt/adjusted EBITDA ratios As described in note 24 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 Etalon Finance (JSC Leader-Invest prior to 2022) require the Group to maintain adjusted net debt/adjusted EBITDA ratio below 4. The Group’s adjusted net debt is negative (specified assets exceed borrowings), which results in adjusted net debt/adjusted EBITDA ratio being minus 2.21 — well below the required minimal ratio. During the year ended 31 December 2022, other income decreased by RUB 380 million or 53% due to a decrease in the gain on disposal of property, plant and equipment and investment property by RUB 390 million. Other expenses decreased by RUB 2,310 million or 50% mainly due to a decrease in the impairment loss on inventories by RUB 1,060 million or 52% and a decrease in the cost of social infrastructure for completed projects by RUB 346 million or 62%. (f) Net finance costs Net finance costs for the year ended 31 December 2022 increased by RUB 1,750 million or 24% as compared to the year ended 31 December 2021. Finance income increased by RUB 1,461 million or 58% mainly due to an increase in interest income on cash and cash equivalents and bank deposits by RUB 1,458 million or 81%. Finance costs increased by RUB 3,211 million or 32% due to an increase in borrowing costs by RUB 2,919 million or 48% due to the transition from the scheme of customer financing to the bank project financing scheme, an increase in interest expense on leases by RUB 234 million or 47%, an increase in the effect of the unwinding of the discount on other payables by RUB 709 million or 29%, which was mainly caused by unwinding of the discount on long- term accounts payable for the acquisition of land plot (88% share in LLC “Specialized Developer “ZIL- YUG”) and unwinding of the discount on payables for construction of objects of social infrastructure, partially offset by a decrease in financing component under IFRS 15 by RUB 297 million or 80% and a decrease in net foreign exchange loss by RUB 247 million or 83%. 162 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S the Group also monitors the ratio of net Principal risks and uncertainties Dividends 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 The principal risks and uncertainties faced by the Group are disclosed in the notes 1(b), 2(d) and 27 of the Consolidated Financial Statements. transition to settlements with customers Future developments of the Group 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, well below the market rates. As of 31 december 2022, the ratio amounted to 0.78 which is in line with the Group’s target for the ratio being less than 2-3x. The Board of Directors acknowledges that the current geopolitical situation and the resulting economic developments in Russia may have an adverse impact on operations and financial results of the Group in the future. Still, the Group continues to adhere to its strategy, including regional expansion, and to sustain the scale of its operations, and overall will be able to continue its business for the foreseeable future. The challenging geopolitical circumstances, certain sanctional provisions and mutual restrictions, including on distribution of funds through international payment and clearing systems, have a significant impact on the Company’s ability to pay out dividends to all groups of its shareholders. Based on the principle of equitable treatment of all shareholders, the Board of Directors of the Company resolved to postpone consideration of the matter of dividend payments until constraints currently in force are removed. The Annual General Meeting of shareholders that took place on 22 December 2022 neither considered nor approved any dividend payments for the financial year ended 31 December 2021. Activities related to research and development Changes in the Company’s share capital The Group has not undertaken any material activities in the field of research and development during the year ended 31 December 2022. There were no changes in the Company’s share capital during 2022. 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 of Directors during 2022 and until the date these consolidated financial statements have been authorised for issue, are disclosed in the Board of Directors and other Officers section of these consolidated financial statements. 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 2022. 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 27 of the consolidated financial statements. Nonrecurring or unusual activities and other significant events The Ukrainian crisis Since the outbreak of the conflict in Ukraine on 24 February 2022, the US, UK, EU and other countries announced an extension of sanctions on certain Russian officials, businessmen and companies. These developments resulted in reduced access of Russian businesses to international capital, import and export markets, reduction in consumer demand and other negative economic consequences. Acquisition of YIT Russia On 30 May 2022, the Company acquired from YIT Corporation a certain number of Finnish and Russian legal entities representing the Russian business of YIT Corporation (“YIT Russia”) for the consideration of RUB 1,923 million. YIT Russia focused on mid-market residential real estate with a portfolio of 19 projects in five Russian regions, including the Moscow metropolitan area, Saint Petersburg, the Ekaterinburg region, Kazan and Tyumen with a total unsold net sellable area (NSA) of 0.6 million sqm. It also operated several housing servicing companies. Independent Auditors The Company appointed AO BST, Saint Petersburg Branch as the auditor of the Group’s consolidated financial statements for the year ended 31 December 2022. 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 assessing the Group’s and the Company’s ability to continue as a going concern, considering 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. 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. 163 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Company’s internal control and risk management in relation to the preparation of the financial statements 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 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 FCA’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) The authorised and issued share capital of the Company is GBP 39,172 divided into 383,445,362 Ordinary Shares of GBP 0.00005 each and 20,000 redeemable preference shares of GBP 1 each. 294,251,042 ordinary shares (76.7%) 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 at the reporting date have been listed and traded on the Main Market of the London Stock Exchange (LSE). Since the beginning of March 2022, LSE suspended trading in Etalon’s GDRs. The Company’s GDRs are traded on the Moscow Stock Exchange Starting from 3 February 2020. As at 31 December 2022, the Company was aware of the following interests in its share capital: SHAREHOLDERS Free float PJSC AFK Sistema Mubadala Investment Company Kopernik Global Investors Prosperity Capital Management of the Company Total % 35.2% 48.8% 6.3% 5.0% 4.1% 0.6% 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 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. (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 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 (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. 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. By order of the Board of Directors, Charalampos Avgousti Director Sergey Egorov Director Nicosia, 28 March 2023 164 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Responsibility Statement of the directors and management of the company in accordance with the transparency Law 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 2022: (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 SERGEY EGOROV Chairman of the Board of Directors MARINA OGLOBLINA Member of the Board of Directors GANNA KHOMENKO 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 ALEXANDER VOLOSHIN Member of the Board of Directors VITALY PYLTSOV Member of the Board of Directors GENNADII SHCHERBINA Chief Executive Officer ILYA KOSOLAPOV Chief Financial Officer (b) The management report provides a fair overview on information required as per Section 9(6)(a) of the Transparency Law. 28 March 2023 165 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Independent Auditors’ Report on Consolidated Financial Statements AO BST 5 Lesnaya Street Moscow, 125047, Russia Tel: +7 (495) 787 06 00 Fax: +7 (495) 787 06 01 delret.ru INDEPENDENT AUDITOR’S REPORT To the Shareholders of Etalon Group PLC Opinion We have audited the consolidated financial statements of Etalon Group PLC and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of 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 present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU) (“IFRSs”). 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 are independent of the Group in accordance with the Auditor’s Independence Rules and the Auditor’s Professional Ethics Code, that are relevant to our audit of the consolidated financial statements in the Russian Federation together with the ethical requirements of the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the “IESBA Code”), 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 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 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 under share participation agreements giving rise to over-time revenue recognition. The accounting policies on revenue under share participation agreements are disclosed in Note 3(i). For other disclosures on revenue refer to Note 6. Our audit procedures included amongst others: 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 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. We challenged the per-unit budgets and their structure and dynamics by benchmarking them across the Group's portfolio and versus market trends, and by assessing their effect on gross margins of individual projects. 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 by performing the following:  on a sample basis, we traced input data in the calculations to the respective share participation agreements;  we checked the arithmetical accuracy of the Group’s calculations. We reviewed the disclosures in the consolidated financial statements for compliance with the requirements of IFRS 15. 11 12 166 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Independent Auditors’ Report on Consolidated Financial Statements Accounting for business combination As disclosed in Note 28 during the year-ended 31 December 2022 the Group acquired 100% of the Russian business of YIT Corporation. We consider accounting for this transaction to be a key audit matter because it requires a significant degree of judgment and involves estimations which are uncertain in nature in relation to:   adjustments made to align accounting policies; future expected cash flows for construction projects and the discount rate used to arrive to their present value. The key sources of estimation uncertainty and accounting policies are disclosed in Note 3(a) and Note 28. Our audit procedures included amongst others: We challenged assumptions and management’s judgements applied in respect of the acquisitions of interests in YIT Corporation entities and performed the following:       inquiries of the Group’s management and analysis of the supporting documentation to obtain understanding of the key details of transactions; obtaining an understanding of the Group’s processes, procedures and controls for developing assumptions used; assessing experience, professional qualifications and objectivity of the independent valuation specialists; assessing the appropriateness of the discount rate used; evaluating and critically assessing the reasonableness of the assumptions used in calculation of fair values of the net identifiable assets:  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; analyzing adjustments made to align the accounting policies of the acquired business with the accounting policies adopted by the Group. We also assessed whether the disclosure in the consolidated financial statements in respect of this acquisition is in compliance with IFRS requirement. Net realizable value of inventories The Group has significant inventory balance (refer to Note 18 in the consolidated financial statements), which comprises 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 sale; the level of overhead expenses as a percentage of revenue; the discount rate used to arrive to the present value of the future expected cash flows. The key sources of estimation uncertainty and accounting policies 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:    obtaining an understanding of 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. Other Information The Board of Directors is responsible for the other information. The other information comprises the information that is included in the Consolidated Management Report and the Responsibility Statement of the Directors and management of the Group and will be included in the supplementary information to be Group’s Annual Report for 2022 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. Other matter – Supplementary Financial Information Management is responsible for the preparation of information accompanying the consolidated financial statements, which is presented as supplementary financial information on pages 89-91. This information is provided for the purposes of additional analysis and is not a required part of the consolidated financial statements for year ended 31 December 2022 prepared in accordance with IFRS. Such information has not been subjected to the audit procedures applied in our audit of the consolidated financial statements for the year ended 31 December 2022 and, accordingly, we do not express opinion on it. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (EU) (“IFRSs”), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. 13 14 15 167 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Independent Auditors’ Report on Consolidated Financial Statements From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period, and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Turushev Sergey (ORNZ № 21906101428), Engagement partner, Acting based on the power of attorney issued by the General Director on 24.08.2022 authorizing to sign off the audit report on behalf of AO “Business Solutions and Technologies” (ORNZ № 12006020384) 28 March 2023 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:      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 management. Conclude on the appropriateness of management’s 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 fair presentation. 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. 16 17 168 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 december 2022 MLN RUB Revenue Cost of sales Gross profit 6 7 80,556 87,138 Profit attributable to: (52,353) (59,356) • Owners of the Company 28,203 27,782 • Non-controlling interest Profit for the year NOTE 2022 2021 MLN RUB NOTE 2022 2021 General and administrative expenses 8 (7,259) (5,784) Selling expenses (5,001) (4,639) total comprehensive income attributable to: Impairment loss on trade and other receivables 27 (b)(ii) (912) (169) • Owners of the Company Gain from bargain purchase 28 12,038 − 711 • Non-controlling interest Total comprehensive income for the year 331 Other income Other expenses, net Results from operating activities Finance income — interest revenue Finance income — other Finance costs Net finance costs Share of loss of equity accounted investees Profit before income tax 9 9 11 11 11 (2,345) (4,655) 25,055 13,246 Earnings per share Basic and diluted earnings per share (RUB) 23 33.77 8.59 3,914 2,392 75 136 (13,120) (9,909) (9,131) (7,381) (37) (16) 15,887 5,849 12,948 3,007 53 − 13,001 3,007 12,948 3,007 53 − 13,001 3,007 Income tax expense Profit for the year Total comprehensive income for the year 12 (2,886) (2,842) 13,001 3,007 13,001 3,007 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 173 to 207. 169 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Consolidated Statement of Financial Position as at 31 december 2022 MLN RUB ASSETS non-current assets • Property, plant and equipment • Intangible assets • Investment property • Other long-term investments • Trade and other receivables • Deferred tax assets Total non-current assets current assets • Inventories under construction and development • Inventories — finished goods • Other inventories • Advances paid to suppliers • Costs to obtain contracts • Contract assets • Trade receivables • Other receivables • Income tax receivable • Short-term investments • Cash and cash equivalents Total current assets Total assets NOTE 2022 2021 MLN RUB NOTE 2022 2021 13 14 15 16 19 17 18 18 18 19 19 19 19 20 21 4,531 4,050 2,652 396 583 − 416 1,489 1,569 3,345 11,373 7,347 21,104 16,647 119,600 95,431 16,872 13,023 6,047 1,699 12,469 10,857 1,197 892 28,733 25,332 6,638 6,308 9,945 6,243 1,607 22 953 126 23,811 44,587 226,941 205,451 248,045 222,098 EQUITY AND LIABILITIES Equity • Share capital • Share premium • Reserve for own shares • Retained earnings Total equity attributable to equity holders of the Company 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 • Income tax payable • Provisions Total current liabilities Total equity and liabilities 22 22 22 24 26 25 17 24 26 26 25 2 2 26,367 26,367 (1) (1) 47,821 34,992 74,189 61,360 74,189 61,360 73,970 67,132 22,978 31,230 406 117 7,513 7,428 104,867 105,907 19,118 16,306 36,946 23,692 12,045 14,157 241 639 158 518 68,989 54,831 248,045 222,098 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 173 to 207. These Consolidated Financial Statements were approved by the Board of Directors on 28 March 2023 and were signed on its behalf by: Charalampos Avgousti Director Sergey Egorov Director 170 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Consolidated Statement of Changes in Equity for the year ended 31 december 2022 MLN RUB Balance as at 1 January 2021 total comprehensive income for the year Profit for the year Total comprehensive income for the year transactions with owners, recorded directly in equity Shares issued Transaction costs directly attributable to the issue Dividends to equity holders Total transactions with owners Balance as at 31 December 2021 ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY SHARE CAPITAL SHARE PREMIUM RESERVE FOR OWN SHARES RETAINED EARNINGS TOTAL NON-CONTROLLING INTEREST 15,486 (1) 35,586 51,073 2 − − − − − − 2 − − 11,120 (239) − 10,881 26,367 − − − − − − 3,007 3,007 3,007 3,007 − − (3,601) (3,601) 11,120 (239) (3,601) 7,280 61,360 (1) 34,992 TOTAL EQUITY 51,073 3,007 3,007 11,120 (239) (3,601) 7,280 61,360 − − − − − − − − MLN RUB Balance as at 1 January 2022 total comprehensive income for the year Profit for the year Total comprehensive income for the year transactions with owners, recorded directly in equity Acquisition of subsidiaies with NCI, note 28 Result of acquisition and disposal of NCI in subsidiaries with NCI, note 22(e) Total transactions with owners Balance as at 31 December 2022 ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY SHARE CAPITAL SHARE PREMIUM RESERVE FOR OWN SHARES RETAINED EARNINGS TOTAL NON-CONTROLLING INTEREST TOTAL EQUITY 2 − − − − − 2 26,367 (1) 34,992 61,360 − 61,360 − − − − − 26,367 − − − − − (1) 12,948 12,948 12,948 12,948 53 53 13,001 13,001 − (119) (119) 47,821 − (119) (119) 74,189 195 (248) (53) − 195 (367) (172) 74,189 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 173 to 207. 171 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Consolidated Statement of Cash Flows for the year ended 31 december 2022 MLN RUB NOTE 2022 2021 MLN RUB NOTE 2022 2021 OPERATING ACTIVITIES: Profit for the year Adjustments for: • Depreciation, including right-of-use assets 13, 14 • Loss/(gain) on disposal of property, plant and equipment • Loss/(gain) on disposal of investment property • (Gain)/loss on disposal of inventories under construction and development • Impairment loss on inventories 9 9 9 18 • Impairment loss on trade and other receivables, 27 (b)(ii) advances paid to suppliers and investments • Share of loss of equity accounted investees • Loss on disposal of subsidiary • Gain on disposal of associate • Gain from bargain purchase 13,001 3,007 541 90 521 (162) 3 (279) (51) 205 994 898 37 2 (135) 9 9 28 (12,038) 2,054 327 16 7 − − • Significant financing component from contracts with customers recognised in revenue (324) (3,003) • Savings on escrow-backed loans recognised (2,715) (1,197) in revenue • Finance costs, net • Income tax expense Cash from operating activities before changes in working capital and provisions 11 12 9,131 7,381 2,886 2,842 12,135 11,719 INVESTING ACTIVITIES: Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment property Interest received Acquisition of property, plant and equipment and intangible assets Loans given Loans repaid Proceeds from disposal of subsidiaries, net of cash disposed of Acquisition of investment in associates and joint ventures Acquisition of subsidiary, net of cash acquired Acquisition of other investments Disposal of other investments Net cash from investing activities FINANCING ACTIVITIES: Proceeds from borrowings Repayments of borrowings1 Payments for lease liabilities, excluding interest Proceeds from issue of share capital, net Dividends paid 10 12 266 474 1,211 1,763 (1,201) (560) (13) 64 − (823) 7 32 (247) (389) 536 (1) 45 416 − (4) 149 915 28 16, 20 16, 20 24 24 24 43,009 49,071 (11,166) (14,635) (2,144) (1,775) − − 10,881 (3,613) Net cash from financing activities 29,699 39,929 Change in inventories Change in accounts receivable Change in accounts payable Change in provisions Change in contract assets Change in contract liabilities Cash used in operating activities Income tax paid Interest paid Net cash used in operating activities1 25 19 26 18 18 1 Repayments of borrowings during the year ended 31 December 2022 do not include repayment of project financing of RUB 27 162 million that was made by means of offset against funds released from escrow accounts. Similarly, the offset is also reflected within operating activities as part of changes in contract assets. 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 173 to 207. (24,897) 3,211 (2,212) (2,386) 2,609 5,937 (28) 108 (24,029) (18,194) (3,577) (14,194) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year (20,700) 19,041 44,587 25,830 (76) (284) (39,999) (13,799) Effect of exchange rate fluctuations (5,553) (3,543) (5,263) (4,461) (50,815) (21,803) Cash and cash equivalents at the end of the year 21 23,811 44,587 172 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Notes to the Consolidated Financial Statements for the year ended 31 december 2022 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. Since 2022, the Group started residential development in other regions of 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. The Company’s GDRs are traded on the Moscow Stock Exchange starting from 3 February 2020. Since the beginning of March 2022, as a result of sanctions imposed in connection with the Ukrainian crisis, LSE suspended trading in Group’s GDRs. Starting from 4 May 2022, as a result of acquisition of an additional 19% stake in the Company, PJSC AFK Sistema became the controlling shareholder of the Group with ownership share of 48.8% as of 31 December 2022. Prior to 4 May 2022, PJSC AFK Sistema had significant influence over the Group with ownership share of 29.8%. As of 31 December 2022, Vladimir Petrovich Yevtushenkov owns a 49.2% stake in PJSC AFK Sistema (as of 31 December 2021 — 59.2%). In 2022, Vladimir Petrovich Yevtushenkov transferred his 10% stake, thereby ceasing to be the holder of the majority of shares. 50.8% of the shares belong to a significant number of shareholders (as of 31 December 2021 — 40.8%). The shares of PJSC AFK Sistema are traded on the London Stock Exchange in the form of global depositary receipts («GDRs») and on the Moscow and Saint Petersburg Exchanges. b) Business environment Emerging markets such as Russia are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. Laws and regulations affecting businesses in Russia continue to change rapidly, tax and regulatory frameworks are subject to varying interpretations. The future economic direction of Russia is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment. Because Russia 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. Starting from 2014, sanctions have been imposed in several packages by the US, UK, EU and others on certain Russian officials, businessmen and companies. On 21 February 2022, the President of the Russian Federation signed executive orders on the recognition of the Donetsk People’s Republic and the Lugansk People’s Republic. On 30 September 2022, Donetsk People’s Republic, Lugansk People’s Republic, as well as Zaporozhye and Kherson regions were recognised as the regions of the Russian Federation in the Constitution of the Russian Federation. Since the outbreak of the conflict on 24 February 2022, the US, UK, EU and other countries announced an extension of sanctions on certain Russian officials, businessmen and companies. These developments have resulted in reduced access of Russian businesses to international capital and export markets, reduction in consumer demand, increase in inflation rates, decline in capitals markets and other negative economic consequences. The impact of these and further developments on future operations and financial position of the Group at this stage is difficult to determine. For the assessment of the Group’s ability to continue as a going concern please refer to note 2(b). 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. 173 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 2. Basis of preparation a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). 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. In assessing its going concern status, the Group has taken account of its principal risks and uncertainties including inflation risks for construction materials and labour costs, sharp reduction of the Company’s market capitalisation and suspension of trading in the Company’s GDRs on the London Stock Exchange, available undrawn credit facilities as at the date of analysis, and its forecast compliance with covenants on project financing and corporate borrowings, anticipated future continuity in demand, and major instalments in relation to acquisition of land plots. When assessing the Group’s ability to continue as a going concern over the next 12 months, the management considered all available information about the future, including events described below, 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. During the reporting period and following the commencement of the Ukrainian crisis, the US, UK, EU and some other countries imposed severe sanctions against the Russian government, major financial institutions and certain other entities and individuals in the Russian Federation. In response to the sanctions, the Russian government introduced certain currency control measures and the Central Bank of the Russian Federation increased the key rate to 20% in March 2022 which was reduced to 17% starting from 11 April 2022 and subsequently reduced to 7.5% during May — December 2022. All the above led to significant market volatility, disruption in the supply chains and significantly increased the level of economic uncertainty. The Group developed a cash flow projection for the year 2023 considering possible impact on the current operating environment on the Group’s demand and supply chain, including continuity in demand, availability and prices for construction materials and supplies, and eventually on cash flows and liquidity position, including the consideration of debt covenants. The Group considered the following factors when assessing the impact on the current operating environment. Continuity in demand The demand for real estate is largely dependent on the availability of mortgage loans and the level of mortgage rates. Effective from 20 June 2022, the Government of the Russian Federation introduced special mortgage rates of 7% (8% starting from 1 January 2023) for newly constructed real estate and increased the price limit up to RUB 12 million per apartment in Moscow and Saint Petersburg (RUB 6 million in other Russian cities). At the same time, special mortgage programs including a family mortgage program of 6% continued to be in place. Availability and cost of finance As reported in the note 27(d)(ii), loans with a carrying amount of RUB 31,196 million or 34% of the total outstanding loans as at 31 December 2022 are linked to the key rate of the Central Bank of the Russian Federation (are variable rate instruments). The Group’s loan contracts either include limitation on the maximum interest rate or bear preferential interest rates to debt covered by escrow account balances. These factors will limit the effect of any potential increase in the Central Bank’s key rate on the cost of borrowings. The Group does not have any borrowings denominated in foreign currencies. The Group has secured project financing for all construction project in place that will enable it to continue financing its construction projects. For the new projects the Group aims to balance the ratio of borrowed funds to cash collected on escrow accounts to reduce borrowing costs. The Group has sufficient liquidity to repay borrowings and does not expect any breaches of financial covenants during 2022. Despite the fact that the Group’s parent company is registered in Cyprus, the Group’s place of operation is the Russian Federation, and the Group is not subject to any restrictions on receipt from customers of any proceeds from sale of real estate which have been introduced by the Russian Government with respect to foreign construction companies operating in Russia. Availability and cost of construction materials The Group mainly uses domestically produced construction materials and equipment and expects to be able to replace any shortages or breakages in its supply chain caused by foreign sanctions with supplies from other jurisdictions. The prices for construction materials are not linked to foreign currencies and the Group does not expect that the high volatility of foreign currency exchange rates will result in a significant increase in its production costs during 2022. Although constructions costs will continue to increase in line with higher inflation rates the Group expects that it will be able to pass increased constructions costs on to its customers. Considering the above and given the Group’s history of profitable operations and ready access to financial resources, the Group reached a conclusion that the going concern basis of accounting is appropriate for the preparation of these consolidated financial statements. 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. 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 are the critical accounting judgements (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. Classification of assets and liabilities as current or non-current: � Inventories under construction and development and finished goods, contract assets and contract liabilities arisen from the sale of real estate, being part of the working capital used in the Group’s normal operating cycle are classified as current, even if they are due to be settled more than twelve months after the reporting period; � Financial assets and financial liabilities are classified as current or non-current based on their contractual maturities. 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 14 — intangible assets: expected pattern of consumption of the expected future economic benefits embodied in the future savings on connection to networks; � Note 18 — 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, impairment; � Note 28 — acquisition of subsidiary: fair value of the assets acquired and liabilities assumed. 174 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 2. Basis of preparation 3. Significant accounting policies e) Changes in accounting policies a) Basis of consolidation (II) SUBSIDIARIES The Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements. i) New Standards and Interpretations The following amendments to the standards and interpretations are effective for annual periods beginning on or after 1 January 2023. � IFRS 17 Insurance Contracts, including Amendments, insurance contracts; � Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, sale or contribution of assets between an investor and its associate or joint venture; � Amendments to IAS 1 Presentation of Financial Statements, classification of liabilities as current or non-current; non-current liabilities with covenants; � Amendments to IAS 12 Income Taxes, deferred tax related to assets and liabilities arising from a single transaction; � Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2, disclosure of accounting policies; � Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, definition of accounting estimates. � Amendments to IFRS 16 Leases, lease liability in a sale and leaseback. The Group does not expect any significant impact on the Group’s financial position or performance from the application of these amendments to the standards and interpretations. (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 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. Subsidiaries are entities controlled by the Group. The Group controls another 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 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 33. (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. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to the fair value of the financial assets and deducted from financial liabilities on initial recognition 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. (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 — fair value through profit or loss. 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 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 assesses 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; c) Financial instruments � its contractual terms give rise on specified dates � the risks that affect the performance of the (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. 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. 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. 175 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 3. Significant accounting policies 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: � contingent events that would change the amount or timing of cash flows; � terms that may adjust the contractual coupon rate, including variable-rate features; � prepayment and extension features; and � terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features). 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 has 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. and combined effect of qualitative and quantitative factors. The Group concludes that the modification is substantial as a result of the following qualitative factors: 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 of IFRS 9. 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 � change in the currency of the financial liability; � change in collateral or other credit enhancement; � inclusion of conversion option; � change in the subordination of the financial liability. 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. 176 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 3. Significant accounting policies 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. (V) OFFSETTING 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 expected credit losses (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. 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). Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets and contract assets measured at amortised cost are deducted from the gross carrying amount of the assets. 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 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. 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. Evidence that a financial asset is credit-impaired includes the following observable data: d) Advances paid and contract liabilities � 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. 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. Bank balances kept in escrow accounts, which represent funds received by authorized banks from escrow-account holders — participants of share participation agreements for construction of real estate, are not included in the balance of cash and cash equivalents. The funds, in the excess of the amounts borrowed from the banks, will be transferred to the Group’s bank accounts upon completion of construction of respective real estate and on such time will be recognised within cash and cash equivalents. 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. 177 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 3. Significant accounting policies 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. 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 during the year ended 31 December 2022. (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 owned by the Group is not depreciated. The estimated useful lives for the current and comparative periods are as follows: � Buildings and constructions 7-30 years; � Machinery and equipment 5-15 years; � Vehicles � Other assets 5-10 years; 3-7 years. 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, while rental earnings are not significant compared to the sales price of the property. 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. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. 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 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 starts recognising revenue after state registration of respective share participation agreements. 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. 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. 178 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S 3. Significant accounting policies 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), while specific formula is used to calculate interest rates when balances on escrow accounts are lower than balances of project loan. The range of interest rates for the Group’s project financing portfolio is disclosed in note 24 as nominal interest rates for each loan, where the lower rate is preferential rate and the higher is base rate. 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: � Contracts for provision of construction services; � 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 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 3i)(i). The Group presents lease liabilities in “Trade and other payables” (note 26) 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 fixed 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. 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. 179 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 3. Significant accounting policies 4. Determination of fair values 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. 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 the certain types of the Group’s activities whose tax profits or losses cannot be offset against profits or losses related to other activities. 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. a) Non-derivative financial assets b) Non-derivative financial liabilities The fair value of trade and other receivables and other financial assets measured at amortised cost 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. 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. For finance leases, the market rate of interest is determined by reference to similar lease agreements. 5. Operating segments 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 commercial premises and parking places. � Construction services. Includes construction services for third parties and for internal purpose. � Other operations. Include selling of construction materials, construction and sale of stand-alone commercial premises, sale of land plots 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 2022 and 2021. The transition from the scheme of customer financing to 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 focuses on the measures of profit or loss of each reportable segment. The information about reportable segments’ assets and liabilities is not disclosed. 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. The performance of the reportable segment “Residential development” is additionally assessed on the basis of gross profit adjusted for purchase price allocation from the acquisition of JSC “Etalon- Finance” (JSC “Leader-Invest” before 4 April 2022). 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. 180 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 5. Operating segments a) Information about reportable segments b) Geographical information MLN RUB External revenues Including: • St. Petersburg metropolitan area • Moscow metropolitan area • Other regions • Inter-segment revenue Total segment revenue RESIDENTIAL DEVELOPMENT CONSTRUCTION SERVICES OTHER TOTAL 2022 2021 2022 2021 2022 2021 2022 2021 69,108 75,269 2,138 2,401 9,310 9,468 80,556 87,138 30,552 31,946 35,088 43,323 3,468 − − − 26,493 18,573 614 595 27,107 19,168 69,108 75,269 28,631 20,974 9,924 10,063 107,663 106,306 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 2022 2021 2022 2021 REVENUES NON-CURRENT ASSETS St. Petersburg metropolitan area Moscow metropolitan area Other regions 36,852 40,076 37,744 47,062 5,960 − 80,556 87,138 3,343 1,293 2,943 7,579 3,094 1,372 − 4,466 Gross profit adjusted for purchase price allocation from acquisition of Etalon Finance (Leader-Invest prior to 2022) 27,612 28,948 (43) (60) 2,945 2,153 30,514 31,041 Gross profit adjusted for purchase price allocation, % 40% 38% Gross profit Including: • St. Petersburg metropolitan area • Moscow metropolitan area • Other regions Gross profit, % Including: • St. Petersburg metropolitan area • Moscow metropolitan area • Other regions 25,596 25,689 (43) (60) 2,650 2,153 28,203 27,782 12,761 11,361 1,474 37% 42% 32% 43% 12,883 12,806 − 34% 40% 30% − 181 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 5. Operating segments 6. Revenue c) Reconciliations of reportable segment revenues and gross profit MLN RUB 2022 2021 Contract balances 12,131 13,351 49,448 53,776 The following table provides information about receivables, contract assets and contract liabilities from contracts with customers Total revenue — segment Residential development (note 5 (a)) 69,108 75,269 MLN RUB reconciliation of revenue Total revenue for reportable segments Elimination of inter-segment revenue Consolidated revenue 2022 2021 Sale of flats — transferred at a point in time Sale of flats — transferred over time 107,663 106,306 (27,107) (19,168) 80,556 87,138 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 Reconciliation of gross profit adjusted for purchase price allocation from acquisition of Etalon Finance (Leader-Invest prior to 2022) to profit before tax MLN RUB Total gross profit for reportable segments adjusted for purchase price allocation from acquisition of Etalon Finance Long term construction contracts — transferred over time Short term construction services — transferred at a point in time 2022 2021 Total revenue — segment Construction services (note 5 (a)) 30,514 31,041 Sale of construction materials — transferred at a point in time Purchase price allocation from acquisition of Etalon Finance included in cost of sales (2,311) (3,259) Sale of stand-alone commercial premises — transferred over time Sale of stand-alone commercial premises — transferred at a point in time Consolidated gross profit 28,203 27,782 Other revenue — transferred over time unallocated amounts General and administrative expenses Selling expenses Impairment loss on trade and other receivables Other income Other expenses Gain from bargain purchase Finance income and interest revenue Finance costs Share of loss of equity accounted investees Consolidated profit before income tax Other revenue — transferred at a point in time Total other revenue (note 5 (a)) Total revenues from contracts with customers Rental revenue (note 5 (a)) Total revenues (7,259) (5,001) (912) 331 (5,784) (4,639) (169) 711 (2,345) (4,655) Other revenue is mainly represented by the revenue of housing servicing companies. 12,038 3,989 − 2,528 (13,120) (9,909) (37) (16) 15,887 5,849 1,580 2,265 2,231 1,453 1,487 2,430 2,006 2,219 1,194 944 2,138 2,867 914 107 4,812 − 8,700 1,459 942 2,401 3,412 708 359 2,203 2,184 8,866 79,946 86,536 610 602 80,556 87,138 MLN RUB 2022 2021 Trade receivables 8,174 9,429 Contract assets 28,733 25,332 Contract liabilities (12,045) (14,157) 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 payment in arrears of 2 to 5 years after the date of completion of construction for specific projects. Contract liabilities include advance consideration received from customers. 182 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 6. Revenue The explanation of significant changes in contract asset and contract liability balances during the reporting period is presented in the table below. 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. MLN RUB Balance at 1 January Revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period Other revenue — transferred at a point in time Increases due to cash received, excluding amounts recognized as revenue during the period 2022 2021 31 DECEMBER 2022, MLN RUB 2023 2024 2025 2026 TOTAL CONTRACT ASSETS CONTRACT LIABILITIES CONTRACT ASSETS CONTRACT LIABILITIES Residential development 43,701 15,337 1,043 Construction services 1 − − 25,332 (14,157) 7,138 (28,351) − 10,451 − 24,150 Total 43,702 15,337 1,043 163 − 163 60,244 1 60,245 − − (6,799) − − − 2,184 31 DECEMBER 2021, MLN RUB 2022 2023 2024 2025 TOTAL (11,768) Residential development 35,475 10,355 1,720 Construction services Construction of stand-alone commercial premises 58 3,665 − 74 − 51 Total 39,198 10,429 1,771 − − − 78 − − 78 47,628 58 3,790 51,476 Acquisition through business combination 6,534 (1,465) Transfers from contract assets recognised at the beginning of the period to receivables Increase as a result of changes in the measure of progress (22,422) 18,937 − − (1,568) 19,474 Financing component under IFRS 15 352 (75) 288 (372) Balance at 31 december Change during the period 28,733 (12,045) 25,332 (14,157) 3,401 2,112 18,194 14,194 As at 31 December 2022, capitalised costs to obtain contracts with customers of RUB 604 million will be recognised within selling expenses after more than 12 months from the reporting date (31 December 2021: RUB 259 million). 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. During the year ended 31 December 2022, the Group revised construction budgets for development projects due to the significant increase in prices of construction materials. The effect of revision of budgets on contract asset as of 31 December 2022 is RUB 2,815 million. 183 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 7. Cost of sales 8. General and administrative expenses 9. Other income and other expenses MLN RUB 2022 2021 MLN RUB 2022 2021 MLN RUB 2022 2021 32,329 33,204 Payroll and related taxes 4,779 3,574 OTHER INCOME Cost of design and construction works and engineering infrastructure Cost of land plots Cost of construction of social infrastructure Other costs 6,825 2,470 1,888 11,425 2,511 2,440 Total cost of sales — segment Residential development 43,512 49,580 Cost of sales for segment Construction services Cost of sales for segment Other Total cost of sales 2,181 6,660 2,461 7,315 52,353 59,356 Cost of design and construction works and engineering infrastructure, among other, includes costs of raw materials and consumables used in construction, production employees’ benefits expenses, and depreciation expense of construction machinery and equipment. Services Depreciation Audit and consulting services Bank fees and commissions Materials Repair and maintenance Other taxes Other Total 686 384 276 102 119 102 73 738 716 292 242 117 130 81 61 571 Fees and penalties received Gain on disposal of associate Gain on disposal of inventories under construction and development Other income Gain on disposal of property, plant and equipment Gain on disposal of investment property Other income 7,259 5,784 OTHER EXPENSES Remuneration of the statutory audit firm for the year ended 31 December 2022 amounted to RUB 3.8 million for audit services (2021: RUB 7.5 million) and RUB 0.2 million for other assurance services (2021: RUB 7.2 million). Remuneration of another audit firm for the year ended 31 December 2022 amounted to RUB 13.2 million for audit services (2021: RUB 5 million) and RUB 1.5 million for other assurance services (2021: RUB 17.6 million). Impairment loss on inventories (note 18) Fees and penalties incurred Other taxes Cost of social infrastructure for completed projects Charity Loss on disposal of property, plant and equipment Loss on disposal of subsidiary Other expenses Loss on disposal of inventories under construction and development 145 135 51 − − − 331 (994) (245) (277) (209) (152) (93) (2) (373) − 142 − − 128 162 279 711 (2,054) (323) (382) (555) (60) − (7) (1,069) (205) Other expenses (2,345) (4,655) Other expenses, net (2,014) (3,944) 184 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 10. Personnel costs 11. Finance income and finance costs 2022 2021 MLN RUB 2022 2021 MLN RUB Wages and salaries Social security contributions 9,427 2,175 11,602 7,371 1,765 9,136 Remuneration to employees in respect of services rendered during the reporting period 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 2022, personnel costs and related taxes included in cost of production amounted to RUB 6,009 million (year ended 31 December 2021: RUB 4,631 million). The remaining part of personnel expenses was subsumed within general and administrative expenses and selling expenses in the total amount of RUB 5,593 million (year ended 31 December 2021: RUB 4,505 million). The average number of staff employed by the Group during the year ended 31 December 2022 was 5,486 employees (year ended 31 December 2021: 4,479 employees). RECOGNISED IN PROFIT OR LOSS Finance income Interest income under the effective interest method on: • Bank deposits — at amortised cost • Cash and cash equivalents (except bank deposits) • Interest income — financing component under IFRS 15 • Unwinding of discount on trade receivables Total interest income arising from financial assets measured at amortised cost Reversal of impairment on investments and advances paid to suppliers Gain on write-off of accounts payable Finance income — other FINANCE COSTS Financial liabilities measured at amortised cost: • Interest expenses — borrowing costs, including: • Cost of corporate debt • Cost of project debt — at preferential rate • Cost of project debt — adjustment to arrive at base rate • Unwinding of discount on other payables • Interest expense on leases • Interest expenses- financing component under IFRS 15 Net foreign exchange loss Impairment loss on advances paid to suppliers and financial investments Other finance costs Finance costs Net finance costs recognised in profit or loss 2,426 827 352 309 1,271 524 288 309 3,914 2,392 14 61 75 − 136 136 (8,997) (4,474) (803) (3,720) (3,133) (732) (75) (50) − (133) (6,078) (3,513) (1,175) (1,390) (2,424) (498) (372) (297) (158) (82) (13,120) (9,909) (9,131) (7,381) 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 Borrowing costs and significant financing component capitalised during the year 2022 16 2021 239 Weighted average capitalisation rate 10.63% 12.69% 185 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 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 2021: 20%). Reconciliation between tax expense and the product of accounting profit multiplied by the applicable tax rate 20%: MLN RUB 2022 2021 The Group prepares reconciliation using the tax rate of 20% that is applicable in the Russian Federation and not the domestic tax rate of the Cyprus parent Company (12.5%) since substantially all taxable profit is generated in the Russian Federation. MLN RUB CURRENT TAX EXPENSE Current year (Over-provided)/under-provided in prior year DEFERRED TAX EXPENSE Origination and reversal of temporary differences Income tax expense 2022 2021 Profit before income tax Theoretical income tax at statutory rate of 20% 4,013 Adjustments due to: (Over-provided)/under-provided in prior year Tax losses for which no deferred tax asset was recognised Expenses not deductible and income not taxable for tax purposes, net, including: 5,294 17 5,311 (2,425) 2,886 (14) 3,999 (1,157) 2,842 15,887 3,177 17 32 (340) 5,849 1,170 (14) 74 1,612 • Gain from bargain purchase arising from acquisition (2,407) − of YIT Russia • Interest on loans used to finance the acquision of JSC 566 549 “Etalon-Finance” • Unwinding of discount on payables for acquisition of 88% of share capital of LLC “Specialized Developer “ZIL-YUG” • Other not deductible expenses Income tax expense 309 1,192 398 665 2,886 2,842 186 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 13. Property, plant and equipment During the year ended 31 December 2022, depreciation expense of RUB 341 million (year ended 31 December 2021: RUB 249 million) was charged to cost of sales, RUB 85 million (year ended 31 December 2021: RUB 14 million) to cost of real estate properties under construction and development, RUB 10 million to other expenses, net (year ended 31 December 2021: RUB 11 million) and RUB 180 million (year ended 31 December 2021: RUB 242 million) to general and administrative expenses. MLN RUB COST Balance at 1 January 2021 Additions Reclassification to inventories Disposals Transfers Balance at 31 December 2021 Balance at 1 January 2022 Additions Reclassification to inventories Acquisition through business combination Disposals Transfers Balance at 31 December 2022 ACCUMULATED DEPRECIATION Balance at 1 January 2021 Depreciation for the year Disposals Balance at 31 December 2021 Balance at 1 January 2022 Depreciation for the year Disposals Balance at 31 December 2022 CARRYING AMOUNTS Balance at 1 January 2021 Balance at 31 December 2021 Balance at 1 January 2022 Balance at 31 December 2022 BUILDINGS AND CONSTRUCTIONS MACHINERY AND EQUIPMENT VEHICLES OTHER LAND CONSTRUCTION IN PROGRESS 2,927 812 (147) (311) 40 3,321 3,321 531 − 292 (178) 28 3,994 (610) (256) 284 (582) (581) (325) 93 (813) 2,317 2,739 2,740 3,181 2,459 169 − (371) 6 2,263 2,263 147 (11) 54 (150) 5 2,308 (1,892) (161) 329 (1,724) (1,724) (184) 94 (1,814) 567 539 539 494 111 11 − (14) − 108 108 34 (2) − (36) − 104 (79) (16) 13 (82) (82) (14) 24 (72) 32 26 26 32 448 112 − (200) 4 364 364 97 − 2 (106) 16 373 (246) (83) 135 (194) (194) (92) 66 (220) 202 170 170 153 117 − − (4) − 113 113 52 − 23 (22) − 166 − − − − (1) (1) − (2) 117 113 112 164 273 240 − − (50) 463 463 93 − − − (49) 507 − − − − − − − − 273 463 463 507 TOTAL 6,335 1,344 (147) (900) − 6,632 6,632 954 (13) 371 (492) − 7,452 (2,827) (516) 761 (2,582) (2,582) (616) 277 (2,921) 3,508 4,050 4,050 4,531 187 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 14. Intangible assets The explanation of significant changes in contract asset and contract liability balances during the reporting period is presented in the table below. FUTURE SAVINGS ON CONNECTION TO NETWORKS COMPUTER SOFTWARE CUSTOMER RELATIONSHIPS COST Balance at 1 January 2022 Additions Acquisition through business combination Disposals Reclassification to inventories Balance at 1 January 2022 ACCUMULATED AMORTISATION Balance at 1 January 2022 Amortisation for the year Balance at 1 January 2022 CARRYING AMOUNTS Balance at 1 January 2022 Balance at 1 January 2022 − 2,600 − − (53) 2,547 − − − − 2,547 − 21 49 − − 70 − (5) (5) − 65 − − 143 (100) − 43 − (3) (3) − 40 15. Investment property acquired concentrated in a single identifiable intangible asset — future savings on connection to networks, which will be consumed over the whole course of construction of residential complex, note 2(d). Basing on the results of the assessment, the Group determined that acquired assets did not constitute a business and the whole transaction was accounted for as an intangible asset acquisition. The primary reason for the acquisition was to secure timing and lowering the costs of connection to the resource supply networks of residential complex undergoing construction. Amortisation of future savings on connection to networks is recognised within cost of sales on the same basis as the cost of acquisition of land plots, see note 3i)(i). Future savings are reclassified to inventories in proportion to the progress towards satisfaction of performance obligation for construction of residential complex and the share of uncontracted net sellable are in that residential complex. Customer relationships MLN RUB COST Balance at 1 January Additions Reclassification to inventories Disposals Balance at 31 December ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES Balance at 1 January Depreciation for the year Disposals Balance at 31 December Customer relationships represent present value of net cashflows of housing servicing companies over the 25 years since the date of acquisition of YIT. Respectively, customer relationships are amortised over the period of 25 years on a straight-line basis. Carrying amount at 1 January Carrying amount at 31 December TOTAL − 2,621 192 (100) (53) 2,660 − (8) (8) − 2,652 2022 2021 688 5 − (16) 677 (272) (10) 1 (281) 416 396 1,017 6 (67) (268) 688 (326) (19) 73 (272) 691 416 Future savings on connection to networks On 22 July 2022, the Group acquired 100% of the share capital of five limited liabilities companies owning infrastructure facilities that will enable to connect new “Lyceum Quarter” residential complex that the Group develops in the Solnechny neighborhood of Yekaterinburg to centralised heating, electricity, water supply and sewerage networks. The Group performed an assessment of acquired set of activities and assets and concluded that substantially all of the fair value of the gross assets Computer software Computer software represents Dispatcher 24 software. The estimated useful life of computer software is 6 years. 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 2022, the fair value of investment property amounted to RUB 637 million (31 December 2021: RUB 659 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, as defined in note 27. The Group did not identify any indicators of impairment as at 31 December 2022 and 2021, and did not recognise any impairment losses for investment property during the years ended 31 December 2022 and 2021. 188 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 16. Other long-term investments 17. Deferred tax assets and liabilities MLN RUB Loans — at amortised cost Investments in associates Investments in joint ventures Bank promissory notes — at amortised cost Loss allowance for loans given 2022 2021 a) Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: ASSETS LIABILITIES NET b) Unrecognised deferred tax liability At 31 December 2022, a deferred tax liability arising on temporary differences of RUB 92,208 million (31 December 2021: RUB 81,287 million) related to investments in subsidiaries was not recognized because the Company controls the timing of reversal of the temporary differences and is satisfied that those differences will not be reversed in the foreseeable future. 2021 223 2022 (310) 2021 (388) 68 (72) (20) 12,056 (2,199) (2,307) 2022 233 27 9,069 2021 (165) 48 9,749 1,635 (6,508) (7,722) (2,700) (6,087) c) Unused tax losses 277 118 210 − 1,106 500 − 3 605 1,609 (22) 583 (120) 1,489 As at 31 December 2021, bank promissory note of RUB 3 million was pledged as security for a secured bank loan, see note 24. As at 31 December 2021, investment in associate of RUB 380 million represented a 40.7% stake in QB Technology Ltd. The investment was sold during 2022 to an unrelated party for the consideration equivalent to RUB 480 million and recognised gain on disposal of RUB 135 million, note 9. Investment in joint venture represents a 50% stake in LLC Strana-Etalon acquired in 2022. LLC Strana- Etalon is involved in real estate development projects in Tyumen. Investments in associates and joint ventures are accounted for using the equity method. As at 31 December 2021, loan at amortised cost of RUB 850 million represented a loan issued to an entity owning a land plot in the Saint Petersburg metropolitan area. The entity has been acquired by the Group during the year ended 31 December 2022 and the loan was offset against consideration payable for acquisition. The acquisition was accounted for as an acquisition of asset (land plot). The Group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 27. 18 492 137 − (569) (388) (7) (135) (168) 6,363 6,019 (12,477) (11,393) 3,709 196 1,626 125 − − (484) (340) 13 112 (201) (6,114) 3,709 (288) 3,860 − Tax assets/(liabilities) 26,867 22,399 (23,007) (22,480) (15,494) (15,052) 15,494 15,052 11,373 7,347 (7,513) (7,428) 3,860 2022 543 99 11,268 3,808 13 681 187 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 Set off of tax Net tax assets/ (liabilities) A deferred tax asset of RUB 954 million (31 December 2021: RUB 923 million) was not recognised for the carry forward of unused tax losses to the extent that it is not probable that future taxable profit will be available against which these unused tax losses can be utilised. 11 357 (31) (5,374) 1,626 (215) (81) − (81) 189 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 17. Deferred tax assets and liabilities 18. Inventories d) 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 2022 RECOGNISED IN PROFIT OR LOSS ACQUISITION THROUGH BUSINESS COMBINATION 31 DECEMBER 2022 (165) 48 9,749 (6,087) 11 357 (31) 162 (499) (3,168) 2,295 2 484 (96) 236 478 2,488 1,092 - (729) (74) (5,374) 1,869 (2,577) 1,626 (215) (81) 1,678 (302) 2,425 373 229 1,516 233 27 9,069 (2,700) 13 112 (201) (6,082) 3,677 (288) 3,860 1 JANUARY 2022 RECOGNISED IN PROFIT OR LOSS 31 DECEMBER 2022 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 Less: Allowance for inventories under construction and development Total inventories under construction and development 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 Stand-alone commercial premises under construction and development Land in industrial park 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 (77) 141 5,747 (2,284) 19 (78) 46 (5,861) 1,295 (186) (1,238) (88) (93) 4,002 (3,803) (8) 435 (77) 487 331 (29) 1,157 (165) 48 9,749 (6,087) Other 11 357 (31) (5,374) 1,626 (215) (81) Less: Allowance for other inventories Total other inventories Total As at 31 December 2022, inventories under construction and development of RUB 80,862 million relate to construction projects that will be completed after more than 12 months from the reporting date (31 December 2021: RUB 92,204 million). In the course of implementation of several development projects the Group has to construct and transfer certain social infrastructure to сity authorities. As at 31 December 2022, the cost of such social infrastructure amounts to RUB 1,566 million and is included into the balance of finished goods and inventories under construction and development (31 December 2021: RUB 1,086 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. 2022 2021 100,230 80,000 13,304 9,988 11,023 8,243 123,522 99,266 (3,922) (3,835) 119,600 95,431 6,470 5,619 8,437 4,423 5,641 6,480 20,526 16,544 (3,654) (3,521) 16,872 13,023 2,079 3,226 706 39 6,050 1,423 − − 278 1,701 (3) (2) 6,047 1,699 142,519 110,153 190 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 18. Inventories a) Barter transactions Project 3, year ended 31 December 2019 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. Project 1, year ended 31 December 2015 The fair value of the investment rights acquired equal to RUB 4,522 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 — 4.5%-6.4% per annum; � Discount rate — 23% per annum. Project 2, year ended 31 December 2017 The fair value of the investment 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. 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 investment 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: � Cash flows were projected based on the business plans for construction of residential property; � Inflation rates — 0.9%-1% per annum; � Discount rate — 12.78% per annum. At 31 December 2022, the cost of land plots (Project 1) 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 2022 in the amount of RUB 4,126 million (year ended 31 December 2021: RUB 8,660 million), while the remaining balance of RUB 396 million is included in finished goods (31 December 2021: RUB 274 million in finished goods and RUB 90 million in inventories under construction and development). At 31 December 2022, 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 2022 in the amount of RUB 4,282 million (year ended 31 December 2021: RUB 4,014 million), while the remaining balance of RUB 41 million is included in finished goods (31 December 2021: RUB 435 million) and RUB 72 million in inventories under construction and development (31 December 2021: RUB 73 million in inventories under construction and development). As at 31 December 2022, the allowance of RUB 5,967 million related to parking places (31 December 2021: RUB 4,686 million). At 31 December 2022, the cost of land plots (Project 3) 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 2022 in the amount of RUB 1,112 million (year ended 31 December 2021: 4,258 million), while the remaining balance of RUB 81 million is included in finished goods (31 December 2021: RUB 65 million in finished goods and RUB 72 million in inventories under construction and development). b) Allowance for impairment of inventories The following is movement in the allowance for impairment of inventories: As at 31 December 2022, the balance of parking places is equal to RUB 18,425 million (31 December 2021: RUB 14,723 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 – 9,35% per annum (weighted average mortgage rate on the secondary real estate market); � Inflation rates – 4,00 – 5,00% per annum; MLN RUB 2022 2021 Growth of discount rate 31 DECEMBER 2022 Balance at 1 January Write down to net realisable value of inventories Reversal of write down of inventories Balance at 31 December 7,357 3,495 4,532 4,896 (3,273) (2,071) 7,579 7,357 As at 31 December 2022, the net realizable value testing resulted in an amount which was less than the carrying amount by RUB 7,579 million (31 December 2021: RUB 7,357 million) and the respective allowance was recognised in other expenses, see note 9, and in cost of sales for segment Other, note 7. Growth of inflation rates Reduction of turnover of finished goods, years Reduction of revenue from uncontracted parking places 31 DECEMBER 2021 Growth of discount rate Growth of inflation rates Reduction of turnover of finished goods, years Reduction of revenue from uncontracted parking places � In case there was no historical information on sales of certain parking places, the Group considered historical information in relation to similar 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 significant impact on the impairment allowance amount. The following table demonstrates changes in key inputs and sensitivity of measurement of allowance for impairment: CHANGE OF PARAMETER IMPACT ON ALLOWANCE FOR IMPAIRMENT IN MONETARY TERMS (MLN RUB) 2% 2% 1 2% 7% -10% 4% 3% 263 (403) 143 139 CHANGE OF PARAMETER IMPACT ON ALLOWANCE FOR IMPAIRMENT IN MONETARY TERMS (MLN RUB) 2% 2% 1 2% 10% -6% 6% 2% 409 (245) 246 94 191 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 18. Inventories 19. Contract assets, trade and other receivables 20. Short-term investments 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 2022, the total carrying value of these items of property was RUB 2 million (31 December 2021: RUB 378 million). d) Pledges As at 31 December 2022, inventories with a carrying amount of RUB 113,259 million (31 December 2021: RUB 55,147 million) are pledged as security for borrowings, see note 24. MLN RUB 2022 2021 LONG-TERM TRADE AND OTHER RECEIVABLES Trade receivables Less: loss allowance for expected credit losses on trade accounts receivable Long-term trade receivables less allowance Other receivables Less: loss allowance for expected credit losses on other accounts receivable Long-term other receivables less allowance Advances paid to suppliers 1,544 (8) 1,536 36 (3) 33 − 3,131 (10) 3,121 255 (31) 224 − Total long-term trade and other receivables 1,569 3,345 e) Cost of acquisition of construction projects (land plots) Contract assets Trade receivables SHORT-TERM TRADE AND OTHER RECEIVABLES The following table summarises cash spent on acquisition of construction projects (land plots) and related costs incurred during the reporting period. Less: loss allowance for expected credit losses on trade accounts receivable Contract assets and short-term trade receivables less allowance Advances paid to suppliers Less: loss allowance for expected credit losses on advances paid to suppliers MLN RUB 2022 2021 Short-term advances paid to suppliers less allowance 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 19,585 9,961 VAT recoverable Financial asset arising from preferential rate on escrow-backed loans 2,335 2,022 Other taxes receivable Other receivables due from related parties Other receivables 849 790 Total 20,434 10,751 Less: loss allowance for expected credit losses on other accounts receivable Short-term other receivables less allowance Total short-term trade and other receivables Total 28,733 25,332 7,447 (809) 6,837 (529) 35,371 31,640 12,613 (144) 11,015 (158) 12,469 10,857 7,343 336 152 142 3,243 11,216 (1,271) 9,945 4,915 496 35 91 1,509 7,046 (803) 6,243 57,785 48,740 59,354 52,085 MLN RUB Loans — at amortised cost Bank deposits (over 3 months) 2022 139 − 139 2021 172 42 214 Loss allowance for loans given (117) (88) Total 22 126 The Group’s exposure to credit, currency and interest rate risks related to other investments is disclosed in note 27. 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. As at 31 December 2022, contract assets of RUB 8,594 million relate to construction projects that will be completed after more than 12 months from the reporting date (31 December 2021: RUB 10,560 million). As at 31 December 2022, non-financial assets recognised within advances paid to suppliers, VAT and other taxes receivable amounted to RUB 19,938 million (31 December 2021: RUB 15,812 million). The explanation of significant changes in contract asset balance during the reporting period is presented in note 6. The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 27. 192 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 21. Cash and cash equivalents 22. Capital and reserves MLN RUB Cash in banks, in RUB Cash in banks, in EUR Cash in banks, in USD Petty cash Cash in banks, in CHF Cash in banks, in GBP Short-term deposits (less than 3 months) 2022 1,162 270 17 1 1 − 2021 7,740 5 85 1 1 2 22,360 36,753 Total 23,811 44,587 The Group keeps significant bank balances in major Russian banks with credit ratings assigned by Russian rating agencies of ruAAА, ruAA+, ruAA, ruAA-, ruA+, ruA, ruA-. At 31 December 2022, the most significant amount of cash and cash equivalents held with one bank totalled RUB 9,456 million (31 December 2021: RUB 19,018 million). At 31 December 2022, the Group had outstanding loans and borrowings with the same bank that held the most significant amount of cash and cash equivalents of RUB 66,304 million (31 December 2021: RUB 59,733 million). At 31 December 2022, short-term deposits bore interest rates ranging from 4.9% to 8.1% per annum (31 December 2021: 6.1% to 9.43% per annum). The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 27. Bank balances on escrow accounts — supplementary disclosure MLN RUB Сash is held in a Russian bank 2022 9,456 2021 19,018 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 2022 2021 59,752 28,400 12,130 (39,920) 23,572 36,180 − − Balance at 1 January Receipts of funds on escrow accounts Acquired through business combination Release of funds from escrow accounts Balance at 31 December a) Share capital The table below summarizes the information about the issued share capital of the Company. 2022 2021 NUMBER OF SHARES UNLESS OTHERWISE STATED ORDINARY SHARES PREFERENCE SHARES ORDINARY SHARES PREFERENCE SHARES 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. Issued shares Par value 0.00005 GBP 1 GBP 0.00005 GBP 1 GBP d) Dividends On issue at the beginning of the year 383,445,362 20,000 294,957,971 20,000 New shares issued during the year − − 88,487,391 − On issue at the end of the year, fully paid 383,445,362 20,000 383,445,362 20,000 At 1 January 2021, the number of authorised and issued shares was 294,957,971. On 28 March 2021, the General Meeting of the Shareholders of the Company approved the increase of the authorised share capital of the Company by the creation of 88,487,391 ordinary shares of nominal value of GBP 0,00005 each. On 14 May 2021, the Company announced an offering of rights to subscribe for newly issued Ordinary Shares to the existing holders of the Company’s equity securities. Eligible holders of GDRs subscribed for 23,339,732 new ordinary shares and 281,975 new GDRs in total. a rump offering was also completed on 14 May 2021 in which a total of 64,865,684 GDRs was purchased by investors. Preference shares bear neither voting rights nor rights to receive dividends. b) Share premium The Company’s share premium account originated from issuance of 117,647 ordinary £0,01 shares for a consideration of USD 82,352,900 in March 2008, from the initial public offering of 71,428,571 ordinary shares at a value USD 7 each in form of global depository receipts (GDRs) on the London Stock Exchange on 4 April 2011 and from a supplementary public offering of 88,487,391 ordinary shares at a value USD 1.7 in form of shares and global depository receipts on 14 May 2021. c) Reserve for own shares During 2011-2017, the Company acquired 8,216,378 GDRs for own shares under GDR repurchase programmes. 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 2022 and 31 December 2021, the total number of own shares acquired by the Group amounted to 3,946 shares or 0.001% of issued share capital. 60,362 59,752 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. 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. The current challenging geopolitical circumstances, certain sanctional provisions and mutual restrictions, including on distribution of funds through international payment and clearing systems, have a significant impact on the Company’s ability to pay out dividends to all groups of its shareholders. Based on the principle of equitable treatment of all shareholders, the Board of Directors of the Company resolved to postpone consideration of the matter of dividend payments until constraints currently in force are removed. The Annual General Meeting of shareholders that took place on 22 December 2022 neither considered nor approved any dividend payments for the financial year ended 31 December 2021. During the year ended 31 December 2021, the Company paid dividends in the amount of RUB 3,613 million. 193 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 22. Capital and reserves 23. Earnings per share 24. Loans and borrowings e) Non-controlling interest In the course of acquisition of YIT Russia, the Group acquired nine subsidiaries (housing servicing companies) with a non-controlling interest. In October 2022, the Group disposed its share in five of these subsidiaries in exchange for the non- controlling interest in the three other subsidiaries. The transaction was recorded directly in equity as a deduction from retained earnings and non- controlling interest. As of the date of disposal, the total assets of the disposed subsidiaries amounted to RUB 572 million and the total liabilities amounted to RUB 205 million. From the date of acquisition to the date of disposal these subsidiaries contributed revenues of RUB 330 million and a profit of RUB 74 million. 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 reporting period, as shown below. The Company has no dilutive potential ordinary shares. 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 27. NUMBER OF SHARES UNLESS OTHERWISE STATED 2022 2021 NUMBER OF SHARES UNLESS OTHERWISE STATED 2022 2021 Issued shares at 1 January Effect of shares issued in May 2021 383,441,416 294,954,025 NON-CURRENT LIABILITIES − 55,031,884 Secured bank loans Weighted average number of shares for the year ended 31 December 383,441,416 349,985,909 Secured project financing Profit attributable to the owners of the Company, mln RUB Basic and diluted earnings per share (RUB) 12,948 33.77 3,007 8.59 Unsecured bank and other loans Unsecured bond issues CURRENT LIABILITIES Current portion of secured bank loans Current portion of secured project financing Current portion of unsecured bank and other loans Current portion of unsecured bond issues Weighted average number of shares for the year ended 31 December 12,423 51,273 306 9,968 73,970 7,751 3,489 2,705 5,173 19,118 20,676 28,923 2,602 14,931 67,132 5,345 7,305 1,777 1,879 16,306 The Group has credit line facilities used 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. The reconciliation of movements of liabilities to cash flows arising from financing activities during the reporting period is presented in the table below. 194 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 24. Loans and borrowings MLN RUB Balance at 1 January 2022 Proceeds from loans and borrowing Repayment of loans and borrowing Payment of lease liabilities Total changes from financing cash flows OTHER CHANGES Interest expense on loans and borrowings Interest expense on lease liabilities Additions/terminations to lease liabilities Assumed through business combination Interest paid on loans and borrowings Interest paid on lease liabilities Offset of funds released from escrow accounts against loans payable Discounting of loans Total liability-related other changes Balance at 31 December 2022 LOANS AND BORROWINGS LEASE LIABILITIES TOTAL MLN RUB LOANS AND BORROWINGS LEASE LIABILITIES RETAINED EARNINGS SHARE PREMIUM TOTAL 50,505 1,862 35,586 15,486 103,439 83,438 43,008 (11,166) - 31,842 8,997 - - 3,951 (4,531) - (27,162) (3,447) (22,192) 93,088 9,370 - - (2,144) (2,144) - 732 289 296 - (732) - - 585 7,811 92,808 43,008 (11,166) (2,144) 29,698 Balance at 1 January 2021 CHANGES FROM FINANCING CASH FLOWS Proceeds from loans and borrowing Repayment of loans and borrowing Payment of lease liabilities Payment of dividends Proceeds from issue of share capital 49,071 (14,635) - - - - - (1,775) - - 8,997 Total changes from financing cash flows 34,436 (1,775) 732 289 4,247 (4,531) (732) (27,162) (3,447) (21,607) 100,899 OTHER CHANGES Interest expense on loans and borrowings Foreign exchange loss Interest expense on lease liabilities Additions/terminations to lease liabilities Modifications of lease contracts Interest paid on loans and borrowings Interest paid on lease liabilities Discounting of loans Total liability-related other changes Total equity-related other changes Balance at 31 December 2021 6,078 - - - - (3,963) - (3,618) (1,503) - 83,438 - - 498 9,346 (63) - (498) - 9,283 - 9,370 - - - (3,613) - (3,613) - 12 - - - - − - 12 3,007 34,992 - - - - 10,881 10,881 - - - - - - - - - - 26,367 49,071 (14,635) (1,775) (3,613) 10,881 39,929 6,078 12 498 9,346 (63) (3,963) (498) (3,618) 7,792 3,007 154,167 195 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 24. Loans and borrowings Terms and debt repayment schedule The table below shows the terms and conditions of outstanding loans. MLN RUB As at 31 December 2022, the weighted average interest rate on current credit portfolio amounted to 6.52% p.a. (31 December 2021: 5.22% p.a.). Bank loans are secured by: � inventories with a carrying amount of RUB 113,259 million (31 December 2021: RUB 55,174 million), see note 18; � pledge of 68% of shares in subsidiary company JSC “Zatonskoe” which represents RUB 2,873 million in its net assets* (31 December 2021: 68% of shares represents RUB 3,921 million in net assets); � pledge of 100% shares of JSC “Etalon-Finance” and 100% of other subsidiary companies of JSC “Etalon-Finance” which collectively represent RUB 36,620 million in net assets* (31 December 2021: RUB 42,151 million in net assets); � pledge of 100% shares of JSC “Etalon LenSpetsSMU”, LLC “Specialized “Developer Etalon Pushkin”, LLC “Zolotaya Zvezda”, JSC “Specialized Developer “Komplekt”, LLC “EtalonStroy” and LCC “Specialized Developer “Etalon” which collectively represent RUB 39,035 million in net assets1 (31 December 2021: RUB 46,344 million in net assets); � pledge of 99.99% shares of LLC “Specialized Developer “Serebryaniy Fontan” which represents RUB 10,086 million in its net assets (31 December 2021: RUB 3,667 million in net assets). 1 Net assets are based on individual IFRS accounts of the relevant companies. SECURED BANK LOANS Secured project financing Secured bank loan Secured project financing Secured project financing Secured bank loan Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Secured project financing Total secured bank loans CURRENCY NOMINAL INTEREST RATE AS OF 31 DECEMBER YEAR OF MATURITY FACE VALUE CARRYING AMOUNT FACE VALUE CARRYING AMOUNT 2022 2021 RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB RUB 0.01% — 8.00% CBR's key rate + 3% 0.01% — 15% 0.01% — 7.6% CBR's key rate + 2.35% 0.01% — CBR's key rate + 3.05% 0.01% — 8.85% 0.01% — CBR's key rate + 3% 0.01% — 15% 0.01% — 10.0% 0.01% — CBR's key rate + 2.70% 0.01% — 10.75% 0.01% — CBR's key rate + 2.65% 0.01% — 8.75% 0.01% — 8.5% 0.01% — 13.75% 0.01% — CBR's key rate + 3% 0.01% — 10.05% 0.01% — CBR's key rate + 4% 0.01% — 11.58% 0.01% — CBR's key rate + 4% 0.01% — 11.01% 0.01% — 7.1% 0.01% — 8.5% 0.01% — 7.15% 0.01% — 9% 2024 2027 2025 2024 2024 2027 2025 2026 2025 2023 2027 2023 2026 2023 2023 2025 2026 2024 2027 2025 2026 2023 2024 2023 2024 2022 14,463 12,449 12,308 7,922 7,835 5,478 3,876 3,814 2,171 1,242 1,298 1,019 1,016 680 442 349 329 235 197 135 162 107 − − − − 13,793 12,354 12,131 7,922 7,820 4,970 3,667 3,315 2,066 1,242 1,189 1,029 1,000 680 431 318 253 235 168 135 111 107 − − − − 7,329 13,918 4,402 3,169 12,188 2,831 1,526 − 2,799 − − − − − − 6,614 13,872 3,965 2,935 12,149 2,516 1,317 − 2,482 − − − − − − 6,145 5,622 − − − − − − 4,098 769 5,154 916 − − − − − − 3,979 770 5,133 895 77,527 74,936 65,244 62,249 196 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 24. Loans and borrowings As at 31 December 2022, the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments amount to RUB 154,964 million (31 December 2021: RUB 64,696 million). 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 reporting period, the Group breached operating covenants on several loans. The Group obtained waivers from the banks before the reporting date, and the obligations were not transferred to current liabilities. As at the reporting date, considering waivers obtained from the banks before the reporting date, the Group was in compliance with loans’ operating covenants. MLN RUB UNSECURED BANK AND OTHER LOANS Unsecured bank and other loans Unsecured bank and other loans Unsecured bank and other loans Unsecured bank and other loans Unsecured bank and other loans Unsecured bank and other loans Total unsecured bank and other loans Secured project financing Total secured bank loans UNSECURED BOND ISSUES Unsecured bonds Unsecured bonds Unsecured bonds Total unsecured bond issues Total outstanding loans CURRENCY NOMINAL INTEREST RATE AS OF 31 DECEMBER YEAR OF MATURITY FACE VALUE CARRYING AMOUNT FACE VALUE CARRYING AMOUNT 2022 2021 RUB RUB RUB RUB RUB RUB − 83,438 RUB RUB RUB 7.15% 0.001% 9.31% 9.25% 8.700% 0.002% − 9,370 9.10% 7.95% 8.95% 2023 2023 2021 2022 2022 2022 12 34,992 2026 2023 2022 2,911 100 − − − − 3,011 − 26,367 10,027 5,148 − 15,175 95,713 2,911 100 − − − − 3,011 12 34,992 9,995 5,146 − 15,141 93,088 3,004 3,004 − 355 819 160 40 4,378 − 26,367 10,025 5,147 1,709 16,881 86,503 − 355 819 160 40 4,378 12 154,167 9,976 5,128 1,707 16,811 83,438 197 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 25. Provisions a) Warranties The provision for warranties relates mainly to the residential units sold during the reporting period. 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. MLN RUB Balance at 1 January 2021 Provisions made during the year Provisions used during the year Provision reversed during the year Balance at 31 December 2021 Balance at 1 January 2022 Provisions made during the year Assumed through business combination Provisions used during the year Provision reversed during the year c) Provision for litigations and claims Balance at 31 December 2022 The Group records provision for litigations and claims when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Non-current Current WARRANTY PROVISION PROVISION FOR DEFERRED WORKS PROVISION FOR ONEROUS CONTRACTS PROVISION FOR LITIGATIONS AND CLAIMS 129 18 (25) (5) 117 117 151 285 (65) (82) 406 406 − 406 369 1,669 (1,586) (121) 331 331 2,779 137 (2,835) 26 438 − 438 438 25 57 − (14) 68 68 − − − (67) 1 − 1 1 4 149 (32) (2) 119 124 169 16 (64) (45) 200 − 200 200 26. Contract liabilities, trade and other payables MLN RUB 2022 2021 LONG-TERM Trade payables Lease liabilities Other payables SHORT-TERM 16,933 24,257 4,596 1,449 6,859 114 22,978 31,230 Contract liabilities 12,045 14,157 TOTAL 527 1,893 (1,643) (142) 635 640 3,099 438 Trade payables VAT payable (2,964) Payroll liabilities Other taxes payable Lease liabilities Other payables (168) 1,045 406 639 11,977 5,531 1,450 360 3,215 5,000 4,234 1,164 362 2,511 14,413 10,421 36,946 23,692 1,045 Total 71,969 69,079 Long-term trade payables mainly consist of an obligation equal to RUB 16,340 million (31 December 2021: RUB 23,168 million) 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 2024. In addition, the current part of the obligation of RUB 6,828 million (31 December 2021: RUB 2,108 million) 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 to reflect the time value of money. Short-term other payables mainly consist of an obligation, including accrued interest, to construct social infrastructure objects of RUB 8,419 million (31 December 2021: RUB 8,042 million) and a liability of RUB 627 million (31 December 2021: RUB 622 million) to the City authorities for change of intended use of land plot recognised as part of inventories. Contract liabilities include advance consideration received from customers. As at 31 December 2022, non-financial liabilities recognised within contract liabilities, VAT, other taxes payable and short-term other payables amounted to RUB 26,355 million (31 December 2021: RUB 19,312 million). The explanation of significant changes in contract liability balance during the reporting period is presented in note 6. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 27. 198 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 27. 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. MLN RUB CARRYING AMOUNT FAIR VALUE MLN RUB CARRYING AMOUNT FAIR VALUE 31 DECEMBER 2022 AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 TOTAL 31 DECEMBER 2021 AT AMORTISED COST TOTAL LEVEL 1 LEVEL 2 TOTAL FINANCIAL ASSETS NOT MEASURED AT FAIR VALUE FINANCIAL ASSETS NOT MEASURED AT FAIR VALUE Trade receivables Other receivables (excluding taxes receivable and advances paid to suppliers) Loans given Cash and cash equivalents 8,174 2,147 8,174 2,147 277 277 23,811 23,811 34,409 34,409 FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE Secured bank loans Secured project financing Unsecured bank loans Unsecured bond issues (20,174) (20,174) (54,762) (54,762) (3,011) (15,141) (3,011) − − − 23,811 23,811 − − 8,014 2,138 139 − 8,014 2,138 Trade receivables Other receivables (excluding taxes receivable and advances paid to suppliers) 139 Loans given 23,811 Bank deposits (over 3 months) 10,291 34,102 Bank promissory notes 9,429 1,022 9,429 1,022 1,070 1,070 42 3 42 3 − − − − − Cash and cash equivalents 44,587 44,587 44,587 9,220 979 9,220 979 647 42 2 − 647 42 2 44,587 56,153 56,153 44,587 10,890 55,477 (19,859) (19,859) (44,529) (44,529) FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE (2,946) (2,946) Secured bank loans (26,020) (26,020) − (27,368) (27,368) Trade and other payables (45,615) (45,615) − (42,392) (42,392) Unsecured bank loans (138,703) (138,703) (14,129) (109,726) (123,855) Unsecured bond issues (4,378) (16,811) (4,378) (16,811) (15,141) (14,129) − (14,129) Secured project financing (36,228) (36,228) (31,191) (4,197) (31,191) (4,197) − (16,169) − (16,169) Trade and other payables (50,327) (50,327) − (44,257) (44,257) (133,764) (133,764) (16,169) (107,013) (123,182) 199 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 27. Financial instruments and risk management The fair value of financial asset arising from preferential rate on escrow-backed loans approximates its carrying amount. 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 rates: Receivables (excluding taxes receivable and advances paid to suppliers) Loans given, Unsecured loans and bond issued, and trade and other payables DISCOUNTING FACTOR Weighted average rate on mortgages issued during the year 2022 9.35% 2021 7.81% Weighted average interest rates on bonds of Etalon-Finance 12.63% 8.57% 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 (II) EXPOSURE TO 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 21. 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 2022, receivables from one customer equalled to RUB 481 million or 4% of the Group`s consolidated trade and other receivables (31 December 2021: RUB 158 million or 1%). 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 Loans given Receivables (excluding taxes receivable and advances paid to suppliers)1, including contract assets Bank promissory notes Bank deposits (over 3 months) Cash and cash equivalents CARRYING AMOUNT 2022 277 33,698 − − 23,811 57,786 2021 1,070 28,995 3 42 44,587 74,697 1 Presented net of receivables and contract assets arising from the sale of real estate that is secured by a pledge of the sold real estate (see 3(c)(vi)). 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 Saint 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”. 200 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 27. Financial instruments and risk management Maturity analysis and impairment The ageing of trade receivables and contract assets at the reporting date was as follows. Contract assets are not past due and not impaired. 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 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: 2022 2021 GROSS IMPAIRMENT GROSS IMPAIRMENT 34,922 (20) 32,819 157 188 85 2,372 37,724 − (2) − (795) (817) 302 254 58 1,867 35,300 (4) − (1) (1) (533) (539) MLN RUB Balance at 1 January Amounts written off Net remeasurement of loss allowance Balance at 31 December 2022 539 (46) 324 2021 662 (84) (39) 817 539 The Group’s current credit risk grading framework for loans given at the reporting date comprises the following categories: MLN RUB 12 — month ECL Lifetime ECL — credit-impaired 2022 2021 GROSS IMPAIRMENT GROSS IMPAIRMENT 281 135 416 (22) (117) (139) 1,146 132 1,278 (120) (88) (208) 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. 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 ended 31 December 2021. Allowance for impairment in respect of other receivables Expected credit loss allowance for other receivables is measured as an allowance equal to 12-month ECL for stage 1 assets. The movement in the allowance for impairment in respect of other receivables during the reporting period was as follows: In assessing collective impairment, the Group used publicly available historical information 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 those used in publicly available historical information. Speculative ratings (speculative-grade) MLN RUB Balance at 1 January Reversal of loss allowance Increase in loss allowance Balance at 31 December 2022 834 (126) 2021 964 (359) 566 229 1,274 834 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 Net remeasurement of loss allowance Balance at 31 December 2022 208 (69) 2021 112 96 139 208 As at 31 December 2022 and 31 December 2021, the credit risk on financial investments has not increased significantly since initial recognition, and the Group measures the loss allowance for those financial instruments at an amount equal to 12-month expected credit losses. 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. 201 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 27. Financial instruments and risk management 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 2022 158 (69) 55 2021 247 (151) 62 144 158 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. 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. 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. Contractual maturities of financial liabilities were as follows: MLN RUB, 31 DECEMBER 2022 NON-DERIVATIVE FINANCIAL LIABILITIES Loans and borrowings Trade and other payables (excluding taxes payable and contract liabilities) Lease liabilities MLN RUB, 31 DECEMBER 2021 NON-DERIVATIVE FINANCIAL LIABILITIES Loans and borrowings Trade and other payables (excluding taxes payable and contract liabilities) CARRYING AMOUNT CONTRACTUAL CASH FLOWS 0-12 MTHS 1-2 YRS 2-3 YRS 3-4 YRS 4-5 YRS OVER 5 YRS 93,089 37,804 101,182 39,100 7,811 9,301 138,704 149,583 22,049 20,238 2,869 45,156 40,631 18,419 2,881 61,931 23,335 64 9,123 - 1,743 946 25,142 10,069 6,044 377 174 6,595 - 2 688 690 CARRYING AMOUNT CONTRACTUAL CASH FLOWS 0-12 MTHS 1-2 YRS 2-3 YRS 3-4 YRS 4-5 YRS OVER 5 YRS 83,437 40,957 97,766 40,959 19,980 11,783 23,317 8,695 Lease liabilities 9,370 11,297 2,387 2,341 133,764 150,022 34,150 34,353 30,754 18,466 4,959 54,179 19,645 1,433 3,298 580 142 142 21,220 4,020 772 2 1,326 2,100 202 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 27. Financial instruments and risk management (I) CURRENCY RISK Cash flow sensitivity analysis for variable rate instruments The Group’s exposure to foreign currency risk is limited. As at 31 December 2022 and 31 December 2021 the Group’s net positions in foreign currency were as follows: 2022 2021 MLN RUB PROFIT OR LOSS EQUITY 200 BP INCREASE 100 BP DECREASE 200 BP INCREASE 100 BP DECREASE MLN RUB USD GBP Cash and cash equivalents (see note 21) Net exposure 17 17 − − EUR 270 USD 85 270 85 The following significant exchange rates applied during the reporting period: GBP EUR 31 DECEMBER 2022 2 2 5 5 Variable rate instruments Cash flow sensitivity (net) 31 DECEMBER 2021 Variable rate instruments Cash flow sensitivity (net) MLN RUB USD 1 EUR 1 (II) INTEREST RATE RISK AVERAGE RATE REPORTING DATE SPOT RATE 2022 68.35 72.15 2021 31 DECEMBER 2022 31 DECEMBER 2021 73.67 87.09 70.34 75.66 74.29 84.07 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 2022 2021 24,203 (69,719) (45,516) (31,180) (31,180) 41,119 (64,271) (23,152) (28,537) (28,537) The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the reporting date. The analysis shows how profit or loss and equity would have been affected by a 2% increase or 1% decrease in the variable interest rates and represents management’s assessment of the change in the interest rates that were reasonably possible at the reporting date. 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. (624) (624) (571) (571) 312 312 285 285 (624) (624) (571) (571) 312 312 285 285 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 22). 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: Loans and borrowings, note 24 Less: cash and cash equivalents, note 21 Less: bank deposits over 3 months, note 20 2022 2021 93,088 83,438 (23,811) (44,587) − (42) Net debt 69,277 38,809 Total equity 74,189 61,360 Debt to capital ratio at end of year 0.93 0.63 At 31 December 2022, lease liabilities of RUB 7,811 million (31 December 2021: RUB 9,370 million) are included in trade and other payables (see notes 26 and 29) and are not included in the total amount of borrowings. 203 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 28. Acquisition of subsidiary On 30 May 2022, the Company acquired from YIT Corporation 100% of voting equity interests in a certain number of Finnish and Russian legal entities representing the Russian business of YIT Corporation (“YIT Russia”) for the cash consideration of RUB 1,923 million. YIT Russia focuses on mid-market residential real estate with a portfolio of 19 projects in five Russian regions, including the Moscow metropolitan area, Saint Petersburg, the Ekaterinburg region, Kazan and Tyumen with a total unsold net sellable area (NSA) of 0.6 million sqm. It also operates several housing servicing companies. The primary reasons for the acquisition are to increase supply in the Group’s primary markets of Moscow and Saint Petersburg and to speed up the Group’s regional expansion, as well as to get access to the YIT Russia’s software and technological know-how, including Dispatcher 24 software for managing apartment buildings and residential areas. Consideration transferred The acquisition-date fair value of the total consideration transferred amounted to RUB 1,923 million. The consideration was settled in cash. Acquisition-related costs The Group incurred acquisition-related costs of RUB 0.4 million related to registration fees, 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 MLN RUB NON-CURRENT ASSETS Property, plant and equipment Intangible assets Deferred tax assets CURRENT ASSETS Inventories The following table summarises the recognised amounts of assets acquired and liabilities assumed at the acquisition date. Trade and other receivables Income tax receivable Non-controlling interest in the acquiree recognised at the acquisition date of RUB 195 million was measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Trade and other receivables (excluding contract assets) comprised gross contractual amounts due of RUB 1,997 million, of which none was expected to be uncollectable at the date of acquisition. Recognised amounts of intangible assets include computer software of RUB 49 million (Dispatcher 24 software) and customer base of housing servicing companies of RUB 143 million. Contract assets 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 Provisions CURRENT LIABILITIES Loans and borrowings Trade and other payables Provisions Total identifiable net assets Non-controlling interest Consideration transferred Gain from bargain purchase MLN RUB Cash consideration transferred Сash acquired Net cash inflow from acquisition of subsidiary Measurement of fair values (1,920) 2,456 The valuation techniques used for measuring the fair value of material assets acquired were as follows. 536 Inventories The acquiree’s inventories are mainly represented by real estate development projects at different stages of development and by housing servicing companies. 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. NOTE RECOGNISED FAIR VALUES ON ACQUISITION The following key assumptions were used by the appraiser: 13 17 17 25 25 371 192 1,619 8,314 1,666 332 6,534 1,367 28 2,456 553 (2,034) (190) (103) (285) (1,917) (4,594) (153) 14,156 (195) (1,923) 12,038 � Cash flows were projected based on the business plans for construction and sale of real estate as well as estimated cash flows of housing servicing companies; � Inflation rates — in the range 4%-11.1% per annum; � Discount rates — 18.8% — 22.8% per annum, depending on the class of the project, stage of development of a particular project and the availability of construction permits. For housing servicing companies — 23.4% per annum. 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 12,038 million as a gain from bargain purchase in its consolidated statement of profit or loss and other comprehensive income. The main reason for recognising a bargain purchase gain was the fast track sale of the business by the seller that resulted in a lower transaction price. From the date of acquisition to 31 December 2022 YIT Russia contributed revenues of RUB 7,137 million and a profit of RUB 1,106 million. If the acquisition of the business had occurred on 1 January 2022, management estimates that consolidated revenue would have been RUB 87,066 million (unaudited), and consolidated profit for the year would have been RUB 14,233 million (unaudited). 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 2022. 204 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 29. 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. 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 694 million (31 December 2021: RUB 1,294 million). Lease payments associated with short-term leases and leases of low-value assets and recognised as an expense in the statement of profit or loss amounted to RUB 994 million for the year ended 31 December 2022 (year ended 31 December 2021: RUB 901 million). MLN RUB RIGHT-OF-USE ASSETS Balance at 1 January 2022 Additions to right-of-use assets Acquired through business combination Termination of lease contracts Depreciation charge Balance at 31 December 2022 LEASE LIABILITIES Balance at 1 January 2022 Settlement of lease liabilities, including interest Interest expense on lease liabilities Additions to lease liabilities Assumed through business combination Termination of lease contracts Balance at 31 December 2022 RIGHT-OF-USE ASSETS Balance at 1 January 2021 Additions to right-of-use assets Modifications of lease contracts Depreciation charge Balance at 31 December 2021 LEASE LIABILITIES Balance at 1 January 2021 Settlement of lease liabilities, including interest Interest expense on lease liabilities Additions to lease liabilities Modifications of lease contracts Balance at 31 December 2021 INVENTORIES UNDER CONSTRUCTION PROPERTY, PLANT AND EQUIPMENT 10,708 55 77 (134) (668) 10,038 8,456 (2,568) 619 55 37 (52) 6,547 2,395 8,573 (38) (221) 10,709 1,587 (2,121) 456 8,573 (38) 8,457 870 320 242 (81) (184) 1,167 914 (308) 113 320 259 (34) 1,264 312 784 (25) (200) 871 275 (153) 43 773 (25) 913 TOTAL 11,578 375 319 (215) (852) 11,205 9,370 (2,876) 732 375 296 (86) 7,811 2,707 9,357 (63) (421) 11,580 1,862 (2,274) 499 9,346 (63) 9,370 30. Capital commitments 31. Contingencies As at 31 December 2022, the Group had no capital commitments (31 December 2021: nil). 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 2022 and 2021, the Group was involved in a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or 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. 205 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 32. Related party transactions a) Transactions with management b) Transactions with related parties under control of PJSC AFK Sistema (IV) OTHER TRANSACTIONS (I) MANAGEMENT REMUNERATION Key management received the following remuneration during the year ended 31 December 2022, which is included in personnel costs (see note 10): MLN RUB Short-term employee benefits — salaries and bonuses 2022 704 2021 652 704 652 During the year ended 31 December 2022 and 2021, the Group did not grant any loans and pensions to its key management personnel. During the year ended 31 December 2022, the remuneration of the members of the Board of Directors of the Company amounted to RUB 31 million (2021: RUB 33 million). The Group’s transactions with other related parties are disclosed below. TRANSACTION VALUE OUTSTANDING BALANCE MLN RUB 2022 2021 Сash and cash equivalents in banks-related parties Proceeds from investments in associates and other Acquisition of land plot Interest on deposits Interest payable 35,978 102,256 − (360) 619 (249) 40 − 201 (395) 35,988 102,102 2022 261 (19) (205) − (34) 3 2021 9,312 (25) − − (21) 9,266 (I) REVENUE MLN RUB Other related parties TRANSACTION VALUE OUTSTANDING BALANCE 2022 715 715 2021 882 882 2022 280 280 2021 408 408 All outstanding balances with related parties are to be settled in cash. None of the balances are secured. (II) EXPENSES (RENT OF PREMISES AND RELATED EXPENSES) MLN RUB Other related parties TRANSACTION VALUE OUTSTANDING BALANCE 2022 (706) (706) 2021 (680) (680) 2022 1,255 1,255 2021 2,376 2,376 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 / REPAID OUTSTANDING BALANCE 2022 70 (2,438) (2,368) 2021 − (4,362) (4,362) 2022 73 (2,911) (2,838) 2021 2 (5,349) (5,347) All outstanding balances with related parties are to be settled in cash. None of the balances are secured. 206 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 33. Group entities Significant subsidiaries SUBSIDIARY “Etalon Group company” AO JSC “Etalon-Finance” (JSC “Leader-Invest” before 4 April 2022) JSC “Etalon LenSpetsSMU” LLC “EtalonAktiv” JSC “Novator” JSC “LenSpetsSMU-Reconstruktsiya” LLC “SPM-Zhilstroy” LLC “Etalon-Invest” JSC “Zatonskoe” COUNTRY OF INCORPORATION 31 DECEMBER 2022 31 DECEMBER 2021 Russian Federation Russian Federation Russian Federation Russian Federation Russian Federation Russian Federation Russian Federation Russian Federation Russian Federation 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.97% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.97% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% − − − LLC “Specialized Developer “Serebryaniy Fontan” Russian Federation LLC “Specialized Developer “Etalon Galaktika” Russian Federation LLC “Specialized Developer “Etalon Development” Russian Federation LLC “Razvitiye” Russian Federation LLC “Specialized Developer “ZIL-YUG” Russian Federation LLC “Specialized Developer “MBI” JSC “Lobachevskogo 120” JSC “YIT Saint Petersburg” Russian Federation Russian Federation Russian Federation LLC “Specialized Developer “YIT Novoorlovskiy” Russian Federation LLC “Specialized Developer “YIT Finskiy” Russian Federation 34. Events subsequent to the reporting date As at 31 December 2022, the Group controlled 132 legal entities (31 December 2021: 105). Their assets, liabilities, revenues and expenses have been included in these consolidated financial statements. The above is a list of the most significant subsidiaries. Their principle activities are construction and development of residential and commercial properties. The acquisition of YIT Russia disclosed in note 28 was the only change in the composition of the Group during the reporting period. Financing events Subsequent to the reporting date, the Group has repaid loans and borrowings outstanding as at 31 December 2022 for the total amount of RUB 8,328 million and unsecured bonds for the total amount of RUB 5,000 million. Subsequent to the reporting date, the Group has obtained additional tranches of loans for the total amount of RUB 10,829 million with nominal interest rates of 0.01%-11.5% and repayable by 2025. Subsequent to the reporting date, the Group placed unsecured bonds for the total amount of RUB 8,000 million with nominal interest rate of 13.7% per annum and repayable by 2026. 207 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Supplementary Information: non-IFRS Measures (Unaudited) 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. This information should be considered and read in addition to, but not as a substitute for, the information contained in the consolidated financial statements. 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 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. Less: Selling expenses Adjusted operating profit The result is the equivalent of profit (loss) for the period before income tax expense, net finance costs, 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. Adjusted net debt/Adjusted EBITDA ratio MLN RUB Loans and borrowings Less: cash and cash equivalents Less: bank deposits over 3 months, note 20 Add: contract liabilities, reportable segment Residential development 2022 2021 93,088 (23,811) − 8,944 83,438 (44,587) (42) 10,528 Less: Inventories under construction, note 18 (119,600) (95,431) Adjusted net debt (41,379) (46,094) Gross profit Less: General and administrative expenses Add: Depreciation and amortisation EBITDA 28,203 (7,259) (5,001) 15,943 541 16,484 27,782 (5,784) (4,639) 17,359 521 17,880 Add: Purchase price allocation from acquisition of Etalon Finance (Leader-Invest prior to 2022) included in cost of sales Adjusted EBITDA Adjusted net debt/Adjusted EBITDA 2,311 3,259 18,795 (2.20) 21,139 (2.18) 208 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Supplementary Information: non-IFRS Measures (Unaudited) Net corporate debt/Adjusted EBITDA Net corporate debt represents net debt as defined in the note 27(e) adjusted for the amount of project financing (borrowings backed by balances on escrow accounts). Profit for the period adjusted for the effect of purchase price allocation (PPA) from the acquisition of JSC “Etalon-Finance” (JSC “Leader-Invest” before 4 April 2022) and gain from bargain purchase of YIT Russia MLN RUB Loans and borrowings Less: secured project financing Total corporate borrowings Less: cash and cash equivalents Less: bank deposits over 3 months, notes 16 and 20 Net corporate debt Net corporate debt/Adjusted EBITDA 2022 2021 MLN RUB Profit for the year 93,088 (54,762) 38,326 (23,811) − 14,515 0.77 83,438 (36,228) 47,210 Add: PPA included in Cost of sales Add: Reversal of impairment loss on inventory recognised in revenue upon termination of contract (44,587) Add: PPA included in Other expenses, net (42) 2,581 0.12 Less: tax effect of PPA Less: Gain from bargain purchase Profit for the year before PPA 2022 13,001 2,520 (209) (24) (457) (12,038) 2,793 2021 3,007 3,259 − 1,152 (882) − 6,536 The movement of the purchase price allocation (PPA) from the acquisition of JSC “Etalon-Finance” (JSC “Leader-Invest” before 4 April 2022), recognised within Property, plant and equipment, Investment property, Inventories PPA is a significant non-operational factor that significantly affects the Group’s financial results and will continue to do so in the next few years. The disclosure increases the transparency of the reporting and enables financial statements’ users to correctly assess the effect of PPA on the financial results. MLN RUB Balance at 1 January Included in Cost of sales Reversal of impairment loss on inventory recognised in revenue upon termination of contract Included in Other expenses, net Balance at 31 December 2022 2021 16,485 (2,520) 209 24 14,198 20,896 (3,259) − (1,152) 16,485 209 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Parent Company Financial Statements for the year ended 31 december 2022 Contents СHAPTER 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 Auditor’s 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 РАGE 210 211 213 214 216 217 218 219 220 Board of Directors and Other Officers Board of Directors NAME Sergey Egorov Marina Ogloblina Boris Svetlichny Denis Vinokurov Alexander Voloshin Gennadii Shcherbina Vitaly Pyltsov Andreas Kryftis Martin Robert Cocker Oleg Mubarakshin Maksim Berlovich Ganna Khomenko Charalampos Avgousti DATE appointed on 19 February 2019 appointed on 19 February 2019 appointed on 15 April 2013 appointed on 9 November 2018 appointed on 30 April 2021 appointed on 30 April 2021 appointed on 4 April 2022 appointed on 26 April 2023 appointed on 12 November 2010 and resigned on 4 March 2022 appointed on 19 February 2019 and resigned on 16 February 2023 appointed on 27 April 2018 and resigned on 16 February 2023 appointed on 19 February 2019 2019 and resigned on 25 April 2023 appointed on 10 November 2016 and resigned on 21 April 2023 Secretary Registered Office Independent auditors G.T. Globaltrust Services Limited Themistokli Dervi, 15 Margarita House, 5th floor, flat/office 502 1066 Nicosia Cyprus 2-4 Arch. Makariou III Avenue Capital Center, 9th floor 1065 Nicosia Cyprus NSP Sagehill Partners Ltd 50 Agias Zonis Street, Arianthi Court, 2nd Floor, 3090 Limassol Cyprus 210 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S Management Report the Board of directors presents its report Changes in group structure Research and development activities Future developments of the Company Independent Auditors together with the audited financial statements of Etalon Group PLc (the “company”) for the year ended 31 december 2022. 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. Since the beginning of March 2022, LSE suspended trading in Etalon’s GDRs. 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. On 30 May 2022, the Company acquired from YIT Corporation a certain number of Finnish and Russian legal entities representing the Russian business of YIT Corporation (“YIT Russia”) for the cash consideration of RUB 1,923 million. YIT Russia focuses on mid-market residential real estate with a portfolio of 19 projects in five Russian regions, including the Moscow metropolitan area, St. Petersburg, the Ekaterinburg region, Kazan and Tyumen with a total unsold net sellable area (NSA) of 0.6 million sqm. It also operates several housing- service companies. Review of developments, position and performance of the Company’s business The loss of the Company for the year ended 31 December 2022 was RUB’000 16,228,699 (2021: profit of RUB’000 31,413,344). The main source of loss for the year is the change in fair value of investments in subsidiaries in the amount of RUB’000 15,212,568 (2021: the change in fair value of investments of RUB’000 29,974,688). On 31 December 2022, the total assets of the Company were RUB’000 98,308,924 (31 December 2021: RUB’000 111,771,758) and the net assets were RUB’000 95,523,519 (31 December 2021: RUB’000 111,752,218). Investment in subsidiaries was RUB’000 87,787,059 (31 December 2021: RUB’000 98,441,246). 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 216 and 217 (statement of financial position and statement of profit or loss and other comprehensive income). 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 price 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. 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 other then as further described below. Share capital During the year ended 31 December 2022, there were no changes to the share capital of the Company. Acquisition of own shares During 2022, the Company did not acquire own shares. As of 31 December 2022, the total number of own shares acquired by the Company in prior periods amounted to 3,946 or 0.001% of issued share capital. Board of Directors The members of the Board of Directors of the Company at 31 December 2022 and at the date of this report are shown on page 210. The details of all appointment and resignations of Directors are shown on page 210. The Ukrainian crisis Since the outbreak of the conflict in Ukraine on 24 February 2022, the US, UK, EU and other countries announced an extension of sanctions on certain Russian officials, businessmen and companies. These developments resulted in reduced access of Russian businesses to international capital, import and export markets, reduction in consumer demand and other negative economic consequences. On 22 December 2022, the Annual General Meeting of shareholders of the Company appointed NSP Sagehill Partners Ltd as auditor of the Company’s statutory financial statements to hold office until the conclusion of the next annual general meeting and authorised the Board of Directors to fix the auditor’s remuneration. Branches The Company did not operate through any branches during the year ended 31 December 2022. Dividends The challenging geopolitical circumstances, certain sanctional provisions and mutual restrictions, including on distribution of funds through international payment and clearing systems, have a significant impact on the Company’s ability to pay out dividends to all groups of its shareholders. Based on the principle of equitable treatment of all shareholders, the Board of Directors of the Company resolved to postpone consideration of the matter of dividend payments until constraints currently in force are removed. The Annual General Meeting of shareholders that took place on 22 December 2022 neither considered nor approved any dividend payments for the financial year ended 31 December 2021. 211 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Corporate Governance Report 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 FCA’s Disclosure and Transparency Rules as a listed company and with the requirements of Cyprus Companies Law, Cap. 113. 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 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 uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. Significant direct or indirect shareholdings The rules regarding the appointment and replacement of board members (b) he is prohibited from acting as director in accordance with section 180 of the Law; or As at 31 December 2022, the Company is aware of the following interests in its share capital: SHAREHOLDERS Free float PJSC AFK Sistema Mubadala Investment Company Kopernik Global Investors Prosperity Capital Management of the Company Total % 35.2% 48.8% 6.3% 5.0% 4.1% 0.6% 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 thsd 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 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. 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 (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 him from his position in accordance with section 178 of the 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. By order of the Board of Directors, Andreas Kryftis Director Nicosia, 27 April 2023 212 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Responsibility Statement of the directors and management of the company in accordance with the transparency Law SERGEY EGOROV Chairman of the Board of Directors ANDREAS KRYFTIS Member of the Board of Directors MARINA OGLOBLINA Member of the Board of Directors BORIS SVETLICHNY Member of the Board of Directors DENIS VINOKUROV Member of the Board of Directors ALEXANDER VOLOSHIN Member of the Board of Directors VITALY PYLTSOV Member of the Board of Directors GENNADII SHCHERBINA Chief Executive Officer ILYA KOSOLAPOV Chief Financial Officer 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: (a) The annual financial statements for year ended 31 December 2022: (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 included in the consolidated financial account, and (b) The Management Report includes a 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 213 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Independent Auditors’ Report to the Members SAGEHILL -p A R T N E R S- SAG EH ILL -p A R T N E R S- SAGEHILL -p A R T N E R S- Independent Auditor's Report To the Members of Etalon Group PLC Report on the Audit of the Financial Statements Opinion We have audited the accompanying parent company financial statements of Etalon Group PLC (the "Company"), which are presented in pages 210 to 235 and comprise the statement of financial position as at 31 December 2022 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 2022, 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. Other Information The Board of Directors is responsible for the other information. The other information comprises the information that is included in the Management Report and Corporate Governance report, but does not include the parent company financial statements and our auditor's report thereon. Our opinion on the parent company 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 parent company 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. 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. 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 (continued) Why the matter was determined to be a key audit matter Fair value of investments in subsidiaries How the matter was addressed in the audit is RUB As at 31 December 2022, the carrying value of the Company's investments in subsidiaries 87,787,059 thousands which represented 89% of the total assets of the Company. The fair value hierarchy of in subsidiaries belongs to Level 3 as a fair value measurement uses unobservable significant inputs adjustment. investments require that Our audit procedures included amongst others: • 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 appropriateness of the reasonableness of assumptions underlying the estimation of fair value of investments in subsidiaries as at 31 December 2022; the methodology and the valuation The Company's accounting policy for 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. • of fair value of Determination investments in subsidiaries is a key audit matter given the significance of the balance and the significant degree of judgement involving estimations value fair the associated with assessment. • we assessed the competence, capabilities and objectivity of management's third party valuer, as well as independence; evaluating the appropriateness of management's business assumptions used in calculating the fair value of investments in subsidiaries including: • • assessing the appropriateness of the discount rate used; reviewing, recalculating and critically assessing the the assumptions including: reasonableness of • historical turnover and prices of sales in these and/or similar projects; • budgeted costs to complete construction; • budgeted general, administrative and selling expenses; before • total area available for sale and actual sales occurring 31 December 2022; • 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 for investments significant accounting judgements and estimates are in compliance with IFRS requirements; in subsidiaries and disclosures All the above procedures were completed satisfactory manner. in a 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 ( continued) Why the matter was determined to be a key audit matter Recoverability of loans receivable At 31 December 2022, the Company had loans receivable from related parties amounting to RUB 9,915,246 thousands which represented 10% 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 estimations associated with the ECLs assessment. How the matter was addressed in the audit 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; • testing that the process to identify and measure individually assessed provisions is appropriate based on DCF for the underlying projects; • 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 satisfactory manner. in a 214 214 214 214 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Independent Auditors’ Report to the Members SAGEHILL -p A R T N E R s- SAGEHILL -p A R T N E R S- SAGEHILL -p A R T N E R S- 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 scepticism throughout the audit. We also: 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; • • • • • 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 Financial Statements {continued) • Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the 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 financial statements of the current period, and are therefore the key audit matters. Report on 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. Other Matters This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with 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. Comparative figures The financial statements of the Company for the year ended 31 December 2021 were audited by another auditor who expressed an unqualified opinion those financial statements on 28 April 2022. ge ent partner on the audit resulting in this independent auditor's report is Stelios Spiliotis. S elios Spiliotis Certified Public Accountant and Registered Auditor for and on behalf of NSP Sagehill Partners Limited Certified Public Accountants and Registered Auditors Arianthi Court, 2nd Floor 50 Agias Zonis Street 3090 Limassol Cyprus Limassol, 27 April 2023 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors; We also have reported separately on the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2022. 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; 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; 215 215 215 13 215 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Statement of Financial Position as at 31 december 2022 RUB’000 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 NOTE 31 DECEMBER 2022 31 DECEMBER 2021 RUB’000 NOTE 31 DECEMBER 2022 31 DECEMBER 2021 EQUITY • Share capital 8 9 9 10 11 87,787,059 98,441,246 • Share premium 6,062,472 12,849,279 • Reserve for own shares 93,849,531 111,290,525 • Capital contribution • Retained earnings 3,852,774 158,672 447,947 4,459,393 − Total equity 160,077 321,156 481,233 current liabilities • Other payables and accruals • Borrowings 98,308,924 111,771,758 Total current liabilities 12 12 12 12 13 14 2,723 2,723 26,367,865 26,367,865 (694) (694) 16,584,198 16,584,198 52,569,427 68,798,126 95,523,519 111,752,218 21,871 2,763,534 2,785,405 19,540 − 19,540 Total equity and liabilities 98,308,924 111,771,758 The notes on pages 220 to 235 are an integral part of these financial statements. On 27 April 2023, the Board of Directors of Etalon Group PLC authorized these financial statements for issue. Andreas Kryftis Director Sergey Egorov Director 216 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Statement of Profit or Loss and other Comprehensive Income for the year ended 31 december 2022 RUB’000 Change in fair value of investments in subsidiaries Interest income Interest expenses (Impairment)/reversal of impairment on trade, other receivables and loans Administrative expenses Other expenses Other income Operating (loss)/profit before net finance expenses Finance income Finance expenses Net finance expenses NOTE 8 15(v) 3 5 6 2022 2021 RUB’000 NOTE 2022 2021 (15,212,568) 29,974,688 (Loss)/profit before tax (16,216,149) 31,413,344 Income tax expense (Loss)/profit for the year 7 (12,550) − (16,228,699) 31,413,344 Other comprehensive income for the year − − Total comprehensive (expenses)/ income for the year (16,228,699) 31,413,344 498,217 (128,173) (866,161) (181,276) (77,525) 988 562,654 (14,333) 1,355,089 (239,717) (22,337) 11,000 (15,966,498) 31,627,045 6,383 86,008 (256,034) (249,651) (299,708) (213,700) The notes on pages 220 to 235 are an integral part of these financial statements. 217 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Statement of Changes in Equity for the year ended 31 december 2022 RUB’000 Balance at 1 January 2021 Profit for the year Profit for the year Total comprehensive income for the year transactions with owners Share issued Transaction costs directly attributable to the issue Dividends paid (Note 12(iii)) Total transactions with owners Balance at 31 December 2021 RUB’000 Balance at 1 January 2022 Loss for the year Loss for the year Total comprehensive expenses for the year SHARE CAPITAL SHARE PREMIUM CAPITAL CONTRIBUTION RESERVE FOR OWN SHARES RETAINED EARNINGS TOTAL 2,266 15,486,109 16,584,198 (694) 40,985,334 73,057,213 − − 457 − − 457 2,723 − − 11,120,638 (238,882) − 10,881,756 − − − − − − − − − − − − 31,413,344 31,413,344 31,413,344 31,413,344 − − 11,121,095 (238,882) (3,600,552) (3,600,552) (3,600,552) 7,281,661 26,367,865 16,584,198 (694) 68,798,126 111,752,218 SHARE CAPITAL SHARE PREMIUM CAPITAL CONTRIBUTION RESERVE FOR OWN SHARES RETAINED EARNINGS TOTAL 2,723 26,367,865 16,584,198 (694) 68,798,126 111,752,218 − − − − − − − − (16,228,699) (16,228,699) (16,228,699) (16,228,699) Balance at 31 December 2022 2,723 26,367,865 16,584,198 (694) 52,569,427 95,523,519 The notes on pages 220 to 235 are an integral part of these financial statements. 218 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Statement of Cash Flows for the year ended 31 december 2022 RUB’000 NOTE 2022 2021 RUB’000 NOTE 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES (Loss)/profit for the year before tax (16,216,149) 31,413,344 Repayment of loans by subsidiaries 8 3 15(iii) 15(v) 15(iii) 7 Adjustments for: • Change in fair value of investments in subsidiaries • Impairment/(reversal of impairment) on trade, other receivables and loans • Interest income on bank deposits • Interest income on loans issued • Interest expenses • Foreign exchange losses, net • Finance expenses • Tax withheld out of interest on loans 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 operating activities 15,212,568 (29,974,688) 866,161 (1,355,089) (19,718) (478,499) 128,173 240,162 9,060 12,550 (120,119) (442,535) 14,333 212,826 − − (245,692) (251,928) 57,276 (108,198) 8,411 (180,005) (8,874) (369,001) Repayment of interest on loans by subsidiaries Proseeds from issue of share capital Loans issued during the year to subsidiaries 15(iii) 15(iii) 2,416,336 72,270 − 2,908 − 10,882,213 15(iii) (114,320) (6,937,050) Interest on bank deposits received 19,718 Purchases of subsidiary company 8 (1,995,954) 120,119 − Net cash from investing activities 398,050 4,068,190 CASH FLOWS USED IN 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 Cash and cash equivalents at end of the year − − (3,600,552) (3,600,552) 218,045 98,637 321,156 492,618 (91,254) (270,099) 11 447,947 321,156 The notes on pages 220 to 235 are an integral part of these financial statements. 219 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S Notes to the Financial Statements for the year ended 31 december 2022 1. General information 2. Summary of significant accounting policies with ownership share of 48.8% as of 31 December 2022. Prior to 4 May 2022, PJSC AFK Sistema had significant influence over the Group with ownership share of 29.8%. As of 31 December 2022, Vladimir Petrovich Yevtushenkov owns a 49.2% stake in PJSC AFK Sistema (as of 31 December 2021 – 59.2%). In 2022, Vladimir Petrovich Yevtushenkov transferred his 10% stake, thereby ceasing to be the holder of the majority of shares. 50.8% of the shares belong to a significant number of shareholders (as of 31 December 2021 – 40.8%). The shares of PJSC AFK Sistema are traded on the London Stock Exchange in the form of global depositary receipts “GDRs”) and on the Moscow and Saint Petersburg Exchanges. 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 (a) 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 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 2022 in order to obtain a proper understanding of the financial position, the financial performance and the cash flows of the Company and the Group. 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. 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. 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. The Company’s GDRs are traded on the Moscow Stock Exchange starting from 3 February 2020. Since the beginning of March 2022, as a result of sanctions imposed in connection with the Ukrainian crisis, LSE suspended trading in Group’s GDRs. Starting from 4 May 2022, as a result of acquisition of an additional 19% stake in the Company, PJSC AFK Sistema became the controlling shareholder of the Company and its subsidiaries (the “Group”) (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. When assessing the Company’s ability to continue as a going concern over the next 12 months, the management considered 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 Company’s ability to continue as a going concern. During the reporting period and following the commencement of the Ukrainian crisis, the US, UK, EU and some other countries imposed severe sanctions against the Russian government, major financial institutions and certain other entities and individuals in the Russian Federation. All the above led to significant market volatility, disruption in the supply chains and significantly increased the level of economic uncertainty. The Company continues to operate and fulfil its obligations to its customers, partners and employees, although the Company can provide no assurance that the current geopolitical situation and the resulting economic developments in Russia will not adversely affect operations and financial results in the future. The Company and its subsidiaries (together referred to as the “Group”) developed a stress scenario of the possible impact on the current operating environment on the Group’s demand and supply chain, including continuity in demand, availability and prices for construction materials and supplies, and eventually on cash flows and liquidity position, including the consideration of debt covenants. Considering the above and given the Group’s history of profitable operations and ready access to financial resources, the Company reached a conclusion that the going concern basis of accounting is appropriate for the preparation of these 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. 220 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 2. Summary of significant accounting policies (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. Application of new standards, interpretations and amendments of existing standards (a) Standards and amendments to existing standards early adopted The Company has not early adopted any standards for the year ended 31 December 2022. (b) Amendments to existing standards effective on or after 1 January 2022 adopted by the Company The Company adopted all the new and revised International Financial Reporting Standards (IFRS) when they became effective in the EU for reporting period beginning on 1 January 2022: � Annual Improvements to IFRSs: 2018-2020 Cycle � Amendments to: IFRS 3 Business Combinations - Reference to the Conceptual Framework � IAS 16 Property, Plant and Equipment - Proceeds before Intended Use � IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Onerous contracts - Cost of Fulfilling a Contract The adoption of these amendments had no effect on the financial statements of the Company. (c) Standards and amendments in issue not yet adopted On the date of approval of these financial statements, the following standards and amendments have been issued by the International Accounting Standards Board but were not yet effective: � Standards and amendments that are not effective for the year ended 31 December 2022 and have been endorsed by the European Union. Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information Effective for annual periods beginning on or after 1 January 2023 IAS 12 (amendments) IAS 1 (amendments) and IFRS Practice Statement 2 IAS 8 (amendments) Accounting policies, Changes in Accounting Estimates and Errors: Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction Disclosure of Accounting policies Definition of Accounting Estimates IFRS 17 including amendments Insurance Contracts Effective for annual periods beginning on or after 1 January 2023 Effective for annual periods beginning on or after 1 January 2023 Effective for annual periods beginning on or after 1 January 2023 Effective for annual periods beginning on or after 1 January 2023 The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Company in future periods. (d) Standards and amendments that have not been endorsed by the European Union 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 Classification of Liabilities as Current or Non-current Effective for annual periods beginning on or after 1 January 2024 � those to be measured at amortised cost IAS 1 (amendments and deferral of effective date) Presentation of Financial Statements: IFRS 16 (amendments) Lease liability in a Sale and Leaseback Effective for annual periods beginning on or after 1 January 2024 IFRS 14 Regulatory Deferral Accounts The European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard) 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. 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 221 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 2. Summary of significant accounting policies (I) FINANCIAL ASSETS (CONTINUED) Measurement of Expected credit losses Loans and receivables (II) FINANCIAL LIABILITIES Tax 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. 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. Investments in subsidiary companies are classified as investments at fair value through profit or loss and are measured at fair value. The Company’s financial statements are publicly available and can be used by investors for their economic decisions, and the management believes that measurement of investments in subsidiaries at fair value provides more reliable and more relevant information about the Company’s financial position than the measurement of investments at cost. 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. 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. 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. 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 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. 222 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 2. Summary of significant accounting policies 3. Financial risk management and tax risk Share capital Interest expenses Financial risk factors 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 12). 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. 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 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. 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 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 DESCRIPTION BASIS FOR RECOGNISING EXPECTED CREDIT LOSSES Performing Doubtful In default Write-off The counterparty has a low risk of default and does not have any past-due amounts 12-month ECL Amount is >30 days past due or there has been a significant increase in credit risk since initial recognition 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. 223 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 3. Financial risk management and tax risk Financial risk factors (continued) Allowance for impairment in respect of other receivables Market price risk 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: The movement in the allowance for impairment in respect of other receivables during the reporting period was as follows: 31.12.2022 Loans receivable Other receivables Cash and cash equivalents 31.12.2021 Loans receivable Other receivables Cash and cash equivalents NOTE 12-MONTH/ LIFETIME ECL GROSS CARRYING AMOUNT LOSS ALLOWANCE NET CARRYING AMOUNT RUB’000 Balance at 1 January 9 10 11 Lifetime ECL 14,812,761 (4,897,515) 9,915,246 Change of impairment for the period (Note 15(iv)) Lifetime ECL 12-month 159,287 447,947 (3,214) − 156,073 447,947 Balance at 31 December 2022 (380) (2,834) (3,214) 2021 (1,387) 1,007 (380) NOTE 12-MONTH/ LIFETIME ECL GROSS CARRYING AMOUNT LOSS ALLOWANCE NET CARRYING AMOUNT 9 10 11 Lifetime ECL 17,246,344 (4,397,065) 12,849,279 Lifetime ECL 12-month 160,457 321,156 (380) − 160,077 321,156 Liquidity risk 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. The following are the contractual maturities of financial liabilities, including estimated interest payments: 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: RUB’000 Balance at 1 January 2022 2021 (4,397,065) (6,006,247) Change of impairment for the period (Note 15(iii)) (863,172) 1,634,495 31.12.2022 CARRYING AMOUNTS, RUB’000 CONTRACTUAL CASH FLOWS, RUB’000 BETWEEN 0-12 MONTHS, RUB’000 BETWEEN 2-3 YEARS, RUB’000 FOREX Balance at 31 December 362,722 (25,313) Borrowings 2,763,534 3,265,734 − 3,265,734 (4,897,515) (4,397,065) Other payables and accruals 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. (Impairment)/reversal of impairment on trade, other receivables and loans RUB’000 Change for loans given (Note 15(iii)) Change for other receivables (Note 15(iv)) Write-off of other receivables and loans given 2022 2021 31.12.2021 (863,172) 1,634,495 Borrowings (2,834) (155) 1,007 Other payables and accruals (280,413) (866,161) 1,355,089 21,871 21,871 2,785,405 3,287,605 21,871 21,871 − 3,265,734 CARRYING AMOUNTS, RUB’000 CONTRACTUAL CASH FLOWS, RUB’000 BETWEEN 0-12 MONTHS, RUB’000 BETWEEN 2-3 YEARS, RUB’000 − 19,540 19,540 − 19,540 19,540 − 19,540 19,540 − − − 224 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S 3. Financial risk management and tax risk Financial risk factors (continued) Currency risk 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$) and Euro (EUR). The Company’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. The following significant exchange rates applied during the year: Capital management IN RUB USD 1 EUR 1 AVERAGE RATE REPORTING DATE SPOT RATE 2022 2021 31 DECEMBER 2022 31 DECEMBER 2021 68.55 72.53 73.65 87.19 70.34 75.66 74.29 84.07 RUB’000 ASSETS uS dollar Cash and cash equivalents Loans receivable Other receivables and prepayments Total Euro Cash and cash equivalents Other receivables and prepayments Total LIABILITIES Euro Other payables and accruals Total NET POSITION US Dollar Euro 31 DECEMBER 2022 31 DECEMBER 2021 Sensitivity analysis A 10% strengthening of the US$ against the RUB at 31 December 2022 and 31 December 2021 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. A 10% strengthening of the Euro against the RUB at 31 December 2022 and 31 December 2021 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. RUB’000 US Dollar RUB’000 US Dollar EQUITY 2022 PROFIT OR LOSS 2022 RUB’000 535,911 535,911 Euro EQUITY 2021 PROFIT OR LOSS 2021 RUB’000 608,247 608,247 Euro EQUITY 2022 PROFIT OR LOSS 2022 40,621 40,621 EQUITY 2021 PROFIT OR LOSS 2021 13,707 13,707 213 5,347,168 11,729 5,359,110 264,294 143,927 408,221 75,644 5,989,259 17,563 6,082,466 4,055 147,747 151,802 (2,008) (2,008) (14,732) (14,732) 5,359,110 406,213 6,082,466 137,070 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 Company 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 Company 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. 225 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 4. Critical accounting estimates and judgements 5. Administrative expenses 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. Income taxes Significant judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax assets and liabilities in the period in which such determination is made. RUB’000 Management services Legal, consulting and other professional services Directors’ remuneration (Note 15(i)) Auditors’ remuneration Payroll tax Accounting and administration expenses Social insurance contribution Secretarial fees Insurance expenses Other expenses Total 2022 71,229 33,755 24,180 23,881 7,004 6,105 2,110 1,904 − 11,108 181,276 2021 − 41,694 33,893 18,501 8,998 8,810 1,830 4,729 103,799 17,463 239,717 Remuneration of the statutory audit firm for the year ended 31 December 2022 amounted to RUB 3.8 million for audit services (2021: RUB 7.5 million) and RUB 0.2 million for other assurance services (2021: RUB 7.2 million). Starting from April 2022, the insurance contracts are concluded with a subsidiary company JSC GK Etalon, all payments are made by JSC GK Etalon. Management services provided by the subsidiary of the Company, JSC GK Etalon. The amounts of accrued expenses and payments are disclosed in Note 15(vii). 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. 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 8. 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. 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. 226 11ANNUAL REPORT 20222022 6,383 6,383 2021 Corporation tax 86,008 86,008 The corporation tax rate is 12.5%. Special contribution to defense RUB’000 Profit before tax 2022 2021 (16,216,149) 31,413,344 10 FInAnc IAL StAtEMEnt S 6. Net finance expenses 7. Income tax expense RUB’000 Foreign exchange gains Finance income Foreign exchange losses Loan assignment to third party (Note 15(iii)) Bank charges Finance expenses (246,545) (299,245) (9,060) (429) − (463) (256,034) (299,708) Under certain conditions interest income may be subject to defense contribution at the rate of 30%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defense contribution at the rate of 17%. Net finance expenses (249,651) (213,700) Tax losses Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. Tax for the period The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the applicable tax rate as follows: Tax calculated at the applicable tax rate of 12,5% (2021: tax rate of 12,5%) (2,027,019) 3,926,668 Tax effect of expenses not deductible and income not taxable for income tax purposes, net 2,067,062 (3,865,366) Tax withheld in Russian Federation out of interest on loans Tax effect of losses carried forward Notional Interest Deduction (NID) Application of group relief Tax for the year 12,550 4,947 (44,990) - 12,550 - - (54,218) (7,084) - Russia and Cyprus have agreed to raise the tax rate on capital withdrawal. The basic tax rate on dividends and interest increases to 15%, the changes take effect from January 1, 2021. 227 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 8. Investments in subsidiaries RUB’000 At the beginning of the year Contributions to share capital of subsidiaries Acquisition of subsidiary at cost Change in fair value of investments in subsidiaries At end of the year 2022 2021 Dividends 98,441,246 64,769,755 − 3,696,803 4,558,381 − (15,212,568) 29,974,688 87,787,059 98,441,246 The Company’s main subsidiaries, which are unlisted, are as follows: NAME PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION 31 DECEMBER 2022 31 DECEMBER 2021 AO Zatonskoe Holding of investments Russia Tinctoria Holdings Limited Provision of financing services Cyprus Vandelo Limited Holding of investments Cyprus Elzinga Holdings Limited Holding of investments Cyprus Fagestrom Limited Provision of financing services Cyprus JSC GK Etalon Holding of investments Russia YIT Salym Development Holding of investments Russia Living Services Russia Oy Holding of investments Russia YIT Invest Export Oy Holding of investments Russia YIT Russia Oy Holding of investments Russia 32%1 100% 100% 100% 100% 99.9% 100% 100% 100% 100% 32% 100% 100% 100% 100% 99.9% − − − − 1 The remaining 68% of shares are owned indirectly by the Group (through other subsidiary of the Company). The current challenging geopolitical circumstances, certain sanctional provisions and mutual restrictions, including on distribution of funds through international payment and clearing systems, have a significant impact on the ability of the Company’s subsidiaries to pay out dividends to the Company. Pledges and guarantees As at 31 December 2022, 68% of shares in subsidiary company JSC Zatonskoe which represents RUB 2,873 million in its net assets (31 December 2021: 68% of shares represents RUB 3,921 million in net assets) was pledged as security for a secured bank loan received by the subsidiary of the Company (net assets are based on individual IFRS accounts of the relevant companies). During 2021, a restructuring and merger plan of the Cyprus companies of the Group was implemented. As a result, a number of companies were absorbed by other group companies and dissolved, therefore the number of subsidiaries of the Group was reduced. On 31 March 2022, the Boards of Directors of the Company and of YIT Corporation agreed on the sale of YIT Russia for a consideration of RUB 4,558 million. The completion of the acquisition of YIT Russia took place in May 2022. Payments under the transaction were made partly in cash amounted to RUB 1,923 million (total payment with transfer tax is amounted to RUB 1,996), and an agreement on assignment of the loan obligation was also signed (Note 15(v)). Fair value Key transactions The investments are measured at fair value. On 30 June 2021, the Company’s subsidiary, Etalon Group Limited, approved a transfer to the Company of 1,300,245 shares in JSC GK Etalon with nominal value of RUB 1,200 as result of reduction of share premium. As a result of the transaction, the Company increased its share of ownership in JSC GK Etalon to 99.9%. The fair value of investments in subsidiaries at 31 December 2022 and 31 December 2021 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. During December 2021, investments in subsidiaries held by Etalon Group Limited were sold to the Company for nominal amount of share capital. On 28 December 2021, the Company entered into a Share Purchase Agreement with a third party, under which the Company sold its entire shareholding of its subsidiary Etalon Group Limited to the third party for a total consideration of US$13,199. 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 9 has therefore resulted in a corresponding increase in the fair value of investments in subsidiaries. The key assumptions used in the estimation of the fair value of subsidiaries are set out below. 31 DECEMBER 2022 31 DECEMBER 2021 20,36 — 25,46% 15,19 — 20,41% Discount rates, depending on the stage of development and status of construction project 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 recognised a decrease in the fair value of investments in subsidiaries in the amount of RUB’000 15,212,568 for the year ended 31 December 2022 (31 December 2021: increase of RUB’000 29,974,688). 228 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 8. Investments in subsidiaries 9. Loans receivable Sensitivity analysis The following tables demonstrate changes in key inputs and sensitivity of fair value measurement: RUB’000 LIABILITIES 31 DECEMBER 2022 31 DECEMBER 2021 31 DECEMBER 2022 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 2021 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 CHANGE OF PARAMETER IMPACT ON FAIR VALUE IN MONETARY TERMS, RUB'000 Loans to related parties Total non-current loans receivable 6,062,472 6,062,472 12,849,279 12,849,279 1% 5% (5%) 5% (2.29%) (15.61%) (19.57%) (3.63%) (2,010,198) (13,702,769) CURRENT (17,183,551) Loans to related parties (3,188,042) Total current loans receivable 3,852,774 3,852,774 − − CHANGE OF PARAMETER IMPACT ON FAIR VALUE IN MONETARY TERMS, RUB'000 1% 5% (5%) 5% (2.26%) (10.36%) (14.95%) (2.93%) (2,210,997) (10,199,018) (14,716,163) (2,882,751) Total loans receivable (Note 15(iii)) 9,915,246 12,849,279 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 4,818,001 was recognised as at 31 December 2022 (31 December 2021: RUB’000 4,312,708). 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. The amount of expected credit losses on loans receivable of RUB’000 79,514 was recognised as at 31 December 2022 (31 December 2021: RUB’000 84,357). 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 2022, the loss allowance on loans and receivables would have been RUB’000 28,065 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 fair values of loans receivable approximate their carrying amounts. The fair value hierarchy of loans receivable belongs to Level 3. 229 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 10. Other receivables and prepayments 11. Cash and cash equivalents RUB’000 31 DECEMBER 2022 31 DECEMBER 2021 RUB’000 31 DECEMBER 2022 31 DECEMBER 2021 Receivable from related parties (Note 15(iv)) Prepayments 156,073 2,599 158,672 160,077 Cash in banks − Short-term deposit (less than 3 months) 160,077 271,777 176,170 447,947 120,845 200,311 321,156 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. The Company keeps significant bank balances in banks in the UK, Cyprus and Russia with credit ratings assigned by international and Russian rating agencies of A+, BB- and ruA. At 31 December 2022, the most significant amount of cash and cash equivalents held with one bank totalled RUB’000 259,333 (31 December 2021: RUB’000 120,751). At 31 December 2022, the Company had no outstanding loans and borrowings with the same bank that held the most significant amount of cash and cash equivalents (31 December 2021: no outstanding loans and borrowings). At 31 December 2022, short-term deposit bore interest rate 6.25% per annum (31 December 2021: 7.60% per annum). 230 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 12. Share capital and share premium NUMBER OF ORDINARY SHARES NUMBER OF REDEEMABLE PREFERENCE SHARES SHARE CAPITAL, RUB’000 RESERVE FOR OWN SHARES, RUB’000 SHARE PREMIUM, RUB’000 TOTAL, RUB’000 At 1 January 2021 294,954,025 20,000 New share issue at the beginning of the period At 31 December 2021 / At 31 December 2022 88,487,391 − 383,441,416 20,000 2,266 457 2,723 (694) − 15,486,109 15,487,681 10,881,756 10,882,213 (694) 26,367,865 26,369,894 At 1 January 2021, the number of authorised and issued shares was 294,954,025. On 28 March 2021, the General Meeting of the Shareholders of the Company approved the increase of the authorised share capital of the Company by the creation of 88,487,391 ordinary shares of nominal value of GBP 0.00005 each. On 14 May 2021, the Company announced an offering of rights to subscribe for newly issued Ordinary Shares to the existing holders of the Company’s equity securities. Eligible holders of GDRs subscribed for 23,339,732 new ordinary shares and 281,975 new GDRs in total. A rump offering was also completed on 14 May 2021 in which a total of 64,865,684 GDRs was purchased by investors. (I) RESERVE FOR OWN SHARES GDR buyback programme During 2011-2017, the Company acquired 8,216,378 GDRs for own shares under GDR repurchase programmes. 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. 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. The term of the programme expired on 14 April 2021 and no GDRs were purchased thereunder. As of 31 December 2022 and 31 December 2021, the total number of own shares acquired by the Company 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. (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 and from a supplementary public offering of 88,487,391 ordinary shares at a value USD 1.7 each in form of global depository receipts on 14 May 2021. (III) 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. The current challenging geopolitical circumstances, certain sanctional provisions and mutual restrictions, including on distribution of funds through international payment and clearing systems, have a significant impact on the Company’s ability to pay out dividends to all groups of its shareholders. Based on the principle of equitable treatment of all shareholders, the Board of Directors of the Company resolved to postpone consideration of the matter of dividend payments until constraints currently in force are removed. The Annual General Meeting of shareholders that took place on 22 December 2022 neither considered nor approved any dividend payments for the financial year ended 31 December 2021. As at 31 December 2022, the retained earnings were RUB’000 52,569,427 (31 December 2021: RUB’000 68,798,126). During the year ended 31 December 2022, the Company did not declare or pay any dividends (31 December 2021: the AGM of shareholders approved Board of Directors’ recommendation for dividends in the amount RUB’000 3,600,552). (IV) 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. 231 11ANNUAL REPORT 2022 10 FInAnc IAL StAtEMEnt S 13. Other payables and accruals 14. Borrowings 15. Related party transactions 31 DECEMBER 2022 31 DECEMBER 2021 RUB’000 31 DECEMBER 2022 31 DECEMBER 2021 The following transactions were carried out with related parties: RUB’000 Accrued audit fees Remuneration payable to Board of Directors with payroll and social tax (Note 15(i)) Payables for management services (Note 15(vii)) Accrued accounting and administration expenses Payables to related party Other payables and accruals 7,932 7,794 5,370 675 100 − 16,025 1,758 − 1,034 − 723 21,871 19,540 CURRENT Borrowings from subsidiary (Note 15(v)) Total current borrowings 2,763,534 2,763,534 − − In May 2022, the Company assumed a loan as part of the purchase of YIT Russia under to agreement of assignment of a loan liability in amount RUB 2,635 million (Note 15(v)). The loan is denominated in Russian rubles, with an interest rate of 6.65 % per annum and a maturity date of 31 December 2025. The fair value of other payables and accruals which are due within one year approximates their carrying amount at the reporting date. (I) DIRECTORS’ REMUNERATION RUB’000 2022 2021 Directors’ remuneration (Note 5) Payroll and social tax (Note 5) 24,180 9,114 33,294 33,893 10,828 44,721 As at 31 December 2022, outstanding balances of remuneration payable to the Board of Directors was RUB’000 7,794 (Note 13) (31 December 2021: outstanding balances of payroll and social tax was RUB’000 1,758). 232 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 15. Related party transactions (II) YEAR-END BALANCES RUB’000 Receivables from subsidiary companies (Note 10) Borrowings from subsidiary company (Note 14) Loans due from subsidiary companies (Note 9) Сash and cash equivalents in banks — other related parties Management services provided by the subsidiary company (Note 13) 31 DECEMBER 2022 31 DECEMBER 2021 RUB’000 31 DECEMBER 2022 31 DECEMBER 2021 (III) LOANS DUE FROM SUBSIDIARY COMPANIES 156,073 (2,763,534) 9,915,246 183,441 5,370 160,077 On 1 January − Loans repaid during the year 12,849,279 Repayment of interest on loans, net of tax 200,311 − Tax withheld from Russian Federation out interest on loans (Note 7) Interest charged Offset of loans under the merger plan ((Note 15(v)) Contribution of loans to share capital of subsidiaries (Note 8) Loan assignment to third party Loans issued during the year to subsidiaries (Impairment)/reversal of impairment for loans receivable Write-off of loans receivable Foreign exchange (losses)/gains On 31 December (Note 9) 12,849,279 (2,416,336) (72,270) (12,550) 478,499 − − (9,060) 114,320 (863,172) (155) (153,309) 9,915,246 8,134,746 − (2,908) − 442,535 (679,326) (3,696,803) − 6,937,050 1,634,495 − 79,490 12,849,279 As at 31 December 2022, the loans amounted to RUB’000 9,915,246 (31 December 2021: RUB’000 12,849,279). The loans were denominated in US Dollars and Russian rubles, bear interest 3.14- 4.13 % per annum and have the repayment dates from 31 December 2023 to 30 June 2026. In current challenging geopolitical circumstances, in accordance with the legislation of the Russian Federation, there are some restrictions on settlements of loans receivable with non-residents of the Russian Federation from certain countries. Such transactions are possible upon receipt of individual permission from the Government Commission for control over foreign investments in the Russian Federation, and the Group plans to obtain such approval to make necessary payments. Modification of loans maturity dates had no material impact on the fair value of the loans. 233 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 15. Related party transactions (IV) RECEIVABLES FROM SUBSIDIARY COMPANIES (VI) СASH AND CASH EQUIVALENTS IN BANKS – OTHER RELATED PARTIES 2022 160,077 13,276 − (2,834) 110 (14,556) 156,073 2021 RUB’000 349,435 On 1 January 108,197 Receipt to the deposit account − 4,850,000 (280,413) Transfer to the cash account from the deposit 1,007 Interest income on deposits − Withdrawal of funds from the deposit (18,149) 160,077 Payments from the cash account Other expenses On 31 December 41,000 19,535 (41,000) (33,729) (2,676) 183,441 2022 200,311 2021 − (VII) MANAGEMENT SERVICES PROVIDED BY THE SUBSIDIARY COMPANY Management services provided by the subsidiary of the Company, JSC GK Etalon: RUB’000 On 1 January Transfers of funds under reimbursement agreements Write-off of receivables (Impairment)/reversal of impairment for receivables Gain from the sale of investments Foreign exchange losses On 31 December (Note 10) (V) BORROWINGS FROM SUBSIDIARY COMPANY RUB’000 On 1 January Borrowings received upon purchase of subsidiary Interest accrued Offset of loans under the merger plan (Note 15 (iii)) Foreign exchange gains On 31 December (Note 14) 31 DECEMBER 2022 31 DECEMBER 2021 − 2,635,361 128,173 − − 2,763,534 671,915 − 14,333 (679,326) (6,922) − − 120,119 (4,747,496) − (22,312) RUB’000 On 1 January Management services - accrued expenses (Note 5) 2022 2021 − 71,229 Management services - payments to related parties (65,859) 200,311 On 31 December (Note 13) 5,370 − − − − 234 11ANNUAL REPORT 202210 FInAnc IAL StAtEMEnt S 16. Capital commitments 17. Contingents 18. Events subsequent to the reporting date As at 31 December 2022, the Company had no capital commitments (31 December 2021: nil). Litigation Guarantees Financing events During the year ended 31 December 2022 and 2021, the Company was not involved in court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. As at 31 December 2022, the Company provided no financial guarantees to the related parties (as at 31 December 2021: no financial guarantees). As at 31 December 2022 no provision for guaranties was recognized (as at 31 December 2021: no provision was recognized). Subsequent to the reporting date, the Group placed unsecured bonds for the total amount of RUB 8 000 million with nominal interest rate of 13,7% per annum and repayable by 2026. There were no other material events after the reporting period, which have a bearing on the understanding of the financial statements for the year ended 31 December 2022. 235 11ANNUAL REPORT 202211 Alternative performance measures used in the 2022 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. Financial metrics • Pre-PPA gross profit: gross profit • EBITDA: gross profit minus general • Pre-PPA EBITDA1 : gross profit less purchase price allocation (PPA) and administrative expenses, minus minus general and administrative from the acquisition of Leader-Invest selling expenses, plus depreciation expenses, minus selling expenses, included in the costs of sales. and amortisation. plus depreciation and amortisation, plus purchase price allocation from the acquisition of Leader-Invest included in the cost of sales. • Pre-PPA gross profit margin: • Pre-PPA EBITDA margin: Pre-PPA gross profit as defined above Pre-PPA EBITDA as defined divided by revenue. above divided by revenue. 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. • Net corporate debt: loans and borrowings minus cash and cash • Net corporate debt to pre-PPA EBITDA: ratio calculated by dividing equivalents, minus bank deposits with net corporate debt by pre-PPA terms over 3 months, minus secured EBITDA (each as defined above). project financing. 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. • Operating cash flow adjusted for cash collections held in escrow accounts: net cash (used in) / from operating activities plus interest • Free cash flow: profit for the year adjusted for depreciation, impairments, interest, taxation, change in working capital, and paid, plus receipt of funds on escrow change in invested capital. accounts. • 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. 1 Pre-PPA EBITDA is the Company’s disclosure is defined as adjusted EBITDA in the supplementary information to the IFRS statements. 236 11ALTERNATIVE PERFORMANCE MEASURES USED IN THE 2022 ANNUAL REPORTANNUAL REPORT 2022 11 Alternative performance measures used in the 2022 Annual Report Operating metrics • New contract sales (pcs): number • New contract sales (sqm): • New contract sales (RUB): monetary of sales contracts that have net sellable area of flats, commercial value of sales contracts for flats, been entered into with customers premises and parking places for which commercial premises and parking (regardless of whether contracts were sales contracts have been entered subsequently terminated). into with customers (regardless of places for which contracts have been concluded with customers whether contracts were subsequently (regardless of whether contracts terminated). were subsequently terminated). 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. • Cash collections (RUB): actual • Deliveries (sqm): amount of money received by the total net sellable area of the project Company for concluded contracts that was commissioned. Includes during the reported period, including built-in commercial premises, as cash collection to escrow accounts. well as parking places and social infrastructure that are part of the project. 237 11ALTERNATIVE PERFORMANCE MEASURES USED IN THE 2022 ANNUAL REPORTANNUAL REPORT 2022IR contacts for investors and shareholders: Etalon official accounts on social platforms: Etalon Group feedback form: +44 (0) 20-8123-1328 etalongroup.com ir@etalongroup.com designed by 

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